Corporations Law in Australia - Assignment Example

CORPORATE LAW Name: Course: Instructor: Institution: City: Date Short Answers Q1) Respective parties to the Action The parties to the action included two applicants, Public Trustee of Queensland (first applicant) who was an executor of the estate of Joseph Edwin James, Pitgate Pty Ltd (second applicant) and three respondents who included Ian Derek Meyer, Rosemary Lynn Meyer and Meyer Gold Mining Pty Ltd. The parties were many since all of them claimed an interest in the partnership property and business because they had transacted with or for the business partners in the past. Q2) Legal issues concerning MDLA 415 a) In relation to MDLA 415, the court was required to determine whether Mr. Meyer was entitled to benefit absolutely of an application for a Mineral Development License. b) The court was required to determine whether the disputed plant and equipment was a property of the partnership. These issues arose due to the fact that Mr. Meyer in his correspondence with the applicants never mentioned that on the death of Mr. James he would be the only one entitled to benefit from MDLA 415, or whether it was not the property of the partnership. Therefore, applicants wanted to seek the court to appropriately advice on the issues raised among the parties to the cases. Q3) 1st Respondent argument In Respect to MDLA 415 and MDLA 295 The first respondent in this case was Mr. Ian Derek Meyer. In his argument in relation to MDLA 295, he stated that he had never treated Mr. James’ interest in MDLA 295 as part of the Chillagoe Perlite business. He explained the application as made in recognition that a mineral Development License over the surrounding land was resource with a certain value to the Chillagoe Perlite business. He goes ahead to say that as an asset which is undeveloped and untested it had no significance in the operation of Chillagoe Perlite business. In addition, he explained that MDLA 295 included, as an asset should be held by the applicants in respect to the court order arguing that it might help in the conclusion of administration of Mr. James’ estate. Mr. Meyer also argued that by making MDLA 415 he was protecting his personal interest and his company’s interest. He did having in mind that MDLA 415 would a future potential operator of the Chillagoe Perlite business. Q4) The applicants alleged that Mr. Meyer should be accountable for the partnership and disclose benefits derived from the business profit. On making their allegations, the applicants argued that, since Mr. James had been deceased and Mr. Meyer was still operating the partnership business, he was therefore in position to disclose all the benefits derived from the partnership business activities. The reference was based on the S (32) of Partnership Act 91891) (Qld) which requires every partner within a partnership agreement should disclose all the benefit derived from partnership business. This act applies even to those who have been deceased. Q5) The court decided that Mr. Meyer has fiduciary obligations to the partnership and holds such interests and rights as he might benefit from them. In reaching the agreement, the court reviewed the relevant application and noted that Mr. Meyer does hold his interests and rights absolutely in relation to MDLA 415 or in relation to own right. The court relied on the S (32) of the Partnership Act 1891 (Qld) which requires partners in a partnership agreement to disclose any benefit gotten from the partnership business without the consent of other partners. This application is also applicable even after the partnership has been dissolved as a result of the death of one partner. However, the court noted that this act would only apply if it would be possible to link Mr. Meyer and MGM as a single entity. In addition, the court also relied on the case of Chan v Zacharia in which Dean J. stated that partner’s relationship in a partnership is fiduciary even after the partnership dissolutions; partners are required to cooperate and act in good faith in realization of any application made and even distribution of partnership property. However, the court noted that it might be argued that Mr. Meyer was not a partnership member and therefore Dean J argument may not apply. Q6 The court declared that Mr. Meyer holds rights and interests in MDLA 415 for a constructive trust in favor of Partnership. The court however noted that Mr. Meyer does not absolutely hold these rights and interests. The court relied on the case of Tasmanian Seafoods Pty Ltd v Peters in which Margaret Wilson J ordered for specific performance in relation to the sale of beneficial interest in a permit for a commercial collection of trochus. While making the order, she did not consider existence of an implied prohibition on the transfer of the legal title in the permit. She further argued that it could have been subject to trust. In addition, the court also referred to Swift v Dairywise Farms Limited. In this case, a company had extended loans to the farmers that were secured by rights known as “milk quotas”. This therefore exempted the farmers from paying levy, which instead was attached to a land in which milk was being produced. The company lacked an appropriate land which a related company was having. Moreover, security existed for farmers who were parties to the agreement and could transfer their quotas to respective company repayment of the loans. On liquidation of the lender liquidators asserted that the related company was holding securities over the quotas trusting the lenders. On reaching their decision, the court held that quotas formed the subject matter of trust. Based on these cases the court held that Mr. Meyer hold the rights and interest subject to a relevant trust in partnership favor. Q7) In their claim that the plant and equipment belonged to the partnership, the applicants based their claim on the partnership Act (Qld) S (23). This act provides that, any property initially brought into partnership