Discuss About The Sharrment Official Trustee In Bankruptcy - Agency Relationships, Valid Agency, Separate Legal Personality, And Piercing The Corporate Veil

Agency Relationships

Discuss About The Sharrment Official Trustee In Bankruptcy.

An agency is a relationship that is established amid a principal and an agent. A principal when entrust some of his authority to another person (agent) who carries out the tasks within such authority and establishes relationship with third parties, then, any action that is taken by such an agent is binding upon the principal (Pont, 2001).

 The main elements to make a valid agency are: (Thampapillai, Tan, & Bozzi, 2015)

1. That both the principal and the agent must be capable of entering into contract;
2. That the agent must act within the authority that is entrusted upon him by the principal;

• That the principal is bound by the acts that are undertaken by the agent within the entrusted authority

1. Actual Authority – An actual authority is the authority that is granted by a principal to an agent actually by the principal himself. These are divided in to two kinds:
2. Actual express authority – An actual express authority is the authority that is granted to an agent by words of mouth or in written form, but, there is some sort of express action that is taken by the principal (Northside Developments Pty Ltd v Registrar-General , (1990) ); (Perkins v National Australia Bank Ltd , 1999);
3. Actual implied authority – An implied authority is the authority that comes along with the express authority and comprises of authority that the agent is permitted to undertake while carrying out the tasks that are expressly allocated to him (Equiticorp Finance Limited (in liq) v Bank of New Zealand, 1993) and (Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd, 1992)
4. Ostensible authority – The authority which is not expressly provided to the agent but the principal do some overt act in front of the third parties which makes the third party to believe that the agent does possess the authority that is granted to him by the principal. Thus, any act that is undertaking by an agent within the ostensible authority is considered to be binding upon the parties and the principal is held liable for the same (Hely-Hutchinson v Brayhead Ltd, 1968).

Further, any outsider when dealing with the agent on the pretext that the agent does possess the actual authority to bind the principal by his act which in reality the agent cannot, then, any act that is undertaken by an agent with the outsider is binding upon the principal provided the outsider is not aware of the defect, that is, the agent does not possess the requite authority and is dealing with the agent in good faith.

Terence establishes a business ‘Terry’s Terrific Design’. Peter and Sara are appointed by Terence.

Sara is assigned the authority to make designs for Terence and Peter is authorized to acts as a supplies purchaser.

 Gabby wanted that Sara must design a brooch for him. Sara shows several designs to Gabby but forget to tell him that he actually works for Terence. Gabby gave a work @ $1000 to Sara.

When Terence call Gabby conforming the order of Gabby, Gabby shows his unawareness and submitted that he entered into a contract with Sara and not Terence.

It is submitted that Sara is the agent of Terence and an actual express authority is granted to her to make design for Terence. There is no authority that is granted to Sara wherein she can enter into contracts on behalf of Terence.

Thus, Sara acted beyond the authority that is granted to her and thus the contract that is made amid Sara and Gabby is not bound upon Terence.

Peter is the agent of Terence and he is expressly authorized with the task of supply purchaser. However, Terence later made an express statement to Peter that he should only buy silver and not gold. However, Peter buys gold from Mary (with whom Peter had entered into contracts on behalf of Terry’s Terrific Design’) without seeking permission from Terence.

It is submitted that Mary is aware that Peter is the supply purchaser for Terence and is permitted to purchase gold. However, Terence has made no efforts to communicate to Mary that Peter is now not authorize to buy gold. Thus, by not communicating, Terence has made a representation that peter is still permitted to by gold from Mary.

Valid Agency

So, the contract by Peter with Mary is valid on account of ostensible authority.

Peter was fired by Terence but no communication of the same is made and Peter computer system was shut down only on Thursday. But, prior to that Peter has bought diamonds from Gordon (Wednesday). It is submitted that by not shutting the system of Peter and not letting anyone know that peter is not the agent of Terence any more, Terence has granted an ostensible authority to Peter.

So, the contract with Gordan is valid.

1. Whether Industrial Machine Limited sue Roger for the last installment that is not paid by United Chemicals Pty Ltd?
2. Whether Department of Industry can sue Roger for violating the legislative provisions and lift the veil of the company, Explosive industries Pty Ltd?

Once a company is formed then it is an artificial legal person in the eyes of law and has the capacity to enter into contract, purchase property, etc. The acts that are undertaken by the company are its own and no company officer can be held liable for the same. (Tomasic, Bottomley, McQueen, & Rob, 2002)

One of the significant features on incorporating a company is Separate legal personality of a company.

Separate legal personality of the company signifies that the company is distinct from its members, directors, employees and officers. If any action is undertaken by the directors of the company then the same are taken on behalf of the company and the acts are considered as the acts of the company and not that of the directors. If any loss is sustained by the company because of the actions then the loss is borne by the company and no liability can be imposed upon the company directors. (Tomasic, Bottomley, McQueen, & Rob, 2002)

As per (Salomon v A Salomon & Co Ltd [1896], 1896), Mr Aron Salomon turned his business into a limited company. The business of salmon was sold to the company and wife and sons become its subscribers and directors. The court held that the company that is formed by salmon is a company in the eyes of law and cannot be regarded as business for which salmon can be held personally liable. It is a company which has artificial legal personality in the eyes of law.

