Question 1

In April 2014 Jackie experiences the following two unrelated events:

(a) On April 5 her beloved iPod breaks down. She bought it from a
dealer in March 2013 with a one-year guarantee that included a
promise to replace any iPod that malfunctioned. When she returned
it, the supplier identified a significant problem with the music
download function but refuses to fix it or provide any remedy,
arguing that the guarantee period has expired. Furthermore, there
is a limitation clause that says,
the supplier does not provide refunds or have an
obligation to repair the goods after the expiration of 12
months from the date of purchase.
Advise Jacqui of any statutory rights and remedies she may have
under the Australian Consumer Law against the supplier and, if
necessary, the manufacturer. (8 marks)
(b) On April 6 she joins a Contours gym, partly persuaded by a
statement in the advertisement that the gym was a womens only
gym. It had been but by the time Jacqui signed up, management
had made a decision to admit men. Jacqui is not impressed and, in
any event, has realised she is not a gym gal. She wishes to
terminate the contract but is horrified when she reads the following
clauses in the contract that she signed:
2. Membership
2.1: You agree to remain a member of the club for a
minimum period of three years.
2.2: If your membership is terminated for whatever
reason, all sums due at that point remain payable and the
whole of the remaining monthly payments due to the end
of the membership period had the membership not been
terminated will become due forthwith.
3. Payment:
3.1: All monies paid by you to us are not refundable in any
circumstances whether your membership is terminated,
there has been a breach of contract or negligent act or
otherwise.
Advise her of any rights that she may have under the Australian
Consumer Law. Cite relevant cases (7 marks)

Question 2
Double Dee and Partners (DD) is an accounting firm that conducts
audits for many businesses around Australia. One of its employees
is Eddie, a qualified auditor. High Brow Pty Ltd (High Brow) is a
long-term client of DD. Its main activity is trading on the equities
and bond markets. The CEO of High Brow is Max. He and Eddie
have been friends since their student days and meet up from time
to time.
In February 2014, Eddie and Max were having a drink when Maxs
friend, Mary, the CEO of Northpac Bank, arrived. This was lucky for
Max because High Brow was seeking a loan for a share market raid
on a multinational paint manufacturer, Duluck. Mary enquired about
the details and agreed that Northpac would agree to lend High Brow
$10 million, subject to a satisfactory auditors report on the
financial state of your company. Max offered to go to Marys office
to complete the normal due diligence checks, but Mary replied
Its OK Max, I know you well, dont worry about that, just send me
your latest auditors report, and, if alls well, Ill arrange the loan.
At this point, Eddie chipped in and said that hed done the audit on
High Brow himself. Theyre in good shape for this, Mary.
Shortly after, Max sent Mary Eddies report. It showed that High
Brow had made solid profits and could afford to take on the loan
from Northpac. On this basis, Northpac agreed to lend High Brow
$10 million for two years with repayments commencing in April.
Unfortunately, although Eddie followed accepted auditors
procedures and practices, his audit did not reveal a number of bad
debts and a significant liability for legal costs that flowed from an
adverse costs order in a legal case it recently lost. Max had kept
these bad debts and liabilities off the books. The truth is that High
Brow is on the brink of bankruptcy and is unable to repay the first
instalment of the loan.
Advise Northpac whether it may sue DD in negligence. (NB neither
High Brow nor Max have sufficient assets to pay any award of
damages made against them). Cite cases and statutes where
relevant. (Do not refer to the Australian Consumer Law).
(15 marks)

