1.

DIFFERENT ENTITIES Elements: Insanity (of P or A) but not if Enduring Power of Attorney
1. Holding Out (acting with authority) (Tooth v Laws; Freeman & Lockyer) Bankruptcy
LOOK OUT FOR RISK ALWAYS A CONSIDERATION - Giving someone a seal = holding out (Pacific Carriers v BNP) Frustration (eg. destruction of subject matter)
Liability / fundraising / tax issues / perpetuity / regulations / costs - Not taking proper safeguards against misrepresentation (Pacific Carriers v BNP)
Advantages Disadvantages 3. PARTNERSHIP
2. Reliance on the holding out which induced TP into the contract
Sole trader - Total Control - Unlimited liability 3. Acting within scope of actual or apparent authority (Essington) 3.1 Pre Amble
- Low costs - Hard to raise capital sell a. Express prohibition = not binding (Essington)
- Easy to setup & change - Personal tax rate b. Hiring cars for company using them for other purpose = binding (Panorama)
- No public disclosure req. - Limited skill base c. Bank manager can send out / accept offers = binding (First Energy v Fidelis) THE THREE MAIN ELEMENTS WHICH MUST BE PRESENT - PARTNERSHIP ACT 1891 (QLD)
Partnership - Cheap - Unlimited liability Cases: S.5 DEFINITION
- Pools resources - limited numbers Tooth v Laws: Whether or not a licensee of a hotel, by having name across front door was such to have the party liable to still being represented. PARTNERSHIP IS THE RELATION WHICH SUBSISTS BETWEEN PERSONS CARRYING ON A
- Flow through - difficult to sell Freeman: Holding out a director that was not properly filled but the board acquiesced = bound the firm.
- Confidential - no separate entity 2.4 Fiduciary Duty?
BUSINESS IN COMMON WITH A VIEW OF PROFIT
- Joint and several liability
Step 6: Is the Agents duty fiduciary? 1) CARRYING ON OF A BUSINESS
JV - Governed by K (no direct statutory) Several liability A BUSINESS IS ANY TRADE, OCCUPATION OR PROFESSION AND IT MUST BE AN ACTIVE
Fiduciary obligations Equitable principals duty of loyalty exists when:
- Typically one off
o One party has a special vulnerability, AND: OCCUPATION OR PROFESSION CONTINUOUSLY CARRIED ON (SMITH V. ANDERSON
Company Separate entity / low taxes / easy to Set up and future costs / limited by corps o The other person is in a superior position to exploit
fundraise / shares / perpetual act and constitution / takeovers / Linkrose Nominees v King Courts are unsympathetic to breach of fiduciary relationship. (1880).
director liability
Trust Pass through Costly to start up
Boardman v Phipps: Fiduciary duty interest of trust and interest of beneficiaries before your own the duty arises out of the fiduciary relationship 2) WITH A VIEW TO PROFIT
Association Low formalities Cant make profit / not separate entity THE PARTIES MUST INTEND TO MAKE A PROFIT.
2.5 Agents Duties
Franchise F-Or = market penetration Compliance with FCoC / initial 3) IN COMMON
F-ee = immediate goodwill / training / investments high / high risk Step 7: Did the agent act within the scope of their authority
1. Follow instruction and carry out instructions - THE BUSINESS MUST BE CARRIED ON BY, OR ON BEHALF OF, ALL THE PARTNERS IN AN
site selection
2. Use reasonable diligence care and skill (If not gratuitous, higher standard) AGENCY RELATIONSHIP: KEITH SPICER LTD V. MANSELL [1970]; KANG-KEM V PAINE [2004]
2. AGENCY 3. Act in Persons best interest (John McCann v Pow) - THE PARTNERSHIP COMMENCES WHEN THE PARTNERS TAKE THE FIRST STEP IN
Step 1: Definition Agency relates to the fiduciary relation which manifests from consent of a principal to an agent to act on their behalf. The agent i. Express / Implied or actual power to delegate
can bind the principal contractually & is thus an exception to the doctrine of privity of K. There is no governing act for agency. ii. Delegate administrative things that require no special skill IMPLEMENTING THE BUSINESS PLAN: KHAN V MIAH [2000];
Step 2: Identify (1) Principal; (2) Agent; (3) Third Party iii. Necessary delegation (Swaffield) BACKED UP BY:
4. Act in Principals best interests (good faith) (Hewson v HSE); No conflict of interest Lintrose Nominees) WHEN DOES A PARTNERSHIP EXIST? COMMON LAW RULES
5. Not to make secret commission (Reiger v Campbell Stuart; Boardman v Phipps)
6. Not to divulge confidential information (Consul v DPC; Lunghi v Sinclair) - A PARTNERSHIP MAY BE FORMED EITHER EXPRESSLY OR IMPLIEDLY, AND IN EACH
7. To keep accounts separate CASE ALL THE CIRCUMSTANCES MUST BE EXAMINED IN ORDER TO ASCERTAIN:
John McCann v Pow: real estate agent delegated a house sale to sub-agent and claimed commission = If no permission to sub, then outside - THE INTENTION OF THE PARTIES;
scope of the agreement. - WHETHER THERE HAS BEEN A SHARING OF PROFITS AND LOSSES ACCOMPANIED BY A
Swaffield: Carriage of horse on train + no pick up = w/in authority necessity. STATE OF AGENCY; AND
Hewson v SSE: Stock broker buys stocks from clients with personal account = breach
Regier v Campbell: secret profit made when reselling cheap home - WHETHER EACH PARTY HAS A VOICE IN THE MANAGEMENT SO THAT IT COULD BE SAID
Consul v DCP: Agent of company gives info to law clerk who then passes it on to another to buy property = no breach as law clerk did not know of THAT AN AGENCY EXISTS.
the agents breach IF THESE QUESTIONS ARE ANSWERED IN THE AFFIRMATIVE, THERE IS HARDLY ANY
Boardman v Phipps: Fiduciary duty interest of trust and interest of beneficiaries before your own the duty arises out of the fiduciary relationship
DOUBT THAT A PARTNERSHIP EXISTS
Remedies: Breach of fiduciary duty, so all equitable remedies AoP + ACL remedies + Tort of deceit remedies + Criminal fraud THEN WE GO TO:
2.6 Agents Rights Against principal WHEN DOES A PARTNERSHIP EXIST? STATUTORY RULES/GUIDES S.6
Courts Always Always analyze the nature of the purpose for the fiduciary relationship coming into place in the first place. NOTE: THESE ARE GUIDES ONLY I.E. REGARD SHALL BE HAD AND NOT DEFINITIVE
2.1 Categories of Agents (3)
The agent has these rights against the principal: RULES.
Step 3: Identify Type of agency 1. Remuneration - But watch for subject to contract (Luxor v Cooper- A must be effective cause of sale) (Make sure not gratuitous} IN ADDITION TO THE COMMON LAW RULES, THE PARTNERSHIP ACT SETS OUT OTHER
1. Universal agent Unlimited power, can do what P can do themselves under general PoA 2. Indemnity from principal against liabilities
2. General agent Limited to trade, power under special PoA (Power of Attorney) 3. Reimbursement - for any lawful expenses incurred while in course pf Principle
NEGATIVELY FRAMED RULES TO WHICH REGARD SHALL BE HAD IF THE ANSWER IS
3. Special agent Hired for specific purpose, authority limited to ambit of what has been specified i.e. real estate 4. Right to exercise a lien - A lien is the right to keep possession of property belonging to another person until a debt owed by that person is STILL NOT CLEAR:
Partnership - Partners are both principals and agents (each partner is agent of the other) discharged - COMMON OWNERSHIP OF PROPERTY; S 6(A)
Company Directors - By being appointed or being held out as a director or officers. 5. Right to stoppage in Transit {If agent used his own money to buy goods can hold onto goods until purchase price paid}
Agents of the company (the only way a company can act) (As well as agents of each other) - SHARING OF GROSS RETURNS S 6(B); AND
Employer-Employee - Not an automatic agency (Depends on circumstances) Remedies: (1) Agents Lien (2) Stoppage in transit under the SGA - SHARING OF PROFITS - PRIMA FACIE EVIDENCE OF A PARTNERSHIP S 6(C).
Independent Contractor - Not always Ag Usually cont. controls method & materials. Luxor v Cooper: Agent told to find properties that were subject to K and be paid 10,000 commission + found one + P did not sign = not bound - THE COURTS LOOK NOT ONLY AT WHAT THE PARTIES MUST BE TAKEN TO HAVE
2.2 Creation and appointment of types of agency Entitled to remuneration if this is expressly or impliedly agreed to in the K.
INTENDED, BUT AT THEIR CONDUCT TOWARDS EACH OTHER WHILE CARRYING ON THE
Step 4: Identify how Agency relationship was created 2.7 Contract liability
Express: Agency relationship created by words that are written or spoken (or by deed) Principal: In contract - vicarious Liability for actions agent (Swaffield; Springer)
BUSINESS.
- Must be in writing if Property Law Act Applies (s59) Exception: (when AG is liable) NO ONE ELEMENT ALONE WILL DETERMINE PARTNERSHIP. COURTS WILL LOOK AT ALL
Implied Agency implied from what is usual or customary. Objective test 1. Where 3rd party or AG agrees to take on primary responsibility. OF THE CIRCUMSTANCES COLLECTIVELY IN ORDER TO DETERMINE PARTNERSHIP.
By Operation of Law: When parties havent contemplated what their legal relationship is. 2. Trade or custom usage (ie solicitor carries responsibility to barrister even if PR not pay)
Sub 2 of OL Ratification 3. P is non-existent at law. (no legal personality)
4. AG exceeds authority breach of warranty of authority (Suleman v Shahsavari)
3.2 Definition
Cooper v Fisken: deemed to contract personally = agent liable Definition: Partnership is the relation, which subsists between persons carrying on business in common with a view to profit. (S5(1) PA)
2.2.1 By Operation of Law Necessity / Cohabitation Kelner v Baxter: Signed as proposed company = agent personally liable (see s131-4 CA) SAY: Partnerships in Qld are governed by the Partnership Act in which rules of equity and the common law continue in force so far as
Necessity: An agent may be authorised in the absence of an express or implied agency relationship if there is a necessity. The criteria are: {from Black v Smallwood: signed as directors = agent not liable they are inconsistent with express provisions of the act (s121 Partnership Act);
GNR v Swaffield} Suleman: solicitor supposed to get 2 authorisations, only got one for transfer to TP, damages awarded to the aggrieved TP, but no SP of the - Partners are also agents for each other and agents for the partnership rules of agency apply
1. Cannot communicate with Principle (Contra: Springer v Great Western) contract. Partnership begins when they make their first move towards being a partnership not when they begin trading.in furtherance of the business.
2. Genuinely necessary in the circumstances and to the benefit of the Principle 2.7.1 Doctrine of Undisclosed principal (UP)
3. Acting in good faith interests of Principle and other parties concerned Agent can be personally liable where the existence of the Principle/Ag relationship has not been disclosed to the TP ELEMENT 1: Identify Partners and the cause of action
GNR v Swaffield: Carriage of Horse on train + failed pick up = agency of necessity TP can sue either the Ag directly or sue the Principle if identity subsequently revealed. Who are the parties and what is the relevant breach?
(Swaffield = P, GNRailway = A, Stable = 3rd Party) A can seek reimbursement and indemnity from Principle but only where Ag is acting within the scope of authority.
