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Week 1 2 Partnership Law Theory S Elements of Contract Law: Carry on business. In common. o People are doing business and on behalf of one another With a view for profit. Most litigation surrounds 2 elements commonality. Consequences re the law that governs the venture. Partnerships act in a fiducia...

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Week 1 & 2 - Partnership Law Theory S.5 Elements of Contract Law:  Carry on business.  In common. o People are doing business and on behalf of one another  With a view for profit.  Most litigation surrounds 2 elements - commonality.  Consequences re the law that governs the venture.  

Partnerships act in a fiduciary relationship Always work towards the shared goal of the business

Liability Section 12 - Liability for Partners Every partner in the firm is liable jointly with other partners for all debts and obligations incurred with a partner. Partners are mutually liable for contracts - all debts and obligations for the firm and its partners Section 13 - Liability of the firm for wrongs They are liable for each other's torts (civil wrong - like negligence). ALL liable for the tort / civil wrong activity of another partner. Partners must have acted in the 'ordinary course of the business of the firm'. Section 14 - Misapplication of money or property received for or in custody of the firm. If funds are misappropriated (if in the scope of the business), the partnership is liable; if not in the scope, then partners are not liable Section 17 - Persons liable by 'holding out' If a partner is trying to attach themselves to another company / misrepresent / enact misconduct on behalf of the business then they can be removed from the partnership. Cases Smith v Anderson (1880) 15 Ch D 247  An entity performing an isolated act is not a partnership; repetition of acts and excludes the case of an associated formed or doing one particular act which is never to be repeated.  Formation of the partnership was not deemed a partnership; the court concluded that "…it was noted that the trustees had no power to speculate and that there were no mutual rights and obligations amongst those involved / The court held that the trust was not a partnership." Canny Gabriel Advertising Pty Ltd & Anor v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 Re Ruddock (1879) 5 VLR (IP&M) 51  Two distinct businesses acting as a partnership, but were not carrying on a joint business, despite working in the interest of one another (owner of the business)

Beckingham v Port Jackson Authority 57 SRNSW 403 

Adams v Newbigging 

Aas V Benham shipbrokering vs ship building 

UDC v Brian (1985) 60 ALR 741 

Chan v Zacharia 1983-1984 154 CLR 178 

Week 3-4: The Corporate Veil and Lifting the Corporate Vile Theory How to deal with issue of unlimited personal liability  Limited liability or the Corporation is a separate legal entity that separates outside creditors from your money. The money the creditors can access is Limited to the shares or funds that have been contributed to the artificial legal entity of the company  A separate legal entity has limited liability Corporate Veil  Leading corporate veil or corporations case is Salomon. To understand that case/corporate veil, it may help to remember two things about Re Ruddock namely: o Creditors get ranked, i.e. the business is broke so there is not enough money to satisfy everyone's debts. A trustee in bankruptcy or liquidator ranks claims. o Issue in Ruddock was that a partner could not be a preferred creditor but instead had to meet the debt. Other Legal Rights for Partnerships Section 27 - Rules as to interests and duties of partners subject to special agreement Partners share the profits and losses equally unless stipulated otherwise. Partners are compensated for their actions - for legitimate actions for the business Partners have no interest on capital Every partner may take part in the management of the partnership business (hiring and firing) No person may be introduced as a partner without the consent of all existing partners No change in the nature of the partnership may be made without consent of all existing partners Partnership Property Legal property - absolute ownership of the property (you can do what you want as long as it is legal) Partnership property - right of a user, and the right to use something which is limited to the scope of the business. If you bring something into the partnership, and the partnerships dissolves, you do NOT get the item back - it is sold and set to losses, and you get a cut of the sale Intangible property right - equitable and right of user. See Harvey v Harvey 1968 120 CLR 520.  One family member let the partnership use the farm.  Other partners considered it a partnership input If the input was not written down, the intention of the partners must be found Termination of Partnership Section 36 - Dissolution by insolvency, death or charge Whenever there is a change in the partnership, technically the original partnership dissolves. If somebody dies, retires or arrives ( as a new partnership), the original partnership dissolves and an internal accounting exercise to see what the current partners are worth / what the new partners need to contribute. Section 38 - Dissolution by the court A partner is shown to have an unsound mind, in which the application may be made as well on behalf of that partner by his or her committee or next friend.

