LAW

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LAW00004 Company Law

SCHOOL OF LAW & JUSTICE

Session 2, 2018

IRAC Method to answer problem questions

Assess the entire legal problem to discover where IRAC needs to be applied. Read the question carefully to determine •  what broad area of law should be applied to the

problem - eg contract law, criminal law etc •  what cause/s of action within the broad area of law

is relevant to the client's case - eg breach of contract, misrepresentation etc

•  what elements of each course of action need to be proved or disproved.  

IRAC stands for

I     Identify the ISSUES R   State the relevant RULES (legal authority) A   Apply the rules to the facts of the case APPLY C   The outcome of applying the law to the facts. CONCLUSION

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ISSUES

•  Identify the problem: what has gone wrong and for whom?

•  Name each party and briefly describe their individual issues.

•  Work out what area of law may govern the resolution of the problem.

•  Identify any conflicting or troublesome facts.

RULES

•  Set out the legal principles that will be used to address the problem.

•  Source legal principles from cases and legislation.

APPLY •  Explain in detail why the Plaintiff's claims are (or are

not) justified, based on the body of law pertaining to the case.

•  How will this law be used by each party to argue their case?

•  Use relevant precedent cases, legal principles and/ or legislation to support your answer.

•  There may be several Plaintiffs involved.  Take the time to examine each case individually and analyse why their claims are (or are not) valid.

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CONCLUSION

•  Stand back and play 'judge'. •  Choose the argument you think is the strongest and

articulate what you believe to be the appropriate answer.

•  State who is liable for what and to what extent. •  Consider how parties could have acted to better

manage their risks in order to avoid this legal problem.

Other variants •  HIRAC •  MIRAT: Material facts Issue Rule Application Tentative conclusion

Activity 1.1.1 Barry carries on business as a window dresser. He employs Bruce to assist him. After some years Barry finds that Bruce is such a good friend and an excellent employee that he, with Bruce’s full approval, promises to pay Bruce in addition to his salary, a 1/2 share of all future profits made. In the event of insolvency of the business would Bruce be liable to contribute? Would your answer differ if:

1.  instead of being a window dresser, Bruce had acted as agent for Barry in obtaining new contracts? or

2.  if Barry, at the time he promised to pay a 1/2 share of future profits, had ceased paying Bruce a salary?

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This exercise is designed to test your capacity to distinguish partnership from other forms of legal relationship such as an employer/ employee relationship. Barry’s status? Bruce’s status?

• Definition of a partnership found in section 1 and the indicia found in section 2 of the Act.

• State the test in section 1 and refer to cases on the 3 elements.

Statutory definition of a “partnership”

•  Section (1)(1) of the Partnership Act 1892 (NSW) “Partnership is the relationship which exists between persons carrying on a business in common with a view of profit…” Essential elements: 1.  Carrying on a business 2.  By persons in common 3.  With a view of profit

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1: Persons carrying on a business

• ‘Persons’ includes any legally recognised person, including a company

• ‘Business’ defined s 1B(1) PA •  Must be the same business Checker Taxicab Ltd v Stone [1930]

NZLR 169

• ‘Carrying on’ – no statutory definition • Judicial guidance

Smith v Anderson (1880) 15 Ch D 247 UDC Ltd v Brian Pty Ltd (1985) 157 CLR 1

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•  Fulfilled if agency relationship binds parties, where each party carrying on business is acting on behalf of the others

•  The intention of the parties is essential in determining the scope of the agency relationship

•  Judicial interpretation includes inactive capital contributors (‘sleeping partners’) Duke Group Ltd v Pilmer [1999] SASC 97

•  More than agency – mutuality of rights and obligations between the parties Smith v Anderson (1880) 15 ChD 247.

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2: ‘in common’

2: ‘in common’

!  Not necessary for each of the partners to be actively involved in the conduct of the business

!  Courts look to the legal relationship between the persons involved

!  Courts look for evidence that partners have ‘a mutuality of rights and obligations between them’ and that they each act as agent for all the other persons who are alleged to be partners

© John ORR

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3: ‘With a view to profit’

•  Intention to make profit ‘at very heart’ of partnership relationship Bova v Avati [2009] NSWSC 921

•  Immaterial if venture successful or not and makes losses

•  ‘Profit’ not defined in Partnership Act

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Partnership Act 1892 (NSW)

• (Section 1 – essential elements of a partnership) • Section 2 – indicia of partnership, framed negatively

• Each rule does not of itself create a partnership 1.  common ownership of property 2.  sharing of gross returns Cribb v Korn (1911) 12 CLR 205 3.  sharing of profits and losses

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Partnership – 3 essential elements

•  Set out legal principles of the three essential elements (see Duke v Pilmer extract)

•  Apply the three essential elements to the factual scenario

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! On the first part of the question Bruce is an employee (ie not a partner) under the tests in section 1, and section 2(3)

Section 2(3)

(b) A contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such

It is unlikely that the variation on the facts would change this, Variation (a) •  Note that many employees act as agents for their

employers, and the existence of agency, by itself, does not prove partnership.