Springer v Great Western: tomatoes going bad + sold them all = no Ag (could have made contact) Note Who is liable will always be assessed by where in the machinations end up (TP liable if P seeks contract, or vice versa, about 6 different There is a limit as to membership (from s115 Corp act; Regulation 2A.1.10)
combinations) General partnership=MAX 20 people (s115(1)(b)Corps Act), unless specialised type:
Cohabitation A woman or mistress living in common law has agent powers to buy necessities suitable for the couple but not luxuries o Accountant = 1000;
(jewellery) (Pianta) [Food, clothing..]] o Legal practice = 400;
2.8 Tort Liability
2.2.2 Operation of Law - (Subsequent) Ratification o Architects, chemists, vets = 100;
1. Out on a frolic (Deatons v Flew) [barmaid throwing glass at patron] o Doctors, actuaries, scientists
- A Principle may retrospectively ratify any prior agent dealings whether or not the agent has authority to engage in those dealings (Bolton v 2. Within scope of apparent authority (Lloyd v Grace Smith) [signed conveyancing over to himself as solicitor fraudulently held within scope
Lambert). Without ratification Ag = Liable. o Stockbrokers = 50
of this apparent duty]
4 Principles emerge: Bolton v Lambert 3.3 Elements
2.9 Remedies of Principle
1) Ag must be clearly acting as Ag ELEMENT 2: Statutory Definition s5(1) PA In order for a partnership to exist, three elements must be satisfied
2) Ag must have known Principle in mind 1) Rescission;
3) Principle must have contractual authority or capacity (i.e. no minors) 2) Refuse paying commission; (1) Carrying on of a business
4) Principle must be in legal existence at the time the Ag acts 3) Suing for: Business
- Damages is any trade, occupation or profession and must be an active occupation or profession (s3 definition) continuously carried on. Carrying on:
Effect: Agent is relieved of liability. Ratification can be retrospective - To recover secret commission There needs to be some degree of continuity. (Smith v Anderson)
2.3 Authority of Agent 2.10 Termination Isolated transaction is traditionally not a partnership BUT one transaction isnt always a joint venture. (Canny Gabriel Castle Jackson Ad
Step 5: Identify Scope of the Ag Authority objectively Mutual agreement; v Volume Sales Elton john concert)
1) Express authority Principle expressly gives power to enter into dealing and has actual express authority. Unilateral revocation of AG's authority (best if done in writing); Carrying on:
2) Implied Authority - Implied actual authority arises when it is incidental or customary for the Ag to carry out the acts to give the Ag business AG withdrawing from the agreement; Any trade, occupation or profession that active = carried on, but must intend to repeat the act more than once
efficacy (Snowy Mountain Hydro Case) PR revoking AG's authority; Sometimes only need to do it once if other elements are present (profits shared, property on trust, indemnity, joint direction United
3) Apparent or Ostensible authority: If Principles holding out by words or conduct would reasonably lead TP to believe that an agency existed, Secret commission (if secret commission occurs the relationship is broken and the agency arrangement is terminated); Dominion v Brian
then Principle may be estopped from denying the Agency and will be bound by As acts: Completion of the purpose of the agency agreement;
Factors from Freeman & Lockyer v Buckhurst Properties: Impossibility of performance Smith v Anderson carrying on implies a repetition of acts and excludes the case of an association formed for doing one particular act which
1. Is there a representation? (Given business cards etc.) By operation of law: is never to be repeated. That series of acts is to a series of acts which constitute a businessThe association, then, must be formed in order to
2. It would be usual and necessary for these kinds of contracts to be entered into. Performance carry on a series of acts having the acquisition of gain for their object
3. Third party was induced or relied on the representation of the Ag. Lapse of time
Death
Canny Gabriel Contemporary partnership case law suggests that there may still be the carrying on of a business that amounts to a Actual authority; every partner is A of others. S9 CA authorizes acts done in usual course of pship business will bind the other partners o Account for private profits. (S32)
partnership even though the parties are engaged in a single venture or undertaking of short duration. Limb 2 Ostensible Authority o Refrain from competition. (S33) must account if competing (1) whether business is of the same nature is a question of fact
Even though partner acted without authorization firm is still bound where 3.6.2 Partnership Property
(2) In common (a) acted within ordinary scope of the business (objective and subjective test) Property bought with partnership money = partnership property (s24PA)
(b) transaction carried out in usual way
The business must be carried on by or on behalf of all the partners in an agency relationship Keith Spicer v Mansell; Kang Kem v Paine
(c) third party reasonably believed partner to be a partner Partnership Property
The partnership commences when the partners take the first step in implementing the business plan Khan v Miah
S10 partner of firm using credit of firm for private purpose does not bind unless expressly authorized All property originally brought in (s23) or afterwards acquired by partnership s24 is property of the partnership unless expressly provided for otherwise.
S11 firm not bound by acts of partners where internal notice that not bound Not necessarily all property used by partnership. Partner has no title to specific property owned by the partnership but has a beneficial interest in the
Keith Spicer The business is carried on by the partners only if they are carrying it on in their ownright. The partners must be, and must intend to Chan v Zacharia two important issues arising from this case
be, carrying on business as principals or partnership assets (Everett v Federal Commissioner)
1. Authority for fiduciary obligations between partners vary in agreement by full disclosure had D expressed he was intending to take over
proprietors. The court decided, however,that B and M had been merely working together to form the company and had not been carrying on
the lease he would have had Ps implied consent or knowledge Kalley v Kalley did they do anything that manifested an intention that it was not partnership property? conduct/words which show you dont intend
business in common with a view of profit. 2. May disclose pship opportunities to P while pship was ongoing it is ok for P to have held the lease if he first obtained Ds consent under to be partnership property
fiduciary rel
Kang Kem P brupt limited ability for obtaining credit, went into agreement with GF, de-facto partners, interested in opening restaurant held:
pship incorporates concept of agency between partners so bound to obli in agreement has to be common activities, rights and obligations not common If it is concluded to be a partnership establish agency and scope of agency 3.7 Incoming and outgoing partners
interest, bank account in one persons name (no mutuality) those elements absent = no pship SAY: This arrangement between [APPLY] is a partnership. Retiring Partner:
Khan Miah restaurant called themselves JV pship exists from the time they began to act as though they were going to open the restaurant 3.4 Liability / External relationships Old Debts: Remain liable for debts / torts before retirement (s20(3) PA) Unless:
not when the restaurant actually opened Liability of Partners in contract law - Specific notice of retirement should be given to all those who have dealings with the firm
(3) With a view to profit Liability is joint only, therefore the creditor only have one right of action. - Notices should be publicly announced (newspaper, gazette)
The parties must intend to make a profit/ Where a judgment is obtained against one partner, no further action can be taken against any other partner even if satisfaction cannot be - Notice must be forwarded to Corp. Affairs Commission or Regrar of Business Names
obtained from the partner sued. (Kendall v Hamilton) - creditors and other partners agree otherwise
However there is an Exception: Even if no view to making a profit, a person can still be held to be a partner (Young Legal Associates v Zahid) This applies in every state besides NSW where liability is joint and severable New Debts post retirement: May be liable if no steps are taken- notice of dissolution (s40)

M Young Legal Associates Is it possible for a person to be a partner in a firm, and thus liable jointly with the other partners to creditors of the SAY: Partners are agents of the firm (s8 PA) and any action by (1) the partner (2) in the usual way of business (3) in the scope carried on by the Incoming Partners: Not liable for any pre-existing debts, unless they agree to assume liability (S20(3), (5))
firm, if his agreement with them is not that he should be entitled to participate in its profits but that he should be paid by the firm a specified sum, firm binds the members (s9 PA) severally and jointly (s12 PA). A partnership can be sued - but once partnership is sued can't go after individual 3.8 Dissolution
irrespective of profits, for work to be done by him on its behalf? partners. However, a firm is not bound if the partners actions are not in connection with the firms business (s10(1) PA) ELEMENT 11: Methods of Dissolution
Held: There is no minimum threshold that has to be reached in relation to a persons rights to (a) profits or (b) involvement in management before he Partners will not necessarily be held liable for fraud of a co-partner who is acting outside of their authority. (Lloyd v Grace & Smith) Dissolution ends the partnership partnership may be dissolved (terminated) automatically by:
can be regarded as a partner. The question is simply whether, by their actions, the parties intended to create a partnership
Provisos: These will not bind the firm 1. Action of the partners s35PA
Excludes social and sporting clubs and cultural societies in not for profit sector 1. No authority AND TP aware of no authority / member (s8(1) PA) 2. Operation of law (partners death or bankruptcy) s36PA
**IT IS SUBSTANCE NOT FORM THAT DISTINGUISHES A PARTNERSHIP FROM A JV (Canny Gabriel; United Domnion v Brian [All 2. Contracted with no benefit to the firm (s9 PA) 3. By the expiration of a fixed term S30
paperwork said JV, actually a partnership] or opposite Duke Group v Pilmer [said partnership really JV not all members liable]) ** 3. Restrictions from the agreement + TP notice (s11 PA) 4. If entered into for a single undertaking, the completion of the undertaking S35(1)(b)
4. Raising funds outside the ordinary course (like for personal use) (s10 PA) 5. By order of the court (on application by a partner S38
ELEMENT 3: How was the partnership created? 5. Partners are liable for each others debts (s12 PA) 6. Illegality if event occurs making it unlawful for the business of the firm to be carried on S37
Partnership commences when the partners take the first step in implementing their business plan Kham v Miah
- Partnership is created by: by agreement: oral; written; under seal; inferred by a course of dealing (hardest one to identify) Liability of Partners in Torts Application to the court to have the partnership dissolved (s47 PA)
1. Oral Firm is liable for any tortious act of one of its partners (S13)
2. Written If partner or firm misapplies money given to them, the firm is liable to make good on the loss. (S14) ELEMENT 12: Consequences of Dissolution:
3. Under seal o Liability of Co-Partners only arises where the act or omission was in the ordinary course of business of the firm s14(1)(a) ONCE DISSOLVED MUST GIVE NOTICE
4. Inferred by course of dealing o or if the other partners gave authority s14(1)(b). Result: No longer have the power to act as agents for one another (s41 PA)
5. Inferred by conduct of parties Every partner is liable jointly and severally for everything which the firm is liable for. (S15) Must pay off debts then each partner is entitled to proportionate amount (s42 PA)
6. Clauses written in partnership agreement Where partnership is rescinded for fraud or misrepresentation, other Ps entitled to lien on surplus Partnership assets & right of indemnity
Polkinghorne Where the act/omission was in the ordinary course of business, the firm is liable by guilty P against all debts & liabilities & right to rescind K (s.44 PA)
ELEMENT 4: Common Law Rules Duke Group v Pilmer if one partner liable all are liable (i.e. 20% shares = 100% inclusive liability)
Pship can be formed either expressly or impliedly and all circumstances must be examined in order to ascertain: 4. JOINT VENTURE
(1) Intention of Parties Holding Out
(2) Sharing of profits/losses accompanied by state of agency Everyone who by oral or written words/conducts themselves to be partner in a firm is liable as partner to anyone who such representation was made 1. Relationship between [X], [Y], and [Z] does/does not look like a JV
(3) Whether each party has voice in management to. (S17) 2. Characteristics
3. Compare and contrast joint venture with partnership state all assumptions
Partnership: If Pship is sued partnership may then sue apparent partner 4. See if it is a partnership first (go through the elements of partnership) if they are not helpful then determine whether or not
Khan v Miah: (1) Joint account (2) 5 worked together, but had separate duties (3) broke apart could be JV
Not ostensible because it is not the partnership holding out. Pship can ratify if they wish a. ELEMENT 1 is the K undertaking between two or more parties to engage in economic activity?
Not Partnership: May be liable for debts incurred b. ELEMENT 2 is it a single transaction?
Keith Spicer: bought supplies but only prep (2) intended to later incorporate no further steps 5. If JV, then look at fiduciary relationship
3.5 Changing of Partners
Kang-Kem: (1) joint bank account (2) operational manager (3) staff and finances (4) obligations were separate and severable = no partnership Conclusion court is likely to view the circumstances to be a
ELEMENT 9: Changing of Partners
because no mutuality of rights Retiring Partners
Cox v Coulston: (1) one got the theatre other got singer = JV ELEMENT 1: Definition
Partner who retires from firm does not by retirement alone cease to be liable for partnership debts and obligations S20(3) United Dominions Definition: created when two or more people enter into an agreement to exploit a business opportunity with respect to a particular
Remain liable for debts incurred before retirement unless the creditors and other partners agree otherwise S20(5) project of undertaking. An association of people for purposes of a particular trading, commercial, mining or other financial undertaking with a view to
May be liable for debts incurred by the partnership after retirement if they have not taken steps to notify formed and new customers of their retirement mutual profit with each participant usually contributing money, property, or skill.
