As per advice of Alice ‘The incorporation of company will double the catch of Bob’, Is she correct?
The law of Separate legal entity and the piercing of corporate veil is the applicable law.
A registered company is a company which is ruled by the Corporation Act 2001. As soon as a company is incorporated there are few distinct features that are attained by such company, that is, perpetual succession, artificial entity, tax advantages, etc. (Incorporation. 2007)
One significant feature is the Separate Legal Entity (SLE). SLE implies that the law recognizes a registered company as distinct and disassociates from its members and considers a registered company as artificial distinct personnel in law and is analyzed in Salomon v Salomon & Co Ltd (1897). ‘Distinct personality’ implies that all the acts and omissions that are carried on by the company is in the name of the company and is solely held liable for the same. No repercussions of the same can be borne by its officers and members as they are distinct from a company. If any loss or gain is incurred because of the acts r omissions of the company then it is in the name of the company alone and not in the name of its members and officers. (GV Puig , 2000)
This feature is very paramount in any company formulation but it has its own set of disadvantages, because many a times the officers carry out acts or omission in the name of the company in order to being self gain. In order to curb this menace of the officers of the company, the courts are found willing to pierce the veil of the company, that is, the Separate Legal Entity principle of the company is disregarded and the actions of the company are held to be the acts of its officers and personal liabilities can be imposed upon them and is held in Re Edelsten ex parte Donnelly (1992) and Peate v Federal Commissioner of Taxation (1964) 111 CLR 443.
It is found that when any law is formulated by the legislature and the main motive of forming a company by a person is to bypass though such law then the incorporation of the company is disregarded and the company and its officers are treated as one without bringing any distinction amid the two. Then, the acts of the company are not separate; rather, they are considered to be the acts of the officers personally and thus held liable for the same.( Helen, 2009)
After understanding the legal provisions, the law is applied to the given case study.
In New South Wales, Jervis Bay, there is limited amount of scallops and thus to protect them and to regenerate them, the Scallop Fishing and Marketing Act has formed few laws according to which any person who wants to catch the Scallop must apply for quota and which is up to 50 tones in a cleaner year and such persons are eligible to catch Scallops with such quota system. Further, every catcher is permitted to sell the Scallops only to the Scallop Marketing Authority which can buy up to the quota limit. If the above legal provisions are breached then the defaulter can be held liable for fine of up to $100,000.
Now, Bob Beech is dealing in the commercial scallop fishing and carries out his activities in Jervis Bay. Thus, the above laid down provisions are applicable upon him. Bob Beech is capable to catch scallops much beyond 50 tones, however, if he catch more than the quota then he can be held liable for a fine of $100,000 for breach of provisions.
So, in order to cheat with the authorities and to gain advantage of his skill he incorporated a company on the advice of his daughter, Alice. When the company was formed then as per Salomon v Salomon & Co Ltd, it is an artificial person and the catch by the company cannot be counted to be the catch by Bob Beech and thus he can double the catch of Scallops.
But, it is held in Peate v Federal Commissioner of Taxation that any incorporation of the company in order to deceive the legislation is not permitted and the veil of Separate Legal Entity can be pierced.
So, the company made by Bob Beech cannot be treated as distinct in law and must be regarded and associated with Bob Beech. So, the catch of Bob Beech is now double which is in violation of the laws framed by Scallop Marketing Authority.
The Conclusion
By incorporating a company, Bob Beech has violated the laws of Scallop Marketing Authority and thus the veil of the company should be lifted and both Bib beech and the company must be regarded as one. So, Bib beech is in breach of law and must be fined with $100,000.
The Law of negligence and the provisions of the Corporation Act 2001 is applicable in the given situation.
