Can Glitzy Touch Sue Jack For An Invoice Raised By Michelle?

1. Whether Glitzy Touch can sue Jack for the invoice which was raised based on the transaction made amid Glitzy Touch and Michelle?

2. What actions must be taken by Jack to avoid the behavior of Michelle and to avoid the instances in near future? A possible suggestion is provided.

3. What are the various statutory duties that are violated by Michelle and what are the consequences that can be faced by Michelle because of such breach?

Whether Glitzy Touch can sue Jack for the invoice which was raised based on the transaction made amid Glitzy Touch and Michelle?

The governing law that helps in evaluating the issue raised is agency law. There are three parties who are involved in any relationship of agency. In the agency relationship, the principal authorizes an agent to act for him with the outriders and the contracts that are made by such an agent within his authority will bind the outsider and the principal. So, the agent’s acts within the authority that is granted to him by the principal with the outsider will establish a contractual relationship amid the outsider and the principal and is held in the leading case of Said v Butt. 

Generally, the authority that is granted to an agent is divided into two broad categories:

1. Actual authority of an agent – An authority is considered to be actual in nature when the delegation of the authority is made by the principal in the name of the agent actually. Actually implies that there should be some expression given by the principal which portrays that an authority is delegated to an agent by the principal and is held in Freeman and Lockyer v Buckhurst Park Properties(Mangal) Ltd [1964]. The actual authority is normally or two kinds.
2. Express actual authority – When an express undertaking is used by the principal for conferring authority on the shoulders of the agent, then, the authority that is possessed by such agent is called express actual authority. The expression can be in the form of words, gestures, textual etc and is analyzed in Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd.
3. Implied actual authority – When an implied undertaking is used by the principal for conferring authority on the shoulders of the agent, then, the authority that is possessed by such agent is called implied actual authority. The authority is raised impliedly, that is, which is derived from an act which the agent is also permitted to do and is rightly evaluated in the leading case of Great Northern Railway Co. vs. Swaffieldand ANZ Bank Ltd v Ateliers de Constructions Electriques de Charleroi 
4. Apparent authority of an agent – Now, when no authority is possessed by the agent actually by the principal, but, the authority is granted to an agent by the principal by making a kind of representation in front of the outsiders, then, the authority that is assumed by the agent is called apparent authority. In the leading case of Freemanand Lockyer v Buckhurst Park Properties (Mangal) Ltdit was held that when the principal makes some kinds of overt acts/omissions which makes the outsider believe that the agent does possess authority to bind the principal, then, any act which is undertaken by the outsider with such an agent on the good belief that the agent does have the authority then there is a valid contractual relationship amid the parties under the apparent authority. So, the outsider can sue the principal as there is a binding contractual relationship that is made amid the agent and the outsider.

Jack has appointed Michelle as his chef manager at Le Petit Gâteau’, the bakery café on which Jack is the sole owner. When Michelle was appointed then he was granted with various responsibilities and powers, that is, he was capable enough to direct the chefs and the other assistant at the bakery, He is also capable to check everything that is moving outside and kitchen and is also empowered to have discussions with Jack regarding the bake wares, mixes and supplies. Now, as per Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd these are some of the authorities that are given by Jack to Michelle directly and by giving an expression. Thus, these are the actual express authorities that are possessed by Michelle.

Apart from this, Jack has also granted a kind of apparent authority to Michelle. Jack normally signs the order forms and gives the same to Michelle who then takes the signed notes to Glitzy Touch and secures the purchases from him. Thus, by doing these acts an overt representation is made by Jack in front of Glitzy Touch wherein he asserts that Michelle has the authority to seek purchases from Glitzy Touch. It was no where submitted to Glitzy Touch that the purchases are granted only when the signed notes are provided by Jack.

Thus, there is a clear apparent authority on Michelle. Based on such apparent authority, Michelle once placed an order of $5,000 worth of supplies to Glitzy Touch. The order was made without any signed notes as Jack was out of town and at that time Glitzy Touch has offered Michelle to purchase edible gold leaf sheets at much reduced prices. Michelle agreed with the offer without seeking the permission of Jack. Now, this contract that is made amid Glitzy Touch and Michelle is valid as the contract is made within the authority of Michelle which is assumed by him under the representation made by Jack in front of Glitzy Touch.