But, the concept of separate legal personality has its own disadvantages. This is because there are various instances where the court is not found to be hesitant in regarding the shareholders of the company and the company as single entity and the acts that are undertaken by the officers are considered to be their own personal acts and not the acts of the company. This act of considering the company and the officers as one is lifting the corporate veil of the company.

Separate Legal Personality

1. Fraud – When the officers of the company in order to avoid their fiduciary or legal obligations try to act under the shield of the company then the veil of the company can be lifted and the acts of the company are treated to be the acts of the officers of the company (Re Edelsten ex parte Donnelly , 1992).
2. Agency- When the shareholders of the company are controlling the acts of the company in such manner so that they are considered to be the mind and soul of the company, then the company are considered to be the agents of the shareholders and in such cases veil of the company can be lifted and the acts of the company ate considered to be the acts of the shareholders (Balmedie Pty Ltd v Nicola Russo , 1998), ( Barrow v CSR Ltd , 1988) and (Briggs v James Hardie & Co Pty Ltd , 1989)

• Sham or façade – When the incorporation of the company was mainly due to hide the real purpose of the controller then there is sham and thus the veil of the corporate can be lifted and is held in ( Sharrment Pty Ltd v Official Trustee in Bankruptcy , 1988) and (Peate v Federal Commissioner of Taxation , 1964).

1. Unfairness/justice- When in order to secure justice and to bring fairness to the parties, it becomes necessary to pierce the veil of the company.

The law is now applied to the facts.

Roger holds 92 shares in a registered company  which is formulated by him in 2009, namely, United. His wife is the secretary of the company (8 shares). Timothy (Rogers brother) was the managing director of the company. In 2015, the company bought a machine from Industrial @ $60,000.  However, the last installment due in 2017 of $20,000 is not paid.

It is submitted that Industrial cannot sue Roger for the last installment that is not paid by United.

When the company is formed by Roger, then, it I a separate legal entity in the eyes of law and Roger, Mary and Timothy are only the officers of the company and cannot be held to be liable for the acts that are undertaken by the company. As per (Salomon v A Salomon & Co Ltd [1896], 1896), the company of Roger is distinct from Roger.

Thus, no action can be brought against Roger. In 2016, Roger tries to indulge the business in explosive. The Legislation does not allow license to person who are convicted and Roger was convicted once and thus is not permitted to carry out the activities of explosives.

So, Roger makes other company Explosive industries Pty Ltd with 99% shares and 1% to his wife to carry out the business of explosives. It is submitted that the new company that is incorporated by Roger was to deceive the legislative provisions and thus to incur fraud and unfairness to the law. By, incorporating new company, Roger tries to defeat the provisions of the Commonwealth provisos. Thus, as per (Peate v Federal Commissioner of Taxation , 1964) and  (Re Edelsten ex parte Donnelly , 1992), the veil of the new company must be pierced and Roger and the new company (Explosive industries Pty Ltd) must be treated as one.

Thus, the Department of Industry can sue Roger for violating the legislative provisions and lift the veil of the company, Explosive industries Pty Ltd considering the new company and Rogers as one and single entity.

Conclusion

Industrial cannot bring any action against Roger as United is the distinct personality and Roger is not accountable by the acts of United.

Thus, the Department is permitted to sue Roger by lifting the veil of the new company ‘Explosive industries Pty Ltd as the same was incorporated to incur fraud and sham in order to defeat the legislative provisions of the company

References

Barrow v CSR Ltd (1988) (Unreported) Supreme Court of Western Australia.

Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) FCA 266.

Balmedie Pty Ltd v Nicola Russo (1998) FCA 980.

Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1992) 10 ACLC 253.

Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549 (NSWCA.

Equiticorp Finance Limited (in liq) v Bank of New Zealand (1993) 11 ACLC 84.

Hely-Hutchinson v Brayhead Ltd (1968) 1 QB 549.

Northside Developments Pty Ltd v Registrar-General ((1990) ) HCA 32 .

Peate v Federal Commissioner of Taxation (1964) HCA 84.

Perkins v National Australia Bank Ltd (1999). 30 ACSR 256

Pont, J. (2001). Law of agency. Butterworths.

Re Edelsten ex parte Donnelly (1992) 18 FCR 434..

Salomon v A Salomon & Co Ltd [1896] UKHL 1.

Thampapillai, D., Tan, V., & Bozzi, C. (2015). Australian Commercial Law. Cambridge University Press.

Tomasic, R., Bottomley, S., McQueen, & Rob. (2002). Corporations Law in Australia. Federation Press.

Whiggs. (2018, April 4). Actual and Ostensible Authority. Retrieved April 27, 2018, from https://legallyunrobed.com/2018/04/04/actual-and-ostensible-authority/

There are various instances where the veil of the company can be lifted. The same are: