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Conflicts in a Partnership: Koorine and Tau are good friends who have known each other since starting high school.
Conflicts in a Partnership:
Koorine and Tau are good friends who have known each other since starting high school. Upon finishing school Tau enrolled in a Bachelor of Business (Financial Planning) at the University of Wollongong and Koorine travelled overseas where she studied accountancy and worked for a number of years in an accountancy firm. Tau has also worked since graduation as a financial planner with a local firm.
When Koorine returned to Australia and caught up with Tau, they decided to go into business together under the name FinRight. Tau handles the financial services and planning side of the business and Koorine provides the accounting services. They rent premises together and have some administrative assistance. They have never executed any formal agreement but have always shared the profits and losses. It initially cost them $40,000 to set up the business. Tau contributed $25,000 and Koorine contributed $15,000.
Business is growing quickly and going really well. In the last financial year, the business made a profit of $220,000. Unfortunately, problems arose when Tau claimed that he was entitled to 70% of the profit because he generated 70% of the revenue, and he argued that his initial contribution was greater.
To try to increase her contribution, Koorine decided to purchase expensive computer equipment and software from Computers2U. It cost $10,000. Koorine did not consult with Tau about the purchase and when Tau was presented with the invoice from Computers2U, he refused to authorise payment.
Unfortunately, Tau was unfamiliar with the new computer equipment and as a result produced a misleading report. This led to negligent advice being given to a client, KX, who suffered some financial loss as a result. Both KX and Computers2U and have talked of suing FinRight if a resolution is not reached soon.
Despite their recent disagreements, Koorine and Tau are determined to work through their differences and make a go of their business, if they are able. They would like your advice.
Please advise on the following matters using case law and statute to support your answers:
What proportion of the profits from the last financial year is Tau entitled to?
I know that according to the Partnership act (1892) they are both entitled to 50% of profits and losses, thus $110,000 of profit belongs to Tau.
Who, if anyone, is legally responsible for the cost of the computer equipment?
This question confuses me a little bit as it says that Koorine decided to INCREASE her contribution by purchasing the equipment.
However, It looks like she bought it with the capital money as Tau was asked to authorise payment and refused. If she was trying
to increase her contribution she would be purchasing it with her own money and not asking Tau for authorisation. Is there any
similar case laws that relate to this case?.
Who, if anyone, is legally responsible for KX's losses?
I am also not sure how Tau is using the computer equipment if he did not authorise the payment for the equipment in the first place. Please explain a bit more on this section and suggest who might be legally responsible for KX's losses. I Believe it might be Tau as he produced the negligent advice but do not have any legal back up for this.
