Scallop Fishing and Quota System
Whether Bob’s action of formulating company in order to increase the catch of scallops is a valid action?
The Corporation Act 2001 is an enactment that is formulated in Australia to guide the framework of a company. A company is described under section 124 of the Act, as an entity which has its own existence and has the capacity to act on its own behalf. The officers who represent the company are the directors and as per section 198A and 198E, the directors can indulge into day to day acts of the company and such acts are carried on company’s behalf and will bind the company alone. (Incorporation. 2007)
The separate legal personality of the company implies the separate existence of the company from its officers and directors. A thin line of distinction or a veil exists according to which the officers/directors are not same as of a company. The acts by company are its own and no consequences of the same will fall upon the officers to hold them liable. The leading case of Salomon v Salomon & Co Ltd (1897) signifies that the company has its own capability that it can make contracts on its own. But, since a company is an individual person, thus, it has also has to face the consequences that is normally faced by a normal human being, that is, the company also has to comply with the rules and regulations and non – compliance of the same will impose consequences. Because of the distinction amid the officers and company, a company has the capability to employ people who are not part of the management of the company and is held in Lee v Lee’s Air Farming Ltd [1960]. (Ramsay & Noakes 2001).
Now, the rule of Salomon v Salomon & Co Ltd (1897), that is, Separate Legal existence, of a company is not a permanent rule. There are exceptions to the same which includes fraud, façade, sham, agency principle, etc. When the exception applies then the veil which brings a distinction amid company and officers is diluted and there is no difference that remains. The officers who are acting for the company and held to be acting for themselves and the consequences that were initially to be faced by the company will be borne by the officers and is held in Donnelly v Edelsten (1994). In Gilford Motor Co Ltd v Horne [1933], if any fraud is incurred by the company in order to avoid any tax and civil liabilities, the, it is an act of fraud which requires piercing the veil of the company and the directors will be then held personally liable. (Cassidy 2006)
Bob is a fisherman and carries the acts of catching scallops. But, the scallops were limited and so legislations are framed by the Scallop Marketing Authority according to which the maximum limit of catching scallop is 50 tonnes in 1 year and the fisherman are not allowed to sell the scallop to any other person except Scallop Marketing Authority. Penalties of $100,000 will be imposed on the violators.
Corporate Veil and Fraud in Scallop Fishing
Bob being an individual person is thus capable to catch 50 tonnes of scallops in one year. But, now he wanted to increase his catch, so, on the advice of his daughter, Alice, he forms a company. Now, formulating a company by Bob resulted in the creation of an artificial legal person. So, the company in itself is capable to catch 50 tones of scallops by employing people. Bob can be the majority shareholders of the company and thus he cans double the catch.
But, the acts are not carried out with good motive but to deceive the legislations tat are framed by Scallop Marketing Authority. The acts of Bob are clear acts of fraud on Scallop Marketing Authority so that he can double hi scallop catch.
So, as per Gilford Motor Co Ltd v Horne the veil should be lifted considering the company of Bob and Bob himself as one and thus deliberately breaching the rules framed by Scallop Marketing Authority.
Conclusion
Bob has full authority to catch 50 tines of Scallops as the same is permitted by Scallop Marketing Authority. By forming the company, wherein Bob is the majority shareholders, the company is also capable to catch 50 tonnes of scallop in one year. But, the act of forming the company is an act of fraud by Bob so that he can double his catch. Thus, by applying Gilford Motor Co Ltd v Horne the veil between Bob and the company should be lifted and Bob is held liable for breaching the rules framed by Scallop Marketing Authority and so he must be penalized for $100,000.
Whether the loss caused by Nuclear Blast Sounds Pty Ltd will make New Nirvana Ltd liable?
In Donoghue v Stevenson (1932), one of the profound legal principles were analyzed and established by Lord Atkin. He brings a responsibly on the shoulders of every manufacturer/supplier to make sure that no loss must be suffer by any consumer because of the use f the product that is manufacturer/supplied by them. This principle is extended to all the people generally and is analyzed in Caparo Industries PLC v Dickman [1990]. But, there are few essentials which are required to be present to make any defendant negligent in law and which include: (Stolberg 2018)
- Duty of care – The defendant is obligated to carry his acts/omission with protection and safeguard so that the plaintiff is not harmed in any manner whatsoever. The defendant is under duty to provide care to the plaintiffs who are his neighbors (Childs v. Desormeaux (2006). A neighbor is a person who gets directly affected by the acts/omissions of the defendant and who shares a relationship of proximity and closeness. It is also necessary that the plaintiff who is in proximate relationship then, the plaintiff should be adequate foreseeable. If the plaintiff cannot be foreseen by the defendant reasonably, then he is no duty on the defendant to protect the plaintiff (Gabrysh v. Milenkovic (2009)
- Breach – The non compliance of the duty that the law has imposed on every defendant wherein he must seek protection towards the plaintiff, is called breach of duty. The breach is measured when the level of care and degree of safeguard that is needed is not met by the defendant. The care does not meet the desired standard of care (Mitchell v. Canadian National Railway Co (1975).
- Damages – When the defendant fails to meet the standard level of care then the non compliance should cause loss to the plaintiff. The loss so caused is the result of the breach and thus there is causation (Bonnington Casting v Wardlaw (1956). Also, the loss is not remote and the defendant has the forseeability to anticipate the damage which was caused to the plaintiff (Annetts v Australian Stations Pty Limited (2002)).
