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Table of Contents (1) Setting the Scene (2) Elements of the Statutory Definition of a Partnership under s7(1) PA(WA) 2 Persons Element: Who can be a ‘person for the purposes of s7(1) PA(WA) 2 Intention to make profit element: Did the parties in question have ‘a view to profit’? Tom argues it is a pa...

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Table of Contents (1)

Setting the Scene ............................................................................................................. 4

(2) Elements of the Statutory Definition of a Partnership under s7(1) PA(WA) ............................ 5 2.1 Persons Element: Who can be a ‘person for the purposes of s7(1) PA(WA) .................................. 5 2.2 Intention to make profit element: Did the parties in question have ‘a view to profit’? .................. 5 Tom argues it is a partnership. What kind of argument would he make on the facts? ........................ 6 Oli argues it is not a partnership. What kind of argument would he make on the facts?..................... 6 2.4 Existence of Business Element: Did a business exist on the facts?.................................................. 6 2.5.1 Carrying on a business v agreement to carry on a business ......................................................................... 7 2.5.2 Commencement question: merely preparatory or more than preparatory? .............................................. 7 2.5.3 Frequently and scope associative activity ................................................................................................. 9

2.6 In Common Element: Was there a mutuality of rights, obligation and agentic-relations in carrying on the common business? ..................................................................................................... 9 2.6.1 There must be a common business.................................................................................................................. 9 2.6.2 Mutuality of rights and obligations re the common business ..................................................................... 10 2.6.3 Mutuality of agency in relation to carrying on business in common: an important indicator of partnership?............................................................................................................................................................. 11

IN THE MURDOCH KANAGROO COURT PERTH REGISTRY No X of 2019 BETWEEN Tom AND

[

Filed on behalf of the [ by [

] WRITTEN SUBMISSIONS

]

] Barristers & Solicitors

90 South St, Murdoch WA 6150

PART 1: Statement of Issues [1] Is there a partnership between Tom and Oli? (overarching question) [ ] IS the relationship between Tom and Oli constitute a partnership “relation” for the purposes of s7 of the PA(WA) [2] Whether Tom and Oli are ‘persons’ for the purposes of s7(1) PA(WA) [3] Whether the parties had a view to profit [4] Whether a business existed on the facts [5] Whether the business was carrying on at the relevant time [6] Whether there was a mutuality of rights, obligation and agentic-relations in carrying on the common business

PART II: Statement of Relevant Facts [1] Tom & Oli have an intention “to make money on the side” [2] They have bought shares in their own names on a monthly basis [3] Activities have netted Oli $500 and Tom has lost $100 worth of value [4] They paid internet bills and electricity together [5] The computer broke down [6] Tom wants Oli to pay because he claims it was a partnership computer [7] Oli claims that it was Tom’s computer and only he should be responsible [8] Bank accounts are separate PART III: Relevant law and arguments for [name party] [1] Fazio v Fazio [2] Duke Group (in liq) v Pilmer (1998) [3] Smith v Anderson [4] Ferguson v FCT

PART III: Orders sought [1] [2] [3]

Counsel of [ Tel:

]

Fax: Email: DATED:

(1)

Setting the Scene Fazio v Fazio

[53] Wheeler J: Partnership-relation springing from agreement Partnership is the relation which exists between persons carrying on business in common with view to profit: s 7(1) of the Partnership Act 1895 (WA). If the relation between persons that fits the statutory definition of partnership in the s7 (1) PA(WA) a ‘partnership’ legally exits irrespective of the subjective intentions or labelling attempts of the parties (Canny Gabriel v Volume Sales 1971) HC. Person who have entered into partnership with one another are, for the purposes of the Act, called collectively a firm and the name under which their business is carried on is called the firm-name s10PA(WA) Business Names Registration act 2011 (Cth) s 18(1) provides that ‘an entity commits an offence if: (a) the entity carries on a business under a name; and (b) the name is not registered to the entity as a business name on the Business Names register.” Under the general law, the agreement may be inferred from circumstances proved in evidence: Peacock v Peacock (1809); the court may impute to the parties a tacit agreement to operate a business as partners: Booth v Booth (27). No formalities to creating a partnership, all evidence will be relevant.

