Topic: Australian Corporate Law
Order Description
Please refer to Australian corporate Law and focus on topic: Directors and Officers,The Duty of care and Diligence. the required reading is Chapter 17 of Jason Harris,
Anil Hargovan and Michael Adams, Australian Corporate Law , 4th edition (2013) and also the Corporations Legislation 2014 Edition (Annotated version by Thomson
Reuters)
Required Text / Resources:
Chapter 17 Jason Harris, Anil Hargovan and Michael Adams, Australian Corporate Law , 4th edition (2013)
Corporations Legislation 2014 Edition (Annotated version by Thomson Reuters)
* If you’ve explained a relevant legal rule once and applied it, you dont have to explain it again if you want to apply it a second or third time. No need for
repetition anywhere really…
* Writing these answers is like writing a mathematical solution – I want to see your conclusion sure, but I’m probably more interested in the reasoning you used to get
there, so show me your working! Explain the relevant principles, take me through their application, then show me the result.
* You’ve been asked to advise directors on their liabilty under s180 which includes discussing potential defences. To aid you in your prioritisation, the defences part
will be worth 25% while dealing with the duty of care proper and covering any consequences in your conclusion will be worth 75% of the marks available.
Read the question carefully (and I mean the question, at the bottom, in bold, not the actual hypothetical situation, yet…) and think about the areas you’ve covered
that it relates to.
After you’ve done that, read the hypothetical situation, paragraph by paragraph and note the interesting facts which pop out at you as informative, interesting, weird,
or simply, what you think might be a legal issue.
Do this again and try to put the pieces of the factual puzzle together, using the facts you’ve just noted to work out what the legal issues might be as the different
facts interact with eachother.
After you’ve done that to the point you’re comfortable you’ve worked out what the relevant legal issues might be, consult whatever sources you think appropriate (text,
annotated act, other texts) to get a deeper understanding of the area so that you can complete the next step effectively.
Outline/discuss the relevant law. For legislation, not just blind quoting, but describing and explaining; for cases, not just the facts, but the ratio/ratia that you
think might be useful when you come to the next step.
Just to reiterate, again: Explaining the law in that step above is crucial. I think I’ve said it every week we’ve talked about this, the less developed your
explanation of the law is, the less detailed (read ‘worse’) your application and analysis of the actual situation is likely to be.
It might help to think of the situation practically, like ‘who’s lost what’ or ‘who wants what’ or ‘who’s taken something from someone’ and ‘what should they have done
instead to avoid legal issues’. Asking these kinds of questions, simple as they are, would have kept some of you on topic.
Be specific in your analysis. When you see a fact, ask not just ‘what is this saying’ but also the reverse, ‘what is this not telling me that I need to know’.
If you haven’t maxxed out the whole two pages then your analysis is likely to be deficient in some or many respects. Using half a page for a ‘summary’ on the other
hand is a waste of space that could have been better used for detailed analysis of the law and its application. Better to have a concluding paragraph where you outline
your major points and explain consequences/practical next steps/outline what the people in the situation should have done to avoid legal issues than a ‘summary’.
Don’t be afraid to use and discuss cases! So few people discussed Crabtree or Freeman Lockyer in any real detail and their analyses suffered as a result. I can count
those who quoted or even used Lord Diplock’s formulation for implied authority (as opposed to apparent authority) on one hand. Be clear in distinguishing between
different concepts – don’t just say ‘Tim had authority’ – tell me what type and why. I need to see reasoning (i.e application of legal rules).
Try not to assume anything. If you have to, spell out why and also the opposite case (remember Lady Justice, balancing arguments). The directors were not drunk. The
facts say only that they were having a ‘quiet scotch’. Not that they were popping bottles with Lady Justice.
Set up/plan your discussion methodically. So many people jumped straight to apparent authority without even considering implied authority by acquiescence for Tim.
Try not to assert anything or make any conclusions unless you’re on some solid ground, in the form of legal rules (legislation and/or cases). If you’re not, either
find some, or be tentative in your statements.
Differences between statute and common law, i.e Sunburst Properties v Agwater [2005] should have been highlighted.
Do you really think Mr Kaza discharged his duty to himself/Audiophiles in the circumstances? Would you have asked any further questions of Tim if it was your work,
your money on the line?
Use all the relevant facts available to explain your position, and if you lack any, ask for them! Then analyse briefly each option if you think it’s an issue that’s
important enough, but only briefly. Eg, Olivia’s status.
As for the tortious primary/secondary liability issue, barely anyone discussed the extremes of the doctrine, with Tesco on one hand and ABC Learning on the other and
what these might mean for Tim and Olivia and Sounds.
