AGENCY If the agent acts beyond the principals instructions, the principal is bound benefits and burdens from

structions, the principal is bound benefits and burdens from the time the agent acted. By Ratification, the relation of principal
Under the doctrine of privity of contract, only those persons who were immediate parties to a and agent is created retrospectively. This situation usually arises when the agent has
contract could acquire rights and liabilities under it. However, because of the complexity of 2. General Agency exceeded their authority.
commercial dealings, today it is often necessary for an individual to deal through others, such as Agent is authorised to:
bankers, brokers, auctioneers, factors, commission agents, managers, partners, company Make Ks of a certain class that are normal for such agents; OR Bolton Partners v Lambert
secretaries or solicitors to mention but a few. Where these persons negotiate on behalf of Do some act for a principal that forms part of the ordinary course of business for the - Lambert made an offer to agent of Bolton Partners. The agent had no authority to act for
individuals with third parties, they will be their agents. Agency is thus an exception to the agent Bolton Partners, but accepted the offer anyways. Lambert revoked the offer, but two days later
doctrine of privity of contract. Eg; manager of business has implied power to act as an agent of the business in all matters Bolton Partners ratified the acceptance of the agent.
necessary for the running of the business Issue-> can the unauthorized actions of the agent be ratified by the principle?
Agent Person employed to act on behalf of another Principle-> Held that the contract existed the moment when the contract between the agent and
Broker A mercantile agent who buys or sells goods for a principal, but who doesnt have 3. Universal agency Lambert was concluded. (I.E. When the agent enters into the original k.)
possession or documents of title. Power to do almost anything the P can do
Del credere agent A person who guarantees payment by third parties to the principal in return Usually appointed under a power of attorney TP offered to buy land from A (the acting manager of Pr), A did not have authority to sell land
for extra commission. Eg; a person going overseas for a long period of time could empower a close friend OR a parent but A accepted TPs offer. TP later revoked offer, but Pr was granted specific performance and
Factor A mercantile agent who, in the usual course of their business, has possession of the to act for them in their absence in any matters at all TP was not able to cancel.
goods or documents of title to the goods, of their principal and who can sell or pledge the goods
whereby the principal is bound by such sale or pledge. Step 3: Appointing of Agents Comment: Where a person acts without the principals authority, the principal may ratify
Independent Contractor A person employed under a contract for services who undertakes to the transaction, thus creating an agency relationship retrospectively. The principal then
produce a given result for an agreed price. 1. Express Appointments assumes the benefits and burdens from the agent acted.
Ratification The act of adopting a transaction by a person who was not bound by it originally Orally
Trust A fiduciary relationship where a person holds the title of the property for the benefit of Often an oral appointment is sufficient, however, a written appointment is the safest method Acceptance by the agent on behalf of the principal must be complete and unconditional.
another person. as it creates a degree of certainty between the parties. If acceptance is conditional, the acceptance would date from the date of ratification rather than
TrusteeA person who holds property on trust for another. In Writing the time of acceptance by the agent.
For reasons of security an appointment in writing is best. Statutes in each state require that
By definition, the agency situation involves three parties: many agency appointments be in writing, - for example- if the agency is to last for more than For ratification to be effective, the following conditions must all be satisfied or the agent
The Principal who passes the authority to act to the Agent, who in turn through this authority one year, or it is concerned with a contract for the sale of land or an interest in land, or for the will be personally liable:
affects the legal relations of the principal vis--vis the Third Party. sale or purchase of a business. 1. The agent must clearly be acting as an agent
By Deed 2. The agent must have a known principal. The principal must be named or
Agency can be distinguished from other types of relationships The appointment of an agent under seal is necessary in the following situations: identified.
Where the principal can only carry out a particular transaction by deed, the agents 3. The principal must exist at the time of making the contract
EmployerEmployee appointment for such a transaction must also be by deed. 4. The principle must have legal capacity to enter the contract.
An employee is expected to personally perform any directions that may be given to them by their Under a general power of attorney- for example, that given to a solicitor by a client can be 5. Ratification must occur within a reasonable time of contract being entered into.
employee. In the performance of these directions, the employee is subject to the control and under seal but where such power involves signing a transfer of land, the power of attorney is 6. Ratification is not effective if the original transaction is a void contract.
direction of the employer. As a general rule, an employee doesnt have the authority to affect an required to be registered. 7. Forgeries. Ratification will not make a forged signature good. But that person can
employers legal relations with third parties because there is no direct involvement with them. be estopped.
However, if the employer expressly or impliedly directs the employee to affect the employers legal 2. Implication or by conduct 8. Principle must have full knowledge of the rectification.
relations with third parties, then an agency situation will arise. Example: A shop manager may be In the same way as any other contract may be implied from the conduct of the parties, the 9. Ratification must apply to the whole contract
authorized to sell his or her employers products. existence of a contractual relationship may be implied from the conduct of the principal and the 10. Ratification can only be retrospective.
agent. The general rule is that an agreement may be implied where a reasonable person,
Director of Posts and Telegraphs v Abbot examining the conduct and action of the parties, would conclude that one party had Step 4: Authority of the Agent
Q: was the clerk an agent or employer with the ability to bind the employer? authorized the other to act as agent and that both parties had assented to the arrangement.
CT Held: no evidence of an intention by the employer to grant the employee power to make 1. Actual Authority
contracts 3. Operation of Law The actual or express authority of the agent will be found in powers expressly given by the
Comments An employee does not have power to affect the employers legal relations with third Cohabitation principal to the agent, implied in the agency agreement, and that arise from necessity or by the
parties unless the employer has expressly or impliedly directed the employee to act. Any such A spouse or de facto is presumed to have authority to pledge credit for necessaries suitable for operation of law.
agency situation should be within the scope of employees employment. their lifestyle. The onus of proof is on the supplier. If the supplier fails to show that the goods
supplied to the spouse were de facto were necessaries, then the supplier is going to have to sue The actual authority of an agent includes authority: to make representations (to say things) for
the spouse or de facto. which Pr will be responsible; to receive representations from TPs on behalf of Pr; to make K on
Employer-Independent Contractor
Necessity or Emergency behalf of Pr; to make payments for Pr; to receive moneys owing to Pr and to give receipt.
The employer employs an independent contractor to deal with the third party. When a contractor
An agent or necessity generally arises where a person who is entrusted with anothers property
deals wit third parties it is usually as principal. However, an agent can be an independent
finds it necessary to do something in order to preserve it. There are four conditions which must Hely-Hutchinson v Brayhead
contractor, as in the case of auctioneer.
be satisfied before such an agency can arise: TP was successful against Pr for losses after a failed takeover deal. The Agent the CEO had
**Employers will not normally be liable for the tortious acts of independent contractors. In the case
1. There must be a genuine emergency made various promises on behalf of Pr which Pr had refused to pay. The office of chairman did
of employees acting as agents, the employer is liable to pay either damages at common law or
2. It must be impossible or extremely difficult to get the principals instructions not give A actual authority to make the promises.
compensation under the relevant state Workers Compensation Act where the employee or agent
3. The person must be entrusted with anothers property;
is injured in the course of their employment. If the employee or agent injures a third party in the
4. The agent must act bona fide in the principals interests, and not merely for the 2. Implied Actual Authority
course of their employment, the employer may be vicariously liable for the employees tortious
agents own convenience. An agent has authority to do anything that is incidental to or necessary for the carrying out of
act.**
Agent of Necessity acts within their actual authority.
Step 1: Identify the Parties Great Northern Railway v Swaffield Actual authority may be impliedly created:
Horse arrived at rail station. Owner was not contactable. The Rail Company took the horse to a 1) To give business efficacy to a business agreement
a. Principal the person who grants authority stable and paid for its storage. Swafield refused to pay for the bill. 2) Based on existing custom or trade usage
b. Agent the person who acts within the authority to contractually bind the principal Held->that the rail company was an agency of necessity. No way to contact Swafield, Genuine 3) Based on a consistent course of past dealings
c. Third Party the person whom the principal is bound to through the actions of the agent emergency and taking the horse to the stable was in Swafields best interest 4) Where Pr has held A out as having ostensible authority
5) Where agency is presumed because fo the operation of law (ex husband and
Step 2: Determine type of Agency Comment An agent of necessity generally arises where a person who is entrusted with wife)
Determines the extent of the agents authority anothers property finds it necessary to do something in order to preserve or safe guard 6) Where A acts in accordance with the usual authority of agents of that class
the property. 7) Where a person acts as agent of necessity.

1. Special or limited agents 4. Agency by Ratification

Agent authorized by principal to make a particular type of K OR to represent the principal Where the agent has acted without the principals authority, but nevertheless appeared to act on
in a particular transaction behalf of a principal, it is open to the principal to then ratify the transaction, thus assuming the
 Australia and New Zealand Bank Ltd v Ateliers de Constructions Electriques de
Charleroi
Belgian manufacture, Australian company was the agent, bank was the third party. Agent
endorsed the cheques and put them into the bank. Some cheques were not forwarded to the
Belgian company and then the agent went broke. Belgian company sued the bank.
Issue-> Did the bank have implied authority to bank the order cheques into the agents account?
Held-> The bank could rely on an implied actual authority that the Australian agent could
endorse cheques payable to the Belgian company and bank funds into its account.
Comments: The agents authority to bank the cheque was both express, through the
original agreement, and implied, on the basis of business efficacy, for the proper
operation of the agency agreement.
3. Apparent or Ostensible Authority
Apparent or ostensible authority arises where the principal, either by words or conduct, leads a
third party to reasonably believe that an agent has authority to contract on their behalf when in
fact this is not the case.
If a third party mistakenly relies on the apparent authority of an agent, the principal
is estopped or prevented from denying that such authority exists.
Mercantile Credit Co Ltd v Garrod Ostensible
partnerships-> Garod and his partner Parkin ran a garage. Their agreement said they could not
sell cars. Parkin fraudulently sold a car to mercantile credit. The credit company sued the
partnership.
Issue-> Did Parkin have actual or ostensive authority?
Held-> selling cars was a usual practice in the UK and not outside the scope of the partnerships
business. Garrod was liable because Parkin had ostensible authority
Comment: In this type of situation, a transaction by one partner can bind the other
partners because each partner is an agent for the other partners.
Tooth & Co v Laws: Apparent
Laws sold his hotel to a third party. Laws allowed the third party to continue to use his name
as licesnse on the front door. The third party fell through on their debts to Tooth (liquor store).
Tooth sued Laws unaware of the change in ownership.
Issue-> Did Laws failure to remove his name or inform Tooth of change of ownership prevent
him from denying an agency exists.
Held Laws was liable. He was representing to the public he was still the owner. Estoppel
prevented him from denying his was the purchasers agent.
Comment: Estoppel is a rule of evidence which prevents a person from denying the truth
of a statement formerly made by them, or the existence of facts which, by their wording
or conduct, have given the impression to others that the statement is true. The decision
in this case by the NSW supreme court also highlights the importance of a person in
business notifying all relevant parties when a change of ownership takes place if they
wish to minimize the risk of an agency by estoppel being created as occurred here.
Panorama Developments Ltd v Fidelis Furnishings Fabrics Apparent:
Secretary had hired cars from hire a car company. Secretary said he was doing it on behalf of
the company. Hire company refused to pay, saying there was no actual implied authority for the
secretary to rent the cars.
Issue-> would a reasonable a person In the position of the car company view the secretary as
having authority to do things, like hiring a car, on behalf of the company?
Principle-> A outsider would view the secretary as having the authority to rent the car as it is
reasonable to assume it falls within their scope of authority. Look at the persons position and the
task being performed and ask: would a reasonable person see this as within that persons
authority?
Step 5: Duties of the Agent
1. The agent must follow the principals instructions
The agent must follow the lawful instructions of the principal. Failure to do so will result in
the agent being in breach of contract, leaving the agent open to being sued for any losses that
may arise.
2. The agent must act in person
Delegation is not possible where a personal confidence or skill is required by the agent
Where the agent has agreed to carry out the task and is to be paid for doing so, failure to follow
the principals instructions could result in agent being sued for damages.
There are some exceptions to the rule against delegation (As duty to act in person):
1) A can delegate its power if A has express or implied authority to delegate, such as
by professional or trade usage, or by legislation
2) A can delegate administrative things which do not involve any special skill or
discretion by A.
3) A may be able to delegate if there is necessity.
Where the instructions are vague or ambiguous, the agent wont be liable if their actions are
reasonable, nor will any liability be incurred for failure to carry out an illegal contract.
John McCann & Co v Pow
Pow appointed a firm of real estate agents to sell his flat. Without Pows knowledge or consent,
the agents gave details to a sub agent, who subsequently sold the property.
ISSUE: Were McCann & Co, who were instrumental in arranging the sale, entitled to
commission?
DECISION: The English Court of Appeal held that personal skill and competence cannot be
delegated. Thus, McCann & Co were not entitled to commission.
Comment: Delegation is not possible where a personal confidence or skill is required of
the agent.
3. The agent must exercise due care, skill and diligence.
The standard of care expected of an agent will vary according to whether the agent is
providing the skill gratuitously or for payment.
Gratuitous Service Where the agent provides their services free, they are expected to
exercise such care and skill as they actually possess and would exercise in their
own affairs, unless they hold themselves out as having a special expertise for the
performance of a specific undertaking.
a. Where the agent has a special expertise, a higher standard is expected,
if the agent wishes to avoid being liable for negligence.
Paid Service Where the agent charges a fee for their services, they are expected to
exercise such care, skill and diligence as is usually or necessary in the class of
business undertaken by the agent.
Mitor Investments Pty v General Accident Fire
A client instructed an insurance broker to obtain unqualified insurance cover against damage
from storm or flood. The policy that the broker obtained didn't cover flood caused by the sea.
The clients property was subsequently damaged by flooding by the sea as a result of a cyclone.
ISSUE: Is the broker liable for the clients loss because he failed to check the risks covered?
DECISION: The broker was held liable by the Supreme Court of WA for the loss suffered by the
client because of the failure to exercise reasonable care and skill when carrying out the clients
instructions.
Comment: Where an agent is paid for their services they must exercise the standard of
care, skill and diligence usually exercised in the agents class of business.
4. The agent must act in the principals interest
An agent is under a duty to act in the principals interests.
This duty arises from the fact that an agent stands in a fiduciary relationship with
the principal.
Therefore, the agent must act in such a way that there wont be a conflict of
interest with duty.
Acting in Prs interest has at least two aspects: (1) no conflict of duty, and (2) no secret profit.
Hewson v Sydney Stock Exchange Possible to carry on as a share trader and stockbroker.
Agency is a fiduciary relationship. Heavy obligation to not have a personal interest. Traded not
for their clients but in competition with them. Conflict of interest.
DECISION: The NSW Supreme Court was highly critical of such an arrangement because
agency is a fiduciary relationship and one that imposes a heavy obligation on the agent not to
promote personal interests in preference to those of the principal. In this type of situation the
agent is put into a position where their interest and duty will be in conflict, as they are entering
the market and trading not for their clients but in competition with them.
Comment: An agent must avoid an conflict of interest. Disclosure of any potential conflict
and acceptance of the situation by the principal will avoid the conflict.
Law v Law Partnership case-> W and J had a partnership. J bought out W for what W
thought was a fair price. Later W found out J had not disclosed some assets which undervalued
Ws buyout price. J had a duty to disclose the partnership assets.
ISSUE: Did James have a duty to disclose the full extent of the partnership assets?
