Legal Issues and Risk Management in Business

QUESTION 1  

Gertrude owns one-third of the shares of Jumpers Inc. which operates a sky diving business outside Ottawa.  The corporation owns one aircraft for skydiving purposes, 20 parachutes and it employs two full time sky diving trainers.  Another sky diver provides training to customers for Jumpers Inc, but he has an independent contractor arrangement with Jumpers Inc for the  part time services he provides to them.

Tina, Ike and Gertrude each own an equal number of shares and they all sit on the board of directors. There are no other directors.

They lease the air strip and hangar for the aircraft.  The airstrip and hangar are owned by Ike and Tina.  The lease is up for renewal in three months and Gertrude would like to find another location because the strip sits on a former gas station site.  Gas spills from the old gas station remain underground and been leaching into the adjacent river.

She has been asked by the two other shareholders, Ike and Tina, to seek legal advice to protect the three of them from personal liability and to protect the corporation from liability as well. They authorize her to engage counsel to represent the corporation at $350 per hour and conduct a legal audit of it.  She reaches out to you to advise her and conduct the audit at the rate of $400 per hour. She agrees on behalf of the corporation to hire you at that rate

Identify as many legal issues as you can and discuss them. Do you require any additional information from the corporation or Gertrude on any of the issues and, if so, what? Develop a risk management plan for the legal risks you are able to identify.

QUESTION 2

Review the shareholder agreement in the textbook and identify clauses in it relevant to issues raised in the course. Discuss why these clauses have been added to the shareholder agreement.

QUESTION 3

Imelda, Lucy, Spiro and Juan are architects in business in Ottawa as a partnership (ILSJ Architects).  They have been together for 20 years and have noticed that competition has driven down their profits. They prepare a bid in response to a tender from the City of Ottawa to design a new library. Spiro reaches out to the competing firms in Ottawa and strikes a deal with them whereby the other firms will make bids that exceed $3,000,000 to ensure ILSJ will win the bid at a price that will yield an acceptable profit.  In exchange, he will bid too high in the next City of Ottawa tender opportunity.

They are awarded the contract on October 31, 2019 at a price of $3,000,000 and must complete the design by March 31, 2020

Unfortunately, all of the partners get ill with the new coronavirus and cannot do the work. The contract in favour of the City of Ottawa is ironclad and the partners have no defence to the contract claim. All the partners manage to recover from COVID-19, but the City awards the contract to the next lowest bidder at $4,500,000. The City sues the 4 partners for the $1,500,000 difference. At this point Lucy learns of Spiro’s deal with the competitors and believes that the contract could have been completed for $2,500,000 so the City did not really suffer damages because the price of $4,500.000 is artificial.

Lucy comes to you for legal advice. What do you tell her? Identify as many issues as possible. Note that the question is not about contract law so do not raise any contract law issues in respect of the contract with the City of Ottawa. Lucy  has very little in assets and cannot afford to pay a judgment. Will she have to declare bankruptcy? If so, what is the process and what issues may emerge through the bankruptcy process? What other areas of law are relevant?