Agency Law And Incorporation Of Corporate Veil In Relation To Business Liabilities Essay.

Advise Roger in relaion to the claim made by Industrial Machines Ltd and the decision by the department of industry. Citing Relevant law

Application of Agency Law in Business Transactions

In this given case study the issues that exist are:

• whether the contract made between Sara and Gaby is valid
• Is Terence bound to pay the price of the gold that had been ordered by Peter even though he had been instructed not to do so
• Whether Terence is liable to pay the price of the diamonds that had been ordered by Peter after his termination

Agency law is relevant in this given scenario. An agent can be considered to be a person who has been conferred the authority by the principal to act on his behalf while dealing with third parties. An agent is usually conferred authority by the principal to act on his behalf by the agreement of agency. An agency agreement involves the parties:

• The agent who is delegated the authority by the principal to act on his behalf
• The principal who delegates authority in an express or implied manner
• The third party who transacts with the agent believing him to be acting on behalf of the principal.

It can be noted that in most scenarios the actions of agents are binding on the principal if it is established the principal delegated express or implied authority.  The actions of agents are also binding upon the principals if it is established that the third party had sufficient evidence to believe that agent was acting within his scope of authority even though when the principal had not delegated such authority.

However it can be stated in accordance with the judgment of the case Keighley, Maxsted & Co. V. Durant [1901] AC 240 (HL) that in case of undisclosed principals the agent can be sued and and besued as a principal. By relying on the judgment of the case Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 it can be stated that when an agent transacts business with the party and does not disclose that he was actually acting within the authority delegated to him by the principal and he was merely representing the principal, the third party would have the freedom to choose from whom to demand performance.  The doctrine of election had been established in the aforementioned case.

Authority can be categorized into actual and ostensible or apparent authority.

Express authority can be defined as the authority that is delegated by the principal to agent expressly either in writing or orally.

Usual authority which is synonymous as implied authority is also relevant in this give scenario. Implied authority can be defined as the authority which is assessed by the courts to have been implied in the agreement of partnership for the purpose of carrying out the duties that are assigned to the agent expressly as held in the case Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549. The case Watteau v Fenwick [1893] 1 QB 346 is a remarkable one which deals with implied or usual authority. In this given case study hotel manager had clearly been forbidden to purchase cigars by the owner of the bar. However the hotel manager did purchase the cigars and it was held by the court that the owner of the hotel was liable to pay for the same as it was assessed by the courts that the act of buying the cigars by the hotel manager was within the usual authority of the hotel manager as delegated by the owner. Therefore in accordance with the judgment of the case it can be stated that the principal would be held liable for all those acts of the agent which are within the usual authority of the agent.

Types of Authority in Agency Law

Ostensible authority which is also known as apparent authority is assessed by the courts in situation where the third party believed that the agent had acted as an agent of the principal even when the principal has not delegated actual authority to the agent. In such a circumstance the principal would be liable for all the actions of the agent.  The remarkable case Freeman & Lockyer v Buckhurst Park Properties [1964] 1 All ER 630 is one which deals with the ostensible authority. In this case it had been held by Lord Diplock that a test must be applied to assess whether the principal should be by the actions of an agent.  The purpose of this test is to identify whether it was reasonable for the third party to believe that the agent was acting on behalf of the agent and whether the principal had taken reasonable steps to prevent the agent to act on his behalf.

Thus by analysing the facts of the case it is evident that in the first scenario Sara had shown the design of her brooch to Gaby. She had failed to mention to Gaby that she was an agent of Terence as she had been employed by Terence was in charge of designing jewellery. Gaby had the impression that Sara acted on her own and placed the order believing the she possessed the skill to manufacture the jewellery and deliver the order. Thus by the application of the doctrine of election in case of undisclosed principals it can be stated that Gaby has the right to demand performance from either Sara or Terence. Therefore there is no valid contract between Gaby and Terence unless she demands performance from him.

In the second scenario it is evident that Peter had ordered gold from Mary while acting as the agent of Terence. Mary had delivered orders to Terence’s terrific jewellery on numerous occasions in the past. Thus by the application of the principle of usual authority as established in the case of Watteau v Fenwick it can be said that Terence would be liable to Mary the price of the old ordered by Peter as it cn be assessed that Peter was acting within his usual authority when he ordered the gold from Mary.

In the third scenario it is evident that Peter had ordered diamonds from the email id of Terence’s business. Terence had fired Peter however; he did not shut Peter’s access to the email of Terence’s Teriffic jewellery. Therefore it was impossible for Gordon to know that Peter was acting beyond the authority delegated to him. Thus by the application of the doctrine of apparent or ostensible authority as established in the case Lockyer v Buckhurst Park Properties it can be said that Terence had not taken reasonable steps to prevent Peter from acting on his behalf.  Therefore Terence would be liable to pay Gordon the prince of the gold ordered by Peter.

