Contract Law: Analysis of Vicarious Liability and Partnerships

This report provides a comprehensive analysis of contract law, specifically addressing vicarious liability in the context of a sole trader and partnership agreements. The first part of the report examines the vicarious liability of a sole trader, Veronica, for the actions of her employees, Sylvester and Bob, considering the nature of their employment and the scope of their duties. It explores the application of the control test and relevant legal precedents, such as Performing Right Society Ltd v Mitchell and Booker (Palais de Danse) Ltd, Zuijs v Wirth Bros Pty Ltd, Llyod v Grace Smith, New South Wales v Lepore, and Ffrench v Sestili, to determine liability. The second part of the report delves into partnership law, assessing the payment liability of a partnership for purchases made by a partner, Mary. It examines the application of the Partnership Act (Cth) and principles of agency, referencing cases like Phillips-Higgins v Harper, Fletcher & Fletcher, National Banking Corporation of Australia Ltd. v Batty, Watteau v. Fenwick, and Mercantile Credit Co Ltd v Garrod to determine the firm's obligations. The report concludes with a clear determination of liability in each scenario based on the legal principles discussed.

Running head: Contract LawPAGE \*
1
Contract Law
Name of the Student
Name of the University
Author Note:
Contents

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Title 2
Answer 1 3
Issue: 3
Rules of Law: 3
Application of Law 5
Conclusion 6
Answer 2 6
Issues 6
Rules of Law 7
Application of Law 9
Conclusion 10
Bibliography 11
Answer 1
Issue:
The issues that would arise in the given case based on the facts of the case are:
(i) Whether there is a vicarious liability on Veronica for the act of Sylvester?
(ii) Whether there is a vicarious liability on Veronica for the act of Bob?

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Title 3
Rules of Law:
To answer the question whether there was a liability that existed we have to observe whether the
Sylvester and Bob were employees or independent contractor ("Difference between employees
and contractors", 2017). In the case of Performing Right Society Ltd v Mitchell and Booker
(Palais de Danse) Ltd the liability of the defendant depended on if the relationship between the
parties was that of individual contract or employer and employee (Performing Right Society Ltd
v Mitchell and Booker (Palais de Danse) Ltd, 1924). The written contract between the parties
had regular hours of work, fixed employment period, the place of work was dictated, service
demands exclusivity, summary dismissal right for breach of instruction, there was dominant,
detailed and continuous control on each and every point. These factors led to the decision that
the band was an employee (Burnett, 2007). The stress was laid on the level of control that was
placed or the “control test” for determining if the band was an employee however, there were
other factors as well that were considered. In the case of Zuijs v Wirth Bros Pty Ltd (1955) the
factors which were considered by the High Court for defining the relationship between Zuijs and
circus was that the remuneration was given in wage form, summary dismissal could be done
based on misconduct, although there was no direct control that the circus had over the
performance of Zuijs act since they did not have the required expertise there was directions given
for the other aspects (Zuijs v Wirth Bros Pty Ltd, 1955). These factors were considered to amount
to employment, it was reasoned by High Court that though the performance of duties depended
on special knowledge or skill or the act of the employee maybe such that there is little room for
command that existed, this however, was not the point what mattered was the lawful authority
for commanding and so far as there is scope to do the same. This case is the authority for the
principle that it is not the actual control but the right to control which is essential.

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Title 4
To answer the question of liability we have to look through the concept of vicarious
liability, there is vicarious liability on the employer for the act of the employee or any omission
if the same is done during the course of his employment. As opined in the case of Llyod v Grace
Smith the general rule for liability is that the employer is liable for the fraud and dishonest
conduct or omission of the employee if such an act was done within the employee course of
employment (Llyod v Grace Smith, 1912).
In the case of New South Wales v Lepore (Thomson, 2012) it was opined by Gleeson CJ that
(New South Wales v Lepore, 2003):
“Not everything that an employee does at work, or during working hours, is sufficiently
connected with the duties and responsibilities of the employee to be regarded as within the scope
of the employment. And the fact that wrongdoing occurs away from the workplace, or outside
normal working hours, is not conclusive against liability”.
In the case of Ffrench v Sestili a useful analysis of this test has been made where the employee
had misappropriated the funds during the course of his employment (Ffrench v Sestili, 2007).
The Full Court Supreme Court’s decision, Debelle HJ in concurrence with Layton HJ and Sulan
HJ contained a useful distillation of the principles from the case law with respect to the vicarious
liability doctrine. There were two propositions that were cited by Debelle which were relevant,
first the fact that it was intentionally that the employee had engaged in a conduct that was
criminal or other breach of law may not be sufficient for denying vicarious liability and second
the fact that such conduct which was engaged by the employee was contrary to the instructions
that the employer had given was not sufficient for denying the vicarious liability.

