Companies of partnership law (COML 2005)

  QUESTION 1 (worth 25% of this assignment) Section 131 Corporations Act 2001 (Cth) was included in the Act to overcome previous problems in the law. In your own words, in approximately 300 words, explain 2 points about the legal significance of this section. QUESTION 2 (worth 75% of this assignment) John, Paul and George have formed a syndicate with the purpose of forming a company to develop some land into a small amusement park. They spend considerable time and effort to find the right location and eventually buy some land. Soon after buying the land, but before the company is registered they have an opportunity to buy $100,000 worth of 2 equipment for the park from Ringo who is offering it at a special low price because he needs to secure a quick sale. At the time that the contract for the equipment needs to be signed, Paul is overseas on a private business trip so the contract is signed by John and George “On behalf of Happy Park Company Ltd” which is the name they intend to use for the company. Final payment for the contract is set for two month’s time. Although nothing is said in the contract about it everyone involved expects the Company to be registered by that time. Within the next month John and George register the company and since Paul is still away he is not involved. When they go to register the name they find that it is not available so they decide to register the company as “Funtime Company Limited.” All three are nominated as directors of the company on the registration documents. Following registration the syndicate sells the land to the company and as directors of the company, John, Paul and George approve of the contract for the land. However since their purchase, the value of the land has dropped considerably due to the owner of the adjacent land having been given permission to use it as a rubbish dump. The syndicate being aware they could not afford to make a personal loss, added 5% to the price they paid for the land. They disclosed this addition in the board of directors’ minutes, considering it to be a reasonable profit for their efforts of finding the land. A number of disputes occur between the three including a dispute about the ratification of the contract for the equipment. Paul had returned the week after the company was registered, and at the first meeting of the board he told them he wanted nothing more to do with the equipment because he thought the equipment was “a load of old rubbish.” When the time comes to exchange the equipment for payment, Ringo wants specific performance of the sale but John and George refuse, claiming the company has not yet raised sufficient funds and Paul claims it no longer has anything to do with him. They tell Ringo he will simply have to sell the equipment to someone else. Ringo refuses telling them he will take legal action against them. This scenario raises a number of legal issues. Using the relevant legislation and cases, discuss the legal issues including arguments and liabilities which arise from this scenario.

this is an assignment for companies and partnership law (COML 2005). There are 2 questions in this assignment, first question worth 25% which is about 300 words and write in your own words, and second question worth 75% which is about 700 words which is about rules, issue, application and conclusion.

COMPANIES & PARTNERSHIP LAW ASSIGNMENT 2, 2015 DUE: MONDAY 12 OCTOBER 11.00 pm Maximum 1,250 words Value – 15% of overall assessment for the course This assignment assesses the following course objectives: CO1. Demonstrate a detailed knowledge of the law of corporations, demonstrated through the ability to identify and explain the key principles within the area. CO3. Develop clarity of thought, critical analytical reasoning, and problem-solving and communication skills in written context. Use the template provided on the website to analyse the following scenario and submit it via Gradebook. You can use Harvard or AGLC referencing. You can find a link for information on both here www.unisa.edu.au/Referencing Penalty for late submissions = 10% (-10 MARKS) PER EACH DAY LATE eg score 60% but 1 day late = final result of 50%. Please note ‘traffic jams’ sometimes happen with Gradebook close to the closing time and prevent submissions, making them late. You are advised to submit well within time. When you submit, Turnitin automatically generates a similarity report which is used to report students to the Academic Integrity Officer. You are advised to take note of any high percentages and to make sure you have not plagiarized by referencing appropriately. About 30% of this report will be due to use of the template which includes the cover sheet. If submitting early to check the report, you can resubmit but be sure to use the same file name. ************************************************************************ QUESTION 1 (worth 25% of this assignment) Section 131 Corporations Act 2001 (Cth) was included in the Act to overcome previous problems in the law. In your own words, in approximately 300 words, explain 2 points about the legal significance of this section. QUESTION 2 (worth 75% of this assignment) John, Paul and George have formed a syndicate with the purpose of forming a company to develop some land into a small amusement park. They spend considerable time and effort to find the right location and eventually buy some land. Soon after buying the land, but before the company is registered they have an opportunity to buy $100,000 worth of 2 equipment for the park from Ringo who is offering it at a special low price because he needs to secure a quick sale. At the time that the contract for the equipment needs to be signed, Paul is overseas on a private business trip so the contract is signed by John and George “On behalf of Happy Park Company Ltd” which is the name they intend to use for the company. Final payment for the contract is set for two month’s time. Although nothing is said in the contract about it everyone involved expects the Company to be registered by that time. Within the next month John and George register the company and since Paul is still away he is not involved. When they go to register the name they find that it is not available so they decide to register the company as “Funtime Company Limited.” All three are nominated as directors of the company on the registration documents. Following registration the syndicate sells the land to the company and as directors of the company, John, Paul and George approve of the contract for the land. However since their purchase, the value of the land has dropped considerably due to the owner of the adjacent land having been given permission to use it as a rubbish dump. The syndicate being aware they could not afford to make a personal loss, added 5% to the price they paid for the land. They disclosed this addition in the board of directors’ minutes, considering it to be a reasonable profit for their efforts of finding the land. A number of disputes occur between the three including a dispute about the ratification of the contract for the equipment. Paul had returned the week after the company was registered, and at the first meeting of the board he told them he wanted nothing more to do with the equipment because he thought the equipment was “a load of old rubbish.” When the time comes to exchange the equipment for payment, Ringo wants specific performance of the sale but John and George refuse, claiming the company has not yet raised sufficient funds and Paul claims it no longer has anything to do with him. They tell Ringo he will simply have to sell the equipment to someone else. Ringo refuses telling them he will take legal action against them. This scenario raises a number of legal issues. Using the relevant legislation and cases, discuss the legal issues including arguments and liabilities which arise from this scenario.

Example Application of IRAC Question Darren is a poor struggling heavy metal solo musician. After a recent performance at the Fringe, Tung a wealthy property developer approaches Darren. Tung has aspirations of becoming an entertainment entrepreneur and thinks that he has found “the next best thing”. Tung enthusiastically attends a number of Darren’s performances of his original music and explains to Darren that he is very interested in his work. He asks Darren whether he would like to collaborate with him on a business venture. Darren will consolidate his music to produce a best of album for local release at markets, alternative radio stations and Indie festivals. Tung is to finance the venture, paying for the recording and production of the CD and merchandise, such as t-shirts, caps and stickers. He also is to finance the promotional material/advertising. They agree orally that the profits are to be split 70:30 in favour of Tung. Unfortunately, after a dismal year of sales, Tung tells Darren he has had enough. He blames Darren for making awful music and boring performances and demands that half the money that he put into the venture be returned. Tung claims that he is owed this money because they are in a partnership. Darren is angered by this and claims that he will not repay the money because there was no initial agreement at the start and that they were not partners. Advise Tung Answer Issues The issues are whether there is a partnership between Darren (D) and Tung (T) and whether the money contributed by T has become partnership property. Rules A partnership is a relationship between persons carrying on business in common with view to profit. 1 Property originally brought into the partnership and property acquired on account of firm or for the purposes and in course of the firm’s business is partnership property. 