Contract Law Assignment: Issue Identification And Critical Analysis Of Legal Concepts
Task: The purpose of this assessment task is for you to independently research the relevant legal area and write an answer for either Question 1 or Question 2.
Related learning outcomes
This task is assessing your ability to demonstrate that you meet the criteria for the following unit learning outcomes:
- critically analyse a range of legal concepts relating to corporate and contract law, drawing both from common law and statute law
- generate a range of solutions from case law drawing on analysis and interpretation of the Corporations Act 2001, the common law and other related state and Commonwealth legislation (NB:answers must be based on Australian laws. Any answers that are based wholly on laws from another country or jurisdiction will attract a fail mark unless they are used as a comparison or to extrapolate perspectives from another legal jurisdiction with Australian laws. The exception is English law as the approach of the Australian courts tend to reflect the English position)
- apply critical thinking and analytical skills when applying legal concepts and principles
- construct coherent and logical legal arguments and communicate them effectively in both written and oral activities assigned
- apply advanced knowledge of a wide range of legal concepts, principles and rules of Australian contract and corporations' law and to explain their relationship in the conduct of businesses and entrepreneurial activities.
Choose either Question 1 or Question 2:
- Directors of companies have an obligation to act in the best interests of the company. Elaborate on how the court approach this duty and explain whether the corporations law in Australia has made this duty onerous.
- The traditional approach in contract law is to reluctantly award damages for non-pecuniary losses. Over the years, the courts have taken a more generous attitude towards the recovery of this type of loss. Is there justification for this approach? [Non-pecuniary losses are damages which are not readily quantifiable]
The present report on Contract law assignment is shedding light on various aspects of Corporations Act and Contract law irrespective of several law cases. The importance of law cannot be denied as it helps to protect the interest of an individual as well as an organisation. The Corporations Act of Australia is essential to identify as it is crucial to evaluate duties of directors. Directors are having significant role to focus on the interest of shareholders as they are the owners’ of the company. Furthermore, it is also important to evaluate implications of Contract Law as it helps to evaluate the consequences of damages due to breach of contract. The entire discussion regarding Corporations Act and Contract Law of the study provided in the Contract law assignment is given below.
Question 1: Directors of the Company have an obligation to act in the best interests of the organisation
1. Identification of Issue (Issue identification, Critical analysis of legal concepts regarding corporate law)
As per Corporations Act 2001 of Australia, it is noted herein Contract law assignment that Directors are having fiduciary duties to the company which reveals that directors have to work honestly to protect the interest of the company. The main issue which may arise due to the breach of duty is deterioration in the corporate governance and violation of interest of shareholders which would decrease performance of a company in the competitive world (Harris et al., 2008). The conventional view of the corporate law reveals that the protection of interests of shareholders is primary duty of directors. As per section 181 of the Corporation Act 2001, the consideration of due care in organisational activities is important to the directors to maintain transparency in the company activities (Langford, 2013). As per statute law, it is the duty of a director to focus on the interest of shareholders, employees, creditors and so on and on the other hand as per common law good faith is important to fulfil the objectives of the company successfully. Hence, common law and statute law both reveals that directors are having an obligation to protect the interest of the company.
The second issue identified in this Contract law assignment report which may arise as a consequence of breach of duty of directors is financial loss which would hamper the interests of stakeholders of the corporation. Sometimes, various directors misuse their power within the organisation and it creates financial loss to the company. Directors generally have the right to exercise power which has been vested on them but they cannot interfere in the power exercise of shareholders(Langford and Ramsay, 2015). In the modern globalised world, the importance of corporate governance cannot be denied as it helps to identify transparency level of a business entity. Furthermore, consideration of interest of shareholders is also important to a corporation as they are the owners of the company. Care and Diligence, Good faith and Proper use of information & position are basic duties of a director according to the Corporations Act 2001. If the power misuse in an organisation can be avoided, it would help to eradicate the problem of financial loss.
2. What are the relevant laws for each issue identified in the context of Contract law assignment? (Interpretation of the Corporations Act 2001 and Commonwealth Legislation)
In terms of the first issue, the case law of ASIC vs Maxwell is important which reveals that the unity in the interests between directors and shareholders is essential as it helps to justify a situation and stakeholders’ interest can be easily fulfilled. Based on the section 344 of the Corporations Act 2001, it can be stated that analysis of financial information is crucial as it helps to identify whether the business performance has been properly continuing or not (Aicd.companydirectors.com.au, 2019). The fraud in financial information misrepresentation clearly reveals that shareholders’ interest has been hampered and remedial steps are adopted by the top level management against directors. Directors are having duty to focus on the corporate governance practices to fulfil interests of shareholders of an organisation. As per the research conducted for Contract law assignment, the section 344 clearly reveals that financial information verification is important to maintain transparency of the organisation.
