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Corporations Act, 2001 - Business and Corporation Law Assignment Case Analysis

Question

Task: You must answer the two problem-type questions below, using the ILAC (Issues, Law, Application, Conclusion) format, a worked example of which is in the Resources folder.

Question 1: Terence studies jewellery design at Charles Sturt University. After he graduates, he sets up a business called ‘Terry’s Terrific Designs’. He employs Peter and Sara, who are also CSU graduates to work for him. Peter is appointed as Supplies Purchaser and Sara as a Designer. Sara shares the design work with Terence himself.

Give Terence advice in relation to the following situations, citing relevant legal authority:

Sara visits Gabby, who wants a brooch designed for her. Sara shows Gabby photos of a number of designs that she (Sara) has executed. Sara forgets to tell Gabby that she works for Terence. Gabby is impressed by Sara’s work, and asks her to design a $ 1 000 brooch in the shape of an elephant. On the next day, Terence phones Gabby and says ‘I have received your order, and will finish the brooch within two weeks’. Gabby says ‘Who are you? I have a contract with Sara’.

Terence tells Peter that the business is over-supplied with gold, and that he should buy only silver. However Peter is having a drink with Mary, a gold dealer who he has often dealt with before on behalf of Terry’s Terrific Designs, who offers to sell 50 grams of gold for $ 1 500, which is a very good price. Peter agrees to buy the gold on behalf of Terence, but when Mary arrives at Terence’s shop with the gold asking for the $ 1 500, Terence refuses to accept the gold or pay her.

Because Peter disobeyed his instruction not to buy gold, Terence fires him on Monday. However Terence does not shut off Peter’s access to the business’ email system until Thursday. On Friday Terence is contacted by Gordon, a diamond seller who Peter had regularly dealt with on behalf of Terence. Gordon says that saying that on Tuesday Peter sent him an email ordering a $ 5 000 diamond on behalf of the jewellery business, which he (Peter) picked up on Wednesday. Peter has disappeared to South America and is untraceable. Gordon is demanding to be paid.

Question 2
Roger Smith owns 92 of the 100 shares in United Chemicals Pty Ltd, a company he registered in 2009. The Company Secretary is his wife, Mary, who owns the remaining 8 shares. They elect Timothy Smith, Roger’s brother, as Managing Director of United Chemicals Ltd. In 2015 the company bought a phosphate processing machine from Industrial Machines Ltd for $ 600 000, payable in three equal instalments in 2015, 2016 and 2017. The contract was in writing and signed by Roger as follows:

Timothy Smith
Managing Director
For and on behalf of United Chemicals Pty Ltd

Business goes well in 2015 and 2016, and the company is easily able to pay the instalments, but in 2017 a sudden downturn in the agricultural sector causes sales of fertiliser to drop off, and United Chemicals finds that it cannot pay the final $ 200 000 instalment. Roger has received a letter from Industrial Machines suing him personally for the $ 200 000, as the board of Industrial Machines knows that he is wealthy.

One of the steps Roger took in early 2016 to try to improve his business fortunes was to see if he could expand into the area of making explosives. However, Commonwealth legislation prohibits the granting of an explosive manufacturing licence to ‘any person who has a criminal conviction’. Roger was convicted of theft in 2005. Roger establishes another company, Explosive Industries Pty Ltd, of which he owns 99 shares and his wife 1 share, with himself as Managing Director and his wife as Company Secretary. He asks Mary to lodge an application for a licence on behalf of Explosive Industries Pty Ltd with the Commonwealth Department of Industry. The Department has sent a letter declining the application, citing the legislation regarding prior criminal convictions as its reason.

Advise Roger in relation to the claim made by Industrial Machines Ltd and the decision by the Department of Industry, citing relevant law.

Answer

Solution 1:
Issues: In the present case, following issues were raised:

  • Is Sara legally justified in not specifying that she is working for Terry’s Terrific Designs & Gabby is under the impression that he had made the contract with Sara?
  • Whether in spite of the special instructions by the Terrance to not to buy gold, the deal finalized by Peter to purchase 50gms of gold is valid, and Terrance is liable to pay $ 1500 to Mary?
  • Whether there is any liability of Terrance to pay $ 5,000 to Gordan as the diamond taken by the Peter when he was fired from the job before the placing of order?