ELEMENT 5: Statutory Rules S39(1)
In addition to the common law rules Regard shall be had to this provision if the common law elements are not sufficiently identified There is a risk of liability if found guilty of holding out under s17(1) Competition and Consumer Act s4J(a) Definition:
PA s6(1) sets out other negatively framed rules to which regard shall be had An activity in trade or commerce:
Incoming Partners (i) Carried on jointly by two or more persons (whether or not in a partnership)
a) Common ownership of property, tenancy Generally only liable for future debts unless they agree to assume liability for past debts. S20(1)
b) Sharing of gross returns (ii) Carried on by a body corporate formed by two or more persons for the purpose of enabling those persons to carry on that activity jointly by means
c) Sharing of profits (prima facie evidence of partnership) of their joint control or by means of ownership of shares in the capital

If satisfied then a prima facie partnership exists 3.6 Internal Relationships - Rights of Partners A single transaction merely means it is more likely to be a JV but is not completely indicative Canny Gabriel
The courts look not only at what the parties must be taken to have intended but at their conduct towards each other while carrying on the business ELEMENT 10: Internal Relationship between Partners
Partnership agreement acts as a K between partners Is it a JV or merely a contractual undertaking?
NB: Co-ownership may not be partnership if the result of gift or inheritance If no partnership agreement refer to s27 Where one party contributes only money or other property it may sometimes be difficult to determine whether a partnership is a JV in which both
S22 the mutual rights and duties of partners (found either in agreement or act) may be varied with consent of all partners parties are entitled to share of profits or a simple contract of loan or lease under which the interest or rent payable to the party providing the money
ELEMENT 6: Restriction of Partners Unless the pship agreement states otherwise, S27 outlines rights partners have or property is determined by reference to the profits made by the other: United Dominions
- Generally Max number of partners is 20. (S115 CA) S27(1) add letter
- Unless special category covered by Corporations regulations Pt 2A.1.01 a) Share equally in profits and losses Common situations in which JVs occur
- Doctors, patent attorneys, actuaries and stockbrokers 50 b) Indemnity every partner in relation to payments made and personal liabilities by the partner Mining joint ventures
- Architects, pharmacists, vets 100 i. In the ordinary and proper conduct of the business of the firm Property development
- Solicitors 400 ii. In or about anything necessarily done for the preservation of the business or property of the firm Share-farming arrangements
- Accountants 1000 c) Interest on advances (money partner has put in) Entertainment agreements
- If more under CA, then you must incorporate d) Interest on capital (money partner has contributed at beginning) Structure to improperly fix, control or maintain the price, discount, allowance, rebate or credit in relation to goods or services supplied or acquired
- Partners can be multinational e) Share in management of the business or resupplied or likely to be resupplied Competition and Consumer Act
f) No partner is entitled to remuneration for acting in the partnership business - wages cannot be paid although partners can receive drawings
ELEMENT 7: Issues g) Consent of all partners is needed for the introduction of new partners 4.1 Distinguish JV from Partnership
Distinguishing Joint Ventures h) A unanimous decision of all partners is required to change the fundamental nature of the business ELEMENT 2: Distinctions between JV and partnership
Joint ventures are separate venture for each party, therefore no in common element. i) Partners are to have access to partnership books Key difference: JV avoids general liability of partners
Assets are held separately as are liabilities, therefore no agency relationship as exists in partnership.
Capacity to be a partner Expelling a Partner A majority of partners cannot expel a partner (S28) Usually 2 or more carrying on a business with a view profit, the contrast is the in common requirement of s5(1) PA
Person of unsound mind, minors (cannot be under 18) 3.6.1 Fiduciary Duty
Salaried partners Fiduciary Duty Distinction related to whether they are carrying on a business in common however where there is profit sharing and a more integrated business
Within partnership may be important to know whether salaried partner is truly as a mere employee or as a partner structure there is a greater likelihood that the entity will be a partnership: Canny Gabriel
s6 PA will matter little whether man is full partner or salaried partner salaried partner is still held out as being a partner ALWAYS Fiduciary relationship: law requires the utmost good faith and disclosure of all material matters affecting conduct of partnership.
The relationship is one of trust and confidence. (Chan v Zacharia)
Under Chan v Zacharia (1) relationship of trust and confidence (2) duty of good faith and honesty (3) duty to avoid conflict (4) duty to No agency or fiduciary relationship if its truly a joint venture except Farah Constructions
Relationship to Outsiders (Third parties)
Every partner is an agent other than a firm that is a limited pship or incorporated ltd pship is an agent of the firm and the other partners of account
JV indicated where:
the pship. (S8(1) PA) 1. Each party must discharge their own separate liabilities as regards the venture (Cox v Coulson; Kang-Kem)
Beginning and end of fiduciary obligations
This creates a fiduciary relationship among all partners. (Chan v Zacharia) o before commencement of pship; fiduciary relationship may exist between partners before partnership is formally established: United a. NB: Sharing of profits does not of itself create a partnership (s6(1) PA; Cox v Coulson)
S9 PA Any act done in the usual course of partnership business can bind the firm and the partners. Dominions 2. Parties are preparing to engage in a business using a separate entity (which may not yet exist))( (Keith Spicer; Khan v Miah)
S9(a) partner has no authority to act for firm 3. Usually undertaking for specific purpose. Can be for a single transaction but Not In Common (Canny Gabriel)
o Test where relationship of trust and confidence has commenced
S9(b) other person does not know/believe them to be the partner o after dissolution duty to act in good faith continues, after dissolution, during wind up until accounts are settled: s41(1)
The authority of the partners can be actual (express/implied) or ostensible/apparent. General indications:
Statutory duties of partners towards each other 1. JV is usually an ad hoc undertaking for a specific task or time;
There are two limbs: (Chan v Zacharia) 2. JV normally a separate venture for each of the parties;
o Render true accounts. (S31)
Limb 1 Authority to bind firm (s8) 3. JV = Assets held as TIC;
4. JV = Liability is individual; 6.2 Registration of a company / Limited Liability
5. JV = Profits are received individually; - The promoter may be sued for damages for negligence or improper conduct s. 598(4) CA 6.2.1 Process to Register a company
6. JV = Invoices are usually issued separately and paid individually; - s. 728 and s. 729 corps act right to recover loss or damage from omission from disclosure document)
7. JV = The parties can dispose of their interest in a joint venture without the need to assign. Application for registration (s117(1)) Form 201
5.3 Pre-registration contract (Incl. Ratification) 1. Decide what type (s57A Corporation include a company)
Stem B: Timeline and legitimacy of K a. Proprietary or public (s112(1))
Farah Constructions Farah had duty to disclose info about Councils requirement of amalgamation to D; and that the info that adjacent properties s117 Lodging application 2. Lodge with ASIC (s198E)
were available for purchase. The info of the Councils requirement came to Farah in its fiduciary capacity. It was info Farah could not exploit, s118 ASIC hands out certification s118 ASIC hands out certification
except in case of the D's consent. To exploit such info would place Farah in conflict with its self-interest and its duty toward the Defendant in s119 Company comes into existence upon registration s119 Company comes into existence upon registration
relation to the property.
Ratification- Company becomes bound by and is entitled to benefit of a pre-registration contract entered into on its behalf if company is registered Step 1: State below for all company questions
and ratifies w/in either an agreed time (131(1)(a)) or reasonable time s131(1)(b)) Registration of a company creates a separate legal entity (Salomon; s124CA) which has all the power of a natural person and is recognized by
ELEMENT 3: Fiduciary Obligations in JV Aztech v Atlanta aerospace - Ratification can be oral or written; 11 days notice was seen as reas. (Not an absolute in time given). the CA in s119. This facilitates the concept of limited liability (s516). As a consequence, the corporate veil exists to protect the personal liability of
JV may give rise to a fiduciary relationship between parties if so then the agreement will be a partnership 126(1) Gives company the ability to ratify contracts by both express and implied authority. members of a company from any litigation. Courts are generally unwilling to lift or pierce the veil and extend liability for members.
If there is a fiduciary relationship there is a duty to act with loyalty and in good faith and honesty towards co-venturers - Implied 6.2.2 General effects of Registration
Fiduciary relationship may also arise in the course of negotiations on the basis that trust and confidence underlies the negotiating Salomon v A Salomon & Co Ltd: Doctrine of separate legal entity - Once the formalities (of registration) are observed, the company obtains a
relationship United Dominions v Brian Liability: Corps Act: (Can be agent, not just promoter) {131 says person not promoter}\
s131(2) : Promoter is liable to pay damages when Not registered company OR registered + no ratify (Within agreed time (131(2)(a) or separate legal personality and the members enjoy limited liability. (I.e. protection from Corporate Veil)
Farah Construction - no dispute of partnership, is there a fiduciary duty. There is a move towards fiduciary where partnership does not Registration s119 Creates Separate legal entity (s124) Facilitates Lmtd Liab (516)
exist. reasonable(131(2)(b))
Hospital Products - fiduciary duties can exist in a different range of contexts [distribution agreement, held no fiduciary relationship b. Only person who entered K is liable even if on behalf of others (Bay v ISS)
1. Company can do almost anything a normal person can do:
s132(1) - Party to pre-reg. K may release promoter - Separate legal entity, separate assets, separate liability
EXAMPLE OF JOINT VENTURE s132(2) - No indemnity for promoters; Bay v ISS {if not promoter liable as if entered K themselves} - Can enter into Contracts
- Property developer wants to buy land and build five units - Can Own Property
s133 - Cannot contract out
- To obtain capital he requires he drafts plans and a budget and invoice for other parties to join him in the development and sharing costs - Can sue and be sued
- Each party will get a unit which they can sell when they desire Options for the company in a pre-registration contract: - Will continue in existence despite name change 601AD(1)
- If further money required then parties will put in equally Ratify Binds the company to K - Lee v Lees Air Farming Persons may act in dual capacities i.e. theres no limit in how many hats you can wear. (employer + employee +
- Each party will go into lottery to determine which will be theirs to keep Not Ratify Company not bound creditor + shareholder + promoter... etc.) Note Conflicts of interest if too many positions taken.
- Parties can be involved in the development eg selecting designs for unit After registration = NOVATE the contract (Executes new contract in Co. name, alter agreeemnts)
- Each party will receive invoices describing their payments 2. Only ceases to exist when removed from ASIC register 601AD(1)
- Held to be joint venture Aztech v Atlanta Aerospace: prior to incorporation promoter of Az entered into K with Atlanta for services provision stating that if Az not - Shares do not confer a proprietary interest in the companys assets Macaura
registered or failed to ratify K then K would terminate 60 day timeframe was about to expire so parties agreed to extend period - At breached - Perpetual Succession Director changes: resignation (203A) removal by members (203C) termination (203F)
some provisions and alleged no valid K held: valid K b/c registration and implied ratification happened ina reasonable time after indeterminate s601AD(1) Continues to exist until Deregistered by ASIC:
5. PROMOTERS OF A COMPANY extension (11 days)
3. Limited liability of shareholders:
Step 1: Define Promoter/Parties 5.3.1 If post registration - Own shares but no proprietary interest in companys assets
Promoters are persons who undertake to form a company with reference to a given project and take necessary steps to accomplish that purpose If Post-registration, Look to Directors Duties: - Can be directors, debtors, creditors, employees
Tracy v Mandalay. Set in motion the machinery by which the Act enables them to create an incorporated company - Erlanger v New Sombrero - s180: director must exercise due diligence and skill when making judgements; HELD to have met minimum if (a) make it in good faith, (b) do not s516 Shareholders liability is limited to amount unpaid on shares
Step 2: State whether or not they are an active or passive promoter have personal interests, (c) inform themselves about the matter, AND (d) rationally believe it is the right call Advantages:
Active: actively undertakes to form the company Twycross v Grant - s181: must act in good faith in best interests of the Co and for a proper purpose - Facilitates investment and economic activity
1. Payments of fees, raising capital, register, hire persons, negotiating. - s182: must not use position to the detrement of the Co or for personal gain - Reduces need for monitoring /
2. Can be officer (directing mind and will) of the HC of a sub Aequitas - s183: must not use information gained from position improperly - Promotes liquidity and market efficiency (thus promoting market for corporate control)
- s184: contravention of ss.181-183 recklessly or w/ dishonesty will be Criminal offences - Facilitates equity diversification
Passive: Investors and passive holders of property stand to profit Tracy v Mandalay - s189: a director can rely on advice if it is done so reasonably and in good faith taking into account the giver of advice and the info received Disadvantages:
- May encourage excessive risk taking (problem for tort creditors)
Side Note: - Affects trade creditors the most (where overt risk can affect innocent bystanders of business.)
