The issue in the situation is that whether Bob’s daughter has given him a good idea to create a company under the provisions of common law.
In the case of Salomon v Salomon & Co [1897] AC 22 it was held by the court that registered company is a separate legal entity which means that its identity is not the same as its owners. Once the incorporation of company is completed in a valid manner its separate legal entity is created. This company has a limited liability which means that the liability which is owed by the company is not the liability of its owners. They are protected by a concept which is known as corporate veil.
However this decision of the court has been interpreted in a contradictory manner by various other court in different cases. One of such case was the case of Adams v Cape Industries plc [1990] Ch 433. In this case it was quoted by the judge that a company is a separate legal entity and its owners are protected through the concept of corporate veil. However the veil can be pierced in case it is established before the court that where an organisation has been set up with an objective which is fraudulent in nature or in order to evade any other existing obligation. The corporate veil can be lifted by the court in case such actions are in the interest of Justice.
Through the passing of this decision by the court the concept in relation to lifting the corporate veil had been established in the corporate world. There was various number of reason because of with a Court May lift the corporate veil of a company. Few of these cases are the case of Lee v Lee’s Air Farming Ltd (1961) AC 12 and Dennis Willcox Pty Ltd v Federal Commissioner of Taxation (1988) 79 ALR 267.
The concept of piercing the corporate veil in Australia has been adopted from the English approach. In the case of Peate v Federal Commissioner of Taxation (1964) 111 CLR 443 it had been stated by the court that it is within the power of the court to hold that the members of the company have the same identity as the company by lifting the corporate veil in situation where the company only acts as a mask under which its members operate. This means that the company has only been incorporated so that their members can continue illegal and unethical activities under the protection provided by the separate legal entity of the company.
In the case of Brewarrana v Commissioner of Highways (1973) 4 SASR 476 the word piercing the corporate veil was ironically integrated by the judge has no fashionable. On the other hand in the case of Walker v Hungerfords (1987) 44 SASR 532 it had been provided by the judge that the concept of lifting the corporate veil is now out of date.
In the case of Pioneer Concrete Services Ltd v Yelnah Pty Ltd (1986) 5 NSWLR 254 it was ruled by the court that the actual meaning of lifting the corporate veil is that in situation where an individual company has been created a separate legal entity is formed however the courts will on certain occasions look behind the corporate veil to see it’s real controllers. The lifting of Corporate veil by the court was rejected in the case of Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549 however it was stated by the code that the corporate veil may be lifted if the company has been incorporated to avoid a legal obligation.
It has been provided in the facts of the case that through the provisions of the protective legislation it is illegal for any person to catch more than 50 tons of scallops in a year. In addition the marketing authority is also under the restriction of purchasing 50 tons of scale up from a person each year. It has also been provided by the legislation that a person cannot sell the caught scallops to any other person other than the marketing authority in New South Wales. A financial penalty of $100,000 is imposed on any person who violates such provisions. As Bob has a capacity to catch more than 50 tons of scallops he has been advised by his daughter to form a company. This would mean that the company is created for an improper purpose. The only purpose for which the organisation has been created is to event the liability which would otherwise have in relation to the protective legislation. Therefore in the given situation it can be stated that as the company has not been formed for a proper purpose and its objective is to avoid legal obligations the court will pierce the corporate veil and help Bob personally liable for any offence committed by the company.
Conclusion
It would not be a good idea for Bob to create a company in order to avoid legal obligations. If he does so the limited liability feature of the company would not be able to protect him as the court will pierce the corporate veil.
Whether New Nirvana Ltd who is the parent company of Nuclear Blast Sounds Pty Ltd can be held liable for the negligence made by Nuclear Blast Sounds Pty Ltd
In the case of David Brian Chandler v Cape Plc [2011] EWHC 951 (QB) the liability of a parent company in relation to its wholly owned subsidiary had to be determined by the court with respect to negligence. In this case it was held by the court that a parent company of a wholly owned subsidiary owe a duty of care towards a person who has been affected by the negligence of the subsidiary. It was stated by the court in this case that although there is no relevant authority which suggests that a person has a duty to prevent a third party from causing and damage however in case of a parent company and the wholly owned subsidiary the parent company have a duty of care in relation to those persons who may be affected by the subsidiary company if the parent company controls the affairs of the subsidiary.
In order to established whether such duty of care is owned by the parent company there is a three steps test which has to be applied as provided in the case of Caparo Industries v Dickman [1990] UKHL 2.Firstly it has to be seen that whether a reasonably foreseeable damage existed, secondly whether the nature of relationship between the defendant and the claimant was of proximity, and thirdly whether imposing such duty would be reasonable and just. If these three elements are satisfied then it is deemed that a Parent company would owe a duty of care to those who have been injured through the acts of a subsidiary company.
