Legal Analysis Of Company Law And Negligence Law

Incorporation of a Company and Distinction between officers and the company

Question 1

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?

Question 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
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

Question 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.

Whether Bob by doubling his catch with the help of company incorporation has violated any legal provisions?

If any person intends to establish a business, then, one of the forms is the formation of a company. Section 124 of the Corporation Act 2001 submits that when a company is incorporated, then, it is an artificial being and is regarded as an artificial person. This legal provision was initially highlighted Salomon v Salomon & Co Ltd (1897) wherein the Court of Appeal submitted that once a business is registered as a company then it gains the position of a being with no soul and mind and thus requires officers for its working. Directors are the prime officers who are associated with the working of the company as held in section 198A of the 2001 Act.  In Lee v Lee's Air Farming Ltd [1960] the court held that a company with single share holder and director is distinct from the company. The company has a separate legal existence and the acts that are taken by the directors of the company on behalf of the company will only bind the company and there is a veil that brings a distinction amid the company and its officers.  A company has the capacity to enter into contractual relationship, to buy and sold property, etc. Peate v Federal Commissioner of Taxation (1964), the courts held that when the directors is acting for the company then there is no personal obligations that can be imposed on such directors and the shareholders are only liable to the dents of the company which is equivalent to their shareholdings. (Ramsay & Noakes 2001)

Now, this distinction amid the officers and the company itself is made with the help of a veil. Many a times, the courts are not found reluctant to disregard the presence of veil that brings a distinction amid the officers and the company. When there is incurrence of fraud on the part of the company officers, then in Gilford Motor Co Ltd v Horne [1933] the veil is pierced by the courts and the acts of the officers are not considered to be the company acts and the directors are held to be personally liable for the same. In Dennis Willcox Pty Ltd v Federal Commissioner of Taxation (1988) the court held that any incurrence of fraud to take benefit of the separate legal entity principle is not regarded by the court as court and the courts has lifted the veil and the directors are considered to be solely liable for such actions. (GV Puig, 2000)

Principles of Negligence Law: Duty of Care, Breach, Causation and Damage

IN new South Wales , Bob is indulged in the business of fishing. The scallops in the water are limited and to safeguard them two legislations are framed according to which any interested person must first apply for a quota which can make him eligible to fish 50 tonnes of scallops in a year AND if any person wish to sell the scallops then he can only sell them to the Scallops Marketing Authority. If these Law are violated then $100,000 is imposed as fine.

It is submitted that BOB has violated these provisions because:

1. Bob ha applied to quota and thus he is allowed to fish 50 tonnes of scallops on a year.
2. With an intention to double the scallops he formulated a company and applied for a separate quota.

• The company by Bob is separate by applying  Salomon v Salomon & Co Ltdand thus the company and Bob can only their personal basis can apply for their respective quotas;

1. But, the acts of Bob while incorporating the company was fraud as he was the only shareholder and director of the company and the incorporation is to bypass the legislation;
2. Thus, as per Gilford Motorfraud is incurred and the veil is pierced.

The court can disregard the presence of the company as a separate entity and the acts of company should be considered to be the acts of Bob.

Conclusion

So, the company made by Bob was to incur fraud and to bypass the legislations framed. So, the acts of the company should be considered as the acts of Bob and he can be imprison with fine of$100,000.

Can New Nirvana Ltd be held accountable to the losses that are inflicted by Nuclear Blast Sounds Pty Lt because of their negligent acts?

The law of negligence is an important branch of the Law of tort which emphasis that no person should indulge in any acts or inactions which has the capacity to cause any injury to the plaintiff. In Donoghue v Stevenson (1932), Lord Atkin has emphasized that every manufacturer is duty bound to provide protection to the plaintiff who is his neighbor. If any defendant is considered to be negligent, then, there are three basic requirements. (Plunkett 2018)

The first requirement is that the defendant is under a legal duty of care. The duty of care emphasis that when the defendant is undergoing any activity then it is his prime responsibly to make sure that because of his activity no harm is caused to the aggrieved party. This duty is not catered against every other person, but, the aggrieved party should be the, first, neighbor of the defendant who implies that there is nearness, closeness and proximity between the two, that is, the acts of the defendant will hamper the plaintiff and is analyzed is MacPherson v. Buick Motor Co. (1916).; secondly, that the plaintiff is reasonably foreseeable, that is, the defendant can foresee that the plaintiff is present and thus the defendant should carry out his acts in careful manner so that no loss is caused to the plaintiff and is analyzed in Perre v Apand Pty Ltd (1999). (Plunkett 2018)

Parent Company Liability for Actions of its Subsidiary

Secondly, the duty which a defendant should comply with is not met. The non compliance of duty is breach on the part of the defendant. The breach is incurred when the level of care expected from defendant in any given situation is not met. The level of care differentiates, that is, high degree of care is required when the chances of injury are high or when the plaintiff is an old person or a child and is held in Bennett v Minister for Community Welfare (1992). (Plunkett 2018)

Lastly, when the duty of care which a defendant should comply with is not met, then, in order to consider him negligent in his actions, it is very necessary that there is some loss that is caused to him and is held in Annetts v Australian Stations Pty Limited (2002). But, the defendant is answerable for those losses which he can foresee reasonably and are not remote. Loss which are not in the vision of the defendant are not imposed upon him and is held in Bolton v. Stone [1951].  Further, the loss is the result of the breach on the part of the defendant. So there is presence of causation and is held in Chappel v Hart (1998). (Plunkett 2018)

When these elements are met then the defendant is negligent.