DECISION: The British High Court in its Chancery Division held that the purchasing partner had
a duty to disclose the full extent of the partnership assets.
Comment: Because James had agreed to pay William an additional sum for the
undervaluation of the assets, it was not necessary for the court to set aside the contract.
DISCLOSUREThe test of what should be disclosed is what a reasonable person would
consider material in the ordinary course of business. If circumstances arise where a
disclosure should be made and it hasnt been, the transaction will be voidable at the
principals option.
5. The agent must maintain confidentiality of information
If an agent gains access to confidential information while employed by a principal, this
information should not be divulged to outsiders, not be used for the agents personal gain, either
during or after the termination of the agency relationship.
6. The agent must keep separate and proper accounts
An agent must be able to account for all property and money received on behalf of the principal.
7. The agent must not make secret profits
An agent must not make a secret profit that is, a profit that should have gone to the
principal. Where an agent has an interest in a contract, full disclosure should be made to the
principal.
Lunghi v Sinclair
L got real estate agent to sell land, which he wanted a minimum of $400. The agent sold the
land to his wife for 400 without doing much work. The land was resold by the wife for $1300.
Agent was bound to disclose the true price of the property. Full value should have been
disclosed to L.
DECISION: The WA Supreme Court held that an agent who has a direct or indirect interest in a
contract proposed by a principal should make full disclosure. It further held that Sinclar was
under a duty to disclose the true value of the property and that the profit made by Mrs Sinclar
was in fact a secret profit that should go back to the principal, Lunghi.
Comment: An agent is entitled only to the agreed or customary payment for services
performed. An agent must not make a secret profit.
An agent is entitled only to agreed or customary commission as payment for services that have
been performed, and to nothing else. All moneys and other property received by the agent must
be handed over to the principal, less any expenses that may have been incurred and any
commission or remuneration permitted by the contract. If the principal is aware of the agent
being paid an additional commission by a third party and sanctions it, no offence arises.
Step 7: Rights of Agent against Principal
1. Right to payment (Remuneration)
The principal must pay the agent remuneration fixed or implied by the agreement, plus a
necessary expenses incurred by the agent in the course of carrying out the contract. Otherwise
the agent is a gratuitous agent, though even gratuitous agents are entitled to reimbursement for
any expenses.
The agent must establish three facts before it can claim remuneration from the Pr:
1) That Pr had agreed to pay commission to A
2) That A had done what was required to earn the commission, and
3) That A had been properly appointed.
2. Right to indemnity and reimbursement
In general, an agent is entitled to be indemnified against any liabilities, and to be reimbursed for
any expenses incurred in the course of carrying out the principals instructions. However, the
agent loses the right to indemnity and reimbursement where the agents acts are not authorized
or ratified by the principal, the agent is in breach of a duty owed to the principal, or the loss is
due to the unlawful or negligent acts of the agent.
3. Right of lien
An agent is entitled to retain the goods of the principal until reimbursement of expenses and
commission has been received.

4. Right of stoppage in transit
Where an agent is personally responsible for the price of goods bought on the principals behalf,
the agent may be placed in the position of an unpaid seller if the principal were to become
insolvent. In such a case the agent may be able to exercise the sellers right of stoppage in
transit.
Step 8: Liabilities of Agents and Principals to 3rd Parties
Agency has two different contractual aspects:
1. The agent discloses the agency relationship and names the principal; or
2. The agent discloses the agency relationship but doesnt name the principal
The general rule in the latter case is that an agent cannot sue or be sued on a contract
between the principal and a third party. However, the position with regard to a 3rd party varies
according to the circumstances.
1. Disclosure of an agency relationship and naming of the principal
As a general rule where the agent contracts for a named principal, the agent is
completely discharged form the agreement and cannot incur either rights or liabilities.
Privity of contract exists between the principal and the 3rd party.
However, an agent will occur liability where:
They have executed a deed in their own name
Usage or custom makes them liable
The principal is non existent
They agree to be liable; or
They are in breach of warranty of authority by acting beyond the scope of their
actual or apparent authority.
2. Disclosure of an agency relationship but unnamed principal
If an agent makes a contract without naming the principal, to avoid being personally liable, the
agent must expressly disclose to the third party that an agency relationship exists.
Doctrine of Undisclosed Principal
If the agent contracts in their own name and conceals the existence of the agency
relationship, the third party wont know of the existence of the principal because the contract
will have only the agents name on it. If a dispute arises, the 3 rd party has the option of suing
either the agent or, if they discover the principals identity, the principal.
Limits to the doctrine of undisclosed principle:
1) Agent must be acting within authority: an undisclosed Pr can sue or be
sued on a L made on its behalf by A if A is acting within actual authority.
2) There must be evidence to show who is principle: if A enters into a contract
in As own name, evidence may be admissible to show the identity of the
real Pr so that real Pr can sue or be sued.
Humble v Hunter
A (the son) signed a contract to hire a ship (charter party) as the owner (the principle). The
undisclosed Pr (his mother, the real owner of the ship) could not sue the hirer of the ship (TP) on
the A/TP contract.
3) The contract does not exclude the possibility of an undisclosed principle:
the rights of an undisclosed Pr to sue and be sued may be excluded if they
clash with the terms of the contract (ex- if the K involves something
personal to A)
Said v Butt
Mr Said was banned from the theatre. He asked a friend (A) to buy a ticket for him (Pr) in As
name. Pr was refused admission the theatre and Pr sued the managing director for not letting
him in. Actions by Pr against TP failed. The identity of Pr was important and the objection to Pr
was personal. As Prs identity had not been disclosed, there was no contract and the doctrine of
the undisclosed principal did not let undisclosed PR sue TP.
4) Defenses for the third party: if sued, the TP can use any defenses against
undisclosed Pr that TP could use against A (ex- TP could argue that As
conduct was misleading or deceptive under s18 ACL)
5) The TP must act in a reasonable time
6) If the undisclosed Pr intervenes and sues TP, A cannot sue or continue in
any legal action that A may have commenced
7) Agent must have contract as an agent
Liability of principal and agent in TORT
Agents must ensure that they act within the scope of their actual or apparent authority if they
want to avoid liability for:
1. Breach of warranty or authority, or
2. Any TORTS they commit.
The principal will be liable to 3rd parties for any tort committed by an agent if the agent has
acted within the scope of the agents actual or apparent authority or employment, whether 2. Operation of Law
or not the tort was committed for the benefit of the principal. An agency may be legally terminated by any of the means outlined below:
Llyod v Grace, Smith & Co Grace, Smith & Co, a firm of solicitors, employed a managing A. Legal incapacityrefers to death or mental incapacity where either Pr or A are not able to
clerk, Lloyd, to conduct the conveyancing business of the firm. Lloyd fraudulently included a contract personally
client to sign some documents that she was told were necessary for the completion of a
transaction but were in fact a conveyance of the clients property to himself. B. Illegality Agency can be ended through illegality of subject matter
ISSUE: Was the firm liable for the unauthorized actions of its clerk?
DECISION: The House of Lords held that the firm was liable for the fraud of its managing clerk, C. Death Legislation in all states provides that where the agent is acting in good faith under
as the fraud was committed within the scope of his apparent authority. the scope of a power of attorney, any acts done after the death of the principal, but before
notice of death reaches the agent, are valid and the agent wont be held liable.
COMMENT: Contrast this case with Director of Posts and Telegraphs v Abbot.
D. Dissolution of the company if Pr or A is a corporation, dissolution of the corporation
Scope of Liability in TortIf the agent was engaged in a private venture outside the scope of terminates the agency, unless under an enduring or irrevocable power of attorney.
the agency relationship when the tort was committed, or the agent committed a tort wholly
outside the scope of their employment, the principal would be relieved of any liability. E. Bankruptcy In certain cases, bankruptcy of either the principal or the agent under the
provisions of the Bankruptcy Act 1996 (CTH) will terminate the agency agreement.
Breach of Warranty
Only a 3rd party can sue an agent for damages where there is a breach of warranty and F. FrustrationWhere it becomes impossible for the agent to carry out their obligations
authority. owing to the destruction of the subject natter, or by any event that makes the agency illegal
or impossible of performance, the agency agreement ceases.
If an agent expressly or impliedly represents that they acted with the authority of the
principal, the 3rd party acts on the basis of that the representation, the agent is taken to warrant PARTNERSHIPS
that the representation is true. Partnership Act 1981 (QLD)
Advantages Disadvantages
If it is untrue, the agent has committed a breach of warranty of authority. The 3 rd party can A minimum of formalities Unlimited liability
then sue the agent for damages to the extent of the actual loss suffered. The agent is liable The limit on the number of partners also
whether the act was done fraudulently or innocently, and even if the authority had been A low cost of formation
limits access to capital
terminated without the knowledge of the agent. A possible difficulty in selling your interest in
Easy to maintain and allows privacy
the business
To sue, TP must prove: A claimed to have authority; TP was induced to enter into the Provides access to capital resources of May need to have new member approved by
transaction because of this claim; and TP would not have entered the transaction otherwise. other partners existing partners
Sharking of skills and expertise Having to share management
Knight Frank v Aston Du Haney Partners can take a holiday
A made a contract with TP and had misrepresented the correct name of Pr in circumstances
Tax Advantages
where Pr was identified and Prs correct name could easily be checked. This was not a breach Section 115, Corporations Act The maximum number of people permitted in a
of warranty of authority by A it was a case of misidentification by A. A had warranted that he
partnership is 20.
was an agent but had not warranted the accuracy of Prs name. Formation of Partnership
Partnership is contractual in nature, hence all constituent elements of contract must be
Step 9: Termination of Agency present to create a valid partnership - all elements of agreement must be present to
The termination of the agency agreement extinguishes the agents actual authority to act create a valid partnership
on the principals behalf. Should be in writing (for validity) although partnership can be formed orally but this is
risky.
However, if the principal fails to give proper notice of the termination to a 3rd party, the Essential factors must be in writing:
agent still has apparent authority to bind the principal to a contract with a 3rd party who is not o Details of partners
aware of the termination. o Tails of the partnership business (nature/purpose of partnership, duration)
The contract would be enforceable against the principal, and the principals only recourse would o Financial details (how profits/losses are to be shared)
then be to sue the agent for damages by the unauthorized contract. o Details of authority/responsibilities of partners (share of management of business
to be exercised by each partner)
1. Acts of the Parties o Details on how changes in partners will be dealt with (provisions on
An agency agreement may be terminated by the parties by any of the means outlined admission/withdrawal of partners)
below: o Details on how partnership will be dissolved AND how disputes will be settle
A. Mutual Agreement While the agreement between the principal and the agent is still in
force, they may mutually agree to its termination. Elements of a Partnership
B. Revocation of the agents Authority Revocation can be done at any time by the DefintionA partnership is defined as the relationship that exists between persons carrying
principal without the agents consent, even though the work of the agent may not be on a business in common with a view to making profit. This can be broken up into 3 elements:
completed. This could lead to a breach of contract and the agent bringing an action for 1. Carrying on a business
wrongful dismissal. Where the principal does revoke an agents authority, third 2. Carrying on a business in common; and
parties should be notified by the principal to avoid any problems arising from an 3. Carrying on a business with a view to making a profit.
apparent agency. s5, Partnership Act 1981Meaning of partnership
C. The agent may withdraw from the agreement This may be done at anytime, provided (1) Partnership is the relation, which subsists between persons carrying on a business in
that the agent makes good any loss that the principal may suffer, but the agent isnt liable common with a view of profit.
for any loss where the agency is a gratuitous one.
D. Dismissal A can be dismissed for breaches, such as accepting an illegal secret (1A) Partnership includes an incorporated limited partnership.
commission
E. Completion of the performance of K Where the agent is appointed for a specific (2) However, the relation between members of any company or association that is
purpose or act and that purpose or act has been completed, the agency agreement will be (a) incorporated under the Corporations Act; or
terminated by performance. (b) formed or incorporated by or in pursuance of any other Act of
F. Time Limit If there is a time limit involved in the agency agreement. If the agreement is Parliament or letters patent, or Royal Charter;
for 7 days, then after 7 days times up. is not a partnership within the meaning of this Act.
 (1) Carrying on a Business Acts of partners done in the usual course of business binds the firm and the partners all agents course of the
It can be difficult to determine whether an association of persons carrying on a business in of each other s8(1) partnership business.
common is a partnership, a joint venture or a syndicate. However, if it can be determined from
the intention and actions of the parties that the venture is an isolated transaction, as distinct Overlap between partnership and agency If the partners are sued
from a single undertaking, then it wont constitute carrying on a business and wont be treated as o Exception to this general principle = where the partner has no authority to act for the firm jointly, the partnership
a partnership. in the particular matter AND the other person knows this/has reason to believe they are pays.
Smith v Anderson not a partner s8(1)(a) & (b)
A trust was formed to purchase shares and debentures in a number of companies. Smith and It is very difficult for 3rd parties to know the limitations placed on the authority of the
more than 20 others were the holders of trust certificates. Each trust holder had the right to partners. This authority could be actual, ostensible or implied: CONTRACT (S12)
choose the trustees, who had restricted powers of management. s12 Partnership Act 1981
(1) Actual AuthorityIf a partner has actual authority, the other partners are bound by the Liability of partners
ISSUE: Was the business structure, which was called a trust, a partnership? partners acts. Every partner is an agent of the firm for the purposes of the partnership 1. Every partner in a firm, other than an incorporated limited partnership, is liable jointly
DECISION: The English Court of Appeal found that the trust was not a partnership. There was business because the partners operate a business in common. with the other partners for all debts and obligations of the firm incurred while a partner,
no association for the purpose of carrying on a business because there was no repetition (2) Ostensible Authority arises where the first limb, that is, the question of actual and, if the partner is an individual, after the partners death the partners estate is also
of acts. authority is lacking. If a third party is to succeed against a firm, they must establish: severally liable in a due course of administration for those debts and obligations, so far
as they remain unsatisfied, but subject to the prior payment of the partners separate
Comment: An isolated act or undertaking, even where it is entered into with a view to making a 1. The particular partner was acting within the scope of the business of the kind debts.
profit, wont necessarily constitute carrying on a business, unless there is some intention of carried on by the firm, this is a question of fact in each case. 2. Every general partner in an incorporated limited partnership is liable jointly with the
repeating the act or undertaking. 2. The transaction was carried out in the usual way, if the transaction is carried out in incorporated limited partnership for all debts and obligations of the partnership incurred
an unusual manner, that should alert the 3 rd party that perhaps the partner may while the general partner is a general partner, and, if the general partner is an
(2) Carrying on a Business in Common not have the authority to bind the other members of the firm. individual, after the general partners death the general partners estate is also severally
3. They knew or reasonably believed that the partner was a partner; and liable in a due course of administration for those debts or obligations so far as they
The business must be operated by, or on behalf of, all the partners. It is not necessary for 4. They were not aware that the partner lacked authority to bind the firm. remain unsatisfied but subject to the prior payment of the partners separate debts.
all the partners to take an active part in the day-to-day running of a business. There must be 5. 3. Despite subsection (2), a general partner in an incorporated limited partnership is only
both an agency relationship and mutual rights or obligations between the parties on whose If 3rd Party has knowledge of AuthorityIf the third party knows the particular partner has no liable for any debts or obligations of the incorporated limited partnership
behalf the business is being carried on. authority, or doesnt believe the person to be a partner, then no action will be taken against the a. to the extent the incorporated limited partnership is unable to satisfy the debts
firm. and obligations; or
Keith Spicer Ltd v Mansell
Tooth & Co v Laws b. to a greater extent provided by the partnership agreement.
