Case Study: Australian Business Law

Introduction

It is becoming increasingly difficult to ignore the fact that a business is a complicated field of human activity. Thus, related laws and regulations are also sophisticated which is why business-related debates are usually strong and hard to solve. It can be explained by the fact that a wide range of business procedures cannot be explained from a single point of view. As a result, the business law outlines specific rules for solution of different disputes and identification of wrongdoers. Needless to say, Australian legislative system manages to implement meaningful policies and regulations. Regarding that, it is necessary to discuss and demonstrate Australian business law in the empirical terms. For the purpose of illustration, the study focuses on the case study, which is based on the dispute between Mike and his former business partners Samantha and Tony, who shared a seafood restaurant with him.

The following case study discusses the evidence of the fiduciary duty violation as Mike left the business after a conflict with Samantha and Tony. Still, they may owe him certain fiduciary duties that could be potentially breached. In consequence, the study discusses possible remedies, which can be potentially issued on the basis of the fiduciary duty’s breach. The next section includes possible remedies for Samantha and Tony as long as certain evidence for their support can be also traced in the case study. Eventually, the last section gives an account on the alternative outcomes of the case. Moreover, it suggests that in case Samantha and Tony did not lease the initial premise again, the answers on the previous questions would be different as this aspect is a key factor for the solution of the entire case. As the thesis, key terms, and layout of the paper have been outlined, it is necessary to proceed on the next section.

Breach of Fiduciary Duty

With regard to Mike’s claim about the fiduciary duty being breached by Tony and Samantha, it should be admitted that actions of Samantha and Tony are not a subject to violation of the fiduciary duty. First of all, it can be explained by the termination of the contract signed by Mike, Samantha, and Tony. Furthermore, it is essential to clarify whether the contract presupposes any fiduciary duties of the parties towards each other. According to 188 ALR 566 and 576, a fiduciary duty can be breached in case one of the trustees was acting in the best interest of the property (Stewart 2010). Hence, purchase of the same premise from Kamal can be regarded as a beneficial action for the company. The premise is situated in the advantageous location, and the seafood restaurant received a prospect to lease the premise for the three following years. Therefore, Mike’s claim about fiduciary violation can be argued.

According to HCA 26, the trustee is obliged to place the estate in the same condition that has been before a breach fiduciary duty (International Business Publications 2013). In fact, the trustees managed to do that. The restaurant was moved to its initial premise located in the beneficial place in a shopping mall so that the revenues of the business were restored to their previous positions. By the same token, it is worth saying that new business of Mike does not comply with his previous contract that was already terminated. In other words, Tony’s and Samantha’s actions did not harm Mike’s business as long as it is a newly registered firm so that relation between opposing parties can be considered as competitive only (Stewart 2010). The new business of Mike is not a subsidiary company of his previous firm so that no intentional harm to Mike’s new business can be traced in actions taken by Tony and Samantha.

On the contrary, a fiduciary duty can be applied after the contract’s termination. Such exceptions can be made in cases when a wrongdoer keeps making a profit from a former beneficiary’s equity. Thus, Samantha and Tony keep running business that also belonged to Mike previously. 156 CLR 41, 97 outlines that fiduciary duty presupposes an obligation of a trustee to act in the benefit of the owner (Latimer 2013). Therefore, the further tendency of potential proceedings depends heavily upon the fact weather fiduciary duties are mentioned in the partnership contract. 160 FCR 35, 77 suggests that fiduciary duties are assigned to the contract in case any obligations are required by the contract itself (Latimer 2013). However, termination of the contract may not mean termination of the fiduciary duty. As long as Mike signed the termination of the contract, he stopped making a profit from the business while Samantha and Tony started running a business on their own. That is why termination of the contract itself can be regarded as the violation of the fiduciary duty.

It would be certainly true provided that the contract termination was not signed by all three parties. It cannot be regarded as fiduciary violation since the termination of contract and Mike’s leaving the business were completely agreed between all parties (Edelman 2012). The firm kept performing, but it is pivotal to note that Mike started his own business so that he became a subject to a new liability. From this perspective, Mike has no relation to his previous business any longer which is why claims regarding breach of fiduciary duty cannot be issued by him against Tony and Samantha (Edelman 2012). In spite of the fact that the contract was legally terminated, a hypothetical possibility of the fiduciary duty to be applied to the case still can emerge.

