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Questions:

Bob Beech is a scallop fisherman and involved in commercial scallop fishing in the coastal water of Jervis Bay in New South Wales. The stock of scallops in this water is limited and subject to protective legislation to ensure regeneration. Hence, the Scallop Fishing and Marketing Act provides for a quota system. Under the quota system, a person must apply for a quota which will permit him or her to catch 50 tonnes of scallops in a calendar year. Further, the Scallop Marketing Authority will purchase any scallops up to the quota limit for each person.

The Act also provides for a number of offences. It provides that it is an offence to sell scallops caught in New South Wales waters to any person other than the Scallop Marketing Authority and it further provides that it is an offence to catch more than the quota limit. Each offence carries a fine of up to $100,000. 

Bob has the physical capacity to catch more than 50 tonnes of scallops in a year and wishes to make more money from his business. His daughter Alice tells him that by incorporating a company he could double his catch.

Is she correct?

2. New Nirvana Ltd is a company controlled by the members of the hard rock band, N/N. A number of wholly owned subsidiaries of New Nirvana Ltd are involved in setting up and running the band’s concerts. One of the subsidiary companies, Nuclear Blast Sounds Pty Ltd,is responsible for setting up the sound equipment at N/N concerts in Australia. At a recent N/N concert in Sydney, Nuclear Blast Sounds Pty Ltd negligently set the sound levels too 2 high with the result that five audience members suffered permanent hearing loss. Unfortunately for those audience members, Nuclear Blast Sounds Pty Ltd had no negligence insurance and cannot pay the likely damages claims.

Advise the injured audience members whether they can make New Nirvana Ltd liable for Nuclear Blast Sounds Pty Ltd’s negligence.

3. Simon, Michael and Don set up a project management company called Millennium Pty Ltd. Don is a solicitor and the constitution of Millennium Pty Ltd nominates that Don will be the solicitor for any land purchases or sales made by the company. The articles also provide that any disputes which arise between the company and its members should be first referred to an arbitrator before there are any court proceedings.

After a number of years, Simon and Michael meet another solicitor who they think is more efficient than Don and they appoint him as solicitor for Millennium Pty Ltd.

Don brings legal action against Millennium Pty Ltd over the matter.

Advise the company as to their legal position

 

Answers:

1. Alice, daughter of Bob, is aware of the potentiality of his father and suggests that if incorporates a firm he makes more profit. She also described that Bob can catch scallops enough that can double the unit of scallops, usually a single fisherman caught in a year. However, as per the Scallop Fishing and Marketing Act, each fisherman can catch 50 tons of scallops in a year. That is why Alice mentioned the fact that incorporation of his father in a company must be viewed as a different entity of the law and he should be given the privilege of catching more scallops so that he can earn more money.

Consideration is required to sort out the above-mentioned issue; revision of the doctrine that allows the application of separate entity is important to avoid any confusion and complication. As per the court statement of Salomon v Salomon, it can be considered as the separate entity if one duly registered corporation has different members from the founder members. Usually, this kind of corporate veil is an internal matter of the company and its members.

 

On the contrary, Latimer (2016), mentioned that legal authorities are required to lift up the curtains from the corporate internal matters to disclose the actual scenario and truth of different corporations. This step is also important to impose the liability on the employees. The actual reason behind this statement is to clear the fact that courts can put effort to make it certain that no company is violating the laws taking the advantage of corporate veil. Due to this power of the court, it can reveal the truth of any corporation that is misusing the corporate veil has been conducted by the founders. Hence, it is clear that court can dismiss the opinion of the separate legitimate identity like the one provided in case of Salomon.

Corporation law states that it is usually believed that, a separate legal entity is formed at the time of registration of any corporation. However, the court can disregard this in the concern of revealing the liability of the members responsible for the corporate veil. The court can also reconsider the concept of separate legal subsistence in this case and can discharge this advantage as the court has that power. As mentioned by, Graw (2011), these incidents can be termed as the piercing of the corporate veil. Availing the facility of the distinct legal attributes for a corporation can be restricted by the application of this action and actual nature of the company activities are disclosed by the court. After taking the decision of impaling the corporate veil, court gets the authority to look into the structure so that they can understand the liabilities of the member who has formed the corporation and enjoying the advantage of corporate veil; even court has the ultimate power of imposition of accountability for the members of an organization when the doctrine of separate legal entities are not restricted such steps (Lipton P, Herzberg A and Welsh, 2016)

Bob Beech is capable of catching more scallops than normal rate, allowed for a fisherman to catch the scallops. Scallop Fishing and Marketing Act does not allow catching scallops more than 50 ton per year for a single fisherman; hence, Bob is looking for strategies that can help him to escape the legal provisions and earning more money. In this regard, Bob's daughter Alice has suggested his father incorporate a firm of his own; so that he is allowed to catch more scallops than the allocated quota. As per her understanding, law allows possessing distinct legal attributes for any company; thus, there will be no legal breaching if Bob catches 50 tons of scallops from his personal quota and another 50 ton as per the company quota.

Alice has overlooked the concept of piercing the corporate veil. Bob wants to incorporate his own company so that he can avoid the statements of the act of Scallop Fishing and Marketing. However, liabilities can be put by the court on Bob if it considers going through the organizational structure and decides to lift the corporate veil.

