1: a) According to section 5 of the partnership act 1958, partnership exists when a relationship established between two or more parties, and persons carrying on a business for the common purpose of earning profit. This section further stated that limited partnership also include in this section as per the meaning stated in part 5.
In other words, Partnership is defined as any relationship exists between two or more persons for carrying on the business with a common view to earn profit. In this structure two or more persons entered into legally binding agreement for establishing the relationship, and it must be noted that such relationship must be contractual in nature.
Tindal CJ stated in case Green v Beesley (1835) 2 Bing N C 108 at 112, that they considered mutual participation as important factor for the purpose of understanding the definition of partnership, instead of the factor that legal entity is created or not created by the persons carrying on a business.
This can also be understand through one more case law Smith v Anderson (1880) 15 Ch D 247 at 273, in this James LJ stated that partnership is defined as relation in which some definite individuals bind themselves under legally binding contract for the purpose of carrying on joint object either till they want or for any particular time period. It must be noted that legal binding contract is essential factor between the persons.
However, even after such clarification on definitions of partnership, limit is set on number of persons entering into partnership. It must be noted that law for partnership is derived from both statute law or case law, and for understanding this business structure all related regulations are stated under partnership Act 1958 (Victoria). Generally, partnership is treated as special type of agency because at the time of operating business, partners behave as agents of other partners. Case law Lang v James Morrison & Co Ltd (1911) 13 CLR 1 at 11 is the good example for that.
According to Section 6 of the Act Court consider following rules to determine the existence of partnership:
For the purpose of conducting legal partnership, various necessary elements are provided by court, and these elements are carrying on business, in common, and with aim to earn profit. It must be noted that even if single element is not present in the relationship between the parties then partnership is not exist.
In this case, all three friends Mary, Fred and Chris start a new café in Melbourne, and for this venture they create new agreement, in which they write down the rules for Serviette. For this they decided to contribute equal money and also decide to share equal profits generated from business. They decided that all three friends participate in the management on active basis. In this case, all necessary elements of partnership are stated such as Mary, Fred, and Chris carrying on business with a common view to earn profit. Therefore, in this case three of them are conducting partnership for the purpose of running their café in Melbourne.
Business structure chooses by them is appropriate for starting stage of the business, and it is necessary for them that they follow all the provisions stated under partnership Act 1958.
b) According to Section 43 of the wrongs Act 1958, negligence defined as failure of person to take reasonable care. This section further stated the definition of damages which includes any form of monetary compensation, and harm is defined as injury or death caused to person, any damage related to property, and also loss of economic nature. This section also defines the meaning of injury which includes personal or bodily injury.
Section 44 of the wrongs Act 1958 states the application of this part of the act and as per this Section part of this Act is applicable on claim filed under tort of negligence.
In case defendant own duty of care towards the plaintiff, and fails to perform such duty because of which plaintiff suffers damage then plaintiff can file claim under tort of negligence. On usual basis, three elements must be presented under the claim of tort of negligence for the purpose of establishing the liability of defendant, and these three elements are duty of care owned by defendant towards plaintiff, breach of duty by defendant, and damage or injury caused by plaintiff because of such breach.
In other words, negligence is determined by Court as act of carelessness, and it must be noted that not all acts done by carelessness results in liability. However, only those acts results in liability which include all the necessary factors of tort of negligence stated above.
According to Section 48 of the act Court consider following factors for the purpose of determining the negligence:
This Section also stated that following elements are determined by Court for deciding whether any actions are taken by reasonable person in risk of harm, and these elements are stated below:
According to section 50 of the Act it is the duty of defendant to give warning and other information to the plaintiff related to risk of harm or any matter of similar nature if defendant owns any duty of care towards the plaintiff, and in case defendant takes this step then it is not considered that defendant breach any duty of care.
Section 51 of the Act states that court considers following factors for the purpose of determine whether negligence on part of defendant cause any harm to the plaintiff or not:
After considering all the above facts and provisions, it is clear that it is necessary for filing successful claim under tort of negligence that defendant must own duty of care either towards the plaintiff or in case towards the deceased person. In common law, various legislations are introduced for the purpose of imposing liability of persons to conduct their actions up to definite standard of care for the purpose of protection and safety of other people. For the purpose of these legislations, standard of care is determined by precautions taken by reasonable persons in similar situations. After considering the actions of reasonable person court establish the standard of care in any case.
For this purpose, a famous case law is discussed here that is Donoghue v Stevenson 1932 AC 562, in this case bottle of ginger-beer was purchased by Mrs. Donoghue. She purchased sealed bottle because of which it is not possible for her to check the contents mentioned in bottle. She already drank one glass of beer, but when she poured second glass of beer she found decomposed snail in the bottle. She suffered from gastroenteritis and nervous shock because of that snail in the beer. Later she file claim under tort of negligence against Mr. Stevenson who is the manufacturer of ginger beer.