132 CLR 373 at 393 states that a fiduciary duty prohibits conflicts with an owner, another trustee, or partner and enter any other equity engagements (Tomasic, Bottomley & McQueen 2002). It is essential to note that new business of Mike competes with his former firm. Therefore, it makes harm to the firm currently owned by Samantha and Tony. In such a way, claims concerning fiduciary duty violation can be expressed from their side, as well. The firm of Mike, however, makes a remote and insubstantial harm as competition is a matter of internal management of the company rather than malicious intentions of the owners. In accordance with 55 ALR 417 at 459, fiduciary duty of Mike is not violated as long as his business was not founded owing to the intentionally committed economic decline in the former firm (Tomasic, Bottomley & McQueen 2002). Again, in case the appliance of fiduciary duty is approved, the claim of Mike can be denied as his actions can be also regarded as a breach of the fiduciary duty.

Overall, it should be admitted that Samantha and Tony did not breach the fiduciary duty. It can be explained by the following statements. First of all, the termination of Mike’s contract was signed by every single party so that Mike confirmed his termination himself. Then, Samantha and Tony managed to place the equity in its previous beneficial position which is why their actions can be determined as a purposeful behaviour in the best interest of the property. Eventually, Mike started his own business so that his action can hypothetically become a subject to the breach of fiduciary duty from his side. It is becoming increasingly apparent that the situation is quite dubious as opposing parties were in fiduciary partnership so that major trustee and beneficiary cannot be indicated. Still, it is necessary to confirm that Samantha and Tony did not breach fiduciary duties owed to Mike.

Potential Remedies

To begin this sub-discussion with, it is necessary to clarify that Mike himself did not violate the fiduciary duty from his side. It can be explained by the fact that any actions taken after the contract termination can be regarded as remote and make insubstantial harm to the business of Tony and Samantha. Mike did not leave the business in order to escape being blamed for fraud actions. The new business was started on the basis of the capital earned during the years of the contract with Samantha and Tony. That is why they cannot present any remedies against Mike as long as the support of their remedy statement is obviously weak. Instead, Mike is able to outline his remedy against Tony and Samantha as certain aspects of contracted partnership as well as fiduciary duty have to be considered.

Therefore, it is essential to pay attention to the termination rules of the contract. In case the termination rules do not presuppose termination of fiduciary duties, Mike is able to issue his remedy to the court. Samantha and Tony keep making a profit from the firm that was initiated with a participation of Mike (Australian Law Reform Commission n.d.). Hence, terms of the future liabilities after a partner’s being terminated from the partnership regarding the equity ownership have to be mentioned by the contract. Provided that the contract does not mention these requirements, Mike should issue his remedy in the court as long as Tony and Samantha violated trust and ownership rules (Australian Law Reform Commission n.d.). Moreover, their violation of duty is localized and substantial as Mike does not have any rights regarding ownership and profits from the seafood restaurant any longer. Needless to say, Samantha and Tony will need to provide legally appropriate closure of the partnership with Mike and a contract proving their current ownership of the restaurant.

As a consequence, Mike can demand reimbursement of lost profits that were divided between Tony and Samantha within the period of contract termination till the final decision of the court. What is more, wrongdoers are expected to pay interest rates in a form of compensation for the violation of fiduciary duty and rules of ownership. The compensation, however, is determined by the court’s decision so that it may be insubstantial or even not assigned to Mike. 1317HD of Corporation Law admits that compensation should be recovered from personal funds of the wrongdoers (Ridge n.d.). Samantha and Tony are not allowed to reimburse the breach of fiduciary duty by means of the restaurant’s operating income as it is one more violation of the fiduciary duty. As a result, Mike has sufficient evidence for moving the solution of the conflict into the terms of court proceedings.

In view of this possibility, Mike has to provide the following supporting facts. First of all, it should be a full text of the contract and the related document proving the contract’s termination. This is the basis for the entire case since the majority of issues can be solved throughout the analysis of the contract and termination rules if there were outlined (Fraser & Gibson 2014). Then, financial statements of Mike and the restaurant for the period of Mike’s partnership should be included as they can be regarded as the proof of fiduciary duty violation. Testimony of Samantha, Tony, and Mike are also required as they were the owners of the restaurant at the period of conflict’s emerging. Besides that, some legal note concerning the related business itself can be also needed as long as some fraud activity can be potentially traced in the restaurant’s paperwork (Griffin & Lambris 2013). This is a minimal set of materials required for issuing Mike’s remedy in the court. Still, Tony and Samantha are able to provide contrary evidence.

Tony and Samantha can provide their own remedy as long as Mike started to compete with the restaurant by running his independent business. For that purpose, Tony and Samantha have to prove that termination of the contract does not imply termination of fiduciary duty. In addition, background for Mike’s leaving the business should be also discussed as the root causes of conflict is obviously based on the internal opposition. Tony and Samantha are also required to provide a new contract and related documents proving their ownership of the restaurant (Ridge n.d.). That support is still rather weak as Samantha and Tony will need to prove the fact that Mike makes a profit from the previous ownership of the seafood restaurant. That is why remedies of Samantha and Tony are more hypothetical rather than practical as the support is risky and insufficiently strong for being taken to the court.