In terms of fiduciary duties, the case law of Barnes vs Addy is important which says that distinctive use of duty is important to protect the interest of creditors. Hence, honesty to the organisational activity is the primary duty of directors to develop the position of a corporation in the market. In terms of care and honesty of work of directors, the section 116(2) of the Companies Act, 1896 is important as it has clearly depicted that every director shall be under the obligation to provide service to the shareholders as with reasonable care. In this context, it has been identified that the term ‘reasonable care’ is essential as it increases the responsibility of a director within the organisation. As per the general law, good faith and avoiding conflict of interest is essential to protect the interest of shareholders and maintaining corporate governance within the organisational activities. The statutory duties have been clearly mentioned in the section 180 to 184 of the Corporations Act 2001 (Bostock, 2012). Hence, considering commonwealth legislation, it may be stated that general and statute law both are important to maintain transparency in the company activities.
In terms of the second issue identified in this case of Contract law assignment, it may be stated that financial loss is the major issue in case of an organisation and in this respect section 180(1) of the Corporations Act of Australia is important. This section has considered rules and regulations regarding breach of duty of directors (Aicd.companydirectors.com.au, 2019).The reasonable care in the activity are important to the director which does not hamper interest of shareholders and the company. The case law Castlereagh Motels vs Davies Roe is important to say here as the case has provided details regarding the financial loss. The case law reveals that proper discharge of fiduciary duties is essential to avoid financial loss and the main statutory duties of directors are not only the part of protecting financial loss. Hence, financial loss hampers the performance of an organisation which decreases position of a company in the domestic as well as international market. The implication of section 180 is essential to avoid the issue and enhancing the performance of a corporation in the market.
3. Application of Relevant Law to Each issue
Based on the case law of ASIC vs Maxwell, the Contract law assignment research found that directors need to discharge their responsibilities according to the requirements of stakeholders and they need to consider the interest of shareholders to make any decision. Hence, the unity in the activity of directors and shareholders is essential to provide quality service and protecting the interest of the company. Based on the evaluation of section 344 of the Corporations Act 2001, it is essential to focus on transparency in the financial information reporting process (Bostock, 2012). The reason is it would help to adopt right decision to improve corporate governance performance of a corporation. The financial information analysis is important to an entity as it would help to adopt effective decisions in respect to the strategies of a company. The interest of shareholders is fulfilled or not is completely identified from the financial reporting process. The Contract law assignment report also illustrates that the implication of the case law Barnes vs Addy is also important here which implies that creditors are important stakeholders of the entity in addition to shareholders. Hence, it is the duty of directors to protect the interest of stakeholders not only the shareholders but the priority should be given to the shareholders as they are the owners of the organisation. The implication of the section 116(2) of the Companies Act 1896 is essential to fulfil the objectives of the shareholders which reveal that directors are responsible to focus on the reasonable care which would ensure interest of shareholders (Klein and du Plessis, 2005).
In terms of the second issue identified in the context of Contract law assignment, it can be said that the implication of section 180(1) of the Corporations Act 2001 is essential to protect the problem of breach of duty (Aicd.companydirectors.com.au, 2019). Directors are responsible to provide high quality service to the shareholders and other stakeholders to fulfil their objectives but breach of duty creates financial loss to the company as well as stakeholders. The implication of the case law decision of Davies Roevs Castlereagh Motels is also important here as it would help to identify the importance of fiduciary duties of directors and general as well as statute law implication can be justified. The due care and diligence, good faith and effective use of power are the main three areas of duties of directors. Thus, it is essential to the directors to consider both section 180 and the case law of Davies roe to avoid financial loss of the company as well as shareholders.
On the basis of the overall analysis of two issues ascertained in this paper of Contract law assignment, it can be stated that the directors of a company are responsible to discharge their duties based on Corporations Act 2001. This is because, the protection of interest of shareholders as well as entire stakeholders of a company is vital and implication of various rules of Corporations Act and case laws can protect the interests of shareholders. The breach of duty is needed to be avoided by implementing section 180 strongly to enhance business performance of a company. Hence, the overall discussion reveals that directors of corporations have an obligation to work to the best interests of the business organisation. The court and Corporations Act 2001 approach duty of directors positively to develop performance of companies.
