Subject Code : LLB205
Country : Australia
Assignment Task:

You are employed as a Law Graduate by the firm, Hunt and Avery (HA) of 86 Seattle Street, Brisbane, Qld, 4000. Last week your supervising partner, Arizona Hunt, received an urgent telephone call from Meredith Grey (Vice-Chancellor, Leading University, 150 California Drive, Brisbane, Qld, 4000), seeking advice. Meredith Grey (Meredith) told Arizona Hunt (Arizona) the following information: 

From 1 July 2004 until 30 June 2014 Derek Webber (Derek), an accountant, was the managing partner of a large accounting firm, Leading Accountants (LA). LA specialises in providing advice to private and public organisations seeking to grow income and commercialise research outcomes. Derek left LA on very good terms and was not subject to any restraint or limits on his future employment. After he finished up at LA Derek decided to take an extended holiday before deciding what to do next. In May 2015 Derek was approached by Meredith (the Vice-Chancellor of Leading University) to take on a key leadership role with Leading University (LU), which Derek accepted. On 1 July 2015 Derek commenced work full time with Leading University (LU) as the Director of the Division of Commercialisation, to generate income from full fee-paying students and commercialise products created by LU’s research programs. In this role, Derek provided advice and reported directly to Meredith (the Vice-Chancellor of LU), attended all meetings of the Senate (the governing body of LU) and had access to all LU’s information databases. Derek had the authority to appoint consultants as independent contractors (including LA) from time to time to provide specialist advice on income growth and/or commercialisation of research.

In early December 2017, Derek recommended to LU that LA should be appointed as a consultant to provide specialist advice to LU in relation to the commercialisation of an innovative online climate change law course which the Law Faculty at LU had developed. Following Derek’s advice, LU appointed LA as consultants. LA emailed its report and recommendations to Derek on 20 December 2017. A key recommendation in LA’s report was that the online climate change course would only be economically viable if it was offered using BlackHole, an innovative online learning platform. Derek was thrilled to read this because Derek’s son (Owen) had invented Blackhole and it (Blackhole) was owned by BH Pty Ltd. Owen is the sole director of BH Pty Ltd and the shares in BH Pty Ltd are jointly owned by Owen and Derek in equal shares. When LA wrote its report it did not know anything about who owned Blackhole and certainly had no idea about Owen and Derek’s interest in BH Pty Ltd.

On 21 December 2017, Derek sent an email to Meredith attaching LA’s report. In that email, he recommended that LU buy Blackhole and told her that he had already negotiated with the owner to buy it for $50,000. Meredith replied by email later that day and accepted Derek’s recommendations, and told him to proceed with the purchase of Blackhole. Derek then told Owen that LU wanted to buy Blackhole for $50,000.  On hearing this, Owen commented to Derek: “This all sounds a bit sus (suspicious) to me. You saw the valuation of Blackhole that came in last week – it’s only worth $25,000”. In response, Derek told Owen that he (Derek) had phoned Meredith and told her that Owen invented Blackhole and that they owned it, and showed her the valuation, and that Meredith then said: “That’s all perfectly ok Derek, you have generated so much additional revenue for LU, keep the extra money as part of your annual performance bonus”. Owen decided not to ask any more questions, even though he (Owen) was perplexed by Derek’s response, as he knew that Derek’s contract did not provide for a performance bonus and that LU had consistently refused to pay Derek any additional money by way of a bonus in addition to his pay, even though Derek had asked for a performance bonus many times. On 23 December 2017 LU paid BH Pty Ltd $50,000 and acquired Blackhole. Since March 2018 LU has commercialised its online climate change course on the Blackhole platform, and this has been incredibly profitable for LU.  Meredith has just found out about Derek and Owen’s interest in BH Pty Ltd and just seen a copy of the 2017 valuation of Blackhole – she is furious.  Meredith has denied that the alleged phone conversation between her and Derek in 2017 ever took place.