- Is a promoter acting as an agent? (Can be)
- If so, who is the principal? (The person who has initiated the promoter to work) (The corporation yet to be created?) 6. COMPANY Limited liability Facilitates:
- A flaw in the common law is determining this very question - Investment
Company is type of corporation (s9 Corporations Act) (CA) - Economic activity
If its GOING to be a public company = FUTURE shareholders seen as principals. - Artificial entity - recognised by the law as a legal person with rights and liabilities - Equity diversification
Rights: Sue;
5.1 Duties of a promoter / Remedies of a company Liability: Limited Liability (shareholders liability is limited at their unpaid amount on their shareholding) (Primary appeal of being a
Stem A: Assess duties and Remedies = liquidity and market efficiency (thus promoting market for corporate control)
corporation - Annette)
A Promoter has fiduciary duty to a company; Not to act in conflict; to act in good faith; not to make secret profits or commissions. This - Certificate of registration: "Birth certificate of a company" - Prior to that time the company does not have any rights or liabilities.
r/ship exists as soon as person ID'd as promoter (Aequitas v AEFC) and duty may continue even after formation of board of directors
(Twycross v Grant) Architecture: Parties in a company: Board of directors, shareholders, employees 6.3 Lifting the Corporate Veil
Mgmt Structure: The lifting of the corporate veil generally occurs where the statute contains an express provision which imposes liability/penalty. Once a company is
If any duty is breached the proper plaintiff is the company and not the shareholders. - Shareholders: the owners of the company (members, rights to vote) formed, courts are hesitant to look behind veil to inquire why company was formed or who really controls it/
- Directory - usually given the power to control the management of the company's business
1. Disclosure of interests in a contract: Full disclosure to either: independent board or shareholders of any interest in contract (Erlanger Capital Structure: Veil sometimes lifted to impose liability on: Controllers; Directors (Gilford Motors); Holding/parent Co (s588V)
v New Sombrero) - Shares (Equity Capital)
Remedy: Promoter must return all property i.e. rescind (Erlanger v New Sombrero), it may be possible to get equitable damages for ancillary - Debt Capital When can someone other than the company be held liable?
costs (taxes, rates and other losses) Tracy v Mandolay (Fiduciary duty) It is irrelevant if there was dishonest intent. 6.1 History of Corporations - A board of directors Personal Guarantee I will step into the shoes and act as if I am the company i.e. contract stipulates being bound like this)
Unavailable when: - Example Creditor has promised to supply a million dollars to a company, on stipulation that a director will personally guarantee
1) Company is aware of breach and does not act reasonably promptly History: Need for separate entities aside from crown. protection and rights against the director.)
2) Company becomes aware and does something that indicates affirmation Business enterprises were created by Royal Charter (Churches, Burrows) enabled separate legal entity The Bubble Act 1720 prohibit - Rarely will a public company ever give a guarantee like this.
3) Cannot restitutio in integrum (something has changed and can't be restored) formation of unincorporated joint stock companies did not do much to prevent JOINT STOCK COMPANIES (Hudsons Bay) during INDUSTRIAL
4) An innocent third party has acquired an interest in some property REVOLUTION Limited liability in 1855 UK, Companies Act 1862 UK establishes companies as separate legal entities
DISADVANTAGES
2. Disclose personal profits: Promoters have a duty to disclose personal profits that arise from their position (Glucksein v Barnes) - Corporate veil encourages excessive risk taking (problem for tort creditors)
Remedy: Creation of constructive trust. Money does not belong to holder and is returned to the company (Glucksein v Barnes) Cth given power to make laws with respect to Foreign Corps trading, financial corps formed within the cth constitution s51(xx) - Someone who is going to take action against a company, doesnt have a choice in who they are interacting with.
3. Disclosure of fundraising: If raising funds, the promoter must provide investors with a prospectus (s709:). The prospectus must contain Formed: Huddart Parker v Moorhead Narrow Interpretation - the cth did not have the power to regulate companies in Australia, thereby (Example: circumstance that dog walker had dog that escaped to bite leg)
(s711) (2) nature and extent of interest (3) Payments and benefits to promoter. power was exclusive to states. - Impacts trade creditors
Remedy: - Meant formed was for corporations made at the time of constitutional enactment, thereby states had all the power over new
- Whereas a contractor can make a choice as to associating with a company or create extra security.
1. Untrue statements in disclosure = liable for loss breach (ss 728, 729) corporations.
2. Misleading and deceptive conduct (s18 ACL) Sources of Law for corporations:
4. Breach of Fiduciary Duty - Tracy v Mandalay 1961-1963: Uniform Companies Act 1961 no mechanism for maintaining uniformity problems because of companies that operated across A) CL
states 1978-1991: Co-operative Scheme: Companies Code 1981 B) Corporations Act
For all above remedies C) Contract Law
Equity = Rescission Erlanger, constructive trust, AoP (Gluckstein) but see bars to rescission such as affirmation Tracy v Mandalay Introduction of NCSC and Ministerial Council; regulate activities of companies around the states;
Problems with Scheme: - decisions made by State CACs were not nationally consistent- administrative duplication increased costs for 6.3.1 Piercing the Veil via Corporations Act
Tracy v Mandalay: company formed to build condos, but none ever built, inspector sees failure to disclose benefits of transaction = the investor business- the structure of the Ministerial Council impeded legislative reforms- accountability - only the NCSC (ASIC) accountable to the Ministerial
was passive promoter. ALSO was company secretary, so breached fiduciary duty to disclose. Council, thus no one minister accountable ( no central federal minister) - NCSC poorly funded effective national enforcement suffered- Designed Insolvent Trading: (Trading while knowingly in debt i.e. no capital)
Erlanger: promoters syndicate bought island and sold to new company. New company were puppets of the promoter so sale was overpriced. to be a watchdog but poorly funded so any enforcement on a national level didnt really work - s588FC If while knowingly insolvent: (a) transaction entered into; OR (b) act/omission done for purpose of giving effect to a transaction.
When NSP created, approved contract. Turned out to be dud, courts step in qhen price found by luiquidator, Promoter says he advised board so - s588G - Directors breach duty by failing to prevent company incurring debts when reas grounds for suspecting that it is insolvent
legit. Courts held b/c board was not independent disclosure was not valid= recission = should have given full info to ind. Corporations Act 1989: a proposed national scheme - a bit of takeover by the CTH - they then legislated corporations act- but states did not agree - s588V Company held liable if there were reasonable grounds for suspecting insolvency or (2) future insolvency
Gluckstein: secret profit of 20,000 made promoters severally liable that CTH had power in the constitution to do what they did - s588J Directors liable to pay compensation equal to loss suffered by unsecured creditors b/c of insolvency
HC Challenge: NSW v Commonwealth Cth no power over corporations - s588G(3) Criminal liability if failure to prevent co incurring debt was dishonest.
- s588H(2) Reasonable grounds that company was solvent, and would be after incurring debt.
1991: Corporations Law: Cth negotiated with states each of the states and territories referred the power to the CTH - national administration and
5.2 Further on remedies for company enforcement via ASC (now ASIC) - Established by head of agreement Cth control over reform process. Consti Crisis - Argument arose that 2) Uncommercial Transactions:
REMEDIES FOR BREACH legislation was unconstitutional by the way it is put in operation by Cth bodies (HC accepted argument in 3 cases) - s588FB prevents insolvent co from disposing of assets b4 liquidation through uncommercial transactions which result in recipient receiving a
Who is the proper plaintiff to commence action? (The company that is formed thereafter) Re Wakim Federal Court did not have power to decide matters that were exclusively within the jurisdiction of the states (cross-vesting gift or bargain of such magnitude that could not be explained by normal commercial practice.
What can be done? provisions unconstitutional) - s588FE(3) liquidator can set aside any uncommercial transaction entered into within 2 years of commencement of winding up.
Rescission of contract Bond v R Commonwealth DPP did not have the authority to institute an appeal. (Against a corporation) 3) Company Officer Charges:
Damages or equitable compensation R v Hughes Cth body that undertook a function under State law involving the exercise of a duty only had constitutional powers if Constitution - s267 a co officer granted a charge over co property is not, w/in 6 months of its creation, entitled to take any steps to enforce the charge w/out
Recovery of secret profit gave Cth Parliament power in relation to the matter first obtaining courts permission. (enforcing a charge means appointing a receiver or taking possession of property secured by the charge so
Creation of a Constructive trust Gluckstein v Barnes that it can be sold to repay the secured debt)
Liability under the Corporations Act Reforms July 2001: States passed legislation referring power to the Commonwealth to: make laws in respect of corporations; and make
amendments to this legislation 4) Financial Assistance:
Additional: - s260A Violation when co provides financial ass. for acquisition of its own shares
Recovery by liquidators (s567 or 588FH) disclosure document or untrue statements (ss. 728 and 729) Corporations Act 2001 (Cth) - powers referred back to CTH. ASIC Act 2001 (Cth) - gave some form of consistency at a national level. - s260D(2) Anyone involved w/ a co giving fin ass contravenes this sect
- s250D(3) Where involvement is dishonest this is an offence criminal liability.
Breach of promoters fiduciary duty makes the promoter liable to account for profits made, return property received and make good any losses ASIC v Adler - If a director is involved in a decision that means the company is buying its own shares or an indirect scheme to finance its own
incurred by the company. shares (creating a fictional environment) then the courts can find the director liable.
 s9 defines a special resolution as being (1) Proper notice given AND Ultimate HC: where HC is not a sub of another (s9 definition)
5) Taxation Legislation (2) Passed by 75% of members entitled to vote in favour of the resolution. Related bodies (s50): Holding Corp / Sub / sub of Holding Corp = related
- Income Tax Assessment Act provides that directors may be liable to pay the cos unremitted grp tax and other similar liabilities. Liable, if after
receiving notice they have not caused the co to pay the grp tax owing or initiated an insolvency admin. Small if satisfy 2 of these (s45A(2)) Parent can extend control - S46 sub if any (MATCH)
6) Avoiding Paying Employees: s596AB if avoid paying employees & have outstanding debts to employees you cant wind up co w/out 1. Consolidated revenue is less than 25 million (1) Controls the composition of sub board (remove or appoint = control (s47) with legally and not de facto control (Mount Edon v Burmine)
paying employees. 2. Gross assets less than 12.5 million (2) Majority vote at sub general meetings (proxy okay (Bluebird v Graf)
6.3.2 Piercing The Veil under Common Law 3. The company and the entities it controls is less fewer than 50 (3) More than 50% of share capital = shareholder (s48(3))
- Not required to prepare annual financial reports or appoint auditor
Note also: s50AA Tries to close any loopholes that may have emerged in 46, CONTROL TEST, discusses where parent has the capacity to
Occurs where for some overriding policy reason (Fraud significant), a CT decides to lift the veil determine decision made by child company.
1. Fraud A - Re Darby - Particularly relevant when assessing whether a parent is liable for a childs actions and whether the veil can be pierced (Note
- Directors can be held personally liable if fraud is seen Re Darby Large if satisfy 2 of these (s45A(2)) previous statute 58V-X Assess insolvency trading etc.)
- Where company used as a vehicle for fraud (dishonest dealings) (Re Darby) 1. Consolidated revenue is at or more than 25 million
[Director/promoter ordered to disgorge profit made by dummy company (that sold licence to another co he floated)] 2. Gross assets is at or more than 12.5 million If told that companies are interrelated, default: Walker v Wimborne, entities legally separate.
