Questions
1: In this case, Bob Beech has been told by her daughter that if he decides to incorporated company, we will be able to evade the applicability of Scalop Fishing and Marketing Act, which provides that each individual is allowed to catch 50 ton scallops per annum. However, Bob had the competence to catch more scallops. Therefore he wanted to earn more and his daughter had told him that after the incorporation of a company, it will be taken by the law as a distinct entity. Therefore he will be able to catch double the amount of scallops.
For deciding if the above-mentioned information is true, the doctrine of separate entity is to be applied. It has been provided by the court in Salomon v Salomon (1897) that when the parties have incorporated the company, it will be considered as a different entity. Consequently, the corporation will be considered as being separate from its members. Generally the courts follow this principle. In view of this doctrine, it is believed that a corporate veil exists between the company and the members. Therefore, a duly incorporated corporation is a totally different body and it is also different from the members.
However, under certain circumstances, a need may arise to lift the corporate veil. This needs to be done by the court for enforcing the liability on the members or to expose the true nature of the corporation. Therefore, the justification that can be given in support of lifting the corporate veil is that this doctrine should not be misused by the members of the company. Consequently, if there are certain circumstances present under which the court feels that the members of the corporation are abusing the corporate form, the court may pierce the veil and exposed the real nature of the company (Graw, 2011). Therefore, under certain circumstances, it is available to the court to ignore the corporate veil which was provided by the court in Salomon.
According to corporations’ law, a separate legal entity is formed after the incorporation. However, on certain occasions, it is available to the court to disregard this veil in order to enforce the liability on its members, who are misusing the corporate veil (Latimer, 2016). Therefore in such circumstances, it is available to the court to overlook the separate character of the corporation or to lift the corporate veil. In view of the circumstances stated above, it is available to the court to conclude that the separate legal identity of the corporation needs to be ignored and the real nature of the company should be brought forward. When the court has decided that the corporate veil is going to be impaled, the court can be allowed to ignore the distinct identity of the corporation in order to impose liability on the members even in cases where the strict application of the notion of separate personality will not permit the liability to be imposed on the members (Vermeesch and Lindgren, 2011). But the circumstances under which it may be allowed are very rare. In this way the general rule that still applies that the liabilities of the corporation are enforceable only against it.
Answers
After considering the legal principles stated above, it can be held that in this scenario too, it was provided by Scallop Fishing and Marketing Act that every individual can only catch 50 ton scallops. As Bob had the capacity to catch more, he was looking for the ways to escape the application of this legislation. In order to deal with this problem, his daughter had advised him that if a company is incorporated, Bob could double his catch. According to Alice, as a corporation enjoys separate identity, Bob will be able to double his catch. But when Alice gave this advice, she failed to consider the fact that in appropriate cases the courts may decide to lift the corporate veil. Therefore in this case also, if it is revealed that Bob had incorporated a company only to escape the obligation of the above mentioned the legislation, the corporate veil may be impaled and liability may be imposed on Bob Beech. Therefore, it can be said that Alice had not given proper advice to Bob.
2: The matter that needs to be decided in this scenario is if New Nirvana Ltd. which is the parent company of Nuclear Blast Sounds can be stated to be responsible for the negligence of its subsidiary. Nuclear Blast had the responsibility to set up sound as the concept of N/N. But due to negligence, the subsidiary company set the sound at a very high level. Therefore some persons in the audience lost hearing permanently. Now, these persons want to bring a claim in negligence, but they are told that the necessary funds are not available with Nuclear Blast to pay the damages. Similarly, this company also does not have insurance for negligence. As a result, they want advice if the law allows them to bring a claim against N/N.
Although the basic rule generated by these facts is that a parent company does not owe the liabilities of its subsidiaries. Therefore, the actions of subsidiary company cannot be attributed to the parent company. This position is based on the fact that each company is treated as a distinct entity. However, an exception exists in the application of this rule (Lipton, Herzberg and Welsh, 2016,). Therefore, there are certain circumstances where it may be determined that the veil would be lifted and the responsibility of the subsidiary company can be imposed on the parent company. When the veil is lifted, the court may disregard the protection of separate identity. The corporate veil can be lifted and it can be concluded that the parent company was liable for the acts of the subsidiary. When it has been established by the plaintiff that overt intention was present to disregard corporate entity to avoid an obligation owed to the claimant.
In D.H.N. Food v Tower Hamlets, the court had stated that the group of companies can be treated as a partnership and as a result, the three companies that were part of the group are also treated as partners. It was further mentioned that these three companies cannot be treated separately. Therefore, the doctrine of separate identity has been ignored by the court in this case. Similarly in the present case also, the court may make a decision to impale the veil and conclude that the liabilities of Nuclear Blast can be imposed against N/N because Nuclear Blast was totally under the control of N/N.
3: To decide this issue, s140, Corporations Act needs to be applied. According to s140(1), the causation of corporations is considered as a contract between the corporation and its members; corporation and director or company secretary; and a member of corporation with other members.
Therefore, the causation under replaceable rules of the corporation are treated by the law as a contact form between the corporation and its members and directors. The court had stated that the provisions of the Constitution can be imposed by the company against its members (Hickman v Kent, 1915). However, in another case, the court had stated that the provisions mentioned in the Constitution cannot be imposed by the members if they provide rights in some other capacity apart from their capacity as a member (Eley v Positive Life Assurance Co., 1875).
In context of the Constitution and replaceable rules having the effect of a contract, is also worth mentioning that the contract is only available in the situations mentioned above. Hence, the rights that have been provided by the common law are not available except the members and in their capacity as the members. This position has been clearly stated in Eley v Positive Life (1876). In this case, Eley was selected to act as the solicitor of the corporation. After some time, he also became a member. It was declared in the articles of the corporation that Eley remain the solicitor for the company throughout his life. But later on, it was determined that Eley would no longer be the solicitor and some other person would be selected. On the other hand, legal proceedings were started by Eley. He claimed that the company has breached the contract. However, the court concluded that no rights were conferred on Eley by the articles of the corporation and as a result, Eley cannot sue for breach of contract.
Similarly in Hickman v Kent (1915), it had been mentioned in the article is that if there was a disagreement between corporation and its member such a dispute ought to be referred to an arbitrator before the parties may start legal proceedings. But then there was a dispute between Hickman, and the corporation, he directly started proceedings in the court. Therefore, the court stated that as a member of the company, it was binding to refer the dispute to an arbitrator.
In the present case, Millennium Pty Ltd cannot be sued by Don for the breach of contract when another person was allowed to act as a sausage of the company. But Millennium Pty Ltd can ask for this day of legal proceedings because the matter was not first referred to the arbitrator.
References
Graw, S. 2011, An Introduction to the Law of Contract, 7th Ed., Thomson Reuters.
Latimer, P, 2016, Australian Business Law CC, 2016 Edition Lipton P, Herzberg A and Welsh, M, 2016, Understanding Company Law, 18th edition, Thomson Reuters
Vermeesch,R B, Lindgren, K E,2011, Business Law of AustraliaButterworths, 12th Edition Case Law
DHN Food Distributors Ltd v Tower HamletsLondon Borough Council [1976] 1 WLR 852 Eley v Positive Life Assurance Co Ltd [1876] 1 Ex D 88
Hickman v Kent or Romney Marsh Sheep-breeders Association [1915] 1 Ch D 881 Salomon v Salomon & Co [1897] AC 22
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