What kind of information does the court take into account for finding out if such a relation exists? 

S7(2) – court is to look at circumstances of the case and true intentions of the parties. There are no formalities to a partnership.

South Sydney District Rugby League Football Club Ltd v News ltd (2000) The mere device of labelling cannot make the relationship something else. (Finn J).

(2) Elements of the Statutory Definition of a Partnership under s7(1) PA(WA) (1) (2) (3) (4) (5)

Persons Profit intention Existence of a ‘business’ ‘Carrying on’ a business; and Carrying on a business ‘in common’ [mutuality re-carrying on a business]

2.1 Persons Element: Who can be a ‘person for the purposes of s7(1) PA(WA)  

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A person for the purposes of PAWA includes anybody of persons corporate or unincorporated (s3PAWA) A partnership can exist between companies (re Rudd & Sons [1984]) and between companies and individuals (natural persons in their private capacity (Scher v Policyholders Protection Board [1994] Tom and Oli satisfy the requirements of being a natural person

2.2 Intention to make profit element: Did the parties in question have ‘a view to profit’? ‘The intention to make a profit is said to lie at the very heart of the partnership relationship (Walter v Scarborough) 2011 NSWSC  ‘…profits in the context of s71PAWA connotes a pecuniary gain (Duke Group Ltd in liq v Pilmer) (1998) 144 FLR 1 Mullighan J  ‘The word ‘profit’ connotes a gain or increase measured by a comparison of the financial position at different points in time’ (Read v Commonwealth 1988)  ‘Profits’ implies a comparison between the state of a business at two specific dates usually separated by the interval of a year. The fundamental meaning is the amount of gain made by the business during the year. This can only be ascertained by a comparison of the assets of the business at the two dates” (Re Spanish Prospecting Co Ltd)….However a profit is determined, it must take into account any expenses involved in generating the gain. Profit is not coextensive with gross trading receipts. [973]…. However profit may be identified or calculated, it connotes a direct and pecuniary gain. It does not mean the receipt of some other type of benefit or advantage, even if some benefit ultimately leads to a pecuniary gain….’ (Duke Group Ltd in liq) Clubs/associations  ‘…in the case of a club which makes a profit, although the profit may not be distributed to its members, it may be applied for the benefit of its members. An object of the club in question 

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may be able to provide benefits to members, but it will not, because of that, be conducted with a view to profits. See Wise v Perpetual Trustee Co Ltd [1903] Importantly, merely intending to making a profit or a pecuniary gain does not of itself create a business activity: ‘…the statute meant to deal, not with people who were associated together for the purpose of obtaining gain, but with people who were associated together for the purposes of carrying on a business having for its object the acquisition of gain’. Smith v Anderson Brett Ltd.

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Profit doesn’t mean the same thing as gross returns

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Have the boys made a profit? - Could be argued that they didn’t really want to make money, the pecuniary gain that was intended was intended far in the future. They were just gambling at this stage. - Trading gain v capital gains - If it is only capital gains, it weakens the claim to being a business. - So, it is an intention to make a profit, not just a gain.

Tom argues it is a partnership. What kind of argument would he make on the facts?     

They pay bills together They took into account costs when calculating the figure The fact that it is shares They made a pecuniary gain “Capitalist” – you do this in order to get a pecuniary return and profit from the activity. An increase on the capital that is invested – profit motive.

Oli argues it is not a partnership. What kind of argument would he make on the facts?  

It was a passive investment. The gain was made by the business of the company that they bought shares in, not by the boys as the shareholders. They were just passive investors that received the gain. It was a mere passive investment intended for a gain but not for a profit, intended as a hobby or recreation.