If a partner becomes permanently incapable of performing his or her part of the partnership contract If a partner has been guilty of conduct, it is calculated to prejudicially affect the carrying on of the business A wilful or persistent breach of the partnership agreement Where it is just and equitable for the court to dissolve.

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Cases Salomon v Salomon [1897] AC 20 S was a bootmaker Sold his profitable business to a company for a significant sum. Salomon was the driving force in that company. Of the shares in the business, 20,001 go to him. The rest go to his family on the basis of one each. Salomon held a debenture (a type of security that prefers him to other creditors) Became tough in the shoe business and company struggles for money The position of Salomon/Broderin is questioned. Argument of liquidator - Salomon has used company to gain profit, avoid risk and prefer himself to other creditors. Argument against that and in favour of Salomon et al - this was a company properly formed. Liability was limited and the company was a separate legal entity from its founder. Lee v Lee's Air Farming [1961] AC 12

Macaura v Northern Assurance Co (1925) AC 619

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Gilford Motors Co Ltd v Horne [1993] 1 Ch 935 Starts off as effectively a restraint of trade case against a managing director who leaves original company. Judges spend much time on typical restraint of trade issues e.g. is restraint reasonable etc. From a corporate law perspective, see Lawrence LJ at 965 Smith Stone and Knight [1939] 4 KB 116 Smith Stone and Knight owns a factory in Birmingham. Acquires partnership which becomes subsidiary and that subsidiary operates from factory. Birmingham Council wants to compulsorily acquire to build tech college. Smith Stone wants Compo. Sticking point (p 118) - under relevant compo laws was Smith Stone able to make a compo claim? The question arose because the act "enables purchaser to get rid of occupiers with no greater interest than a tenancy… because they can give them notice and thereby terminate their tenancy…" Held: Smith Stone can claim because subsidiary is almost just an agent for parent? Were subsid profits treated as profits of company? Were persons conducting the business appointed by the parent? Was the company the head and brain? Did the company govern the adventure? (Activities, capital etc.)? Did company make money by its skills and direction? Was the company in effectual and constant control?

Industrial Equity Ltd v Blackburn (1976-7) 137 CLR 567 - each company in group has separate entity. A subsidiary's profits are not those of holding company. Might have group financial obligations, but does not mean you pierce corporate veil at anny time (e.g. dividends) Equiticorp Finance v BNZ (1993) 11 ACLC 952. Judgement of Clark and Cripps JJA when is the welfare of the group tied to the welfare of the individual companies. Types of Liability as well as Families of Companies Families of companies; commercial reality; and considerations as to international groups and type of litigation. Briggs v James Hardie and Co Pty Ltd (1989) 7 ACLC 841 especially the judgement of Rogers AJA

Week 5 & 6: Corporate Structure; Capital and Finance; Promoters & The Prospectus of Constitution Theory Public Companies are the main focus Key features of a public company:  On stock exchange  Anyone with sufficient funds can invest money and become a shareholder  The most regulation because it cannot internally regulate well.  Impact on the economy is very strong  ASIC needs an extreme amount of regulation and auditing Pty Ltd Companies (Proprietary Companies) Limited by guarantee Members guarantee a certain amount for their liability. No Liability Pty Ltd companies might be able to produce major sources of income, so regular regulation is required. Public Company requires at least one member. Share: A 'part' or 'stake' involved in a company - the amount a person owns of a company. Share is the limit of liability you have with a company. Preference Share: get some sort of benefit (frequently financial) Founders will attempt to give themselves voting preferences. A company can only exist if it can be profitable. Debentures: Security documents that evidences that you are separate to a company and have some preference over other creditors. Floating and Fixed Charges: Where debenture provides for a charge on or security over a company's property, the charge of security may be fixed for floating. Floating: While a fixed charge attaches to a specific piece of property, the floating charge does not - it is a re assets for the time being of the company. Prospectus: A document that is governed by law, in which a company outlines its reasons for having consumers invest in the company. Big companies' prospectus documents are required by law to write the risks of investments any information a reasonable investor would expect to have before making an investment.

