Legal Risks Associated With Future Expansion And Operation Of Paradise Resort

1.What are the legal risks associated with different options (identify at least four options) for future expansion/structure/management of the paradise resort? How could these risks be managed?

2. What are the legal risks associated with the operation/activities connected to paradise resorts or those involved in the business? How could those risks be managed?

Options for future Expansion/Structure/Management and Legal Risks

1.With regards to the future expansion/ structure/ management of the paradise resort, four distinctive options are available and each of these options has certain risks associated with it. In the following parts, the legal risks associated with different options have been identified and the possible manner in which these risks could be managed, have been elucidated.

The first option available with the company is to sell the hotels which are performing poorly. However, this issue has certain problems. The first one is that the hotel would have to be sold to the only other accommodation facilities provider in the area. This would result in the creation of monopoly. Further, this would be a potential breach of section 46 of the Competition and Consumer Act, 2010 (Cth). As per this section, any such act which results in advantage being taken in the market by elimination of the competition, would be deemed as a contravention of this section, as this section prohibits such behavior.

In order to show that this section has not been contravened by the business, reliance has to be made to subsection 6A of this section. It has to be shown to the satisfaction of court that the conduct of the company was not such to misuse the power of the company and creating a monopolistic environment.

Another problem associated with this option is that the company is aware that that as soon as the hotels are sold, the Great Adventures facilities would be closed immediately so as to allow the increase of prices of facilities. This clarifies the clear knowledge on part of the company that a monopoly would be created when the hotels would be sold to the only competitor. Hence, the company needs to refrain from making the sale, or it would breach the provisions of the quoted act. And so, the company would not be able to successfully establish the defense as per section 46(6A).

The next option available with the company is to arrange for a partnership deal. Under this idea, more shares would be issued in the company and would be given to influential individuals as a goodwill gesture. And the Commonwealth Senate would also be given certain shares. The key issue in this case, which can be contested, is the issuance of shares. The issuance of shares to a certain specified category of people could be claimed upon as a breach of rights by the minority shareholders. This is because their rights could be affected if the shares are given to influential people. Further, since the rationale for issuing the shares is to enhance the goodwill, it is preferable to issue bonus shares, so that the faith of the existing shareholders is strengthened. Also, the shares are to be issued for proper purpose and for the benefit of the company, and not to please a particular person with certain authority. Another problem is that the position is being misused to influence the travel agents. Hence, this idea should not be adopted, as it would only create problems for the company.

First Option and its legal risks

The company also has the option of restructuring the majority of its hotels as a separate business where the Great Adventures would support these companies, through the new business would have an independent management. Under section 9 of the Corporations Act, 2001 (Cth), the parent companies are sometimes deemed as the shadow director of the holding company. This is because under section 9, any such person who has the power of influencing the decisions of the board or upon whose directions the board functions. When a parent company has a substantial control over the board of the subsidiary, it would be a shadow director of the company.

By restructuring the company in a manner where the management of the company would be independent, the only problem which can be born relates to shadow director. This option states that the Great Adventures would support the separate business. This support has the potential of Great Adventures being a shadow director of the new businesses. Hence, it is crucial that this risk is managed. This can be done by ensuring that the management of the new company, along with its board has the full autonomy to carry on its operations, which being directed in any manner by Great Adventures.

The last option which is available with the company relates to diversification of business in Asia and New Zealand. This would help the company in reducing the reliance over a single market. Further, by being connected to the large family based companies in Asia, close ties could be formed with government, which could allow the company in getting subsidies and grants, which would enable the establishment of luxury boutique hotels, which would increase the demand.

This is the most controversial and the most complex option. This is because diversification into a new company means that a number of laws of Australia, along with the nation in which the company is diversifying have to be followed. Further, when a company diversifies in a continent, it has to adhere to the laws of the continent as well. Ignorance or lack of knowledge of a particular law is not considered as a valid claim when a law is breached of the home nation or the nation which the company is diversifying.

The problem which is common when it comes to dealings with Asian countries is red tapism, bribery and corruption. So, the company would have to strictly adhere to practices where these three conducts are not indulged in or else, the same would cause huge penalties for the company. When divesting into Asia, it is to be kept in mind that secret commissions are not made to the established connect large family based businesses, just to improve the business of the company. This would not only raise legal issues, but would also create ethical issues for the company.