2 Application Existence of partnership 1 s 1(1) Partnership Act 1891 (SA) (hereafter “PA”) 2 s 20(1) PA Comment [PW1]: The relevant issue(s) section is very short, 1-2 sentences. The difficulty is to frame the issue as narrow as possible and wide enough to capture the whole problem. Comment [PW2]: In this course we are using a footnote referencing system according to the Australian Guide of Legal Citation (AGLC). For a short summary how to reference see the Course Information Booklet Comment [PW3]: In the rules section you should only state the key rules which are essential to answer the key issue(s) stated above. Formulate the rules as an abstract general rule (“if this… then…”) and give legal authority for the rule (i.e. a case or a section of an Act) Comment [PW4]: The application is clearly the longest part of the answer. Here you will have to link the elements of the rule to the facts of the case before you. CPL SP5/2010 Example Application IRAC 2 / 5 Written by Patrick Wille August 2010 It is essential to establish the legal nature of the relationship between D&T and to determine the kind of business structure3 used. In determining the existence of a partnership, as against a joint venture, it is necessary to initially look to the intentions of the parties. 4 There is no partnership agreement between D & T to conclusively indicate intention, thus the issue of intention must be established through an objective analysis of their words, actions and conduct analysed in their entirety. If T claims money because of a partnership, the burden to prove the existence of the alleged partnership lies on him.5 This means T has to prove the following three elements: – Carrying on business Producing and selling CDs falls under the definition of “business” according to s 1B(1) PA which includes trade, occupation and profession. The professionalism (system and organisation with which D and T undertake the venture (merchandise, promotion, advertisement) shows that the venture is more than a hobby or pastime.6 However, it could be argued that T was merely an investor and that the mere act of investing does not constitute “business”.7 This case is distinguishable from Smith v Anderson because T’s role goes far beyond mere investing. He actually proposed the venture to D and suggested what to do (recording and marketing a “Best of” CD). As such “Carrying on business” implies a certain degree of continuity or that a transaction will be repeated. 8 However in Canny Gabriel case9 the High Court stated that continuity is no longer a critical consideration. In Minter v Minter10 it was confirmed that single venture business can be object of a partnership. Hence if in Canny Gabriel a tour of rock concerts was carrying on business, the production and promotion of a CD that includes performances can be object of a partnership and it is likely that this venture constitutes “carrying on business”. – In common T contributed the money to the venture and gave some instructions what D should do, while D recorded his music and made performances. D could either argue that he was the employee of T or that T only gave a loan and receives repayments and interest from profits. In the alternative D could also argue that the CD is a joint venture, and his performances and T’s merchandise are separate from the joint venture. T, however, would deny this and rely on the agreement regarding the splitting of profits, which is prima facie evidence for the existence of a partnership. 11 He would argue and 3 FaHCSIA website 4 Deputy Commissioner of Taxation v Tuza (1997) 35 ATR 32; Khan v Miah [2001] 1 All ER 20 5 Ogier v Booth (1883) 9 VLR (E) 160 6 Evans v FCT 89 ATC 4,540 7 Smith v Anderson (1880) 15 Ch D 247 8 GRAW, p.9 9 Canny Gabriel Castle Jackson Advertising v Volume Sales (Finance) (1974) 131 CLR 321 10 [2000] NSWSC 100 11 s2(1)(c) PA Comment [PW5]: Not how the application analyses the 3 elements of the partnership definition. Only if all elements of the definition are met you can conclude that there is a partnership. Comment [PW6]: Note how the authors try to argue both ways. Even if you are fairly sure about the outcome you should always look at the problem from different points of view and consider opposing arguments Comment [PW7]: This element is difficult to decide. Because it is unclear you have to argue about it a lot more than something that is rather obvious. Again, try to look at the problem from different angles and come up with a number of arguments. CPL SP5/2010 Example Application IRAC 3 / 5 Written by Patrick Wille August 2010 be likely to succeed that the exemption of s2(1)(c)(ii) PA (Remuneration of servants) does not apply because a master and servant relationship was never intended and that there is no indication for such a relationship. D is a free artist and if T was his employer he would have ordered to make better music and less boring performances: distinguish from Re Buchanan. 