Legislation - section 1.

Acts of Parties:
Regulation - provision Implied: inferred from conduct of the parties ANZ Bank When TP does not know there is a Pr, and thinks they are
Rule - Rule dealing with A as Pr Mutual agreement
Code - clause Apparent/Ostensible: creates the appearance of an
AGENCY agency by words or actions when is reality it does not Pr may be able to sue and be used on TP/A K Revocation of the As authority by Pr
the fiduciary relationship between principal and agent exist Freeman & Lockyer; Crabtree-Vickers;
Panorama; First Energy; Pacific Carriers; Heperi Clashes with the principle that only parties to a K First step if there are issues with A and Pr
Agent: the go-between or intermediary in business and TEST #1: For an agent to have apparent authority, there have rights under the K
who can contact for someone else (the principal). must be (1) a holding out (See TEST #2) ; (2) by someone Will only affect prospective transactions; does not
with actual authority; and (3) TP must have relied on it
Every time TP doesn't know who the Pr is, the A is liable. work retrospectively
An agent is not an agent when: Freeman & Lockyer
TEST #2: Person must have actual authority to hold out Limited by the following seven principles: Result: Pr will cease to be bound
Bailor/bailee a person as having authority. Crabtree-Vickers 1. A must be acting within authority
Duties and Rights of Agent 14.There must be evidence to show who is Pr Humble v The A may withdraw from the agreement
Company directors and other company personnel The Agents Duties: Hunter
1.Follow Prs instructions 15.The K does not exclude the possibility of an Can be avoided with agency
Employer/employee 2.Act in person undisclosed Pr Said v Butt agreement/performance bond ($$)
3.Exercise due care, skill and diligence Keppell; 16.Defences for TP
Franchisor/franchisee Dargusch; Mitor Investments; Havas; Modified by Prs right;
4.Act in person/duty not to delegate John McCann If sued, TP can use any defences against undisclosed
Independent contractor 5.Act in Prs interest; no conflict of duty Hewson; Pr that TP could use against A Secret commission (aka bribe)
Walden Properties; Lintrose; 17.The TP must act in a reasonable time
Independent Contractors Act 2006 6.Maintain confidentiality 18.IF the undisclosed Pr intervenes and sues TP, A Completion of a specific purpose (K is performed)
7.Keep seperate and proper accounts cannot sue or continue in any legal action that A may
Mortgage broker/originator act on behalf of individual 8.Not make a secret profit have commenced. Time limit
and the originator 19.Agent must have contracted as an agent. 2. Operation of law: aka legal failsafes
i.e. Any $ that should have gone to Pr, less any
Partners reasonable expenses or amounts pre-agreed; Doctrine cannot apply if A has contracted as Pr. Performance
anything else is considered secret profit
Selling agent 9.Not receive secret commissions A = personally liable if TP does not know about Prs Lapse of time
existence
Categories & Classification i.e. Bribing, insider trading; any thing that breaches Death
fiduciary relationship A personally liable if A Ks as agent and the Prs
Special/limited: A can only conduct a specific type of existence is known (even if TP does not know the Insanity
contract or a particular transaction on behalf of the Pr; The Agents Rights: Pr's identity (unnamed Pr)
Narrow 1. To receive payment Moneywood Bankruptcy: A cannot act if bankrupt
Agents Liability Contracting Personally
General: A can make contracts of a type that are normal Contingent upon 1-9 duties Auctioneers: Agents of their vendors, but can be liable for A is liable Frustration
for a certain type of agency/do some acts for the Pr in 10.To indemnity and reimbursement promises and representations (incl. misleading/deceptive
the As ordinary course of business; Broad conduct), including that they have authority to sell on behalf of Pr If A commits a crime, Pr can terminate only binding
Indemnity: Pr will bear the burden of any burden Custom and Trade Usage: May show that A contracts personally A is liable retrospectively
Universal: A can do any actions specified/authorised by imposed against the A by TP (i.e. action, etc) Cases
the Pr If A undertakes personal liability to TP in the course of acting for A may be liable for
Great anNorthern
contractual Railway v Swafifeld: Agent of necessity. S
Reimbursement: any reasonable expenses during Pr undertaking that A makes
(Pr, D) sent a horse by rail, but there was no one to meet
Appointment/Dimensions of Authority agency; usually specific in agency agreement. (i.e. Stock Exchange Rules: Brokers deal with each other as Prs A (the broker)itiswhen
liable it arrived. The station master (agent of railway,
registration, travel) P) sent horse to stable for safe custody. P would have
Express: orally, in writing, by deed 11.Of lien As liability in tort: A may be under a DofC that may not transfer A is liable been in breach of duty as carrier if horse was not taken
to Pr if it can be shown that A owed a DofC personally care of. P was able to claim stable charges from D.
Implication by conduct Allows A to retain interest in goods until any payment Springer v Great Western Railway: Not an agent of
owed to A by Pr is cleared Liable: If A is K-ing to sell property/goods that belong to necessity. Transport of tomatoes were delay by storm
Operation of law 12.Of stoppage in transit Pr A is liable (because A is K-ing party) and further shipment was going to be delayed by rail
strike. Railway sold ripening tomatoes locally. S sued for
Cohabitation Pianta (Within usual authority) Until any payment owed to A is paid by Pr (i.e. If A is selling on account of principal = A is not conversation and was successful because they could
trade/movement of goods) liable have communicated with S to get instructions. Not
Emergency Swafifeld (Agent of necessity) Not liable: authorized as a necessity.
Liability of Agents & Principals to Third Parties Bolton Partners v Lambert: Retrospective ratification by
Agency by ratification Bolton Partners; Durant; General rule: An A cannot sue or be sued on a K between If A signs for X Corp = A is not liable to TP Pr. Prs ratification = acceptance. TP offered to buy land
the Pr and a TP where: from A, the acting manager of Pr Ltd. A did not have
Creation occurs retrospectively, after A has acted for 1. The A discloses the agency relationship and names If A signs with agent after the signature = A is not authority, but accepted offer anyways. TP was unaware A
Pr the Pr liable to TP had no authority. TP revoked offer. Pr ratified As
13.The A discloses the agency relationship but doesnt acceptance of the offer, and was granted specific
Authority of the Agent name the Pr If K states agent for principal = A is not liable to TP performance and TP was unable to cancel.
(declares agency relationship) Maxsted & Co v Durant: Ratification failed; no disclosure
Actual: concerned either expressly or by action ANZ Doctrine of Undisclosed Principal: **By-passes the doctrine of privity of Prs existence. Pr instructed A to purchase wheat from
Bank Termination of Agency TP on a joint account at $1. A bought at $2 without
authority from Pr. A did not disclose he was acting as
agent for Pr. Pr attempted to ratified the purchase at the
higher price, however, since Prs existence was never
mentioned, the ratification was not effective.
Hely-Hutchinson v Brasher Ltd: Authority of agent
implied actual based on past dealings. TP was
successful against Pr for losses after a failed takeover
deal. A (CEO) and de factor managing director and
Chairman of PR made promises on behalf of Pr which Pr
refused. Held: the office of Chairman did not give A
actual (express) authority to make the promises; A had
implied actual authority to make Ks, based on past
dealings.
ANZ Bank v Ateliers de Constructions Electriques:
Implied actual authority (to create business efficacy)
and express actual (through original agreement). Pr
appointed A to contract with TP. TPs cheques were paid
to A, which banked the cheques in their account since Pr
did not have an Australian account. A did not given Pr all
of the money, and Pr went bankrupt. Pr sued the bank,
claiming that A did not have authority to bank cheques in
As account. Held: Because Pr had no Australian account,
A had implied actual authority (to give business efficacy
to the operation) to endorse the cheques into their
account on Prs behalf. Pr was unable to recover from the
bank, and could not claim that A had no authority.
Freeman & Lockyer v Buckhurst Part Properties:
Company bound by agent. K and H formed a company
and were each directors. K was never formally
appointed, but acted as managing director (A), with the
companys knowledge. K (A) contracted TP to do some
work for the company. Held: K had no authority to employ
TP, but did have apparent authority as managing director.
The company was bound and estopped from denying Ks
agency.
Crabtree-Vickers v Australian Direct Mail: No actual
authority to hold out a person as having authority Failed
Freeman & Lockyer test.. Family company had a board of
4 directors. Peter, who had been a director in the past did
not have an official title, but work for the company. Peter
attempted to accept a K for the company by signing per
one of the directors. Held: Only the the management
team, or the full board had actual authority to enter into
the K; Peter had no actual or apparent authority to K.
The director signed per for did have apparent authority,
but could not hold Peter out as having apparent
authority. Therefore no K.
Panorama Developments v Fidelis Furnishing: Apparent
authority of company secretary. A was company
secretary. A booked cars from TP without Pr knowing,
and said they were for company use. Held: Pr liable to TP
for As actions since A had apparent authority of Pr as a
company secretary (entitled to sign Ks in relation to
admin matters, etc).
First Energy v Hungarian International Bank: Apparent
authority of unauthorised agent. A was a senior manager
of the Pr bank, who negotiated bank credit to finance
customer, TP. When head office management of Pr
decided not to go ahead with financing, TP sued Pr. As
letter to TP was an offer of finance from Pr, which TP had
accepted. Held: A did not have apparent authority to
approve finance, but did have apparent authority to
communicate decisions and sign letters on behalf of Pr.
Pr was committed to the K because of As position with
the bank.
Pacific Carriers V BNP Paribas: Arming the agent with
authority. A, a Department Manager at a bank, had an
offical stamp from the bank, giving the impression that A
had greater authority than in reality. Held: When A
(acting honestly) exceeded her authority and stamped a
K, Pr was liable to TP on the K made by A.
Heperi Pty Ltd v Morgan Brooks Pty Ltd: You are
responsible for your agent re fraud. Pr, a mortgage lender
appointed A as its Coffs Harbour Agent. TP invested but did not keep Pr informed, and sold shares to another
$4M with A, who fraudulently misapplied TPs money.
Only a small amount was recovered. TP would be able to
recover the rest from Pr if A were an agent, and if A was
acting within their authority. Held: (1) A did not have
actual authority to advise on or make investments. (2) A
did have apparent authority to make these investments
since A used Prs stationary and was allowed to
represent himself as manager. There was no disclaimer
by Pr that A was acting independently. Pr was held liable
for expectation damages.
Duties/Rights of Agents
Keppel v Wheeler: Care, skill and diligence expected of
an agent. Pr appointed A (real estate agent) to sell a
property for $6,500 and accepted an offer for $6,150.
Before settlement, a second offer of $6,750 was made. A
contacted first offeror and suggested he sell to second
for a profit. Pr was awarded damages for As breach of
duty to its Pr in the amount of the difference between
the two prices. As defence failed said he acted in good
faith and had fulfilled duty to Pr.
Dargush v Sherley Investments: Pr appointed A (real
estate agent) to sealed land for $60k. A, told purchaser
to pay $50k. A must disclose to Pr any advice given to
purchaser, and must get Prs consent.
Motor Investments v General Accident Fire & Life
Insurance: Pr contracted A (insurance broker) to get
insurance against storm, tempest and flood. As
insurance excluded damage caused by the sea and formally incorporated when the K was signed (even
didnt cover damage when the property was flooded by
cyclone. A was liable for departing from Prs instructions
below the standard of care to be expected of a
competent and experienced broker.
Havas v Cornish & Co Pty Ltd: A (real estate agent) liable
to Pr because it did not promptly inform Pr that
purchaser avoided the K. A was in breach of duty to keep
seller informed about price and obligations of buyer. Pr
later sold at a lower price.
John McCann & Co v Pow: Agents duty to act in
person/not to delegate. Pr appointed A to sell property. A
was a real estate agent and took photos of a property
and gave instructions to sub-A without Prs instructions.
Sub-A sold property and A was not entitled to
commission from Pe, even though A had indirectly
brought about the sale. Purchaser was not introduced by
A or authorised Sub-A. Personal skills and competence
were held to be important skills and cannot be
delegated.
Motor Investments v General Accident fire & Life
Assurance: A misunderstood and didnt follow Prs
instructions, causing A to give wrong insurance to TP.
Hewson v Sydney Stock Exchange: Agents conflict of
duty Undisclosed trading. A (stockbroker) was involved
in undisclosed purchase and sale of shares on his own
account as Pr with his clients through his house
account. A acted as both share broker while carrying on
business as a shareholder. Was held to be trading as a
broker not for his client, but in competition with them.