Question 3
Mathew and Tim decide to open a shop that sells LED light bulbs
and tubes. They call it OZZIES LED LIGHTING (Ozzies). They agree
that Tim would primarily be responsible for looking after the shop
and for customer relations. Mathew would be responsible for
purchasing from suppliers and for packing and storing.
Xiaohui, a friend of Mathew and Tim, has agreed to help them
financially with the starting of the business by lending them
$26,000, provided she receives half of the profit at the end of the
next two years. She also inspects the books of account and takes
part in day-to-day affairs of the business such as assisting Tim in the
shop with sales and helping Mathew with his purchase and
packaging of goods.
Soon after the business opened, Tim, without informing Mathew, has
started selling LED clocks supplied by his friend Kim. He sells these
clocks from his home and online. He has made a profit of $3500 but
keeps this a secret.
In April of this year Tim visits his friend Brett who has a shop called
CHEAPEST & BEST LIGHTING WAREHOUSE. Brett shows him one of
his latest products, a SOLAR LED FLOODLIGHT which costs nothing
to run as it uses solar energy and can provide light equal to a 500
watt halogen globe. Brett tells Tim the floodlight costs $5000, but as
he has a special on today only of a 20% discount it would cost him
$4000. Tim is happy with the product and immediately orders one
for the shop. When the invoice arrives, Mathew is angry that Tim
has bought such an expensive lighting system without discussing it
with him and refuses to pay.
Chu, who bought an LED tube light from Ozzies for her garage, was
injured when the tube exploded in the garage damaging her car and
causing her serious head injuries, leaving her unable to work for
several weeks. It transpires that when Mathew packed the LED tube
light he mistakenly packed it with the wrong transformer. Chu seeks

damages to cover medical expenses, lost wages and pain and

suffering. She is also seeking compensation for the damage caused
to the car. Tim and Xiaohui argue that the damage is solely the
responsibility of Mathew.
a) Is there a partnership between Mathew, Tim and Xiaohui? (4
marks)
b) Assuming for the purposes of b) only that a partnership exists,
who is liable to pay for the SOLAR LED FLOODLIGHT? (4
marks)
c) Mathew has no money in his bank account nor any assets.
Discuss whether Chu can claim against either Tim or Xiaohui.
Give reasons for your answer. (4 marks).
d) Is Tim entitled to retain the profit of $3500 from selling the
LED clocks? (3 marks)
Refer to relevant legislation and appropriate cases to support your
argument. (Do not discuss the Australian Consumer Law)
Question 4
Stonehenge Ltd is a builder and property developer specialising in
high-rise apartment and office buildings in Melbournes central
business district. Stonehenge Ltd has 5 directors: Elaine (managing
director), Jerry (finance director), Kramer (chairman), and George
and Larry who are both non-executive directors.
George has
expertise and experience in planning law and architectural design
and Henry was a senior manager in the banking and finance sector.
Several months ago, the board approved Elaines plan that
Stonehenge Ltd acquire a large development site in the Docklands
for $100 million from Glastonbury Pty Ltd. Glastonbury Pty Ltd is a
company controlled by Elaine and her family. Elaine told the board
that in her opinion it was a great site and suitable for Melbournes
largest high-rise project but she did not mention that she or her
family were the shareholders of Glastonbury Pty Ltd. Unfortunately,
Elaine was unaware that the applicable planning laws did not permit
the construction of a building of more than 50 stories on the site.
The board relied on information provided by Jerry who claimed that
project would be highly profitable for Stonehenge Ltd. Jerry said the
proposed acquisition and development project could clearly be
funded but the financial details he put forward were vague and brief.
Jerry was also unaware of the relevant planning laws. Kramer
supported Elaine and Jerry suggesting that George and Larry should
approve the purchase. None of the directors was aware that the
development site was contaminated by asbestos which would be
very expensive to remove. In addition, George and Larry were not

that familiar with the companys financial status and failed to ask
Jerry any questions about funding the project. In fact, George had
failed to turn-up to a number of previous board meetings where the
project was discussed.
The docklands project proved to be a financial disaster for
Stonehedge Ltd. It paid too much for the site and the costs of
borrowing were much greater than Elaine had indicated. The
financial viability of the project was adversely affected because the
height of the high-rise development had to be scaled back to 50
floors as well as the unexpected high cost of asbestos removal. As a
result, the anticipated losses from this project were likely to exceed
$200 million.
Advise ASIC whether a
Stonehenge Ltds directors breached any of their statutory
duties in relation to the purchase of the docklands office
development site. In your advice consider the position of each
of the directors and whether they may have a defence. (10
marks)
b

Elaine breached her fiduciary duties and contravened any

(and if so what) provisions of the Corporations Act in relation
to the purchase by Stonehenge Ltd of the development site
from Glastonbury Pty Ltd. (5 marks)