Corporations Act - Prospectus  S.710 (General Disclosure test) o Must contain all the information that investors and their professional advisers would reasonably require to make an informed assessment.  S.715A (Presentation of disclosure documents) o The information in a disclosure document must be worded and presented in a clear, concise and effective manner  S.728 - (Misstatement in, or omission from, disclosure document) o A person must not offer securities under a disclosure document if there is: a. A misleading or deceptive statement in: i. The disclosure document; or ii. Any application form that accompanies the disclosure document; or iii. Any document that contains the offer if the offer is not in the disclosure document or the application form; or b. An omission from the disclosure document of material required by section 710, 711, 712, 713, 713C, 713D, 713E, 714 or 715; or c. A new circumstance that: i. Has arisen since the disclosure document was lodged o S.728(2) a. A person is taken to make a misleading statement about a future matter (including the doing of, or refusing to do, an act) if they do not have reasonable grounds for making the statement.  S.729 - (Right to recover for loss or damage resulting from contravention) o A person who suffers loss or damage because of an offer of securities under a disclosure document contravenes subsection 728(1) may recover the amount of the loss or damage from a person referred to if the loss or damage is one that makes the personal liable for [the contravention].  S.709 - S.715 o S.709 - (Prospectus, short-form prospectus, profile statements and offer information statements) a. If an offer of securities needs disclosure to investors under this part, a prospectus must be prepared for the offer unless subsection (4) allows an offer information statement to be used instead. o S.715 - (Contents of offer information statement) a. An offer information statement for the issue of a body's securities must: i. Identify the body and the nature of the securities; and ii. Describe the body's business; and iii. Describe what funds raised by the offers are to be used for; and iv. State the anture of the risks involved in investigating the securities; and v. Give details of all amounts payable in respect of the securities (including any amounts by way of fee, commission or charge); and vi. State that: i. A copy of the statement has been lodged with ASIC; and ii. ASIC takes no responsibilities for the content of the statement; and ii. State that the statement is not a prospectus and that it has a lower level of disclosure requirements than a prospectus; and iii. State that investors should obtain professional investment advice before accepting the offer; and iv. Include a copy of a financial report for the body; and

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Include any other information that the regulations require to be in the statement.

Replaceable Rules and Corporate Constitution  S.135 - (Replaceable Rules) where are your Cases [Finance] ASIC v Adler (no. 3)  Violated directors' duties in the Corporations Act 2001.  Collapse caused by bad corporate governance  Breached: o S.9 (Director's duties) o S.180 (Duty to act with care and diligence) o S.181 (duty to act in good faith and for a proper purpose) o S.182 (Improper use of position)  S.182(2) (Business judgement rule o S.183 (duty not to improperly use information) o S.260A (financial assistance)

[Corporate Constitution] Bailey v New South Wales Medical Defence Union Ltd [1995] HCA 28; (1995) 184 CLR 399  Crawford sued bailey for injuries incurred during treatment  Bailey was a member under NSW Medical Defence Union which promised to safeguard its qualified medical practitioners and indemnify its members against claims for damages  Dispute lasted until Bailey died, therefore revoking his membership  MDU stated bailey was no longer a member and his estate (wife) would not be indemnified  Crawford sued the Bailey estate as well as MDU under S.6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW)  Court proceeded with both claims - granting damages from the Bailey estate and for said damages to be indemnified by the NSW Medical Defence Union Ltd PowerPoint Info  Mr crawford has been a patient of Dr. Bailey  In 1985, Dr Bailey died  Prior to death, Dr B had been a member of the union – a company limited by guarantee 

Union’s articles required the union to indemnify each member or personal rep of a deceased member against liability for damages or costs arising from any claim against him in med prac. In 1977, the articles changed to give discretion to union to refuse to indemnify a member on his ceasing to be a member. When you died you ceased to be a member. In 1982, the articles were amended to give the union a discretion to grant indemnity to any member. See eg p5.

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In 1980, Crawford sued Bailey. The union acted for him until he died and then refused to assist Mrs Bailey (who had been substituted as defendant).

