Topic: Law of Commerce

• Scenario

John Finlay, a retired commercial pilot, is the registered proprietor of large plot of land, with a small wooden building, near Tullamarine airport. He had always planned to develop his land into a light plane training academy, however, he was made redundant from his job during the Covid-19 pandemic in late 2020. He now does not have the funds to develop the land and the leading banks have denied him a bank loan to fund his proposed flight school.

John was about to give up hope of his dreams for a flying academy when he was approached by Sam Lawrence, the director of Flight Schools International Pty Ltd (FSI), a company duly established under Australian law and registered with ASIC. The company was incorporated with the objects of providing flight consoles and decommissioned airplanes for light plane enthusiasts to complete their training and seek a licence.

FSI entered into an agreement with John to set up the light plane training academy on his land, with the building to be used as the training centre. This agreement was expressed to be a "joint venture". Pertinent parts of the agreement are extracted below.

• Joint Venture Agreement

1. Formation

The joint venture formed by this agreement will conduct its business under the name of 'FSI Finlay Flying Academy'. The joint venture will be considered a joint venture by both joint venturers and in no event shall this agreement be construed to join a partnership or other fiduciary relationship between the parties."

2. Purpose

The Joint Venture will be formed to conduct the business of a light plane training academy in Tullamarine, Victoria.

3. Contributions

The parties make the following contributions to the startup of this FSI Finlay Flying Academy:

(1)John Finlay provides the land, water, electricity and other amenities. He maintains the access road and parking spaces and provides an office and training rooms.

(2)FSI provides the flight consoles and decommissioned airplanes and undertakes to keep the equipment serviced at all times. FSI also undertakes to provide startup capital of $75,000 for advertisements, employment of staff and other incidentals.

4. Distribution of Profits

Any and all net income accruing to the joint venture will he apportioned equally between the joint venturers.

5. Management

FSI Finlay Flying Academy will be jointly managed by John Finlay and Flight Schools International Pty Ltd.

6. Termination

Either party shall have the right to terminate this joint venture agreement with thirty (30) days' notice in writing, at which time profits will be shared equally.

The relationship between John and FSI has broken down. Many clients have canceled their console training due to poor maintenance of the consoles due to FSI's failure to keep up their part of the agreement. John exercised the right to terminate the agreement pursuant to term six in the agreement by providing 30 days' notice to FSI in writing.

One morning John arrives at the flight academy and finds that FSI has packed up all its equipment during the night and left the building empty. Two of the full-time staff members arrive at work shocked to find all the equipment gone. They tell John they are owed two months' salary. John checks with the bank and discovers that all the funds from the joint venture bank account have been withdrawn.

Question

Advise John whether he is personally bound to pay the staff for their unpaid salaries and to claim a share of any profits from FSI. By following closely the steps IRAC.