Walden Properties v Beaver Properties: Agents conflict
of duty. Double-dealing by A; failure to disclose
information to Pr. Pr and A agreed A would manage
properties bought by Pr, and would report to Pr re
investment opportunities including buying shares in
company X. A later negated to sell shares in company X,
client at a profit. Pr lost opportunity and was awarded
2/3 of profit made by A in the sale.
Lintrose Nominees Pty Ltd v King: Conflict of interest by
real estate agent. Pr2 invested his super in a commercial
property (bought from A before it was built). A who was
contracted by Pr1 to market the property, did not
disclose this to Pr2. A was in breach of duty because he
was acting in the interest of both purchaser and vendor.
Moneywood Pty Ltd v Salamon Nominees Pty Ltd: The
seller (D) appointed A (P) to sell land. A found purchaser,
but the sale was never completed and no commission
was paid. By a later K, the same purchaser agreed to
purchase part of the land. A was entitled to commission
from this K since As conduct was the cause of the
transaction. The relevant legislation did not require A to
be appointed again, since it was covered in the original
transaction.
Non-Existent Principals
Kelner v Baxter: Non-existent Pr. An offer was accepted
and signed on behalf of a proposed hotel by A. After deal
went through, company incorporated and tried to ratify,
but it was unsuccessful because when the K was made,
there was no Pr. K was enforceable against promoters
personally.
Black v Smallwood: Non-existent Pr. A (company) entered
into a K for sale of land as purchaser, and signed per
company. It was later discovered that Pr was not
though directors thought it was). Vendors tried to
enforced the K against directors personally, but the
signature did not show that they intended to be
personally liable, and as the only signature on the K was
of a non-existent company, no one could be liable.
Knight Frank LLP v Aston Du Haney: A liable for breach of
warrant of authority. A made a K with TP and
misrepresented the correct name of Pr (in the
circumstances, Prs name could be identified and easily
checked). No breach by A, just a case of
misidentification by A. A had warranted that he was an A,
but had not warranted the accuracy of Prs name.
Humble v Hunter: A (the son) signed a K to hire a ship as
the owner (the Pr). The undisclosed Pr (his mother/real
owner of ship) could not sue the hirer (TP) on the A/TP K.
Parol evidence was not admissible to show that A had
signed on behalf of the undisclosed Pr.
White v Bancorp Advantage Business Information: A
rental K between A and TP may be made on behalf of a
finance company (the undisclosed Pr). Pr can enforce the
K against TP if there are arrears in payment.
Said v Butt: Undisclosed Pr. The unwelcome theatre
critic. The managing director (TP) of the theatre had
banned Mr Said (Pr), the critic, from the theatre. Pr asked
a friend (A) to buy a ticket for Pr in As name. Pr was
refused admission and Pr sued the TP for not letting him
enter. Action by Pr against TP failed. The identity of Pr
was not important and the objection to Pr was personal.
As Prs identity had not been disclosed, there was no K,
and the doctrine of the undisclosed principle did not let
undisclosed Pr (critic) sue TP (manager).
PARTNERSHIPS
Partners bind each other in agency; each partner owes
every other partner the same liability
s5(1) Definition of a Partnership: relation which subsists
between persons carrying on a business in common
with a view of profit
(2): No formal agreement is necessary, although for
practical reasons agreement is useful
s3: Business is defined to include every trade,
occupation or profession
Not a separate legal entity; t cannot sue or be sued as a
legal person.
Partnership is sued in firm name, and judgment binds
all partners.
Statutory Elements of Partnership s5:
1. Valid Agreement between the parties
20.Business being carried out French v Storing
Carried out: Gross sharing of gross profits s6(2);
Canny Gabriel; Re Ruddock
21.Business carried out by persons in common
Degiorgio v Dunn
In common: Doing the same thing at the same time
(i.e. not just jointly)
22.With a view of profit Davis v Davis; Elkin
Does not require mutual sharing of profit and loss
s27
Indicators of Partnership:
1. Jointly leased premises
23.Jointly registered business name
24.Joint bank account in the business name
25.Jointly registered for GST
26.Jointly carrying on business from the leased premises
*If some of these elements aren't present, it is likely a
joint venture, not a partnership
Rules for Determining a Partnership s6 (statutory
standard):
Sharing of gross returns does not of itself create a
partnership, unless partnership tests are fulfilled
s6(1)
Sharing of losses and profits may make a relationship a
partnership, but it is not enough on its own s6(2);
Canny Gabriel; Re Ruddock
Salaried or silent partners
Salaried = often transitional partner;

May/may not be a partner in the full legal sense
with auth to act as A to other partner. If this is the
case, then considered an employee only
Silent: No active part in management of partnership
business, even though considered a full partner. Still
bound by acts of other partners, acting within their
authority.
Regulation of Partnership:
Regulated at state legislation level
Unlimited liability for debts
Rules of equity and CL apply, except where they conflict Disadvantages:
with the legislation s121
Common-law = negligence
Equity = unconscionability, injunctions and fiduciary
obligations
Defining Characteristics:
Partnership entity is referred to as the firm
Firm is not vested with legal identity
s4 - Partnership Act 1891 (Qld): Defines the meaning of
firm and firm-name
Features of partnerships:
Caveat emptor buyer beware
Easy set up
Formalities
s.115 of Corporations Act limits maximum number
of partners to 20, except in cases of accountancy, states.
legal, architectural, pharmaceutical and
veterinary businesses
Advantages:
Setting up is not expensive
No sector specific regulating entity
Flexible nature
Secrecy
Easier to finance (by known parties up to a limited
financial capacity of the partners)
However, causes issues with bank loans since they
are less willing to lend
Partnerships are not liable for tax
Partners are liable individually since a partnership is
not a seperate entity
Self-regulatory
Dont need to have an annual meeting, filing forms, etc
like corporations
No external body looking at how business is
conducted
The interests of the partners help to regulate the
business
Partners can influence the running of the partnership
Decision-making is usually on a collective basis,
unless K says otherwise
Unlimited liability
Anything owned by a partner can be used to satisfy
the debts
Transfer of shares in partnership is difficult
Ongoing liability. Each time a partner leaves, there
needs to be a new partnership agreement.
Limited numbers = limited financial capacity of the
partners
Outside bodies may lift the conduct of partnership
Unanimous decision making can sometimes cause
conflict and delays
Imputation of Agency between partners inter se
National Partnerships:
When business is large, it is run as a partnership
registered individually in different states, effectively
binding the other partners in agency operating in other
Causes complications. If any of the following faults, the
structure is a joint venture Duke Group v Pilmer
Partners carrying on business in common interstate
Mutual agency
Holding out
Tax return filed nationally?
Profits shared with partners in other states
Limited Partnerships & Incorporated Limited
Partnerships (ILP) Ch 3&4
Usually in certain specific situations (i.e. lawyers,
accountants, architects, etc)
Regulated by limited partnership legislation, and under
principles of partnership law set out in the State
Partnership Acts
rules re credit, no act done in contravention of the
s8 Power of Partner to Bind the Firm: (1) Every partner is agreement is binding on the firm.
an agent of the firm and other partners for the purpose of
the business of the partnership, and the acts of every Partners are bound by acts on behalf of the firm s9
partner who does any act for carrying on business in the UNLESS: It is for their own benefit and not on behalf
usual way of the kind carried on by the firm binds the of the firm s10 P using credit of firm for private
firm and the other partners unless: (a) the partner has no purposes; Panorama
authority to act for the firm; or (b) the TP either knows
the partner has no authority or does not know or believe TEST #1: Authority of a partner: Every partner is an
the partner to be a partner. agent of the firm for the purposes of the
partnership business.
General Partners: bind other general partners s8(2) Limitation on partners authority can be limited
(same as 8(1) s11
Directly responsible for the limited partnership; Implied, usual or normal authority of partners
make the decisions; bare responsibility for most (contrast with non-implied and unusual actions)
of the decisions taken
TEST #2: Even if a partner does not have actual
Have unlimited liability authority, the partner doing something to carry on
the usual business of the firm will bind the firm
Limited Partners: only bound to the extent of their (and all partners) (unless 8(1)(a)/(b)/(c)). Ps
contribution usually have implied/usual/normal authority under
the agency section of the Act
Passive investors
Managing partner is not defined. Authority varies
Have the power to participate in management, if between firms and only covers the matters
they do, they have unlimited liability like general given by the agency. Mercantile; Mann;
partners Goldberg
Otherwise limited to their share contributed to Ratification is possible by partners in a
the partnership only partnership; innocent partners may be liable is
action is ratified. Oppenheimer;
ILP used for venture capital funds or investing in new
areas of economic activity Limiting apparent authority under TEST #2:
Construction Engineering; Lederberger; s8(2):
Relevance of Agency Law to Partnership:
P has no authority and the TP knows this;
Partnership Agency
P has no authority and the TP does not know
Two-way relationship each One-way relationship
that P is a P of the firm;
partner is A of the other and P of person is the P, the other is the A.
the other. Each can bind the P does not own a fiduciary
P has no authority and the TP does not believe
other and be bound by the relationship to the A, like
that the P is a P of the firm.
actions of the other partners. partners owe to each other.
Liability in K, tort and crime s13 liability firm for
In common. The partners operate Not in common. The business
wrongful acts or omissions:
a business in common. may be to the benefit of the P
and the A, but the P and the A do
If by any wrongful act or omission in the usual course of
not run a business in common.
business, if any injury is caused to any person who is
not a partner, the firm is liable for the loss to the same
Relations of Partners to Outsiders: extent as the partner.
Joint liability for the debts and obligations of the firm: In Contract: Joint liability All liable together s12
(only liable for debt incurred while a partner)
P has actual or apparent authority to act (and bind) for
the firm if the K is an agency K of the partnership s8 In Tort/Crime: Joint and several liability s15
s10 Partner using Credit of Firm for Private Purposes: (1) Several = seperate or individual liability to TP
other than an ILP, for purposes not connected with the s13(1);
firms ordinary course of business; the firm is not bound
unless the partner is specially authorised by other Directors: Not responsible for liability incurred by the
partners partnership and vice versa s13(2); National
s11 Effect of Notice that Firm Will not be Bound by Acts Commercial Banking
of Partner: (1) If TP has knowledge there are internal

Partnership can be liable for fraud or wrongful acts
carried out for the benefit of an individual P, and not for
the benefit of the partnership.
Misapplication of Money or Property s14
Joint and several liability
Wrongful use of money or property must be in the course
of the business Mann v Hulme
Does not apply if P received money privately and not
as a P of the firm
Improper Employment of Trust Property for Partnership
Purposes s16
Exception to s14 and s15. Can only sue the trust partner
who has breached the trust, not the other partners.
Persons Liable by Holding Out s17
P can make other P's liable by holding out, estoppel or
representation as a P
Liability of partners includes actual partners and
apparent partners (people who have been held out to
the world as being partners)
ESTOPPEL TEST #1: There must be a representation that
the person in question is a P. Lynch v Stiff
Can be by the person in question, or anyone else
Can be by act or by word
Registration of a person who is not a P under the
Business Names Act a representation unless that
person knowingly authorised the registration
ESTOPPEL TEST #2: Credit must have been given to the
firm based on the representation. Bunny v Atkins and
Naughton
ESTOPPEL TEST #3: The person relying on the
representation must show actual reliance on the
representation that the person is a P; (whether it is true
or false does not matter, so long as the person relying on
it believe it to be true). Tower Cabinet v Ingram
Representations include:
the firm being listed in the phone book
What the receptionist says when answering the
phone
what is written on the firms stationary.
Admissions and Representations of Partners s18:
The firm is responsible for statements of a P about the
firm's affairs in the ordinary course of doing business
when the statements are made within the Ps actual or
apparent authority
The other Ps would be estopped from denying the
truth of the statements made by a partner.
Notice to Acting Partner = Notice to the Firm s19:
Means that innocent Ps are not presumed to know of
fraud being carried out by one of their Ps
Knowledge of the firm: Knowledge of 1 P is to be taken
(imputed) as knowledge of the others (with the
exception of fraud).
Notice to silent P = notice to the firm under agency
laws
Notice to a person before the person forms the firm
notice to the firm
Knowledge by 1 P of a fraud (actual or imputed)
knowledge to the firm.
Liabilities of Incoming and Outgoing Partners s20:
Limits P liabilities to a finite period
P is only liable for partnership liabilities incurred while
the P was a member of the firm.
Not liable for:
What happened before becoming a P
What happened after retiring from the firm
To avoid the possibility of liability:
For future debts an outgoing P should partners for carrying on business) must only be used
give actual notice to existing TPs
For future TPs: an outgoing P should give
public notification of retirement in the
Government Gazette, etc
Novation Agreement s20(5):
A retiring Ps liability can be discharged by a novation
agreement between the retiring P, the members of the
firm, and the creditors (this is substitution a new K in
consideration of a release from the existing K).
May be express or implied.
If creditors continue to deal with the firm after the
retirement of a P, they impliedly agreement to accept
the new firm as debtors in place of the old firm
Retired P must prove discharge by novation or by
separate agreement with creditor.
Retirement is not enough unless creditors have agreed
to novation.
If creditors refuse to accept novation, the retiring P Property used by Ps in regular course of business
cannot force them to do so
i.e. retiring P is wealthy, but new substituting P is
poor
s32(2) also applies if there are outstanding creditors
Partnership Guarantees s21(1):
Unless there is an agreement to the contrary, a promise
to pay for the debt is revoked is there is a change in the
membership of the firm.
Relations Between Partners:
Relations are subject to Fiduciary duties
Fiduciary duties that precedence; the indicator of
fiduciary duty is to act in good faith
The Partnership Act regulates the internal conduct of the
Ps
Some rules can be excluded though express
agreement
Ps can draft their own rules (but cannot breach the
provisions of The Partnership Act)
Problems are often encountered in partnerships the lead
to disputes
Partners can vary terms of the partnership through
consent s22
Partnership Property of Firms Other an Incorporated
Limited Partnership s23
Partnership property (property which is used by the
in breach
for the purpose of the partnership Canny Gabriel
(definition)
General rules of land (i.e. land title documents) will
determine who owns land; the land will be held in
trust for the persons beneficially interested in the
land s23(2)
Creditors can pursue partnership property for
settlement of debts (important for P to prove
property is personal)
Not all property owned by Ps is partnership
property (depends on agreement of the parties)
Acts/intentions of parties is important
Right of a P to participate in surplus on
dissolution (Ps interest is an equitable right)
Legal right if P has retained title
Property Purchased Through Partnership Money is
Partnership Property s24
belongs to the partnership
Ps must prove that the property remains private
property
If bought with partnership money, property is deemed to
have been bought on account of the firm. s24(3)
Conversion into Personal Estate of Land Held as
Partnership Property s25 (applied like the equitable
doctrine of conversion)
Land bought for the partnership is partnership property
When the partnership is dissolved because of a Ps
death, the land is treated as personal estate' and must
be sold to pay the creditors before proceeds can be
divided among Ps
Creditors Cannot Enforce Ps Separate Judgment Debt
Against Partnership s26
Creditors are unable to enforce a judgment for a
separate Ps debt against the partnership
This means that the Ps financial interest may be
changed by the court for payment of debt, but not
the entire partnership assets
Court may appoint receiver on income arising from Ps
interest
Protects the other Ps from judgment debts against
other Ps
Management Matters Settled by the Partnership Act If No
Agreement s27(1)
*Only apply if not covered in partnership agreement/not
(a) All Ps share equally in debts and profits in relation to
the firm
(b) Regardless of the Ps internal arrangement, the debt
recovery action/liability to creditors must be joint;
afterwards, Ps can indemnify each other
Covers: sharing of profits, indemnity, interest in
advances, interest on capital
Subject to any agreement express or implied between
the Ps
Expulsion of a partner s28; Bond; Russell
A majority cannot expel a P, UNLESS power given in
express partnership agreement
Retirement from partnership at will s29
P must give notice of intention to retire to other Ps if
partnership is not for a fixed term
Continuation of partnership s30
Not advisable; will likely lead to disputes; risk of
apparently partnership being presumed

Duties of Partners:
Render true accounts s31;
Ps must not actively mislead each other re
partnership matters
Accountability of partners for private profits s32;
Birtchnell v Equity Trustees
Non- Competition with firm s33; Rochwerg; Strother
If competing in the same business, must pay all profits
to firm
Assigning shares in a partnership: absolutely; by
mortgage; or by charge s34; FC of T
Ps can transfer shares in the firm to someone else,
but that person does not become a P in the firm
Forcing an outsider to be P would breach fiduciary
duty to the partnership
Assignee partner, and remains assignee with the
right to profits and assists of the partnership upon
dissolution
Remedies Against Partners who Breach their Duties:
Enforcement of partnership agreement
Reliance on indemnity
If misleading or deceptive under the ACL sue per ACL,
after judgment debt is cleared
Injunction
Dissolution
Dissolution of Partnership and Consequences:
Dissolution = ending/breaking up of partnership
Winding up = Occurs after dissolution
Ps or receiver takes control of the partnership to
liquidate assets and settle debts
Fiduciary duties continue during the dissolution/winding
up process s41; Chan
Partnerships can be dissolved:
Without Court Order by:
Retirement of P s29
Notice s35(2)(c)
Completion of a period s35(1)(a)
Completion of venture s35(1)(b)
Death s36(1)
Bankruptcy or illegality s37(1)
With Court Order (s38; Jenkins; Ruut) when:
P is suffering a mental disorder/permanently
incapable
P is guilty of conduct prejudicial to firm
P breaches partnership agreement
The business can only be carried on at a loss
It is just and equitable for the firm to be dissolved
By Anticipatory Breach (since partnership is a K)
Effects of Dissolution:
Retired Ps are liable if they are still apparent members
of the firm
An outgoing P can still be liable as a P to outsiders under
P by estoppel
Old clients of firm must be given express or implied
notice of dissolution (published notice is enough for
new clients) and publish in Gazette + 1 other
newspaper (s40)
Or else, outsider can sue apparent Ps s39
If it is apparent to a creditor that X is a P, and if creditor
can prove X is in fact a P, the creditor can treat X as a P
until given notice to the contrary Elders Pastoral;
Hamerhaven
Xs liability is limited by s39(3):
If a P retires from the firm
If the P was not known to the creditor before Ps
retirement, then can't be liable for post-retirement
debts
Cases:
French v Styring No business. Owners in common of a
racehorse agreed to share winnings and expenses. There
was the hope of profit, but no business.
Turnbul v Ah Mouy: No partnership sale of goods. A K
between A and T said A was to have interest in Ts stock
and was to receive commission. A incurred a loss and
was sued by T. As defence was that the transaction
created a partnership and T could not recover from A.
Held: There was no partnership the K was for the sale
of goods and therefore T could not recover from A.
Degiorgio v Dunn: Business not in common. AC/DC
Tribute band. P (guitarist) and D (drummer) and two
others were members of a tribute band run as a
partnership. When the partnership ended, D started a
new business under the same name and registered it
under the Business Names Act. P claimed he was a
partner in the second business. Held: claim failed
business was not run in common; no mention of
partnership in P or Ds tax returns.
Canny Gabriel Castle Jackson Advertising v Volume
Sales: Held to be partnership and not a joint venture; s6
elements. P1 (promoter) was contacted to tour with Elton
John. P1 then contracted P2 (financier) that in
consideration of financing, P2 would be given 1/2 interest
in the Ks to carry them out as a joint venture. The
financing from P2 was described as a loan to the joint
venture and repayable before distribution of profits. This
gave P2 an equitable interest in the venture. A bank
account was to be opened for the venture in the name of
P2, but if the K failed and there was a loss, P2 would not
share the loss. As security for more finance P1 granted
and equitable charge to TP (Canny Gabriel) over its
interest in the deal, including box office proceeds. TP
defaulted and P2 sued TP to recover some box office
receipts which TO had collected. Held: Legally, the joint
venture was a partnership between P1 and P2 because
the tests of partnership were fulfilled and because
profits were to be shared.
Re Ruddock: Business carried on by or on behalf of all
persons who are alleged to be partners. A Debtor entered
into an agreement with a creditor wherein the creditor
was to buy a 1/4 share in the business for discharging
the debt. The creditor was to have control of the 1/4
shares, receive profits, not be held out as a partner, have
access to the books. When debtor declared bankrupt, the
creditor was held to be a partner and could not claim
payment in bankruptcy in competition with other
creditors. The partnership relationship was based on
their actual rights, not the words they used creditor
was a silent/sleeping partner. B; and A did not K as an undisclosed partner.
Cox v Hickman: Persons can share profits without being
partners. A creditor being paid by instalments out of
profits of a business does not make that person a partner
unless there is a business in common with a view to
profit.
Elkin & Co Pty Ltd v Specialised Televisions
Installations: A imported TVs from England and B (who
did not have an import licence) installed and services
them. The fact that A and B shared the profits of the joint
venture did not of itself make them partners. The TV sets
were not bought by A as agent for any A/B partnership,
and were therefore not partnership property.
Re Megevand; Ex parte Delhasse 1878: Loan repayments
based on profits. C lent money to A and B for a business
which A and B intended to carry on in partnership. It was
an express term that the loan was not to make C partner
of A and B. However, C shared profits and losses, was
entitled to examine the books at will, entitled to a
quarterly statement, could cancel the arrangement, and
the loan was not repayable until after the partnership
dissolved. When A and B went into voluntary liquidation,
C claimed repayments as a creditor of A and B. Held: Cs
claim failed on the basis was C was a partner sharing
profits and was involved in the management of the
business in common.
Pratt v Strick: A doctor sold practice. K provided that the
doctor would continue to live in the house for 3 months,
and would introduce patients to purchaser, and earnings
and expenses would be shared equally during this period.
Held: Sharing the earnings was not enough o show that
doctor was or intended to be a partner to the purchaser.
Mercantile Credit v Garrod: Innocent partner liable. A and
B were partners in a business. Without authority from B
and in breach of the partnership K, A sold a car which he
did not own to C. C got a refund of the purchase price
from the innocent partner, B since the sale was an act
for carrying on in the usual way business of the kind
carried on by the firm.
Mann v DArcy: Innocent partners liable. Partner A in the
partnership of A,B and C entered a joint venture with a
TP to buy and resell potatoes. The joint venture bound
the firm because buying and selling potatoes was
business of the kind carried out by A, B and C, and the
joint venture was managed by the firm.
Goldberg v Jenkins: Partnership not liable. A partner
borrowed on behalf of the firm at over 60% interest
(normal rates were between 6 - 10%). Borrowing was
within normal business, but borrowing at 60% was not
the usual way and the firm was not bound.
In re Oppenheimer: Partnership liable due to ratification.
A and B were partners in an import firm in Paris. A
bought goods in Paris and B sold them in Melbourne.
When B bought goods in Melbourne, acting outside the
partnership agreement, A was held not to be liable
because it was not within the usual way of business. B
appealed, and A was held liable since A had later ratified
Bs purchase.
Construction Engineering v Hexyl: TP unaware of second
party s8(1) not satisfied. Company A and company B
are property developers. A bought land and Kd with TP.
TP and As K didnt mention B, an undisclosed partner.
There was a dispute and TP couldnt sue B because TP
did not believe A was K-ing for A and B. A did not have
actual or apparent authority to K on behalf of both A and
Lederberger v Mediterranean Olives Financial Pty Ltd: No
authority. Partners not bound. Corp Trustee entered into
a trust with Estate. Estate had 2 partners son (P1) and
P2. P1 enters into a tax scheme independent of Corp
Trustee and P2. Tax scheme thinks theyre K-ing with all.
P1 had no implied actual authority or apparent authority
to enter into the tax scheme. Even if he did, it was not
ratified by Mom Co. Pr must have full knowledge. Scheme
was unenforceable because P1 acted without
authorisation and other partners were not bound and it
was not ratified.
National Commercial Banking Corporation of Australia v
Batty: Innocent partner not liable. P paid 2 cheques
belonging to client X in his partnership trust account, the
bank cleared them, and P withdrew the money for his
own use. Bank was held liable to X in conversation. Bank
failed in claim against innocent partner on the basis that
guilty partner was acting outside ordinary course of
business and outside his apparent authority.
Petrou v Hatzigeorgiou: Innocent partner liable tort. D1
and D2 ran a repair shop. D1 accidentally spilt
inflammable paint thinner on plaintiff employee, who
caught fire and was severely burned. P was awarded
$325k against the firm for burns. Innocent D2 appealed.
Held: D1s conduct was within his authority and duty of a
partner to take precautions of employees. Since D1 was
in breach of this duty, D2 was also liable as his partner.
Dubai Aluminium v Salaam: Innocent partners liable
tort. Defendant lawyer was P of a firm who drafted sham
Ks that were used to defraud plaintiff. Plaintiff sued Ds
firm for VL. Held: Although Ds acts were not authorised
by co-partners, he was acting in the ordinary course of
the business of the firm and the firm was therefore VL.
