LEGL601 COMMERCIAL AND CORPORATIONS LAW
THOMAS MORE LAW SCHOOL
MELBOURNE / NORTH SYDNEY SEMESTER 1, 2018
INSTRUCTIONS:
This is a group assignment. Each group must have either 2 or 3 people. Choose your team members carefully. Students must notify the lecturer in a timely manner and provide substantiating documentation of any problems in relation to group work.
All assignments must be typed in Arial, size 11, 1½ spacing, justified (align to both left and right), have the standard cover sheet and be signed by the student(s) stating that the work is original. While referencing sources used for this assignment, you must follow the Australian Guide to Legal Citation (AGLC) (the footnote system).
You must answer all three questions. The maximum length for this assignment is 1,500 words.
Students are advised that any materials submitted for assessment is subject to electronic checking for originality. Students must submit an electronic copy via turnitin at LEO no later than 11:59pm of Friday, 11/05/2018 (week 10). Penalties will be imposed for late submission without prior permission.
Question 1
John always gets his car repaired at Mike’s Auto. He has been going there for 7 years and takes his car there for repairs and service about twice a year. As he enters the door of Mikes’ there is a sign on the wall behind the counter that says, ‘All vehicles are accepted for repair subject to the terms and conditions appearing in our invoice’. The sign is on white paper (A4) with Black writing, next to it are numerous advertisements for products sold at Mike’s auto. John never read the sign, he always dropped off his car on his way to work and was in a hurry.
When he returned to pick up his car the attendant would hand him an ‘invoice’ to sign. This had his name on it, the details of the car and the work done. The invoice stated:
1. The customer acknowledges that the agreed repair work has been satisfactorily performed.
2. Mike’s Auto regrets that no responsibility can be accepted for damage or loss caused to the customer’s cars by fire, theft or otherwise.
On the occasion in question John left his car for some repair work to be done and followed the usual routine set out above. When he returned to pick it up the next morning he signed the invoice as above and went out into the yard to collect his car. To his shock he found that the GPS navigation system fitted to the car was missing and the car clearly showed signs of being in an accident.
The evidence shows that overnight thieves had broken into Mike’s Auto and stolen the GPS system from the car. John’s car was not locked, however, Mike’s Auto was locked and the alarm was on but the thieves managed to disarm the alarm system and get past the locks: it was alleged it was an inside job but this could not be proven.
In addition, during the previous day the manager needed to go to a meeting. The car yard was full of cars that day that were in for repairs and he could not get his own car out without having to move many cars. John’s car was over near the curb so he decided to take it to get to his meeting. By this time the repair work had been done and the manager thought it would be good to see how it was running before John picked it up. He drove the car to his meeting and parked it outside the cafe where the meeting was being held. While at the meeting someone ran into the car causing damage to the rear of the car. They then drove off and were never identified.
Required:
John seeks your advice as to whether Mike would be protected by the clauses in the invoice if John were to take action against Mike’s Auto. Answer this question by reference to general principles of common law. Do not consider any statutory provisions you might think relevant.
Question 2
Peter, David, John and Lynette are directors (“Directors”) of a large public company, Australian Motor Corporation (“Company”).
The Company has a sophisticated financial and accounting system which includes assessment from both internal and external auditors.
In October 2013 the Directors passed a resolution to adopt the Company’s 2013 Financial Statements (“Financial Statements”) and to make the relevant declarations under section 295(4)(d) of the Corporations Act. The Directors passed the resolution without reading the Financial Statements in any detail but rather relied on the internal and external auditors’ advice that the Financial Statements were true and correct.
The Financial Statements incorrectly classified $900 million of current liabilities as “non current” liabilities. This had the effect of giving a false picture of the solvency of the Company. ASIC has now commenced proceedings against the Directors for a breach of section 180 of the Corporations Act.
Required:
Advise the Directors. In your answer you should have regard to any defences under section 180(2) of the Corporations Act.
Question 3
Paul is the holder of the Governing Director’s share in a family manufacturing company which was incorporated in 2005 (“Company”). At the time of incorporation the other shareholders in the Company were Paul’s wife, Mavis who held three “B” class shares and Paul and Mavis’ sons, Peter, Clive and Don, who each held one “B” class share each in the Company. Peter, Clive and Don worked in the Company on a full time basis.
Pursuant to the constitution of the Company Paul, as holder of the Governing Director’s share in the Company, had vested in him “all powers and authorities and discretion vested in the board of directors”. Paul, therefore, had complete control of the Company. Upon Paul’s death his Governing Director’s share would convert to a “B” class share.
Pursuant to the constitution, whilst Paul remained the Governing Director, Mavis and Peter, Clive and Don as holders of “B” class shares had no voting rights. However the constitution provided that after the death of Paul the “B” class shares would carry voting rights.
Mavis died in 2012, leaving her three “B” shares in the Company to her three sons. Shortly thereafter Paul formed a friendship with Cleo. Eventually Paul and Cleo married and Cleo moved into the family home. Peter, Clive and Don did not get on with Cleo whom they regarded as an opportunist and this view was reinforced when Paul advised his sons that he proposed to issue a special category of shares to Cleo which would give her control over the Company upon Paul’s death. Cleo neither had experience nor qualifications in the manufacturing industry.
In January 2014 Paul as Governing Director issued the special category of shares to Cleo giving her control of the Company upon his death. The effect of the issue of the special category of shares to Cleo therefore was to dilute the voting power of the “B” class shares upon Paul’s death.
Required:
Advise Peter, Clive and Don on whether Paul, by issuing the special category of shares to Cleo, breached his duty to the Company pursuant to section 181 of the Corporations Act. Give reasons having regard to the relevant authorities.