Mansell agreed to go into the restaurant business with another person by forming a company.
Before incorporation, the other person ordered furniture for the new business from Spicer Ltd. Laws gave authority to Agents by allowing them to access the business while he was no longer
owner of the business Supplier not informed TORTS (s13-16)
When the furniture wasnt paid for, Spicer sought payment from Mansell.
CT Held: K entered into by alleged Agents was binding on L S13 Liability of the firm for wrongs
DECISION: The English Court of Appeal found that at the time the furniture was ordered there S14 Misapplication of money or property received for or in custody of the firm
was no evidence to suggest that there was a partnership, since Mansell and the other party had Summers v Solomon Q: did nephew have apparent authority to order jewelry? Summers had S15 Liability for wrongs joint and several
not been carrying on a business in common with a view to profit. previous dealings with nephew (agent); Soloman (uncle) paid for the jewelry in past failed to S16 Improper employment of trust property for partnership purposes
inform Summers that nephews employment was terminated
Comment: A partnership involves carrying on a business in common. Therefore, transactions CT Held: Summers was entitled to rely on apparent authority of nephew Soloman liable to Under torts must be shown that the act or omission was in the ordinary course of business,
entered into prior to the formation of the partnership will not be partnership transactions. pay or with authority of the partners difficult to satisfy 2 grounds:
1. Damage to TP must be within ordinary course of business
(3) Implied Authority Provided that nothing is the stated to the contrary in the partnership 2. If damage not within ordinary course all partners had to authorize
(3) With a view to profit
agreement, the powers of partners to bind the firm by their acts include: Polkinghorne v Holland-
1. The selling of property and good of the firm A firm of three solicitors gave advice to Polkinghorne. Holland, one of the senior partners, had
Partnerships must be associations formed for making a profit. The legislation is really intended
2. Purchasing goods usually used by the firm a son who was the third partner, had given advice to Polkinghorne, which in effect defrauded
to exclude such organizations as social and sporting clubs and cultural societies from the
3. Employing suitable staff her. P sued the whole firm by saying Hollands son had acted on behalf of the firm.
concept of partnership.
4. Receiving payments on behalf of the firm Issue-> Was the giving of financial advice outside the ordinary business of the law firm, such
that it could not be said that the partners would be jointly and severally liable?
Statutory Rules to determine if Partnership Exists
Liability of Partners Held->Firm was liable for Hollands son. It was apart of the solicitors business to give
competent advice on the means of obtaining accurate information as to the desirability of
Section 6, Partnership Act 1981 Rules for deciding existence of partnership
Personal Liability of Partners in CONTRACT and TORT investing money in a company in which the solicitor had an interest.
(1) Common Ownership of Property S6(1)(A) This rule re-emphasizes the essential
JOINT & SEVERAL Walker v European Electronics Pty Ltd->
ingredient of carrying on a business. T ISSUE JOINT LIABILITY
LIABILITY Partner was acting as a receiver of a company. Funds should have gone into the partnership
a. This does Not necessarily mean that the common owners are partners;
Type of Action Contract (s12) Tort trust account but they had been misappropriated by the partner.
b. Co-owners are NOT agents for each other and do NOT share profits/losses
P must sue all partners jointly. Issue-> Was the partner acting in the ordinary course of the partnerships business or acting
Those partners being sued can alone?
(2) Sharing of Gross ReturnsS6(1)(B) Sharing of gross returns doesnt of itself indicate P can sue partners jointly
Who can be sued? have remaining partners joined Held-> Acting as a receiver/manager formed part of the accounting firms business. Although it
a partnership, though sharing of net profits would be another matter. and severally.
as co-defendants. was fraudulent, the partners actions made all partners liable as it had formed a normal course
of the firms business.
(3) Sharing of ProfitsS61(C) In any given case, the word profits can mean what the
parties want it to mean and, while it does create a strong presumption that a partnership Yes. It is possible bring an
Can the P sue more action against each one of Being an Apparent Partner (s17)
exists, it is not conclusive evidence. No. Liability is joint. Holding Out s17 Partnership Act
than once? the partners until the
judgment is satisfied. Person who obtains credit for partnership by words/conduct; can become liable as an
The stated intention of the parties isnt importantIf the parties enter into a contract and apparent partner can be sued for other partners actions despite not being involved
say, It is hereby agreed that there is no partnership between us, the court will take notice of this. If suing severally, only the
As the partnership relationship is fundamentally contractual, each case must be taken on its partner being sued.
Who pays the damage Mercantile Credit Co v Garrod
own facts. The partnership
if the P wins? G was partners in a garage with P agreement that buying/selling cars not part of business
If jointly, all the partners.
P sold a car without Gs authority to MC MC discovered the fraud; sued for recovery of
Intention & Conduct of the PartiesThis mean that' the courts will look not only at what the
If a partner is sued money from business
parties must be taken to have intended, but also at their conduct towards each other CT Held: selling cars was normal business practice within scope of business G liable
while carrying on the business. Thus, a relationship can be declared a partnership even If a partner pays the severally, they may be
Indemnity judgment, they can recover able to recover from (despite being innocent) bc P had ostensible authority.
though this is contrary to the intentions of the parties.
a proportion from others others if the tort was
PartnershipRelationship to Outsiders committed I the ordinary
Section 8, Partnership Act 1981Power of partner to bind the firm
 Liability of Changing Partners (s20,39) H/E if the side-business is completely different from that of the partnership, then the Each state requires that the limited partnership be registered
S20 Liabilities of incoming and outgoing partners partner will only be accountable for any profits. Advantages
o Gained from the use of partnership property in the new business; OR - Simplicity
Liability after Retirement Specific notice of requirement should be given to all persons o For information gained from acting as a partner - Absence of a max number of limited partners
dealing with the firm retirement does not automatically relieve the retiring partner from liability Rochwerg v Truster - Achievement of limited liability of a limited partner without need to form a limited liability
for partnership debts (during time with partnership) s20(3) issue: did R have to account to fellow partners for benefits received under his directorship at Partnerships Trading Under a Business Name
Liability of Incoming Partner general rule: new partner not liable for past debts of the firm subsidiary company When partners trade under a name other than or more than one containing the partners
s20(1) may assume liability for debts/obligations as condition of entering the partnership. CT Held: benefits R received had to be disclosed his directorship was a position affecting the surnames and initial the business name legislation requires that the business name be
partnership all information should have been disclosed registered
s39 Rights of persons dealing with firm against apparent members of firm Relationships that look like a Partnership (But are not)
1. If a person deals with a firm after a change in its constitution the person is entitled Partnership Property Remember on the facts just because the parties call themselves a partnership or something
to treat all apparent members of the old firm as still being members of the firm s23; s24 Partnership Act 1891 else, doesnt mean they actually are. Look to the substance of the arrangement.
until the person has notice of the change. Property used for purpose of partnership wont necessarily become partnership property can (1) Co-ownership
2. An advertisement in the gazette is notice to persons who have not had dealings be separate property of one or some of the partners. Partnership may include co-ownership but the reverse is not true
with the firm before the date of the dissolution or change so advertised. Whether property used in partnership becomes part or partnership or remains w/ Partnership is the result of an agreement, while co-ownership may not be (eg; ownership
3. The estate of a partner who dies or who becomes insolvent, or of a partner who, individual partner = Q of Fact by gift or inheritance)
not having been known to the person dealing with the firm to be a partner, retires can be determined by express terms of partnership agreement OR inferences Partner = agent of co-partners, while a co-owner is not an agent of other co-owners
from the firm, is not liable for partnership debts contracted after the date of the from way parties have dealt w/ property during the partnership (each co-owner can sell their share in a business w/o affecting the rights of the other
death, insolvency, or retirement respectively. owners)
Dissolution of Partnerships A partner can NOT transfer their share of the partnership w/o the permission of the other
Rights of Each Partner (s27, 28) Dissolution can occur in by the following: partners VS co-owner can transfer their share w/o needing to obtain permission of other
Action by the Partners partners
S27 Rights of Each Partner s35 Partnership Act Co-ownership does not involve carrying on a business with the aim to make profit
a) Equal share in profits and loss - Partnership expires at end of fixed term (2) Joint-tenants (JT)
b) Indemnity (if actions of one partner has attracted legal process, than the offending - If fixed term expires and partnership business continues partnership continues at will s30 JTs have separate rights between themselves, but are in the position of a single-owner
partner holds right to an indemnity from their co-partner) - If entered for single undertaking at termination of undertaking vs the rest of the world. 2 principle features of JT =
c) Interest on advances (a partner is entitled to interest on loans to the firm) - If entered into for undefined time by partner giving notice Right of survivorship -> on death of one JT, any interest in property passes to the other
d) Interest on capital (no partner is entitled to interest on their capital until net profit has Operation of Law JTs. This process continues until there is only 1 survivor who holds the property as sole
been determined) s36 Partnership Act owner
e) Management of the business (a right of every partner) - Partnership may be dissolved at the option of other partners on the death or bankruptcy of a four unities of possession, interest, title, and time. All JTs must be holders of an identical
f) Wages (a partner cannot claim wages for what they are already bound to do partner legal/equitable interest in property in equal parts, that has been created at the same time,
g) Introduction of new partners (consent of all existing partners needed to introduce new Illegality giving each JT entitlement to possession of the entire property
partners) s37 Partnership Act (3) Tenants in Common
h) Disputes - Partnership automatically dissolved: if event renders purpose of partnership illegal or against Have unity of possession BUT not necessarily the other 3 unities of interest, title and time
a. Day-to-day affairs of partnership business = only need majority of partners public policy Size of each tenants share is fixed and not affected by death of another tenant
support By the Court Each tenant can dispose of their undivided share by will as they wish.
b. Affair relevant to fundamental nature of the partnership = (eg; new member) s38 Partnership Act (4) Joint Ventures (JV)
need support from all partners - Partnership can be dissolved for following circumstances: insanity; permanent incapacity; guilty JV type of business structure usually used to undertake a specific commercial activity for
i) Access to books, to be kept at place of business of the partnership, or the principal conduct in opinion of the CT detrimental to interests of the business; willful/persistent breach of joint profit
place if more than 1. partnership agreement; when partnership is carried on only a loss; any circumstance in the Can usually be distinguished from partnership on the following factors:
opinion of the CT that renders it equitable to have the partnership dissolved o Ad-hoc undertaking / for a specific time or task
s28 Expulsion of partner Consequences of Dissolution o Separate venture for each of the parties
A majority of the partners cant expel a partner unless a power to do so has been conferred by s42 Partnership Act o Liability is individual
express agreement between the partners. - Each partner entitled to proportionate return of their contribution to capital before distribution of o Profits received separately, and invoices usually issued separately / paid
Even if the power to expel is included, it must be exercised in good faith. the remaining assets, unless the partnership agreement contains an express term to the individually
contrary. o Partners can dispose of interest in JV w/o need to assign.
Duties of each Partner H/E where one partner becomes insolvent, apply rule from Garner v Murray Why distinguishing between JV and partnership is important?
o Where there are o b/c if relationship is a JV, it will not be covered by law of Partnerships
Render True Accounts (1) 3 or more partners who have contributed capital unequally but shared profits and o particularly parties will not be agents for each other NOR owe fiduciary duties to
s31 keep accurate accounts of all their dealings on behalf of the term; supply full info to partners losses equally; and ( one another
(anything affecting partnership (2) one partner becomes insolvent on dissolution.then.
Law v Law DistinguishingJoint Venture & Partnerships Case Law
Partners in a manufacturing business: WL took no active part in business JL bought out WL The solvent partners are required to contribute to the insolvents partner deficiency in the
WL believed price agreed to was fair; agreed partnership dissolved WL discovered JL had proportion of their own capital at the start of dissolution Business Model Joint Venture Partnership
not fully disclosed all company assets; sought to have contract set aside Length One-off project Continuing endeavor
CT Held: purchasing partner had a duty to disclose the full extent of partnership assets Limited Partnerships Parties are not partners, Partners in common,
Governance
governed by contract governed by Partnership Act.
Birtchnell v Equity Trustees, Executors and Agency Co Ltd Limited Partnership A partnership in which there at at least one general partner with Shares are determined in
B brothers entered into real estate business with Porter Porter died, B discovered that Porter unlimited liability and one or more partners whose liability for debts and obligations of the Parties get pre-determined
Share equity unless agreed
had been running profitable business on the side with one of the partnerships clients B sued partnership is limited. shares
otherwise
trustee company (executor) for share of side business profits Liability Individual liability Joint and several liability
CT Held: Porter had acted in breach of fiduciary duty by entering into side business his estate Alternative to running a business as a limited liability company formalities are simple in
Management of JV with a Partners are the managers,
had to account for profits received comparison to formalities required for the formation of a corporation and day to day operation
Agency Situation manager no agency and agents for each other and
requirement.
power to bind parties can bind each other
Account for Private Profits
Partnership comes to end if
s32 Partners must account to their co-partners for profits they make w/o their knowledge or Membership JV Parties can sell their the partners sell share. New
consent OR as a result of information gained during the course of the partnership Must have at least one general partner and one limited partner Dissolution
interest, if allowed by contract partnership agreement must
Management be concluded
Refrain from competition Role of general partner to manage the limited partnership subject to same rules as partners JV parties receive their share
s33 Where a partner sets up a business in competition w/ the partnership-firm profits will have to under partnership law face unlimited liability; jointly and severally liable for all debts/obligations Profits Partners share profits.
of the profits separately
be shared with the co-partners limited partners: similar to investors; do not normally participate in management
Registration
A joint venture can usually be distinguished from a partnership on the basis that: went into liquidation. Duke claimed damages from all of the Nelson Wheeler partners, not just Failure of a JV party to fulfil their obligation
1. It is usually an ad hoc undertaking for a specific time or task the Perth office. Nelson argued its organization was merely an association of separate and Advantages of JV
2. It is a separate venture for each of the parties distinct firms in different centeres of Australia. 1. Access to financial services, innovative managerial practices, new customers and
3. Assets in the joint venture are usually held as individual shares by the parties on new technologies.
the basis of tenants in common Issue-> Does a national association of professional practices constitute a partnership between 2. Competitive Goals Improved Competitiion
4. Liability is individual, rather than several the individual firms who are member of the national practice? 3. Control Joint venturers:
5. Profits are received separately, and invoice are usually issued separately and paid Are liable only for their own activities
individually; and Held-> Action against the Perth office succeeded but not against all of the partners across Are not responsible for the acts of co-venturers
6. The parties can dispose of their interest in the joint venture without the need to Australia. All members where not carrying on business in common in any relevant sense and Can control expenditure (more than partners)
assign, as may be the case under the Partnership act. therefore not in a partnership. It was not Nelson wheeler who provided the report but Nelson Can dispose of their share of the venture if they wish
wheeler Perth. Can maintain their privacy and keep their business secret from the other joint
Partnership v Joint VentureThe distinction between a partnership and a joint venture is venturers
significant because if the relationship is a joint venture, it wont be covered by the law of Use of the term partnership does not mean there is a partnership. Can transfer or assign their rights without the consent of the other joint venturers
partnerships, in particular, the parties wont be agents for each other, nor will they have a Can conduct separate business and can even compete in different areas with their
fiduciary duty towards each other. JOINT VENTURES - (JV) joint venturers
4. Economies of scale and advantages of size
Hospital Products Ltd v United States Surgical Corporation Joint Ventures The joint venture type of business structure is often used to undertake a 5. Fiduciary the joint venturers do not owe the same degree of confident and mutual
USSC had a patent in US but not Aus. USSC hired Blackman as a distributor for their products specific commercial activity for joint profit. It can be found in such areas as mining, property trust to their co-venturers as partners do, unless the JV is a partnership.
