Company Law and Matters of Fraud - Essay Example

? Company law has been an interesting matter of study since decades. In the company law a variety of difference exists between the liability of the directors or the employees and thus they are convicted based on certain situation. The paper studies two different cases and helps to analyze the difference between the judgments provided based on the variability of the situation. It also underlines the fact that the courts held matter of fraud in a serious manner. Williams Vs. Natural Life Health Foods Ltd The case of William vs. Natural Life Health foods limited is an important element of study in the company law and the contract law. The case started in the year 1998 under the following scenario. Mr. Williams along with his partners had a proposal for Natural life health foods. Williams and his partners wanted to be a franchisee for the company by opening up a health food shop in Rugby. They wanted to use the brand value of the Natural life heath products in opening up a new store in exchange of a fixed payment to the company. In view of the proposals of Mr. Williams the company agreed and the financial projections were informed to Mr Williams through a brochure. After a careful look of the financial projection, both of them entered into the agreement. However within a few days Williams were unable to reap profit out of the agreement and they eventually lost considerable amount of money. In response of the lost incurred, Mr. Williams claimed that the financial advice they received in the projection was utterly negligible and they sued the company. However the company soon faced liquidation and Williams and his partners held Mr. Mistin equally responsible for his failure as it was he who framed the financial projections for Williams, and was the director of the organization, but he claimed not to be in the negotiation of the contract of the company with Mr. Williams.1 The case was conducted in the House of Lords. Based on the claims of Mr. Williams the House of Lords passed the judgment that the director of the company can only be held accountable for the loss encountered by the franchisee only if he had provided negligible advice on his own behalf or on the behalf of the company with an assumed personal responsibility for the advice.2 The judgment passed also stated that that for the assumption of responsibility to be effective some form of direct or indirect conveyance is needed from the behalf of the director and also requires that the claimant should have relied on the information provided by the director. The judgment provided also included the fact that the company or the organization is a separate entity from the directors and the shareholders. Williams aimed at imposing the personal liability to the organization under the principle of Hedley Byrne. But that did not held true for the case. The principle states that it requires a special relation to exist between the plaintiff and the tortfeasor3 Mr. Mistlin claimed that he had no special dealings with the Williams and he never took the responsibility of Mr. Williams in behalf of the company. The judgment passed made it clear that the director of a company runs no risk of his personal liability by taking the charge of a private limited company unless and until he has expressed or taken any sort of personal liability. The judge of the case, Lord Steyn commented on his final verdict that there was no personal dealing with the Williams and the managing of the company and the exchange of ideas between them never crossed the line which could create a feeling among the Williams that he had taken the personal responsibility for them. It was held as a case of negligent representation by the company.4 Standard Chartered Vs Pakistan National Shipping Corporation Limited: The case involved three main organizations which are Standard Chartered, Oak Prime, and The Pakistan National Shipping Corporation. In the particular case Pakistan National shipping Corporation was the shipping agent of the delivery of Iranian Bitumen sold by Oakprime. Incombank issued a letter of credit to the beneficiary Oakprime limited with a condition mentioned in the credit that the shipment of the bitumen would happen before a stipulated date. 5In this scenario Mr. Mehra, signed a false bill with an incorrect date as Oakprime failed to ship the goods by the stipulated date as mentioned in the letter of credit. Pakistan National Shipping Corporation also issued the bill with the prior knowledge of the discrepancy it involved. 6 Oakprime limited carried the false bill of lading to the Standard Chartered Bank. On receiving the bill and not knowing of the false representation Standard Charted issued the money. In turn Standard Charted tried to obtain the reimbursement from Incombank. Incombank on receiving the documents denied the reimbursement to the Standard Chartered on finding out the false representation. In account of the losses suffered by Standard Chartered, it filed a case for deceit. In the case Standard Chartered held Pakistan National Shipping Corporation, Oakprime, and Mr. Mehra guilty. In the court Mr. Mehra claimed that he had produced the false documentation on behalf of his organization and he had no personal intentions to cause damage to the Standard Chartered. The case was built around two main issues which concerned the factor that whether a deceit is liable for punishment when he has committed a fraud on behalf of the company and whether contributory negligence can act as a defense for the fraud.7 However the House of Lords declared Mr Mehra to be personally liable for the case of the deceit. 