Business Law Assignment: Partnership Liability and Negligence Issues

This assignment solution addresses several key business law concepts within the context of a partnership. It begins by identifying the business structure of Mary, Fred, and Chris, concluding they operate as a partnership under the Partnership Act (Vic) 1958, outlining the necessary elements for such a...Read More

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Cover Sheet
Name of the student
Student ID
word count

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Contents
1a)....................................................................................................................................................3
Issue.............................................................................................................................................3
Law and Application....................................................................................................................3
Conclusion...................................................................................................................................4
1b)....................................................................................................................................................4
Issue.............................................................................................................................................4
Law and Application....................................................................................................................4
Conclusion...................................................................................................................................7
1c)....................................................................................................................................................7
Law and Application....................................................................................................................7
Conclusion...................................................................................................................................8
2a)....................................................................................................................................................8
Issue.............................................................................................................................................8
Law and application.....................................................................................................................8
Conclusion...................................................................................................................................9
2b)....................................................................................................................................................9
Issue.............................................................................................................................................9
Law and application...................................................................................................................10
Conclusion.................................................................................................................................11
Bibliography..................................................................................................................................11

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1a)
Issue
Under what type of business structure are Mary, Fred and Chris running the business?
Law and Application
To run any business effectively, the main kinds of business structures are sole trade ship,
partnership and a company.
A sole trader ship requires a single person who owns and manages the business. However, since,
there are three parties involve, that is, Mary, Fred and Chris, thus, sole trader ship is not
the business structure they have entered into.
A company is a structure which is established only when the same is registered as per the
requirements mentioned under the Corporation Act 2001 and the guidelines of ASIC.
Since, Mary, Fred and Chris have written down their rules in the form of an agreement on
a serviette, thus, there is no registration and thus they are not operating as a company.
Now, as per section 5 of the Partnership Act (vic) 1958, a partnership is the simplest form of
structure wherein two or more persons join together to run a business activity of a
continuous nature with the main aim to earn profits. Thus, the main elements to run any
business as a partnership are: (Steiner, 2017)
i. There must be two or more than two persons – In order to run any partnership it is
necessary that there must be two persons.
It is submitted that there are three people with intent to run the business in the form of a
partnership, that is, Mary, Fred and Chris. Thus, they are more than two persons and
thus satisfy the first requirement of a partnership.
ii. They must run a business activity with common intention – All the partners must carry on
the business of the firm with a common intention. In (Re Ruddock & Ors, 2000), the
courts submitted that to constitute a partnership the intention of all the partners must be
common and it makes not difference whether all the partners are taking part in the firm
activities or not.
All Mary, Fred and Chris started business to provide bespoke service to people wanting to enter
into the property market. All the three are involve in the management of the business.
Thus, there is common intention amid all Mary, Fred and Chris.

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iii. The business activity must be of continuous nature –In (Ferguson v Federal
Commissioner of Taxation , 1979) the court held that a business must be distinguished
from a hobby and to constitute a partnership the business must be of continuous nature.
But in (Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty
Ltd , 1974) a single venture with the common intention and with the aim to share profits
held to be a partnership relationship.
All Mary, Fred and Chris were carrying on the business in a continuous manner. Thus, there is
continuity of the business.
iv. The parties must aim to share profits and losses –In (Plummer v Thomas, 2014), P and T
entered into a partnership with no aim to share profits. The court held that it is necessary
that all the partners must aim to share profits and losses in order to constitute partnership.
It was also agreed as per their written agreement that all Mary, Fred and Chris will equally
invest in the business and will share the profits equally. Thus, they were sharing the
profits.
Conclusion
It is thus submitted that all the three, Mary, Fred and Chris, were acting in such manner so that
the entire essential to establish a partnership are met. Thus, there is a partnership form
of business structure that is run by Mary, Fred and Chris.
1b)
Issue
Whether Fred and his business partners are liable for the damages suffered by the customer X?
Law and Application
When any partnership is established then the partners are the agent of the firm, that is, the
partners represent each other and the partnership firm and vice versa. However, the
partner will only bind the other partners and the partnership firm provided the acts that
are undertaken by the partner are within his authority. In (Goldberg v Jenkins, 1889) the
partner borrowed money @ 60% whereas the rate was normally 6%-8%. It was held that
the act of the partner is out of the scope of his usual authority and is thus non binding on
the other partners.