in Aus. B opened a company called to HPI to distribute the products. B decided to start making development, manufacturing, publishing, entertainment and share farming. a. JV may be able to compete with each other in some circumstances, Partner
knock off products to compete against USSC and terminated the relationship with USSC. B sold cannot compete with eachother.
the company which changed its name to HPL. USSC is alleging there was a breach of a Agreement where separate entities carry out a combined project or venture sharing the 6. Strategic Goals transfer of technology and skills
fiduciary relationship. profits from the venture. 7. Able to sue and be sued A joint venture cannot sue and be sued in the firm name,
ISSUE: Was there a fiduciary relationship between USSC and HPL, or between USSC and like partners can, and it is not a quasi-entity or firm. Joint venturers may not be jointly
Blackman? If there was, did HPIs conduct through Blackman put it in breach of the fiduciary DEFINITION: A joint venture is: liable to third parties. JV may claim contribution from the co-venturers.
duty to USSC? 1. an association of persons, natural or corporate, 8. TAX JV receive their income separately and are taxed separately, so each joint
DECISION: The High Court held 4:1 that there was no fiduciary relationship between the 2. who agree by contract to engage in some common, usually ad hoc undertaking venture can determine its own method of treating expenditure, valuing shares and
parties, so equitable relief was not available. The majority considered that because the 3. for joint profit by combining their respective resources, making tax choices.
relationship between the parties was a commercial arrangement entered into by parties at arms 4. without, however, forming a partnership in the legal sense (of creating that
length and on an equal footing, with the intention that both would gain a profit, it was status) or corporation; JOINT VENTURE & Limited Liability
inappropriate to find that a fiduciary relationship existed between them. 5. their agreement also provides for a community of interest among the joint Members of a JV are liable for all the debts of the JV, unless they have made an agreement ot
Comment: This is a leading case in Australia on fiduciaries in commercial relationships. It venturers; each of whom is both principal and agent as to the others within the the contrary. If the venture is a partnership, a debt of one partner can be enforced by the
is also an excellent illustration of the difficulties facing the courts in determining whether scope of the venture over which each venturer exercises some degree of control creditor against any of the other partners. The wealthy partner could be made the obvious deep
a particular relationship is of a fiduciary character. (Brian Pty Ltd v UDC Ltd) pocket target for the creditor.
Joint ventures are not agents and principals of each other, as partners are. If the venture
United Dominions Corporation LTD v Brian Pty Important Featurers qualifies as a partnership, each partner is an agent of all the others, and acts done in carrying
PL, UD and Brian entered into a joint venture for development of a shopping centre. SPL gave Parties in JV keep their separate identity on the normal way of business of the kind carried on by the firm will bind the partners.
UDC 3 mortgages in exchange for funds so development could take place. Brian was unaware JV involves separate ventures for each of the parties
the mortgages contained a priority claim for repayment, not just for the joint venture. Shopping Assets are owned separately and not together CORPORATIONS
center was sold for a profit and Brian received nothing. UDC claimed that all the profit went to Parties receive their share of the JV separately Advantages Disadvantages
them as per the clause in the mortgage to reduce the debts owing by SPL for two other projects, More expense and formality is involved in the
JV & Fiduciary Duty Members liability to contribute to the
which Brian was not involved. establishment, organization and administration
Are parties in JV under fiduciary duties? Possibly.it depends on: companys liabilities is limited
ISSUE: Was the agreement a joint venture or a partnership? If it was a partnership, was UDC of a company than of a partnership.
entitled to take all the proceeds? The form which the particular JV takes; and Transfer of shares is relatively simple or
DECISION: The High Court of Australia held that: Obligations which the JV have undertaken at least is only as difficult as any In many cases, audit is compulsory, although
The formal joint venture agreement entered into between the parties was in reality a UDC Ltd v Brian Pty Ltd restrictions imposed by the companys this may not necessarily be a disadvantage.
partnership, and furthermore the parties were in a fiduciary relationship even prior to this time JV may be analysed as a partnership even though the parties called it a JV. constitution
This placed all the parties under a fiduciary duty to refrain from obtaining any advantage If fiduciary obligation is imputed then this may entail a duty of disclosure The company is a separate legal entity,
without the knowledge and assent of the others over common interest. enjoying perpetual succession. Its
As Brian Pty LTD was unaware of the clause in the mortgage agreements giving UDC the property belongs to it, and not to its Members, as such, are not entitled to take part
right to take all the moneys from the sale of the shopping center and offset them against other When are JV used? members. Title to the companys assets in management.
debts it had with SPL, the clause was unenforceable. As a result, Brian Pty lTD was entitled Joint ventures are used for alliances in areas like entertainment agreements, industrial and need not be changed upon changes in
to a share of the profits. biotech research and development, mining syndicates, property developments and fear the companys membership.
shaming. Facilities for obtaining funds, either from The company is liable to pay income tax and
Joint ventures are especially important for doing business in some foreign countries, where local members or lenders, are greater the members are also liable to pay income tax
law may require Australian business to enter a joint venture with a local company to do especially with a public company, than on any distribution of the companys after tax
Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales Pty Ltd
business. This may lead to control and technology transfer going to the domestic partner. in a partnership. profits.
4mm had contracts with International Pop stars for performances in Aus. Volume sales agreed
to finance the contracts. 4mm assigned Volume sales had one half of the interest in the ks to Companies are well equipped for long
Establishing a JV
perform the ks as a joint venture. 4mm defaulted and Canny claimed a right to the takings a term and large undertakings
No statutory requirements for JV formation
secured creditor (equitable charge). Volume claimed they were a partner which would have A company may sue and be sued in its
JV Agreement governs conduct of JV Parties
priority over the later equitable charge. own name, whereas partners must sue
JV does not possess separate legal entity continuity presents problems
or be sued as individuals.
JV Parties are liable for all debts of the venture, unless an agreement to the
Issue-> Was the arrangement a partnership or a joint venture.
contrary is made
Control rests with manager or an operating committee What is a Company?
Held-> The arrangement was a partnership, notwithstanding they labelled it a Joint venture. An association of persons who, having satisfied the requirements of Corporations Act 2001
Expansion of JV parties to include new parties must be made through agreement
Merely calling something is does not make it that thing. Look at how the parties relate to each (Cth) for registration, are given a separate legal entity. Company is recognised by law as a
JV Parties can sell their business but this must be done under the existing
other. Look for shared liability. contract as well separate person with rights and obligations distinct from its shareholders and officers.
Termination of JV Main Features:
The Duke Group v Pilmer & Ors-> Period of joint venture expires Limited liability,
Accounting firms across Australia entered into a partnership called Nelson Wheelers. The Perth Grounds specified in the agreement occur perpetual existence,
NW office provided Kia Ora Gold Corp (DUKE) with info pertaining to take over price of WU JV unable to achieve goals tax benefits,
shares. Duke paid 112 million, however the company was only worth 5 million. The Duke group Losses resulting in continuation of the venture unviable shareholding
 Creation of a Company Macaura v Northern Assurance Co Mr Macaura assigned growing timber to his company regarded as acts in law done by the controller for the purpose of the kind of question of
Registration with ASIC (sectoral regulator) for $42,000 which was satisfied by the companys allotting 42,000 shares of $1 each to him and Australian income tax law with which the case was concerned.
Procedure - s117 (2) his nominees as fully paid. The company also became indebted to Macaura for $19,000.Fire
Type of company destroyed the timber. The insurance policy was in the name of Macaura. The court expressed the view that the viel might be lifted only if there was in fact or in law a
Proposed name HELD:The House of Lords sustained the insurers refusal to pay. The insured was Macaura but partnership between the companies in a group, or that there was a mere sham or faade in
Names and addresses of members, directors and company secretary he had no insurable interest in the timber which belonged to the company, a separate legal which the company was playing a role, or the company had been formed or used to enable a
Registered office and principal place of business address and details entity. The company could not have succeeded because it had not contracted with the insurer. legal or fiduciary obligation to be evaded or a fraud to be perpetrated.
Share details and information about issues of shares for non-cash consideration
Reservation of name Lifting the Corporate Veil (Common Law) (2) Fraud or Improper Conduct
Types of registered company
Company limited by shares There are common law cases in which the courts will effectively disregard a corporations Cases involving fraud or improper conduct the Courts are most likely to be persuaded to ignore
Company limited by guarantee separate legal personality. This has been referred to as looking behind the veil or mask of corporate personality in cases involving fraud or improper conduct.
Unlimited company incorporation.
No-liability company Courts in the past have been prepared to cognizance of such factors as Gilford Motor Co v Horne Horne, when he was employed by the plaintiff company, made a
(1) the identity of the shareholders or directors of a company, contract with it by which he promised not to solicit its customers in the event of his ceasing to be
Public & Proprietary Companies (2) purpose for which it was formed, and so employed. He left the plaintiffs employ and formed a company to carry on a similar business
Public v ProprietaryIn general, the public company is a company in which the public is or (3) whether it appears that the privilege of incorporation is being abused in forming a and he solicited the plaintiffs customers for his new company. The plaintiff sought an injunction
may become substantially interested, whereas the defining characteristic of the proprietary judgment as to whether to give strict effect to corporation personality. to restrain Horne and his company from continuing to solicit.
company is that it may not engage in any activity that would require the lodgement of a Horne argued that he was not in breach of his contract since it was his company which was
disclosure document. A proprietary company is a vehicle intended for use by a small number of (1) Agency Cases & Corporate Veil soliciting the plaintiffs customers.
people engaging in activities of an essentially private nature. Accordingly, a proprietary company In law, the agent acting within the scope of his authority is able to bind his principal to liability to
is not subject to the same degree of publicity and statutory regulation as a public company, and others. Therefore, when a court holds that the company is to be regarded as the agent of the HELD: The court rejected this argument and granted an injunction against both Horne and his
is entitled to certain privileges and exemptions not enjoyed by a public company. individual shareholder the companys activities are capable of generating obligations that bind company. The court rejected this argument and granted an injunction against both Horne and
its shareholders. his company, even though the latter was not a party to the original contract.
Proprietary Company Public Company
S113(3) Cannot engage in activities In this way, individual shareholders can be rendered legally responsible for the liabilities The current view in Australia appears to be in favor of upholding the significance of corporate
No such restriction applies of the company, despite the separate legal personality of the company.
requiring the lodging of a prospectus personality. Despite this view, there is pressure for recognition of special cases. A good
S113(1) Number of members limited to example occurred in Briggs v James Hardie & Co Pty.
Number of members not required or limited Smith, Stone & Knight Ltd v Birmingham Corporation A company lost its business
50
S114(1) Needs a minimum of only one because of a compulsory acquisition by a statutory authority. The effect of the law was that
S114(1)Minimum of only 1 member compensation would be offered to the person in occupation of the premises. The claim for Briggs v James Hardie & Co Pty Briggs was a 71 year old asbestos worker directly
member employed by Marlew Mining Pty, the shares of which company were, at the relevant time, owned
S201A(1) Needs a minimum of only S201A(2) Requires a minimum of 3 compensation was made, not by the company in occupation of the premises, but by another
by James Hardie & Co Pty Ltd and Selstan Ltd.
one director directors company which, in effect, owned all of its issued shares.
S293,294 If a small proprietary HELD:The resuming authority argued that the parent company could not succeed because the
Briggs argued that he should be allowed to continue the action against the corporate owners of
company need not have auditor or file loss had been sustained by its subsidiary a separate legal entity. Had corporate personality
been strictly applied, the court would not have been able to award compensation for removal his direct employer.
audited annual accounts with ASIC unless S292,301 Required to prepare formal
requested to do so by shareholders accounts and appoint an auditor from the premises.
To recognize that Briggs might be able to sue the shareholders of the company that employed
holding at least 5% of the voting shares of Similar applications of agency to resolve problems resulting from corporate personality can be
him would be to recognize to a limited extent a principle that corporate personality should not be
the company or ASIC. found in problems involving groups of companies. By treating the subsidiary company in a group
strictly applied in such cases.
of related companies as the agent of that parent, the law is effectively able to regard the group
S250NNot required to hold an annual S250N Required to convene an annual
general meeting general meeting as one unit for some purposes.
In Briggs application for leave to commence the action despite the expiry of the limitation period
S255 Can pass resolutions informally applicable, the court refused to rule out that a cause of action existed against James Hardie and
No relief from formal meeting requirements DHN Food Distributors v London Borough of Tower Hamlets DHN owned all the shares
without the need to convene a general Selstan. Briggs was therefore granted an extension of time to commence his action. We can
provided in two subsidiary companies, Bronze Investments and DHN food transport.
meeting. only speculate as to his likelihood of success in court, as the case was settled following the
outcome of this application.
Corporate Personality HELD: Referring to subsidiaries, They should not be treated separately so as to be defeated
on a technical point. They should not be deprived of the compensation which should justly be
The Briggs case demonstrates that a modern Australian court might be prepared to take
Corporation Personality The most fundamental legal feature of the modern registered payable for disturbance. The three companies should, for the present purposes, be treated as
a more flexible view of corporate personality where the person claiming against the
company is that it is treated as a legal person in its own right, distinct from the legal personalities one, and the parent company, DHN, should be treated as that one. So that DHN are entitled to
company can be regarded as having little or no choice in deciding whom to deal with.
of its members. Therefore, it becomes possible for the company, rather than its members, to claim compensation accordingly. It was not necessary for them to go through a conveyancing
own assets and owe liabilities. In this case, corporate personality is the basis from which the device to get it.
