Case: Matt and Seth's business partnership (ANSWER IN IRAC FORMAT)

Matt was a real estate manager who had very few assets. His friend, Seth, was a wealthy businessman, having made his wealth manufacturing steel frames for bicycles.

Matt convinced Seth to go into business with him to buy investment properties in Queensland. They agreed they would each provide 50% of the funds. Matt borrowed his 50% and Seth provided cash.

Seth left everything up to Matt, since he was in the real estate industry. Matt set up a company that would be used as a vehicle to buy the properties and appointed Seth as the director. Matt also did all the buying and negotiating with the bank. At no stage did Matt explain to Seth why things were happening and the consequences of him being a director.

The bank took a mortgage over the properties purchased and took a directors' guarantee that if the repayments couldn't be made, the director would be liable to pay. This means that Seth would potentially be liable to pay the debts of the company.

The bank approved all lending on the financial strength of Seth. This was all done through Matt, without ever speaking with Seth.

When the company failed to meet two repayments, the bank called up the guarantees. Seth argued that the guarantees were unconscionable and that the bank had failed to advise him of the purpose of the documents he signed in relation to the guarantees and had failed to provide a recommendation to Seth that he obtain independent legal advice before signing any documents in relation to guarantees.