3. The company and the entities (includes employees) it controls => 50
2. Fraud B - Avoidance of a legal obligation:
- Prepare annual financial reports (s292) that are audited (s301) with copies sent to members (s314) and lodged with ASIC (s319) Duties:
Gilford Motor Co v Horne - Use of a company to avoid restraint of trade clause injunction granted even though company was not a party to 1. Directors must act in the best interest of their companies which they are director of. Walker v Wimborne unless there is a collateral benefit
the service agreement. ** CANNOT RAISE FUNDS FROM THE PUBLIC ** (Equiticorp)
Creasey v Breachwood Motors - Business transferred to BM to avoid unfair dismissal claim BM liable Courts intervene if: A mere cloak 2. Cannot pay profit dividends to HC before Sub (Blackburn)
or sham to avoid a binding contractual obli. 3. Partnership could exist between HC and Sub Pioneer Concrete
4. K made by co. is separate, doesnt include other members (above or below) Pioneer concrete
3. Involvement in directors breach fiduciary of duty: 5. Each company incurs its own debts Walker v Wimborne
Green v Bestobell Industries - Green, while at Bestobell, knew of lucrative tender about to happen, so sets up company (CLARA) to take
advantage. HELD: Setup purely for purposes of avoiding of a duty and an obligation that the company director had. PIERCE. Blackburne: HC tried to get profit dividends before the sub
- Company liable if it knowingly participated in breach of fiduciary duty Walker v Wimborne: Transferred debt to subsidiary = breach
The mind and will who had this control? A) CLARA was to be held liable (company can be sued too) B) Green was to be held liable 7.3 Public, No liability, Limited by Gaurantee
Pioneer concrete: Sub enters into contract preventing certain conduct, the HC then breaches that conduct = not liable
s148(2) Requires a limited public company to have Ltd. At the end of its name Note For convenience in accounting and financial reporting, groups can be treated as a consolidated economic unit, but this does not change
4. Attributing Mind & Will sometimes need to determine the purpose or intention of a company- so will look behind veil and attribute purpose or s516 - Members liability is determined by the amount of shares purchased in a company
position of separation at law. (possibly can be altered by statute)
intention of individuals behind co to co itself: Green v Bestobell; Tesco Supermarkets Com. Of Tax v BHP BIllition Basically BHP Billiton had setup a finance arm (subsidiary) to fully finance its business activities, some losses were
6.3.3 Veil and Group Companies Public made, the tax board tried to stop BHP from claiming the losses and tried to put them all in one category. Tax Office: Losses cant be claimed
- Ltd only (s148(5)); 3 directors, 2 resident (s201A(2)) because you are a part of the larger group HELD: They are separate legal entities, as such you cannot pierce the corporate veil of the finance
Subsidiaries as Agents or Partners - veil may be lifted where sub acts as agent for holding co; Smith, Stone & Knight holding co entitled to - Can change to pty / NL / UL pty (s162) by special res (s163)
comp (benefit) as subs conducted its bus as its agent; 6 Requirements: subsidiary to get through to BHP Billiton. No right to intervene b/w members in a corporate group, corporate veil still applies.
- can get funds from public (w/ disclosure) (s113(3))
(1) Profit of sub treated as profit of parent; s156 = Offence for not including name 7.5 Change of status (company type)
(2) Operators of sub appointed by parent; Must obtain special resolution of members plus requirements set out in s163 and 164CA;
(3) Parent the head & brain of operation; ASIC v FMG Public Company has ongoing duty to disclose. Pty Ltd Ltd / Ltd Pty Ltd / Guarantee Ltd / NL Ltd
(4) Parent must govern venture; Facts Chinese investment in railway, initial market announcement did not disclose that the agreement was subject to Chinese governments
(5) Profits due to parent Co skill & direction; approval (The standard in China) s9 defines a special resolution as being
(6) Parent in effectual and constant control. (1) Proper notice given AND
Difficult to use agency to pierce veil in general context but Agency principle should only be used to impose benefit, not liability; Pioneer Concrete Mining + public = No Liability (s112), must have NL (s148(4)) (2) Passed by 75% of members entitled to vote in favour of the resolution
v Yelnahsuggested that if group of companies operated like pship then veil lifted & liability imposed joint & severally (not decisive) - Accommodation towards capability to fund exploration
Ordinary resolution - Dictated or judged by the majority you have to succeed 50% plus 1
2) Benefit of Group as a Whole transactions entered into for benefit of 1+ companies in group can have benefits for other companies.
Ltd by Guarantee = A company that is limited by guarantee is engaged in Not For Profit Sector. s162(1)(a) passing a specific resolution resolving to change its type; AND (b) complying w/ ss 163 & 164 application to ASIC.
Equiticorp v Bank of NZ bank loan to 1 co repaid from another co in grp. Held transferring co benefited from transfer as wouldve lost - Guarantors stated in app (s117(2)(m))
banks support. Directors of separate cos should act in best interest of each co. - Can omit Ltd (s150) 8. CORPORATE GOVERNANCE
- Members do not receive dividends (s254 SA)
3) Tort Liability Willing to lift veil & impose liability on parent co for subs torts, where it maintains sufficient degree of control over day to day - Members liability is limited by a guaranteed amount that the members agree to contribute only upon the company being wound up. A companys internal management may be governed by RR, consti, or mix of both (s134)all are legally binding (s140) and considered a special
running of sub: Briggs v James Hardie. May be held directly liable to an eee of its sub on basis that controlling co itself owed duty to eee. kind of business contract.
- Ex Gold Coast Suns members pledge they will give 20$ to club if required to pay debts
CSR v Young - (If under 250,000 dollars turnover has simplified reporting obligations)
- Limited by guarantee cannot have share capital it is a charitable company 1. Constitution (s136)
4) Insolvent Trading where co lets sub trade while insolvent holding co liable (s588V 588X) - can be customised/personalised to suit its particular circumstances (large, small, public, family)(s125)
Foreign company = Must be registered with ASIC (s601CD)
Re Darby: Fraud by Darby, made a secret profit breached duty as promoter; profit was actually made by the company formed by Darby, and not 2. Replaceable Rules (alone) (s135)
himself. 2 Levels of status for public companies - This is the default position if no constitution - majority vote rules
-Table of RR found in s141 and contains 39 provisions.
1) Listed
NOTE Corporate group cases that successfully deflected the veil piercing attempt: - Those that are listed on the stock exchange to make a lot of public financial reports on profits/losses, remuneration, etc. all available -RR can be displaced or modified by adoption of consti s135 (2)
Spotless Courts show a reluctance to pierce the corporate veil environmental issue. Unsuccessful for nuisance & negligence claim against the directly to the public
parent company. The parent co. restricted the group and deregistered 2 of the subs. Instrument in causing the pollution (nuisance and 3. Combo (Combination of a Constitution and replaceable rules)
- Subject to ASICs rules and ASX
negligence). The court was satisfied that the de-registration within the Spotless Corporation group were not done to avoid liability and were
undertaken for good commercial reason. ASX Listing rules Note: Single director RR do not apply (s135(1)) but cannot exclude 198E
Com. Of Tax v BHP BIllition No right to intervene b/w members in a corporate group, corporate veil still applies. (SEE CASE SUMMARY IN 7.4 Section 1 if you want to be a public company, you have to comply with rules set out here: Some only apply to proprietary companies (i.e. s194) and
CORPORATE GROUP) (Condition 1 Have to comply with all the requirements set out) Some are mandatory for public companies
(Condition 1A Must have a constitution) 8.1 Constitution
When interpreting constitution, it should be done in a businesslike fashion, courts are reluctant to add or imply terms into a constitution. This would
2) Unlisted increase constitution. (Lion Nathan v Australia v Coopers Brewery)
- Public cannot invest in these companies
7. TYPES OF COMPANIES - Cant put out a notice to the world to invest in it Here there was a question about the enforceability and interpretation of the constitution of two companies, competing in the same industry.
7.1 Types of Companies (Preamble) - Can still procure investors Takeover, where one shareholder in Lion objected to a share buybackargued it was outside the consti PRINCIPLE Finn J consti is similar to a
Private Companies (Not available for shares to buy) - Not subject to ASX, only ASIC rules. business contract, but also have to recognize their special circumstances
- Large / Small 8.1.1 Nature of a Constitution:
- Cannot Sell itself to the world 7.4 Corporate Group Statutory contract which has elements from contract law. As such, it can be modified without consent of every party (pretty much at any time),
(Holding Private (Proprietary) Public and there is no need for consideration. A person is bound without need for singing it.
Public Companies Subsidiary Companies)
- Limited by shares A Corporate group is
- Limited by guarantees Interpretation what do they say? If not custom, what do RR say? (s141). What are the directors powers? They cant be absolute
usually a group 1 50 (max) 1 - Unlimited of companies
- (For example, gold coast suns cant give bonuses, must be internal share of revenue, has to go back into the organization) owned wholly Shareholders or
- Much more onerous obligations. Remedies more limited than in contract:
predominantly s.113 and 114 by one hc. Oppression / Statutory derivative action / Limited to declaration or injunction / must sue the company as the proper Plaintiff
- Desire is to avoid the regulatory burden of a public company.
- Different reporting obligations depending on type of company. 8.1.2 Gambotto Summary (Preamble to Alterations)
Separate companies to
undertake separate Gambotto v WCP Ltd (1995):
Ex: Disclosure to the public if a major director in the company wants to sell their shares Directors Min 1 (1 Resident) Min 3 s. 201A (2 Resident) FACTSCompany (WCP) bought 99% of shares. G had 0.05% in shares. As WCP thought it was the owner, it passed a resolution to alter the
functions under the
Ex: Suspect forecasting: were going to go up 20% this quarter (goes down 50%). ASIC could take action if believed to be untrue or fraudulent. s201A(1 companys constitution saying that only shareholder that held and owed over 90% of shares in the company could compulsory acquire the minority
same umbrella.
Ex BHP has over shareholders shares.
Types of questions to ask: 250 corporate entities under
Is the particular business being assessed better suited to: it. (Parent Cant get equity funds Can get funds from public child) PRINCIPLE Questions of fairness and whether it was for a proper purpose. Court formulated a test that said any alteration to a companys
1. Liability of members? Finance constitution must satisfy
from public (Can still get (need disclosure document -
2. Status? public or proprietary (Not for profit?) Separate legal debt funding e.g. prospectus) entities 1) IS IT FOR A PROPER PURPOSE? AND
3. Size? (particularly for proprietary companies) Solomon lender/borrower) principle 2) IT MUST BE FAIR IN ALL THE CIRCUMSTANCES.
4. Place of Formation? (Foreign?) applies Distinguished - Fairness in terms of substance (price must be validated) and
5. Principal activity? eg. trustee, investment, mining as separate legal entities - Fairness in procedure (enough time to make decision).
6. Relationship? eg holding, parent, related, associated (can be altered potentially by
7. Disclosure obligations? stat) supports - Walker v Here, they said it would be better for tax purposes and save on administrative costs if they owned all shares. Court said that is NOT a
8. Business activity embarking upon? Wimborne conclusion that proper purpose.
Listing Cant be listed Can be listed or unlisted
the corporate veil covers the
7.2 Proprietary (Private) Company entire group structure. In orbiter that said it was something that would stop a shareholder from competition with the company or if there was a change in
A proprietary company is a company registered as one (s118; s45A(1); 601BD) and must have Pty Ltd at the end (s148) legislation.
1. Must have fewer than 50 non-employee shareholders (s113(1)) Features of a corporate group Walker v Wimborne supports these features existing yet companies maintain as separate under legal
2. Min 1 resident director (s201A(1)) proceedings. It seemed like court were trying to find a way of stoping the big bully of flexing its muscles. Other hand, they are majority!
3. Must be either limited by shares or unlimited (s112) but cannot raise public funds (s8) Common or interlocking shareholdings? - Still Separate entity This case challenges the authority of the directors. NO GO.