In addition to agency, the following classifications have been suggested of instances where the
principle of limited liability flows. courts have pierced the corporate veil:
Goff LJ stressed the peculiarity of the facts and said:
Salomon v A Salomon & Co The creditors failed on both points for the company was held to a) trusteeship the company holds certain property as trustee for its shareholders
be a distinct legal entity from S and therefore its business and debts were not those of its I would not at this juncture accept that in every case where one has a group of companies one is
b) ascertainment of residence the company is deemed to reside at the place where it
majority shareholder. It did not matter that S held almost all the shares, that he controlled the entitled to pierce the veil, but in this case the two subsidiaries were wholly owned, further they
is managed and controlled.
companys business, or that the other six shareholders were his family, because the Companies had no separate business operations whatsoever, thirdly, in my judgment, the nature of the
c) group enterprises the companies in a group of related companies are regarded as
act did not require an even spread of shareholding or of control. question involved is highly relevant, namely whether the owner of this business have been
one unit for some purposes.
disturbed in their possession and enjoyment of it.
d) ratification the company becomes bound by acts which were not authorized initially
This case is accepted as having firmly established the legal principle that corporations but which the shareholders have informally ratified.
are to be treated as people. This is confirmed by s124 of the Corporations Act. Dennis Wilcox Pty v FCT E acquired a dormant company, DW, and sold his shares in
another company to it following accounting advice. Five months later, in am arms length (3) Lifting the Veil of Incorporation by Statute
Ability for Corporation to enter contracts transaction, DW sold the shares for $199,877 more than it had paid for them. ss588(G-U) Impose a statutory duty on company directors to prevent their company from
The commissioner of taxation treated the profit as profit on resale and as incurring debts at a time when the company is insolvent. One consequence of breach of
Lee v Lees Air Farming Ltd All but one share in a company stood in Mr Lees name, that assessable income of DW. DW submitted, inter alia, that no beneficial interest in these provisions is that a company director might be held personally liable for debts of a
one share being held in trust for him; Lee was under contract in his one man company, with the the shares had ever passed from E to DW and that the acts formally done by DW company incurred after it becomes insolvent.
company itself. Upon his death, his wife sued for workers compensation. should be regarded as having been done by E. There was uncontradicted
HELD:The Privy council sustained the widows claim on the basis that the company was a evidence that E was the beneficial owner of all the issued shares in DW and was Directors duty to prevent insolvent trading
separate legal entity from the deceased. The application of this principle meant that it was its sole controlling director. 588G. Director's duty to prevent insolvent trading by company
possible for Lee in his capacity as agent for the company for Lees Air Farming to enter HELD: The Full court of Federal Court of Australia held, rejecting the submission, that these 588H. Defences
into a contract with Lee in his personal capacity. facts do not justify a conclusion that acts in law formally done by the company are to be Proceedings against directors
588J. On application for civil penalty order, Court may order compensation
588K. Criminal court may order compensation Management & Ownership (3) Retaining managerial discretion
588L. Enforcement of order under section 588J or 588K Partnership v Corporation In a partnership, every partner, in the absence of agreement to Where directors are granted managerial power of the company, it is a breach of their duties to
588M. Recovery of compensation for loss resulting from insolvent trading the contrary, is entitled to participate in the management of the business equally with the other fetter the future exercise of their discretion. Directors cannot therefore agree to vote in a
588N. Avoiding double recovery partners. Members of a company are in a completely different position. particular way at board meetings unless they have properly considered the question of the best
588P. Effect of sections 588J, 588K and 588M Membership does not carry with it any right to participate in management; that is normally the interests of the company as a whole
588Q. Certificates evidencing contravention province of the directors and their delegates. The members, by special resolution, amend the (Thorby v Goldberg).
Proceedings by creditor corporate constitution so as to restrict the directors powers, they may criticize the directors acts;
588R. Creditor may sue for compensation with liquidator's consent they may, at the next annual general meeting of the company, not re-elect all or some of the (4) Avoiding a Conflict of Interest Disclosing Personal Interests
588S. Creditor may give liquidator notice of intention to sue for compensation directors, and in the case of a public company, the replaceable rules will ensure that the general Directors of companies, like all other fiduciaries, are under a duty to ensure that they do not
588T. When creditor may sue for compensation without liquidator's consent meeting of shareholders retains the ability to remove directors even during the year. allow their personal interests to conflict with the interests of the person for whose benefit they
588U. Events preventing creditor from suing. are bound to act.
Separation between Ownership & ControlMembers are unable to restrain or interfere with
(4) Constitution of the Registered Company the independent exercise of managerial power by directors, the result is a separation between Thus directors are precluded from using their office to make a personal gain or from placing
the ownership of a company, which vests in the members, and the control of its assets, which themselves in a position where their duties to the company might conflict with other competing
Lodgment of the constitution with ASIC A public company must lodge a copy of its usually vests in the board of directors as a result of s198A. duties or interests.
constitution within 14 days of the adoption of that constitution.
The Replaceable Rules also protect the ability of directors to delegate to one or more of their The corporations act recognizes that directors are likely to have wide ranging interests
S136(2) provides that a company may modify or repeal its constitution or any provision own number and to others, authority to act on behalf of the company (s198D Delegation) and therefore includes a provision obliging directors of companies to disclose to the
thereof by special resolution A special resolution is defined in s9 as a resolution passed by at companys board any interest they have in company contracts : see s191.
least 75% of the votes cast by members entitled to vote on the resolution. Appointing directors Sections 201A, 201B, 204A
Gambotto v WCP Ltd Wholly owned subsidiaries of Industrial equity Limited held 99.7% Removal of directors Sections 201D, 203D s191, Material personal interest--director's duty to disclose Obliges a director of a
percent of the shars of WCP Ltd. A general meeting was concerned for the purpose of S203D provides that a director of a public company may be company who has a material personal interest in a matter that relates to the affairs of the
amending the articles of the company by inserting a provision which would enable the holder of removed at any time by an ordinary resolution of members of which company to give notice of the interest to the other directors. The notice must provide details of
90 percent or more of the companys issued shares to by compulsion any remaining shares at two months notice has been first given to the company. In essence, the nature and extent of the interest and its relation to the affairs of the company and must be
price of $1.80 per share. The notice of meeting was accompanied by a valuation of the shares at s254 requries that 28 days notice of a resolution to remove a given to a meeting of directors as soon as practicable.
$1.36 director must be given. That notice must also be given to the
HELD: Ultimately, The High Court ruled that the amendment could not take effect. In so ruling, director in question, who has a right to be heard on the resolution at s194 In the case of proprietary companies, s194 contains a replaceable rule which states that
the High Court articulated that a new test to be applied to amendments for the purpose of the meetings. so long as a director gives the notice required by s191, the company cannot avoid the
expropriating a minority interest: such amendments will be valid laws only where: Persons excluded from acting as directors - Section 206B transaction merely because of the interest; the director may retain benefits under the transaction
(A) The power to amend the articles has been exercised for a proper purpose and Prohibition orders preventing persons from managing companies Section 206C, and can vote on matters relating to the interest. IN the case of public companies, the director
(B) The exercise of the power will not operate oppressively in relation to minority 206D, 206E, 206F, 1317E (various orders) may not attend a meeting at which the relevant matter is being considered, nor vote, unless
shareholders, this requires that all relevant information must be disclosed and that disclosure has been made and the other directors have passed a resolution to the effect that the
the price offered for the shares must be fair. Directors Duties (ss180-183) other directors are satisfied that the director with the interest ought not to be disqualified from
General Law voting or being present.
A majority of the judges on the court held that an expropriation could only be justified where it is Directors are subject to a general obligation to act in good faith. This broad standard can be
reasonably apprehended that the continued shareholding of the minority is detrimental to the broken down into several general propositions: (5) Exercising Due Care & Dilligence
company, its undertaking or the conduct of its affairs resulting in detriment to the interests of the The law simply required that a director is bound to take the reasonable care that an ordinary
existing shareholders generally and expropriation is a reasonable means of eliminating or (1) Acting Bona Fide in the best interests of the company as a whole man might be expected to take in the circumstances on his own behalf, RE: City Equitable Fire
mitigating that detriment. The duty to act bona fide in the interests of the company signifies not that directors decisions Insurance Co ltd.
must be correct or right in an absolute sense, but that their minds should be directed solely
CORPORATE FINANCE towards what they conceive to be for the benefit of the company as a whole. There is a degree However, that standard was held to vary depending on the skill and qualifications of the
Generally speaking, when a company needs to raise capital the choice is between borrowing the of judicial reference to the judgment rule contained in s180(2). individual director.
funds required or selling an interest in the company. Within each of these alternatives are further
choices. Harlowes Nominees Pty Ltd v Woodsie Oil Co NL In the City Equitable Case, Romer J said that a director need not exhibit in the performance of
Directors whom are vested the right and duty of deciding where the companys interests lie and his duties a greater degree of skill than may be reasonably expected from a person of his
Share Capital Loan Capital how they are to be served may be concerned with a wide range of practical considerations and knowledge and experience.
Shareholder becomes a member of the their judgment, if exercised in good faith and not for irrelevant purposes, is not open to review in Thus rather than impose a minimum standard, the law imposed a variable
company. As a result the shareholder may A creditor is not a member of the company the courts. standard that would be imposed on the basis of subjective criteria.
have voting rights in the company and will by virtue of lending money to it and o Directors must consider the interests of future members of the company and Statewide Tobacco Services Ltd v Morley A director sought to avoid liability for company
have enhanced rights within the company therefore has no voting rights in the creditors of the company. IN this way, the meaning of the company for purposes debts incurred while the company was insolvent on the basis that she was unaware of the
under the provisions of the Corporations company for the law is becoming more closely aligned with commercial expectations. companys financial position, having left such responsibility to her son, the active director.
Act. A director should not be entitled to hide behind ignorance of the companys
Darvall v North Sydney Brick & Tile affairs which is or his own making or, if not entirely of his own making, has been
A creditors income on an investment is
Shareholders income on the investment is In my view, it is proper to have regard to the interests of the members of the company, as well contributed to by his own failure to make further necessary inquiries.
provided in the form of interest payments,
provided in the form of dividends which as having regard to the interests of the company as a commercial entity. Indeed, it is proper also Daniels v Anderson directors were held to owe duties of care and skill a common law.
which are fixed by the terms of the loan
may be fixed or discretionary. to have regard to the interests of creditors of the company. I think it is proper to have regard Directors are subject to a duty under the general law to exercise reasonable care and skill. This
contract
to the interests of present and future members of the company, on the footing that it applies in addition to any statutory or equitable obligations.
Shareholders are entitled to the return of
Creditors are to be repaid prior to the would be continued as a going concern. The court focused on minimum responsibilities of directors to inform themselves
their capital on the winding up of the
shareholders in the event of a company reasonably by taking reasonable steps to place themselves in a position to guide
company, but then only after the creditors
winding up. (2) Acting for a proper purpose and monitor the management of the company.
have been paid.
In respect of any action taken by a director, that action can be challenged if it alleged that the This involves:
director acted for an improper purpose. Acquiring a rudimentary understanding of the business of the corporation
Simply described, a share in a company is a type of intangible property made up of the bundle
Continuing to keep informed about the activities of the corporation
of rights and obligations attaching to the share by virtue of the provisions of the companys If the power is held to have exercised for a power that is not within the range of permissible
articles or association and the general law. The share then is, in itself, property, which Maintaining familiarity with the financial status of the company by regular review of
purposes, then its exercise will be held to be invalid as being in breach of the fiduciary financial statements.
represents an interest in the assets of the underlying contract. obligations of the director.
Trevor v Whitworth The House of Lords held that the purchase by a company of its own HELD: The court of appeal concluded that where directors know, or should have known, any
Darvall v North Sydney Brick & Tile Co facts that would deny them the ability to rely on others, then continued reliance may lead to the
share was impliedly prohibited. The reason for this was that if companies were permitted to The NSW Court of Appeal went so far as to state that so long as the substantial purpose was
purchase their own shares, they might ultimately disperse all of their assets, including those imposition of liability.
a permissible one then the exercise of power would be valid, even if the issue of share was
representing their capital, to their shareholders, presumably at the expense of unsatisfied prompted by the desire to defeat and impending takeover.
creditors.
Percival v Wright Although the directors are obliged therefore to consider the interests of the
companys members, present and future, this does not mean that they owe any duties to
individual shareholders. The directors duties are owed to the company.
Directors Duties (Statutory ss180-190)
S180Care & Diligence
Requires an officer at all times to exercise the degree of care and diligence that a reasonable
person would exercise if they were a director or officer of a corporation in the corporations
circumstances; and occupied the office held by, and had the same responsibilities within the
corporation as the director or officer in question. The statute does not refer to skill and seems to
accept that directors will bring to their office widely different skills and degrees of skill.
Business judgment rule S180(2)
(3) A director or other officer of a corporation who makes a business judgment is taken to
meet the requirements of subsection (1), and their equivalent duties at common law and
in equity, in respect of the judgment if they:
(a) make the judgment in good faith for a proper purpose; and
(b) do not have a material personal interest in the subject matter of the
judgment; and
(c) inform themselves about the subject matter of the judgment to the extent
they reasonably believe to be appropriate; and
(d) rationally believe that the judgment is in the best interests of the
corporation.
The director's or officer's belief that the judgment is in the best interests of the corporation is a
rational one unless the belief is one that no reasonable person in their position would hold.
S181Good Faith
Requires an officer to act in good faith in the best interests of the corporation and for a proper
purpose. Contravention is an offence. Criminal liability for breach may be imposed under
s184(1) where a director or other officer of a corporation is reckless or intentionally dishonest
and fails to exercise his powers and discharge his duties in good faith in the interests of the
corporation or for a proper purpose.82Use of position
provides that an officer or employee, shall not make improper use of his position such officer or
employee, to gain, directly or indirectly, an advantage for himself or herself or for any other
person or to cause detriment to the corporation. This provision can be seen as a statutory
statement of the principle applied in Regal Ltd v Gulliver.
Cook v Deeks Directors are in breach of their duties if they divert a corporate opportunity to
the themselves.
S183Use of information
Prohibits any company officer or employee or former officer or former employee from making
improper use of information acquired by virtue of his position as such an officer or employee to
gain, directly or indirectly, an advantage for himself or for any other person or to cause detriment
to the corporation. Contravention is an offence. This provision adds to the general law which
applies to fiduciaries.
** This duty continues after the person stops being an officer or employee of the
corporation.
S1317E Declarations of contravention (ASIC)
1. If a Court is satisfied that a person has contravened a civil penalty provision, it must
make a declaration of contravention. The provisions specified in column 1 of the
following table are civil penalty provisions .
S184 Good faith, use of position and use of information--criminal offences
Good Faith
(1) A director or other officer of a corporation commits an offence if they:
(a) are reckless; or
(b) are intentionally dishonest;
and fail to exercise their powers and discharge their duties:
(c) in good faith in the best interests of the corporation; or
(d) for a proper purpose.
Use of Position
(2) A director, other officer or employee of a corporation commits an offence if they use
their position dishonestly:
(a) with the intention of directly or indirectly gaining an advantage for themselves,
or someone else, or causing detriment to the corporation; or
(b) recklessly as to whether the use may result in themselves or someone else
directly or indirectly gaining an advantage, or in causing detriment to the
corporation.
Use of Information
(3) A person who obtains information because they are, or have been, a director or other
officer or employee of a corporation commits an offence if they use the information
dishonestly:
(a) with the intention of directly or indirectly gaining an advantage for themselves,
or someone else, or causing detriment to the corporation; or
(b) recklessly as to whether the use may result in themselves or someone else
directly or indirectly gaining an advantage, or in causing detriment to the
corporation.
S185Interaction of S180-184 with other laws
The duties enumerated in the section are said to be in addition to any duties arising under the
general law.
ASIC v MacDonald NSW Supreme Court found directors of James Hardie Industries had
breached their duties of acre by representing, in the form of a press release, that corporate
restricting arrangements designed to quarantine the corporate groups liability for asbestos
related injuries that all liabilities would be adequately catered for.
Relieving Offending Directors & Penalties
The Corporations Act contains a general provision, s1318, which permits a court to
relieve officers from liability in any civil proceedings against them for negligence,
default, breach of trust or breach of duty, if it appears to the court that the officers acted
honestly and ought fairly to be excused.
The court or ASIC has the power to disqualify a person from managing a corporation.
The courts power to do this is found in S206C(1) and applies in circumstances
where a person has been declared (s1317e) to have contravened a civil
penalty provision.
S206C Court power of disqualification contravention of civil penalty.
(1) On application by ASIC, the Court may disqualify a person from managing corporations for
a period that the Court considers appropriate if:
(a) a declaration is made under:
(i) section 1317E (civil penalty provision) that the person has
contravened a corporation/scheme civil penalty provision; or
(b) the Court is satisfied that the disqualification is justified.
(2) In determining whether the disqualification is justified, the Court may have regard to:
(a) the person's conduct in relation to the management, business or property of any
corporation; and
(b) any other matters that the Court considers appropriate.
*** S199 Company constitution cannot be used to relieve offenders.
S1317G Pecuniary penalty orders(ASIC)
A court may order a person to pay the CTH a pecuniary penalty ($200,000)
S1317J Who may apply for a declaration or order
Application by ASIC
ASIC may apply for a declaration of contravention, a pecuniary penalty order or a compensation
order.