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Title 5
With respect to personal liability in a business structure of a sole trader there is personal
liability on the owner of the business structure with respect to every aspect of the business ("Sole
trader", 2017). There is a personal liability for all aspects of the business which includes an
business liabilities or debts. There cannot be any sharing of this debts. For all aspects of running
the business there is a personal liability (Adams, 2015 p. 78).
Application of Law
Veronica and Sylvester, there will be a personal liability on Veronica for the acts of Sylvester. It
can be observed as in the case of As observed in the case of Performing Right Society Ltd v
Mitchell and Booker (Palais de Danse) Ltd applying the control test and Zuijs v Wirth Bros Pty
Ltd that though the performance of duties depended on special knowledge or skill or the act of
the employee maybe such that there is little room for command that existed, this however, was
not the point what mattered was the lawful authority for commanding and so far as there is scope
to do the same thus Sylvester is an employee and not an individual contractor. There will be a
vicarious liability on Veronica for the act Sylvester as opined in the case of Llyod v Grace Smith
since it was in his scope of employment. Further as in the case of New South Wales v Lepore it
does not matter if it was not in the workplace that the act occurred. Further in the case of Ffrench
v Sestili the liability would not be removed only because the act was not in sphere of
employment or the fact that it was not instructed by the employee. Thus being a sole trader she
will be personally liable for the act of Sylvester.
Veronica and Bob, although similar to Sylvester Bob is was also an employee however he had
been fired by Veronica thus as per the Llyod v Grace the act was not within the course of his
employment as he was no longer the employee of Veronica

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Title 6
Conclusion
Veronica being a sole trader and employer would be vicariously liable for the act of Sylvester but
not for the act Bob.
Answer 2
Issues
The issue is in the given situation that:
(i) Whether there is a payment liability on the partnership for the payment to Mary for
the purchase of surveying instruments?
(ii) Whether there is payment liability on the partnership for the payment to Mary for the
purchase of mini oil drillers?
Rules of Law
For answering of issue with respect to the existence of payment liability it is essential to
under the nature of transaction which there between the parties. The section 5 of the Partnership
Act (Cth,) states that the partners of a firm are its agents and they are also for the purposes of
carrying out the business the other partners agents, this business is required to be in the ususal
way, and it is a member partner who has undertaken such an act, then in that case the partners
and the firm shall be bound by such an act. Unless, an evidence is there for the fact that there was
no authority that the partner who was acting on the behalf of the firm had for acting in such
manner and the individual with whom the transaction was made was either aware of it or if not
aware did not believe that there was such authority that existed.
There exists between the firm’s partners a fiduciary relationship, there is a duty that a partner
owes towards the other firm’s partners when he is action on the behalf of the firm as its agent

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Title 7
and their exists a duty similarly for the partners which they owe towards the partners who is
acting on behalf of the firm as was opined in the case of (Phillips-Higgins v Harper, 1954).
For the firm to be held liable for an act which is done by one of its partners without any
authority for doing such an act in the manner that it has been done it is required that there should
be four requirements that need to be complied with as mentioned below (Fletcher & Fletcher,
2007, p 110):
(i) First: The transaction should be entered by a partner.
(ii) Second: It is within the business’s scope that the transaction or act should be done.
(iii) Third: It must be within the usual way that it is effected.
(iv) Fourth Requirement: Essential that the transacting party is unaware of the fact that
the partner transacting has not authority or believes or knows that such authority is is
not there.
In the case of National Banking Corporation of Australia Ltd. v Batty it was opined by the
High Court that the remaining partners would still be held liable for an act even if it had been
done by the partner without the partner having any actual authority of doing such an act
(National Banking Corporation of Australia Ltd. v Batty, 1986).
Further in the case of Watteau v. Fenwick (Watteau v. Fenwick, 1893) it was opined by the
court that the doctrine of principal and agent shall apply once it has been established that the
principal is the defendant. The liability of all the acts of the agent shall be with the principal.
“For a transaction which has been entered into by the partner of the firm, there may exist a
liability on the firm for such transaction even though the transaction has not been entered into by
the firm. The case is so when the transaction which has been entered into by the firm is usually in
the same industry” (Mercantile Credit Co Ltd v Garrod, 1962). Although, in the case of
Goldberg v Jenkins (1889) 15 VLR 36 (Goldberg v Jenkins, 1889) it was opined that in the