4. Do not do anything that would require disclosure to investors under chapter 6D (s113) Each company had the same directors? - Still separate entity
Companies administered as an integrated group? Still Separate entity As a result, the Corps Act has been amended to reflect the mechanism that must be followed to change the constitutionS140, S140(2):
a. Contravention will not invalidate the act (s113(4)) but it will result in fines (s113(3A)) and may be forced to become public (s165)
5. Can change to UL pty or public / public ltd (s162) Requires: Shareholders approval, by way of Spec Resolution (s163) modifications, S136(2),(3),(4): special resolution, Part 2F .2: special rights, Part2F.1 oppression (not important, just reference) S231,
Corps Act: S232: members remedies for oppressive conduct. Today, this case would be decided differently!
 8.1.3 Alterations to Constitution: 9.4 Indirectly (Through authorized agent) Criminal:
S 4B Crimes Act (Cth) Enables a company or body corporate to pay a penalty for an offence that specifies imprisonment.
A company may alter its consti. by special resolution of its members (s136(2)), usually takes effect on date of resolution (s137)- must be reported S126 CA allows an agent bind a company with its express or implied authority by signing for and on behalf of that company. Defence for mistake of fact is available (9.2) if accused can prove they were of a reasonable belief regarding the mistake of fact leading to the
to ASIC within 14 days (s136(5)) wrongful conduct & must show due diligence for not providing inadequate conduct management (Tesco)
Limits in CA: Express Actual Authority: Arises in 2 ways
1. Not bound by modification made after joining that (1) requires them to take shares (2) increases liability (3) imposes restrictions on transfers 1) Under the Corporations Act (eg s 198A), OR the companys constitution if it has one; or
(but not forced buyback Gambotto) (s140(2)) 2) By the board of directors delegating power. 11. SHARE CAPITAL
2. Oppression Step 1: Look at what kind of company it is and see if it can solicit money in the first place
a. Contrary to members as a whole OR unfairly prejudicial (s232) Implied Actual Authority: Arises from things the principal says or does Share Capital = Equity Amount of money contributed to a company;
b. Remedies wound up / modify / injunction (s233) 1) Appointing someone to a certain position (ex. Managing Director, CEO) Loan Capital = Debt from finance providers (lenders-aka the bank)
3. Entrenching provision + entrenching that provision (s136(3) - (4))
Limits at CL: The modification must be fair and for a proper purpose if the alternation removes an important right (Gambotto). A balance must be 2) Otherwise acting to give the person authority including through acquiescence (agreement). Members: Investors become members upon registration.
made as a share is not a proprietary right (Macaura), but the alteration must not be for personal gain (Gambotto), (but see Part 6A.1) A person becomes a member of a company if they (s231)
- Senior Executives: scope of authority usually delegated to someone doing their type of job in the company (ex Snr Humean resources exec can a) Are a member of the company on its registration; or
Consider: Proper Purpose and fairness. hire and fire employees) b) Agree to become a member of the company after its registration and their name is entered on the register of members; or
1. Improper Purpose = Tax and administration cost savings (Gambotto) - Director Acting Alone: in a company with several directors acting individually has no usual authority to bind the company (Northside c) Become a member under s167 (arising from a conversion of a company from limited by guarantee to one limited by shares)
2. Proper = Shareholding that is detrimental if the expropriation is a reasonable means of eliminating the detriment (Grey Eisdell) / Setting up a Developments)
competing company (obiter in Gambotto) / A continued tax status (Bundaberg) - Company Secretary: authority to sign contracts relating to administrative matters. A company may raise funds by issuing shares (s124(1)(a)). Shares are items of intangible property or choses in action which comes with rights
3. Fairness: All information available + expert valuation + market value and obligations, but are not a debt against the company (Pilmer v The Duke Group)
Apparent authority / Holding out: A kind of representation that often arises in business dealings is one which flows from equipping an Officer of
Gambottos: 99% expropriate 1% but did not have proper purpose a Company with certain title, status and facilities - Pacific Carriers Ltd v BNP Paribas Step 2: Issue price of shares
Grey Eisdell: non stockbroker member cannot hold 10% = oppressive as many non-stockbrokers Issue price determined by Company.
Bundaberg Sugar: forfeit shares if stopped supplying something = proper purpose due to tax status and enforceable, but MUST compensate Elements from Freeman v Lockyer Issue Price may vary between share issues.
Constitution required for NL and Ltd Guarantee companies 1. Holding out (representation) and proper authority of that position (giving someone title, status or facilities Pacific Carriers.) Shares may be issued partially paid (s254(1)(c))
8.1.4 Objects Clause a. Can be done by acquiescence even though never appointed (Brick & Pipe; Freeman v Lockyer) o Therefore, shareholder is liable to pay calls on shares unless company is no-liability company (s254M)
b. Held a position but not appointed but entered into architect agreement (Freeman) o On wind up company is liable for amount outstanding on shares (reserve capital/uncalled capital) (swan brewery co)
The constitution may limit powers by stating express prohibitions in the constitution or have an objects clause (s125). Companies which act outside c. 1 active director acted as sole = not binding (Sparrow Green)
their capacity are said to act ultra vires. However, this doctrine has been largely abolished (s124-5). o s516)
2. Representor had actual authority (Contra Crabtree) o Amount unpaid must be stated on registration of member (s169(3)(f))
3. Reliance Where shares are issued in consideration of assets being transferred to company, courts are reluctant to give them a value.(S245D)
S125 & S126 company can still act contrary to its constitution, it will be a valid decisions.but can take action against the directors. Freeman: Acting MD did not have any authority, but was given approval Shares can be non-cash ex. assets but they must represent the moneys worth.
Under the CA a company may be liable for its agent acting outside its authority (s125(2)) o Re While Star Line asset of block of land = share
Companies likely to have one in their consti: NFP (like AFL "pursue and facilitate the playing of football in AU") / JV (oxymoron - not covered) NL / INDOOR MANAGEMENT RULE Persons dealing with company in good faith can assume acts and powers have been properly and duly
Prof. Practice Proceeds from issuing shares are debited to share capital account (company equity)
performed. They are not bound to enquire as to whether or not they have been Turquand, Northside Developments
Remedies: as long as acting within express or implied authority, then the contract remains even if done without company benefit (s124(2); s125) Step 3: How a company issues shares (start with constitution, then RR)
1. Not an offence (s136(3)) 10. STATUTORY ASSUMPTIONS Shareholder rights
2. May be breach of directors duty (part 2D.1) or oppression (part 2F.1) WHEN AGENT HAD AUTHORITY BINDING Are to be stated in companys constitution or a special restriction or RR or a K (terms of issue) (s254A)
3. Oppression / own interests = Winding up order available (s461(1)(k)) WHEN AGENT DID NOT HAVE AUTHORITY MAY BE BINDING Where rights are stated they are exhaustive, but where they are not stated some presumptions may apply (s254A). Presumption that
4. RR = directors can be removed at GM (ss135, 141, s203C-D, 293E) constitutional provision or special resolution provision will allow directors to vary preference dividend rates at discretion.
8.1.5 Enforcement Combined with the abolition of the doctrine of constructive notice (s130), the corps act provides greater protections for outsiders. Outsiders may Classes of shares
rely on assumptions and co may not use assertion that these assumptions are incorrect has a defense against liability, s128(1). Allows company to distribute dividends in different amounts to different shareholders, each carrying different rights and entitlements.
Enforcement under CL:
To confine control of company to one group of shareholders
Member against company = provision confers rights on member, then may bring a derivative action (s236) Outsiders are entitled to assume (under s128): (s129) LOOK FOR BARS (s128(4))
Member against member = must not be incidental to membership such as unethical client poaching (Andy Kala) To raise capital.
(1) Constitution or RR have been complied with
8.2 Replaceable Rules a. Rule in turquands (see Bank of NZ v Fiberi not duly appointed but signed seal) 1. Ordinary Share(holder)s (s92)
2. RR apply if there is no constitution (s135; list in s141) and can be excluded in constitution (s135(2)) - Liability is dependent on whether investor has fully or partly paid (254M, 516)
(2) Person named in ASIC has been (1) duly appointed and (2) has customary authority - Right to receive dividends (not fixed, get whats left over after preference shareholders been paid)
Application: s135(1)(a): replaceable rules apply to (i) company registered after July 1, 1998 w/o constitution; (ii) co formed before July 98 whove a. Do not have to be aware of or seen the record (Re Madi) o The right to be repaid capital on a pro rata basis on the winding up; and the right to a pro-rata share in any surplus assets on a
fully repealed const. winding up.
S141 RR apply to Co with no Consti, Consti prevails over RR, Consti can Exclude the RR(except public Co mandatory RR) (3) Officer or agent that has been held out by the company has (1) been duly appointed (2) has customary authority of that officer of similar - Right to vote
S 135(1) 1 person co do not require formal rules governing admin, and RR do not apply. but cant exclude s198E (Cant exclude sole dir SH Co) a. Onus on outsider to prove the two elements
Contravention: S 135(3) failure to comply = Not itself a contravention of Corps Act (so provisions about crim liability; civil liab and injunctions do b. Acquiescence will bind the company (Freeman v Buckhurst) 2. Preference Share(holder)s:
not apply) c. CL = person holding out must have actual authority (Crabtree cf Freeman) - Similar to creditors of the company and more akin to lenders
Co Constitution: d. Negotiating as secretary / director = binding (Aus v Aus Glass & Mirrors) - No right to vote (unless dividends are in arrears)
S 136(5) if adopts/modifies Const must lodge to ASIC w/in 14 days. - No right to share in surplus on winding up.
Adoption: Co can adopt by: s136(1)(a) On registration if each person consents; (b) After reg if co passes spec res; or court order made under 233. (4) Officers and agents have performed their duties - Right to be repaid the principal on a winding up in priority to ordinary shareholders
Table in 141 for basic RRs - Right to receive fixed dividends; cumulative or non-cumulative dividends
9. EXTERNAL RELATIONS (5) NO SEAL Rely on valid execution if appears to be signed per s127(1) - Cumulative: the right to a dividend accumulates and can be carried forward to future years
a. Proxy sign okay if customary (Vero Insurance v Kassem) - Non cumulative - doesn't carry forward
Step 1: State Below define where power is coming from (Constitution or RRs)
When issues arise due to competing interests with outsiders of the company, principles of commercially certainty and fairness must be balanced (6) SEAL rely on valid execution if appear to be signed in accordance with s127(2) Executed up seal
with a. Seal + 2 directors, but signed as director + secretary, but one never even appointed = binding (Brick & Pipe) 11.1 Variation of class rights
b. 1 dead director, signed as sole in breach of constitution= binding (Myers v Aquarell)
1) Need for commercial certainty and fairness to innocent third parties and c. Sole director signed as both with seal = binding (MYT v Mulcon) Has the right been varied or cancelled?
2) Protecting members from authorised acts of company officers and the right to have internal rules complied with. (Kirby in Bank of NZ v FIberi; - Variation if - it affects one particular class alone making them suffer a benefit or detriment.
Northside Developments Pty Ltd v Registrar General (7) Officer or agent has authority to warrant authenticity of documents o If it affects everyone equally there is no disadvantage so no variation (Greenlhalgh; diluting voting rights is not a violation of
9.1 Organic Theory: a. Overrides CL principle in Freeman & Lockyer share rights, it affects a whole class equally)
Step 2: Which vehicle is being used to enter into the contract (Body or Agent)
S129 PROVISO: Deemed variation of class rights under 246C
The term organic theory is an extension of agency relating to a company as a separate entity (Lennards Carrying).
Cannot rely on s129 if, at the time of the dealing, they knew, were put on notice that the assumptions were incorrect, or suspect [] on an actual Company with share capital
apprehension or mistrust amounting to a slight opinion that the fact exists (s128(4); Errehetti v Western Plaza Hotel) favourable to TP If the shares in a class are divided into further classes, and after the division, the rights attached to all those shares are not the same The
Lord denning in H.L Bolton v TJ Graham and sons state of mind of the agent of the company is seen as the state of mind of the company. Acts of
division is taken to vary the rights attached to every share in the class existing before the division (s246C(1)(a)).
the directing mind and will of the company are acts of the company itself (Tesco).