2.4 Existence of Business Element: Did a business exist on the facts? 

[Note, notwithstanding significant overlaps, the question of whether a business exists on the facts is conceptually different from the question on who (alone with others) was carrying on that business.

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For the purposes of PAWA, business = includes any trade, occupation or profession (s3PAWA)

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‘From the definition in s7(1) of the PA three basic factors emerge. Firstly, that business is given a very wide meaning, and includes every conceivable trade, occupation or profession, but may not include every activity that results in monetary gain. (Jackson v PT Construction) [2015] FCCA 1014 [23]

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Brett LJ in Smith v Anderson make a subtle, but very important point on the difference between the source of a pecuniary gain and the distribution of a gain of pecuniary gain. o If ‘… individuals are mere shareholders, then the gain which is acquired by the business is a gain of the company, and not a gain by the individual shareholder. But where it is an ordinary partnership, the gain will not by the whole body as distinct from the individuals, but by the individual partners. But the mode in which the gain when obtained is to be distributed does not seem to me be the real point in this case’. Smith v Anderson (Brett LJ). o ‘the statute meant to deal, not with people who were associated together for the purpose of obtaining gain, but with people who were associated together for the purpose of carrying on a business having for its objects the acquisition of gain’ Smith v Anderson (Brett LJ).

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If the boys are just sitting on their assets, there is no business on the facts. If there is no business, there can be no partnership.

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More persuasive argument is that they were just doing this in order to generate an understanding for themselves, for educational purposes

I think these questions are really about the source of gain activity. The existence of a business is a matter of fact and degree…Relevant factors include, but are not limited to the existence of a profit making purpose, the scale of activities, the commercial character of the transactions, and whether the activities are systematic and organised often described as whether the activities are carried out in a business like manner. Spriggs v Riddle (HC). But an activity may not be a business if it is ordinarily considered a hobby or its main purpose is pastime (Brajkovich) entails mere passive investment (e.g. Smith v Anderson), or if it is intended only to be mere preparation for a potential future business (ferguson v FCT) 2.5.1 Carrying on a business v agreement to carry on a business

2.5.2 Commencement question: merely preparatory or more than preparatory?  

The question of whether a business has commenced is fundamental to the existence of a partnership (Daoud v Boutros) [2013] There is a distinction between the carrying of business in partnership and the taking of preliminary steps by intending partners prior to the commencement of business (Keith Spicer Limited v Mansell) [1970]

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Work which is entirely preparatory cannot be characterised as constituting or forming part of the business, nor can the participants be described as that stage as carrying on or conducting a business (Allison v Tuna Tasmania Pty Ltd) [2015] TASSC 31 [29] Blow CJ.

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Are you still preparing for the business/still in planning stage v implementing the plan for business

Khan v Miah [2000] House of Lords (Millet LJ) Leading judgment in Australia [2127] They recognised the distinction between contemplated partnership/agreement to become a partnership, and the partnership itself. Business had not commenced because the restaurant had not opened yet – before it could be opened, they refurbished, got people to clean floors, carpenters – had to get special people, contract and create legal rights with other entities in respect to the premises and transform the premises – think about all the legal relations that had to be created to transform the space. BUT the restaurant was never opened. For the Appeals Court, because no customer had come in, they were not in business. “I think the majority of the Court of Appeal were guilty of nominalism” There is no rule of law that parties do not become partners until actual trading commences... It is necessary to identify the business venture. Whether they have embarked upon the venture, any commercial activity which is capable of being carried on by an individual…. Court drew distinction between “carrying on a business” and “setting up a business” “The question is whether the y had actually embarked upon the venture upon which they had agreed. The mutual rights and obligations of the parties do not depend on whether their relationship broke up the day before or the day after they opened the restaurant, but on whether it broke up before or after they actually transacted any business of the joint venture. The question is not whether the restaurant had commenced trading but whether the parties had done enough to be found to have commenced the joint enterprise in which they had agreed to engage. Once the judge found that the assets had been acquired, the liabilities incurred and the expenditure laid out in the course of the JV and with the authority of all parties, the conclusion inevitably followed that the parties in question commenved carrying on the partnership business.

