Essay: Company Entity & Authority In Australian Jurisdiction.

Separate Legal Entity of a Company

1. Does Merian have an actual authority to rent a car?
2. Does Merian have any apparent authority to rent a car?

In Australian jurisdiction, the companies have to abide by the norms stated under the Corporations Act, 2001 (Cth)[1]. According to section 124 of the Corporation Act 2001, every corporation entity have their separate legal entity^[2]. Salomon V Salomon & Co. is an example of having separate legal entity. A company is an artificial legal person that could enter into a contract with a third person[3].

Section 127 of regulates the manner in which the company could enter into a contract. A company could enter into a contract without executing the company’s seal in the case if two directors signed the document, if a director or company secretary signed the document, or in case where the company has sole director and that director is also executing the role of company secretary, then that director could sign that document^[4].

Section 126 mentioned that actual authority is the expressed or implied authority to a person who act on the behalf of the company[5]. The express actual authority could arise when the directors authorised any action in a board meeting or it is authorised by law. The implied authority has prescribed by the position acquired by the person. For an instance, a managing director has the actual authority to enter into a contract on the behalf of the company whereas, the directors could enter into a contract with a third party only if it authorized by the BOD. A non-executive director does not have any authority to enter into any contract on the behalf of the company.

Section 128 authorizes a director or an agent to have an apparent authority to deal with the third parties on the behalf of the company lies on some assumptions made under section 129(2)[6]. Section 129 (2) mentioned that a third party could rely on the ASIC records and assume that the director is either validly appointed or having customary powers to act on the behalf of the company^[7].

In the given case law, the Supreme Court held that the Green was not acting as a director and the authority to sign a document for loan had not authorized by the Board of Directors, hence, does not have authority to take loan on company’s behalf[8].

In the given case scenario, the Board had given the actual authority to Mr Anthony Richards to act as a managing director. It was also held that defendant’s company assumption raised gave apparent authority to Mr Anthony and held liable the company to act on company’s behalf[9].

In the given scenario, Merian is holding the position of non-executive director of Elite Cars Ltd. As per the above rule, the following application of rules shall apply on the issues:

Elite is a non-executive director and does not have any actual authority to act on the behalf of the company as per section 127 of Corporation Act 2001. Merian and Chris have decided (2 directors of the company) to take approval of the Board of directors for any company transactions above $2000 and Elite does not have any approval to rent a car.

Contracting By a Company

The above rule of section 128 and 129 on apparent authority prescribed that the directors with whom the third party could make an assumption to enter into a contract shall construct an apparent authority to a director. As Merian showed her identity of being a non-executive director and used the car for personal use, no apparent authority has been raised toward Merian to rent a car on the behalf of the company. A company also has separate legal entity and as per the above-mentioned rule, Merian’s personal act shall not raise any liability to the company.

Conclusion

The above findings concluded that the Elite Cars Pty Ltd. does not held liable to pay the bill of rented car as Merian does neither haven’t any actual nor apparent authority to act on the behalf of the company. Merian was using the car for personal use and had no approval to rent a car, hence shall held liable to pay the rent of car by herself as both the Merian and the company has separate legal entity.

Does Merian has any authority to rent a car on company’s name if she has the position of Managing Director?

As mentioned above, the ruling of a company in Australia held in the Corporation Act, 2001. Section 126 held that the actual authority to take the decision on the behalf of the company depends on the position of a person^[10]. Actual authority could raise either by expressed or implied way. The resolution in board meeting authorizing a director is the actual expressed authority. The managing director has the implied actual authority to act as natural person on the behalf of the company.

Section 181 of the Corporation Act binds a duty to the directors to act in good faith for the benefits of the company (including the benefit of shareholders and stakeholders)[11].

Section 182 binds a director in a duty that prohibits them to take advantage of their position for their own personal use[12].

In this case, the Supreme Court guides to test whether the director has acted in good faith or not[13].

The above rule stated that Merian would have the actual authority to take decision on the behalf of the company if she has the position of the Managing Director only if she rented the car for the use of the company.

Merian rented the car for her personal use. The above rule stated that the directors/ managing directors have the duty to act in good faith and should not use their position for their personal use[14]. In the given case, Merian rented the car for her personal use, does not acted in good faith, and used her position to rent the car on company’s behalf[15].

Conclusion

The above findings concluded that Elite Cars Pty Ltd shall not held liable to pay the bill of rented car as Merian as managing director used her power to rent the car for her personal use. Merian has the authority to rent a car on company’s name only if the purpose of her act is to serve the company.

Does Elite Cars be liable to pay the bill of rented car if it knew about the agreement between Merian and Chris?

Section 128 & 129 stated some assumptions that made company liable for the act of the director or the agent.

It states that if a director made an assumption by the third party or the company that the directors are acting on company’s behalf shall raise the apparent authority to the director[16]. Section 129 (3)

It gives the assumption that a person has the actual authority to deal with the third party on company’s name if, he is authorised to do so by any authorized person of the corporation[17].

In this case, the company assumed that the defendant is working as managing director without holding the position of MD. This assumption made the company liable for the act of the plaintiff as Mr Kapoor was having the apparent authority to act[18].

After applying the above rules on the given case, it is held that the Elite Cars shall be liable to pay the bill of the car if it knows about the agreement between the Merian and Chris as it posted the apparent authority on Merian to act on the transactions up to $2000. However, renting a car costs $10000 and Merian has to take approval in a Board meeting for this transaction. Secondly, the car has to be used for the purpose of the company and Merian was using it for her personal use.

Conclusion:

Above relevant laws and application concluded that Elite Cars Pty Ltd. shall not be held liable to pay the bill of the rented car as it was not approved by the directors and was using for personal use of Merian.

Bell Group Ltd (in liq) v Westpac Banking Corp (225 FLR 1; 70 ACSR 1; [2008] WASC 239, J Owen, 2008)

Freeman & Locker v Buckhurst Park Properties (Mangal) Ltd (2 QB 480, swarb.co.uk, 1964)

Hely-Hutchinson v Brayhead 1 QB (1968) 549 (22 June 1968)

National Australian Bank v Sparrow Green Pty Ltd (Supreme Court of South Australia, 6 August 1999)

Salomon v A Salomon & Co Ltd (UKHL 1, AC 22, 1896)

Westpac Banking Corp v Bell Group Ltd (in liq) (WASCA 157 CACV 52, 2012)

Corporations Act 2001

Commonwealth Consolidated Act, ‘CORPORATIONS ACT 2001’, classic.austlii.edu.au (2001) <https://classic.austlii.edu.au/au/legis/cth/consol_act/ca2001172/>

qld.gov.au, ‘7.3 Corporations Act 2001 (Cth) (the Corporations Act)’, Queensland Government (2016) <https://www.premiers.qld.gov.au/publications/categories/policies-and-codes/handbooks/welcome-aboard/member-duties/corp-act-2001-c.aspx>