In Donoghue v Stevenson (1932), Lord Atkin has laid down a landmark judgment according to which no manufacturer should supply products which may cause harm to consumer and if he does then he negligent. He quoted that every manufacture must be careful against his neighbor. But, who is neighbor? When the duty exist?, etc. In order to answer these few questions he lay down few fundamental which together makes any defendant negligence in his actions. So, the main fundamental includes: (Treasury, 2002)
i. The duty of care is the first fundamental which signifies that every actions of the defendant must carry out so that no damage is caused to the plaintiff. But, thus duty is based on two essentials. First, that the plaintiff and the defendant are neighbors which signifies that the plaintiff is so closely place with the defendant that the acts that are carried out by the defendant will fall upon the shoulders of the plaintiff directly and without any hassles. So every defendant has a duty to provide care to his neighbors (MacPherson v. Buick Motor Co.(1916); secondly, the duty of towards those acts the result of which can be reasonably foreseeable. If the defendant cannot anticipate the outcome of his actions then how came he be imposed to provide care for such actions.
The compliance if these two fundaments will make obligatory to the defendant that he must be very careful while indulging in any action so that no damage is caused to the plaintiff (Perre v Apand Pty Ltd (1999)). (Norman, 2004)
ii. Once a defendant is held to be duty bound then he must perform such duty of care considering the situation in which it has to be catered. The level of care varies with situation and at times higher degree of care is required because the risks is high, after is high, the plaintiff is a child, etc and at times the level of care is not very high as the gravity of harm is law, etc ((Bennett v Minister for Community Welfare(1992). So, the level of care must meet the expected level and varies upon situation. When this level of care is not met then the defendant is in violation of his duty of care (Bonnington Casting v Wardlaw (1956). (Muchlinski (2010).
iii. The breach of duty should cause n injury to the plaintiff who is caused directly because of breach of duty of care and the harm which is caused can be anticipated by the defendant easily (Annetts v Australian Stations Pty Limited(2002)).
When these entire fundamental are achieved then the defendant is held to be negligent.
When the defendant is negligent the he must pay the loss that is sustained by the plaintiff because of the negligent actions of the defendant. But, when the defendant is a subsidiary company and is not capable to pay of his dents or liabilities, then, as per section 588V of the 2001 Act, the parent company has the responsibly to bear such loss and make good the loss that is caused to the plaintiff because of the negligent actions of the defendant. (Tomasic Bottomley & McQueen (2002).
After understanding the legal provisions, the law is applied to the given case study.
N/N is the a hard rock bank and manages New Nirvana Ltd. Nuclear Blast Sounds Pty Ltd is the subsidiary of New Nirvana Ltd.
The Nuclear Blast Sounds Pty Ltd is engaged in setting the equipments of sound at the concert of N/N. it is its duty that the sound equipments must be so place so that the volume is under control so that the people who are hearing the concern does not face any kind of inconvenience. This duty is against the audience as they are closely connected with the concert and thus is the neighbors of Nuclear Blast Sounds Pty Ltd. but, Nuclear Blast Sounds Pty Ltd did not comply with its duty and arranged the equipment in such manner so that it does not cause any harm. But, this duty is breached which resulted in causing injuries to five people. So, the breach of duty had caused harm and thus there is negligence on the part of Nuclear Blast Sounds Pty Ltd.
But, Nuclear Blast Sounds Pty Ltd is incapable to pay the liabilities to the injured person. So, Section 588V of the Act is applied and the liability of Nuclear Blast Sounds Pty Ltd must be shifted to New Nirvana Ltd and the parent company thus pays for the liabilities.
The Conclusion
Nuclear Blast Sounds Pty Ltd is negligent because the duty to provide adequate sound is not catered by it and which resulted in harm to five audiences. Also, Nuclear Blast Sounds Pty Ltd is incapable to pay the liabilities so as per section 588V, it is New Nirvana Ltd which has to face the brunt and must pay the liabilities to the audience.
Can the company be held liable for the removal of Don from the position of Solicitor?