In London, House of Lords decided this case, and the issue entertain by house of Lords in this case was whether Mrs. Donoghue can file claim under negligence against the manufacturer, and in this case Court decided that products manufactured by manufacturer is ultimately used by consumer. Therefore, manufacturer is liable towards the ultimate consumer under tort of negligence.
There is one more case which helps in understanding the liability of café owners towards their consumers, and that case law is Stella Liebeck v. McDonald’s Restaurants (1994). In this case decision was given by the jury in which almost 12 persons are included. In this case, principles of Comparative negligence are applied by jury, and in they decided that McDonals bears almost 80% liabilities of the incident and Lieback bears almost 20% liability for contributory negligence. Jury further stated that warning was stated on the cup of coffee but that warning was not stated in large fonts and it was too small that Lieback was not able to read it. Therefore, Jury decided to award US$200,000 in the form of compensatory damages, which was then reduced by 20% to $160,000. In addition, they awarded her $2.7 million in punitive damages to Lieback.
On the basis of these reasons, it is clear that decision made by Jury was appropriate because defendant fails to take reasonable care on his part and considered as negligent. In this case negligence is determined on the basis of following reasons:
Jury further stated that defendant also breach the duty of providing adequate warning and other information related to risk of harm. In other words, extremely hot coffee was served by defendant, and he breaches his duty to warn plaintiff about the danger related to hot coffee.
Jury decided to award punitive damages to plaintiff because risk related to serious burn was in the knowledge of plaintiff, but he failed to take reasonable actions for solving this problem, and he also breached his duty because risk in this case was foreseeable. Therefore, it is clear that defendant acted willfully, maliciously, and recklessly.
In the present case, all three partners of café Mary, Fred, and Chris buy various products for the operations of their café and it also includes the coffee machine, which was very expensive. This coffee machine was not worth for money, because machine produced such hot coffee that one consumer in the café is suffered from second degree burn.
In the present case, Chris served the Coffee to the customer, and he fails to check the temperature regulator of coffee machine, and assume that it was on medium regulator. He assumed it because normally regulator was set on medium set but at that time thermometer was broken and machine producing boiling hot water. Second degree burn was suffered by consumer because of the coffee served by Chris, and this burn was very painful. Because of this burn customer does not attend the work for a week.
In this case, consumer can file claim against the café under tort of negligence because in this Chris is negligent on his part on the basis of following reasons:
There is one more reason which states that Chris fails to warn the consumer about the hot coffee. Therefore, café is liable to pay compensation to consumer.
2. a) For the purpose of limiting the liability and risk related to business, the best structure for conducting the business is company. Person can choose this business at the time of growing stage of business. In the eyes of law, this form of business is considered as separate legal entity. In other words, company is considered as separate legal person which enjoy same rights and liabilities as any natural person has such as company can incur debt, sue and be sued. There is one more advantage of company that is limited liability, which means owners of the company have option to limit their liabilities. In other words, owners have option to limit personal liability in respect of the debts of the company. Some key elements of company are stated below:
In Australia, two types of companies are operating that is proprietary limited companies and public companies. Public company is the company in which company can issue shares to general public for the purpose of raising funds. It might be possible that company may or may not listed on stock exchange of Australia, but in both cases it must be noted that little ownership in the company is held by public company, and this holding is exercised without any restriction on proprietary companies regard to offering shares.
As stated above, the most important element and advantages of companies are separate legal entity and limited liability. In other words, company under Corporation Act 2001 is considered as separate legal person in the eyes of law which is considered separate from its owners. It must be noted that as per this element liability of members of the company is limited and they are considered liable for the debts of the company, and their liability is limited up to their capital contribution.
There is one case law which helps in understanding the element of limited liability that is Salomon v Salomon & Co [1897] AC 22 (Salomon), in this House of Lords stated that doctrine of separate legal entity is considered as two edge sword and for usual manner this decision can be considered as good decision. This case presents all the important and compulsory factors of the company for making the company powerhouse of capitalism.
However, it must be noted that various jurist consider this decision not good because this decision provide extra benefits to the small private enterprises.
Therefore, in this case court confirmed the doctrine of separate legal entity, and this doctrine defines that after incorporation of the company it is considered as separate legal person from the owners of the company. There is one more case law Peate v Federal Commissioner of Taxation, in which High Court stated that company represents a new legal entity in the eyes of law.
In this case, all three friends Mary, Chris, and Fred want to manage their liability because of their past experiences, and not all three wants to limit their liability in better way as compared to business structure of partnership. For this purpose new business structure was adopted by them in which they issue shares to their friends and relatives for the purpose of arranging funds.
Therefore, all three friends changed the business structure of the business and adopt company as their business structure.
They adopt this structure because only this structure provides the advantage of separate legal entity and limited liability, and all three wants to limit their liability and for this company is the best business structure and also there is one more factor as per which funds of the company can be arranged by issuing shares.
b) For the purpose of ensuring protection of outsiders who entered into a contract with company, doctrine of Indoor Management was developed by Corporation law, and this of Corporation Act 2001 also introduce Section 128 and 129 for adopting the more convenience approach towards the business. This approach of business convenience relates with the efficiency of business transaction, and also ensures the protection of financial interest of members of the company as well as the interest of creditors and outsiders.