Student Recruiter Pty Ltd (SR) specialises in recruiting full fee-paying university students for universities. Lexie Bailey, who went to university with Derek, is the sole director and sole shareholder of SR. On 1 May 2018 Derek telephoned Amelia, Lexie’s personal assistant and said “I’m about to appoint a new student recruiting agency, it’s a very lucrative contract, is SR interested in this work? If so, would Lexie give me $20,000?” Derek also told Amelia that Lexie should communicate with him on this topic at his private email address (d.webber@hotmail.com) and not at his LU email address. When Amelia relayed this message from Derek to Lexie, Lexie said to Amelia: “Thanks Amelia, don’t tell anyone. I’ll look after this myself.” On 1 June 2018, Derek issued an invoice in the name of DW Business Consulting Pty Ltd (DWBC) to SR in the amount of $20,000. SR paid the DWBC invoice in full on 25 June. No goods or services were provided to SR (by DWBC or Derek) in exchange for payment of the invoice dated 1 June 2018. Following Derek’s recommendation, on 26 June 2018 LU signed a five-year exclusive contract with SR to recruit full fee-paying students for LU. After careful stock market research, Derek invested the $20,000 received by DWBC in shares (which are still held in the name of DWBC). The shares are currently worth $100,000.The commission payable to SR under the contract dated 26 June 2018 was 5% above the market rate of commission. SR successfully recruited many students for LU, and earned significant amounts by way of a commission under its contract with LU, until it fell into financial difficulties in September 2019. SR was eventually wound up and deregistered on 9 December 2019. At the same time (9 December 2019) Lexie was also personally bankrupted. 

In April 2019 Derek appointed Cristina Robbins as a consultant to prepare a bit of advice to LU regarding the commercialisation of a new computer game, Anatomy, developed by LU’s Information Technology Faculty. Cristina finalised the advice and recommended that the game be sold for $500,000. Derek emailed Cristina’s advice to Meredith on 25 April 2019. The next day (26 April 2019) Derek became aware that Anatomy was significantly more valuable than indicated by the advice - the correct sale price should have been $1,000,000. Derek did not tell either Cristina or LU about the true value of Anatomy. Instead, on 29 April 2019, Derek established a company, Games Corporation Pty Ltd (GC), of which he (Derek) is the sole director and sole shareholder. On 30 April 2019, Derek gave four weeks’ notice of his resignation to LU and his last working day was agreed to be 28 May 2019. On 25 May 2019, GC offered to buy Anatomy from LU for $500,000, which LU accepted on 1 June 2019. On 1 June GC and LU signed the sale contract and GC paid the $500,000 purchase price to LU that same day (1 June 2019). At the time of the sale of Anatomy to GC, neither Meredith nor Cristina knew anything about Derek’s interest in GC. Meredith has just discovered that Derek controls GC and that the sale price was inadequate. Meredith’s further inquiries revealed that after Derek designed a clever marketing campaign and launched Anatomy onto the worldwide market, the cash flow received by GC attributable to Anatomy for the preceding six month period was $1million. After paying advertising costs and other business expenses, GC’s nett profit was $750,000.  

HA has been instructed by Meredith Grey, Vice-Chancellor of LU to provide advice as to whether LU can make out any claims for breach of equitable duties against any parties involved in these events, and if so, what relief would be available.

Arizona, your supervising partner, has placed the file on your desk and asks you to draft the initial letter of advice to Meredith. You are also requested to write a supporting memorandum for Arizona detailing the issues, relevant law and authorities relied upon in the letter of advice as well as your reasons for the legal conclusions reached. If you need any further information or documents from Meredith, you should specify this and set out why this information is important.

Please only advise in relation to potential claims which arise from your studies in Equity and Trusts ie. do not advise in relation to claims in other areas of the law, for example, negligence, contract, intellectual property law, corporations law or consumer law. 


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