In this question, Priya entered into a contract for the supply of grapes from Seedy Wineyards Pty Ltd for $500,000. However it needs to be noted that Seedy uses a wide range of pesticides on the grapes and they do not follow the principles of organic farming. On the other hand, a clause is present in the Constitution of OW. According to which the activities of the company will be restricted to organic farming of grapes.
In order to deal with the situations mentioned above, the common law has introduced the indoor management rule. This rule was provided by the court in Turquand’s case. It was provided by this rule that it is available to the third-party presumed that all the internal rules concerning the management of the company are complied with unless the other party has actual knowledge regarding the non-compliance of such rule. Later on these provisions are also major part of the Corporations Act, 2001. Hence, it has been provided by section 128 and 129 that any person who is dealing with the company, is allowed by the law to make certain assumptions related with such dealings. These assumptions have been mentioned in s129, and they are related to internal procedures of the company to be complied with.
However, the other person is not allowed by the law to make such an assumption if the third party has the knowledge or reason to suspect that such an assumption was not true. In this way, when a third party is dealing with the Corporation, the person is allowed by the law to assume that all the rules related with the internal procedures of cooperation have been complied with. Similarly, the third-party may also assume that any particular officer has been appointed in accordance with the constitution of the company. In the same way, a document that is purported to be signed by the director can be assumed to be signed in accordance with the company’s constitution. The result is that the end of management tools is not applicable any longer, but the assumptions that have been mentioned in this rule are also mentioned in s129. The provisions of Corporations Act, ranging from Ss 128 – 130 provide the assumptions that are available to third-party companies while dealing with a Corporation. It is worth mentioning that these provisions are apart from the provisions prescribed by the law of agency. The objective test that has to be applied in this type of cases is mentioned in s128(4) for the purpose of seeing if the third-party knew or had reason to suspect regarding the correctness of such assumption.
In the present case, Priya had been formally appointed as the managing director of OW for a period of two years but after an initial appointment, she was not formally been appointed as the managing director of the company by the board. However there are reasons to believe that Seedy knew regarding the fact that Priya had exceeded her authority when entering into the contract and moreover they were also aware of that agreement created by Priya was in breach of the objects clause of OW. In the objects clause of the company, it has clearly mentioned that the activities of OW will be restricted to organic farming of grapes and production of organic wines. In this case it can be concluded that OW is not bound by the contract created by Priya with Seedy.
In this case, Ted, a solicitor friend of Raj and Alana was asked by them to draft the constitution of the company. While doing so, Ted included a clause in the constitution of the company according to which she was going to remain as the solicitor of the company and it would be dismissed only for misconduct. Later on, Priya arranged for the appointment of Carl, was recently admitted solicitor and also her boyfriend, as the company secretary of OW. A notice has been served to Ted by Priya informing that OW does not require the services of Ted anymore. Under these circumstances, the issue arises if Ted can enforce the laws of the Constitution according to which we cannot be dismissed except in case of misconduct.
According to the law, the Constitution of the company is considered as a statutory contract that has been created between the company and the members of the company. However, this contract has remained the subject of much controversy and confusion for the last several decades. The main controversies related with the question if the contract can be enforced by the members of the company in order to ensure that the right associated with them in another role, can be enforced by them. The constitution of the company has been provided contract enforced by s140, Corporations Act. According to this section, the constitution of the company has to be considered as a contract concluded between company and each member of the company, as well as the company and its directors, the music during and between the members of the companies themselves. It is possible to vary the constitution of the company by passing a special resolution by the members of the company in a general meeting.
The leading case related with the above-mentioned facts is that of Eley v Positive Government Security Life Assurance Co Ltd. In this case, it was provided by the Constitution of the company that Mr. Eley will remain the solicitor of the company. However, later on, the company decided against employing Mr. Eley as the solicitor of the company.. However, he was a member of the company but he decided to bring action in his capacity as the solicitor to enforce the articles of the company. Under these circumstances, it was the decision of the courts that the articles of the company did not result in a contract created between Mr. Eley and the company. In the opinion of the Court, the provision cannot be enforced in such a way. The reason was that Eley was trying to enforce the provision in his capacity as a solicit and not in his capacity as the member of the company. Later on, this decision was further supported by the decision given in Browne v La Trinidad.