12 There is also no indication that the profit share is either a repayment of debt13 or a rate of interest on loan. 14 The right of T to receive money (if at all) does not arise from and does not depend on a separate relationship between debtor (the partnership) and creditor (T), but from the partnership relation between T and D: distinguish from John Bridge & Co Ltd v Magrath. 15 T’s engagement goes beyond the mere lending of money, he is the initiator and the driving force of the project; he has a say in the management of the undertaking, therefore it is likely that D and T do business in common as partners. 16 In the alternative, Fliway-AFA International v ATC17 held that profit sharing alone will not conclusively evidence a partnership. In the event that all that is undertaken is profit sharing and the agreement/arrangement is silent as to losses and agency, in that neither appears to be present to the objective observer, then it is likely that a partnership does not exist. As per Badeley v Consolidated Bank18 where Lord Linley held that a construction of a partnership based on only profit sharing is an artificial analysis as it only takes a sole aspect and then constructs an entire relationship based on this. This would, if allowed to stand, make all relationships where profit sharing is the so
le determinant a legal partnership, even if there is no intention, no mutuality and no agency. However, the relationship between T & D goes beyond the mere profit sharing and s2(1)(c) PA. There is certain interdependence between producing and marketing the CD and being the artist playing the music. Therefore, it seems to be likely that there is business in common. – View to a profit T wants to become an entertainment entrepreneur, the sale of the CD is promoted, D and T agree to split profits. This indicates the intention of D and T to ultimately earn profits.19 Partnership property T invested an unspecified amount of money to finance the venture (e.g. paying for the production of the CD). As there is no indication to the opposite, this money was therefore 12 (1878) 4 QSCR 202 13 s2(1)(c)(i) PA 14 s2(1)(c)(iv) PA 15 (1904) 4 SR (NSW) 441 16 Re Megevand; ex parte Delhasse (1878) 7 Ch D 511 17 (1992) 39 FCR 447 18 (1888) 38 Ch D 238 19 Minter v Minter Comment [PW8]: Note how arguments are reinforced and supported by legal authority. Comment [PW9]: Again, swop sides. Which side is more convincing? Comment [PW10]: Although, the element of doing business “in common” is not that clear and there are valid arguments either way, you should make up your mind what outcome is more likely and proceed based on this decision. Comment [PW11]: This element is so clear that it is not worth spending a lot of words on this. Comment [PW12]: Once you have established the existence of a partnership you can confidently apply the rules of the Partnership Act regarding partnership property and dissolution CPL SP5/2010 Example Application IRAC 4 / 5 Written by Patrick Wille August 2010 brought into the partnership and was intended to become partnership property.20 The CD’s, the merchandise and promotional material were bought with partnership money21 and/or acquired for the purpose and in course of the partnership business;22 they are therefore also partnership property. T does no longer have a direct and immediate proprietary interest in the invested money.23 He therefore cannot simply claim his money back. Dissolution of partnership and winding up As there is no specific agreement regarding the duration of the partnership T can dissolve the partnership by giving notice to D.24 As D is poor and the venture unsuccessful it is unlikely that D could buy out T and continue the business on his own as in Sobell v Boston. 25 Hence the partnership business has to be sold and the proceeds – due to a lack of an agreement – have to be distributed according to s44 PA. Before anything can be distributed all debts and obligations of the partnership have to be paid. 26 Only the ultimate residue will be divided among the partners in the proportion in which the profits are divisible.27 However, assuming that the sales were dismal T will hardly get 50% of his money back. In the worst case the debts and obligations will exceed the assets (in particular if CDs and merchandise have to sold off in a hurry) and a net loss will result. In such case T has to contribute 70% to the shortfall. 28 Conclusion It is likely that D and T are in partnership. However, this does not entitle T automatically to a repayment of half of the money invested. In the worst case he would have to cover 70% of the losses. 