Fraud Proviso: If the rights attached to some of the shares in a class are varied
Can still rely on s129 even if officer or agent acts fraudulently, or forges a document, in connection with the dealings (s128(3)) The variation is taken to vary the rights attached to every other share that was in the class before the variation (s246C(2)(a))
Alternatively, the law of agency may also resolve issues relating to outsiders.
Smorgon the organic theory can only be applied in areas in which the ENDS OF JUSTICE REQUIRE KNOWING THE MENTAL STATE OF THE 1. Applies to forged signatures (Story v Advance Bank)
COMPANY. 2. Applies to fraud in authenticating share cert (Ruben v Fingall) Company without share capital
If the members in a class are divided into further classes and after the division the rights are of all those members are not the same.
9.2 Corporate Capacity The division is taken to vary the rights of every member in the class existing before the division (s246C(3)(a))
S119 of the Corps. Act establishes a company as a legal person and s124 (CA) establishes that a company has the legal capacity to enter into If the rights of some of the members in a class are varied
contracts. 10.1 Internal Irregularities
The variation is taken to vary the rights of every other member who was in the class before the variation (s246C(4)(a))
Step 4: is there any procedural (internal irregularities?,
It can enter contracts DIRECTLY (s127) or INDIRECTLY through an agent (s126). If a contract falls outside a persons power it will be considered ultra vires Company with one class of shares
Step 3: Was the contract direct or indirectly entered into by the company? If new shares are issued
9.3 Directly 10.1.1 Indoor Management Rule Under s246C(5) the issue is taken to vary the rights attached to the shares already issued if:
A company entering a contract directly (by director, employee etc..) - the rights attaching the new shares are not the same as the rights attached to shares already issued; and
1. NO SEAL = 2 directors / director + secretary / sole dire (s127(1)) Historically, the doctrine of constructive knowledge would deem outsiders to know the contents of a companys constitution. This was an - those rights are not provided for in the companys construction (if any) or a notice document or resolution lodged with ASIC.
2. SEAL = 2 directors / director + secretary / sole director (s127(2)) unworkable and unfair doctrine. It was first modified in Turquands case by the indoor management rule. Outsiders dealing with a company in good
Directing mind and Will of the company: faith were allowed to assume that any internal procedure has been followed. However, parties put on notice could not rely on Turquands rule Preference Shares
Whether a member is the directing mind and will of a company depends on the circumstances (Tesco; Meridian; Donato) (Northside Developments). If new preference shares are issued that rank equally with existing preference shares
Cases: Under s246C(6) the issue is taken to vary the rights attached to the existing preference shares unless the issue is authorized by:
Donato: secretary made untrue statements attributed back to company company liable 10.2 Civil and Criminal Liability of a company - terms of the issue of the existing preference shares; or
Tesco: Sign case, manager was not directing mind a will as did not have enough control - the companys constitution (if any) as in force when the existing preference shares were issued
Meridian: Employee (chief investment officer) contravened shareholder provision was directing mind and will company liable if not they Criminal & Tort: intention through organic theory (Tesco) and Vicarious Liability (s128(3))
could claim lack of knowledge If variation what procedure to follow?
- If Constitution sets out procedure for varying and cancelling class rights
Result: (1) Civil penalties or criminal penalties (x5 personal (s1312) o Rights may be varied or cancelled only where the procedure in the constitution is followed (s246B)
Change of Control: Change of control is reflective of change in mind (FCT v Whitfords) 1. No privilege against self incrimination (Caltex) - If a company does not have a constitution or the constitution does not set out the procedure for varying and cancelling class rights, then:
Tort: o Rights may be varied and cancelled only:
Aggregation of knowledge: Circumstantial Organic Theory: Directing mind and will of the company committed a wrong (s7(B)1)
- Brambles: driver / manager / supervisor were aggregated. Violated weight restriction tried to say not attributable to company was By Special resolution of the company; or
Must be a high level manager (Tesco) Burden of proof: Prosecution must prove that the wrongful acts were committed by its directing mind and By special resolution passed at a meeting of the holders of the affected class; or
- Re Chisum When information within a company is determined to be known is reasonable time for knowledge to get around company [head will with mens rea for statutory offences.
office knew, branch didnt] By contract, with the written consent of members with at least 75% of the votes of the affected class s246B(2)
- s246B --- 1 month to challenge the variation
Vicarious Liability co liable for employees acts Co liable as principal for torts committed by As acting w/in scope of actual or apparent authority
(Lloyd v Grace; Mousell Bros v London)
 11.2 Maintenance of capital & Share Capital Reduction Step 4: Distinguish whether the members in question are general or committee members
Contracts entered on members behalf by committee members, exec, or committee = not liable (Freeman v McManus). Committee member enters 4. Fees (c4(d))
General principle: Maintenance of Capital (no share capital reduction) contract in the course of their authority they may then be personally liable in contract and tort (Bradley Egg) a. establishment / licence / training / supply of goods / marketing
Capital must be maintained for protection of the creditors and SH's (Trevor v Whitworth Co had no general power to buy back shares) [D] must:
(s256B) b. Does NOT include below wholesale / loans / real prop (c4(d))
1. Follow constitution procedure Step 5: Is there an intention for the parties create a legal relationship c. Ongoing fee based on % of gross or net income
2. Fair and reasonable to shareholders as a whole General presumption that members do not intend to be contractually bound there must be a clear intention and indication to be bound by a formal
- Explanatory memorandum (1) adequacy of consideration (2) depriving of rights (3) takeover to avoid procedure? K/constitution (Cameron v Hogan)[ALP member dispute, kicked out court held social contract not bound] 13.3 FCoC Basic Provisions
- does not need to have a proper purpose (contra Gambotto) Therefore, remedy for aggrieved membrs of an uninc. Assoc=only declaratory relief
Ongoing disclosure: 4 months after end of financial year (c6)
3. No material prejudice to pay company creditors Start-up disclosure: (c 6B(1)(a))
- Help to decide = Notice of meeting and documents material to the SCR lodge to ASIC 14 days before action (s256C(3)) Exceptions:
Contractual Relations: Association cannot bind members in contract unless all members agree, or with delegated agent acting within authority Sub-Franchise: 3 things a joint and separate disclosure (c6B(1)(b))
- Creditors injunction (s1324(1A)) onus on company (s1324(1B))
4. Shareholders approval (Freeman v McManus) o Purpose: give the prospective F-ee current information to make a reasonably informed decision about the franchise (c6A)
- Equal reduction = ordinary (s256C(1)) - loss of reputation, physical / mind injury (Plenty repelled from 7th day Adventists with no right of recourse, rules contemplated recourse Initial obligations: (1) copy of code (2) disclosure (3) copy of agreement 14 days before entry or non-refundable payment (c10). Must be
- Special resolution or unanimous general meeting (s256C(2)) distinguished Hogan on basis of human rights) given reasonable opportunity to understand (c11(1))
- Cancellation = special resolution (s256C(3)) - Property right / Ongoing contract (like lease), association may not be liable because membership is always in flux (Carlton Cricket Club) Independent advice: (1) signed acknowledgment of accountant, lawyer, B advisor (2) if not, then signed waivers (c11(2)) but can demand
Determine if Share Capital has been reduced - Indicators: (c11(3))
- Clear intention to be bound (Cameron v Hogan)
1) Company makes payment to shareholders that do not come from profits; or Tort action: Further disclosure: (1) change (2) liabily = 14 days after aware (cl 18(2))
2) Canceling any paid up share capital under s258F (so long as it doesnt cancel shares); - Negligence (torts in general); General members do not take on special duty.
3) Reducing or Canceling partly paid shares Committee Members may (Smith v Yarnold grandstand collapse = liable because committee were occupiers of the area)
13.4 Termination
Acquiring or dealing in own shares is generally prohibited both directly and indirectly (share capital reduction) but some exceptions to the rule
s259A (a-c): Termination
12.1 Incorporated Associations Breach by franchise: (Franchisee includes: person who participates to in it)
Exceptions: (1) Reasonable notice of termination
**Popular with sporting and recreational clubs**
a) Permitted Share Capital Reduction (Part 2J.1): Associations incorporations act 1981- (2) How to remedy
- Governed by internal management rules. If none, requirements of s.256B applicable: Step 1 Can it be an incorporated association (3) Reasonable time to remedy (cl 21)
- Objective Test: An association can be formed if: (from s5(1)(MATCH) AIA 1981)
- (1) Is it fair and reasonable to all SH's? (look to adequacy of consideration paid to SH's, if the reduction is being used as a (a) More than 7 members No breach: (1) termination through agreement without consent (2) reasonable notice and reasons (cl 22)
takeover, practical effect of reduction on the rights of different SH's; determination is contextual) Auto termin: no licence, bankrupt, abandoned, criminal, fraud (cl 23)
(b) Is not a corporation, partnership, or school organisation
- (2) No material prejudice to companys ability to pay creditors;
(3) Approval by shareholders required. (c) Is not for profit
-
Unable to be incorporated under this act if the association is formed or carried on for the purpose of providing financial gain for its members Dispute resolution - Part 4 of the FCoC provides mechanisms for Dispute Resolution.
- Equal reduction (s256B(2): Requires Ordinary resolution s256C(1) 1. Provide options and outcomes and try to resolve (cl29(1))
Selective reduction (s256B(3): Special Resolution or unanimous ordinary resolution s5(1)(c) qualified by s 4 list of negatively framed factors
- 2. 3 weeks pass = refer to mediation (cl 29(2))
- A company may reduce capital by cancelling uncalled capital (shares) s.256B a. Disagreement of mediator = OMA appoint one (cl 30)
Step 2: Incorporation as a separate legal entity (s21,25 AIA)
Is a separate legal entity that can own property in own name, sue and be sued and perpetuity 3. Mediator decides place + parties attend and resolve (cl29(5)-(8))
b) Share Buy Back (Part 2J.1): 4. Good faith (cl 23A; Hungry Jacks) and UC conduct apply (s20-21 ACL; No-Knead)
- Restrictions in internal managemnt rules (if any) govern ability. If none s.257A applies: Members have limited liabililty (s27)
5. Only once Mediation Advisor process is complete can they enter a courtroom (Cl 25)
- Co may buy back own shares IF:
no material prejudice to companys ability to pay creditors; Procedure to incorporate: (s29 AIA):
SH's of shares bought back consent 1)Choose name (must use Inc s29 unless exempt under s33Association may apply to not use Inc., if granted must advertise appropriately)
- Ordinary resolution needed only if exceeding 10/12 limit for Equal Access Buy Back - 10/12 limit: generally Co is allowed to buy back 2) Design constitution + rules (Part 5)
10% in a 12 month period s257C 3) Lodge application
- Special or unanimous resolution required for Selective Buy Back s257D 4) Appoint secretary
- Full disclosure must be made when buy-back offered s257G 5) Provide registered address
- ASIC must be notified within 14 days s257F
- Shares bought must be cancelled and ASIC must be notified s257H & 254Y Ongoing Requirements:
Lodge details of any changes
c) Financial Assistance (Part 2J.3): ss260A-C Keep adequate accounts
- Covers Both Direct and Indirect Assistance
o ASIC v Adler direct assistance Hold annual general meeting
o Darvall indirect financial assistance can be in a variety of forms Lodge annual financial return
- If money is lent to buy shares and never repaid, it is the same as if the Co bought it's own shares but without the benefit Committee members must comply with duties
o ASIC v Adler (subsidiary company gave money to assist in buying shares in parent Co as an unsecured loan only to make it Rules fomr the terms of contract b/w assoc and members
look like Parent Co was doing fine. H: direct assistance invalid) 12.1.1 Implication of association
- Also includes payment of dividend, making loans/issuing debentures, and giving security over Co assets. Assoc. once registered becomes incorporated and legal entity status s21(a) as a body corporate w/perpetual succession (b) seal (c) may sue or
- Co permitted to give financial assistance in 3 limited situations: S260A be sued; Associations assets, rights and liabilities become incorporated. (S22)
o Where there is No material prejudice to the Co, the SH's OR the creditors
o Where the SH's approve the assistance under s260B (by a special resolution of SH's at a AGM where NO votes are cast by
affected SH's or their associates OR by unanimous resolution) May issue secured and unsecured notes, debentures and debenture stock for the association (S25) Members are not personally liable except
o Where the assistance is exempted under s260C where provided in rules to contribute towards payment of debts and obligations on winding up (S27)
Assistance given in the ordinary course of business which creates a lien on the shares OR is within an instalment K to
purchase No major disadvantages, keeping of separate counts, financial returns (cost)
Assistance given as part of an employee share scheme Members are bound but the limited to the extent of their annual membership fee.