Applicable Law

Glitzy Touch can prove that the contract that is made by it is made with an honest belief that Michelle is the authorized representative of Jack and has no knowledge that Michelle does not possess that required authority that is needed to bind jack by his actions.

Conclusion

It is concluded that Jack by making a representation in front of Glitzy Touch that Michelle is the person who purchases the supplies on behalf of Jack has raised an apparent authority in favor of Michelle. Michelle within the authority that entered into a contract with Glitzy Touch and thus the contract is valid and Glitzy Touch can sue Jack for Money provided Glitzy Touch ahs no knowledge that Michelle has no authority and that contract by Glitzy Touch is made in good faith and honesty.

What actions must be taken by Jack to avoid the behavior of Michelle and to avoid the instances in near future? A possible suggestion is provided.

Jack is aware that Michelle has entered into contract with Glitzy Touch without seeking his permission. Jack is aware that these actions can be repeated by Michelle in near future, thus, one of the possible suggestions that can be sued by Jack is that he must clarify Michelle that he is not permitted to seek supplies and to accept offers from the suppliers unless and until the same is approved by Jack himself. Thus, Jack can intentionally curb the authority of Michelle which was indirectly assumed by him as apparent authority.

Also, one of the suggestions that can be given to Jack is that he must bring a clarification to Glitzy Touch and specifies that Michelle is not permitted to accept the offers that are given by Glitzy Touch. By giving such a declaration Jack will bring in the notice of Glitzy Touch that Michelle has no authority to bind Jack by entering into any kind of contractual relationship with Glitzy Touch.

These are some of the suggestions which are given to Jack and which he must use in order to curb the behaviors of Michelle and avoid any kind of future risks.

What are the various statutory duties that are violated by Michelle and what are the consequences that can be faced by Michelle because of such breach?

If any person wants to operate his business by way of a company then it is necessary that the business must be incorporated as per the guidelines issued by the Australian Securities and Investment Commissions and as per the provisions of the Corporation Act 2001. Once a company is formed then it is an independent person in law. In the leading case of Salmon v Salomon & Co Ltd the court held that when any company is formed then it possess the feature of a separate legal entity, perpetual succession, limited liability, can sue on its own, enter into contract etc.

Application

The separate legal personality of a company signifies that the company is in itself capable to make contracts and any act that is undertaken by the company is by the company only. The acts of the company are carried out with the help of the officers and directors of the company. Any person who is undertaking the acts of a director is considered to be the director of the company as per section 9 of the Corporation Act 2001.

There are several duties that must be furnished by a director. Two of the most prominent duties include, the duty to avoid insolvent trading and the duty to act with all care and diligence.

The duty to avoid insolvent trading – the duty to avoid insolvent trading is made part of section 588G of the Corporation Act 2001. The section simply submits that if any company director is found to be involve in insolvent trading of the company, then, is guilty of violating section 588G of the Corporation Act 2001 and thus must face the consequences. The concept of section 588G was rightly established in the leading case of Woodgate v Davis. In the leading case of Metropolitan Fire Systems Pty Ltd v Miller, it was held that it is one of the paramount duties of the company director that any acts of him which results in the insolvency of the company must be avoided on highest basis and every attempt must be made by the director to avoid any situations which results in the incurrence of the insolvent trading of the company.

Now, a company director is considered to have violated section 588G of the Corporation Act 2001 provided that there is some liability or debt that is raised by the director of the company. When the debt is raised then the director must hold the position of the director. Also, it is because of the raising of the debt that there are chances that the company will run into insolvency or the company might have been insolvent when the debt was raised and is held in The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9). It is also necessary that the company must not be in the position to pay off his debts. When all the elements are comply with then the director is considered to be in the violation of section 588G.

But, as per section 588H, a company can take a defense by proving that his acts are based on any professional advice or he has taken the decision in good faith, etc. The director was held not liable for insolvent trading as he has secured himself by proving the defense under section 588H of the Act.

