Legal Issues Raised By Promotional Offers: A Case Analysis

Describe about the Business Law For Australian Prudential Regulation.

Formation of a Valid Contract

There are different legal issues raised in this case. Firstly, whether the advertisement formed a contractual liability of Ming? Whether a contractual obligation exists towards the forty customers, who have brought the advertisement with them? Whether the contractual relationship is formed between other ten customers based on the advertisement? Is it possible to form a contract by posting an advertisement? If yes, then whether such advertisement is revoked based on the sign which is put in the shop?

The contractual obligations are constructed between parties if the sign a valid contract. The valid contract is defined based on certain elements which are necessary to be present. One of such element is related to the offer for compliance with the contractual terms. However, not all offers which are made to a party constitutes as valid (Fitzpatrick et al., 2017). A valid offer must have the authority to bind the party. This concept is defined under a landmark judgement of Harvey v Facey (1893) UKPC 1 case. To form a contractual obligation, the offer to do or not do something must bind the offer into its terms after acceptance is received by the offeree. While determining the elements of a valid offer, the court differentiates it from the concept of an invitation to treat (Obioha, 2018). A request which is made regarding the information or details of the products or services is not considered as a valid offer rather it is defined as an invitation to treat. The parties who receive this invitation can further make an offer to form a valid contract. Generally, the promotional offers or advertisement which are displayed or posted by companies to boost their sales are considered as an invitation rather than an offer.

This concept was established by the court in the landmark judgement of Partridge v Crittenden (1968) 2 All ER 425 case. However, this is not an absolute rule when it comes to determining whether an offer is made or not. The concept of the unilateral offer is an exception to this rule. The court further explained this concept in Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256 case. This is a leading case in which the court defined how an advert can be considered as an offer. A product was developed by Carbolic Smoke Ball Co which was promoted by the company in a newspaper. The company guaranteed in the advert that this product will fix the issue of influenza and not body will suffer from it again after using the product while complying with given instructions (Stuff, 2013). The corporation was persistent regarding its product; therefore, £1000 was deposited by it in a bank. This amount was deposited to in a bank account, and a promise was made to give a sum of £100 to anyone who suffered from influenza even after this product is used as per instruction. Mrs Carlill did the same but caught influenza nevertheless based on which she claimed £100.

Offer vs. Invitation to Treat

However, the company rejected the claim after which a lawsuit was instituted against the corporation. In the defence, the company provided that the advert was a mere sales puff and it is not possible for a party to make an offer to the entire world. The consideration was not available, and acceptance was not communicated. It was held that a unilateral offer was made in the advert which can be made to entire world. The company was sincere since it deposited the money due to which it cannot be considered a mere sales puff. The acceptance is not necessary to be communicated as long as parties are complying with the instructions given in the advert (Bender and Do, 2014). Thus, contractual obligations imposed by the court on the company based on which the claim of Mrs Carlill is accepted. Moreover, if a unilateral offer is made, then the party cannot simply terminate it whenever it decides. It can only be terminated if the performance for the offer is not begun by the parties to whom such offer is made. Moreover, it can also be terminated if the performance which is started is not completed within a reasonable time (Fitzpatrick et al., 2017).

The provisions discussed above are applicable in this case. A promotional offer is posted by Ming for his shop. The offer provides that customers will get a chance to get a haircut of $60 for just $10. This chance is available to them if they bring the copy of the advert with them. This advert was a unilateral offer as discussed in the case of Carlill v Carbolic Smoke Ball Co. The parties which comply with its instructions give their acceptance to the offer. Thus, Ming has contractual obligation towards forty customers since they have given their acceptance. However, no contractual obligation is present in the case of other ten customers since they have failed to give a valid acceptance by complying with terms. Since contractual obligations are formed, liability is imposed on Ming under which the contract can be enforced by the forty customers. They can bind him to give a haircut for $10 which is not the case with other ten customers. The sign is not enough to terminate the offer. Since it is a unilateral offer, Ming cannot terminate it by putting the sign. It can only be terminated if the performance is not started or completed with reasonable time.

Unilateral Offer

Conclusion

The forty customers can legally enforce Ming to get their $10 haircut. Other ten customers have no legal authority to do the same. The offer is not terminated by the sign which is put on the shop by Ming.

• Proprietary companies

These corporations are also called private companies. They have a limit on the number of members which is fifty maximum. They cannot issue shares in the public for generating capital (eCompanies, 2017).

• Public companies

There is a not restriction on them regarding the number of members. They can issue their shares to raise capital. They have to comply with strict legal compliance.

• Proprietary companies limited by share

Members of these corporations have limited liability. This liability is restricted to the value of their share capital.

• Unlimited proprietary companies

No restrictions on the liability of members. Members’ personal assets can be used by the court for repaying the debts of the enterprise.

• Public companies limited by share

The liability of members is limited. The liability of members did not rise above the value of their share which they hold.