Application by corporation
The corporation, or the responsible entity for the registered scheme, may apply for a
compensation order.
Note: An application for a compensation order may be made whether or not a declaration
of contravention has been made under section 1317E.
Directors Duties to Creditors (s588G, H, J, K, M)
Limited liability and the position of creditors
One of the most important consequences of that separate legal personality is that the liability of
the shareholders for the debts of the company is limited to the amount, if any, unpaid on their
shares. It follows that creditors must take a substantial interest in the affairs of the company in
so far as they affect the likelihood that corporate debts will be repaid.
Duty of directors to consider the interests of creditors
There are circumstances where the directors of a company must consider the interests of the
creditors as part of their task of considering the interests of the company as a whole. What has
emerged is that the law now requires that directors consider the interests of the companys
creditors where the company is approaching insolvency (Nicholson v Permakraft).
The logic behind this change in the law appears to be the view that, as the company nears
insolvency, it is the capital provided by creditors that is at risk rather than that provided by the
members (Kinsela v Russel Kinsela Pty Ltd).
Directors must now take into account now only the interest of existing creditors, but those of
future creditors, when managing the affairs of insolvent companies (Jeffree v NCSC)
Statutory duties to creditors Sections 588G, J, K, M
Directors are under a statutory duty to prevent the company from trading whilst insolvent. Any
director who fails to prevent the company from incurring debts where there are reasonable
grounds for suspecting that it is insolvent is in breach of their duty as a director (s588G).
Directors who breach this duty are unable to avail themselves of the defences provided in
S588H. Directors who breach this duty and are unable to avail themselves of the defences
provided un S588H are liable to compensate the company for the amount of the loss or damage
suffered by unsecured creditors as a result of the companys insolvency in relation to any debts
incurred. (S588J, K, M)
S588G Directors duty to prevent insolvent trading by company
(1) This section applies if:
(a) a person is a director of a company at the time when the company incurs a debt;
and
(b) the company is insolvent at that time, or becomes insolvent by incurring that debt,
or by incurring at that time debts including that debt; and
(c) at that time, there are reasonable grounds for suspecting that the company is
insolvent, or would so become insolvent, as the case may be; and
(d) that time is at or after the commencement of this Act.
S558G(3)Criminal Offense
(2) A person commits an offence if:
(a) a company incurs a debt at a particular time; and
(aa) at that time, a person is a director of the company; and
(b) the company is insolvent at that time, or becomes insolvent by incurring that
debt, or by incurring at that time debts including that debt; and
(c) the person suspected at the time when the company incurred the debt that the
company was insolvent or would become insolvent as a result of incurring that
debt or other debts (as in paragraph (1)(b)); and
(d) the person's failure to prevent the company incurring the debt was dishonest.
s588H DEFENSES
The defenses provided in s588H apply where, at the time the debt is incurred:
1. The director had reasonable grounds to expect, and did expect, that the company
was solvent at the time and would remain so even if the relevant debt was
incurred. (S588H(2))
2. The director had reasonable grounds to believe, and did believe that a competent
subordinate was providing adequate information about the solvency of the
company and on the basis of that information the director expected that the
company was solvent and woud remain so even if the relevant debt were incurred.
(s588H(3))
3. The direct did not take part in the management of the company because illness or
some other good reasons. (s588H(4))
4. The director took all reasonable steps to prevent the company from incurring the
debt. (s588H(5)).
Penalties for breach of S588G
S588 J & K are initiated by ASIC and can be enforced under S588L by the court.
588J. On application for civil penalty order, Court may order compensation
(1) Where, on an application for a civil penalty order against a person in relation to a
contravention of subsection 588G(2), the Court is satisfied that:
(a) the person committed the contravention in relation to the incurring of a debt by
a company; and
(b) the debt is wholly or partly unsecured; and
(c) the person to whom the debt is owed has suffered loss or damage in relation to
the debt because of the company's insolvency;
 the Court may (whether or not it makes a pecuniary penalty order under section 1317G or an Franchisee benefits from the commercial goodwill of the Franchisors brand.
order under section 206C disqualifying a person from managing corporations) order the first- Franchisee can also gain experience in management and business modelling 3. 11 Franchisor to give information statement to prospective franchisee
mentioned person to pay to the company compensation equal to the amount of that loss or
damage. What is a franchise? (4) A franchisor must give a copy of the information statement set out in Annexure 2 to a
prospective franchisee.
588K. Criminal court may order compensation Corporations Act 2001 (Cth) s9: Definition of Franchise (5) The information statement must be set out in size 11 font and be contained on no more
If: franchise means an arrangement under which a person earns profits or income by exploiting a than 2 pages.
(a) a court finds a person guilty of an offence under subsection 588G(3) in relation to the right, conferred by the owner of the right, to use a trade mark or design or other intellectual (6) A copy of the information statement is to be given to a prospective franchisee as soon
incurring of a debt by a company; and property or the goodwill attached to it in connection with the supply of goods or services. An as practicable after the prospective franchisee formally applies or expresses an interest
(b) the court is satisfied that: arrangement is not a franchise if the person engages the owner of the right, or an associate of in acquiring a franchised business.
(i) the debt is wholly or partly unsecured; and the owner, to exploit the right on the persons behalf. (7) To avoid doubt, the requirements of this clause do not apply in relation to:
(ii) the person to whom the debt is owed has suffered loss or damage in relation (a) the renewal of a franchise agreement; or
to the debt because of the company's insolvency; Franchise Agreement (b) the extension of the term or scope of a franchise agreement.
The extent of franchise
the court may (whether or not it imposes a penalty) order the first-mentioned person to pay to What is being franchised, Obligations of the parties & Length of franchise The code requires that a franchisee must:
the company compensation equal to the amount of that loss or damage. Specific trademarks, logos (protection and marketing)
588M. Recovery of compensation for loss resulting from insolvent trading Territorial exclusions S10 Franchisee or prospective franchisee to give advice to franchisor before entering
(1) This section applies where: Payment arrangements into franchise agreement
(a) a person (in this section called the director ) has Upfront payment or royalty on profits
contravened subsection 588G(2) or (3) in relation to the incurring of a Minimum royalties and Currency of payment 1. The franchisor must not:
debt by a company; and Temporal effect on royalties a) enter into a franchise agreement; or
(b) the person (in this section called the creditor ) to whom the debt is owed Minimum performance parameters b) renew or transfer a franchise agreement; or
has suffered loss or damage in relation to the debt because of the Any competition restraints c) extend the term or scope of a franchise agreement; or
company's insolvency; and Interpretation/choice of law d) enter into an agreement to:
(c) the debt was wholly or partly unsecured when the loss or damage was Regulation in Australia I. enter into a franchise agreement; or(
suffered; and II. renew or transfer a franchise agreement; or
(d) the company is being wound up; Consumer and Competition Act 2010 III. extend the term or scope of a franchise agreement; or
Franchising Code is a mandatory code. Aims: e) receive a non-refundable payment (whether of money or of other valuable
whether or not: Provide sufficient information to the franchisee consideration) under a franchise agreement or an agreement to enter into a franchise
(e) the director has been convicted of an offence in relation to the Define key terms, provide for dispute settlement agreement;
contravention; or Applies to all franchise agreements in Australia
(f) a civil penalty order has been made against the director in relation to the Also applies where one of the parties is foreign. 2. unless the franchisor has received from the franchisee or prospective franchisee a
contravention. written statement that the franchisee or prospective franchisee has received, read
ACCC ensures compliance with the Code and had a reasonable opportunity to understand the disclosure document and this
(2) The company's liquidator may recover from the director, as a debt due to the company, If franchisor breaches the Code, ACCC may take action in addition to any civil claim by the code.
an amount equal to the amount of the loss or damage. franchisee
Important to note that Franchise Agreements are distinguished from other types of legal Franchisors Provides Franchisee with rights
(3) The creditor may, as provided in Subdivision B but not otherwise, recover from agreements on the following grounds:
the director, as a debt due to the creditor, an amount equal to the amount of the loss or Common system of marketing and business management (1) Initial obligations of the Franchisor (Clauses 8-11).
damage. Business operation is dependent on IP owned by the Franchisor C8Franchisor must main disclosure document
Payment by the Franchisee to the Franchisor for the initial fee C9 Franchisor to give documents to a franchisee or prospective franchisee
(4) Proceedings under this section may only be begun within 6 years after the beginning of (technical/services/royalty etc) C10 Franchisee or prospective franchisee to give advice to franchisor before
the winding up. entering into franchise agreement
RegulationKey Aspects of Franchising C11Franchisor to give information statement to prospective franchisee
COMPREHENSIVE LIST 1. Disclosure
Directors duty to prevent insolvent trading 2. Franchise agreements (2) Disclosure obligations under the Franchise Agreement (Clauses 13-17)
588G. Director's duty to prevent insolvent trading by company 3. Dispute resolution C13 Copy of Lease
588H. Defences 4. Mandatory obligation to act in good faith C14 Copy of other agreements
C15Copy of financial statements
Proceedings against directors Disclosure C16 Disclosure Document
588J. On application for civil penalty order, Court may order compensation C17Disclosure of materially relevant facts
588K. Criminal court may order compensation Competition and Consumer (Industry Codes- Franchising) Regulation 2014.
588L. Enforcement of order under section 588J or 588K (3) A franchisee may terminate a franchise agreement within 7 days after entering the
588M. Recovery of compensation for loss resulting from insolvent trading Franchisor must disclose: agreement, or paying any non-refundable money, whichever is earlier. If the franchisee
588N. Avoiding double recovery chooses to exercise their COOLING-OFF RIGHTS, they must be given a refund minus any
588P. Effect of sections 588J, 588K and 588M 1. S8 Franchisor must maintain a disclosure document reasonable expenses incurred by the franchisor within 14 days (Clause 26).
588Q. Certificates evidencing contravention Disclosure document to inform franchisee or prospective franchisee
Content and form of disclosure document (4) A franchisor is prohibited from INDUCING franchisees or prospective franchisees not
Proceedings by creditor Maintaining disclosure document to form an association with any other franchisees for a lawful purpose (Clause 33)
588R. Creditor may sue for compensation with liquidator's consent
588S. Creditor may give liquidator notice of intention to sue for compensation 2. S9 Franchisor to give documents to a franchisee or prospective franchisee (5) A franchise agreement must not contain any statement that releases the franchisor from
588T. When creditor may sue for compensation without liquidator's consent (1) A franchisor must give: general liability towards the franchisee (Clause 20).
588U. Events preventing creditor from suing a. a copy of this code; and
b. a copy of the disclosure document: (6) A franchise agreement must not contain any waiver of any verbal or written representation
FRANICHISES c. a copy of the franchise agreement, in the form in which it is to be executed; made by the franchisor under Clause 20 (3).
Franchising is a contract between tow independent business proprietors- a franchisor and to a prospective franchisee at least 14 days before the prospective franchisee:
franchisee who work for mutual benefit under a common brand and system. S20 Prohibition on release from liability etc.
d. enters into a franchise agreement or an agreement to enter into a franchise agreement; 1. A franchise agreement must not require a franchisee to sign:
Under a typical franchise arrangement, the expertise, knowledge, method of operation and/or or a. a general release of the franchisor from liability towards the franchisee; or
intellectual property rights are granted by a franchisor to a franchisee for a period of time. e. makes a non-refundable payment (whether of money or of other valuable consideration) b. a waiver of any verbal or written representation made by the franchisor.
WHY FRANCHISE? to the franchisor or an associate of the franchisor in connection with the proposed 2. However, subclause (1) does not prevent a franchisee from settling a claim against the
franchise agreement. franchisor after entering into a franchise agreement.
3. If a franchise agreement contains a general release or waiver in contravention of (2) Despite clauses 27 and 28, a franchisor may terminate a franchise agreement without Refusing to negotiate with franchisees matter in dispute and of concern to
subclause (1), the general release or waiver is of no effect, even if signed by the complying with either clause if, at the time of termination, the franchisor and the franchisees
franchisee. franchisee mutually agree to the agreements termination. Omitting franchisees names from some advertising material
Offering its own products from sale in franchisees territories; and
Breach & Termination Note: This clause does not give rise to a right of termination; such a right must be in the Refusing to provide current disclosure documents in response to written request
franchise agreement itself. under the Code
Clause 26 (Termination Cooling off period)
1. A franchisee may terminate an agreement (being either a franchise agreement or an Dispute Resolution Australian Competition and Consumer Commission v Seal-A-Fridge Pty Ltd
agreement to enter into a franchise agreement) within 7 days after the earlier of: Unconscionable conduct
a. entering into the agreement; and Every franchise agreement must set out a dispute handling procedure that complies with
b. making any payment (whether of money or of other valuable consideration) the Code. Part 4 of the Code. FACTS: SAF business replacing fridge seals, franchised business in other geographical areas
under the agreement. Any party to a franchise agreement may invoke the dispute resolution procedure. demanded weekly franchise fees from franchisees franchise agreements did not contemplate
2. Subclause (1) does not apply to: The Office of the Franchising Mediation Adviser (OFMA) provides mediators for dispute increases abused position of strength
a. the transfer or renewal of an existing franchise agreement; or resolution as per the dispute resolution procedure set out in the Code. CT Held: SAF conduct amounted to unconscionable conduct S51AC director of the company
b. the extension of the term or scope of an existing franchise agreement. involved in contraventions breached S51 AD failing to provide necessary documentation to
3. If the franchisee terminates an agreement under subclause (1), the franchisor must, Obligation to Act in Good Faith (s6) franchises Franchisor acted in bad faith; misrepresented to franchisees that increased fees
within 14 days, repay all payments (whether of money or of other valuable were justified
consideration) made by the franchisee to the franchisor under the agreement. Civil 6 Obligation to act in good faith
penalty: 300 penalty units. Master Education Services Pty Limited v Ketchell
4. However, the franchisor may deduct from the amount repaid under subclause (3) the (1) Each party to a franchise agreement must act towards another party with good faith, within Illegality in Franchise Agreements
franchisors reasonable expenses if the expenses or their method of calculation have the meaning of the unwritten law from time to time, in respect of any matter arising under
been set out in the agreement. or in relation to: FACTS: MES franchisor provided disclosure document; copy of code to franchisee did not
a. the agreement; and obtain statement from her under clause S11(1) (written statement affirm advice obtained) of
Clause 27 (Breach by Franchisee) b. this code. franchising code prior to entering the agreement linked to S51 AD TPA even if S11(1)
(1) This clause applies if: This is the obligation to act in good faith. breached onus on pursuing remedy on franchisee even if the franchisor has breached the
a. a franchisee breaches a franchise agreement; and( Civil penalty: 300 penalty units. code AGREEMENT STILL VALID
b. the franchisor proposes to terminate the franchise agreement. Parliament did not intend that the harsh consequence of the CL were to be available to
(2) The franchisor must: (2) The obligation to act in good faith also applies to a person who proposes to become a remedy a contravention of section 11 of the Code
a. give to the franchisee reasonable notice, in writing, that the franchisor proposes to party to a franchise agreement in respect of: Non-compliance w/ s11(1) of the Franchising Code of conduct would not automatically
terminate the franchise agreement because of the breach; and a. any dealing or dispute relating to the proposed agreement; and invalidate a franchise agreement
b. tell the franchisee what the franchisor requires to be done to remedy the breach; b. the negotiation of the proposed agreement; and THUS, the purpose of Part-IVB could not be to provide F/ors and F/ees w/ a simple way to
and c. this code. avoid their obligations under the Franchise Agreement by claiming the agreement is
c. allow the franchisee a reasonable time to remedy the breach. Matters to which a court may have regard unenforceable due to a minor breach of the Franchising Code AND would result in
Civil penalty: 300 penalty units. default of commitments of F/ee to 3rd parties (eg; loan from bank)
(3) Without limiting the matters to which a court may have regard for the purpose of
(3) For paragraph (2)(c), the franchisor does not have to allow more than 30 days. determining whether a party to a franchise agreement has contravened subclause (1), the
(4) If the breach is remedied in accordance with paragraphs (2)(b) and (c), the franchisor court may have regard to:
cannot terminate the franchise agreement because of that breach. (a) whether the party acted honestly and not arbitrarily; and
ASSOCIATIONS
(5) Part 4 (resolving disputes) applies in relation to a dispute arising from termination under (b) whether the party cooperated to achieve the purposes of the agreement.
this clause. Franchise agreement cannot limit or exclude the obligation Unincorporated Associations

Clause 28 (No Breach by Franchisee) (4) A franchise agreement must not contain a clause that limits or excludes the obligation to Step 1: DEFINITION of Association
(1) This clause applies if: act in good faith, and if it does, the clause is of no effect.
a. a franchisor terminates a franchise agreement: Smith v Anderson
i. in accordance with the agreement; and (5) A franchise agreement may not limit or exclude the obligation to act in good faith by An association includes any group of persons who have agreed to join together in
ii. before it expires; and applying, adopting or incorporating, with or without modification, the words of another pursuit of one or more common objects or purposes.
iii. without the consent of the franchisee; and document, as in force at a particular time or as in force from time to time, in the agreement. This obviously includes those entities such as companies and partnerships, which have
b. the franchisee has not breached the agreement. Other actions may be taken consistently with the obligation been formed for profit making purposes.
(2) For subparagraph (1)(a)(iii), a condition of a franchise agreement that a franchisor can However, the word association may also be used to describe those non profit
terminate the franchise agreement without the consent of the franchisee is not taken to (6) To avoid doubt, the obligation to act in good faith does not prevent a party to a franchise associations which have been formed to promote religious, educational, literary,
be consent. agreement, or a person who proposes to become such a party, from acting in his, her or its scientific, artistic and other similar community-wide benefits.
(3) Before terminating the franchise agreement, the franchisor must give reasonable written legitimate commercial interests.
notice of the proposed termination, and reasons for it, to the franchisee. (7) If a franchise agreement does not: Amos v BruntonIt is a voluntary combination of persons with some object or purpose in
(4) Part 4 (resolving disputes) applies in relation to a dispute arising from termination under a. give the franchisee an option to renew the agreement; or common
this clause. b. allow the franchisee to extend the agreement;
Bohemians Clubs v Acting Federal Commissioner Taxation A club is a voluntary
Clause 29 (Termination due to Special Circumstances) this does not mean that the franchisor has not acted in good faith in negotiating or giving association of persons who agree to maintain for their common personal benefit, and not
(1) Despite clauses 27 and 28, a franchisor may terminate a franchise agreement without effect to the agreement. for profit, an establishment the expenses of which are to be defrayed by contributions made
complying with either clause if the agreement gives the franchisor the right to terminate by these persons.
the agreement should the franchisee: Case Law
a. no longer hold a licence that the franchisee must hold to carry on the franchised Step 2: Is it non for profit?
business; or Australian Competition & Consumer Commission v Simply No-Knead A body that is formed or carried on any lawful object or purpose but not for pecuniary
b. become bankrupt, insolvent under administration or an externally-administered Meaning of unconscionable conduct gain to its members. (Section 4 (1) and (5) Associations Incorporations Act 1981)
body corporate; or
c. in the case of a franchisee that is a companybecome deregistered by the FACTS:SNK, number of franchising areas around Melbourne franchisees had issues with o S4(1) Can carry on profitable activities so long as they have charitable ends
Australian Securities and Investments Commission; or franchisors Franchisor acting in unconscionable manner; took actions such as delisting It is not the purpose of entering into trading transactions which is intended to disqualify: the
d. voluntarily abandon the franchised business or the franchise relationship; or franchisees from Telstra directories; not providing correct material disqualification is in the purpose of gaining by trading or otherwise pecuniary profit for the
e. be convicted of a serious offence; or CT Held: SNK liable to the franchisees. members. (Adamsons case)
f. operate the franchised business in a way that endangers public health or safety;
4 Whether association is formed or carried on for the purpose of financial gain for its
or SEE IF ON THE FACTS IF FRANCHISOR HAS DONE ONE OF THE FOLLOWING WHICH members
g. act fraudulently in connection with the operation of the franchised business. WAS FROM SNK:
Refusing to deliver franchised products to franchisees (1) An association is not formed or carried on for the purpose of financial gain for its
members merely because 1 or more of the following circumstances apply to it
 (a) the association makes a financial gain, but no part of the gain is divided among, or
received by, any of the association's members;
(b) the association is established to protect or regulate a trade, business, industry or
calling (the pursuit) engaged in by its members, or in which they are interested,
but the association does not itself engage or take part in the pursuit;
(c) the association provides its members with facilities or services;
(d) the association trades with its members, but the trade is ancillary to its principal
purpose;
(e) the association trades with the public, but the trade is ancillary to the association's
principal purpose and is not substantial when compared with its other activities;
(f) the association makes a financial gain from
(i) trading to which paragraph (d) or (e) applies; or
(ii) charging admission fees to displays, exhibitions, contests,
sporting fixtures or other occasions conducted to promote its
objects; or
(iii) charging subscriptions to further its objects; or
(iv) receiving donations to further its objects;
(g) the members of the association are entitled to divide the property of the
association between them on its dissolution;
(h) a member of the association
i. receives a salary as an employee or officer of the association; or
ii. makes a financial gain from the association to which a non-
member, acting instead of the member, would equally be entitled;
or
iii. receives a trophy or prize (other than money) from the
association because of a competition; or
iv. receives temporary assistance because of illness, injury or
bereavement or other financial hardship suffered by the member.
Step 3: Nature & Characteristics
Unincorporated non-profit association is not a legal entity and is in reality nothing
more than the aggregate of all its members at a particular time.
Conservative and Unionist Central Office v Burrell It was argued that there are six
characteristics which are either essential or normal characteristics of a non profit
association:
1. There must be members of the association
2. There must be a contract binding the members among themselves
3. There will normally be some constitutional arrangement for meetings of members
and for the appointment of committees and officers
4. A member will normally be free to join or leave the association at will
5. The association will normally continue in existence independently of any chance
that may occur in the composition of the association; and
6. There must as a matter of history have been a moment in time when a
number of persons combined or banded together to form the association.
Although points 3, 4 and 5 were not put forward as essential characteristics, the judge, agreed
that points 1, 2 and 6 were essential characteristics of unincorporated associations.
City of Gosnells v Roberts The club had no constitution and no rules. It did not
therefore have the essential characteristic of an unincorporated association, a composite
body of persons in a legal relationship giving rise to joint rights or obligations or mutual rights
and duties.
Objectives of an Association, ProfitsThe aims of the members of the associations
should not involve making a direct pecuniary profit for themselves. However, it would be
incorrect to say that such associations cannot be involved in profit making activities such as
raising money by holding fetes, selling magazines, badges, pens and so on. As long as the
associations objects are not focused upon profit for members, but are orientated to these
charitable ends, then the association will be regarded as a non-profit and will not be regulated.
Step 4: Formation of Unincorporated Not for Profit
Very little formality required remember it is not a separate legal entity
Most important consideration is mutual understanding of members
For practical reasons, members usually adopt a name for the association and a
constitution and/or set of rules or by-laws
Do not need a name to function
Must not choose a name to deceive or inflict pecuniary loss Earl Cowley
v Countess Cowley.
Re Thackrah Before one can find an association, there must be some rules either
written or oral, by which those who are supposed to be members of it are tied together. I
think that they would probably be written rules. There must be some constitution. An
unincorporated society has been referred to as a group of people defined and bound together by
rules and called by a distinctive name (Re Price).
Step 5: What are the effects of Association Rules?GENERAL PRESUMPTIONThere is a
general assumption that members of unincorporated associations do not intended to be
contractually bound by the associations rules.
The courts assume that there are no legal obligations between members unless
the rules actually make it clear that there are.
This means that in most situations members cannot maintain a court action based
upon an alleged breach of the rules.
Cameron v Hogan
Any rules that the association may have to regulate its affairs do not necessarily constitute an
enforceable contract between the members as they are presumed not to be legally binding.
the High Court held that the respondent was not entitled to the relief sought as he
had no proprietary right or interests in the property of the association as would
enable him to a declaration in respect of these matters and further, that the rules
of association did not operate to create enforceable contractual rights and
duties between members, or between executive officers and members. The
policy of the law is against interference in the affairs of voluntary associations
which do not confer upon members the civil rights susceptible of private
enjoyment.
Presumption does not apply where:
o Proprietary rights are involved or
o There is a clear indication that the rules are contractually binding.
Courts have intervened in disputes involving members of unincoporated non-profit
associations where those disputes involved:
Rendall Short v Grier Disputed proprietary rights
Redhead Grange Inc v Davidson Rules; where a clear indication exists that the rules
of association are legally binding and that there is an argument that there has been a
breach.
Harbottle Brown & Co Pty Ltd v Halstead Applications of public policy justifying
judicial intervention in the circumstances.
Tutty v Buckley The enforceability of unreasonable restraint of trade
Nagle v Fielden A denial by committee members of the association of a right to work in
a chosen field.
Murdison v Scottish Football Union Courts do not, as a general rule, interfere in the
internal affairs of voluntary associations, societies or clubs. Agreements to associate for
purposes of recreation, or an agreement to associate for scientific or philanthropic or social or
religious purposes, are not agreement which courts of law can enforce. Therefore, in order to
establish a civil wrong from the refusal to carry out such an agreement, if it can be inferred that
any such agreement was made, it is necessary to see that the pursuer has suffered some
practical injury, either in his reputation or in his property.
In such circumstances there can be no recovery from either the committee or the
members for a breach of contract. However, the court stated that if the affected member
asserts rights arising out of membership and these assertions are ignored, then those
ignoring the member may be liable in tort.
Step: 6 Contractual Liability
An unincorporated non profit association has no capacity to enter into a binding
contract.
Member Liability
RULE:Members of an association are not liable for contracts made on their behalf by
committee members or by agents of the committee. The rationale for this position was
developed in Freeman v McManus.
As the particular political organization had a large and fluctuating membership and
its members had no proprietary interests in its assets, the executive of the
organization could not bring its members into a contractual relation with third
parties.
Members Liability The fact that the members of a society have entrusted its affairs and
management to a committee does not give the committee authority to make contracts binding on
the members, especially in a case where the member have no interest in the societys funds.
Committee Member Liability
The position with respect to committee members is different. Where such committee members
acting within their authority have entered into a contract purportedly on behalf of the association,
they will generally be personally liable to the party with whom they made the contract.
Bradley Egg Farm v Clifford A poultry farmer had his poultry tested by an employee of the
Lancashire Utility Poultry Society, an unincorporated society which was formed to provide
various technical services to its members. The test was carried out negligently, with the result
that the poultry farmers fowls had to be destroyed. The farmer attempted to sue the employer,
that is the committee or the association, for breach of contract.
DECISION The majority of the Court of Appeal held that committee was liable as the
employer. Members of the particular society were not liable, as they had no rights or interests in
the funds or property of the society and because they had entrusted management to a
committee.
Carlton Cricket & Football Social Club v Joseph Gowans J distinguished from Bradley
Egg Farm on the basis the particular contract concerned a single act contemplated to take
place within a short period of time whereas in this case the contract was for a lease
expressed to last for 21 years.
HELD:The Supreme Court of Victoria held that there was no contract. The
company was purporting to enter into contractual relations with an association as
it was constituted from time to time, not with the members of the association at the
time the document was executed. This means that, as there was no legal entity in
existence, there could be no contract.
Re Falvey; Ex Parte Goddard The rules of an association may provide that members of the
committee shall be indemnified against any personal liability, or such an indemnity may be given
in respect of a particular transaction.
Bailey v Victorian Soccer Federation A football referee died during the course of a game.
His wife obtained an award of workers compensation against the VSF, an unincorporated
association of football clubs.
The Federation appealed to the Full Court of the Victoria Supreme Court upon the
ground that the Federation, being a legal non-entity, could not be sued in its own
name. The court rejected the appellants arguments on the basis that, for the
purpose of the particular Workers Compensation Act, unincorporated bodies had
a juridicial personality and were capable of being employers within the meaning
of that Act.
Step 7: Tortious Liability
The liability of members of an unincorporated non profit association in respect of tortious claims
is determined by general principles of law (Baker v Jones).
Membership of the association of the committee does not of itself create any special duty of
care, however, cases seem to suggest that it will be the committee members who will be liable
in respect of tortious claims.
Smith v Yarnold->
spectator at a greyhound race who fell due to a defective grandstand. The race was run by an
association so Smith sued Yarnold who was secretary of the association. Action was dismissed
as the association did not owe any special duty of care.
Hrybynyuk v Mazur-
member fell threw a roof. Brought an action against the president of the association saying that
he owed a duty of care in relation to the demolition of the work requested .
Appeal was dismissed-> a member of an unincorporated association does not
owe a duty of cares to others members of the association if that is the only
relationship between them. Following: Owen v Northampton BC
Generally, a member of an unincorporated association does not owe a duty of care to other
members if that is the only relationship between them (Owen v Northampton BC)
Duty of care will only arise on ordinary principles of negligence in particular circumstances
Step 8: Rights & Liabilities of Members
It has been said that the members of an unincorporated association are bound together for a
common purpose or purposes by mutual undertakings inter se to carry out such purpose or
purposes, and to comply with the mutual rights and obligations which are stated in the rules of
association (Conservative and Unionist Central Office v Burrell). This falls short of creating a
contractual relationship between members in most cases.
Ordinary Members As far as ordinary members are concerned, liability is usually limited to
the amount of their subscription or entrance fee.
Wise v Perpetual Trustee Co An unincorporated club was formed and a meeting of
members purported to appoint four trustees and authorize them to take up a lease of premises.
There no quorum a the meeting but the minutes of the particular meeting were confirmed at a
later meeting. The trustees signed a 10 year agreement for lease. The club was later dissolved
and the premises were sublet for the balance of the lease. Subsequently, the sub-lessee was
wound up without assets. After one trustee died, and since the trust had no assets, his estate
sought declarations that all of the people who were members after July 1988 should be required
to indemnify the estate. It was held by the court that the trustees were personally liable to
the lessor and that they were entitled to an indemnity from the ordinary members in the
circumstances.
The following are examples of situations where the courts have intervened in
the affairs of unincorporated associations.
1. Where the rules are contractually binding
If it can be inferred that the rules of an association are legal binding, and thus overcome the
effect of the application of the presumption arising from Cameron v Hogan, then any alleged
breach of those rules may warrant judicial intervention.
Plenty v Seventh Day Adventist Church of Port Pirie
Mr and Mrs Plenty were charged with breach of church discipline and, after an
internal hearing at which they did not appear, they were expelled from membership of
the church.
HELD: Followed Cameron v Hogan, in that the rules of the church did not clearly
appear to contemplate the creation of legal rights enforceable in a court of law.
