Question 1

Jane Doe, Malcolm and Su-Ming entered into partnership in 1985 for carrying on a
brokerage business under the name of JMS & Co. They were all listed as partners on
the firm's letterhead. Jane retired from the firm with the consent of her co-partners,
effective 30th June, 2018, with the understanding that despite the technical dissolution
of the existing firm the other two partners would continue on with the business and
there would be no entitlement to a complete winding up.

Discuss the following situations:

(a) When Jane retired, Jane and the continuing partners agreed in the retirement
contract that Jane's name would be removed from the list of partners on the firm's
letterhead and from the entrance door, and that the change in the firm's
membership would be advertised in the local government gazette and in the major
local newspaper. No provision was made for giving direct notice to existing clients
or suppliers.
The advertisements were placed in the gazette and newspaper and a new
letterhead was in fact obtained, but, unknown to Jane, the old stationery was not
destroyed nor was Jane's name removed from the entrance door to the firm’s
offices.
The firm has always purchased its minor office equipment (under $1,000 in
value) from Latimer Ltd for "cash on delivery", and the orders were always
submitted on the firm's letterhead. On 2nd August 2018, Su-Ming ordered a
computer worth $2,000 from Latimer Ltd, on 90 days' credit. The new office
secretary by mistake typed the order on an old letterhead. Su-Ming was in a hurry
when signing the letter so that she did not notice that the order was typed on the
old letterhead.
Latimer Ltd (supplier) supplied the computer, but the firm never paid for the
computer. Latimer Ltd obtained a judgment against JMS & Co. for the debt and
then tried to enforce it against Jane. Latimer Ltd knew that Jane had always been
the most financially secure of the partners, and it claimed that she was still liable
as an apparent partner in JMS & Co. Advise Jane on whether she is liable.

Similar to Tower Cabinet

s 21 and s 47
s 21
 Representation by Jane or by firm  Jane knowingly suffers
 Jane wanted name to be removed  agreement with Malcom and Su-Ming
 Jane not liable to debt to Latimer

Contract law  ss 13, 16 (general provision  all profit/loss shared  but is

Jane a partner?), 24 (2) (debt incurred after Jane retired  not liable)

s 47 (1)
 Insufficient notice  merely implied not expressly stated (must be express)
 Hamerhaven case
 Jane liable
(b) All the same facts as in (a), except the order was received by Latimer Ltd on a
letterhead without Jane's name on it. Advise Latimer on whether it can sue
Jane.

s 21  still not liable (especially more than a) )  no representation at all

s 47 (1)  still liable  notice not given  Nationwide v Lewis

(c) Su Ming also made an order to Officeworks, a new supplier using the old
letterhead for stationery. Advise Officeworks on whether it can sue Jane.

S 47 (1)  existing clients

S 47 (2)  new client  applies here

Can’t sue Jane  notice provided by Government Gazette

(d) The firm has a lease on offices in the Perth Central Business District. There is
also a very prestigious law firm on the same floor, and the brokerage and law
firms regularly refer clients to each other. On 5 July 2018, prior to Jane
completing negotiations with her ex-partners as to a pay-out of her share of the
partnership assets, a new client was referred by the law firm. The client walked
into the brokerage firm, and without requiring any advice sold a block of shares
that generated a commission to the firm of $100,000. Jane believes she is
entitled to a share of the commission. Advise Jane.

Goodwill
Old customers come back and new customers come due to recommendation
or reputation
Lease (Chan v Zacharia) provides referral arrangement  $100,000

Look at s 34 (1)

S 55
6% interest of competing asset (one third share)

s 55 (3)  profits generated through skill and industry  Cameron v Murdoch

 client asked for no advice  no skill used (referral system caused the profit)
 Jane entitled to share of profits

Fry v Oddy

Onus of proof on Malcom and Su Ming to prove they provided skill

Question 2

Discuss the liability of the person(s) involved Ajax Pty Ltd in the following situations:

i) At a Board Meeting of Ajax Pty Ltd, all directors approved the annual
financial statements without reading the documents. Short-term debt of
$100,000 was incorrectly referred to as long-term debt. The debt was due at
the end of this year. As a result, the company had to borrow at a high
interest rate to repay the debt. Discuss the liability of the directors; and

ASIC v Healy  s 180 (1)  Care and diligence (civil obligation)

s 180 (2)  Business judgement rule  No business judgement defence

a. Good faith for proper purpose
b. Material personal interest
c. Inform themselves appropriately
d. Best interests of company

ii) Ajax Pty Ltd faced financial stress. It was not able to pay its rent for the last
3 months. Other bills were left unpaid. The total amount owing including rent
was $30,000. At a Board Meeting, the three directors were debating on
whether to market a new product. The three directors are Jason, Alan and
Ben. Jason, a non-executive director was doubtful as to its potential sales.
He wanted to reduce the existing debt. He voted against the decision. The
other two directors felt that manufacturing the new product would result in
increased sales. To manufacture this new product, the directors entered into
a contract to purchase raw materials worth $10,000 from Carbide Steel.
However, the new product did not attract sales and sales of the old products
dwindled. Carbide Steel successfully applied to wind up Ajax. The liquidator
wishes to look at the directors’ actions which led to the collapse of Ajax.
Jason believes that he should not be liable for the Carbide contract. Ben
believes that he should have been informed by Alan, the Managing Director
as to the risks attached to the Carbide Steel contract. This was especially
because Alan was the accountant who kept the books of the business.
Discuss the liability of the directors.

Liquidated  insolvent

S 588 G
(2) Civil Liability  30K + 10K  civilly liable

(3) Criminal Liability  nothing to indicate dishonesty  not criminally liable

reasonable grounds for incurring extra debt  ASIC v Plymin –

iii) How would your answer to (ii) change if Jason did not attend the Board
Meeting as he was away on a one-month cruise.
(3) relying on MD

(4) absent from board meeting

(5)  reasonable steps to prevent incurring debt  he’s not personally liable

Commonwealth act  Corporations

State act  Partnership