In the present case also, if Ted wants to enforce a clause of the Constitution of the company, according to which he cannot be removed from the post of the solicitor of the company except in case of misconduct, in his capacity as a solicitor, it cannot be allowed by the law. The Constitution of the Corporation is a contract created between the company and its members. Therefore, Ted can enforce the laws only as a member of the company.
A. Whether Karim and Miles have breached s181 of the Corporations Act
According to section 181, the directors of the company are bound by a duty to act in good faith. While applying this duty to the directors, the inquiry as to consider the intentions, beliefs and motive of directors and if they have given primacy to the interests of the company has to be made. On the other hand, a director can be held liable for the breach of this duty if the director has used his or her discretion of the powers for the purpose of achieving a personal advantage or to confer benefit on a third party, shareholder or class of shareholders or cause loss to the company itself. In this way, it is the duty of the directors to act honestly and in the interests of the company. It is necessary that the directors should honestly believe that the particular action is in the interests of the company. However such decision can be initiated by breach of the other two elements of the duty, each one of which have objective content. Under these circumstances, the director required to exercise their powers for the purpose for which such powers have been granted to them. As a result, the courts may invalidate the decisions taken by the directors where the motivating purpose behind such decision is one which allows the court to consider as beyond those decisions for which the power conferred to the directors may be legitimately exercise or if the decision is not for the benefit of the company.
After going through the facts of this question, it can be stated that Karim and Miles can be held liable for the breach of the duties imposed on them by section 181. The reason is that in this case, Karim and Miles have taken the decision to refuse to register the transfer of shares so that they may purchase these shares later on at a lesser price. In this way, it can be stated that these two directors of OW have not acted in good faith. In such a case, s1071F, Corporations Act provides that if the directors of the company refuse all failed to register the transfer of shares, such party may apply the court seeking an order under this section.
Duties are being prescribed for the directors in Australia by the common law, said the law and also by the Constitution of the Corporation. In this regard, the, law provides that it is the duty of the directors that they should work to ask for an improper purpose. This includes obtaining your personal advantage, by the directors or debating the voting power of the present shareholders by creating new majority. Among the statutory duties of the directors, s181 describes the duty to act in good faith. The result is that the directors of the corporation should use their powers and discharge their duties in good faith and for a proper purpose. At the same time, it has been prescribed by section 182 that it is the duty of the directors that they should not make improper use of their position. Consequently, the directors would not use their position improperly for achieving your personal advantage or for someone else or, in order to cause loss to the company. Any director who breaches the provisions of this section by involving in conduct with the intention and purpose of achieving your personal advantage or for causing a loss to the company, it is immaterial if such benefit all loss was caused in reality or not. Similarly s183 imposes a duty on the directors according to which they should not improperly use the information received by them as a result of their position in the company. Therefore, when a director receives any information due to the result of their position, such directors should not use the information in properly in order to achieve a personal advantage or to cause a loss to the company. It will be considered by the law that the director has breached section 183 with the director is involved in conduct with the intention of achieving your personal advantage or to cause loss of the company even if such benefit or advantage has not taken place in reality.
In the present case, if Miles had failed to inform Olive regarding the improved prospects of the company and purchase her shares at a lesser price, it can be stated that Miles is responsible for the beach of his duties as the director of OW. The reason is that in this case, Miles was involved in conduct the review to achieve a personal advantage for him. The advantage was to purchase her shares at a lesser price even if he was aware of the improved prospects of OW
References
Cheffins, B.R., 1997, Company Law: Theory, Structure and Operation, Oxford, Clarendon Press
Clarke, P. and Clarke, J., 2016, Contract Law, Commentaries, Cases and Perspectives, 3rd Edition, Oxford University Press
Goddard, D., 1998, ‘Company Law Reform — Lessons from the New Zealand Experience’ 16 Company and Securities Law Journal 236
Jordan, C., 1997, ‘Towards a Commonwealth Model of Companies Law’ in Fiona Macmillan Patfield (ed), Perspectives on Company Law: 2 289
Khoury, D. and Yamouni, Y., 2010, Understanding Contract Law, 8th Edition, LexisNexis Butterworths
Swanston, J., 1981, ‘Discharge of Contracts for Breach’, 13(1) Melbourne University Law Review 69
Case
Royal British Bank v Turquand (1856) 6 E&B 327
Eley v Positive Government Security Life Assurance Co Ltd (1875) 1 Ex D 88
Legislation
S 129, Corporations Act, 2001 (Cth)
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download