It is submitted at times, the employee when takes acts for the employer and results in loss then such loss is borne by the employer under vicarious liability as the acts are carried out by the employer under the directions of the employer and his command. The acts of the employee are within the course of employment. The law of vicarious liability is applied when a subsidiary is acting for the holding company and incurs loss and have no resources to rectify the loss that is incurred by the subsidiary and is held in Hollis v Vabu (2001). (Giliker 2010)
New Nirvana Ltd and Nuclear Blast Sounds Pty Ltd are two companies wherein New Nirvana Ltd is the holding company of Nuclear Blast Sounds Pty Ltd.
Liability of New Nirvana Ltd for Negligence at Concerts
Now, Nuclear Blast Sounds Pty Ltd was assigned a responsibility of managing the sound equipments for a concern which is the concert of its holding company, New Nirvana Ltd. The Nuclear Blast Sounds Pty Ltd has a duty that it should arrange the equipments in such manner so that the audience does not suffer as they are neighbors are reasonably foresee by Nuclear Blast Sounds Pty Ltd. But, this duty is violated by Nuclear Blast Sounds Pty Ltd s because of high sound, the audience suffers hearing problems. There is breach as the level of care is not met by Nuclear Blast Sounds Pty Ltd. is negligent.
But, Nuclear Blast Sounds Pty Ltd has no insurance or finance. Also, Nuclear Blast Sounds Pty Ltd is acting under the commands of New Nirvana Ltd. so, New Nirvana Ltd is the holding company and thus the loss suffer by Nuclear Blast Sounds Pty Ltd will be impose on New Nirvana Ltd
Conclusion
New Nirvana Ltd is the holding company of Nuclear Blast under 20011 Act. The subsidiary is negligent but has no resources to settle the laity. Thus, the liability will shift to Nuclear Blast under vicarious liability
Is Millennium Pty Ltd legible to remove Don from his position as a solicitor of the company?
A company, as described under section 124 of the Act, is an entity which has its own existence and has the capacity to act on its own behalf. A company can govern its self by replaceable rules as per section 141 of the Act or by forming its own constituent or by both. Now, since a company has its own existence as per Salomon v Salomon & Co Ltd (1897), thus a company has a power to make contracts. A company has power to make contracts. As per section 140 of the corporation Act, a company has the power to establish contract with its members. Once a contract is made then the company is empowered to enforce the contract against the members, the members are entitled to sue the company for the enforcement of the contract and the members and the other members are also held liable for the enforceability of the contract and is held in Eley v Positive Life Assurance Co Ltd (1876).
However, it is very important that the member can sue the company for the breach of contract only when the rights of the members are violated. If the person is aggrieved because of the violation of his rights but not there is no breach of the members rights, then, the aggrieved party can sue the company by initiating legal proceedings but could not avail the benefit of section 140 of the Act and is analyses in Hickman v Kent or Romney Marsh Sheepbreeders Association (1915).
Now, Simon, Michael and Don establish Millennium Pty Ltd. it was decided that Don will act as the solicitor of Millennium Pty Ltd. He was empowered to make contracts for Millennium Pty Ltd relating to the dealing of land. Also, if any conflict exits amid the company and the member, then, it is necessary that arbitration hold be resort. Later Don was removed from his post.
Don when appointed at the post of solicitor then it was stated in the articles that any conflict will be resolved by arbitration, if the conflict is amid the Millennium Pty Ltd and the members. The removal of Don from his position will not hamper the member’s right of Don. So, since Don members rights are unaffected so he has no authority to bring any proceedings against the company under section 140 of the Act.
Conclusion
Since Do was removed from his position and such removal is not affected his rights as a member thus,, he cannot avails section 140 of the Act. So, Don can only sue the company for the breach of contract and can bring proceedings in the court of law and cannot enforce the company to seek arbitration as it can only be avail if there is any violation of members rights.
References
Cassidy, J 2006, Concise Corporations Law, Federation Press. Federation Press.
Giliker, P 2010, Vicarious Liability in Tort: A Comparative Perspective, Cambridge University Press.
Ramsay, I M & Noakes, D (2001), Piercing the Corporate Veil in Australia. (2001) 19 Company and Securities Law Journal 250-271.
Case Laws
Annetts v Australian Stations Pty Limited (2002).
Bonnington Casting v Wardlaw (1956).
Caparo Industries PLC v Dickman [1990] UKHL 2
Childs v. Desormeaux (2006)
Donnelly v Edelsten (1994) 13 ACSR 196.
Donoghue v Stevenson (1932).
Eley v Positive Life Assurance Co Ltd (1876).
Hickman v Kent or Romney Marsh Sheepbreeders Association (1915).
Gabrysh v. Milenkovic (2009)
Gilford Motor Co Ltd v Horne [1933].
Hollis v Vabu [2001];
Lee v Lee’s Air Farming Ltd [1960].
Mitchell v. Canadian National Railway Co (1975).
Salomon v Salomon & Co Ltd (1897).
Online Material
Incorporation, (2007). Investopedia. <https://www.investopedia.com/terms/i/incorporate.asp>.
Stolberg, J (2018), OCCUPIERS’ LIABILITY UPDATE: OWNER V. INDEPENDENT CONTRACTOR https://www.blaney.com/files/article_occupiers-liability.pdf.
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