Whether A Business Partnership Was Present Between Ali, Bob And Cheng?

Partnership Definition and Formation

Whether a business partnership was present between Ali, Bob and Cheng, or not?

A partnership is a collective ownership which is defined as the relationship present between individuals who carry on business with a view to profit in common (James, 2017). In South Australia, the Partnership Act, 1891 (SA) is applicable. Under section 2 of this act, a partnership can be formed in an express or implied manner, based on the intentions of the parties. In this context, the points which have to be seen include sharing of profits, sharing of gross returns and common ownership of property. It is not compulsory for a partnership agreement/ deed to be formed. The key here is for a partnership to be present, instead of the same to be put down in words (SA Legislation, 2018).

As there are no set criteria of creating a partnership, the presence of it is often disputed. And in such cases, there is a need to go back to see if the basic elements required to form a partnership are present. In this regard, there is a need to go back to the basics of partnership definition. The partnership under the governing act is carried on between two and two individuals, carrying on business in common where the goal is to earn profits (Christensen and Duncan, 2009). In Degiorgio v Dunn [2004] NSWSC 767, a band was formed at the insistence of Dunn. As per Degiorgio, a partnership was present which made him entitled to sharing of profits. However, the court held that the parties were carrying on business and with a view of profit but this was not being done in common. Here, the payment of establishment was done by Dunn and Degiorgio had been paid, for each performance, a fixed fee, Dunn was not acting on Degiorgio’s behalf but Degiorgio was doing so (Austlii, 2004).

Another example of Cox v Coulson [1916] 2 KB 177 helps in showing that merely sharing the profits is not enough to show that a partnership had been present. In this case, Mill owned a theatre which was rented by Coulson for a play. Box office receipts were shared between the two where Mill got 40% and Coulson got 60%. The travelling expenses had to be paid by Mills and same was for actors, and the theater rent, advertising and lightning had to be paid by Coulson. While the performance was going on, owing to the prop gun being loaded accidently, a member of audience was injured. A case was brought against Coulson due to him being deemed as partner of Mill. However, the court held that a partnership was not present here as only the gross returns were shared and each party had liability for their expenses and liabilities (Weebly, 2018).

Disputed Partnership

In this case, in order to show that a partnership was present between the three, there is a need to fulfil the criteria laid down under the Partnership Act. As per this section, there is a need to show that a business was being carried on by two or more people with a view of earning profits in common. Here, Ali, Bob and Cheng were more than two individuals and less than 20, fulfilling the first criteria. The next criterion is to show that the profits were being shared between the parties. Here Cheng was getting a share of 8% of the net profits, which fulfils even this requirement.

However, when it comes to running a business, in common, the same becomes a dicey situation. Applying the case of Degiorgio v Dunn in this case, there was a lack of commonality here. Even though there was sharing of profits, but there was nothing to show that a business was being run between Ali and Bob, and Cheng in a common manner. More importantly, applying the case of Cox v Coulson, here there was a sharing of profits. Cheng would only attend the management meetings and could also contribute in the management decisions, but he did not run the business of the company. Cheng having no other employment does not fulfill the requirement of him being a director to satisfy the conditions laid down in the governing act. Merely sharing of profits does not satisfy the requirement of business being run in common by Cheng.

Conclusion

Thus, based on the discussion carried on above, it can be concluded that a business partnership was present only between Ali and Bob but not with Cheng.

The key issue of this case relates to the individuals who can be made liable for the debts for the software.

Under section 5 of the Partnership Act, the partners have the power of binding the partnership firm. As per this section, the partners in a partnership firm are deemed as the agent of the firm and also of the other partners. However, this is not the case when the partner has no authority of acting on behalf of the firm and where the individual dealing with the partner is aware of this lack of authority. Under section 6 of this act, where an act is undertaken for the firm or is executed in the name of the firm, where there is presence of intention of binding the firm, by a person who has relevant authority, is binding on the firm (SA Legislation, 2018).