Bishop v Chung Brothers: Ps liable crime. CB =
partnership breached trading hours legislation that
prohibited factory work at 2:30pm on a Saturday. Ps
were convicted personally since a conviction in the
name of the firm would have given legal entity status to
the partnership.
Mann v Hulme: Misapplication of money. P of a firm of
solicitors received an investment deposit from Mr and
Mrs. H. R misapplied the money and Mr and Mrs H
successfully claimed that the firm was liable for the
missing money. Held: Firm was liable because Rs
actions were within the scope of his apparent authority
as P of the firm.
Amadio Pty Ltd v Henderson: Several and joint does not
expose to a different measure of liability. It simply
confers the procedural advantage in seeking recourse
until the total liability has been satisfied.
Polkinghorne v Holland: s13 + s15. Innocent partners
liable. New partner took some money and ran away. Mrs.
P sued innocent partner for compensation. Held: by
associating in a partnership with guilty P, the innocent
Ps made themselves responsible.
Lloyd v Grace, Smith & Co: s13 + s15. Liability
transferred to effected partners (innocent partners) due
to actions of employee or other partners. Firm of
solicitors were liable for the misappropriation of
mortgage money by managing clerk, who had induced a
client to transfer by fraudulent misrepresentation.
Lynch v Stiff: Holding out as partner. Williamson was a
solicitor had 2 employee solicitors (D1 and D2) who were
on the firm letterhead as partners (they were salaried
partners). Lynch usually death with D2, but invested
money with Williamson who misappropriated it. Lynch
sued both D1 and D2 for compensation on the basis that
they had been held out as Ps by the firm. Lynch failed
against D1 since investment was not influenced by D1s
status as a P. Lynch succeeded against D2, since it was
Lynchs understand that D2 was a partner.
Bunny (D and H) Pty Ltd v Atkins and Naughton: Holding
out as partner. A and B had planned to go into
partnership and opened a credit account with C telling C
the partnership had already stated. The P did not go
ahead and C did not know this. B bought goods under
credit and paid accounts (in both A and B names) with
his own cheques. When B did not pay next account, C
sued A and B. As defence was that he was no liable for
Bs failed debt. Held: A liable under the estoppel section
because A knew accounts existed in both names and
didnt tell C to deny his apparent authority; and A
knowingly held him send out, or knowingly held himself
out as a P.
Tower Cabinet v Ingram: Holding out no actual reliance.
A and Bs partnership dissolved and former partner, A
placed an order (on the old firms letterhead, which
showed A and B as Ps) with furniture supplier without
the knowledge and authority of B. When order was not
paid for, former partner B was sued. Held: Unsuccessful
since B had not knowingly allowed himself to be
represented as P; supplier did not know that B was a P
before the dissolution of the firm; and As order breached
the dissolution agreement between A and B.
Geltch v MacDonald: Separate interest of P as lessor in
conflict with partnership. P1 and P2 ran a hotel in a
building leased from the owner. P2 later bought the because did not represent or allow to be represented as
Managed by a manager no P's are managers agent
freehold in the hotel, which included the rights to poker a P.
agency and power to bind Parites each other and can bind
machines (worth $1.7m). When P2 terminated the Hamerhaven Pty v Ogge: Distinguished from Elders. P did
other
partnership, P1 was not entitled to half the poker not notify the client of retirement. Although firm letter
machine entitlements. The Ps have fiduciary obligations, head was altered, it was not sufficient notice.
Parties can see interest if Comes to an end if Ps se
but they dont include rights and powers of Ps as Chan v Zacharia: Fiduciary continues between Ps after
allowed by K shares; No partnership
proprietors and lessors of the freehold. P2s rights as the dissolution of firm.
agreement must be conc
lessor stayed with P2.
Kelly v Kelly: Abalone authority. Property not part of JOINT VENTURES Parties received their share of P's share profits
partnership. A and B entered into a partnership as the profits separately
fisherman. As abalone permit was personal to A, was not Agreement where separate entities carry out a combined
transferrable and not part of the partnership. The law project or venture sharing profits from the venture
changed and the permit become transferrable, but the Brian Pty Ltd v UDC definiton:
Ps did not alter the partnership status of the permit. The
permit was paid for by the partnership, but did not An association of persons who agree by K to engage
become part of the partnership property since there was in some common (usually ad hoc) undertaking for
no presumption it was bought on account of the firm. joint profit by combining their respective resources
Bond v Hale: Need an express agreement between Ps re without forming a partnership or corporation in the
how to expel a P. legal sense.
Birtchness v Equity Trustees, Executors and Agency: P Joint Venture vs Syndicate:
shared profits from a land deal promoted by a client of Agreement provides a community of interest among
Joint Venture: Syndicate: an associa
the firm without disclosed this to the other Ps. Held: P each, who is both principal and agent.
persons who come toge
had to account to the firm for their share of the profits Everything in a Joint Venture is Seperate:
promote a business ent
since he pursued his personal interests over the firms
joint interests. Parties keep their separate identity
Individual members keep Individual members kee
Rochwerg v Truster: Non-Competition. P may be a
seperate entities seperate entities
director or officer of a public/private company, as long as Involves separate ventures for each of the parties
*Should make clear there is no
not in competition with partnership. P must also account
intention to enter into a
to partnership for income and benefits, as agreed with Assists are owned separately and not together
partnership or a syndicate
partners.
Stretcher v 3464920 Canada: P in a law firm acted for a Parties receive their share of the JV separately
client under a K that stopped the P from acting for Members have mutuality Members do not have mu
competitors of that client. Tax laws changed, and the May be under fiduciary depending on:
clients K with P expired, but continued relationship with Partnership for taxation purposes Partnership for taxation
the firm in other areas. A former employee of client The form of the particular JV
contacted P to act, and he did. P failed to tell former
client about new tax laws. Former client felt betrayed Obligations which the JV has undertaken UDC Ltd v Use of Joint Venture:
and sued the firm and the P. Client was successful Brian
against the firm firm liable for the wrongful acts of Ps, Alliances in areas like entertainment agreements,
and against P fiduciary duty comes before expired K. JV may be seen as a partnership even though the industrial and biotech research, mining, property
FC of T v Everett: Income-splitting by Ps. A high income parties called it a JV Hospital Products developments, etc
P assigned shares to his low-income spouse. Assignment
was for Ps property in the partnership and not the If fiduciary is imputed, then this may mean that Important for doing business in some foreign countries
personal income of the Ps. The assignment was effective there is a duty of disclosure over common interest where it is required to have a local partner
for income splitting.
Hartin v Hunter: Ps must consent to their own Can only have Pr and A relationship if that was Public Private Partnership (PPP): a partnership between
resignation. consented to the public and private sector to plan, finance, construct
Jenkins and Joaquin v Bennett: Dissolution. A, B and C and operate a project which would normally be public
carried on a business as partners. Cs wife set up a Joint Venture vs Partnership Canny Gabriel: (i.e. road/bridge construction)
similar business, so A and B wanted to dissolve *If not considered JV, may be partnership if TEST
partnership with C. A and B send C a notice is dissolution (business in common with a view to profit) is satisfied. May be structured as a JV
claiming that due to a conflict of interest C was in
breach of the partnership K. Held: No evidence of breach Joint Venture Partnership
Advantages:
of trust.
Ruut v Head: Dissolution. After partnership between P One-off project Continuing endeavour
Access to financial services
and D broke down. P wrongfully excluded D from Megevand
partnership. Court refused to wind up partnership on just Improved competition
and equitable grounds due to Ps unclean hands. Parties are not Ps governed by Ps in common governed by
Elders Pastoral Ltd V Rutherfurd: Retired Ps Liability. P K Partnership Act
Control:
was in debt to supplier (Elders). Elders sued firm to
recover amount owing and learned of a former P who Parties get pre-determined Shares are determined by equity,
Only liable for own activities; not responsible for acts
retired before debt was incurred. Former P did not give shares unless agreed otherwise
of co-venturers
notice of retirement to Elders or publish in the Gazette.
Held: P not liable to Elders no apparent (evident) Individual liability Joint and several liability
Can control expenditure

Can dispose of venture shares
Can maintain privacy and keep their business a secret
from joint venturers
Can transfer/assign rights without joint venturers
consent
Can conduct separate business and compete in other
areas with their joint venturers
Governing Law:
Not much regulation; Primarily K
Indirect regulation through various business laws
(secondary)
Establishment:
No requirement under statute or at CL for a JV to be
registered/come into existence
Joint Venture Agreement (JVA): No legal need for written
K, but smart to have one to set out contractual
arrangements of the JV (i.e. roles, management, etc)
Continuity of Existence:
May involve a more personal relationship than some
other business structures because it is set up for a
specific purpose
Not a seperate legal entity
Retirement may end the venture
Limitation of Liability:
Members are liable for all debts of JV, unless there is an
agreement to the contrary
If JV is a partnership debt of 1 P can be enforced by
creditor against any of the other Ps
If meet the test for partnership same liability would
apply; otherwise not liable
Admitting New Investors/Participants:
Joint venturers must be in agreement, usually set out in
JVA, or worked out if required
Selling the Business:
JVs can sell their interest, if allowed by JVA
Termination of Joint Venture:
Period of joint venture expires
Losses resulting in continuation of the venture unviable
Failure of a joint venture party to fulfil their obligations
Grounds specified in the agreement occur
Joint venture unable to achieve goals
CASES:
Brian v UDC: Give definition of JV.
UDC Ltd v Brian: Gives criteria of a JV. Fiduciary
obligation requires disclosure of anything against
common interest of JV. A, B and C entered into what they
called a JV for a mall development. A owned the land and
mortgaged it to UDC under a mortgage with a clause that
charged the JV land with repayment of debt by A to UDC;
and charged the land with As debt from other
transactions unrelated to B. B did not know about this
clause. A defaulted. UDC claimed the amount of As
unrelated debt. B claimed he was entitled to his shared
of JV profits. Held: Fiduciary may arise during
negotiations before any partnership or JV K is finalised.
UDC and A breached their fiduciary duties to B. Therefore
B was entitled to its share of the JV profits.
Hospital Products v US Surgical Corp: Breach of fiduciary
obligation. D manufactured surgical products and
Blackman distributed them. P was a competitor of D by
reverse engineering Ps products and repackaging them.
D sued Blackman and D for breach of fiduciary
obligation. Held: Blackman had breached K since he
owed a fiduciary duty to D
Canny Gabriel Castle Jackson Advertising v Volume
Sales: Held to be partnership and not a joint venture. P1
(promoter) was contacted to tour with Elton John. P1
then contracted P2 (financier) that in consideration of
financing, P2 would be given 1/2 interest in the Ks to
carry them out as a joint venture. The financing from P2
was described as a loan to the joint venture and
repayable before distribution of profits. This gave P2 an
equitable interest in the venture. A bank account was to
be opened for the venture in the name of P2, but if the K
failed and there was a loss, P2 would not share the loss.
As security for more finance P1 granted and equitable
charge to TP (Canny Gabriel) over its interest in the deal,
including box office proceeds. TP defaulted and P2 sued
TP to recover some box office receipts which TO had
collected. Held: Legally, the joint venture was a
partnership between P1 and P2 because the tests of
partnership were fulfilled and because profits were to be
shared.
Duke Group v Pilmer: Fiduciary duty owed. Kia Ora was a
gold mining business in equal partnership with Marvel
Loch mine, under common control. Kia made a bid to
takeover Marvel and changed its name to Duke. Duke
was place in liquidation by oder of the Supreme Court.
Kia retained Pilmers firm, Nelson Wheeler, to prepare a
shareholders report. The administrator sued Pilmer for
breach of fiduciary duty (among other things) in getting a
report that was not reasonably accurate since their
directors had a personal interest in the takeover. On
appeal: Breach of fiduciary duty.
FRANCHISING
a K between two independent business proprietors
(franchisor and franchisee) who work for mutual benefit
under a common brand and system.