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Title 8
situation wherein the transaction made is beyond the usual way of the firm then in that case
the firm cannot be bound to such transaction.
Application of Law
There is a contract of sale and purchase that had been entered between Mary and Smith for
surveying supplies and mini oil driller. The contract for the sale and purchase of surveying would
be binding on the partners Jones and Peter as well as the firm and it is required that the amount
which is due to Tom should be paid to him. The transaction between Mary and Smith was within
the ordinary course of the firm’s business which was that of surveying and further there was no
reason that Mary had to believe that there is no authority which Smith had to enter into the
contract of sale and also he had been purchasing such equipments from her regularly. The
doctrine of agent and principal shall apply in the given situation and the firm along with the
remaining would be liable to make the payment to Mary. Though, there were limitations to the
manner in which Smith could act as the partner of the firm however as opined in the case of
Watteau v. Fenwick that notwithstanding the limitations that may exist between the principal and
the agent the principal would still be liable for the acts of the agent. Further in the case of
National Banking Corporation of Australia Ltd. v Batty that even if one of the partners is acted in
a manner which is not within his authority there will still be a liability on the other partners of
the firm. The legal position of Mary is therefore strong in the given situation.
However, with respect to the contract of sale and purchase for the oil mini drillers this was not in
the due course of business as opined in the case of Goldberg v Jenkins (1889) 15 VLR 36
(Goldberg v Jenkins, 1889) it was opined that in the situation wherein the transaction made is
beyond the usual way of the firm then in that case the firm cannot be bound to such

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Title 9
transaction. Thus legal position of Mary is not very strong in this case. Further this transaction
does not fulfill one of the four requirements that is it should be within the scope of the business’s
transaction.
Conclusion
It can be conclusively stated that though an action can be bought by Mary in both the purchases
for payment by the partnership however, her position is stronger with respect to purchase of
surveying supplies as opposed to mini oil drillers.

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Title 10
Bibliography
Listing Statutes
Partnership Act (Cth.) 1892
Case Law
Ffrench v Sestili, 98 SASR 28 (2007).
Llyod v Grace Smith, UKHL 1 (1912).
New South Wales v Lepore, HCA 4 40 (2003).
Performing Right Society Ltd v Mitchell and Booker (Palais de Danse) Ltd, 1 KB 762 (1924).
Zuijs v Wirth Bros Pty Ltd, 93 CLR 561 (1955).
Books, Journals and Website
Adams, M. (2015). Business organisations law guidebook. Oxford University Press.
Burnett, J. (2007) “Avoiding Difficult Questions: Vicarious Liability and Independent
Contractors in Sweeney v Boylan Nominees” Sydney Law Review, 1(29).
Difference between employees and contractors. (2017). Ato.gov.au. Retrieved 23 August 2017,
from https://www.ato.gov.au/business/employee-or-contractor/difference-between-employees-
and-contractors/
Fletcher, K. (2007). The law of partnership in Australia. Pyrmont, NSW: Lawbook Co.

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Sole trader. (2017). Business.gov.au. Retrieved 23 August 2017, from
https://www.business.gov.au/info/plan-and-start/start-your-business/business-structure/business-
structures-and-types/sole-trader
Thomson, A. (2012) ‘Vicarious Liability, Non-Delegable Duty and Child Sexual Abuse: IS
THERE ANOTHER SOLUTION FOR SEXUAL ABUSE PLAINTIFFS IN AUSTRALIA
AFTER THE MAGA DECISION IN THE UK?’ The Western Australian Jurist, 3(167).