Liability of Partners for Software Purchase

In partnership, there is interplay of express and implied authority. Where the partner is expressly told to do certain thing, it is known as express authority. The implied authority is something which is implied by the conduct of the partners (Conviser, 2014). Another important aspect is apparent authority where it becomes apparent that an individual is the partner of the firm, even when this is not the case. Even in such cases, the partnership firm or partners are held liable for the undertaken conduct of the partner (Murdoch, 2014).

In Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) 155 CLR 541, the partnership agreement clearly provided that the construction contract had to be entered on Tambel’s own behalf and not on the partnership’s behalf. CE was not aware of the partnership of Tambel with Hexyl. Upon the breach of contract, proceedings were initiated by CE against both. Hexyl argued that there were not liable due to the lack of actual authority and that Tambel did not have the authority of acting on their behalf. The court agreed with Hexyl in this case (Jade, 2018).

In Mercantile Credit Co Ltd v Garrod [1962] 3 All ER 1103, Garrod and Parkin were partners in business and the latter was more of a silent partner. Without the authority of Garrod, Parking sold the car to MC and they in turn sued the partnership to recover the price of the car. The court held that here Garrod was liable for acts of Parkin (La Trobe University, 2016). In Crouch and Lyndon (a Firm) v IPG Finance Australia Pty Ltd [2013] QCA 220, Wood loan money to firm based on false representations. Even though Scott was not aware of this, he was made liable for the actions of Wood, owing to the work being done based on the apparent authority of the firm (Cooper, 2013).

In this case, based on the incidents which took place, the sales company demanded payment from Klever Komputer Repair. This is because Cheng undertook a contract of purchase of software from Dale for $30,000. Based on section 5 of the Partnership act, this act of Cheng would bind Ali, Bob and the partnership firm owing to the three being partners, and Cheng here being deemed as the partner of the firm. Here, Cheng had no authority of acting on behalf of the firm but this was not known to Davis with whom the transaction was undertaken. Even when Davis visited the partnership, Cheng was portrayed as the other partner. Davis never knew that there was a limit on partners of not making purchases over $10,000.

Employee or Contractor?

Based on the case of Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd, the partnership would be made liable for the undertaken order of the software. This is because Dale was not aware of Cheng not having the relevant authority on acting on their behalf. Here Cheng had not authority of acting on behalf of the partnership firm. Based on this, only Cheng would be liable for the software purchase. However, based on Mercantile Credit Co Ltd v Garrod, all the partners would be liable, as they were all partners. This is more so because Cheng was portrayed as partner of the firm, before Dave, when he had visited the firm earlier. This would cancel out the success of case being against Cheng only based on Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd. This is further supported through apparent authority and the case of Crouch and Lyndon (a Firm) v IPG Finance Australia Pty Ltd.

Conclusion

Thus, based on the discussion carried in previous segments, it can be concluded that all three partners and the partnership firm would be liable for the software payment, despite the limit of $10,000 being imposed on partners.

Whether Josie is an employee in this case or not? What will be the consequence where Josie is deemed as the employee of the partnership?

In order to hold a person as an employee of the company, or as an independent contractor, certain tests have been evolved. In this regard, there is control test given under Zuijs v Wirth Brothers Pty Ltd [1955] HCA 73. Based on this case, the control of a person over other determines the presence of employer employee relationship. There is also the integration test, where the level and magnitude of integration of a person in the employer’s business determines this status (Austlii, 2018). In Humberstone v Northern Timber Mills (1949) 79 CLR 389, wearing information was deemed as presence of this relationship (Swarb, 2016). The mutli factor test is the best test in this regard, which was initially given in Stevens v Brodribb Sawmilling Co Pty Ltd [1986] HCA 1, and had been confirmed later on in Hollis v Vabu Pty Limited (2001) 207 CLR 21. Based on this test, the situations in between the two individuals are taken to hold the presence of this relationship. Hollis v Vabu Pty Limited presents aspects like pay flat per delivery, bicycle being provided, strict starting time and the like as the factors for presence of this relationship (Marshall, 2006).