Franchise Corporations Act, s9:
an arrangement oder which a person earns profits or
income by exploiting a right conferred by the owner of
the right to use a trade mark or design or other
intellectual property or goodwill attached to it in
connection with the supply of goods or services
Not a franchise if the person engages the owner of the Payment arrangements:
right, or an associate of the owner to exploit the
right on the persons behalf
Franchise agreement Franchising Code of Conduct,
clause 5(1): (a) a written, oral or implied agreement (b) in
which the franchisor grants to the franchisee the right to
carry on the business of offering, supplying or
distributing goods or services in Australia under a
system controlled or determined by the franchisor (c)
under which the operation of the business will be
substantially associated with trade mark or commercial
symbol (d) the franchisee must pay or agree to pay the
franchisor an amount (i.e. investment fee, payment for
goods, etc)
Advantages to Franchise:
Franchisee benefits from the commercial goodwill of the Interpretation/choice of law
Franchisors brand
Franchisee can also gain experience in management and Common system of marketing business management
business modelling
Disadvantages to Franchise:
Franchisee locked into franchise agreement
Franchisors charging excessive prices for goods
supplied, etc
Inadequate assistance from the franchisor
Three Types of Franchise:
1.Product Franchise: Franchisee acts as independent
distributor using the manufacturers trademark in
exchange for fees or royalties
2.Processing/Manufacture Franchise: Franchisor provides
know-how to an essential ingredient to a
processor/manufacturer
27.System Franchise: The most common. Franchisor
develops a system of doing business and permits the
franchisee to use the system in a controlled way in
independent operation
Variations in the Nature of Franchise Agreements:
1. Simple Franchisor-Franchisee Agreement
28.Master Franchise Agreement: Franchisor > Master >
various number of stores/locations
29.Area Agreement
30.Joint Venture: a variation of the franchise agreement
What is In a Franchise Agreement:
The extent of the franchise:
What is being franchised; obligations of the parties
and length of franchise
Specific trademarks, logos (protection and marketing)
Territorial exclusions:
i.e. not in food courts, not in airports, etc
Upfront payment or royalty on profits
Minimum royalties and currency of payment
Usually, any calculation is set out in the agreement
Temporal effect on royalties
Minimum performance parameters
How much has to be done, etc;
Usually built into the agreement
Any competition restraints
Different from other agreements:
Business operation is dependent on intellectual property
owned by the Franchisor
Payment by the Franchisee to the Franchisor for the
initial fee (technical/services/royalty, etc)
Leasing in Franchise:
Usually the Franchisor selects/pre-approves sites and
may own or is the lessee of sites
Franchisee usually leases or becomes a sub-leasee of
the Franchisor
If this is the case, lease will be part of the Franchise
Agreement
This may also affect the payment mechanism to
include rent
Franchisee can also own the site from an independent
owner
This also affects the least. The lease may contain
provisions allowing takeover by Franchisor in certain
pre-defined instances
Payments are affects by the lease structure within a
franchise
Regulation in Australia:
Franchising Code of Conduct is a mandatory code that
regulates the franchising sector; came into force on 1
January 2015
Originally incorporated in Part IVB of the Trade Practices
Act 1974
Aims:
Provide sufficient information to the franchisee

Define key terms provide for dispute settlement
Applies to all franchise agreements in Australia
Also applies where one of the parties of foreign
Reforms Recent Developments:
Australian Government considered recommendations
made in the Wein Report (April 2013)
The Government subsequently issued a Consultation
Paper on 17 June 2013, to enable it to better
understand the practical impact of implementing
recommendations in the Wein Report
Major Changes:
Building an effective disclose regime by ensuring that
disclosure remains relevant, timely, effective
The Government excepts franchisor and franchisees
to act in good faith a requirement under the Code
ACCC: ensures compliance with the Code
If franchisor breaches the Code, ACCC may take action +
civil claim by the franchisee
Three Key Aspects of the Franchising Code:
1.Disclosure Document Franchisor must:
Maintain a disclosure document clause 8
Give documents to a Franchisee clause 9
Give advice during negotiations clause 10
Give information statement clause 11
3.Franchise Agreements
4.Dispute Resolution
Mandatory obligation to act in good faith clause 6
2. Franchise Agreements
Requires that a Franchisee must:
During negotiations: Give advice to a Franchisor
before entering into Franchise Agreement clause
10
Franchisors Must Provide Franchisees with the Following: Termination Special Circumstances Clause 29
Copy of the lease Clause 13
Copy of other agreements Clause 14
i.e. lease, security agreement, confidentiality
agreement, etc
at least 14 days before the franchise agreement is
signed (or as soon as it becomes available)
Copy of financial statements Clause 15
Within 30 days of preparing the statement
Disclosure document Clause 16
Disclosure of materially relevant facts Clause 16
Financial details, civil proceedings, resulting
judgments, etc
Termination of Franchise Agreement:
Cooling off period: Can terminate within 7 days after
entering into the agreement, or paying any non-
refundable money (whichever is earlier)
Must be given a refund minus any non-refundable
expenses incurred by the franchisor within 14 days
Clause 26
A franchisor is prohibited from inducing franchisees or
prospective franchises not to form an association with franchise illegal/unenforceable.
any other franchisees for a lawful purpose Clause 33
Release from liability: A franchise agreement must not
contain any statement that releases the franchisor
from general liability towards the franchisee Clause
20
Any such statement will be of no effect clause 20(3);
Breach and Termination:
Termination Breach by Franchisee Clause 27
Franchisor must:
Give reasonable notice, in writing
Tell Franchisee how to remedy breach
Allow reasonable time to remedy breach (not more 1. A company is created as a legal entity when
than 30 days)
Termination No Breach by Franchisee Clause 28
(1) Applies if (a) franchisor terminates agreement: (i)
in accordance with agreement; (ii) before it expires;
and (iii) without consent of franchisee; and (b) the
franchisee has not breach agreement
*Does not give rise to a right of termination right must
be in the franchise agreement itself
No need to comply with clause 27 or 28 if agreement
gives them the right:
(a)No longer holds a licence
(b)Becomes bankrupt
(c)If company becomes deregistered
(d)Voluntary abandonment of the franchised
business
(e)Be convicted of a serious offence
(f)Operate the franchise in a way that endangers
public health/safety
(g)Act fraudulently in connection with the Purpose of the company
franchised business
Must be declared at the time of registration s117(2)(a)
3. Dispute Resolution Two ways to classify: (a) Liability of members (b) By
membership
NEW Mandatory obligation to act in good faith clause 6 (a) Liability of Members:
Four Types of companies that can be registered s9 and
Every franchise agreement must set out a dispute s112:
handing procedure that complies with the Code (Part 4 (i) Limited by shares
Resolving Disputes)
Most common
Any party to a franchise agreement may invoke the
dispute resolution procedure Incorporation with a share capital (often shares of
different classes)
The Office of the Franchising Mediation Advisor (OFMA)
provided mediators for dispute resolution per the Liability is limited to the amount unpaid on their shares
procedure set out in the Code. $1,700 per party at the time the funds are required to meet the company
commitments
Cases
Master Education Services v Ketchell: Non-compliance Creditors don't have access to personal property of
with the Code is not automatic grounds for making a the members if the company fails
Dymocks Franchise System (NSW) v Todd: A Franchisee Shares are personal property of the members, making
was in dispute with franchisor, which came to a head them freely transferrable
when the franchisee withheld franchise fees and refused (ii) Limited by guarantee often sporting clubs or non-
to participate in the group buying program. Held: This profits
was repudiation of the K and in return, the franchisor
(innocent party) and entitled to terminate. Limited to the amount members have guaranteed to
contribute if the company is wound up
COMPANIES
Corporations Act 2001 classifies companies in several Members are only liable if the company does not have
categories: enough assists to cover its liabilities if wound up
1. What is a company?
Do not have shares or share capital:
An association of people set up for a common object to
carry on a business or other activity. They cannot issue shares by law; have to use outside
funding
To become a company, you must register (old word:
incorporate), making the company a seperate legal They cannot distribute earnings to its members; not
person used for trading
Effects of a registered company: (iii) Unlimited liability rarely in commercial practice; no
limit
registered under s117. (iv) No liability rarely in commercial practice; limited to
31.Under s118 a certificate of registration is used with mining
the companys name, ACN, etc
32.s119 states that upon registration a company (b) Membership:
company comes into existence as its own legal entity The 4 types above can be further classified as either:
(a body corp) regardless of changes in its membership (i)Proprietary: has share capital and no more than 50
through transfer of shares, death or other cause members s112(1) and s113(1)
Advantages:
Can have have only 1 member/director s114
Limited liability and free transfer of shares Advantages:
A companys obligations/liabilities/property is its own Does not have all obligations a public company has
s124(1)
Does not have to hold annual general meeting
Company can sue and be sued in its own name
Disadvantages: Only needs one director s201A
Disadvantages:
Costs: setup, ongoing i.e. professional fees
Restricted on membership and cannot raise money from
Publicity: legal formalities i.e. disclosure, reporting, the public with a prospectus
auditing
Cannot go broke or go public
2. Classification of Companies
(ii) A public company 5. Relationship with Other Companies
Any company other than a proprietary company
Looks at holding companies and subsidiary
May or may not be listed on the stock exchange Listed Companies:
Shareholders = owners; members of the public Large businesses list their shares on stock exchanges:
Profits & Assets Test
Limited liability
Regulated by Corporations Act and the ASX Listing Rules
Public companies have significant disclosure and
investor protection obligations than proprietary Emphasis on continuous disclosure and reporting
companies requirements listed companies are classified as
disclosing entities
Public companies must have the following:
ASX Listing Rules further results corporate governance
Function of listed companies
Advantages vs disadvantages:
Membership
Primary advantage: rapid generation of capital
Name
Primary disadvantage: heavy-handed regulation
Replaceable rules (increased after financial crisis)
Directors: must have at least 3 s201A; manages; owe Higher
duty to shareholders;
Holding and Subsidiary Companies:
Secretary: manages compliance with orders
A holding company is separate from its subsidiaries
Raising funds: limited to shares in a proprietary Industrial Equity v Blackburn
corporation Defined in s46: Considered a subsidiary if
(a)the other body corp
AGM: Annual General Meeting (i)controls the first bodys board;
(ii)is in control of more than 50% votes
Auditors: A regulating feature; must have consent from (iii)holds more than 50% of issued share capital
ASIC before auditor can resign (d)the first body is a subsidiary of the other
Registered office Classification = effect of:
4. Size of Proprietary Companies s260A(1): Financial Assistance by a company for
acquiring shares
Can be large or small based on size of companys
business s9 s558V - 558X: Priorities (i.e. debts, payments, etc)
Main difference: large companies have to lodge 202B: Must disclose payment to each director
audited financial reports with ASIC each year (s292)
AASB 10 requires a controlling entity to present
Small companies have less disclosure requirements consolidated financial statements
Subsidiary Conducting Parent Companys Business:
s 45A distinguishes between large and small proprietary Questions to ask from Smith, Stone & Knight:
companies 1. Were the profits of the business treated as profits by
Small proprietary company if it satisfies TWO of the the parent?
following s45A(2): 33.Did the parent appoint the persons carrying on
(a)If revenue for the financial year is less than $25M business?
(b)Gross assets at the end of the financial year is less 34.Was the parent the head and brains of trading
than $12.5M venture?
(c)Company has fewer than 50 employees 35.Did the parent govern and decide what should be done
with capital?
If it does not fall within this definition, it is considered 36.Did the parent make the profits by its skill and
a large proprietary company s45A(3) direction?