When a company is incorporated then it is separate in the eyes of law and has a separate legal entity. it has the capacity to make contract on its own behalf and such contract are in exclusive name of the comedian. Thus, a company is capable to form contract with its own officers, directors and employees. This authority to make contracts is mentioned under section 180 of the Act provided the country is govern by its constitution. When any contract is made amid the company and its officers and if there is breach of any of the provisions of such contract, then it is held in Eley v Positive Life Assurance Co Ltd (1876), that the officer is only permitted to sue the company for the breach of the contract provided its members rights are breached because of the non-compliance of contract. If there is no termination of member’s right then no suit can be filed against the company. If a company appoints any company officer as its legal officer and later terminates his services then the terminated officer can only sue the company of his members rights are affected. In Hickman v Kent or Romney Marsh Sheepbreeders Association (1915), the court held that if any members rights are affected and as per the provision of the constitution in case if disputes the matter must be referred to arbitration, then, the affected member must bring the action in front of an arbitrator and not in court. However, in Rayfield v Hands (1960) it was held that if no members rights are affected then the suit can be brought in the court of law. (Mäntysaari, 2006)
After understanding the legal provisions, the law is applied to the given case study.
Don is appointed as the solicitor of Millennium Pty Ltd as per the provisions of the constitution of the company in which Simon, Michael and Don are directors. Later Don was removed from his position. Now, since there is no breach of member’s rights when Don was removed from his position, then, Don has no right to bring any action against the company under section 140 of the Act.
If Don intent to bring the action against the company then there is no need to take the heed of an arbitrator because only disputes amid a member and company is to be referred to an arbitrator.
The Conclusion
It is thus submitted that Don employee’s rights are hampered and there is no breach of member’s rights so Don cannot sue the company. If any action is to be brought then the same is to be brought in the court of law and not in front of an arbitrator.
Reference List
Books/articles/Journals
Anderson Helen (2009) Piercing the Veil on Corporate Groups in Australia: The Case for Reform’ MelbULawRw 13.
GV Puig (2000) A Two-Edged Sword: Salomon and the Separate Legal Entity Doctrine.
Mäntysaari (2006) Comparative Corporate Governance: Shareholders as a Rule-maker. Springer Science & Business Media, 16-Jan-2006
Norman k (2004) ‘Who then is law is my neighbour?” – Reverting to First Principles in the High Court of Australia. The Tort Law Review 12(2):pp. 85-97.
Ramsay & Noakes (2001) Piercing the Corporate Veil in Australia. (2001) 19 Company and Securities Law Journal 250-271.
Tomasic, R., Bottomley, S., & McQueen, R. (2002). Corporations law in Australia. Federation Press.
Case laws
Annetts v Australian Stations Pty Limited (2002).
Bennett v Minister for Community Welfare (1992).
Bonnington Casting v Wardlaw (1956).
Donoghue v Stevenson (1932).
Eley v Positive Life Assurance Co Ltd (1876).
Hickman v Kent or Romney Marsh Sheepbreeders Association (1915).
MacPherson v. Buick Motor Co. (1916).
Peate v Federal Commissioner of Taxation (1964) 111 CLR 443.
Perre v Apand Pty Ltd (1999).
Rayfield v Hands (1960).
Re Edelsten ex parte Donnelly (1992).
Salomon v Salomon & Co Ltd (1897).
Online Material
Incorporation. (2007). Investopedia. (Online). Available at: R https://www.investopedia.com/terms/i/incorporate.asp. Accessed on 26th May 2017.
Treasury (2002) Chapter 7 – Foreseeability, Standard of Care, Causation and Remoteness of Damage (Online). Available at: https://www.treasury.gov.au/ConsultationsandReviews/Reviews/2002/~/media/Treasury/Consultations%20and%20Reviews/Reviews%20and%20Inquiries/2002/Review%20of%20the%20Law%20of%20Negligence/Key%20Documents/PDF/Foreseeability.ashx. Accessed on 26th May 2017.
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