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 in Sydney, 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 her. (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)

No discussion on the law concerning directors' duties, or the content on the tort of negligence is required. The answer must make reference to provisions of the relevant statute and precedents in support of your answer.