Second Option and its legal risks

2.The current operations of the paradise resorts and of the business also highlight a range of legal risks which are associated with the activities. In the following parts, these risks, along with their possible manner of being managed, have been elucidated.

The first and foremost legal issue in this case relates to breach of section 18 of the Competition and Consumer Act, 2010. This section relates to misleading or deceptive conduct, which is undertaken by a company, through which a person is misled in believing something, which is not true. The hotel advertises that the stay in hotels is luxurious, when in reality, it has small hotels. So, a claim can be made against the company for misleading its consumers on this basis.

In the given case study, another key legal issue which has been raised is related to the oppression and mismanagement. When the suggestions are given in the company, they are ignored till the time it comes from the Great shareholders. This shows that the company does not respect the suggestions of the minority shareholders and they do not have a say in the business of the company. Hence, a claim can be made by the minority shareholders under Part 2F.1 of the Corporations Act, 2001.

Negligence refers to the breach of duty of care, which results when a person owes a duty of care to another, which is breached and results in a harm or loss to the other party. In the case of Donoghue v Stevenson [1932] UKHL 100, the manufacturer of the ginger beer bottle was held liable for negligence, when he failed to undertake the reasonable care in ensuring that the bottle was safe for consumption, as a dead snail was found inside it. To establish a claim of negligence, it has to be shown that a duty of care was owed, which was breached and which resulted in harm, loss or injury. Further, it is crucial to show that the loss was foreseeable in a reasonable manner, there was a direct causation between the loss and the injury, and that the loss was not too remote. In such cases, damages can be claimed for the loss sustained. Further, the pure economic loss can also be claimed under negligence.

In this case study, due to the negligence of the hotel, a consumer had been sent in the wrong hotel. This enables the consumer to make a claim for the mental distress caused, along with the economic loss sustained due to being directed in a wrong place. Another case of negligence which is present in this case relates to sending the passengers on a four day adventure experience, when in reality they had asked for normal thrill seeking adventure. Due to this negligence of the hotel, the passengers suffered injuries and so, a claim can be made against the company due to its negligence.

Third Option and its legal risks

The company is also liable for the actions undertaken by its agents and its employees to the third parties. So, the actions which have been undertaken by Jones, where he has made several unpopular decisions, which include putting disables residents in such rooms that they have to take flight of stairs to reach their room, and cramming families in a single room, and even booking the same room twice, and other related actions, which have declined the goodwill of the company, would have to be borne by the company. Since Jones did not have an original university diploma, which was actually not real, a case can be made against the company, for not hiring the people after making proper checks.  

The liability which would be attracted on the basis of actions undertaken by Jones relate to the breach of contract. The customers were promised something and they were not given that. And again, a claim could be made for misleading or false representation. This is because the customers of the hotel were promised to be given something else, and in reality they were treated badly and given wrong treatment. Hence, apart from the breach of contract, for which the company would have to pay damages to the consumers, in form of monetary compensation, the company would also have to bear the penalties for being indulged in misleading and false representation. Along with this, penalties would also be attracted on the basis of misleading and deceptive conduct undertaken by Jones for which the company would be liable.

These claims are particularly true for Lee Han, as he was promised a large and quiet room, with big table, and yet he was given a noisy room near the lift with small desk and an inoperable room. Due to these reasons, Lee fell ill with pneumonia and had to miss out a lucrative business deal. So, the company would have to compensate Lee for the mental distress caused, the medical expenses and costs, the charges of the room, and adequate amount as monetary compensation for the loss of business opportunity. However, in this case, the fault was of Dina, who was a new staff member. She had been explicitly told that she was not to make such promises and yet she went beyond her authority to make such promises to the consumers. Though, the consumer was not aware of this and hence, owing to the ostensible authority doctrine, the company would be held liable for the acts of Dina.

Another major legal risk in this case relates to the minimum wages which have been fixed under the Passenger Vehicle Transportation Award. As per these rates, the minimum wage which has to be paid to the drivers is $725.70-896.10 for each week. However, the drives of the company are being paid far less. Even though they earn good in peak season, the average is lower than the minimum award rates, as they are just $600 per week. Hence, for breaching this law, the company would be penalized. To fix this, the company needs increase the daily wages being paid to its driver.

Hence, in this study, there are a range of legal issues, which have to be addressed by the company at the earliest, or would have to bear significant penalties for the breach of law.