Analysis of Green Bean Coffee Company Ltd - Case Study Example

QUESTION 1 The Problem Jasmine Trendy, the managing director of Catering WA ltd entered into a contract with from Tassie Foods Pty Ltd. On face value, the contract appears to be illegal according to the firm’s constitution. This is cited in the clause that states that Catering WA Ltd may only procure food and other ingredients that are manufactured or grown in Western Australia. Catering WA ltd’s constitution also states that the board of directors has consent to purchases which are in excess of $ 20,000. With the above clauses, the managing director, while attending a catering fair in Tasmania met an exhibitor from Tassie Foods Pty Ltd named Adam who was very convincing in his pitch. Tassie Foods Pty Ltd had very great quality of yoghurts, cheeses and salmon which thoroughly impressed Catering WA Ltd’s managing director and she made an order that she wasn’t authorized to undertake without the approval of the board of directors. The board however rejected the delivery of the order from Tassie Foods Pty Ltd for the fact that products from Tasmania would play a negative role in the company’s reputation. This was in line with their constitution that strictly outlined that the firm had no legal capacity to buy food or food products that are manufactured or grown outside Western Australia. Catering WA ltd has their constitution readily available to the public and therefore by law Tassie Foods Pty Ltd, in reference to its contents had constructive notice. According to the Corporations Act 2001, the law requires that meticulous procedures laid out must be conformed to in relation to the contract in question (section 26, Corporations Act 2001 (Commonwealth))1. From the problem, we can assume that Adam from Tassie Foods Pty Ltd clearly had no idea about the company’s constitution while signing a contract of $ 40,000 which she was not allowed getting into without express authorization from the board of directors. Adam also did not understand that Catering WA ltd did not purchase products manufactured or grown outside of Western Australia. With Tasmania being outside of this region, Catering WA ltd and Tassie Foods Pty Ltd do not have the legal capacity to get into a contract to do business together. However, it is not clear if Jasmine Trendy had read and understood the company’s constitution before she got into business with Tassie Foods Pty Ltd. This is an important piece of information that should be expressed before tackling this problem. The Plan Tassie Foods Pty Ltd requires some legal advice on the enforceability of the contract that they entered into with Catering WA ltd. It takes some serious evaluation of several laws relating to contracts so as to ascertain the true nature of the case. This can be construed as either a frustration of a contract which happens when one of the parties fails to perform their responsibilities as stipulated in the contract agreement. It can also be interoperated as a frustration of contract if there is part of the contract that could not be performed at the commencement of the contract. This however can be best presented to the Tassie Foods Pty Ltd to pursue a cancellation for breach. Carrying Out the Plan Frustration of a contract occurs when an unforeseen occurrence subsequent to the formation of a contract. This in effect makes it impossible for one of the parties or both of them not to perform the contract or if they are able to perform it, extremely changing the terms of the contract. This however is not the case here; there was no frustration of contract since both parties performed as expected. My advice to Tassie Foods Pty Ltd would be to cancel the contract due to breach. In accordance to the Corporations Act 2001, there are several provisions set for cancellation of a contract due to breach. One of the provisions for this is if a party has been persuaded to enter into the contract by misrepresentation. Whether the misrepresentation is innocent or fraudulent, the party on the receiving end has a right to cancel the contract. Most contracts allow either party to terminate the contract without cause. This termination can take numerous forms for instance in one form it may provide for annihilation of a contract at will, on notice or upon a definite eventuality (Clarke 2006). The corporations Act doesn’t oblige the party that cancels the contract to give reasons for it. This in effect created an encouragement for parties to a contract to cancel them without giving reasons. The court of appeal has however shed light on the issue in the decision it passed in Thompson v Vincent (Thompson v Vincent 2001). In that case, the buyers of the motel complex in question renounced the contract and the dealers consequently sued for damages. The buyers later realized that they were in the contract under misrepresentation but the court of appeal ruled that they could use the misrepresentation to substantiate their repudiation although they were not ware of it at the time of cancellation. Summary Tassie Foods Pty Ltd do not have an enforceable contract as because of the clauses in the Catering WA ltd constitution that explicitly explained the legal contracts that the firm has can enter into. The best course of action is to repudiate the contract and try to formulate a new legal one. QUESTION 2 Introduction A corporation is not required to present securities using a disclosure document if there is an omission of material that is required by sections 710 through to section 715 (section 124, Corporations Act 2001 (Commonwealth)). Green Bean Coffee Company Ltd floated shares in the market without full disclosure as required by the Corporations Act 2011. According to the Act, the prospectus issued for the purpose of raising funds from the public should contain the entire information that the prospective investors along with their professional advisors would rationally need to put together a well-versed evaluation on the investment2. Requirements of a Prospectus The prospectus document must contain the rights as well as liabilities attached to the shares offered. The prospectus should also contain the company’s assets and liabilities and its financial position. The firm must also show its profit and loss, performance and its future prospects3. The short form prospectus was not fully sufficient as it did not include the financial reports of the company. This is a breach of section 728 of the Corporations Act which clearly stipulates what is required of a prospectus which is intended to help the investors to make a sound decision while buying the securities. Remedies against the Company Using the short form prospectus used, Leaping Lizard Coffee Emporium Pty Ltd purchased 5000 shares. The inducement to buy these shares, which later dropped in value, was on the strength of an omission in the prospectus. This may actually lead to Leaping Lizard Coffee Emporium Pty Ltd to pursue a remedy either against the company’s directors or against the company itself. These remedies may be in the form of rescinding of the contract or claiming damages. If a person purchases the shares of a company relying on the prospectus offered which contains misleading information, he / she is allowed to rescind the contract (Kairjak 2012). The party rescinding the contract however needs to prove that; a. The prospectus issued comprised of misrepresentation or misleading statements or even false information. b. The misleading or false statement was of material matter and played a large part in that led to the decision to buy the securities on offer. c. The shareholder must also begin the proceedings to rescind the contract within reasonable time which should essentially be prior to liquidation of the company. A person however is not seen to have committed an offence against section 728(3), Corporations Act 2001 (Commonwealth) and is not additionally liable under section 729, Corporations Act 2001 (Commonwealth) for a breach against section 728(1), Corporations Act 2001 (Commonwealth), for the reason that a deceptive or misleading statement in the disclosure document or an omission from the same if the individual implicated is able to prove that they placed sensible dependence on the information bestowed to them by: if the individual is a body corporate, a person other than the director, agent or employee of the body; this is also true if the individual is a person other than an agent or employee of the individual4. Summary Green Bean Coffee Company Ltd should draw up a new and comprehensive prospectus which will provide prospective shareholders with information to enable make them sound investment decisions about their company. The firm has breached section 728 of the Corporation Act 2001 as it clearly states that an individual or body corporate should not offer securities using a disclosure document that has omissions of important information to the shareholder (Law Resource Center 2010). References Clarke, Tim. TERMINATION OF CONTRACTS . New York: Bell Gully, 2006. Kairjak, Marko. Prospectus Liability v. Criminal Punishment. Estonia: Juridica International, 2012. Law Resource Center. THE COMPANY PROSPECTUS. Denver, 2010. Section 733, Corporations Act 2001 (Commonwealth) Section 733, Corporations Act 2001 (Commonwealth) Section 710, Corporations Act 2001 (Commonwealth) Section 26 of the Corporations Act 2001(Commonwealth) Thompson v Vincent. 3 NZLR 355 (e Court of Appeal, 2001). Read More