A, B and C are long time friends from University days. They share common interests especially with respect to making money. A is a computer programmer for a bank, B is a chartered accountant and C a corporate lawyer. While having drinks after work one evening in May, A indicated that he had become disenchanted with the lack of challenge at his work. He is contemplating undertaking a radical change in direction in his career. He stated that he wants to take the plunge and set up a business but hasn’t come across the right opportunity. This entrepreneurial spirit excited B’s and C’s capitalistic notions. They discussed various business opportunities. At a subsequent meeting in June, A is besotted about an exciting new range of specialist computer products which cater only for accounting and legal firms. A informs B and C that this new range of products was recently released in the United States by a large computer manufacturer, D. It had taken the market by storm. D had just opened an Australian office in Sydney and A had befriended the Australian manager of D at a computing conference. The manager of D indicated that D was anxious to establish itself quickly in the Australian market. A was delirious. To get the exclusive South Australian distribution rights for these products was the business opportunity of a lifetime. However, he lacked the required finances. B and C’s greed for money soon had the three friends entering the following syndicate agreement:
(i) B and C would each provide $200,000 into the syndicate;
(ii) A would operate the day-to-day running of the business but any expenditure in excess of $20,000 required B and C’s approval;
(iii) A would receive a salary of $80,000 per annum (per year);
(iv) A, B and C agreed to share profits equally but as they were all blind optimists, there was no mention regarding the sharing of losses.
In July, A, B and C entered into a joint venture agreement with D whereby:
(i) A, B and C were granted the sole distribution rights for the products in South Australia for a fee of 20% of the annual net profits of A, B and C’s business;
(ii) A, B and C agreed to comply with any marketing instructions issued by D;
(iii) A, B and C agreed to purchase all their computing products exclusively from D. This was most unusual as all their competitors purchased products from a range of computing companies.
(iv) D had a right to inspect the business venture’s books of accounts and a right to receive quarterly statements.
In December, at a computing trade exhibition, A is overcome by an exciting range of new products being offered by IBN Computers Ltd. He immediately attempted to phone B and C on his mobile phone but was unsuccessful. A, being the impetuous person he was, couldn’t wait and ordered $250,000 of computing products from IBN.
Provide advice with respect to:
(i) the nature of the relationship between A, B and C;
(ii) the nature of the relationship between A, B and C and D;
(iii) The legal consequences of the $250,000 order with IBN.
(For this question, assume the relationship of A, B and C is a partnership and their relationship with D is merely a distribution agreement)
Hi there! Click one of our representatives below and we will get back to you as soon as possible.