Australian Corporate Law Understanding Law

Question: Describe about the Australian Corporate Law for Understanding Law. Answer: Issue: The legal issue that arises in this question is if Bob will be able to escape the provisions of Scallop Fishing and Marketing Act if he forms a company. According to this legislation, a quota system has been prescribed and under this system, a person can catch 50 tons of scallops in a single year. On the other hand, Bob's daughter Alice states that if Bob forms a company, he will be able to double his catch as a company is considered as a distinct legal entity that is separate from its members. Relevant law: the relevant legal provision in this regard is the doctrine of separate identity of a corporation. This norm has been provided by the court in the decision given in Salomon v Salomon.[1] In this case, the court came up with the principle that is known as the veil of incorporation. Generally the courts consider that they are bound by this principle. As a result of this principle, it is considered that a fictional veil is present between the members of the company and the company itself.[2] Or in other words, a corporation enjoys a corporate personality that is unique from its members. However there can be certain cases where this corporate veil may be lifted by the courts or the veil may be ignored to impose liability on a person behind the veil or to reveal the real form of the corporation concerned. The rationale that is present behind the notion of piercing the corporate veil is that the law will not allow the persons to misuse or abuse the corporate veil.[3] Therefor e if under the circumstances of a case, the court feels that certain persons are misusing the corporate form, it is available to the court to rip apart the veil and expose the real nature of the company. Therefore in such a case, the court may disregard the principle that has been established in Salomon's case by the House of Lords. Therefore, as mentioned above, the corporations law provides that a legal entity comes into existence on the day of the registration of a company. However, in some cases it is available to the court that this veil of incorporation may be ripped apart and can impose liability on the person behind this veil of incorporation. Therefore in this case, the law allows the court to ignore the legal fiction of the distinct identity of a corporation.[4] This is known as lifting the corporate veil by the court. In this case, the circumstances have been described where the court may decide that the distinct identity of the corporation needs to be ignored and the court should look at the real character of the corporation. The result is that when the court has decided to impale the corporate veil, it has the choice to look beyond the structure of the company for the purpose of imposing rights or duties on the members of the company even if in such a case, if the norm provided in Salmon's case is s trictly applied, the right or the liability cannot be enforced by the court against these members and only the company can be held liable. Therefore when the court has decided that the corporate veil needs to be lifted, the court can ignore the veil and impose the liabilities of the company on the members who have formed the company. But the courts are allowed to do so only under very exceptional circumstances. The result is that still the general rule that is applicable in such cases that the liabilities of the corporation can be imposed only is the corporation and not against its members. Argument on facts: when the relevant legal provisions that have been mentioned above are applied to the facts of this case, it appears that in this case also, the Scallop Fishing and Marketing Act as clearly provided that each person is allowed to catch only 50 tons of scallops per year. But in this case, Bob Beech wants to know if he can escape the application of this legislative provision. For this purpose, his daughter Alice advises him that if he forms a company, he will be in a position to double his catch. The reason is that a company is considered as a distinct legal entity in the eyes of law. Therefore, Alice believes that Bob and the company formed by him will be treated as two persons and they can catch double the quota of scallops. Conclusion: But in this case, Bob's daughter Alice had ignored the fact that if it becomes clear that a company has been formed only for the purpose of evading the liability of its members, the court may rip apart the corporate veil and impose liability on the members of such a corporation. Therefore in the present is also, if it becomes known that the company has been formed by Bob only with a view to escape your application of the Scallop Fishing and Marketing Act, the court may pierce the veil and won't Bob liable for the breach of the provisions of this legislation. As a result it is clear that Bob cannot double the scallops caught by him even if he incorporates a company. 2. Issue: the issue that needs to be decided in this question is if the liability of Nuclear Blast Sounds Pty Ltd can be imposed against its parent company, New Nirvana Ltd. Nuclear Blast Sounds is one of the several subsidiary companies that have been created by New Nirvana for the purpose of establishing its rock concerts. In this regard, Nuclear Blast Sounds as the responsibility to set the sound at the concerts of New Nirvana. However in this case, due to the negligence of Nuclear Blast Sounds, the sound level was set too high and the result was that some members of the audience suffered hearing loss permanently. When these audience members decided to bring a claim against Nuclear Blast Sounds, they came to know that this company does not have the funds to pay the likely damages and in the same way, it does not have any negligence insurance. The result was that these audience members want to know if they can bring a claim against the parent company, New Nirvana as it is in a posi tion to pay the likely damages. Relevant law: According to the corporations law, it is considered that in case of a group of companies, each company has its own distinct identity. At the same time, there is a corporate veil that separates the company and the members of the company. The principle regarding the company being a separate entity was provided in Salmon's case. However, under certain circumstances, it is available to the court to disregard the company as a separate entity and therefore the court may impale the corporate veil.