Advantages: Have different requirements with costs and 37.Was the parent in effectual and constant control?
reporting requirements
Separate Entity Doctrine/Corporate Veil: A company is a
Proprietary company can be converted to public separate legal entity separate from the legal persons
company and vice verse s162 - 163 who are its members and directors R v Arnaud; Salomon
Even if there is only 1 member, the company is a
separate legal entity Salomon
Rights, privileges, duties and liabilities are seperate
from the sole member
EXCEPTIONS under statute:
Does not save directors from liability in a K when there
is:
1. Insolvent trading by the company s588G
2. Director's liability for improper dividends s254T
will allow corporate veil to be lifted
3. Companys avoidance of employment debts
4. Where company is a trustee and lacks complete
indemnity s197
If an employee, acting within the scope of employment,
commits a tort, the company is VL not
directors/members
Not seperate when: Directors/board/agent is acting on
behalf of the company
Seperate when:
The company has no knowledge or notice of the
actions of the director/board/agent
A company makes a K the company is a party, not its
members
EXCEPTIONS under CL:
Corporate Veil will only be lifted if:
1.The company structure is used for fraud (i.e. it is a
mere facade for fraudulent transactions Re Darby
5.Where company structure is used with the sole or
dominant purpose of enabling a person to avoid
existing legal obligation Adams v Cape Industries;
Gilford Motor
6.Under-resourced companies may be considered agents
of their controllers, or shams Re Films; Smith, Stone &
Knight
Members must be consistent: When the view is opaque,
it opaque both ways (D&J Construction)
Cant lift the veil some times, and not others
Group of Companies + Seperate Entity Doctrine:
Members companies = group of companies, not
shareholders
Each member is a separate legal entity + incurs own
debt
Parent cannot claim contractual rights on Ks make by
subsidiaries
One member company cant account profits of other
members
Sharing info across group of companies may violate
confidentiality laws
Party who leaks information will be liable not parent
Liability can be contained this way, using the Salomon
principle
Directors of the group of companies must hold interest
of their company paramount, not the interests of the
group Walker v Wimborne
If subsidiary is wholly-owned:
s187: Director acts in good faith and in the best interests
of the subsidiary if:
(a)the constitution of sub. says to act in the best
interests of the parent;
(b)the director acts in good faith in the best inters of the
holding; and
(c)the sub. is not insolvent at the time the director acts,
and doesnt become insolvent because of the
directors act
Corporations Act treats group as a unit of companies:
s259B: (1) A company must not take security over shares
in a company that controls it except when:
(2) There is an approved employee share scheme; or
(3)(a) The companys ordinary business includes
providing finances; and
(3)(b) The security is taken in the ordinary course of
business and on ordinary commercial terms.
s259C: (1) The issue or transfer of shares of a company
to entity that controls it is void unless:
(a)it is issued/transferred to the entity as a personal
representative; or
(d)the issue/transfer is to the entity as trustee and
neither the company nor the entity that control is has
a beneficial interest in the trust
s260A: (1) A company may financially assist a person to
acquire shares in the company or holding company only
if:
(a)Giving assistance doesn't prejudice (i) company or
share holders; or (ii) companys ability to pay creditors
(e)Assistance is approved by shareholders s206B; or
(f)The assistance is exempt under s206C
What is a subsidiary? s46
A body corp. is a subsidiary of another body corp only if:
1.The other body controls the composition of the first
bodys board s46(a)(i)
The board is taken to be controlled by the parent
company if by exercising its power, the parent can
appoint or remove all or a majority of the directors
s47
2.Is in a position to control the casting of more than half
the votes s46(a)(ii)
3.Holds more than half of the share capital s46(a)(iii)
PROMOTERS
A person who undertakes to form a company, to set it 7.Through vicarious liability
going, and take the necessary steps to accomplish that Common Law Position: company cant enter into a Abolished by s130(1) outsiders not taken to
purpose Twycross v Grant binding agreement until AFTER it is registered Not generally VL where mens rea is a required element have known merely because consti available to
Active v Passive Promoters of offence public from ASIC
*Parties merely acting in a professional capacity to Position changed after s131: If a person enters a K If guilty: fined under s12.1(2) of the CC;
incorporate the company on behalf of a promoter are not before registered, the company becomes bound by Turquands Rule: outsiders can assume internal
considered promoters (i.e. solicitors, accountants, etc) the K Tortious Liability: proceedings are being carried out properly (set out in
Impact of s131: A person may enforce a pre-registration s129(1))
Active: Person representing the directing will and mind of K against a company if it ratifies the K after it is For torts committed by employees Daniels;
the promoter company would be considered as a registered Only applicable to registrable charged under s130(2)
promoter Aequitas Post-registration, the party may be released from all of s128(3) re VL of companies for fraudulent acts of agents EXCEPTIONS: Northside Developments
part of their liability s132 Defences of Mistake of fact: Strict liability only. (1)Outsider has actual knowledge
Passive: Takes no active part in the formation, but leaves Ratification after registration Aztech Science (2)Failed to make further inquiries following irregular
this to others on the understanding that they will profit If company ratifies but fails to perform promoter Not available for an absolute liability offence circumstances
from the enterprise Tracy v Mandalay may be liable s131(4)
Liability where company is not registered fails to ratify:
Contractual Liability: Actual Authority of Company Agents:
Fiduciary Duties: Party that entered into a pre-registration K for a

proposed company is liable to pay damages to An individual acting with companys express/implied Company is bound when outsider Ks with agent if agent
Fiduciary duty at CL owed to the company to avoid other contracting party if the companies not liable
authority may contract on its behalf had actual authority
conflicts Aequitas s132(2)
Company can make a K directly by executing a document Authority may arise expressly where A is appointed, or
A person may continue to be a promoter even after the Directing Mind and Will impliedly when A is appointed to a particular
appointment of the board of directors where the Organic Theory: company Ks directly in its own name If company has a seal: seal and witness by officers; if position
directors are passive and act in the interests of the no seal, duly authorised officers sign.
promoters Twycross v Grant The actions/state of mind of the organs of a company are Apparent Authority of Company Agents:
the actions/state of mind of the company itself Statutory assumptions an outsider is entitled to make: P must represent or hold out to the outsider that the A
Disclosure of interests in a K Erlanger Agent Acts for the Company: company is bound in the had authority to K for the P (otherwise A is liable)
same way as a natural person s126; s129(5): Duly executed w/o seal if signed in Freeman and Lockyer; Crabtree Vickers
Undisclosed profits Gluckstein accordance with s127(1) (2 directors or director and
Meridian; Lennards: Extends the scope of an agents sec. or sole director/sec.); or if signed as sole Statutory Assumptions s129:
Fundraising disclosure Chapter 6D of Corps. Act 2001; capacity to bind the company first need actual or director/secretary.
apparent authority to be considered the agent and the Each assumption is seperate and discrete, but they may
s709: Prospectus content specific disclosures company itself. s129(6): Duly executed with seal if seal is fixed and overlap Bank of NZ v Fiberi
required witnessed
Employees can only bind the company in a vicarious Cannot rely on s129 if they knew or suspected that an
s711(2): Prospectuses content, structure manner Company can K through agents with actual, apparent or assumption was incorrect s128(4) Northside
ostensible authority s126 A person dealing with a company is entitled to make
s711(3): Who is the directing mind and will? certain assumptions s129:
HL Bolton v TJ Graham: The brains of the company. A However, cannot be bound in K by mere (1)Compliance with consti and replaceable rules
Prospectus: a brochure giving details of a share company has a brain controlled by the hands and representations of agent
offer for the benefit of investors directed by the mind and will (directors, managers, Does not require knowledge of consti or rules Oris Funds
agents). The intention of the company can be derived Regulated by CL rules on agency and ss128-130 (2)Person named as director/secretary in lodged
Remedies for Breach: from the intention of its officers/agents. docs is:
Regarded as directing mind and will: Authority of the Companys Agents: (a) Duly appointed
The company is the P, and seeks remedies against the (b) Customary authority
promoters breach of fiduciary duties Senior management Tesco Supermarkets v Nattrass Can K through organ (board of directors) or auth. agent
(officer) Can rely upon even if unaware of what is contained in
Rescission: Company secretary Donatos docs Lyford
If organ: outsiders are generally protected where (3)Person held out by company as officer or agent
Company may rescind a K if promoters fail to disclose Change in control Whitfords Breach Pty irregularity arises (i.e. seal not attested to, board not (a) Duly appointed
their personal interests properly appointed, etc) since they would have no (b) Customary authority
The mind and will of more than 1 person Brambles way of knowing
Recovery of secret profits and constructive trust order Holding out by company only by person with actual
Aggregated knowledge Re Chisum Where board delegates to managing director, authority Freeman
Liability under the Corporations Act 2001: questions may arise re whether K was within their (4)Proper performance of duties by officers/agents
Criminal Liability: Can be liable: authority Due execution of documents
s711(2), s711(3), 1.Primarily where offence is committed by its directing (5)Without seal Vero
mind and will Doctrine of constructive notice (6)With seal Brick & Pipe
s728(1): Misstatement in, or omission from, disclosure
document and Must show mental state (mens rea) of controlling organs Constis of public corps must be lodged with ASIC Cant rely on ss(4), (5) or (6) if improper performance was
is attributed to the company to be liable/guilty s136(5) and be available for public inspection suspected Pico
s729: A person who suffers a loss under a disclosure (7)Authority to warrant documents genuine Ruben
document may recover for any loss or liability s12.2 CC actions of employees/agents must amount to If limitation re auth is included, CL deems outsiders Shares:
the physical element of the crime (wider meaning of to be aware of it, whether or not they actually
Pre-Registration Contracts: Tesco) were Shares are one of the sources of corporate finance

Corporations can raise money through other means as
well:
Issue debentures, lease assets, mortgage assets,
credits, etc
Public companies issue shares to the public to raise
capital
Shares can be classified into categories, with different
classes
Can alter business management model
Ownership:
Allows the holder to receive proportionate part of the
profits distributed by company as dividends
Subject to company consti, allowed shareholders to
participate in company management as well
Types:
Ordinary no special rights over other shares; the bulk
Preference rights must be set out in consti or approved
by special resolution s254A(2)
Holders are usually given preference to dividends and Company is not required to place limits on the size of the
return of capital over the holders of ordinary shares capital
Redeemable preference shares:
Specially allowed by ss254A(3) issued on terms to be
redeemed by the company at a later date at (a) a
fixed time (b) at the companys option; or (c) at the
shareholders option
Must be in accordance with terms of issued; cancelled
upon redemption s254J
Carries a priority of dividends while company is
solvent or as a return of capital in winding up Re requirements under s256B(1) are met:
Powell
Founders deferred shares: Shareholders rights are
deferred to a later date, when other classes are
satisfied
Issue of shares: happens when people who give their
consent, become members of the company by
registration s120
Transfer of shares: Can be transferred per consti s1070A; If not EQUAL, it is SELECTIVE REDUCTION
shares remained with the holder until the transfer is
registered s1072F (replaceable rule)
Transmission of shares: when shares vest in some
person by operation of law (i.e. bankruptcy, death of a
member, etc) ss 1072A, 1072B, 1072C
What are Dividends? profits Self Acquisition of Shares:
Dividend of the company surplus amongst the EXCEPTIONS:
shareholders 1.Buy back is permitted under s257A; Steps set out in
s254T(1) A company must not pay divided unless: s257B
(a) they have sufficient assets in excess of their 8.Acquisition of an interest in fully paid shares in the
liabilities company
(b) Payment is fair and reasonable to the 9.Acquisition under a court order
shareholders 10.(i) employee scheme approved in accordance with
(c) Payment does not materially prejudice s259B(2)(ii) company takes security in the normal
companys ability to pay creditors course of business and in accordance with ordinary
commercial terms s259(3)(b)
Share Capital:
Permissible Buybacks:
The money subscribed for the shares of a company or
what is represented by that money Verner Equal access schemes (ordinary shares only)
(3) If members in a class are divided into further classes
Company may generally issue any number of shares Company makes same offer to all shareholders
s257B(2)
Usually there are no limits on share capital EXCEPT
where the consti of the company provides 10/12 limit: buyback would result in shares carrying
restrictions s254B + C more than 10% of the smallest number of votes
attached to shares any time in the last 12 months
Share issuance is determined through factors such as ss257B(4)+(5)
market value, value of business, fairness between
editing and new members, marketability If 10/12 limit exceed, need ordinary resolution
Alteration of Share Capital: Company must lodge document re all info relevant to
whether shareholder decided to accept offer
ss257C(3) +257E
On market buybacks: Listed on stock exchange in the
Companies can convert all of any of its shares into large ordinary course of business s257B(7)
or smaller shares by resolution passed a general
meeting s254H Employee share scheme buybacks: Shares under an
employee/executive director scheme
However: Increase is not really an issue, reduction is
onerous to reflect the risk of such transactions Minimum holding buybacks: All shares in a listed
leading to insolvency, and to protect shareholders corporation, if less than a marketable parcel
and creditors s256A
Selective buybacks: Only certain shares. Must be
Reduction of Share Capital: approved by special resolution (shareholders who are
Share capital can only be reduced under s256D if proposed to be bought cannot vote) ss257B + 257D
(a)fair and reasonable to shareholders Limits on Companies Dealing in Their Own Shares:
(b)does not prejudice companys ability to pay creditors returned to it and the island was transferred back to the
(c)approved by share holders under s256C(1) s260A(1) A company may assist a person to acquire
shares only if:
Reduction in capital is an EQUAL REDUCTION if: (a) giving assistance does not prejudice company, (i)
shareholders or (ii) ability to pay creditors
It relates to ordinary shares s256B(2) and
Shareholder approval needed s260B and
There is a resolution passed at a general meeting
s256C(1) and there is a notice issued s256C(4) Assistance is exempted under s260C
s260C exempts financial assistance from operation of
s260A (s260C(1)-(5))
Requires approval through special resolution at a general
meeting s256C(2) and there is a notice issued s256C(4) s260D(1)+(2) Corporation is not guilty. Financial
assistance is valid. Persons responsible will be held
Discouraged by making it more difficult to selectively guilty for breaching s 260D(2)
reduce
Varying and Cancelling Class Rights s246B:
s246B(1): If there is a constitution, rights can be varied S was given shares as part payment, the remainder of
There is a general prohibition on a company acquiring its or cancelled in accordance with the procedure
own shares or interests in them s259A
s246B(2)(c): If no constitution/no procedure, those rights
be may be varied or cancelled only by special resolution;
and (d) with consent of members with 75% of votes in
the class
Actions Taken to Vary Rights s246C:
Company with share capital:
(1) If shares are divided into further classes and after the
division the rights of the shares are not the same:
(a)The division varies the rights attached to all shares in
that class exisiting before division; and
(g)Members who hold shares with the same rights
attached after the division form a seperate class.