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Under the law of partnership the authority can be actual or ostensible. An actual authority is the
authority which is expressly or impliedly provided to the partner. In (ANZ Bank Ltd v
Ateliers de Constructions Electriques de Charleroi, 1969) the court held that when the
agent put the cheque in his account as part of his authority then it comprises within his
actual authority and is binding. Whereas in (Construction Engineering v Hexyl Pty Ltd,
1985) the court submitted that when the authority is provided to the partner by some
overt act which represents that the partner does posses the authority to undertaken any
specific task then it is ostensible authority. In the given case the construction has no
reason to believe that Tembel is acting as an agent of Hexyl and thus there is no scope of
ostensible authority.
Now, every partner while carrying out his activity as the partner must make sure that he does not
act in such a manner so that any harm is caused to his clients. The law of negligence has
imposed a duty of care upon the partner which when violated makes such partner
negligent. All the others partners and the firm are also considered to be negligent as the
liability is jointly and severally liable. Thus, the partner is negligent when:
i. The partner is imposed with the duty of care to provide advice in such a manner so that
no loss is caused to his client. The duty is imposed against those client with whom he is
sharing proximate relationship and such client is reasonably foreseeable by him.
ii. The partner when does not provide advice adequately as expected from him in the like
situation, then there is breach of duty of care on the part of the partner. In (Paris v
Stepney Borough Council , 1951) the employer does not provide adequate safety
measures to his employee resulting in breach.
iii. It is also submitted that the partner is negligent provided that some loss is sustained by
the client because of the breach of the duty of care on the part of the partner.
Likewise, if any representation is made by the partner which is false and which causes harm to
the client then it is an act of negligent misstatements. Thus,
i. If any partner make statement of fact;
ii. Such statement of fact is not true in nature and is held in (Hedley Byrne v Heller, 1964)
that when any statements is made negligently than it result in arising claim of economic
losses.
iii. That the statement made by the partner results in causing injury to the client

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iv. The client is in special relationship with the partner and is held in (San Sebastian v
Minister Responsible for Administering Planning and Assessment Act , 1986) that a
speaker does not have any special relationship unless posses skill.
v. That the loss that is caused to the client is not too remote and is reasonably foreseeable by
the partner.
If all the above ingredients are met then the partner is held to be negligent in his actions by
making misstatements. Once a negligent misstatement is made by the partner then the
client has the power to consider any transaction entered by such partner as void. Any
injury that is sustained by the client will result in making all the other partners liable
provided the negligent misstatement that is made by the partner is made within his
authority and power.
It is submitted that all Mary, Fred and Chris are in the relationship of a partnership and thus
they are the agents of each other. Any activity that is carried on by Fred being the
partner and agent of the firm will result in making all the other partners jointly and
severally liable.
One of the main tasks that is attributed to Fred as that he has to provide advice to the clients on
the tax implication of any possible purchases.
It is submitted that Fred must provide advice to X in such a manner so that no harm is caused to
his clients. The advice must be such that no harm is caused to his clients as he shares the
relationship of proximity with him and that they are reasonable foreseeable.
In January 2017, he advices X however some mistake is incurred by Fred while providing advice
to X.
It is submitted that the duty of care is owned upon Fred against X as they are sharing a
proximate relationships. However, the duty is not met by Fred as when the advice was
furnished at that time Fred was not aware on the latest ruling of Australian Tax Office
(ATO). Thus, the level of care that is expected from Fred is not met by him. The level of
care fall short the required level of care expected from Fred considering the fact that
Fred is assigned with the tasks of providing tax implications to his clients. He made
statements of facts which were not true.

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Because of the wrong advice X has to pay extra $ 15.000 in tax. If X would had been aware of
the ruling he would not have purchased the property. Thus, because of the negligent
advice of Fred, injury is caused to X.
Conclusion
Thus, there is negligent representation that is made by Fred to X and thus X can sue Fred under
the law of negligent misstatements.
1c)
Whether Freed and his business partners are liable for the damage suffered by Y?
Law and Application
In order to make any person liable for negligent misrepresentation, there are three essentials
which must be proved. The same are:
i. Duty of care – Duty of care signifies that every person must carry out his acts/omission
in such manner so that no loss or injury is caused to any other person. The duty of care is
only imposed upon the defendant against the plaintiff provide:
a. That defendant and the plaintiff must share the relationship of proximity, that is, the
acts/omission of the defendant fall directly upon the plaintiff and in (McPherson Ltd v
Eaton , 2005) the court that a donor and a done are in proximate relationship.
b. That the plaintiff is reasonably foreseeable by the defendant.
ii. Breach of duty of care – That once the duty of care is imposed upon the defendant then
he must cater such duty with all care and caution. If the defendant failed to comply with
his duty of care with the level that is expected from him then there is violation of the duty
of care. In (Woods v Multi-Sport Holdings, 2002) the court held that too much burden on
the defendant should not be imposed in order to hold the breach and breach is considered
only after analyzing the facts of every case.
iii. Damages – When the duty of care is not met by the defendant then it is necessary that
because of the breach of the duty of care there must be some loss that is caused to the
plaintiff. However, the loss that is caused to the plaintiff must be such which must not be
too remote to predict by the defendant. Also, the loss that is caused to the plaintiff should
be caused because the acts of the defendant, thus, there must be presence of causation. In
(Chappel v Hart , 1998) the surgeon was held liable as he failed to warn the patient and