Redhand Grange v Incorporated v Davidson
It was held by Brownie AJ that the particular constitution was drafted so as to create
legal relations between the proprietor members, and between them and the plaintiff.
A similar conclusion was reached in Islamic Council of South Australia v
Australian Federation of Islamic Councils Inc.
2. Where there is a dispute concerning property rights
It has been held that members may challenge a committees decision dealing with disposition of
property. It was in that context that the Camerons case was distinguished in Rednall Short v
Grier.
In Rendall Short it was held that members had a proprietary right in insisting that a committee
of management apply income and property of the association in the promotion of its objects.
3. Public policy justifying juridicial intervention
In Harbottle Brown & Co Pty Ltd v Halstead a particular clause in the rules of the Wine and
Spirits Merchants Association purported to oust the jurisdiction of the court to determine
disputes. The court held the committee could not take away the Ps right to bring the
action to court.
4. Interference with a right to work
In cases where unincorporated non profit associations have the power to regulate employment
in particular areas by granting licenses, courts will often intervene where a committee of the
association prevents a person from earning their livelihood.
Nagle v Fielden The P had trained racehorses for a number of years. The stewards of the
jockey club controlled horse racing. A license was needed in order to train horses. The P could
not get a license and she claimed it was because she was a woman.
No reasons were given for the refusal. However, her head lad had a license and the P claimed
that this pointed to the fact that she could not get a license because she was a woman and
showed that it had nothing to do with her capacity and fitness as a trainer. It was argued that
there need to be a contractual relationship between the plaintiff and the stewards and as there
was no such relationship, she could not succeed.
When an association, who have the governance of a trade, take it on themselves to license
persons to take part in it, then it is at least arguable that they are not at liberty to withdraw a
mans license and thus put him out of business without hearing him. Nor can they refuse a man a
license and thus prevent him from carrying on his business in their uncontrolled discretion. If
they reject him arbitrarily or capriciously, there is ground for thinking that the courts can
intervene.
5. Where the dispute involves an unreasonable restraint of trade
In employment cases involving unincorporated non profit associations, the Australian judiciary
has adopted a related approach to the position in the UK. This approach involves the
examination of whether the rules of the association amount to a restraint of trade.
Tutty v Buckley Tutty, a minor, signed a contract to play rugby league with an
unincorporated association. Certain rules of the association were objected to on the basis that
they were unreasonable restraints of trade in preventing Tutty form moving to another club. The
NSW court of appeal had to consider the applicability of the decision in Cameron v Hogan and
had to decide, therefore, whether the court should not interfere. In the circumstances of
professional football, the court said that the rules had contractual force and therefore they could
intervene. However, both the Court of Appeal and the High Court noted that in the
circumstances the issue of whether the rules had contractual force was irrelevant where there
was an unreasonable restraint of trade. Tuttys case was distinguished from from
Camerons case. Their honors found that the restraint was unreasonable. This view was
affirmed in the High Court. An unreasonable restraint of trade amounts to a breach of
public policy.
MANAGEMENT OF ASSOCIATIONS
There is no set management structure that must be adhered to, unincorporated non profit
associations are usually administered by a committee comprising certain members of the
association.
Ward v Etherington An association desired to build a clubhouse and entered into a
agreement with a firm of engineers for the latter to produce the necessary drawings and plans.
The firm of engineers was not paid, and subsequently sued for its fees.
One question was who, if anyone, was liable for the debt?
A second and related question flowing on form the first question and assuming that
liability was found to exist, was whether all committee members were liable
notwithstanding that some of the committee members were absent form the relevant
meeting where it was resolved to appoint the firm of engineers.
HELD: The court concluded that all the committee members were liable, because
they were committee members, and that it did not matter who was present or
absent at the meeting.
Helwig v Jones The meetings of unincorporated non profit associations must be convened
and held in the manner provided by the rules. Where there are no rules, the common law can be
used to regulate the calling of, and the conduct at meetings. In this regard the common law
makes provisions for reasonable notice of meeting, the contents of the notice, quorum,
the election of a chairperson and voting.
DISSOLUTION OF ASSOCIATION
Re Sick and Funeral Society of St Johns Sunday School It was decided to wind up a
society. Some members attempted to pay up subscriptions which they had not paid for 3 years
so as to share in the distribution. Membership of a club or association is primarily a matter of
contract. The members make their payments, and in return they become entitled to the benefits
of membership in accordance with the rules. The sums they pay cease to be their individual
property, and so cease to be subject to any concept of resulting trust. Instead, they become to
property, through the trustees of the club or association, of all the members for the time being,
including themselves. A member who, by death or otherwise, ceases to be a member thereby
ceases to be the part owner of any of the clubs property. Those who remain continue owners. If
then, dissolution ensues, there must be a division of the property of the club or association
among those alone who are the owners of that property, to the exclusion of the former
members.
INCORPORATED ASSOCIATIONS
Upon incorporation, the association becomes a body corporate enjoying legal entity status.
Must be Not-for-Profit: s 5(1)(c) Associations Incorporations Act 1981 (Qld) own risks and pitfalls.
Registration as an incorporated association gives an association legal entity status and gives it
members and in some cases, it committee members, limited liability. If registered as an
incorporated association, the word incorporated or the abbreviation INC will form part of the
associations name.
Advantages:
Association has separate legal entity (ss. 21 and 25):
Can own property in own name
Can sue and be sued in own name
Perpetuity
Members have limited liability (s27)
Disadvantages:
No major disadvantages (only disadvantage is that it is not-for-profit)
o Formalities depend on size
o Keeping of separate accounts, financial returns (cost)
What is Non for profit?
Associations Incorporations Act 1981 (Qld) s 5:
An association is not eligible for incorporation under this Act if the association
o is formed or carried on for the purpose of providing financial gain for its
members . . .
You will still be a non for profit even if you make money as long as those things used for
are for the salary of some of the members who are doing something for the association
(for the purposes of the running of the association) such as charging admission fees,
trading with the public, association might provide services or facilities for the members
s 5(1)(c) qualified by s 4:
o List of negatively framed factors
o Incorporated Associations
Procedure to Incorporate:
Choose name (must use Inc. s. 29 unless exempt under s. 33)
Design constitution and rules (Part 5 )
Lodge application
Appoint secretary
Provide registered address
On-going Requirements
Lodge details of any changes
Keep adequate accounts
Hold annual general meeting
Lodge annual financial return
Committee members must comply with duties
Rules form the terms of contract between association and members
Separate legal entity to its members (body corporate)
o Associations Incorporations Act 1981 (Qld) s 21
Must be not-for-profit
Popular with sporting and recreation clubs
International ExpansionAgency, Distributorship and Licensing
Once a company establishes an exporting presence beyond the occasional sale abroad, or it
sees growth potential, it may seek to deepen its presence abroad through the establishment of a
representative office in the targeted foreign market. As opportunities further develop, the
company may wish to expand its presence even further through the use of an agent or
distributor to further develop the business.
Advantages Disadvantages
Establishing a visible presence in a foreign Complicated Process
market
Potential for greater and faster growth Risky and not guaranteed
Increased marketing opportunities Uncertainty
Brand exposure
Licensing Another strategy to profit form a product or invention without the associated risks
involved with agency or distributorships is through licensing. That is, a company granting
another company a license to produce and or distribute its good. Companies often make use of
licensing to substantially raise revenue with very minimal effort. Of course, licensing carries its
Representative Office, Agency & Distributorship
Representative Office A company establishes a representative office in a foreign market to
promote its products or service and to provide information, for example, regarding government
and industry requirements, technical advice, and support to local importers and distributors. The
office does not take orders, sell the products or service or accept payments. In essence, a
representative office is the first step towards establishing a presence or a deeper presence in a
foreign country.
It is important to remember, regardless of the legal form intended by the parties, that
local law may deem the relationship to be something different than was intended or
understood by the foreign investor. This could have severe consequences and potentially
produce unexpected liability for the client.
Contractual Issues Once a suitable agent or distributor has been selected, the appropriate
contractual arrangement must be drafted. The suppliers local counsel, together with counsel
qualified in the host country, should jointly be involved in the negotiating and drafting process.
The following issues, at a minimum should be considered.
1. Local Law The importance of local laws cannot be overlooked or underestimated in
any agency or distributorship agreement. Local law may be procedurally cumbersome
 or even provide substantive difficulties to achieving the aims and objectives or the
arrangement.
a. Language BarriersThe contracts must be translated into the official language
of the host country prior to registration. Where applicable the parties should clearly
state in the contracts which version of the contact controls in case of any
conflicting language between the two versions.
b. Government AgencyLocal law may also permit or require the involvement of a
government agency in the negotiation process, even when both parties already
are in agreement as to terms of the arrangement.
c. Import IssuesThe issue of import restrictions it should be noted here that both
the supplier and agent or distributor should ensure that they are aware of and in
compliance with all applicable importation and distribution laws and regulations.
As the local agent will likely be more familiar with such issues than the foreign
supplier, it may be prudent to allocation the responsibility to the agent or
distributor in the contractual agreement.
2. Independent Contractor Status Must countries allow agents and distributors to be
deemed independent contractors, rather than employees of the supplier. Government
interference could lead to an agent or distributor being deemed to be an employee
instead of merely an independent contractor. This is likely to occur when the agent or
distributor is under the direct authority of the supplier, or if the agent or distributor
receives a salary in addition to sales commissions. If the agent is deemed an employee,
the situation becomes more complicated as the employee and the supplier will be
subject to local labor laws. There are also tax implications to being considered and
employee.
3. Export Compliance The supplier must comply with all relevant export laws,
including possible licensing requirements. The exportation of certain goods may be
regulated or prohibited, and eports of goods may also be prohibited from being sent to
certain individuals, groups or nations. Failure to comply with such laws, which are
normally based on national security and foreign policy concerns, could be costly.
Agency The primary role of an agent usually is to identify potential customers for the
supplier, handle or assist with marketing on the suppliers behalf, and obtain orders for the
supplies goods or services on term established by the supplier. The supplier then fills the orders.
Title does not shiftThus, the agent does not take title to the goods. Instead, the sales
agreement remains between the seller and the buyer. The agent, normally located in the
buyers country, serves primarily as an intermediary by which the agreement is
concluded.
Risk The agent, therefore, does not bear the risk that the buyer will not pay. The risk
remains entirely with the seller. Likewise, the buyers recourse for faulty, defective or
otherwise inappropriate goods remains solely with the seller.
The agent usually:
1. Does not possess or control a warehouse,
2. Does not coordinate transport arrangements and
3. has no control over the price or terms of the sales contract.
Simply put, the seller agrees to the terms of sale and the agent cannot choose to deviate
from those terms. However, in some agency agreements, the agent also acts as collection
agent for the supplier and may even provide after sales warranty advice to customers.
Compensation An agent is compensated on a commission basis and usually is subject to
significant control by the supplier.
Common Law v Civil Law ImplicationsAgency laws differ between countries, and the
typical freedom to contract regime common to Australia and other common law countries is
unlike the more regulatory model used in civil law countries and much of the developing world.
In the latter cases, agency is more extensively regulated and the distinction between an
agent and a distributor is sometimes blurred in a manner not anticipated or contemplated
by the seller.
Several issues typically arise that are unique to a suppliers relationship with a foreign
agent:
b. The supplier should also ascertain whether the local law allows for the
agents representations to customers constitute warranties by the
principal.
5. Harmonization
1. Indemnification A licensee should also seek to have the licensor indemnify it and
hold it harmless against and in respect of any and all infringement claims arising form
use of the licensed technology. The indemnification should continue beyond the
termination of the license and the timing of the indemnification payments.
2. Litigation ProvisionsIf an exclusive license has been granted, the licensing
agreement must select one of the parties to be the principal in enforcing the IPRs in the
licensed technology via litigation. The license should also provide that the other party
has the authority to maintain such actions should the designated party fail to defend or
initiate an infringement action.
3. Record keeping and audit clauses As the payment of royalties to the licensor are
usually based upon the production or sales of the licensed technology, the licensing
agreement should require the licensee to maintain adequate records in order to
substantiate the basis of the royalty payments to the licensor. The records must be
subject to verification through an independent audit, and should be kept safe and
verifiable for at least a determinate period of time. The parties may also want to
negotiate who should bear the costs of the audits and storage.

4. Intellectual Property Licensing Licensing of Intellectual Property Rights to a foreign
agent or distributor may raise the issues in the host jurisdiction. If local licensing laws
are deemed applicable, the agreement may be subject to certain burdens and
restrictions. In some countries licensing agreements must be approved by the relevant
government agencies prior to their taking effect. It is important for any supplier licensing
IPRs in another market to ensure that is has been properly registered in the targeted
market. The contractual agreement between the supplier and agent should prohibit the
part from registering any of the suppliers IPRs in its own name. The supplier should
also consider including a grant back provision in the agreement that allow the suppliers
to benefit from any translations, modifications and improvements created by the agent
or distributor.
5. Force Majeure The contract between the supplier and the agent or distributor should
contain a force majeure clause describing the situation in which the parties will not be
responsible for a failure to perform in accordance with the contractual provisions
because of unforeseen events arising beyond their control. This should specifically
include the possibility of changes in government relations and policies between the
relevant governments.
6. Governing Law As with contract, the parties should select the law governing the
contract and the appropriate forum, should a dispute rise. However, in many
jurisdictions, particularly in the case of agency relationships, the choice of law will be
unenforceable and the law of the host nation must be applied. Moreover, even if the
host country permits the law of the suppliers home country to apply, it will likely still
have mandatory laws that continue to apply and cannot be avoided by contract.
7. Competition Law Several provisions in an agency or distributorship relationship
have the potential to raise competition law concerns for the host nations. These issues
include the use of exclusive licenses, the establishment of exclusive sales territory, non-
compete clauses and restrictions on a distributors resale pricing. Local law may prohibit
certain provisions or require clearance from the relevant governmental agencies in
8. Advance.
. agreements with third parties, notwithstanding clear contractual limitations.
AGENCY
1. Regulation of Agents Most jurisdictions have laws regulating agents. For instance,
in some jurisdictions:
a. agents are required to be citizens of the country in which they act as
representatives.
b. Some jurisdictions have registration requirements, whereby all agents must
register with a government office.
c. Have complicated regulations dividing agents by type, with different requirements
and restrictions applicable to each type of agent.
2. Termination of Agents Almost all jurisdictions regulate the ability of the principal to
terminate the arrangement and the compensation that must be paid to the agent on
termination.
a. Most jurisdictions impose mandatory notice periods prior to termination, with
serious consequences resulting form failure to abide by the notice provisions.
b. Most impose obligations on the principal to compensate an agent whose
contract is terminated, and base their compensation provision on:
i. the length of the term for which the agent represented the principal,
ii. the amount of money the agent invested in developing the business, and
iii. the goodwill created by the agent.
c. In most jurisdictions, notice and compensation provisions are mandatory
law and cannot be avoided by contract.
3. Non Competition following termination Most jurisdictions limit the scope and
length of non-compete covenants that survive termination of the agency relationship as
to geographical scope, duration and the universe of products covered by the covenant.
Limits to non-compete covenants are mandatory law and cannot be avoided by
contract.
4. Scope of Authority Even if it is clear to all parties involved that the agent should not
have the authority to bind the supplier by executing sales contracts or order forms, the
contract should explicitly address the issue.
a. The contract should also address whether the agents representations
to customers constitute warranties by the supplier. Despite such
language, however, some jurisdictions allow the agent to bind its principal to