Suzie has a moment of clarity that she is tired of working for others and decides to ‘become her own boss’. She establishes an interior decorating business and quickly builds up a steady client base. Whilst work is steady, it is not improving, so Suzie believes that she needs a general manager to take over the general business administration so she can spend more time with clients. An injection of capital for a social media advertising campaign would also be helpful. Suzie approaches Cody, who has management experience in many small to medium sized businesses and, fortuitously, she too is trying to start her own business. Cody brings not only a good set of skills, but also an injection of funds into their newly established joint business account. Both Suzie and Cody are deeply distrustful of lawyers and therefore wish to draft a business agreement on their own. They discuss at length and decide the following matters, which is put into a written agreement signed by Suzie and Cody:

  • Profits and losses will be shared 50:50
  • Cody will do the bookkeeping, marketing, and making sure the front office is running smoothly, whilst Suzie will continue to develop theirclient base. Only Suzie is permitted to perform interior decorating services.
  • All property (such as sample furniture, rugs, carpets, etc) and money injected into the business remain the property of the business and may not be used for purposes outside of the business unless both parties agree.
  • All transactions over $10,000 must be agreed by both parties.
  • There is a clause preventing either party from running ‘side’ businesses and that any such proposal must be approved by both parties, and the parties should devote themselves to achieving the goal of making the business ‘the best interior decorator business in SE Qld’.

Cody is feeling quite bored with the mundane paperwork and administrative role and wishes to start building up her own client base. Knowing of the restrictions in the business agreement, Cody decides to hide her actions from Suzie. Using the firm’s reputation, and some professional looking business cards, she is able to convince prospective clients to engage Cody and Suzie’s business.

Cody’s actions turn out to be disastrous with clients referring to her designs as ‘hideous’, ‘a crime against humanity’, and ‘the worst thing to happen to an industry since doctors discovered smoking causes cancer’. Whilst most clients only complained about Cody’s designs and refused to pay, an architecture firm (TJs Pty Ltd) who engaged Cody to decorate their offices, lost potential clients. As one potential client of TJsstated, ‘if this is what passes for acceptable in your office, I don’t want to live in anything you designed’. Unfortunately, TJs learned that Cody had no prior experience as an interior decorator and views allowing a novice to represent the firm as negligence. They are now planning to sue both Cody and Suzie.

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Suzie is outraged by the behaviour. She was preparing to celebrate some recent successes as some of her clients were so pleased with her efforts, they paid Suzie a bonus, as reward for “a job well done”. Suzie was going to surprise Cody with this information, but due to the impending legal action, has decided to keep the money thinking ‘if Cody can keep secrets, then so can I’.

Advise Suzie and Cody of any liabilities they may have (or actions they may take). Restrict your answer to the Partnership Act 1891 (Qld) and any associated caselaw.

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