Conclusion

The duty to act carefully and skillfully – As per section 180 of the Act, the acts of the director must be carried on with all care and diligence. The duty of care and diligence must be carried on like a prudent man in the given situation.

The non compliance of the directorial duties might result in the imposition of fines, compensation and disqualification of the directors. If the violation of the duties is reckless then fines and imprisonment can also be imposed on the defaulting directors.

Michelle resigns from the bakery of Jack and joins Le Petit Plat Pty Ltd Company on the post of a company director. Michelle is controlling the catering part of the company. She was also made part of the board wherein she was taking part in the decisions, however she never went to the financial reports of the company and all the decisions are taken without analyzing the financial reports of the company.  

After taking the post of the director of the company, Michelle took a loan of $600,000 from the Best Bank Limited. The loan was taken mainly because to enter into contract for the purchase of vehicles in order to transport the perishable goods safely. The contract was made by Michelle without taking any heed to the financial reports of the company. If Michelle would have taken heed of the financial reports of the company, then she would have been area that the financial position of the company was not sound in order to sustain the debts that are raised by Michelle.

At this stage, it is submitted that there is clear violation of section 588G of the corporation Act 2001 on the part of Michelle. Michelle was the director of the company when she took the loan of $600,000 from the bank. Further, the company was already not in financial sound position when the loan was taken. Also, because of the raise of the liability by Michelle, the company is in the position to become insolvent in nature. Thus, there is clear breach of section 588G on the part of Michelle.

Also, Michelle is not able to them the defense under section 588H of the Act as his acts are not based on any professional or made on an honest belief.

Also, Michele is found to be in ovulation of section 180 of the Act as the acts that is carried on by her is not carry on with adequate care and diligence. No care is taken by Michelle while taking loan on behalf of the company. It is the duty of Michelle that she should have read the financial reports of the company before seeking any loan from the bank. so, there is violation of section 180 of the Act.

Since there are violation of section 588G and section 180 of the Act thus, Michelle can face consequences in the form of fines, compensation and disqualification. He can also be prosecuted for the reckless action.

Conclusion

Michelle has  violated section 588G and section 180 of the act and thus he cam face civil and criminal consequences for the same.

Now it is important to give advice to ‘Le Petit Plat’ regarding the changes that must be bought by the company so that the personal risk of the company director can be considered by bringing changing the operation of the business.

It is now submitted that the company acts and behaves as per the object clause of the constitution. Section 125 of the act submits that the company must carry out its operations as per the object clause that is made part of the contract. One of the objects can be made part of the constitution which includes that the directors of the company are not permitted to seek loan for the company, when this object is made part of the constitution, then the operation and risk of the company can be secured. Also, it can also be submitted that the directors liability can be limited to certain extend and there by the position of the directors can also be secured.

Thus, these changes can be bought only by bringing alteration to the constitution. The alteration can be bought as per section 136 of the Act. It is necessary that by passing a special resolution by 75% votes, changes can be bought to the constitution of the company.

Reference List

Books/Articles/Journals

Adams, Michael , Australian Essential Management Law, Routledge 1997.

Latimer, Paul , Australian contract law, 2012.

Purslowe, Ryan , Decisions In The Twilight Zone Of Insolvency - Should Directors Be Afforded A New Safe Harbour?, 2011, < https://www.austlii.edu.au/au/journals/UNDAULawRw/2011/5.pdf>.

Case Laws

ANZ Bank Ltd v Ateliers de Constructions Electriques de Charleroi (1966)

Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985).

Commonwealth Bank of Australia v Friedrich (1991).

Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480.

Great Northern Railway Co. vs. Swaffield (1874) LR 9 Exch 132.

Hall v Poolman (2007).

Hymix Concrete Pty Ltd v. Garrity (1977) & Queensland Bacon Pty Ltd v Rees (1966).

Metropolitan Fire Systems Pty Ltd v Miller  (1997)

Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971].

Said v Butt (1920)

Salomon v A Salomon and Co Ltd [1897] AC 22

Shafron v ASIC [2012].

State of South Australia v Marcus Clark (1996) 19 ACSR 606.

The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008).

Woodgate v Davis (2002)