Law: It is the well settled law under the employment act that the employees are bound by some duties given to them by their employer and in pursuance to the same, the employers are also bound to perform some duties to ignore some clash of interest to the respective employers. But the employees are not allowed to show their employment status in front of their customers as it shows the position of the employee in the company. As it is the well settled law that employee work, perform duties and entered into agreements on behalf of the company.

Application: In the instant case Sara met Gabby and shown him some of the designs which impressed Gabby, and he asked her to design a brooch of the shape of elephant for $ 1,000 to which Sara agrees (Echeverry Botero, 2015). As the intention of Sara is clear, she informed her employer about the order. In this way she does not breach any duty of care and loyalty of the employer. It is pertinent to mention here that from the facts itself it is clear that Sara entered into an agreement with Gabby on behalf of her employer and she also did not take any undue advantage from the agreement("Tort Law, Corporate Groups and Supply Chain Liability for Workers Injuries - The Concept of Vicarious Liability," 2017). The essential prior condition of the legally binding contract is that the people entering into the contract must have the intention to enter into the contract (Doris, 2014). The second important condition is offer made by one person and should be accepted by the other person without any pressure. And the third and the last condition is consideration in return. In the instant situation, all the three conditions are fulfilled, and furthermore it is pertinent to mention here that after seeing all the designs of Sara, then only Gabby agrees to enter into contract, so it makes no illegality if agreement is with Terry’s Terrific Designs or Sara as the designs have to provided by the Sara herself (Wright, Ellinghaus & Kelly, 2014).

Furthermore under the second issue, Terrance had strictly instructed Peter to not to buy more gold as they have much stock, but in spite of the strict instructions, Peter made a deal with the Mary for the purchase of 50 gms of gold for $1500, to which Terrance refused to make the payment (Randell-Moon, 2013). It is important to mention that the settled preposition of law is that the employer is vicariously liable for the act or omissions did by his employee under the course of his employment (Hesselink, 2015). It is further pertinent to mention that no doubt, the act was done by Peter is not permitted by Terrance but as per the settled preposition of law, Terrance is liable to pay amount to Mary as he is vicariously liable for the act done by Peter during the course of his employment (Rutgers, 2008).

That it is submitted that the under the terms of the contract act, the legally enforceable agreement is when two parties are agreed to perform their part. In the present case, it is prima facie established that Terrance had fired Peter on account of misconduct on Monday, and the order received by Gordan on Tuesday, which established the fact that the there is no legally binding contract between the Terrance and Gordan (Grundmann, 2011). Furthermore, from the definition of vicarious liability, it is clear that Terrance is not liable to pay any money to Gordan. For the kind perusal, the definition of Vicarious liability is stated as "the employer is vicariously liable for the negligent act or omissions did by his employee during his employment" ("Vicarious Liability or Liability for the Acts of Others in Tort: A Comparative Perspective," 2011). From the definition of the vicarious liability, it is prima facie clear that the employer is only liable for the act done by the employee only during the employment and from the given facts it is prima facie clear that the employment of Peter has been terminated on Monday. So agreements made after Monday are not the liability of the Terrance (Morgan, 2011).

Conclusion: In the end, it is to be concluded that the act of Sara is not so serious and can be indemnified by giving one warning but the act of Peter to intentionally committing of fraud is such serious and is required strict legal action.

SOLUTION 2:
Issues: In the present case, following issues were raised:

  • Whether Roger as being the majority share holder is personally liable for the final and last installment of $2,00,000 to Industries Machines Limited?
  • Whether the rejection in granting the license to the company namely Explosives Industries Pty Ltd is legally justified by the Commonwealth Department of industries?

Law: The present given case is related with the breach of the terms of contract. In order to under the complexity of the case, the Uniform Commercial Code is required to the considered. It is relevant to mention here that the as per the Uniform Commercial Code, any party who is aggrieved from breach of the installment of the contract can take legal actions under the Uniform Commercial Code and also the aggrieved party can terminate the contract. It is pertinent to mention here that as per law, they can ask for damages. Under the Corporations Act, 2001, it is specifically specified that the company is the separate legal entity and can sue and can be sue on its name (McCarthy, 2004). It is furthermore relevant to mention here that the company has its property, rights, and obligations which should be used for the company (Schwartz & Scott, 2003).

Furthermore the question arises for the rejection of the explosives licence to the company of the Rogers. It is pertinent to mention here that as per the Section 16 of the Security Industry Act, 1997, the commissioner should refuse to grant the licence if the commissioner satisfied that the applicant has within the period of 10 years before the presentation of application been convicted in New South Wales or in anywhere else for the offence prescribed under the law (Ferran, 2016).