In the given situation it has been provided that nuclear blast sounds Pty ltd is a subsidiary of new Nirvana ltd. The board of directors of Nirvana are the members of the hard rock band. The objective of Nirvana is to set up band concerts. In relation to this setup the subsidiary has a responsibility of setting up sound system at a concert. It has been provided that the subsidiary company in one of the concert had negligently set the sound level very high which has resulted for five audience in the concert to get permanent hearing damage. According to the provisions of the above discussed cases Parent company may be liable for the negligent acts of its subsidiary company. This may occur in situation where the affairs of the subsidiary company are controlled by the parent company. Here the board of directors of the parent company and the subsidiary company are also same. In addition to the application of the three stage test it can be stated that there was very close proximity between the parent company and the subsidiary company and imposing a duty of care on the parent company in relation to the actions of the subsidiary would be fair and reasonable. Therefore in the given situation at can be stated that Nirvana would owe a duty of care towards any person who has been harmed by the actions of its subsidiary nuclear blast.
Conclusion
Therefore it can be stated that Nirvana Limited can be held liable for the negligence committed by nuclear blast.
What is the legal position of Millennium Pty Ltd Where Simon and Michael have removed Don as the solicitor of the company and a legal proceeding has been brought by Don contrary to the constitution
The Corporation Act (Cth) 2001 deals with provisions in relation activities of registered organisation. It also has provisions which deal with the constitution of a company.
It has been stated through the provision of section 125 of the CA that in situation where a company has a constitution it may have terms which may restrict or prohibit the exercise of its powers. However a power exercised by the company would not be treated as invalid merely if it is not within the compliance of restrictions imposed by the constitution. In case an object is set out by the company in its constitution the act of the company beyond such object would not be invalid only because it is beyond the object.
In the case of Hickman v Kent or Romney March Sheep-Breeders Association [1915] 1 Ch 881 it had been stated by the court that the provisions provided through constitution of the company result in the formation of statutory contract between its members.
In the case of Eley v Positive Government Security Life Assurance Co (1875) 1 EX D 20 it has been ruled by the court that members cannot enforce a provisions in relation to the constitution against others for gaining personal interest.
It has been stated through the provisions of section 140 of the CA that the provisions provided through constitution of the company result in the formation of statutory contract between its members and the company with the members. Under this contract there is an obligation of such members to comply with the rules of constitution as far as they are applicable on them.
In the given situation it has been provided that Simon, Don and Michael have incorporated a company Millennium Pty Ltd. According to the constitution of the company Don is required by be the solicitor of the company in relation to purchase or sale of land on behalf of the company. In addition it has been stated that where there is a dispute between the members of the company it has to be initially referred to an arbitrator before it can be challenged in a court. Michael and Simon have met a better solicitor so they remove Don. However Don has without going the arbitrator filed a legal action against the company.
It has been provided through the provisions of the Hickman case and rules under section 140(1) that the terms of the constitution act as a contract between the members and the company. Therefore in this case as the constitution provides that a dispute between members has to be first referred to an arbitrator the actions of Don would be a breach of contract with the company.
However section 125 states that an act which is beyond the constitution of the company is not invalid only because it is against the constitution. In addition it has been provided by the court in the case of Eley that members may not enforce a term of the constitution to gain personal interest. However in the given situation it can be stated that Michael and Simon have no person interest in the situation. Although the act of Don is not invalid as per section 125 he has violated the contract which was formed under the provisions of section 140 of the CA
Conclusion
In the provided scenario Don has violated the provisions of section 140 of the CA
References
Salomon v Salomon & Co [1897] AC 22
Adams v Cape Industries plc [1990] Ch 433
Lee v Lee’s Air Farming Ltd (1961) AC 12
Dennis Willcox Pty Ltd v Federal Commissioner of Taxation (1988) 79 ALR 267
Peate v Federal Commissioner of Taxation (1964) 111 CLR 443
Brewarrana v Commissioner of Highways (1973) 4 SASR 476
Walker v Hungerfords (1987) 44 SASR 532
Pioneer Concrete Services Ltd v Yelnah Pty Ltd (1986) 5 NSWLR 254
Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549
David Brian Chandler v Cape Plc [2011] EWHC 951 (QB)
of Caparo Industries v Dickman [1990] UKHL 2
Corporation Act (Cth) 2001
Hickman v Kent or Romney March Sheep-Breeders Association [1915] 1 Ch 881
Eley v Positive Government Security Life Assurance Co (1875) 1 EX D 20
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