8Though he claimed that the false representations made by him was on behalf of the company but the court declared that whatever may the case be , he cannot deny it to be his decision and tit his because of his decision that Standard Chartered has suffered the loss.9 Mr. Mehra was not held guilty because of his position as a director but solely based on the fact that he himself had made the false statement and carried out the case of deceit. It was not held as an instance of the carelessness but a case a intentional deceiving which proved Mr. Mehra of Oakprime to be adjudged guilty. Comparison and the contrast of the two cases The two cases discussed above and their judgment cited had some similarity and differences. In both the case, the convict accused was the part of the organization, and in both case both of them belonged to the managerial levels. The accused was held guilty on matters of misrepresentation of certain scenario. In the case of the Williams and the Natural life heath foods limited the Williams carried out their legal case as because they suffered loses based on the financial projections provided to them by the director, similarly in the case of the Pakistan National Shipping Corporation and the Standard Chartered bank, the director of the Oakprime was held as accused on behalf of the false representation of the bills. The judgment in the identical cases was completely different from each other. In the case of the Williams, the director of the concerned organization was let free and the case was represented as scenario of unintentional misrepresentation. The judgment stated that the director cannot be held responsible for any personal loses of the franchisee based on the dealings between them until he had shown his personal liability for the matter and he has any personal relationship with the party. Whereas in the other case the judgment showed that the director or the management person concerned cannot hide his fault behind the liability of his company. Mr Mehra deliberately made the false statement so that he may attain the payment for the letter of credit. The law cited strictness in matters of fraud cases than in general matters concerned. The case stresses on the fact that any act of fraud cannot be easily let off based on the grounds that the act was carried out for the sake of the company concerned. Both the case had difference in the judgment concerning the fact that the director of Natural life health foods was let off as there was no evidence cited that the financial projection explained to the Williams involved any act of fraud and he is not liable for the losses incurred on others simply because of his position on the business. However in this context a similarity can be derived with the case of the Pakistan National Shipping Corporation Limited and he Standard Chartered where the director was held responsible not because of his position but due to his unethical deeds within an organization.10 The two cases studied over here helped to analyze the legal matters associated with the companies act and helped to distinguish between situations under which a person serving for the organization are held guilty and in situations where he is simply let off. It can concluded that the court of Law is very much strict with matters of fraud and punishes the convict and provides him with no opportunity to hide behind the reasons of serving his obligation for the company. But on the other hand it was found out that the court also provides leniency and protects the interest of the directors to some cases where there is no such fraud activity committed. References 1. Davies, P, (2010), Introduction to Company Law, Oxford: Oxford University Press 2. FRAUD AND CONTRIBUTORY NEGLIGENCE, n. d), 3vb, retrieved in november18 from: http://www.3vb.com/userfiles/pdfs/MPFraudandContribNeg.pdf 3. House of Lords, (2001), Parliament, retrieved in november18 from: http://www.publications.parliament.uk/pa/ld200102/ldjudgmt/jd021106/pakist-1.htm 4. Law link, (n. d), law link, retrieved in november18 from http://www.lawlink.co.nz/articles.php?articleid=121 5. Oughton, D et al, (2007), Q and A: Law of Torts 2007-2008, Oxford: Oxford University Press, 6. Standard Chartered Bank v Pakistan National Shipping Corp [2000], nadr, retrieved in November 18 from: http://www.nadr.co.uk/articles/published/CLR/Standard%20Chartered%20v%20Pakistan%202000.pdf 7. Cavendish Publishing Staff, (2001), Cavendish: Student Law Review Yearbook 2000, London: Routledge 8. Lifting the corporate veil, (2003), accaglobal, retrieved in November 18 from: http://www2.accaglobal.com/archive/corpsecrev/44/895748 9. Smith, D (1999), Company Law, London: Taylor & Francis 10. Sealy, L & Washington, S (2007), Cases and Materials in Company Law, Oxford: Oxford University Press Read More