All in all, it is becoming increasingly evident that Mike’s remedy is stronger. It is based on the fact that termination rules of the contract were not mentioned which is why Mike is still liable to the restaurant. As long as fiduciary duty is based on the partnership, Mike is expected to be paid his part of the income gained after the termination of the contract because Samantha and Tony kept making a profit from the business initiated with participation of Mike. It is worth mentioning, however, that Mike may be not paid reimbursement as well as compensation of interest rate in case the court identifies that profits from the business do not exceed the initial start-up capital of Mike. Additionally, Tony and Samantha do not obtain sufficient support of their contrary remedy as it requires analysis of the documents that may become a proof of their fiduciary duty violation.

Alternative Scenario

The answers on the previous questions would be different provided that Tony and Samantha moved from their regular premise. That would mean that remedies of Mike do not have any grounds as long as the restaurant does not exist under the initial lease and owners. Therefore, Tony and Samantha would have to register their business again which is why it would be an entirely different company. Needless to say that Mike would not be liable to it, and fiduciary duties would be not owed to him. One may argue that closure of business can be also regarded as breach of fiduciary duty, but it is not applicable to this case since change of ownership contract and new lease can be easily proved to be the actions in the best interest of the property (Trone & Turner 2013). Thus, Mike’s remedies would be denied.

Conversely, Samantha and Tony would make a profit under the same trademark. In other words, amendments in ownership agreement do not mean that profits gained from the use of a particular trademark or brand cannot be related to violation of fiduciary duty (Richard 2014). In this case, Tony and Sandra would have to register their restaurant under a new name or convince Mike to confirm his permission for use of the current one. Regarding these points, it is becoming abundantly clear that Mike would not be able to issue his remedies as long as conditions of the fiduciary breach were changed accordingly. Thus, it is possible to assume that the proceedings should focus on the purchase of the premise from Kamal as this aspect occurred to be a key factor in the determination of the remedies’ validity. Samantha and Tony, however, would not be able to provide their own remedies. That is why this aspect should be also discussed.

In fact, Samantha and Tony would not be able to issue their remedies. It can be explained by the fact that they would have to move their restaurant to some other premise (International Business Publications 2009). Therefore, competition with Mike’s firm would not be direct and localised. Provided that Tony and Samantha would lease their restaurant at the other premise but in the same shopping mall, the previous discussion would be applicable as competitive pressure would be regarded as the breach of fiduciary duty (Pendleton 2009). Generally speaking, both parties can be blamed as long as they both are partners in terms of fiduciary relationships. That is why, it is necessary to place the emphasis on the content of the contract that is also an essential component of the case solution. Depending on the contract’s instructions, the court will make a decision which is why the change of the premise is only one alternative scenario of the conflict.

As it has been already mentioned, the change of the premise and thus obligation to register the business again would make the defence of Samantha and Tony more valuable in the court. First of all, Mike would issue the remedy against the business that would have been already closed. Secondly, Tony and Samantha would be able to claim that they had acted in the best interest of the restaurant so that fiduciary duty had to be breached (Flood & Vickery 2011). What is more, the main supportive argument would be a need to escape competitive pressure of Mike’s new firm. At the same time, Tony and Samantha would not be able to issue their own remedy as the equity would change its liabilities (Latimer 2011). All in all, it should be admitted that certain points of the case would change considerably, but the core of the conflict would be still related to the contract as it determines liabilities of the restaurant and rules of duty termination.

Conclusion

All in all, it should be admitted that this paper has focused on the discussion of the case study based on the conflict between Mike and his former business partners: Tony and Samantha. The conflict is based on the breach of fiduciary duty that was hypothetically committed by Samantha and Tony after the termination of the contract. That is why the case study is quite complicated as it does not presuppose only one point of view. Still, the paper has given an account on the possibility of fiduciary duty breach by Tony and Sandra. Then, the case study has discussed the remedies, which could be possibly issued by Mike, and contrary arguments in support of Tony and Samantha. Besides that, the paper has provided an alternative scenario in which Tony and Samantha did not purchase the initial premise for their restaurant.

In conclusion, it is appropriate to make a general comment on the fact that Mike is more likely to win the proceedings as long as his claims could be potentially based on the termination rules of the contract. In other words, his decision to leave the business can be recognized as the breach of fiduciary duty from the side of Tony and Samantha as they were equal partners with Mike within fiduciary relationships. Therefore, they should have acted in the best interest of the common property so that Mike would stay in business. Hence, Mike could issue the remedy against them on the basis of this fact. The rest of arguments for and against Mike are not sufficient for a final decision of the court as analysis of the contract and its termination rules should be conducted initially. A termination of the contract does not mean termination of fiduciary relationships so that this aspect has to be clarified.