(Textbook – Topic 8 pg. 337-377, Topic 19 pg.699-719)
Partnership Definition

Statutory definitions
Partnership Act 1891 - 
Partnership is the relation which subsists between persons carrying on a sec 5 (1) business in common with a view of profit. Requires following elements:
1.
Existing relationship
2.
Relationship between persons who are (2 or more, can be people, company, etc)
3.
Carry on business in common – share rights and obligations
Kang v Paine (restaurant owner husband does nothing)
4.
View to make profit – Cribb v Korn (Korn paid Cribb half of proceeds of sale – which was Gross Profit. ie Gross profit is not enough to constitute a partnership, must be NET
Page #
339,701
Rules in determining partnership

Statutory definitions
Partnership Act 1891 -

Co-ownership rule – if two people own a business does not sec 6 (1a) necessarily constitute a partnership
Partnership Act 1891 - sec 6 (1b)
Partnership Act 1891 - sec 6 (1c)

Sharing of gross returns – if two people own a business does not necessarily constitute a partnership

Sharing of profits and losses – there is on “prima facie evidence” that a partnership exists
Lecture slide &
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Lecture slide &
702
Lecture slide &
702

Liability of Partners to Outsiders – Power of partner to bind to firm

Statutory definitions
Partnership Act 1891 - sec 8

Each partner is BOTH a principle and an agent of the firm

Transactions entered by one partner will bind other partners into transaction, unless:
1.
The partner was acting without authority and the other party is aware of this, OR
2.
The other party does not know or believe that he or she is a partner is the business
Liability of Partners to Outsiders – In Contract

Statutory definitions
Partnership Act 1891 - 
In contracts each partner is liable JOINTLY with all other partners for sec 12 (1) debts incurred by the firm while he or she is a partner

Partners are responsible for not just her share of debt but the whole amount
Liability of Partners to Outsiders – In Tort

Statutory definitions
Partnership Act 1891 - sec 13 (1)

In Tort each partner is JOINTLY and SEVERALLY liable

Partners bound by tortious acts:
1.
In the ordinary course of business
2.
With the authority of co partners
Page #
703
704
704
Company as a separate legal person
Salomon v Salomon 
Salomon set up a business and was very successful. He then incorporated into a company limited by shares with his family and he was entitled to 20 000 shares as a secured creditor

He continued to make all decisions however eventually the business went bankrupt

Decision ruled that the business was a separate legal entity to
Salomon and he was entitled to be paid out by liquidators
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Rights of Partners - Subject to individual partnership agreements
Sections
Sec 27 (1e)

Every partner has the right to take part in the management of the firm
Lecture notes
Sec 27 (1g)
Sec 27 (1i)

No person may be introduced as a partner without the consent of all existing partners
Lecture
Notes

Every partner has the right to inspect and copy the partnership accounts
Lecture
Notes

Corporate Veil
Corporate Veil ‘exists’ once a company is registered and it separates company from people who formed it


Assets
COMPANY
Separate legal entity with own:

Liabilities
Contracts
VEIL
MEMBERS & DIRECTORS
Members:

Own shares but not a proprietary interest in the company’s assets

May also be a creditor, debtor, or director of company

Have their own assets which are not in companies control
Directors:

Employed by the company

Owe duties to company alone
Lifting the Corporate Veil
Statue
Insolvent trading – ss588G -588M)
Uncommercial transactions – ss588FB-
588FF
Unreasonable director related transactions
Financial Assistance

When company continues to trade even though there were reasonable grounds for suspecting that it would not be able to pay its debts, the holding company can be liable.

Certain transactions that occur prior to a company going into liquidation are voidable. Where uncommercial transactions occur
(usually by a director) who receives benefit and the company incurs a debt, the corporate veil can be lifted

Transactions including payments, transfer of property or issue of securities made in favour of a director where a reasonable person would not have entered into the transaction, the corporate veil can be lifted

If the company provides “financial assistance” for the purchase of its shares, it is the person “involved in” the company’s contravention who is liable for a breach, not the company.
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Lifting the Corporate Veil
Common Law
Fraud or Improper
Conduct/Purpose
Re Darby
Company formed to evade an existing obligation
Gilford Motor v Horne
Company is agent of the controller
Smith Stone Knight
(SSK) v Birmingham

Facts: Darby and another controlled Newco, which controlled Welsh
Slate. Newco sold a license to Walsh Slate for a manipulated lower price, which then led to others investing in Welsh Slate. Welsh Slate later went bust, still owing money to Newco for the license, and the liquidator tried to recover money from Darby personally

Held: the whole scheme was for fraudulent purposes; thus it is permitted in this circumstance to lift the corporate veil. The fraud was in sale price of license from Newco to Welsh, but also interference with contractual relations/improper conduct.

Facts: Gilford was a car manufacture business and Horne worked for it. He had a restraint of trade clause in his employment contract, but he ignored it after he left Gilford and started a competitor business.
He then set up a company in his wife’s name and tried to rely on the corporate veil to protect himself personally.

Held: the second company was ultimately held to be used by Horne to conduct his business in violation of the restraint of trade clause.
An equitable injunction was granted against Horne.

Facts: SSK was a paper manufacturer who also owned a factory which was being rented out to a subsidiary, Birmingham Waste. The
Council decided to compulsorily acquire the land and SSK lodged a claim for compensation (initially on behalf of BW, but then on their own claiming that BW were agents for SSK and that the loss will fall on SSK). The issue was whether SSK could claim compensation in this way (since a statutory ruled meant that BW couldn't claim since they were in the factory for less than a year).
Held: All 3 Elements must be satisfied.
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1.
Holding Corporation controls, the board of subsidiary
2.
Holding Corporation controls more than half of the members of the subsidiary
3.
Holding Corporation controls more than half of the subsidiary assets
If all of these are met, there is no separation between holding and subsidiary.
Corporate Social
Responsibility
Briggs v James Hardie

In this case, the court found that all these questions were answered to the favour of SSK, so BW were deemed an agent and SSK were able to have the veil lifted and claim compensation.

Facts: Briggs was poisoned with asbestos and sued his former
 employers’ holding company, James Hardie for negligence
Held: Case was settled before issue of veil being lifted. Important to talk about director duties of duty care and diligence.
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