Application: In the present given case, the Industries Machines Limited had sent a letter to Rogers keeping him personally liable for the debt only on the ground that he is wealthy is not legally justified under the provisions of the Corporations Act. It is furthermore relevant to mention her that there are some certain conditions under which the shareholder or director of the company can be held personally liable which are not present in the present case (Stupariu, 2013). So, it can be said that the letter sent by the Industries Machines Limited keeping Rogers personally liable for the debts of the company is not legally justified ("Editorial Board," 2015). In the present case, it is clear from the above-stated facts that the machinery was purchased for the company and the contract was signed by Roger for and on behalf of the United Chemicals which shows that the contract was with the Industries Machines Limited and United Chemicals and not with the Rogers itself. It is the well settled law that the company is itself a separate legal entity and can sue and can be sued on its name. As per the Corporations Act, the action by the Industries Machines Limited against the Rogers is not legally justified.

Furthermore, the application was made by Mary on behalf of the company, i.e., Explosives Industries Pty Ltd for grant of the license which has no previous criminal records. So, the application rejected by the Department of Industry is not legally justified. Furthermore if, for the sake of arguments if it is assumed that Roger is the majority shareholder of the company then also the action taken to reject the application is not legally justified (Lim, 2014). Because as per Section 16 of the act, within ten years before the presentation of application been convicted and in the present given case, Rogers was convicted in 2005 for theft then also the application rejected is not justified as the application presented in the year 2016. So, it can be submitted that the application rejected by the Department of Industries is not legally justified as per the selected prepositions of law (Naniwadekar, 2008).

Conclusion: In the end, it is concluded in the company is itself a separate legal entity and can sue and can be sued on his name. The shareholders or Directors cannot be held personally liable for the debts of the company as the company has its assets. Furthermore, the department of industries is not legally justified in not granting the licence to the Explosives Limited in view of the settled prepositions of law. It is relevant to mention here that the department had misinterpreted the law in their favour which is not legally justified as per it is the well settled law by the various courts.

References
Doris, M. (2014). Promising options, dead ends and the reform of Australian contract law. Legal Studies, 34(01), 24-46.
Editorial Board. (2015). Endocrinology, 156(5), 2C-2C.
Ferran, E. (2016). Corporate Mobility and Company Law. The Modern Law Review, 79(5), 813-839.
Lim, E. (2014). Attribution in Company Law. The Modern Law Review, 77(5), 794-807.
McCarthy, L. (2004). Vicarious Liability in the Agency Context. QUT Law Review, 4(2).
Morgan, P. (2011). Distorting Vicarious Liability. The Modern Law Review, 74(6), 932-946.
Naniwadekar, M. (2008). The Law of Agency as applied in Company Transactions. European Company And Financial Law Review, 5(3).
Rutgers, J. (2008). Free Movements and Contract Law. European Review Of Contract Law, 4(3).
Tort Law, Corporate Groups, and Supply Chain Liability for Workers Injuries - The Concept of Vicarious Liability. (2017). SSRN Electronic Journal.
Vicarious Liability or Liability for the Acts of Others in Tort: A Comparative Perspective. (2011). Journal Of European Tort Law, 2(1).
Wright, T., Ellinghaus, M., & Kelly, D. (2014). A Draft Australian Law of Contract. SSRN Electronic Journal.
De Schutter, O. (2015). Towards a Legally Binding Instrument on Business and Human Rights. SSRN Electronic Journal.
Echeverry Botero, D. (2015). Contract Interpretation Law in Australia: It Is a Maze, Not a Straight Way. IUSTA, 2(41).
Ferran, E. (2016). Corporate Mobility and Company Law. The Modern Law Review, 79(5), 813-839.
Grundmann, S. (2011). The Future of Contract Law. European Review Of Contract Law, 7(4).
Hesselink, M. (2015). Democratic contract law. European Review Of Contract Law, 11(2).
Randell-Moon, H. (2013). The secular contract: sovereignty, secularism, and law in Australia. Social Semiotics, 23(3), 352-367.
Schwartz, A., & Scott, R. (2003). Contract Theory and the Limits of Contract Law. The Yale Law Journal, 113(3), 541.
Stupariu, I. (2013). The Effect of Companies's Transformations on Legally Binding Contracts. SSRN Electronic Journal.
Stupariu, I. (2013). The Effect of Companies's Transformations on Legally Binding Contracts. SSRN Electronic Journal.

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