•  If the agency operated in the sense that both Barry and Bruce were agents and principals for each other, we may then have the "in common" notion required for partnership. There is no evidence of this on the facts.

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Variation (b) Section 2(3)(b) A contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such

The agreement in fact and in law would have to change from that of employer / employee to one of partnership by evidence of an express agreement or one implied through conduct.

Formalities for creation of partnership

•  No prescription under PA •  Creation

•  In writing •  Verbally: Lawrence v Gunner, Gunner v Lawrence

[2015] NSWSC 944 •  Inferred by conduct: Canny Gabriel Castle

Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd

•  By estoppel (holding out) section 14 PA

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Over time it might be possible to find this to be a partnership if there was evidence that the control one would expect in an employer relationship had been replaced by the "in common" relationship necessary for partnership.

•  To fully answer the question we need more facts, particularly as to the day to day management of the business.

•  Such evidence might prove the relationship has

moved from employer/employee to something else.

•  So when answering questions like this it is always

useful to identify any other information required to complete the answer.

Activity 1.1.5

•  What is the difference, if any, between a joint venture and a partnership?

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•  Distinguishing between joint ventures and partnerships is not clear cut.

•  Note Canny Gabriel case as an example. •  Note also UDC v Brian.

•  The express description within an agreement that the relationship is a joint venture will not stop the court finding a partnership where all the essential elements are present.

•  Accordingly there have been cases such as UDC v Brian and Canny Gabriel where the parties have used the term "joint venture" nevertheless the High Court has held the relationship to be a partnership.

•  There are many situations where the term joint

venture is used, not just those involving splitting of products as in the quote in the Study Guide from Brian's case.

Legal authorities and Joint Venture

1. proprietary interests in the assets of the joint undertaking, often, … as tenants-in-common; 2. joint control of the undertaking; 3. contribute to the joint undertaking, not necessarily equally; such contributions may be disparate [unequal]; 4. enjoy rights and assume obligations, which are often several [separate], and calculated by reference to ownership of shares and/or contributions made; 5. a joint (or community of) interest in the performance of the undertaking’s purpose; and 6. associate in the undertaking for mutual commercial gain which can be mutual profits. Gibson Motor Sport Merchandise v Robert James Forbes [2005] FCA 749

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In short the critical difference is that the tem "partnership" has a distinct legal meaning, and the term "joint venture" does not.

United Dominions Corporation Pty Ltd v Brian Ltd [1985] HCA 49 [7] Dawson J (see Study Guide p 16)

Perhaps in this country, the important distinction between a partnership and a joint venture is, for practical purposes, the distinction between an association of persons who engage in a common undertaking for profit and an association of those who do so in order to generate a product to be shared among the participants. Enterprises of the latter kind are common enough in the exploration for and exploitation of mineral resources and the feature which is most likely to distinguish them from partnerships is the sharing of product rather than profit.

•  If the relationship is at law one of partnership the mere description " joint venture" will not stop the court finding a partnership, as happened in both the Canny Gabriel and UDC v Brian cases.

•  The term "joint venture" which is commonly used in commerce to describe any joint business endeavour, does not yet have a distinct legal meaning.

•  This term was considered in Brian Pty Ltd v United Dominions Corp Ltd [1983] 1 NSWLR 490 at 496-497 per Hutley J.A., and especially at pp. 505-506, but in the High Court appeal the relationship was held to be one of partnership.

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Joint venture v partnership ‘Joint venture’ generally refers to a business relationship where the 3 essential elements of a partnership cannot be made out, especially: •  Sharing of product not profit •  Share of an actual asset individually owned and not

a common fund •  Joint venturers can dispose of their share of product

in any chosen manner (subject to any condiditons of agreement)

•  Joint venturer can transfer/assign their rights to the joint venture without the consent of co-venturers