Akram’s test Would a reasonable person looking at them say “are they in the planning stage, or have they embarked on their plan”

Had the boys embarked on their venture? 

Arguing for Tom, yes it had commenced - They are actually trading - If they were buying low and selling high, even if they were really bad at it, that would still be carrying on a business.

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Those arguing for Oli would argue that they weren’t trading

2.5.3 Frequently and scope associative activity   

The phrase carrying on a business implies an element of continuity or a repetition of acts in contrast with an isolated transaction Now, one transaction could be a partnership. It is not frequency any more. Note: Carrying on a business is not just about frequency of activity (a factual matter) and commencement (a temporal question): carrying on a business is also used sometimes to mean something completely different: ownership over the business.

2.6 In Common Element: Was there a mutuality of rights, obligation and agenticrelations in carrying on the common business? 2.6.1 There must be a common business    

‘it may readily be accepted that the commonality required of a partnership requires something more than separate businesses co-operating in some way for their individual profit’ the business has to be a business in common, not two separate businesses coordinating with one another. The partners must be carrying on a common business, not separate, but commercially complementary businesses. E.g. Checker Taxied ‘…it is true that, in acquiring the horses and issuing the prospectus, both Cummings and the accountants were profit motivated. The syndicates offered the prospect for each party to increase their professional earnings…Although it is true that, if the syndicates had succeeded, all parties would have profited by that fact, this is not enough, No case was cited to me, and I have not been able to find any case, wherein a relationship has been held to be a partnership simply because each party stood to gain a financial benefit, through the revenues of their own separate businesses, from a particular activity (Cummings v Lewis)

Oli’s Argument  Boys were carrying on two different businesses using the same computer because that was commercially complementary.  Sharing computer because it was convenient and commercially advantageous to both businesses  Using same computers kept costs down for both businesses  How you calculate profits may be an indicator that you are carrying on separate businesses

Tom’s argument  Joint account is a strong indicator that there was a common business 

‘The following matters are relevant to determining both the existence of the partnership and the nature and extent of the partnership business. Whether the parties were involved in a commercial enterprise with a view to profit. Whether there was a sharing of profits. Whether the parties held themselves our as partners…

2.6.2 Mutuality of rights and obligations re the common business How important is the agency question for determining whether a partnership exists?

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After taking into account what the court said in the Duke Group, Barret J said: the concepts of agency and mutuality of rights and obligations and are not additional definitional requirements but rather are part and parcel of the statutory concept of carrying on a business in common. Barret J in X Case reconciles the tension between Duke Group and Momentum Productions by saying agency and mutuality of rights are part and parcel of the concept of “in common”

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If carrying on the business is the proprietary right over the business, and is comprised of: 1. Paying for factors of production 2. Sharing profits and assets 3. Having overarching control Then we have to look for the above variables and whether they were shared by the partners. These factors all point us towards mutual rights and obligations.

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Mutuality of rights and obligations may be used as a guide to whether exists a partnership…But it is not decisive. Mutual rights and obligations serves as a way of distinguishing partnerships from other obligations. In order to establish that the business is carried on in common in the relevant sense for the purpose of the partnership, the rights and obligations which each parties each other must be examined. (Duke group v Pilmer)

Indicators of non-mutuality of rights and obligations  Parties were responsible for their own part of the operation (Duke)  Parties explicitly agreed to commercially compete against each other (duke)  Parties maintained distinct and separate bank accounts (AM Marketing)  The parties issued tax invoices to each other for services rendered in context of associative activity (Marketing)  Parties only shared gross returns (Cribb v Korn)  Each party had different methods of calculations of returns on investments (L&H Developments v MYR Investments Pty Ltd )  One party completely lacked control in operation

Indicators of Mutuality of Rights  Right to...