In the given case study, in order to hold Josie as a contractor, there is a need to fulfil the tests stated above. Based on Zuijs v Wirth Brothers Pty Ltd, Josie had full control over her work as she worked based on her time and from her home. Based on the integration test as was present in Humberstone v Northern Timber Mills, Josie was not integrated in the work of the partnership firm. Most importantly, the multi factor test needs to be applied here. Based on this, each aspect of Josie’s work needs to be analysed. Here, Josie was paid on hourly basis at a set rate as is done with the independent contractors. The employees are not paid on hourly basis. She is given flexibility of working. She can easily work from home where she gets flexible timings as she needs to look after her kids at school holidays. Permitting this to be done, Josie fulfilled the qualities of an independent contractor. In order to do the repair work, the software used by Josie was supplied by partners, which would make her an employee of Klever Komputer Repairs. These factors show that Josie indeed was an independent contractor.

Where Josie is determined as an employee of the firm, Klever Komputer Repairs would have to pay the relevant Payroll Tax as claimed upon by the Commissioner for Payroll Tax.

Conclusion

Thus, based on the discussion carried in previous segments, it can be concluded that Josie was an independent contractor.

References

Austlii. (2004) Degiorgio v Dunn [2004] NSWSC 767 (26 August 2004). [Online] Austlii. Available from: https://www7.austlii.edu.au/cgi-bin/viewdoc/au/cases/nsw/NSWSC/2004/767.html [Accessed on: 20/01/18]

Austlii. (2018) Zuijs v Wirth Brothers Pty Ltd [1955] HCA 73; (1955) 93 CLR 561 (15 December 1955). [Online] Austlii. Available from: https://www.austlii.edu.au/au/cases/cth/high_ct/93clr561.html [Accessed on: 20/01/18]

Christensen, S.A., and Duncan, W.D. (2009) Sale of Businesses in Australia. 2^nd ed. Leichhardt, NSW: The Federation Press.

Conviser, R. (2014) Gilbert Law Summary on Agency, Partnership and LLCs. Minnesota: West Academic.

Cooper, K. (2013) Crouch and Lydon v IPG Finance Australia [2013] QCA 220. [Online] Bransgroves Lawyers. Available from: https://www.bransgroves.com.au/mortgage-case-notes/crouch-and-lydon-v-ipg-finance-australia-2013-qca-220.html [Accessed on: 20/01/18]

Jade. (2018) Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd. [Online] Jade. Available from: https://jade.io/article/67175 [Accessed on: 20/01/18]

James, N. (2017) Business Law. 4^th ed. Milton Qld: John Wiley & Sons Australia, Ltd.

La Trobe University. (2016) Company Law Notes SAMPLE. [Online] Amazon AWS. Available from: https://studentvip-notes.s3.amazonaws.com/13482-sample.pdf [Accessed on: 20/01/18]

Marshall, B. (2006) Working it out- Employee or independent contractor?. The National Legal Eagle, 12(2), pp. 14-19.

Murdoch, J. (2014) Law of Estate Agency. 5^th ed. London: Routledge.

SA Legislation. (2018) Partnership Act 1891. [Online] SA Legislation. Available from: https://www.legislation.sa.gov.au/LZ/C/A/PARTNERSHIP%20ACT%201891/2006.02.01/1891.506.PDF [Accessed on: 20/01/18]

Swarb. (2016) Humberstone v Northern Timber Mills; 16 Nov 1949. [Online] Swarb. Available from: https://swarb.co.uk/humberstone-v-northern-timber-mills-16-nov-1949/ [Accessed on: 20/01/18]

Weebly. (2018) Partnership Law. [Online] Weebly. Available from: https://madamhanim.weebly.com/uploads/1/3/9/4/13940241/partnership1.pdf [Accessed on: 20/01/18]