After revising the situation, it can be concluded that Alice has given improper advice to his father that can result in a serious legal complication. 

2. This question represents an issue on whether the parent company New Nirvana Ltd. Should be held liable for the activities of its subsidiary company, Nuclear Blast Sounds Pty. Ltd.; that has been accused of the negligence. Nuclear Blast Sounds provides the service of the sound system for the rock N/N in concerts. In this case, the sound was set in such a high decibel that it affected hearing ability of some audience permanently. The main concern here is whether the audience can claim money from the parent company New Nirvana, over the issue of negligence by the company or not, as they have come to know that Nuclear Blast Sounds Pty Ltd. does not have any insurance facility for negligence; moreover, they do not possess financial security enough to compensated the affected audience.

 


As per the corporation law, usually it is applied in incidents like this one, parent companies cannot be stated liable for any offensive acts of its subsidiary company. Hence, it is clear that audience cannot claim money from the New Nirvana over the negligence issue of Nuclear Blast Sounds. However, there is also exception present in this rule in case of certain incidents. This exception can occur when the court decides to pierce the corporate veil for a particular company.  On this note, parent companies can also be declared liable for the activities of their subsidiary companies. According to, Vermeesch and Lindgren (2011), a plaintiff is required for the establishment of fact that the corporation has disregarded the corporate entity intentionally so that it can avoid the duties, bounded to be done to the plaintiff.

 As per the law statement, the court is allowed to identify group companies as partners during the unveiling of a corporate entity. An instance on this scenario can be presented by reflecting the case of DHN Ltd. v Tower Hamlet. DHN is the parent company that has two subsidiary company. Both the subsidiaries are fully owned by DHN. DHN used to use the land and cars, owned by its subsidiary companies, for the business purpose. The problem raised when there was an issue regarding the purchasing of the land. DHN claimed compensation as the business was affected by this compulsory purchase. Considering the case, court stated that DHN and its two subsidiaries should be considered as the partners. They are not supposed to be identified as distinct corporate entities. This statement entitled DHN as eligible for the compensation. Hence, it is clear that court dismissed the concept of separate corporate body in this particular case. However, it is required to make clear that this kind of exception are allowed when the subsidiaries are entirely controlled by the parent company and own share in the properties of the parent company.

Regarding the question here, it can be concluded that court can lift the corporate veil resulting New Nirvana liable for the incident and make it pay the compensation on behalf of its subsidiary. 

3. The issue in this question can be revised allowing the Corporation Act, 2001, section 140. Section 140(1) declares that organizations can consider their constitution while there is complication regarding any contract that in turn involves agreement between a company and its member of the company (s140(1)(a); between the directors of the company, company and secretary of the corporation, (s140(1)(b): and finally, a member of a company and other members, (s140(1)(c).

 

Thus, a statutory body is formed with the help of positioning the rules and constitution of a company. This statutory contract is valid for the organization and its employees including te senior authorities and directors. In case of Hickman v Kent or Romney Marsh Sheep-breeders Association [1915] 1 Ch D 881, the court stated that the constitutional provision can be enforced by the company against its member. However, in case of Eley v positive life insurance Co (1875) 1 EX D 20, the court announce that members of the company are not allowed to enforce any provision of the constitution. This has appeared as conferring the rights of the members to some other capacity than the capacity as the employees of the corporation.

It has to be mentioned that replaceable rules and constitutional contract are only valid regarding this kind of situation as mentioned above. There is provision of no law under the general law that gives the right to any person with another capacity. To understand the situation better the case of Eley v Positive Life Insurance can be reviewed. In this case, the company hired Mr. Eley as the solicitor of the company. Later Eley also got the position of a member in the corporation. the appointment details were clearly stated in the company article, including the fact that he will be the solicitor of the company for the lifetime. However, Eley was tried to deposition from by the company that resulted in starting of legal action against the company. Eley claimed that the company has breached the contract. The court stated that Eley was not conferred any rights from the aspect of any otter capacity except the capacity of a member of the firm; hence, the legal action, taken by Eley, could not succeed as court announced that no breaching of the contract has been committed by the company.

 

Regarding the role of common law, the case of Hickman v Kent or Romney Marsh Sheep-breeders Association [1915] 1 Ch D 881can also be revised where the company article declared to take help of an arbitrator before proceeding any legal action if any dispute occurs between the company and its members. Hickman ignored the article stamen and directly went for the court proceedings before referring the dispute to an arbitrator. This step taken by Hickman had given the company advantage of posing stay order from the court in his legal action.

This situation can also occur in the case mentioned in the question. It might not be possible for Don to sue Millennium Pty Ltd. on the ground of breaching company articles by removing him from the position of solicitor of the company. Millennium Pty. Ltd. can hold stay order on the legal proceedings, initiated by Don as he has directly gone with legal action before referring to an arbitrator. 

 

Reference List:

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 Australia Butterworths, 12th Edition

Case Law

Adams v Cape Industries plc [1990] Ch 433

DHN Food Distributors Ltd v Tower Hamlets London 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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