Aicd.companydirectors.com.au 2019. Aicd.companydirectors.com.au. Contract law assignment Available at: https://aicd.companydirectors.com.au/-/media/cd2/resources/director-resources/director-tools/pdf/05446-6-2-duties-directors_general-duties-directors_a4-web.ashx [Accessed 19 Oct. 2019].
Bostock, T. 2012. The Corporations Act 2001. Amicus Curiae, 2002(39).
Harris, J., Hargovan, A. and Austin, J., 2008. Shareholder primacy revisited: Does the public interest have any role in statutory duties?. Company and Securities Law Journal, 26, p.355.
Klein, E. and du Plessis, J.J., 2005. Corporate donations, the best interest of the company and the proper purpose doctrine. UNSWLJ, 28, p.69.
Langford, R.T. and Ramsay, I., 2015. Directors' Duty to Act in the Interests of the Company: Subjective or Objective?. Journal of Business Law, Contract law assignment pp.173-182.
Langford, R.T., 2013. The Distinction between the Duty of Care and the Duties to Act Bona Fide in the Interests of the Company and for Proper Purposes.
Question 2: Traditional Approach in Contract Law regarding non pecuniary losses
1. Issue Identification
The study examined in this section of Contract law assignment revolves around the Contract Law of Australia that is completely based on English law but no separate formation of law has been made by the authority. Based on the English contract law, it can be stated that breach of contract can be recovered based on awareness to compensate financial losses (Barnett, 2016). In terms of non-pecuniary losses, it can be stated that initially this type of loss has not been properly considered but subsequently separate provisions have been considered to compensate non pecuniary losses. According to the Contract Law, damage may be financial and non-financial and this context the law says that actual loss is needed to be identified. The main issue which may arise if non pecuniary losses are not properly compensated is sufferings of Plaintiff. The plaintiff has the right to make an appeal to the court regarding non pecuniary losses but if defendant can easily defend the issue it reveals the weakness of the court.
The second issue outlined in the case scenario of Contract law assignment which may arise if the non-pecuniary losses are not properly compensated is it would help increase misuse of contract law. Hence, the importance and quality of the contract law would be deteriorated. The contract law has provided clearly the compensation against the damages of plaintiff. Thus, it is important to focus on both pecuniary and non-pecuniary losses to provide fair judgement to the plaintiff. The non-pecuniary loss can be arisen due to misrepresentation of information, breach of contract or tort. Hence, it is important to maintain equality in the judgement to develop implication of contract law. The details analyses of two issues are discussed below.
2. Relevant Case Law regarding Each Issue
The case law of Alcatel Australia Ltd. vs Scarcella is essential in case of evaluating first issue as it has focused on the good faith of the contract (Mullen, 2015). Hence, if the court cannot provide positive solution regarding non pecuniary losses, it would hamper the interest of plaintiff. The honesty is needed to maintain to make a contract and if any breach of contract has been found, it is important to focus on the appropriate remedies. Secondly, it can be said that the case law Hadley vs Baxendle is important to identify the essence of non-pecuniary losses. As per the case law, the recovery of consequential damages is needed to limit and it is essential to provide equal importance on the pecuniary and non-pecuniary losses (Braci, 2015). The third case mentioned in the Contract law assignment in relation to the first issue is Addis vs. Gramophone co Ltd which depicts that the biasness regarding compensation of non-pecuniary losses is needed to stop as it is the unfair practice and plaintiff cannot get proper return of damages (Mullen, 2015). The Principles of Contract Law is needed to implement here in order to provide appropriate compensation to the plaintiff. The defendant may defend the case by identifying loopholes of the contract law but it would lead to the wrong judgement.
In terms of the second issue Rocca Bros Motor Engineering Co. Pty Ltd. vs Amoco Australia Pty. Ltdis important to say as it helps to identify legal implication of contract law (McKendrick, 2015). The avoidance of non-pecuniary losses is an illegal activity and the court should avoid this process. The case law focuses on the transparency of remedies against the breach of contract. In this respect the case law of Robinson vs. Harman is also important which has focused on the measurement of compensatory damages. In this case the importance of pecuniary and non-pecuniary both losses have been considered equally (Abdullah et al., 2015). As per the above aspect provided in the Contract law assignment, it has been stated that loss is subject to the judgement of the court whether it is quantifiable or non-quantifiable it does not matter. In respect to the non-pecuniary losses, the case law of Ruxley vs. Forsyth is important in which it has been identified that the judgement of non-quantifiable loss to the plaintiff is essential to provide proper compensation (Braci, 2015). In this respect, the case law of Farley vs. Skinner examined in Contract law assignment is also essential which implies that non pecuniary losses are having equal importance like pecuniary losses (Doris, 2014). The main benefit of evaluating this case law is it has focused on the damages of distress clearly and all types of losses have been positively considered to provide appropriate compensation to the plaintiff.