20 s20(1) PA; Robinson v Ashton (1875) LR 20 Eq 25 21 s21 PA 22 s20(1) PA; Carter Bros v Renouf (1962) 111 CLR 140 23 Watson v Ralph (1982) 148 CLR 646 24 s 32(c) PA 25 [1975] 2 All ER 282 26 s9(1) PA 27 s44(b)(iv) PA; Rowella Pty Ltd v Abfam Nominees Pty Ltd (1989) 168 CLR 301 28 s44(a) PA; GRAW, p.252 Comment [PW13]: Don’t forget to make proper reference to the textbook or other sources you are relying on. Comment [PW14]: The conclusion again is very short, 1-2 sentences. The conclusion should wrap up your analysis and answer the question. CPL SP5/2010 Example Application IRAC 5 / 5 Written by Patrick Wille August 2010 Reference List Books  GRAW, S. 2007, An Outline of the Law of Partnership; 3rd edn, Thomson Lawbook Co (Thomson Reuters), Pyrmont, NSW, Australia Case List Badeley v Consolidated Bank (1888) 38 Ch D 238 Canny Gabriel Castle Jackson Advertising v Volume Sales (Finance) (1974) 131 CLR 321 Carter Bros v Renouf (1962) 111 CLR 140 Deputy Commissioner of Taxation v Tuza (1997) 35 ATR 32 Evans v FCT 89 ATC 4,540 Fliway-AFA International v ATC (1992) 39 FCR 447 Khan v Miah [2001] 1 All ER 20; [2000] 1 WLR 2123 Minter v Minter [2000] NSWSC 100 Ogier v Booth (1883) 9 VLR (E) 160 Re Buchanan (1878) 4 QSCR 202 Re Megevand; ex parte Delhasse (1878) 7 Ch D 511 Robinson v Ashton (1875) LR 20 Eq 25 Rowella Pty Ltd v Abfam Nominees Pty Ltd (1989) 168 CLR 301 Smith v Anderson (1880) 15 Ch D 247 Sobell v Boston [1975] 2 All ER 282 List of Statutes  Partnership Act 1891 (SA) (“PA”) Internet resources  Australian Government Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), Fact Sheet 7 – Business Structures, available at: http://www.fahcsia.gov.au/sa/women/pubs/economic/bus_toolkit_indigenous_women/P ages/p7.aspx#7d, last accessed on: 17.08.2010

Companies & Partnership Law (COML2005) – SP5/2010 Assignment 1 – Indicative Answer Question 1 – PRÉCIS (30% of assignment 1) Write a précis of Construction Engineering (Aust) Pty Limited v Hexyl Pty Limited [1985] HCA 13; (1985) 155 CLR 541 and discuss how this case contributed to the law of partnership. Précis Construction Engineering (Aust) Pty Limited v Hexyl Pty Limited [1985] HCA 13 is a unanimous decision of the High Court of Australia on appeal against a decision of the NSW Court of Appeal. Tambel (A/asia) Pty Ltd (“Tambel”) and Hexyl Pty Ltd (“Hexyl”) were partners for the purpose of the construction of a commercial building on some land owned by Tambel, at [5]. Tambel entered into a building contract with Construction Engineering Pty Ltd (“Construction”), at [1]. The contract contained a number of provisions which made it seem inappropriate that Tambel contracted for an undisclosed principal, at [8]. The partnership deed between Tambel and Hexyl expressly provided that Tambel should enter into the building contract as sole principal (at [5]) and Tambel made no representation to act for Hexyl as an undisclosed principal (at [9]). A dispute arose from the building contract and Construction sought to hold Hexyl liable for the building contract arguing it had been made by Tambel on behalf of the partnership between Tambel and Hexyl, at [2]. Construction did not know or believe that Tambel acted as an agent for a firm or Hexyl or anyone else as an undisclosed principal, at [9]. The High Court considered that the prima facie actual authority of a partner to act as an agent for the firm and Hexyl as undisclosed principal (at [7]) was negated by the express provisions that Tambel had to act as sole principal (at [4] and [5]) and went on to examine whether Tambel had apparent authority under the second limb of s5 of the Partnership Act 1892 (NSW)(“PA”). The HCA held that the second limb of s5(1) PA effectively restates the common law position in that firm and its partners can only be bound by the acts of a partner lacking actual authority carrying on in the usual way business of the kind carried on by the firm unless the other party either knows that he has no authority, or does not know or believe him to be a partner (emphasis added, at [12]). Construction, however, conceded that it neither knew nor believed Tambel to be a partner, which resulted in the dismissal of the appeal. Discussion The Construction Engineering v Hexyl case is important because it was decided by the High Court of Australia and therefore binds all courts in Australia in their interpretation of provisions that are worded the same way as s5 of the Partnership Act 1892 (NSW). The decision is helpful because it clarifies that the statutory rule in the second limb of s5 PA re-states the position of the common law regarding apparent authority of partners,1 which differs from the liability of an undisclosed principal under the general rules of agency.2 The case also re-iterates that internal limitations of the authority of partners will not necessarily affect the rights of the outsider, who knows or believes that a partnership exists.3 Word Count: 489 1 GRAW, p.72ff. 2 FLETCHER, p.167ff. 3 GRAW, p.74 Question 2 – Problem