• Unlimited public companies

No restrictions on members’ liabilities. Members’ personal assets can be utilised for repayment of debts.

In the given case, the most suited company is proprietary company. The members should register it with the ASIC. It is suited above others because the legal framework of this company is flexible. Since all the members are from the same family, they have the option to make unanimous changes to its constitution (Fitzpatrick et al., 2017). They are clearly defined their rights and liabilities in the constitution along with responsibilities regarding managing the operations. This option is not available in the case of other types of company structures. Moreover, the control of the company will be limited to the family members as well. They can vote regarding the operations of the enterprise. They did not have to comply with various guidelines of the ASIC which are imposed on a public company. Some examples include preparation, maintained and lodging of accounts, the appointment of auditor, and continuous disclosure regulations. With all these benefits, the liability of the members will be limited as well based on which their personal assets will be protected. Thus, it is a most suitable type of company which should be registered with the ASIC in this case.

The Corporations Act 2001 (Cth) provides provisions regarding structure of companies in Australia. Under this act, section 162 defines how structure of a company can be changed. This act provides that a proprietary company can be changed into an unlimited public company, public limited and unlimited proprietary company. While making this change, an application is lodged with the ASIC. Section 163 provides that this application goes with a copy of statement of directors, constitution, special resolution and others documents (Austlii, 2018). The change is made after ASIC is satisfied with the application of the company as given under section 164.

• First year

Suitability of Proprietary Company Structure

Section 45A differentiates a proprietary company into two parts which include small and large proprietary company. ASIC has given guidelines regarding both of these categories of the proprietary company. In order to remain in the category of a small proprietary company, compliance with any of the two out of three conditions is required within a single financial year. The first condition provides that the revenue which is generated should be below $25 million. The second condition provides that the value of the assets should be below $12.5 million. The third condition provides that the number of employees should be below 50 (ASIC, 2014). While counting the number of workers, both full-time and part-time employees are considered. In the given scenario, all of these three conditions are fulfilled. Thus, the company is in the category of a small proprietary company in the first year.

• Fifth year

A small proprietary company can be changed and comes under the category of a large proprietary company if certain conditions are fulfilled. If the corporation fulfilled two of three conditions given below, then it becomes a large proprietary company. It is important that such two conditions are fulfilled in a specific financial year. The revenue of the enterprise is $25 million or more. The value of total assets is $12.5 million or more. The number of total employees is 50 or higher (ASIC, 2014). In the given scenario, all these terms are fulfilled by the company in its fifth year. Based on these guidelines, the corporation becomes a large proprietary company in the fifth year.

Not all words or phrases can be registered by the ASIC as the name of a company. There are many words which cannot be selected as the name for the company. The names which already exist or which are similar to other corporations are not valid (Fitzpatrick et al., 2017). Any words which show any connection to ex-servicemen or Royal family is unacceptable as well. These words are prohibited since they can confuse the customers. The names related to banks or banking institutes are restricted as well. Parties have to get the prior approval of APRA or Australian Prudential Regulation Authority while registering these names. Royal family names can also mislead people based on which they are unacceptable. Any names which show any connection to Australia or the government are unacceptable as well. The parties can visit the website of ASIC before selecting their name to check it availability (ASIC, 2018). The available names are displayed under green colour. The names which are prohibited are shown in red colour. Lastly, the names which required prior approval of ASIC are shown in amber colour. ‘Anzac Coffee’ is shown in amber colour due to which prior permission of ASIC is necessary before selecting this structure. This name is unavailable since a company with the similar name already exist and it shows a connection to the government of Australia.

References

ASIC. (2014) Are you a large or small proprietary company. [Online] Available from: https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/preparers-of-financial-reports/are-you-a-large-or-small-proprietary-company/ [Accessed 05/10/208].

ASIC. (2018) Company name availability. [Online] Available from: https://asic.gov.au/for-business/registering-a-company/steps-to-register-a-company/company-name-availability/ [Accessed 05/10/208].

Austlii. (2018) Corporations Act 2001. [Online] Available from: https://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/ [Accessed 05/10/208].

Bender, M. and Do, C. (2014) How to Pass Business Law. North Ryde: CCH Australia Limited.

eCompanies. (2017) Australian companies by type. [Online] Available from: https://www.ecompanies.com.au/company-registration/resources/different-types-of-companies/ [Accessed 05/10/208].

Fitzpatrick, J., Symes, C., Velijanovski, A. and Parker, D. (2017) Business and Corporations Law. 3^rd ed. Chatswood, NSW: LexisNexis Butterworths Australia.

Obioha, O.O. (2018) Dilemma of a borrowed colonial system: Lesotho law of contract as a fusion of Roman-Dutch principles and English law. Journal of Gender, Information and Development in Africa (JGIDA), 7(1), pp.9-19.

Suff, M. (2013) Essential Contract Law. Abingdon: Routledge.