3. Application of Case Laws regarding Each Issue
The case law of Alcatel Australia Ltd. has provided clear description of good faith or honesty which is essential to provide right judgement to the plaintiff and to reduce illegal judgement in favour of defendant. The term ‘good faith’ is important in case of implementation of contract law as it is the duty of the court to focus on right judgement (Abdullah et al., 2015).According to the study explored in Contract law assignment, the case result Hadley vs Baxendle reveals that the consequential damages are needed to identify separately whether it is quantifiable or non-quantifiable (Doris, 2014). The result of the case is needed to consider appropriately as each consequence of damage has an effect and this is why plaintiff makes appeal to the appropriate authority to take corrective judgement from the court. In the case of the first issue identified in this Contract law assignment, the case law of Gramophone Company is also vital as it focuses on the removal of the biasness of judgement in respect to the pecuniary and non-pecuniary losses (McKendrick, 2015). The principle of contract law focuses on the actual loss and type of loss to provide reasonable compensation to the plaintiff. The loss reveals damages and the law should be equal to in all cases and in this perspective, it can be stated that contract law should be implemented equally in pecuniary and non-pecuniary cases.
The case of Amoco Australia Pty. Ltd. eas focused on the legal implication of the contract law which is important to provide proper judgement (McKendrick, 2015). If the contract law cannot provide quality service to the people it importance of the law would be deteriorated and people would lose confidence in the law. The case law of Harman vs Robinson has clearly focused on the compensatory damages which reveals that in case of each lose proper compensation is essential (Abdullah et al., 2015). Based on the case discussed in the Contract law assignment, the non-pecuniary loss has significant impact on the plaintiff and the judgement should be made in favour of the plaintiff in this case. The case of Ruxley clearly reveals that equal judgement is essential in case of pecuniary and non-pecuniarylosses and it is the drawbacks of the court if proper judgement cannot be given to the plaintiff (Braci, 2015). The court would adopt the decision based on the intensity of damage in case of non-quantifiable losses. The case of Skinner vs Farely explored in this Contract law assignment has also focused on the importance of non-pecuniary losses as it is essential to consider the importance of non-pecuniary loss (Doris, 2014).
4. Conclusion of the Issues and Case Laws
Considering issue and case laws of the contract law it has been identified in the context of Contract law assignment that non pecuniary and pecuniary losses both are essential in case of court’s judgement as per contract law. Hence, the law has provided description of equal judgement but it is the fault of the court as priority has not been properly given to non-pecuniary loss. It is true that the attitude of the court has changed recently towards this anatomy of losses.
On the basis of the above discussion within the Contract law assignment with respect to the Corporations Act and Contract Law it has been identified that both laws are important to maintain transparency in the implications of laws. The corporations act has focused on the duties of directors properly to enhance corporate governance process of the organisation. On the other hand, the study outlined in the Contract law assignment also identified that the contract law is needed to evaluate properly to justify the importance of non-pecuniary losses in addition to pecuniary losses.
Abdullah, N., Kari, F. and Nawang, I.N., 2015. Contract law assignment Incorporating the concept of good faith in Australian contract law: Implication or construction. Pertanika Journal of Social Sciences and Humanities, 23(11), pp.119-128.
Barnett, K., Great Expectations: a Dissection of Expectation Damages in Contract in Australia and England' 2016. Journal of Contract Law, 33, p.163.
Braci, A. 2015. Contract Law: An Introduction to the English Law of Contract for the Civil Lawyer. King's Law Journal, 26(3), pp.463-466.
Doris, M., 2014. Promising options, dead ends and the reform of Australian contract law. Legal Studies, 34(1), pp.24-46.
McKendrick, E. and Liu, Q., 2015. Contract Law: Australian Edition. Macmillan International Higher Education.
Mullen, S., 2015. Damages for breach of contract: quantifying the lost consumer surplus. Contract law assignment Oxford Journal of Legal Studies, 36(1), pp.83-109.