Company without share capital:
and after the division the rights of the members are not
the same:
(a)The division varies the rights of every member in that
class exisiting before division; and
(h)Members who hold stares with the same rights after
the division form a seperate class.
Company with 1 class of states issuing a new class of
shares:
(5) If the issue varies rights attached to shares already
issued:
(a)The rights attaching to the new shares are not the
same as the rights of the shares already issued ; and
(i)Those rights are not provided for in: (i) the
constitution; and (ii) docs lodged with ASIC
*Court may set aside variation if not unanimous s246D(a)
Cases
Aequitas v AEFC: Fiduciary obligations arise
automatically once a person is identified as a promoter.
Tracy v Mandalay Pty: Passive promoters. HC considered
who is a promoter. Held: Some shareholders only stood to
profit, but were still considered passive promoters.
Twycross v Grant: Before registration there is no
company only the intending members and promoters.
Erlanger v New Sombrero Phosphate: Disclosure.
Company can rescind, and the purchase money was
syndicate. Company not bound by the promoters. The
promoters owe a duty to the corp. to provide it with an
independent board of directors with full disclosure.
Glickstein v Barnes: Insufficient Disclosure. Promoters
were under a duty to disclose all secret profits to a
board of directors
Aztech Science Pty Ltd v Atlanta Aerospace: Ratification.
Contracting party says no K if proposed company does
not come into existence or if there is no ratification
within 60 days. Verbal assurance was given to extend 60
days. Aztech registered 3 days after the 60 days. Mutual
assumption that Aztech had ratified.
Salomon v Salomon & Co: One person company. S was a
sole trader, and registered a limited company with his
wife and 5 children to buy his business. They were the
only shareholders. S was managing director and his 2
sons were directors. S sold the business to his company.
the price was debt due from the company to S. S was a
shareholder and secured creditor. Company was wound
up, and couldnt pay debts to outsiders. Liquidator tried
to reduce secured debt by saying company was Ss agent
when it conducted the business. COA: S was liable to pay
the unsecured debts. Sole trade doesnt get limited
liability because his family were holding the shares in
trust and acting as dummies and didnt have real to acquire premises where business was carried on by B
interest in the company. House of Lords: The company
conducted business in its own right for itself it was not
just an alias for S. The members dont have to be
independent. S was not liable to indemnify the company
and the secured debt could be paid before unsecured in
the distribution of the company assets.
Macaura v Northern Insurance: Property of company is
not property of its members. M buys timber and sells
them onwards. He takes out insurance for the timber in
the companys name. M loses money and attempts to
claim under the insurance policy. Insurance says no
because the company has the insurance not him as an
individual. Court: Agreed with the insurance company.
Lee v Lee: Company cannot K with controlling members.
Edgington v Fitzmaurice: Directors and members will
always be liable for fraudulent conduct, even if acting for
the company.
R v Arnaud: Seperate entity doctrine. A chartered corp
applied to register its ship. The registering authority
refused on the grounds that the legislation excluded
foreigners to be shipowners, and some of the members of
the corp were foreigners. Held: The authority had to
grant registration because the owner was the
corporation and not the members.
Industrial Equity v Blackburn: A holding company sought
to pay dividends out of profits made by the subsidiary,
but the dividends had not been claimed by the holding
company. Held: A holding company is a seperate legal
entity from its subsidiaries. Dividends cannot be used by
holding until the subsidiary had claimed them as a
dividend.
Merchandise Transport v British Transport Commission:
Parliament did not intend for the corporate veil to be
lifted.
Re Darby: Company structure = fraudulent. D and G
registered a company. They were the only 2 directors and
had 5 other nominees as shareholders. This company
floated another company and sold interest at a gross
overvalue. Members of the public invested based on a
fraudulent prospectus. D and G divided the profits. Held:
D and G were convicted of fraudulent statement in the
prospectus.
Adams v Cape Industries: It is acceptable for someone
embarking on an enterprise which may attract future
obligations and liability to form a limited company to
carry on an enterprise.
Gilford Motor Co Ltd v Horne: Company formed for
unlawful purpose. H formed a company to solicit
customers from Gilford, knowing that he was going to be
in breach of his previous employment agreement. Held:
The company was formed as a device to commit
breaches, injunction could be granted to stop
solicitation.
Re Films: Under-resourced/sham. A US film company
agreed to help an English company make a film. 90% of
English shares were held by president of US company,
and English company only had 100 capital. The English
company tried to register the film as a British film. Held:
Film could not be British because English company could
not have made the film. Any contribution of the English
company was only as agent of the US company who was
the real filmmaker.
Smith, Stone & Knight v Birmingham Corp.: Subsidiary
conducting parent companys business. City of B wanted
received a notice of winding up.It was argued that the
Waste Co a subsidiary of a paper manufacturing
company that owned the premises. Parent company
claimed subsidiary business was really conducted by
them. Issue was whether subsidiary was carrying on
business as the parent company, or as its own. Held:
Subsidiary was conducting the parents business.
Walker v Wimborne: Directors of the group of companies
must hold interest of their company paramount, not the
interests of the group
Quintex v Schroders: Outsiders can fail to discriminate
between members of a group.
Briggs v James Hardie: Lifting the corporate veil.
Employee of sub. sued sub and parent. Sub was under
control of the parent company. Issue was whether the
corporate veil should be lifted to make a claim. Held: If
the parent dominated and there was no separate
existence, or if the subs was formed to circumvent the
law, then veil could be lifted so employee could sue.
Lennards Carrying Co v Asiatic Petrol: Directing the mind
and will of the company. L was active director of co who
owned a ship. Ship carried oil to A and because of
unseaworthy state, caught fire and was destroyed. Under
Act, owner was liable for any loss. L Co sought to avoid
liability claiming it was L himself. Held: L was attributed
to the company and was directing the mind and will of
the company and the action was therefore of the
company itself.
Meridian Global Funds v Securities: Directing the mind
and will of the company. Issue was whether the
knowledge of a CIO was attributed to the company. CIO
caused co to contravene shareholder provisions. Held:
He had authority to enter into share transactions, so his
knowledge of the breach was attributed to the company.
Otherwise, company could claim lack of knowledge as a
result of failure to monitor its officers.
Tesco Supermarkets v Nattrass: Senior management.
Company owned chain of supermarkets. Sign was put up
by shop assistant (without manager knowing) that
advertised the wrong price.Co was sued for breaching
UK ACL. N argued store manager was the directing mind
of the company. Held: Manager did not have the
necessary responsibility or control to be the control mind
and will he was subordinate to board of directors.
Donato v Legion Cabs: Company secretary has authority
to enter into Ks related to the administration of the
company.
FCT v Whitfords Beach Pty Ltd: Change in control. Co
was formed to acquire land for shareholders. Co was
taken over years later by a developer who wanted to
develop and sell the land. Tax was assessed on the
profits from the sale of the land. Held: Purpose of the
company changed, and is determined by the purpose of
those who control it.
Brambles Holdings v Carey: Mind and will of more than 1
person. Co was a carrying business. 3 employees were
responsible for ensuring vehicles complied with leg. Co
was charged with not complying when 1 of the 3 was off
sick. Ops manager has not properly instructed his
replacement. Issue was who's knowledge and belief
could be attributed to the company. Held: Ops manager
was the directing mind of the company.
Re Chisum Services: Aggregated knowledge. Branch
manager knew co was having financial problems, but
didnt know it was insolvent. Banks officers and HO
Banks HO + managers knowledge could be combined
and the bank would have necessary suspicion of
insolvency. Alone they would not have. Held: There is no
super mind that would allow the knowledge to be
aggregated for the purpose of ascertaining its state of
mind.
Daniels v Anderson: VL. Directors delegated tasks to
management and failed to monitor and control
operations. Negligent acts of management should be
treated as acts of the company.
Turquands Case: Doctrine of constructive notice did not
operate where the directors or agents acted outside
their authority, but this was not apparent from the public
docs of a company. Rule: even though outsides were
taken to have constructive notice of the public docs,
they did not have to go further to ensure the internal
proceedings were properly carried out they can assume
they were.
Morris v Kanssen: Turquands rule is designed for the
protection of outsiders they have no way of knowing
about internal stuff
Northside Developments v Registrar-General: Seal was of
N was affixed to a mortgage doc but secretary was not
properly appointed under the constitution. HC
considered the validity of the mg, dependent upon
whether it was executed by N. Held: N was not bound by
the mg because affixing the seal was invalid. The lender
should have made further inquiries because the mg was
a transaction outside Ns usual business and lender
should have suspected irregularity.
National Aus Bank v Sparrow: A finance agreement was
executed by only active director he signed as sole
director and secretary. The other director stepped aside
from management before agreements. Consti said 2
directors were required. Liquidators said co not bound by
agreement. Held: 1 director did not have actual or
apparent auth to bind the company
Freeman and Lockyer: The representation that A had
authority was made by the board, which had actual
authority to manage the affairs of the company.
Crabtree Vickers: An A who merely has apparent
authority is not capable of making representations for
the company. This can be criticised because it is
impossible for an outsider to discover who has actual
authority to make representations for the company.
Oris Funds Management v National Aus Bank: s129(1)
assumption. Single director endorsed cheques, but
constitution said it had to b 2. Held: NAB could rely on
s129(1) assumption.
Bank of NZ v Fiberi: s129(1) assumption. Company seal
was affixed to a mg in breach of its consti, which
required authorisation for use of seal. Held: Could rely on
s129(1) to assume relevant consti provisions were
complied with.
Vero Insurance v Kassem: V could not rely on s129(5)
because proxy was not executed in accordance with s
127(1).
Brick & Pipe Industries: s129(6) assumption. Company
seal was affixed and witnessed by 2 directors one of
which had not been properly appointed. Held: s.129(6)
applied and other party could assume document was
duly executed.
Ruben v Great Fingall Consolidated: s129(7) assumption.
Co sec. forged a share certificate that appeared properly
issued. Secretary then lodged the certificate as security
for a loan to himself. Secretary defaulted and lender
refused registration as owner of the shares, and sued the
company Held: Forged signatures did not bind the
company since it has not been held out that the
secretary had authority to do more than merely deliver
certificates.
ASSOCIATIONS
Any group of persons who have agreed to join together in
the pursuit of one or more common objects or purposes
Smith v Anderson
Profit cannot be distributed to individual members must
be used for the association (s4(1)+(5) Associations
Incorporations Act 1981)
The aims must not involve the members making profits
for themselves Adamsons Case
Establishment:
Conservative & Unionist Central Office v Burrell:
1.There must be members
11.There must be a K binding the members
38.There will normally be some constitutional
arrangement for meetings of members and
appointment of committees/officers
39.A member will normally be free to join/leave at will
40.The association will normally continue in existence
independently of any change in composition; and
12. The must be a historical moment in time when a
number of persons combined to form the association.
*For unincorporated, 1, 2 and 6 are essential.
1.Unincorporated Associations:
Not regulated by specific legislation
Not a seperate legal entity that can hold property/sue/be
sued
May make a profit if an incidental part of its activities,
but its main object must be not-for profit
For practical reasons, usually adopt a name and/or
constitution/rules/by-laws
Registration with the Australian Charities and Not-
For-Profits Commission (ACNC)
Effect of rules:
General presumption that members do not intend to
be contractually bound Cameron v Hogan
Presumption that courts with not interfere where
proprietary rights are involved and there is a clear
indication that rules are contractually binding
Membership Rights and Duties:

Entry criteria: Governed by principles of freedom of
association + public policy (cannot discriminate)
Membership rights: Express/implied agreement of joining
members to be bound by understanding or constitution.