Incorporation of Corporate Veil and Business Liability

Conclusion

Thus to conclude it can be said that:

• A contract had not been formed between Gaby and Terence as Gaby did not approve suc contract
• Terence is bound to pay Mary the price of the gold ordered by Peter as was acting within his usual authority
• Terence is bound to pay the price of the diamonds to Gordon which had been ordered by peter.

As provided in the facts of the case study, the issues that are existing are:

• Whether the company Industrial  Machines Pty can personally sue Roger for the failure of the company to pay the debt to Industrial Machines Ltd.
• Whether the company Industrial Explosive Pty Ltd is entitled to the get the license and if not on which grounds will the license be rejected.

It can be stated that in this given scenario, the doctrine of separate legal entity is applicable. In the landmark English case Salomon v Salomon, the doctrine of the separate legal entity of a company had first been established. The principle of incorporation of the corporate veil had also been first established in this case. In accordance with the judgment of this case, it can be stated that the company is to be treated as a separate entity from its owners and the liabilities incurred by a company are to be considered to be different from the liabilities of its owners.  A member of a company therefore does not personally  incur unlimited liability to pay of the debts of the company. In this case of Salomon V Salomon, Salomon had personally transferred the assets of his shop to the business in return for debentures and shares.  However Salomon had later sold of the debentures of his company to a third party subsequent to which the company became insolvent. In this case it had been held that Salomon was acting in three ways:

• As the majority of the shareholder of the company
• As the managing director of the company
• As the third party who transferred the assets to the company.

In this case the concept of incorporation of the corporate veil had been established based on three factors:

• Salomon, inspire of holding the majority of the share was to be treated as a separate entity.
• The debentures of the company had been available to the public for their inspection.
• There was no intention on the part of Salomon to deceive the shareholders.

It can be stated that the Explosive Regulations 2013 which correspond with the laws of Dangerous Goods Act 1985 of Victoria, Explosives Act 1936 of South Australia, Dangerous Goods Safety Act 2004 of Western Australia, Explosives Act 1999 of Queensland  and Dangerous Substances Act 2004 of the Australian Capital Territory.

It has been provided in Part 3 of 17 of the aforementioned regulations that any person who handles an exclusive precursor is required to be authorized to handle such explosives by a license which is granted by the authority of regulation under this Act. It has been provided in section 18 of this act that a license can be granted to a natural person to handle explosive precursor or other explosives that in a manner which the license authorizes. It has further been provided in section 18(2) that the natural person must hold a security license which is in force for applying for the license of handling explosives.

Further it has been provided in section 19 that a corporation must nominate a natural person to who holds the security clearance to apply for the license of handling explosives and explosive precursor. License can only be granted in when a corporation nominates at least one responsible person.

By analysing the facts of the case study that has been provided it can be stated that in the first scenario the company Roger Smith held a majority of the shares of United Chemicals Pty Ltd. However by virtue of have separate legal existence of the company Roger Smith could not be held personally liable for the debts incurred by the company. This claim can be substantiated by the application of the principle of incorporation of corporate veil as established in the case Salomon V Salomon. In the aforementioned case Salomon could not be held personally liable for the debts of the company as his identity was different from that of the company and there was no fraudulent intent on his part to deceive the shareholders.

In the second scenario of the given case study it has been provided that Roger Smith had been prohibited of by the commonwealth legislation by from applying for a license to handle Explosives as he had a been convicted of theft five years. The commonwealth legislation prohibits any person from plying for a license to manufacture explosives who has a record of criminal conviction. Thus Roger intended to form a company Explosive Industries Pty Ltd. and asked Mary to apply for the license of handling explosives on behalf of the company. However it has been clearly provided in section 19 of the Explosives Regulations 2013 that for a company to apply for a license of handling explosive precursor, such company must nominate a natural person who holds a security clearance. Thus it can be stated that the application of Mary was rejected as such application did not contain the nomination of the natural person who held a security clearance.

Conclusion

Thus to conclude it can be said that:

• Industrial Machines Pty Ltd. cannot personally sue Roger Smith
• The application of Roger smith for the license of Explosive Industries Pty Ltd was rejected due to his prior criminal conviction.

Reference List:

Keighley, Maxsted & Co. V. Durant [1901] AC 240 (HL)

Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199

Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549

Watteau v Fenwick [1893] 1 QB 346

Freeman & Lockyer v Buckhurst Park Properties [1964] 1 All ER 630

case Freeman & Lockyer v Buckhurst Park Properties [1964] 1 All ER 630

Salomon V Salomon & Co Ltd [1897] AC 22

Explosive Regulations 2013