LLB205 - Equity And Trusts - Law Assignment Help

Assignment Task

You are employed as a law graduate by the firm, Rose and Budd (RB) of 86 Main Street, Brisbane, Qld, 4000. Last week your supervising partner, Stevie Rose (s.rose@RB.com.au; telephone 07 1111 2222), received a telephone call from David Brewer (50 Toronoto Drive, Slacks Creek, Qld, 4127) seeking legal advice. David Brewer (David) told Stevie Rose (Stevie) the following information: 

On 8 January 2012 David entered into an agreement with Twyla Schitt (Twyla) to purchase a business in Slacks Creek which operated as a store called The Apothecary. David engaged Johnny Mullens (Johnny), a sole legal practitioner, to act for him in the contract negotiations and the transfer of the business. At the time, Johnny mentioned to David that he had acted as Twyla’s solicitor for many years, and that he could not see any reason not to continue to do so in this casetoo,so he was going to proceed on this basis. David said that this was fine with him. 
The Apothecary store was conducted from premises leased by Twyla from Ray Butani (Ray). The sale and purchase agreement between Twyla and David for The Apothecary business provided that Twyla was required to obtain the written consent of the lessor (Ray) to the assignment (transfer) of the lease.
The registered lease between Ray (the lessor) and Twyla (the lessee) had been entered into on 20 February 2010 for a term of ten years. This lease contained the following valid clauses: 
Clause 30: The lessee is required to obtain the lessor’s consent in writing to any purported assignment of the lease. 

Clause 31: In consideration of the lessor’s consent to any assignment of the lease, the assignee (new lessee) is required to provide a $25,000 bank guarantee to the lessor. 

Clause 32: If the lessor’s consent is not validly obtained to any purported assignment of the lease, any such assignment is invalid and the lessor is entitled to terminate the lease immediately.

Johnny did not advise David about the requirement in the sale and purchase agreement for Twyla to obtain Ray’s consent to the assignment of the lease or explain the effect of clauses 30, 31 or 32 of the lease. Accordingly, the bank guarantee was not executed and Ray’s consent to the assignment of the lease was never obtained. On 25 January 2012 David paid the balance of the purchase price, completed the business purchase, took possession of The Apothecaryand started to operate the business, without the lease being formally assigned to him. Johnny issued an invoice totalling $5,500 for his legal services to David, which David paid in full on 28 January 2012. 
In early February 2012 Ray validly terminated the lease pursuant to clause 32 of the lease agreement between Twyla and Ray. As David’s preference was to operate The Apothecary store from its existing Slacks Creek location, David negotiated with Ray and was able to secure a new ten year lease which provided that in the first year of the term the rental was the same amount as in Twyla’s lease but then the rent would increase by $20,000 each year thereafter. This rental increase was not in Twyla’s lease.  David paid the rent and operated The Apothecary very profitably until he sold it to Patrick Sands (Patrick) in March 2017 wherein the business, including the lease, was validly transferred to Patrick. 
David decided to invest the sale proceeds from The Apothecary business in shares. As this was the first time he had invested in the share market, David engaged a highly recommended, experienced stockbroker, Moira Levy (Moira). David also joined the mailing list for Moira’s weekly client newsletter email. This email newsletter contains general share market information, as well as Moira’s investment tips and advice for her clients. David looked forward to receiving Moira’s weekly client email and always read it with great interest. David bought several parcels of shares through Moira over the years, sometimes following Moira’s investment tips.
In early December 2019 David engaged Moira to advise in relation to a plan he had to purchase a 60% majority shareholding in Slacks Creek Motel Ltd (SCML), the company which owned and operated the Slacks Creek Motel, and to facilitate the share acquisition. David signed an appointment letter with Moira which included the following term:
The client (David Brewer) acknowledges that the stockbroker (Moira Levy) has been retained solely as an advisor to the client and that the stockbroker is engaged as an independent contractor under this contractual relationship only and not in any other capacity.   

Moira successfully facilitated the purchase of a 60% shareholding in SCML for David on 20 December 2019 by acquiring two equal parcels of shares from Crow Eyes Pty Ltd (CEPL) and Alexis Mutt (Alexis) at $50 per share. Due to the economic impact of the COVID-19 pandemic David’s 10,000 shares in SCML are now worth $25 per share. 
Two weeks before the share prices started rapidly spiralling downwards, Moira advised her clients in her weekly newsletter that they should immediately liquidate (sell) their shares to avoid exposure to a predicted market downfall, and that this was particularly crucial and urgent for those who held shares in travel related companies such as airlines, hotels and motels. David read the weekly newsletter, did some extra research which supported Moira’s advice, and decided to sell his SCML shares. David did not receive any other communication from Moira regarding the SCML shares. Unfortunately, David then forgot to initiate the sale of the SCML shares before the share price nose-dived. There is no sign of SCML share price recovery in the foreseeable future. All of Moira’s clients who followed her email newsletter advice and cashed in their shares when she advised them to realised massive gains and avoided losses, including clients who held shares in SCML. 
Last week David discovered that Moira is the sole shareholder and sole director of CEPL, and that Alexis is Moira’s mother-in-law. This prompted him to contact Stevie for legal advice. Over a six month period leading up to December 2019 Alexis and Moira had been having regular lengthy conversations about SCML, the desirability of diversifying their respective share portfolios of companies in the travel sector and reducing their exposure to market fluctuations in the share price of such companies. Moira told Alexis that she would be on the lookout for opportunities to sell SCML shares to clients of her stockbroking business to reduce Moira’s and Alexis’ personal exposure, and that some of her clients were particularly interested in opportunities arising in Slacks Creek. When Moira then told Alexis that someone had approached her and wanted to acquire the SCML shares, Alexis was absolutely thrilled, although she was a bit surprised because she didn’t think that Moira was currently promoting the acquisition of stocks in the travel sector to her clients. She (Alexis) decided not to ask any questions however and instructed Moira to get the sale finalised as quickly as possible. 
RB has been instructed by David to provide advice as to whether he can make out any claims for breach of equitable duties against any parties, and if so, what relief would be available and his chances of success. In addition, as David is now furious with Johnny, he has told Stevie that he wants Johnny to be punished and thinks that it is important to make an example of Johnny because he is such a bad lawyer. 

Stevie has placed the file on your desk and asks you to draft the initial letter of advice to David. You are also requested to write a supporting memorandum for Stevie 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 David, you should specify this and explain why this information is important. In all cases where David may have a reasonably arguable equitable claim against any party you should come to a conclusion and advise whether or not you think the claim will be successfully made out. Irrespective of your conclusion, you should also consider any defences and remedies and/or other forms of redress that may have been available to David. 
Please only advise in relation to potential claims and issues which arise from your studies in Equity and Trusts ie. do not advise in relation to other areas of the law, for example negligence, property law, contract, intellectual property law, corporations law or consumer law
 

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