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The estate sued the union for indemnity and Crawford also claimed against the union. (Two claims heard together).

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Held – prospective changes; idea of statutory v special contract? Read p7. Issue was insurance cover?

[Corporate Contract] Southern Foundries v Shirlaw  Shirlaw became the acting director with a fixed-term contract stating he would be a director for 10 years  Company was bought; pre-exisiting articles of association were altered, which they then empowered two directors and a secretary to remove Shirlaw from his position.  Shirlaw removed prior to the expiration of the fixed term, which Shirlaw claimed as damages  Shirlaw argued for an implied term of the contract was that the company would not amend its articles in a way which would be detrimental to him.  Court favoured Shirlaw, successfully recovering for a breach of contract.  Company could not be prevented from altering its articles of association; however, it can be liable for damages if amendments made are prejudicial to a valid contract made prior to the amendments.

Week 7, 8 and 9: Director's Duties  

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Theory Directors are the custodians of other peoples' money (from their shares) Consequently: o Directors have responsibilities in dealing with that money. They must do so honestly for a legitimate corporate purpose and not for their own personal gain. o There are formalities with appointment and removal of Directors. o There are different types of Directors with different functions e.g. non-executive. Insider trading is broader than a director's duty, i.e. can be breached by director, but applies to all dealings with shares etc / price sensitive information. Directors' Duties S.181 - use their powers in good faith in the best interest of the corporation for a proper purpose o Whitehouse v Carlton Hotels (1986) 162 CLR 285 (applies Howard Smith v Ampol [1974] AC 821). S.182 - not gain an advantage for themselves o Regal Hastings v Gulliver [1967] 2 AC 134. o If a breach in director duties occurs, a potential conflict must be declared. S.183 - not use information for themselves (civil obligation) o ASIC v Vizard - L&H 13.3.320 o Just because wrongdoer is prominent philanthropist does not entitle them to shorter sentence - the fact society trusted them makes their wrongdoings worse. o Does not matter if no actual damage to company and no actual gain to wrongdoer. **S.180 - use their power with the skill and diligence of a reasonable person in the circumstances. o AWA Case o ASIC v Hellicar S189 - reliance on others must also be reasonable Cases [Director's Duties] Whitehouse v Carlton Hotels (1986) 162 CLR 285 Howard Smith v Ampol Petroleum Ltd [1974] AC 821  Ampol (with an associated company) controlled 55% of shares of RW Millers.  $10m of shares were issued by RW Millers to Howard Smith (for the benefit of the directors) o Stated the shares were to finance the completion of two tankers o Shares were given to Howard smith Ltd to take over RW Millers, blocking Ampol's rival bid.  Ampol could not complete its acquisition due to the issue of shares  Court stated that the dominant purpose of the issue of shares (as described by the directors to finance two tankers) was "unreal and convincing"  Court concluded that issue of shares was within power, but for an improper use. Regal Hastings v Gulliver [1967] 2 AC 134  Regal owned Cinema  Took lease for two more through a subsidiary to make a more attractive sale package  Landlord wanted personal guarantees. o Landlord said they could up share capital to 5,000 pounds

o Regal put in 2,000 pounds but could not afford more o Four directors in put 500 pounds. o Gulliver got outside subscribers to put in 500 pounds   

Sold business for 3 pounds / share, Buyers caught action against directors, saying profit was in breach of their fiduciary duty to the company. Not fully informed consent from the shareholders.

ASIC v Vizard  Vizard banned from managing corporations for 10 years and ordered to pay pecuniary penalties of $390,000  Vizard pleaded guilty to breaches of Section 183(1) of the Corporations Act (and its predecessor S.232(5)) o "Person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not be improperly use the information to: gain an advantage for themselves or someone else; or cause detriment to the corporation." [Director's Duties - Particular Issues] Duke Group ltd v Pilmer (1998) 16 ACLC 567 

City Equitable Fire Insurance [1925]  Duty of care case  Taken from the Companies Act 2006: o "Directors owe an objective standard of care based on what should be reasonably expected from someone in their position. "  Company lost 1,000,000 pounds in failed investments from a large scale fraud of the chairman.  Liquidator sued other directors for negligence, as well as th...