Solving (70% of assignment 1 marks) Peter, who is an ambitious engineer from Adelaide and specialises in the design and the supervision of the construction of bridges, is keen to realise the new footbridge across Adelaide’s Lake Torrens connecting the Convention Centre with the upgraded Adelaide Oval. Peter is excited that the South Australian state government has recently (see The Advertiser, 18.6.2010) announced a concept for $535 million redevelopment of the Adelaide Oval and that his bridge design is favoured by this concept. To secure the construction of the footbridge Peter enters into negotiations with Batigroup, a major overseas construction company. Batigroup and Peter agree to build the bridge together as a consortium called “NewTech Constructions”. It is agreed that Batigroup will arrange for the project financing and perform the actual construction work. Peter is supposed to liaise with the state government and other stakeholders, adjust the bridge’s design (if necessary) and supervise the construction as a project manager. It is planned to split expected profit 70:30 in favour of Batigroup, which bears the bigger financial risk. The two parties also agree that their deal should be kept secret until the final project has been approved by the state government and Peter has secured the contract for the bridge. Peter continues lobbying for the bridge concept. Without the knowledge or approval of Batigroup, he enters into contracts with local printers to print high-gloss brochures promoting his bridge design, and books advertising in The Advertiser and on local TV stations. All these contracts are made in the name of “NewTech Constructions” and signed by Peter as “Project Manager”. Unfortunately, at the end of August 2010 the state government reveals the final design for the Adelaide Oval which includes a bridge designed by the world-renowned star architect and engineer Santiago Calatrava. Peter is shattered, not only because he missed out on building his bridge, but also because he is unable to pay the remaining $100,000 for the printing and advertisement owed to The Advertiser and Channel Seven Network. The Advertiser and Channel Seven Network later learn about Batigroup’s involvement in “NewTech Constructions” and sue Batigroup for the outstanding amount. Advise Batigroup as to their prospects in defending the law suit. Issue(s) The issues are whether Peter and Batigroup are partners and whether the contracts signed by Peter bind the partnership. Rules A partnership is the relation which exists between persons carrying on a business in common with view of profit. 4 4 s1(1) Partnership Act 1891 (SA)(“PA”) (Proposed design by Peter; source: www.news.com.au) The partnership is bound by acts of a partner carrying on in the usual way business of the kind carried on by the firm. 5 Application Existence of partnership Peter and Batigroup are persons that have some sort of relationship, but the other elements of the definition in s1(1) PA also need to be present: – Carrying on Business: According to s1B(1) PA “business” includes any trade or profession. Designing, supervising and building a bridge for money is both a profession and a trade; and therefore a “business”. “Carrying on” can include single venture enterprises like the construction of one bridge, provided there is an intention to be partners. 6 Here, the alleged partners not only work closely together and share profits; they also seem to care for their mutual wellbeing as they keep their cooperation secret until the contract is secured. One could argue that they are not yet carrying on a business because the contract is not secured and construction has not started; the project is merely a preliminary activity similar to Goudberg v Herniman Associates Pty Ltd. 7 However, Peter has already submitted his designs with some success and liaising with the government seems to be part of the overall business plan. The project, therefore, goes beyond preliminary activities8 and they seem to actually “carrying on a business”. – View to profit: Peter and Batigroup agreed to share profits implying that they want to make a profit. Such an intention to make an ultimate profit is all that is required. 9 – In common: Establishing the existence of a partnership one cannot rely on the label the involved parties give their relationship.10 Whether Peter and Batigroup call their relation “consortium” (which is usually used for joint ventures) is not decisive. Peter and Batigroup share tasks11: Peter is supposed to liaise with government and stakeholders (including lobbying) to secure the contract, he will adjust the design as needed and oversee the construction, while Batigroup organises finance and builds the bridge. They carry their business under “NewTech Constructions” (NewTech) which seems to be a firmname in the sense of