As per section 588V of the 2001 Act, when any subsidiary is negligent but is not financial stable to meet the liabilities caused to the plaintiff then, the liability is imposed on its parent company and the plaintiff an recover their loss from the parent company.

There are two companies, Nuclear Blast Sounds Pty Ltd (NBSPL) and New Nirvana Ltd (NNL). NBSPL is the subsidiary of NNL. NNL has given tasks to NBSPL that it should place the equipments of sound at the N/N concerts. NNL is controlled by the members of N/N.  

So, when NBSPL is carrying out its tasks then it must make sure that because of its acts no loss or harm is caused at the concert, that is, to the people (audience) who are present there. The duty of care exists because NBSPL is providing services at N/N concert and it is reasonably foreseeable that people (audience) will be present and such audience is close with and is affected by services of NBSPL. So, there is presence of proximity. Thus, there is an element of duty of care that is enshrined on NBSPL.

Rights of Members to Sue after Removal from Position

However, NBSPL fall short of the duty of care that is expected from it. NBSPL has set the level of the sound which was so high that it caused harm to the audience. It is the responsibly of NBSOL to make sure that adequate volume of sound should be generated so that it does not harm the people present. But, the sound is very high as what a reasonable man would expect in the situation. Thus, there is breach of duty.

When the duty is breached, then, because of such high volume there were 5 people who are not able to hear again. The loss to the people is because of the acts of NBSPL and the loss is reasonably anticipated by NBSPL. So, there is incurrence of damage.

So, NBSPL is liable.

But, since NBSPL has neither have insurance nor have money thus as per section 588V, NNL will assume the liability of NBSPL and will pay the audience.

Conclusion

NBSPL is negligent but have not enough financial resources to pay the plaintiffs, thus, the liability will shift to NNL and it is now NNL that will compensate to the victim.

Whether DON has any right to sue Millennium Pty Ltd for his removal from the post of the solicitor of the company?

As per section 124 of 2001 Act, once a company is formulated, then, it is a separate legal entity in law. A company has the capacity to run by constitution or by replaceable rules or by both. Since a company is an artificial person thus it requires officers, members and employees for its working As per section 140 of the Act, any company when rules as per its constitution, then any contract with any member is made in the personal capacity of the company and thus such contract are enforceable amid the company and such members. If the company is not carrying out its contractual obligations, then, the aggrieved member has every right to sue the company but it is held in Eley v Positive Life Assurance Co Ltd (1876), that the member is permitted to sue the company only when the member’s rights are violated. If there is no violation of the members rights, then, the aggrieved member cannot bring any action against the company under section 1400 of the Act. If a solicitor is removed, then, such removal if does not hamper the rights being a member then there is no action that can be bought under section 140 of the 2001 Act. (Ramsay & Noakes 2001)

Simon, Michael and Don are incorporated Millennium Pty Ltd. they are the members of the company.  The company is run by the constitution. Don is places as the solicitor of the Millennium Pty Ltd. the constitution submit that of any dispute is incurred then arbitration should be sought. He is authorized to make contracts on behalf of the company dealing with purchase and sale of lands. Don was removed from his position and a conflict is incurred.

Don is the solicitor of the company and he is not the member of the company. He is only allowed t seek the remedy of section 140 when any of his members rights are violated by the company, the removal from the post of solicitor is a contractual breach by the company and not any violation of his members rights. Thus, he cannot sue the company but can go for arbitration for the settlement of the dispute.

Conclusion 

Do removal is only the violation of his contract with the company and thus no action can be bought against the company by applying section 140 of the Corporation Act. the only resort is to seek the process of arbitration.

Reference List

Books/Journals/Articles

GV, P 2000, A Two-Edged Sword: Salomon and the Separate Legal Entity Doctrine.

Plunkett, J 2018, The Duty of Care in Negligence, Bloomsbury Publishing.

Ramsay, I & Noakes, D 2001, Piercing the Corporate Veil in Australia. (2001) 19 Company and Securities Law Journal 250-271.

Case law

Annetts v Australian Stations Pty Limited (2002).

Bennett v Minister for Community Welfare (1992).

Bolton v. Stone [1951] AC 850;

Chappel v Hart (1998) 156 ALR 517

Donoghue v Stevenson (1932).

Dennis Willcox Pty Ltd v Federal Commissioner of Taxation (1988)

Eley v Positive Life Assurance Co Ltd (1876).

Gilford Motor Co Ltd v Horne [1933].

Lee v Lee's Air Farming Ltd [1960]

MacPherson v. Buick Motor Co. (1916).

Perre v Apand Pty Ltd (1999).

Peate v Federal Commissioner of Taxation (1964)

Salomon v Salomon & Co Ltd (1897).