2023]

Lee, Danny and Sue were childhood friends. They loved horses and dreamed of one day owning
a horse who won the huge prize money in the famous annual Melbourne Cup horse race. To
fulfill this dream, in January 2021, they decided to start a business, called Three Winners, where
they bought horses to be trained for the Melbourne Cup.

Under their agreement they each contributed $100,000 to the business and agreed to share any
profits and losses incurred. They bought one horse, She’s a Winner, to be trained by Tom
Horsely for the Melbourne Cup. They agreed that at least two of them had to sign a sale
agreement before buying any additional horses. They raised another $100,000 from investors,
through a business broker, which they put into the business.

Unfortunately She’s a Winner didn’t turn out to be a winner and they soon were running low
on funds. In February 2022 Danny asked his friend from University, Mary, to provide
additional funds. Mary was a very successful corporate lawyer, a multi-millionaire and very
knowledgeable about horses. Mary orally agreed to contribute $100,000 on the terms that the
money was a loan, she was to receive 50% of the profits made by the business and she was not
to be considered a partner in the business. It was also agreed that Mary could discuss training
strategy with Tom Horsely to support and assist the business and was entitled to free admission
tickets at racecourses whenever the horses participated in races.

Mary’s financial contribution did help the business a little bit but Lee thought they needed more
horses to increase their odds of owning a winner and turning a profit. They all agreed to start
looking at other horses in which to invest. Six months later, on behalf of Three Winners, Lee
attended a sale of foals at the renowned estate of Lord Punter. While there, Lee agrees with
Lord Punter to purchase a horse from him, Super Fast Runner, for $250,000. Without
consulting the other business associates, Lee signed the sale agreement and left a 10% deposit
on the horse.

Back in Sydney, Danny and Sue were initially upset that Lee purchased Super Fast Runner
without their knowledge. Once they learned about his great chances to win the Melbourne Cup,
they were thrilled with his decision and employed Tom Horsely to train the horse.

In October 2022 Sue approached Tony to purchase shares in Super Fast Runner. Tony has had
great luck with horses in the past, having invested in three Melbourne Cup winners. After
providing Tony with all the required financial documents Tony, agreed to buy $50,000 worth
of shares in Super Fast Runner.

Two weeks later Tom Horsely called Sue and told her of a once in a lifetime opportunity to
invest in a proven Melbourne Cup winner, Speedy McSpeedster. Sue is upset with Lee’s
management style so she quickly sets up a company called Winner Pty Ltd and applies Tony’s
money towards purchasing Speedy McSpeedster. She doesn’t think Tony will mind so long as
Speedy McSpeedster ends up winning the Melbourne Cup.

Unfortunately the horse racing business continues to be a risky one for Three Winners. Neither
horse wins a race and Three Winners are quickly running out of funds.

Things get worse when an employee of Three Winners, Sally, suffers a serious work-related
injury due to the failure of Three Winners implementing a safe system of work and has incurred
medical expenses totaling $50, 000 which remains unpaid. Lee has not paid the amount
outstanding on Super Fast Runner and decides to take an extended holiday to Ecuador. No one
2

has seen him in months. Lord Punter approaches Mary to pay the amount due and owing
on Super Fast Runner. Tony finds out that he doesn’t own any shares in Super Fast Runner.
He approaches Mary and asks for his money back.

(a) Advise Mary on her potential liabilities as well as any potential remedies she may
have available to him. (15 marks)

AND

(b) Advise Sue of any potential liability she may face as well as any potential legal
consequences arising from her conduct. (5 marks)

End of Question

Hint: Your answer must address the relevant legal issues raised in this course. The question
draws on selected material covered in topics 1-3 and therefore no discussion on the law
concerning directors’ duties, or the content on the tort of negligence is required. Your answer
must make reference to provisions of the relevant statute and precedents in support of your
answer. Such content can be found in relevant chapters of the prescribed textbook.
Pay attention to the Marking Rubric (at Moodle) prior to, and just before, submission of your
answer.


Marking Guide:
If more information/facts are required to that given in the stated question, students may make
reasonable assumptions, and state the need for assumptions, if any. Note that
unrealistic/fanciful assumptions will be penalised.

Superficial answers (simply based on issue-recognition, inadequate application of law to the
given facts [ie. Mis-use of 5 Step Plan if adopted] and uncritical legal analysis will attract a
superficial mark.

Marks will also be deducted for poorly structured answers and evidence of absence of proof-
reading the paper before submission or failure to consult the style guide (located at Moodle).

Important: Use of Law Teacher, Wikipedia and other such unreliable websites are prohibited
as they are not a reliable/credible source of information.

Reminder: 1. Due Date: Tuesday 23 March 2023 [by 4.00 pm Sydney time]
(a) Lodge electronically via Turnitin at Moodle before due date and time. No other form of
submission is allowed
(b) Keep a copy of paper submitted;
(c) Extensions will not be granted lightly; see course outline for late submission penalty;
2. Word Limit: 1,700 (minimum) – 1,800 words maximum (excludes abstract, footnotes and
bibliography).
3. On your Front Page include the name of your tutor and class, your OFFICIAL
UNIVERSITY email address and the word count.
4. Plagiarism, and contract cheating, are serious academic offences. Software (other than
Turnitin) exists for detection.

Good luck with your preparations.

Date Topic Released: 8 March 2023