s4 PA. There is an express agreement to share profits 70:30 between Batigroup and Peter. Profit sharing is prima facie evidence for the existence of a partnership. 12 Although profit sharing does not establish a partnership in all cases, 13 it seems that Peter and Batigroup have an intention to do business in common despite labelling their relationship a “consortium”. 14 Hence, it is likely that Peter and Batigroup are in partnership. 5 s5(1)PA 6 Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 7 [2007] VSCA 12 8 Khan v Miah [2000] 1 WLR 2123; GRAW, p.12 9 Minter v Minter [2000] NSWSC 100; GRAW, p.15 10 Re Megevand; Ex parte Delhasse (1878) 7 Ch D 511; GRAW, p.40 11 GRAW, p.14 12 s2(1)(c) PA 13 Fliway-AFA International v ATC (1992) 39 FCR 447; GRAW, p.29 14 Whywait Pty Ltd v Davidson [1997] 1 Qd R 225; GRAW, p.28 Did Peter bind the partnership? Peter entered into advertising contracts without Batigroup’s knowledge or approval; hence, he did not have express authority to do so. It is arguable whether the advertising contracts were made for the purpose of the business in the sense of the first limb of s5(1) PA. The business of NewTech is to design and build a bridge. Although advertising may indirectly influence the government and the general public, the purpose of the business is not advertising. Hence, it seems unlikely that Peter had actual authority to enter into the contracts. 15 However, it is possible that Peter acted with apparent authority. The second limb of s5(1) PA requires that Peter’s acts are within the scope of the particular type of business conducted by NewTech. This does not mean that the particular transaction (advertising) needs to be one that is usually entered into by NewTech. It is enough if the advertising is a type of transaction that is usually effected in the kind of business carried on by NewTech. 16 One could argue that it is unusual to advertise a building project before the final approval of the design and the signing of the contract with the government. However, different concepts for building projects of general interest are often published before a final decision and promoting a particular project to gain further support is not unheard of. There are many examples where Private-Public-Partnership projects are advertising to gain support or acceptance, e.g. ASC advertising the construction of the Air Warfare Destroyer (AWD) in Adelaide. Hence, it seems that the advertising contracts signed by Peter are within the usual scope of a “business of the kind” run by NewTech and were executed “in the usual way”. Peter signed the advertising contracts on behalf of “NewTech Constructions” thereby indicating that he did not (only) act in his own name. Due to the use of “NewTech Constructions” and the sheer size of the project it must be clear to any third party that Peter was not acting alone, even if he kept his “deal” with Batigroup secret by not disclosing the identity of Batigroup. 17 If acts of an agent are done in the ordinary course of the business and if the third party is unaware of any restriction placed on the authority of the agent, the principal will be liable under general agency principles disregarding whether the third party knows that s/he is dealing with an agent or not.18 Under the second limb of s(5)(1) PA, however, the undisclosed principal (dormant partner) will escape liability for the agent’s unauthorised acts unless the third party “knows [or believes] that the person he deals with is a partner (…) although he does not know who the other partners in the firm are”.19 The facts do not indicate that The Advertiser and Channel 7 (the “third parties”) knew that Peter lacked the authority to sign the contracts on behalf of NewTech. It is also likely that the third parties did not exactly know who Peter’s partner was. As mentioned above, however, it must have been clear to the third parties that Peter did not act on his own and it is likely that that they at least believed that Peter was in partnership with someone.20 Accordingly, the contracts signed by Peter bind the partnership and therefore Batigroup. Partners are jointly liable for contractual obligations of the partnership.21 As Peter is unable to pay, it is likely that Batigroup will have to pay the $100,000. Conclusion Peter and Batigroup are partners and because Peter’s acts are likely to bind the firm, Batigroup will be liable to pay the $100,000 to the third parties. Word count: 1,205 15 GRAW, p.71 16 Mercantile Credit Co Ltd v Garrod [1962] 3 All ER 1103; GRAW, p.77 17 Distinguish from Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd [1985] HCA 13 18 Watteau v Fenwick [1893] 1 QB 346; FLETCHER, p.167 19 Construction Engineering case; FLETCHER, p.168 20 FLETCHER, p.169 with reference to Duke Group Ltd (in liquidation) v Pilmer (1999) 73 SASR 64 21 s9(1) PA

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