Legal Issues Faced by Small Businesses

IRAC legal problem-solving method

Question 1 (20 marks)Sharleenowns a vintage furniture store inthe south east of Melbourne. There are a few such storesscattered in the area.Sharleen’s store imports vintage furnishings from various European countries.Sharleenrecently completed avery successfulend of year saleand now hopes to replace old stock with new stock from overseas. She already placed an order for the stock some months ago and she needs the new season furnishingsurgently. The sale wentvery well and 70% of her stock wassold. She is aware that if she does not get the new stock in on time from overseas, she willlose a lotof money in sales.Her cash flow will be adverselyaffected and she will not be able to pay her rent, telephoneandelectricitycosts. She will also struggle to meetemployee salaries and thesubstantial payments on her overdraft with her bank.In fact, if her order from overseas is not delivered on time to her business, Sharleenis likely to face bankruptcy.She contacts the delivery company, Overseas FrightSolutionsPty Ltd, with which she has been dealing for a number of years. Davinder is the director and owner of this company. He is now aware of Sharleen’s financial problems and instead of charging his company’s normal delivery fee of $6,000 per delivery, which the parties have already agreed upon, Davindernow advises Sharleenthat his company cannot deliver the goods for the agreed price andthat if she wants them,she will need to pay$12,000 per delivery. Sharleenis very unhappy with this news but reluctantly agrees because of her desperate financial position.It takes three delivery trips for the goods to be received at Sharleen’s business and she pays the higher price for each delivery. The total payment is $36,000.Sharleenis distressed and seeks your advice.REQUIRED:With reference to relevant legal principles,use the IRAC legal problem-solving approach to advise Sharleenas to hercommon law rights against Davinderand/or Overseas FrightSolutionsPty Ltd.Use appropriate case law in support of your answer.(20 marks)Question 2(20 marks)Jim Blondeis a former defence consultantwho now works for Intelligent SellutionsPty Ltd, a company that deals with modernising motor vehicles so that they can selfdrive.Jimis skilled in the area of artificial intelligence and autonomous vehicletechnology, having worked in the area during his consultancy.Intelligent SellutionsPty Ltd has hired Tom Stone, a GPS navigation expert, to build a suitable navigation system that will allow autonomouscars to safelynavigate anyroad network. A written contractwas signed between the parties. Tom is a high achiever. He attended Massachusetts Institute of Technology (MIT) and graduated with the highest honours at age 16. He knows almost everything relatingto navigation science and technology. He is a professional engineerand can craftany kind of navigationdevice. Tom is famous for creating the intelligent navigation systemsthat are used in the new futuristic defence aircrafts. LAW6000 Assessment 2 Case study analysisJim Blondetold Tom that it was essential that the navigation systemwas safe and thatit should be ableto update itself for at least 5 years. He added that the system ought to work on marked roads and unmarked roads.Tom replied “All of our navigation systems are intelligent and can be used all over the universeon any terrain. We have itsorted. They will also update themselves for upto 10 years.” The two agreed on this verbally and this statement was not incorporated into the written contract.The cost of developing the navigation systemwas $500,000, to be paid in two instalments:at the start of the work and the balance on completion.Intelligent Sellutionspaid $200,000 while the work was being carried out.When Tom indicated thathe had finished the work, Intelligent Sellutionsran some tests on the navigation systemas soon as they received it. Jim Blondeinstalled it in one of thecars that they were working on and took it out for a drive.Immediatelythe car reached abusy unmarked road, the navigation system failed and the car stalledand would not move any further. As a result, Intelligent Sellutionsrefused to pay Tom, arguing that the navigation system was not safe and did not work according to their agreement. REQUIRED:With reference to relevant legal principles,use the IRAC legal problem-solving approach to advise Intelligent Sellutions of their common law rights against TomStoneas they seek to rely on his assertions.Use appropriate case law in support of your answer.