[5] When a group of companies is involved, sometimes it may be decided by the court that the corporate veil needs to be impaled for considering the economic realities that were related with the group of companies.[6] An example in this regard can be given of the case titled D.H.N. food products Ltd. V. Tower Hamlets.[7] Therefore the Court has stated in this case that the separate legal identity of a corporation can be ignored by the courts if under the circumstances, doing so will be just and equitable. In this case, it was the opinion of the court that the corporate veil needs to be impaled regarding a group of companies. The result was that the court arrived at the conclusion that three subsidiary companies of the group were in fact the same economic entity and the result was that the court stated these companies to be entitled to compensation. The general rule that applies in such cases is that when a group of companies is involved, each company of the group needs to be treated as having its own distinct legal identity. But there can be certain cases where the court may decide that they will not be afraid of gays to impale the corporate veil. A similar example was seen in Adams v Cape Industries.[8] The issue in this case deals with the application of a foreign judgment against the company. However while arriving at its decision in the case, the court was of the opinion that each company, forming a part of the group needs to be treated as having its own distinct identity. Therefore, the decision of the court was that when a group of companies is involved, the general principle will be that each company, forming a part of such group should be considered as a distinct entity. However, under the circumstances mentioned above, in some cases the court may arrive at the decision that the general principle should be disregarded a nd the corporate veil needs to be impaled so that the liabilities of the subsidiary company may be imposed on its parent company. Application of the law: In this case, Nuclear Blast Sounds does not have the funds that may be required to pay the likely damages to the audience members and at the same time, this company does not have negligence insurance. Under these circumstances, the audience members who have suffered hearing loss want to bring a claim against the parent company of Nuclear Blast Sounds, New Nirvana Ltd. Conclusion: However this can be allowed only if these audience members can establish that New Nirvana Ltd. has complete control over the activities of Nuclear Blast Sounds and as a result, the corporate veil needs to be impaled and the liabilities of the subsidiary company needs to be imposed on New Nirvana Ltd. 3. Issue: There are two issues that need to be decided in this question. First of all, it has to be seen if the clause mentioned in the constitution of Millennium Pty Ltd can be enforced by Don in his position as the company's solicitor. At the same time, it also needs to be seen if the cause is unforeseeable which provides that whenever a dispute may arise between the company and its members, such dispute should be taken before an arbitrator before starting legal proceedings. Relevant law: the relevant provision in this regard section 140 of the Corporations Act, 2001. This section provides that the company's constitution needs to be considered as a contract that has been concluded between the corporation and its members; the corporation and its directors or a contract between individual members of the corporation. But in this regard it is to be mentioned that the contractual effect of the companies constitution is only restricted to these situations. The relevant case that can be applied on the above-mentioned facts is that of Eley v Positive Life Assurance Co Ltd.[9] In this case, Eley was acting as company's solicitor and it was mentioned in the articles of the company that he will remain the company's solicitor for a lifetime. Later on, he also became a member of the company. But after some time, the company decided to remove him from his position as the company's solicitor. As a result, he started legal proceedings for the breach of contract. However the court did not agree with the submissions of Eley. The code was of the opinion that the contractual effect of articles was limited to Eley's position as a member of the company. Therefore, he cannot enforce this right as the company's solicitor. Another case that deals with the second issue in this question is Hickman v Kent or Romney Marsh Sheep-breeders Association.[10] In this case, the companies constitution provided that if there was a dispute among the company and members, before starting any legal proceedings, such dispute should be taken to an arbitrator. But in this case, Hickman started legal proceedings in a court directly without taking the dispute before an arbitrator first of all. The result was that the court stated that because of the constitution can be enforced by the company against its members. Consequently, the proceedings in the court were stayed. Application: in the present case also, Don is willing to enforce a clause of the constitution of Millennium Pty Ltd not in his capacity as the company's member but as its solicitor. Therefore in this case, he cannot be allowed to do so. On the other hand, the clause which provides that a dispute should be referred to an arbitrator, is legally enforceable. Hence the company can prevent Don from taking recourse to legal action without referring to this due to an arbitrator first of all. Conclusion: Don cannot enforce the clause of the Constitution according to which he was to act as the company's solicitor for all the transactions of the company. But the company can enforce the clause which provides that a dispute has to be taken to an arbitrator before starting legal proceedings. References Harris, J. Hargovan, A. Adams, M. 2015, Australian Corporate Law LexisNexis Butterworths 5th edition Latimer, P, 2016, Australian Business Law CC, Edition Lipton P, Herzberg A and Welsh, M, 2016, Understanding Company Law, 18th edition, Thomson Reuters Parker, G. and Sangkuhl W., 2015, Understanding Business Law 7th ed LexisNexis Butterworths Stephen Graw, 2011, An Introduction to the Law of Contract, 7th Ed., Thomson Reuters. Vermeesch,R B, Lindgren, K E, 2011, Business Law of AustraliaButterworths, 12th Edition Case Law Adams v Cape Industries plc [1990] Ch 433 DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852 Eley v Positive Life Assurance Co Ltd [1876] 1 Ex D 88 Hickman v Kent or Romney Marsh Sheep-breeders Association [1915] 1 Ch D 881 Salomon v Salomon Co [1897] AC 22