CASE STUDY:

Alby, Bertie and Carlo were old friends from their days at the College of the Arts. While Bertie and Carlo have persevered along their creative paths, Alby has become more of an 'ideas man' in the marketing line. When Alby received his share from his parents' deceased estate, he proposed a business venture to Bertie and Carlo.

In December 2018, the three friends were registered as joint proprietors in the fee simple of 42 Maribyrnong Drive, a dilapidated warehouse near Footscray. It was decided that Alby would use half of the property for a bar and music venue, and the rest would be divided equally between Bertie's caf and Carlo's music and bookstore. That way there would be money coming in from early morning until late at night. It also combined their respective talents, as Alby had been doing well in online music promotion, Bertie had a lot of experience as a barista (and occasional actor), and Carlo had always worked in book and music shops.

Of the purchase price of $1.6 million, Alby contributed a deposit of twenty five percent. The balance of the purchase price was secured by a mortgage loan from Western Alliance Bank at an interest rate of five percent per annum for a period of twenty five years, for which they were jointly liable.

The three friends had more experience as creative types than in business. Without specifically discussing the matter, they tacitly agreed to avoid complicated and tedious meetings with lawyers and accountants. Other than employing a licensed conveyancer for the purchase, they did not seek legal or financial advice.

In order to finance the conversion of the warehouse, Bertie and Carlo each obtained loans of $200,000 from Swift Mortgage Loans Ltd, at an interest rate of ten percent per annum repayable over ten years. Both loans were secured by mortgages over Bertie and Carlo's interests in 36 Maribyrnong Drive. Only Bertie and Carlo signed their respective mortgage agreements. Alby funded the conversion of his share of the warehouse from the remainder of his inheritance.

While Alby felt a little concerned about the higher rate of interest charged on Bertie and Carlo's loans, they were all full of excitement and optimism about the future of their venture. No formal business structures were established, with each of the parties operating as a sole trader in relation to their respective businesses. Over drinks at a nearby bar, they made an informal agreement to pool their funds to pay off the West Alliance Bank loan and the two Swift Mortgage Loans Ltd loans from the profits of the three businesses. They would then use their combined trading profits and the capital appreciation on the sale of the business to move into larger-scale joint operation together. That way they could make use of their combined talents in music promotion, catering and hospitality, and music and book retail. Alby thought it might be an idea to set up a company at some point in the future, but no firm plans were made about that. Then, when they were all set up nicely in life, they could sell out and retire in their fifties.

Alby's venue took off quickly, thanks to his savvy online marketing. It was packed out from mid-week to Saturday night, with patrons paying a modest cover charge and consuming drinks and snacks far into the night. Bertie's caf was doing quite well at a more modest scale, with a regular clientele from morning coffees through to early afternoon. Carlo's store was struggling, which he attributed to various forms of online competition. The profits from each of the three businesses was paid into the personal bank accounts of each of them.

Alby was keen not to let his friends down, and even keener that the whole venture should be a success. Accordingly, the informal agreement was for each of them to contribute to a separate account, held jointly by them. This joint account was used to fund the warehouse conversion, and to pay off the three loans on the basis of minimising the total interest payments across the three loans.

Carlo's daughter Stella has been working in his store since it opened in May 2019, for the minimum wage for an eighteen year old.She has also been doing some shifts at Alby's venue, since January 2020. Alby has been very impressed by her practical initiative and people skills, and her acumen about the music business. He mentioned to Carlo that he was thinking about offering her an expanded role in his business.

Carlo didn't see much future for himself at the store. It was taking up more time than working for a wage, that he would rather be spending on his creative pursuits. Until now Stella has struggled to find any direction in life, and Carlo has been delighted to see how well she is doing now. In May 2020 he said to her: 'You're doing a great job. If you show me that you can work nights and weekends for six months working for Alby, I'll be happy to give you my share of the business and the warehouse here.'

Stella was delighted by the prospect, and was more than happy to work the two jobs. What's more, within a few weeks Alby was paying her fifty percent more than her dad, for her expanding roles in his business.

After six months, Carlo duly arranged to give her his share of the business. He decided not to worry about his continuing liability for the loans. They were being paid off steadily as things stood. This was a great opportunity for Stella, and that was worth any risk involved. He arranged an appointment with Mr Soames, his solicitor, who was in possession of the certificate of title to the property. Soames duly prepares a transfer for Carlo to sign. Unfortunately, the day before Carlo's appointment with Mr Soames, there was a severe storm over Melbourne. The Maribyrnong River flooded, extensively damaging the warehouse. Carlo, who was profoundly immersed in a novel at the time of the flash flooding, quickly became even more deeply immersed in the floodwaters. His body was found floating near Victoria Docks next morning. In his will, Carlo left all his real and personal property to Stella.

Alby and Bertie discovered that the insurance policy on the property only covered storm damage, defined as water moving downwards onto the property, not upwards as was the case with the flood waters. Due to the extensive damage, they couldn't continue trading. They are unable to obtain any further loans, or to service the existing loans without any cash flow from trading.

By 25 March 2021, Alby had contributed $400,000 to the joint account used for the warehouse conversion and loan repayment. He employs staff to run the music venue, although he regularly attends gigs, partly to network in the music industry. He says that, combined with his other marketing and networking activities, he is 'always on the go'. Bertie has contributed $100,000 to the joint account. He works in the caf from 7.00 am to 5.00 pm six days a week, including time spent on food preparation, shopping, and cleaning. Carlo has not been able to contribute to the joint account. He worked 9.00 am to 5.00 pm Wednesday to Sunday in the shop. In the evenings and on weekends he had pursued his literary interests.

There is a combined total of $700,000 outstanding on the three loans. After the unrepaired flood damage, 42 Maribyrnong Road has been independently valued at $1.2 million.

determine whether remedies in part performance should be made available.

As per the case law ofMcBride v Sandland, the following requirements must be satisfied to achieve a remedy for part performance.

• was the acts done by a party to the agreement?
• was the agreement complete?
• was the acts done in compliance with the terms of the oral agreement?
• were the acts relied on unequivocally linked to or indicative of some agreement of the ?general nature of that alleged?
• was the performing party acting in reliance on the agreement, and has the other party permitted those acts to be done because of the existence of the agreement?