The issue in this situation can be solved by discussing the relevant provisions of the Partnership Act 1891. According to Section 1 of the said Act, Partnership means the relation between two or more people who are carrying on a business in common, having the view to share the profits. Partnerships are not a separate legal entity in Australia. A partner is an agent of other partners and has the power to make contract within the ordinary course of the business. Every partner is jointly and severally liable for the liability of the partnership. The property of the partnership belongs to the partnership, not to the partners personally. Section 2 of the Act provides some test for determining the existence of the partnership. Partnership exists where a person receives a share of the profits of their business. In order to prove the existence of the partnership, it should be established that there was a joint ownership, a sharing of profits and losses a participation of the partners in the gross returns. For the purpose of understanding the existence of a partnership, the case of Duke Group Ltd v Pilmer can be referred, where it was established partners must take an active part in the business. The court has noted that, it is not mandatory to take active part in the management and direction of the partnership by each of the partners.
Argument for existence of partnership
Zac and Todd had started the business with the common intention to make profit by the brewing business. They were working together to earn a profit using the brewing equipment and the recipe. In the famous case of Smith v Anderson the court stated that the term carrying on indicates the repetition of activities. Series of acts means a sequences of act that constitutes a business. In this case, it can be identified that Zac and Todd has been making beer for profit purpose over a repeated period of time. There was a continuous situation of brewing for several transaction, which ascertains that it was undertaken with an intention for carrying out a business. There was an objective of making financial gain by Tedd and Zac which proves that there was an existence of partnership between them.
It can be concluded from the aforesaid discussion that, there was an existing partnership between the two.
Arguments against existence of a partnership
It can be said that there was no partnership between Tedd and Zac in the absence of a partnership agreement. An agreement is the formalisation of business terms into an agreement, which should not mandatorily be in writing. There was no such agreement between Zac and Tedd which specifically state the terms of the business. Additionally, Zac was less interested in the business and rather involved in fermenting and production process. He did not even share the profit which he earned from selling the beer to his friends and family. From this perspective it can be said that there was no partnership between Zac and Tedd.
From the above argument it can be established that there was no partnership between Zac and Tedd.
The issue in the present scenario is to determine whether Zac is entitled to receive the money he had made from selling the beer to his friends and family.
The issue can be determined by analysing the meaning of partnership under the Partnership Act 1891. The provisions of this act, the partners of a partnership should have an intention to share the profit and losses arising out of the business. It is provided under Section 29 of the Act that, partners are liable for accountability for any benefit derived without the consent of the other partners from any transaction relating to the partnership, to the firm.
The Section 29 of the Act applies to this situation assuming that there was an existing partnership between Zac and Todd. Zac had made a profit from selling the beer to his family and friends. He did not account the profit to Tedd but kept the money to himself. Zac breached the fiduciary duty of a partner to account to private profit he made during the course of the business in respect to the partnership.
From the above discussion it can be decided that Zac is not entitled to the money he made from selling the beer, it belongs to the partnership only.
The issue in the present case is to determine to whom the liability of the outstanding rent belongs.
In this prospect, the liability of the partners of a partnership as stated under Section 9 of the Partnership Act 1891 should be discussed. This Section provides that partners of a partnership are liable jointly and severally for all the obligations and debts incurred by the firm. In the case of Wang v Rong, the Court observed that, to held the partners of a partnership it is not needed that the partners spend the same time working in the business.
If it can be assumed that there was a partnership between Zac and Tedd, both of them will be held liable to pay for the rent that the partnership has incurred. Partnership is not a separate legal entity, therefore it cannot pay its own rent, and rather the partners are liable for the obligation.
Zac and Tedd both shall be liable to pay the outstanding rent of the business.
In the present situation, the issue is to determine the liability of the compensation, if Denton sues Zac and Tedd.
Section 10 of the Act states that the firm is liable for any wrongful act of any partner in the course of the business of the firm. Section 12 of the Partnership Act 1891 states that partners shall be liable jointly and severally for the firm.
Zac and Tedd should be liable jointly and severally if Denton sues them. The partners have to bear liability of a legal action against a firm. As a partnership is not a separate legal entity, it cannot be held liable for its obligations.
It would the liability of both Tedd and Zac if Danton successfully sues their partnership.
In this case the issue which is to be determined is that whether Zac could leave the partnership in such a way that he did.
A partnership is considered to be terminated if the partners leave. However, there is a proper way to exit a partnership or dissolution of partnership. Division 4 of the Partnership Act 1891 deals with the method of dissolution of a firm. A firm can be dissolved by way of expiration or notice, insolvency or death of partners, illegality of partnership, or by the court. A partner cannot leave the partnership without undergoing the process of dissolution. The partner who is willing to leave he must give written notice to the other partners.
Zac cannot leave the partnership the way he did. If he wants to leave the partnership, he should follow the legal way. Zac did not give any notice of withdrawal to Tadd before leaving the partnership, nor did he applied to the Court in order to depart from the partnership. One person cannot take his belongings and leave the partnership.
Thus, from the above discussion, it is observed that Zac cannot leave the partnership without maintaining the proper procedure.
In this present situation, it is to be determined whether the brewing equipment, Todd’s laptop and the recipe and formula belongs to the partnership.
In this respect, it is worthwhile to mention the Section 20 of the Partnership Act 1891. This Section provides that, all the property and the rights and interest over the property, which was brought on the account of the firm for the partnership purpose, shall deemed to be the property of the partnership. According to Section 21, the property brought by the money of the firm shall be deemed to have been bought on the account of the firm. The mere fact that an asset was used by a partnership to produce income does not necessarily mean that asset belongs to the partnership. Asset of partnership may be acquired directly by the partnership or by partners. In Kelly v Kelly, the Court observed that a relevant property does not become the property of partnership as the property was not enlisted in the accounting records of the partnership.
In the present situation the laptop which belonged to Todd and the brewing equipment was not the property of the partnership. Zac bought the brewing equipment with his own money and not after the partnership business was started. However, the recipe and the formula belongs to the partnership as it was designed to be used for the business purpose only.
Conclusion
It can be concluded from the said discussion that the Formula and recipe belongs to the partnership only.
References
(2018) Business.gov.au <https://www.business.gov.au/planning/business-structures-and-types/business-structures/partnership>
Duke Group Ltd v Pilmer (1999) 31 ACSR 213
KOH, Pearlie, and Stephen Noel Henry BULL. “Agency and partnership law [2014].” Singapore Academy of Law Annual Review of Singapore Cases 15 (2015): 39.
Koh, Pearlie. “Agency and partnership law.” Singapore Academy of Law Annual Review of Singapore Cases Annual Review 2014 (2014): 39.
Partnership Act 1891 (2018) Legislation.sa.gov.au https://www.legislation.sa.gov.au/LZ/C/A/PARTNERSHIP%20ACT%201891/CURRENT/1891.506.AUTH.PDF
Pearlie, K. O. H. “3. AGENCY AND PARTNERSHIP LAW.” (2015).
Smith v Anderson (1880) 15 Ch D 247
Wang v Rong [2015] NSWSC 1419
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