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this the loss caused to patient was direct because of the breach of the surgeon & (The
Wagon Mound No. 2 , 1967), wherein the court held that the damage caused to the ship
was too remote to predict by the company.
It is submitted that Fred and his partners are not liable for the losses that are sustained by Y
mainly because:
i. Fred and Y are not in the relationship of proximity nor Fred can reasonably foresee Y
while giving advice to X. it is submitted that Fred has given advice to X and not to his
friend Y. X has communicated the advice furnished by Fred to Y without seeking the
permission of Fred. Thus, Fred is not aware that his advice is transferred from X to Y.
Thus, Fred and Y are not in the relationship of proximity nor Fred can assume the
resemble forseeability of Y. So, there is no duty of care that can be imposed upon Fred.
ii. Even if it is assumed that there is duty of care that is imposed upon Fred against Y, still,
there is no negligence misstatement that is incurred by the Fred against Y, because the
loss that is caused to Y is not because of the acts of Fred directly. Also, the loss that is
caused to Y is too remote to be predicted by Fred.
iii. The misstatements that are made by Fred meant for X and not to Y.
Conclusion
Thus, Y cannot sue Fred for the negligent mis-statement because there is not duty of care that is
imposed upon Fred giant Y which is violated by him and which has ultimately causes
harm to Y.
2a)
Issue
Under what type of business structure should Fred, Mary and Chris operate now?
Law and application
It is submitted that all three, Fred, Mary and Chris, are operating by way of the partnership firm.
They all are partners. However, the business is now progressing and thus they need to
raise capital. They also want to limit their liabilities. They want to keep the number of
investors small and want to choose amid the person who wants to invest in the business.

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Now, in order to meet the expectation, it is better that they must operate their business as
a company and not as a partnership firm.
A company is an entity which is established only when it is registered as per the rules mentioned
under the corporation act 2001 and the guidelines lay down by ASIC. A company is a
separate legal entity in the eyes of law and is an artificial legal person who has sanctity in
law. In (Salomon v. Salomon & Co Ltd , 1897), the court held that once a company is
established there are several advantages that can be attributed to a company, that is, it has
the capacity to act all the functions like a natural person, such as; it can enter into
contracts, pay taxes. The main characteristics of the company are:
i. Limited liability – Once a company is registered, then one of the advantage is that the
members of the company has limited liability, that is, the liability is limited to the extent
of their shareholding value. Thus, in case any debt is incurred by the company then the
members are liable only to pay to the extent of their shareholding and their personal
assets cannot be used;
ii. Raise capital – It is very easy to raise capital in a company. The company can raise
capital by issuing shares of the company.
iii. Transferability of shares – The shares in the company is easily transferrable and thus does
not restrict the shareholding of the company;
iv. The company can decide to whom to allocate the shares and to whom the shares should
not be allotted.
v. The company is a separate legal entity in the eyes of law and thus the members, directors
and other officers of the company are separate from the company.
vi. That company has a perpetual succession, that is, a company never dies. Thus, even if all
the officers and members of the company cease to exits still the company is active and
living.
Conclusion
It is thus submitted that all Fred, Mary and Chris must convert their business from the
partnership form of business to the company form of business as by doing so their
liability will be limited in nature, it will be very easy for them to raise capital by issuing
shares and they can choose as to whim the investment is required and to reject others.
Thus, a company is the best choice to operate their business.

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2b)
Issue
Does the business have to pay for the car under statuary rules?
Law and application
Once a company is registered then the directors of the company are considered to be the most
important part of the company and is analyzed in Chameleon Mining NL v Murchison
Metals Ltd (2012). Section 9 of the Act define a director and as per 198A of the
corporation Act 2001 the management of the company is run as per the instructions of the
director and is held in (Howard Smith Ltd v Ampol Petroleum Ltd , 1974)(1974).
A company director has the power to bind by the company with his acts only if such act are
undertaken by the director within his authority. A director can posses authority either
expressly or impliedly or ostensibly and is analyzed in ( Freeman & Lockyer (A Firm) v
Buckhurst Park Properties (Mangal) Ltd , 1964) (1964) & (Hely-Hutchinson v Brayhead
Ltd , 1968). The court held in the cases that if the director does not possess actual
authority then the circumstances can be looked into to find the presence of ostensible
authority and if the direct has ostensible authority then he will bound the firm by his
actions.
If the company director makes any contract in behalf of the company then such contracts are
binding upon the company, but, if any contract is made by the company officer outside
his scope of authority then the company can back out by saying that since the contract is
under lack of authority, thus, the company is not bound by the same. This results in great
hardship to the outsider.
Thus, to bring justice to the innocent outsider, the assumptions under section 128 and section 129
of the Act are laid down. As per section 128, the outsider has the power to assume the
assumptions laid down under section 129 provided he himself is acting with honesty and
is held in (Northside Developments Pty Ltd v Registrar-General , 1990) wherein the
outsider has the knowledge of the irregularity and thus the presumptions were not
applicable.
As per section 129 the outsider can presume that the officer with whom he is dealing is
appointed adequately and all the statutory requirements are met and is held in (Panorama
Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd , 1971)

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It is submitted that Mary brought a new car and submits that the company will pay for the car. It
is submitted that when Mary brought the car at that time she was not the director of the
company and thus has no authority to buy the car. Thus, the company can deny the
liability of the car.
However, the dealer can rely in the assumptions under section 128 and section 12 and submit
that before selling the car he has check ASIC which still showed Mary as the director of
the company. Thus, he can presume that Mary has the authority ton buy the car on behalf
of the company.
Conclusion
So, the company must pay the cost of the car to the dealer.