(20 marks)Question 3(20 marks)Benedictoand Prakashare the directors and shareholders of a “Healthy SolutionsPty Ltd”whichimports personal protective equipmentfrom the European Unionfor sale to various local health institutions. The company has a largewarehouse where it keeps itsgoods, anddistributes all its products from there.Two months ago, the company entered into a contract to supply a large local health care provider with disposable facemasks. Benedictoand Prakashwere excited and they ordered a large shipment from the European Unionto enable them honour the contract. The company ordered sixtyshipments of face masksfrom their supplier and have paid a large deposit. The shipping company which brings the goods into Australia is now waiting for payment.Healthy Solutions makes its first delivery butsoon thereafterthere are concerns about the safety of this type of mask. The government issues a order banning these masksand specifies that only“N95”masks can be used in the health services sector. As a result the health care provider cancels all further orders.Healthy Solutionsnow has no future revenue. They have huge stocks of maskswhich cannot be sold. The shipping company needs to be paid.There are various other bills due tothe tax office. Employees and other service providers have also not beenpaid. It is not certain how all these expenses will be met. LAW6000 Assessment 2 Case study analysisBenedictoand Prakashare desperate, and do not know what to do. They approach you for advice on whether the companyis insolvent, and if it is, what they must do.REQUIRED:With reference to relevant sections of legislation,use the IRAC legal problem-solving approachto advise Benedictoand Prakashon whether their company, Healthy SolutionsPty Ltd,is insolvent and if it is, what are the implications of such insolvency for Benedictoand Prakashand for the company in relation to any action which they may take.(20 marks)Question 4(20 marks)Mrs Donovanbought shares worth $170 000 in Digi-money EnterprisesPty Ltd when the company was incorporated by her friends John and Jessica Rych. At the time this was equivalent to 10% of the issued shares. John and Jessica Rychtook up 35% eachand the remaining 20% was were taken up by their son Paterson. Digi-money EnterprisesPty Ltd was run very profitably for several years. Dividends were regularly paid outof the profits of the company for the first 4years. In the fifth year, there was a disagreement between Mrs Donovanon the one hand and John and Jessica Rychon the other. Subsequently, the company paid no dividends. The company however paid hefty salaries,bonuses and directors fees to the Rychfamily. They retained additional funds in the Retained Earnings account, and did not allow Mrs Donovanto inspect the records of the company. This effectively ensured that the Rychfamilyreceived a steady income stream, while Mrs Donovanreceived no funds from the company for the next 3 years. She has tried to sell hershares butunder the constitutionof the company,the Rych Familyare the only ones she is permitted to sell to, and they offered her $17,000 for her investment. It is now four years since Mrs Donovanreceived a dividendfrom the company, and she has come to seek your advice as to her position. She believes that the company is being run solely to benefit the Rychfamily and that she has been oppressed by their actions. REQUIRED: With reference to relevant sections of the Corporations Act2001(Cth)and appropriate case law,use the IRAC legal problem-solving approachto adviseMrs Donovanwhethershe has any recourse.(20 Marks) LAW6000 Assessment 2 Case study analysisQuestion 5(20 marks)Beatriceis a very successful business person. She owns Build Better Enterprises, a large business in South Australia that manufactures made-to-orderbathroom fittings, targeting the rich and famous. She has workedvery hard to grow the business. Despite all the money that Beatricehas made in the business, she has no close family around her and is not able to createanymeaningful relationships. She is extremely busy but sometimes gets very lonely. Beatriceis now approaching 70 years of age and feels that she needs helpwith running her business. Beatricehas a niece,Shanice,who is an accountant workingfor alargeaccounting practice in Darwin. Beatriceasks Shaniceto move over to South Australiaand help her run Build Better Enterprises. Beatricepromises Shanicethat she would give Shanice50% of her business, Build Better Enterprises, if Shaniceworks for her for 3years. Shanicehas just settled into a new dream position at the accounting practice. She also has justmoved into a new home which she purchased with her partner Marcello, who also works in Darwin. Marcellodoes not want to relocate. Because Marcellorefuses to relocate, Shaniceand Marcello’s relationship breaks down, and Marcellostarts a new relationship with another woman. Shaniceand Marcello sellthe house. She then quits her job and moves to South Australiato start a new life with her aunt. After eightmonths together, the relationship between Shaniceand Beatricebreaks down and Beatricethrows Shaniceout of her house and her business. Shaniceis angry as she has lost everything.REQUIRED:With reference to relevant legal principles,use the IRAC legal problem-solving approach to advise Shanicewhether she can successfully sue Beatriceunder contract law.Userelevant case law to supportyour argument