Essays on Corporations Law Case Study

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Question 1i) Susie, confronted with the fact that Dave has withdrawn all the money from their joint bank account, prevented her from viewing the accounting books of their news-agency business, and told her she was “fired” from her “job” at the news-agency, wishes to establish that she was in fact Dave’s partner rather than his employee; and that as such, she has the right to continue to receive her share of the earnings of the partnership or to receive half the net proceeds of the dissolution of the partnership. The fact that Susie was co-owner of a joint bank account funded by the profits from the news-agency, rather than being paid a set salary, provides a good indication that she was in fact a partner in the business and not merely an employee.

According to the Partnership Act 1891 (Qld) s6(1)(c), “[T]he receipt by a person of a share of the profits of a business is prima facie evidence that the person is a partner in the business, ” subject to a number of exceptions which do not apply in this case. The case for the existence of a partnership is further supported by the (implied) fact that Susie had access to the firm’s accounts until her falling-out with Dave.

If there is a partnership and Susie is a partner, s27(1)(a) gives her the right to an equal share of the partnership’s profits (lacking a partnership agreement specifying a different distribution); and s27(1)(i) gives her the right to access and copy the firm’s books. According to s28, lacking a partnership agreement containing language to the contrary, Dave does not have the right to expel Susie from the partnership.

Under s35(1)(c), however, he does have the right to dissolve the partnership; but if he does so, Susie is entitled to an equal share (since there is no partnership agreement to the contrary) of any winding-up proceeds. Should the partnership be wound up, the proceeds must first be used first to pay any outstanding debts of the partnership; then any advances the partners have made to the firm must be repaid or offset; and finally, any remaining partnership assets must be evenly divided between Dave and Susie. iia) If a partnership between Dave and Susie exists, and if the loan from WhichBank is to be treated as a loan to the partnership (and, of course, assuming that Dave fails to make payments on the loan), Susie can be held jointly liable for payment.

However, the Partnership Act 1891 (Qld) s8(1)(b) states that if “the person with whom the partner is dealing… does not know or believe the partner to be a partner”, the acts of the partner in question do not bind the firm or the other partners.

This case would appear to fit in with this exception. S9 (1), which otherwise would obligate Susie as Dave’s partner with regard to the loan, does not apply, since the loan was not taken out “in the firm-name, or in any other manner showing an intention to bind the firm”—at least if “the firm” is properly construed to mean the partnership between Dave and Susie, and not merely the news-agency. Also, since Dave made no representation to WhichBank regarding the partnership, s17 (“holding out”) does not apply.

According to Lynch v Stiff (1943) 68 CLR 428 (which dealt with misappropriation of funds under s14 rather than with a bank loan, but is otherwise applicable), partners may be held liable “(1) where a person has by words or by conduct represented himself or knowingly suffered himself to be represented as a partner in a firm; (2) where another person has given credit to the firm; and (3) where that person has so given credit on the faith of the representation. ” Clearly no such representation has been made: WhichBank extended credit to Dave as an individual without reference to, or knowledge of, his partnership with Susie.

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