Assistance given by financial institution in ordinary course of business .
13. FRANCHISING
Contravention: of s256B = reduction still valid and no offence (s256D) 13.1 Definition / Nature
- Civil fines apply to any person (s256D(3)) 220,000 (s1317E) or Banning order (s206C)
- Offence if acted dishonestly (s256D(4)) Definition:
- Remedies: Apply for injunction (s1324(1B)(a)) (1) A contractual arrangement between the owner of the IP (the franchisor) WHICH
(2) Grants a right to the franchisee (who runs the business and earns income)
(3) Consent to use the IP in connection with the supply of goods or services (s9).
12. ASSOCIATIONS
Step 1: Define Association Agreements usually last from 5-30 years
An association is a non-profit organisation and includes any group of persons who have agreed to join together for a common purpose (Smith v
Anderson) INTELLECTUAL PROPERTY
Common purpose in modern times = religious, educational, literary, scientific, artistic, sporting etc. Confidential information/ know how
Copyright (e.g. Operations Manual)
Step 2: Determine if we are in fact dealing with an association: Trade Marks
6 Characteristic of an association from (Conservative & Unionist Central Office v Burrell) Common law marks (passing off)
Elements: {1, 2, 6 = Essential} Business names
1.There must be members of the association [Essential] Company names
- Define and ID association members (general and committee): In an association, members are bound together for a common purpose(s) by
mutual interfacing to carry out a common purpose. They are obliged to comply with mutual rights and associations based in the rules of Franchising Code of Conduct
association. Competition and Consumer Act 2010 (Cth)
- Committee consists of (President, treasurer and secretary)IDENTIFY Regulates the conduct of participants in franchising towards each other
- General members = anyone else IDENTIFY Balance up information Upfront disclosure
2.There must be a contract binding the members [essential but issues in AU [Essential] Regulator - ACCC
- See Cameron v Hogan
3. There will normally be some constitutional arrangement for meetings of members and appointment of committees and officers; Possible Business Structures for Franchisor/ee
4.A member will normally be free to join or leave the association at will Sole Trader | Partnership | Company structure | Trust or Corporate Trustee
5. Perpetuity - the association will normally continue in existence independently of any change in composition 13.2 Elements
6. Must have historical moment in time when a number of persons combined to form the association [Essential]
The elements are as followed:
Step 3: State what sector the association is in (profit / not for profit) (c4 = clause 4 of the Franchising Code Of Conduct (FCoC))
Furthermore, The aims must not involve the members making a direct pecuniary profit for themselves (Adamsons case) {Does not mean
association cannot be involved in profit making activities so long as the money goes back into the organisation (s4(1) and (5) Association 1. Franchise agreement that is oral, written or implied
Incorporations Act) a. Vehicle dealership / goods already sold 2 yrs exempt (c4(2); c5)
b. Employer / partnership / not in themselves (c4(3))
Step 3.5: Mention Procedure to form and enter association, see if was adhered to.
Procedure to form unincorporated association: Very few formalities reqd. (not a separate legal entity). Name is usually adopted for practical 2. Intellectual property / trade mark
purposes. Most important consideration is mutual understanding of members. May have a constitution set of rules / by-laws, including matters of a. Protected by M&D (s18ACL; Crawford v Parish)
membership, management, objects, purpose.
Entry Criteria: cannot discriminate(public policy); freedom of association. The operation of the business must be substantially or materially associated with a trademark, advertising or commercial symbol owned or
Membership rights: express or implied. Members agree implicitly or express to be bound (liable) can arise from a common understanding or specified by the franchisor
constitution (determined by founding members/amended later by cnst provisions or unanimous acceptance)
Problems: Not inc. so owning prpty, gifts to assoc., rights, dissolution and liability issues may arise 3. Business system copyright protection
a. A grant to carry on the business of providing goods or services under a system determined or controlled by the franchisor
 Partnership JV Company Trust Franchise Sole Trader Uninc./Inc. Assoc
No = uninc
Seperate Legal Entity No [Smith v Anderson] No Yes (s 124) [Salomon] CL = No; Stat = yes Yes, franchises separate No
Yes = s 21 Inc Ass Act
Ltd. cpy, ltd to value of cpy
Unlimited for each others actions Promoters liable personally (s 131(2)-(4))
TRUSTEE personal - unlimited but can
Ks = ss 8-12 (joint) [Kendall v unless indemnified by TP (rare)
Individual separate resp/oblis unless indemnify themselves (Pt 6 Trust Act) Unlimited. Franchisee liable for his actions Limited to membership fee (s 27), liability on
Hamilton] Sholders only to capital unpaid on shares (s
otherwise provided for [Canny Gabriel; Cox Corporate trustee (fam trust) ltd to sholders (for franchisor, to extent) / Franchisor assoc otherwise
Liability Torts = ss 13-14 (joint + several) 516) Unlimited
v Coulson] amounts. liable for all franchisees actions as well Defamation must be external & commercial
[Polkinghorne] Doesnt extend to directors personal liability
AGENCY FD for both (Consul Devel.) crim sanc for as own. nature [Plenty]
Agency (PA s 17) [Salomon] unless severe breach (s 588 CA
fraud
Inc Ltd Pships (Ch 4 must be regd) + CL)
Promoters & directors liable for FD (CL)

Difficult pships often formed based Easy shares can be transferred & bought
upon members skills (s 27(g)); possible May be restricted by K but can dispose w/o watch for Gambotto min/maj appropriation YES can transfer, need consent cant Can be difficult as often linked to individuals Continuity not affected by change in members
Transfer of Interest Not difficult. Bee may assign interest..
but needs full consent need to assign Prop Cpy can limit transfer of shares (Ch 7) be unreasonably withheld should be in K expertise No assets to transfer (NPO)
Ltd (s 90) (in certain circumstances)
No, unless in expressly stated in Pship Yes based on trust deed. Goes into estate Yes Asset goes to the deceaseds estate No no selling of membership if making a
Perpetual Succession Depends on kual agmt Yes shares distribute to family/estate No, K w/ franchisor
Agmt upon death. but often dies w/ sole trader profit [Watson v J&AG Johnson]
s 113: can get equity funds but not debt (Pty)
Limited to partners capital (i.e. savings
Equally invested but depends on kual agmt Ch 6D: get funds from public but need Limited
or loan). No floating charge, no public Financed by trust Franchisees capital runs his franchise, MUST BE NOT FOR PROFIT***
Financed by pre-existing companies & their disclosure (Public) From sole trader or by loan
Finance funds Settlor decides trust pty included pays Franchisor for licensing. Membership fees no pub funds
assets/loans. Watch for sholder rights / disclosure reqts (Ch No floating charge
Can pool capital from partners [Khan v Can have public trusts (donations) MARKETING FEES! INC. can borrow under assoc name.
Payment by % of responsibilities (in K) 6D) NOT Pty Ltd No public funds
Miah joint accounting despite]
Can borrow b/c entity
s 115 Corps: max 20 s 114: Pty Ltd max 50
Size 2+ people No limit to Bees. Duration of franchise agmt One owner but can employ others Group of people min size in some states
Larger if regulations apply (2A.1.01) Public: no limit
Franchisor huge infrastructure & solid
Ongoing
80 years duration (doesnt apply to charities) business plan
Duration Fixed term [Canny Gabriel] Ongoing, specific project usually (in K) Ongoing Ltd to owner Ongoing
(TA) Franchisee EXPENSIVE = investment
Life of Partners
fee + paying goods/services
Financial records, statements, high regn costs EXPENSIVE & COSTLY
Cheap/easy (ASIC) Need all (1) unequivocal [Robertson]; (2) None social group
Formalities Kual agmt Cooling-off (s 13), obligations (ss 10-11) None
Oral default RRS (s 27) High licensing/compliance fees certainty of trust pty; (3) certainty of Bee Members fees donations/low costs to form
Bigger = more fees [Knight v Knight]
Varies, but onerous (Pt 2.M.3)
Onerous PUBLIC DISCLOSURE REQd
Prospectus reqd for public funds raising (Ch
External Disclosure by franchisor to inform of all info
None None 6d CA) None, except public trusts None None
Rqts reasonably needed to make educated
Remember for share-buy-backs/disclosure for
decision (s 6 6b FCC)
MV

Personal tax rate
Taxation Flow through entity: partners write off
taxes b/w pship & other entity [Everett]
Taxed separately (person/company rates)
Large savings b/c pay company rate
Taxes paid by cpy many tax breaks by govt
tax rate = 30%
Taxes paid by trust income
Franchisee/franchisor pay their own
Benefits of pass-through & write-offs Personal tax rate Not-for-profit
30% corporate
Unallocated pmts taxed at higher rate

Partnership JV Company Trust Franchise Sole Trader Uninc./Inc. Assoc

s 27(e): equal say but can have agmt to
Mgmt & Control make on person mgr/admin
Agency
Regulatory Body Pship Act 1891 (Qld); Corps Act
s 23: all pty brought in or s 24: all pty
afterwards acqd becomes pship pty.
Pty
Partners have beneficial interest in
assets, but implied intention [Kelly]
ACTION OF PARTNERS
Operation of fixed term: 35(1)(a)
completion of undertaking (1)(b), partner
notice (1)(c)
Diss/Termi
Operation of law (death or bankruptcy
s 36 or court order s 38 illegality s 37
ORDER: assets sold, liabilities paid out,
surplus to partners (Part 4)
Must use partners funds, or loans, no
Expansion
public funds
Secrecy /
Good for external but bad for Internal
confidentiality
Separate oblis [Cox; Canny Gabriel]
AGENCY
K law/agmt
Assets usually held in individual shares as TIC
Separate [Cox v Coulson]
Must discharge contractual liabilities
Not dissolve through notice alone.
Assets & income divided per JV agmt
Not typical b/c usually one-off type deal
Depends on K
Maj by shares
Shareholders no direct control, directors
or company constitution, except derivative
(Part 2F.1A)
Directors (s 127 CA)
Managing director: (s126)
RRs (s 141)
Corporations Act
Shares have no prop interest (Mcaura)
Assets owned by cpy can acquire assets
Complex termination disbursement
s 501: distribute pty to satisfaction of its
liabilities equally; s 556: debts / expenses 1st,
then mbrs proportionate to interest
s 459: if insolvency, many people can apply to
have company wound up; s 491: voluntary
windup through special resoln
Voluntarily/involuntarily
Complicated/reqts/ costly especially if
insolvent
Avoiding legal obligations [Gilford Motor]
Cant diss to avoid pay employee
s 162: can change from pty ltd or vice versa thru
special resoln of members & complying w/ ss
163/4 (app w/ ASIC).
Duty of directors + ASIC reqs +
prospectus reqs + buyout reqs
Settlor = places legal title of pty into trustee
Tee = Manages the trust all acts for
protect/admin
Bees have equitable title to the trust pty
can intervene
Trusts Act 1973
Can be trustee for own pty if another
trustee w/ you cant be only bee &
trustee (not both legal & equitable title)
Trustee has right to remuneration +
reimbursement (s72 TA) before account
paid out (by trust)
Good, FD of trustee, not for public trust
Franchisor: relinquishes some control to
franchisee Controlled by committee members according
Absolute
Franchisee must abide by franchisors w/ rules of assoc.
rules
Franchising Code of Conduct Nil Assocs Incorporations
By breach (Cl 21) Cant have profit committee jointly decides
No breach (s 22) of franchisee notice & on asset disposal
Must discharge Kual liabilities
can challenge (Part 4 FCC) Lose subscription fee b/c profit if you get it
Franchisee can exit w/ notice back (Funeral Society)
Franchisors BROAD disclosure reqs (6B
Only one person Wide open members no oblis
& 6A)