Homework Assignment 2 – CLAW 6002 – Due 11pm Monday 6 October 2014, Blackboard
When Jokers Attack (WJA) Pty Ltd operates a music store in Newtown. The company has four directors: Anton,
who completed a degree in business and manages the company’s daily operations; Dave, who dropped out of
school and became the lead singer in an inner‐Sydney pub band but works in the store during the week; Elvis,
an old friend who works full‐time as a doctor and takes no active role in the management of the company but
attends board meetings; and Dave’s ex ‐girlfriend Phoebe, who used to work in the shop and became a director
after she injected a large amount of capital in return for 25% of the shares in the company when it was facing
financial difficulties over five years ago. Phoebe has become a successful musician in her own right and has
neither the time nor the interest to maintain involvement with the business in any real capacity.
While finding some initial stability after Phoebe’s capital injection, operations at WJA have yielded average
returns in recent years. In Phoebe’s absence, Anton has recently lent a large proportion of the injected capital
to other companies he is associated with. Given he plays a central management role in those companies as
well, he did not think there was a need to document the loans, expecting them to be paid back within a few
months. After a few particularly bad months of trading at WJA which have resulted in creditors making abusive
phonecalls to WJA’s main number, some of which Dave answers, Anton begins to think the shop should be
moved to an area where people might be more willing to spend more money on music. After a few hours
searching the internet for suitable areas and premises, he calls a meeting of the Board (the first in 2 years)
where he tells Dave and Elvis that he has found a suitable location for the shop to move to and that this would
result in sustained profitability for the company in the future. Although he has not physically inspected the
property due to his busy schedule, Anton is impressed with its size and proximity to the main shopping centre
in the area, and tells Dave and Elvis there is a degree of urgency as there may be another interested buyer.
Dave and Elvis are a little apprehensive at first in view of WJA’s average financial position and are concerned
about its ability to pay for the new site. Sensing this, Anton presents Dave and Elvis financial statements and
projections which show the business making a solid profit with good cash flows should it move. These figures
omit the financial effects of the loans Anton has provided to entities he is associated with. Dave and Elvis
briefly inspect the information provided to them. While the rushed nature of the transaction concerns Elvis, he
does not ask Anton any questions. Likewise Dave, who is not very good with numbers, and just relies on
whatever Anton says anyway. Dave does however take the opportunity to ask Anton about the phonecalls he
has been getting from distressed creditors. Elvis expresses some surprise, though Anton brushes the question
off saying ‘they’re crazy, don’t worry about them man, creditors don’t know how to count!’. The three laugh,
and Anton mentions that he thinks it would be a great idea to throw a big opening party at the new store, so
he proposes that WJA retain his brother Thom, a party planner, to organise it. Both Dave and Elvis end up
agreeing with Anton’s new plan for the business.
After the meeting, Dave and Elvis walk out of WJA’s office and find an envelope from the bank addressed to
WJA on the ground. They go to a bar for a drink and open the envelope. In it they find a bank statement which
details large figures being transferred from WJA to companies they have never heard of. They wonder whether
Anton accounted for these movements in the figures he presented, concurring: ‘its Anton, he’s good with
business and stuff, he did a business degree right, he’s probably just trying to get more interest or something’.
They then bump into Phoebe at the bar, who tells them that she has heard that Anton’s other business
interests have not performed well lately after pursuing risky business projects. When she asks how WJA is
going, they tell her that they’re about to move to another area. She says simply, ‘cool’.
WJA purchases the new premises and moves its business across. When Thom asks his brother for approval for
party related expenditures, Anton flicks a WJA Pty Ltd credit card at him and says – ‘I want the best party you
can organise. You know how to do this stuff, just do it man, now get out of here, I’m busy.’ Thom uses the card
to organise the craziest party he’s ever organised, and pay himself a sizeable bonus. While the event itself is a
success, it does not result in any noticeable change in profitability. This could be because, as the directors soon
realise, Anton has paid an excessive price for the premises, and there is a Music Megamart around the corner
which has a loyal customer base and is able to undercut the prices offered by WJA. When visiting WJA’s store
one weekend Elvis chats with the neighbouring business owner and finds out that the site was formerly owned
by Anton and Thom’s parents. Meanwhile Anton decides to authorise the extension of credit to all customers
to 2 months interest free in circumstances when the industry average is 14 days for those with pre‐approved
credit status in an attempt to compete with Music Megamart. Returns continue to fall.
Advise directors as to their potential liability under s180 and any defences they might be able to employ.
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