Usually determined by founding members and
subsequently amended
Suspension/Expulsion: Relationship is generally
consensual and not contractual. Cameron v Hogan
Enforcement of Rights: Declaratory relief is the only
remedy for aggrieved members
Contractual Relations/Liability:
General Rule: Ordinary members are not liable for Ks
made on their behalf by any member, the exec. or the
committee
To be enforceable, a K must be made with all members,
or with an agent/trustee acting within authority
Freeman v McManus
Committed members acting within authority will be
personally liable on the Ks they have entered into
Bradley Egg Farm
However, this may not be the case if the K is for a long
term and the composition of the committee changes Similar to rules to Corporations Act apply
Carlton Cricket
Tort Liability:
Committee members liable if tort occurs during activities According to rules of the Association itself (notice,
of association (public policy rule)
Particularly if the committee is empowered to pursue Revocation of Royal Charter
activities that caused the tort
Members can get indemnity from other members of the
club
Membership does not automatically create a duty of care
DofC must be established on ordinary principles of
negligence Hrybynyuk v Mazur
13.Incorporated Associations:
Must be NFP: formed for the purpose of providing
financial gain for members s5(1)(c) Associations
Incorporations Act 1981
Popular with sporting/recreation clubs
Advantages:
Seperate legal entity (ss21 + 25) that can own property
in own name
Disadvantages:
Expenses formalities, insurance requirements; keeping
of separate accounts, financial returns (costs)
Procedure to Incorporate:
Choose name (must use Inc s29, unless exempt under
s33)
Design constitution and rules (Part 5)
Lodge application
Appoint secretary
Provide registered address
Ongoing Requirements:
Lodge details of any changes
Keep adequate accounts
Hold annual general meetings
Lodge annual financial return
Committee members must comply with duties
Rules from the terms of K between association and
members
Seperate legal entity to its members (body corporate)
s21
Winding Up:
Some jurisdictions may provide different rules by the
Supreme Court
application of funds, disposal of assets)
Upon revocation, any surplus will be redirect to
another charity with similar aims does not go to
members.
Cases
Cameron v Hogan: Presumption that members do not
intend to be bound. Expelled member sued for damages
and breach of K and sought injunction to prevent
expulsion. He claimed that expulsion was against to the
rules. In order to obtain the remedy, the P had to
establish that membership amounts to a K.
Rebuttable with clear intention.
Bradley Egg Farm v Clifford: Single Act = personally
liable.
Carlton Cricket and Football Social Club v Joseph:
Actions spanning > 21 years = not personally liable.
 TRUSTS
Obligation enforceable in equity which rests on trustee Choice of beneficiary (the family of X) Constructive trusts Units are equal, and the number of units held determines
as owner of specific property to head with that property the right of the unit holder to the net income and
for the benefit of the beneficiary. Choice of object (the poorer one gets more) Equitable compensation/damages/lien capital of the unit trust

Nowadays, trusts are driven by concerns such as privacy, The amount of the trust fund/income to go to the Injunction Investments are pooled
tax planning, and limitation of liability to creditors beneficiary or object (the possible beneficiary)
Fixed: Interest Trust usually earns income from carrying on a
5 Parts of Trusts: business or investments
1. The settler person who creates the trust The trustee has no discretion re distribution, etc Rescission Public Unit Trust:
41.The trustee the legal owner; fiduciary with because it is already set out in the trust deed
beneficiaries Specific performance If there are investments by the public
42.The beneficiaries the equitable owners Executory and Executory Trusts: Advantages:
43.Trust property Executed: If there are over 20 unit holders = a managed
44.Personal obligations attached to trust property Simple to operate investment scheme which must be registered with
The intentions of the settlor are completely declared so ASIC
Difference between Company/Partnership/Trust: trustee must follow the terms Flexible
Operate more like public companies and are regulated
Compan Partnershi Trust
Extent of the trustees fiduciary obligation = set out in No rights of enforcement by unnamed beneficiaries by ASIC
y p
trust deed
Executory: Tax advantages in the form of income splitting Managed by experts, may invest unit holders funds in
Seperate Yes No a P is No a trust is a
real estate, stock exchange and offer income and
legal a relationship
If there is something left to complete the trust If trustee is a company, then added advantage of limited capital growth.
entity relationshi with rights and
liability Private Unit Trust:
p, not an obligations, not
Is a valid trust, but the obligations specified because
entity an entity of
the interest in the trust is not yet fully defined Trust can hold property Can be a family business with family members owning
legal person
units
Bare and Special Trusts: Privacy Advantages over discretionary trust:
K among Yes Yes No
Bare trustee: holds property of the settlor and has not
the
active duty to do anything beyond transfer property to Easy Winding up Fixed annual entitlements to income
members
beneficiaries as set out in the trust Disadvantages:
Special trustee: has active duty to carry out obligations Fixed entitlements to capital (the value of the units)
Duties Director Fiduciary/e Fiduciary/equit beyond those of the bare trustee. Accountability
s duties quitable able obligations Transferability of units
at CL obligations of trustee Constituted and Incompletely Constituted Trust: Establishment costs Disadvantages:
and of Ps Constituted: If property which is subject to the fiduciary
under relationship is completed vested in the trustee Ongoing costs Unit holders could be jointly and personally liable to
Corporat Incompletely constituted: indemnify the trust (wouldnt happen if there is a
ions Act Filings of corporate trustees are on public record at ASIC limitation of indemnity clause)
2001 If trust property has not been completed vested in
trustee Loss of absolute ownership If sued by its liquidator if there is any shortfall of
assets
Types of Trusts: Invalid until it is completed/constituted Loss of control
Express: Trading Trusts:
Non-Express $2 Company as Trustee:
Discretionary trusts and fixed trusts Implied or Resulting Trust: Proprietors transfer the goodwill and the assets of a
Implied: Arises when the law implies an intention on the Means that the trustees liability is limited to its share business to a trustee
Executed trusts and executory trusts settlor to create a trust intention may be unexpressed capital, but otherwise operates as a natural person
Resulting trust: arises when the law implied an intention trustee Has all the advantages of a trust:
Bare trusts and special trusts to create a trust (i.e. if there is an apparent gift); may be
disputed on the facts May be a phoenix company disappears leaving Tax: imposed on trustee or beneficiary, but not both
Constituted trusts and incompletely constituted trusts unpaid creditors and employees and then reappears
Non-Express: Constructive Trust: with a new name Limited liability: Can be abused (especially if $2
company)
An implied trust or a resulting trust Tinsley; Nelson Imposed by equity to hold one person (the legal owner) Unit Trusts:
accountable to another person (the equitable owner) if Governing Law:
A constructive trust AG for HK; Muschinski it would be inequitable not to do so An express, fixed trust (all unit holders are known by
name) Trusts Act 1973 (Qld) only deals with certain matters
Express i.e. de facto spouses buy property in the name of only
Discretionary and Fixed Trusts: one person, but both contribute to the purchase May be public or private or a trading trust Position of the trustee, and trustees powers, rights
Discretionary: price Muschinski and liabilities
A trust set up under a trust deed where the capital is
Identity of beneficiary is not necessarily set out in the Remedies Against Breach of Fiduciary Duties: divided into units (shares) Beyond this, the rules of CL and equity + other
trust deed legislation, including taxation legislation
Trustee can exercise direction re: Account of profits

CL applies: contract, negligence and agency
Equity applies: injunctions, specific performance and
unconscionability
Creation:
1. Three certainties:
1.Certainty of words (intention) (i.e. not hope,
wish)
2.Certainty of the subject matter
(property/interests)
3.Certainty of objects (the specific beneficiaries)
45.The vesting day of the trust is in the future
46.A declaration of a trust of real estate must be in
writing and signed by the settlor or else it will not be Power to audit or call for audit
enforceable
47.A declaration of trust over personal property does not Power to invest
have to be in writing UNLESS the proper is an existing Power to mortgage
equitable interest
IF DISCRETIONARY TRUST, extra requirements:
48.The settlor transfers property to trustee on condition Can have access to trust assets:
that they distribute income from the property each
year among beneficiaries in whichever proportion as
the trustee chooses within the trustees discretion
49.Beneficiaries are usually defined widely (i.e. children)
50.There is a covenant that states that the trust belongs
to no one until the vesting day, on which day the
trustee would use its discretion to divide it
accordingly as the trustee chooses
Continuity of Existence:
Death/disability of beneficiary: does not affect the
continuation of existence of the trust
Trust may be the trustee the power to reallocate the
state of the deceased beneficiary
Death of trustee: if the sole/law surviving trustee, the
position becomes vacant
Trustees Duties:
1. Obey terms of trust deeds
51.Keep accounts and provide information (i.e. reasons
for decisions)
52.Administer the trust personally (cannot further
delegate)
53.Duty of care (of an ordinary prudent person)
54.Duty of loyalty (i.e. avoid conflicts of interest)
55.Duty of impartiality & fairness (cant favour one
beneficiary)
56.Duty to invest as:
1.A prudent person
2.In the best interests of all present/future
beneficiaries Cowan v Scargill
3.Investment strategy: if sued, this will be taken
into account Nestle v National Westminster
Bank
57.Duty to pay only if authorised by the trust
58.Duty to pay the correct beneficiaries
Rights and Powers of Trustees:
Rights:
Right to remuneration for services
Right to indemnity for debts of trust properly incurred
Right to reimbursement of trust expenses Hardoon
Right to apply to the court for advice (to protect T from
liability)
Right to a discharge from liability when trust is finished
Right to pay trust moneys into court (i.e. if there is a
dispute)
Powers:
Power to apply trust funds
Power to borrow for the trust
Power to imply agents
Creditors:
If trustee is not personally liable for debts, although the
trustee usually is
Trustee can recoup out of the trust property, but not
from the beneficiaries or the settlor
This is denied if there is a breach of trust
Subrogation: trust creditor paid directly out of trust
property
If trustee has a right to be indemnified out of the
trust; or
If creditors right of subrogation is the right to
exercise the rights of the trustee
Under the Corporations Act ss197 + 588
Trust (Problems of Control):
Control by Trustee:
Trustee must maintain good faith and confidentiality
Beneficiaries cannot direct the trustees to exercise
powers of trust in a particular way
Control by Beneficiary:
Right to sue personally
Right to inspect trust documents
Right to receive account
Right to compel performance of the trust
Right to apply to the court for an injunction to restrain
breach of trust
Right to end the trust
Right to trace (find) trust property
indemnity from the beneficiary personally since it is for
Other Issues: the benefit of the trust.
Trusts can be altered by altering the terms of the trust
through agreement
Trust assists can be sold by the trustees
Winding Up:
Distribution of trust property
Release or variation
Revocation
Cases:
Tinsley v Milligan: Resulting Trust. T and M both lived in a
house and operated a business from it. Only T was the
legal owner, but they considered the house their joint
property. M moved out. T gave M a resulting trust in a
half share of the property, but remained the legal owner.
Nelson v Nelson: Resulting trust. N1 bought a house in
the names of her kids as joint tenants to get around
legislation for a war widows loan. She then qualified for
the loan and bought a second house. When she sold the
first house, her daughter (N2) disputed her claim to the
profits. Held: There was a resulting trust in favour of N1
because of her intentions when she bought the house.
AC for Hong Kong v Reid: Breach of fiduciary. R was a
senior law officer who accepted bribes to obstruct the
pros. for certain criminals he was in beach of his
fiduciary duty to the government. R was arrested and
charged. Held: Where a bribe is accepted by a fiduciary
in breach of his duty, he then holds that bribe in trust for
the person who the duty was owed.
Muschinski v Dodds: Resulting or constructive trust? A
defacto couple bought property as tenants in common in
equal shares. When they separated, M claimed she was
the beneficial owner, D claimed a half-share. Not a
resulting trust because it was rebutted by Ms intention
to give D an immediate and unconditional beneficial
interest in return for his assistance with her business.
Held: Constructive trust to the effect that they held land
as tenants in common in trust to repay their respective
contributions and to share the residue equally.
Cowan v Scargill: Test of the best interests of the
beneficiaries. Best interest of the beneficiaries are
normally their best financial interests. Trustees cannot
refuse for social r political reasons to make an
investment if that investment would be more beneficial
to the beneficiaries.
Nestle v National Westminster Bank: Investment
Strategy. A Testator died and left his estate to be
administer by National as at trustee of his will. The fund
grew, however, Nestle (granddaughter) claimed that if the
fund had been properly managed, it would have been
worth more. However, it could not be proven that the
mismanagement had caused the loss.
Hardoor v Belilios: Trustee had to pay calls on shares
held in trust for beneficiary. The trustee was entitled to
indemnity from beneficiary for these calls. RULE: If the
trust estate does not hold sufficient funds to meet the
claims on it, a trustee may be entitled to a right of