According to the law introduced by corporate at 2001 if any outsider entered into contract with any person in good faith, and such person purported that he act on behalf of the company but in actual such person does not have any relevant authority to enter into contract, then in case contract is considered as voidable contract at the company’s option. Generally, this principle is considered as harsh principle for those outsiders who acted in good faith and for those outsiders also who do not have any way to check that person who entered into contract on behalf of the company fulfill all necessary internal requirements and also take all approvals. Therefore, for such persons doctrine of indoor management was introduced by legislature, and this rule was identified in Royal British Bank v Turquand case.
As per this rule, if actual authority was given by any person from board of directors in the form of agent, then it is compulsory that board fulfill some procedural conditions, and these conditions must be applied on strict basis. These conditions are stated below:
As per this doctrine, in case outsider who entered into contract with the company in good faith then they are not liable to check whether all necessary internal actions are taken by company for the purpose of entering into contract. This doctrine included all the matters related to internal management of the company, and which are not known to general public. It must be noted that, for applying this doctrine it is necessary that matter must relate with internal management of the company.
According to section 128 of the Corporation Act 2001, outsiders who entered into contract with company can make assumptions stated under section 129 of the Act while entering into contract with the company and company cannot use it as defense that assumptions made by outsider are not correct.
According to Section 129 of the Corporation Act 2001, has right to assume that person or officer appointed by company is appointed after fulfilling all the provisions and regulations, and such person has power to perform all the duties on behalf of the company.
In this case, all three friends Chris, Fred and Mary are appointed as company’s directors. Chris makes the café liable towards the consumer because of his negligence and therefore Chris wants to do something good for the company. After some time, he founds that his neighbor is selling his shop for the $120,000, and for the purpose of purchasing this shop and make some renovations in the shop he decided to take loan of $150,000.
As per the company’s constitution, directors have power to manage the company’s operations, and it is necessary that either director of the company or any other person authorized by board of directors for that particular purpose sign the contract related to goods and services, and these contracts also include loan exceeds $100,000. Chris fails to discuss this contract with any director of the company and signed the contract on company’s behalf.
In this case, company is liable towards the outsider under this contract because outsider is not liable to check whether directors of the company fulfill all necessary internal requirements and take internal approvals. Therefore, this contract binds the company and imposed legal obligation on company.
c) Some basic and general duties are imposed on directors of the company by Corporation Act 2001, and these duties are stated below:
In this case, duties of directors are breached by Chris under section 180 of the Act by not informing the directors about the information which require their approval, and he also breach section 182 by use his position in improper manner.
References:
ASIC, ‘Directors – What are my duties as a director’, < https://asic.gov.au/regulatory-resources/insolvency/insolvency-for-directors/directors-what-are-my-duties-as-a-director/#1>, Accessed on 26th May 2017.
Austlii, ‘A Two-Edged Sword: Salomon and the Separate Legal Entity Doctrine’, < https://www.austlii.edu.au/au/journals/MurUEJL/2000/32.html>, Accessed on 24th May 2017.
Austlii, ‘Protecting Outsiders to Corporate Contracts in Australia’, < https://www.austlii.edu.au/au/journals/MurUEJL/2002/22.html>, Accessed on 24th May 2017.
Business, ‘Company’, < https://www.business.gov.au/Info/Plan-and-Start/Start-your-business/Business-structure/Business-structures-and-types/Company>, Accessed on 24th May 2017.
Business, ‘Partnership’, < https://www.business.gov.au/info/plan-and-start/start-your-business/business-structure/business-structures-and-types/partnership>, Accessed on 26th May 2017.
Corporation Act 2001- Sect 128.
Corporation Act 2001- Sect 129.
Corporation Act 2001- Sect 1317E.
Corporation Act 2001- Sect 180.
Corporation Act 2001- Sect 181.
Corporation Act 2001- Sect 182.
Donoghue v Stevenson 1932 AC 562.
Green v Beesley (1835) 2 Bing N C 108 at 112.
Ian M. ramsay, ‘Piercing the Corporate Veil in Australia’, (2001) 19 Company and Securities Law Journal 250-271.
Kevin G. cain, ‘The McDonald’s Coffee Lawsuit’, < https://www.jtexconsumerlaw.com/V11N1/Coffee.pdf>, Accessed on 26th May 2017.
Lang v James Morrison & Co Ltd (1911) 13 CLR 1 at 11.
Partnership Act 1958- Sect 5.
Partnership Act 1958- Sect 6.
Royal British Bank v Turquand.
Salomon v Salomon & Co [1897] AC 22.
Smith v Anderson (1880) 15 Ch D 247 at 273.
Stella Liebeck v. McDonald’s Restaurants (1994).
Wrongs Act 1958- Sect 43.
Wrongs Act 1958- Sect 44.
Wrongs Act 1958- Sect 48.
Wrongs Act 1958- Sect 50.
Wrongs Act 1958- Sect 51.
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