or included in the partnership account or for the business of the partnership belongs to all the partners and should be used by all the partners to conduct partnership business in accordance to the partnership agreement. The applicants also argued that it was not possible to provide enough evidence over disputed property since it was not possible to obtain evidence from Mr. James who was already deceased. In line with this, they referred to the statement from Eyota Pty Ltd v Hanave Pty Ltd in which McLelland CJ stated that, in a claim involving a deceased person, the court will handle their previous communications with care, and will take specific measure for any claimant failure to provide corroborative evidence that is deemed available. Based on these cases, the applicants argued that the plant and equipment was a partnership property and not just Mr. Meyer’s personal property. Q8) The court decided that the plant and Equipment are not the property of partnership but was the property of the Meyer interest The court applied the case of O’Brien v Komesaroff, in which Mason J stated that not all the property of the partners used in partnership business can be argued to belong to the partnership. Whether a partner’s property belongs to the partnership depends on the agreement between the partners and their motives and does not necessarily depend on the Partnership Act that is in operation. In reaching their decision the court also cited the case of Miles v Clarke which stated that “ no more agreement between the parties should be inferred than is absolutely necessary to give business efficacy to that which has happened” The judges observed that no agreement made or implied between the partners as to whether the property would be the partnership property. Therefore, they could not assume that there existed an implied agreement between the parties. His Honor also observed that in the financial statements produced during Mr. James lifetime, there were no records indicating that the said property plant and equipment was a partnership property. Therefore, in reaching his agreement, his Honor having reviewed all the circumstances, reviewed the financial statement, did not find any positive evidence that clearly provided any agreement between the partners that the disputed plant and equipment was or would later become the partnership property. This made him declare the plant and equipment was retained by Mr. Meyer interest and not a partnership property. Piercing Corporate Veil Introduction In Australia, under civil and criminal law, corporations can be held liable for committing international crimes. However, under corporation law standards, hindrances exist to the fruitful indictment of enterprises for their contribution in the commission of universal law violations. The three most noteworthy hindrances are; Limited liability – This principle provides extent to which a member of legal corporate body can be called upon to contribute to the assets of company during winding up. Shares or guarantee can limit a company member’s liability. Legal Personality – This principle states that once a company is incorporated it becomes a separate legal entity with the capacity to contract, sue and be sued, own a property. This principle was first identified in the case of Salomon v Salomon Company Ltd, in which Lord Macnaghten stated that, under the law a company is a separate legal entity and totally different from its members. Corporate Group – a parent company can establish various subsidiaries, which together forms a corporate group. Under the common, the parent company and its subsidiary companies exists, as separate legal entities and an individual company cannot be held liable for the acts of another company within the group unless there exists an agency contract between the companies. These corporate principles brings about the corporate veil, which under the common law states that, company members for example, directors cannot be held liable for the company obligations since a company is a separate legal entity. However, in some circumstances, the corporate veil can be pierced and corporation members held liable for commission of criminal acts. 1 Piercing the Corporate Veil in Australia 'Piercing the corporate veil' doctrine rose as a special case to the all-inclusive utilization of keeping up the separate legal personality ascribed to an organization upon incorporation. 'Piercing the corporate veil' alludes to the courts' capacity to hunt inside the corporate substance and, where essential, hold a shareholder, director or a subsidiary organization in charge of the activities of the corporation. In Pioneer Concrete Services Ltd v Yelnah Pty Ltd, Justice Young stated that: A legal personality is created when a company is formed; however, courts on certain occasions look into the real operators for example the directors instead of the company as a legal entity. In Australia however, piercing the veil is restricted to the extreme cases, and up to date, no common circumstances under which courts can pierce the corporate veil exists. Therefore, to pierce corporation veil in Australia is still an exception rather than a rule. At common law, a company’s vicarious criminal liability is limited to criminal libel and the crimes of public nuisance. Generally, under the common law, a court will not penalize an individual based on his relationship with another individual for example, relationship that exists between an employer and employee. Circumstances in which corporate veil might be pierced under the Australian statute or common law includes; piercing the corporate veil under the statutory direction and using the common Law to pierce the corporate veil. Piercing under the statutory direction Although the common law is the essential avenue by which piercing happens, there are various illustrations of enactment that pierces the corporate veil involving the organization and its shareholders, directors or related organizations. Some of the legislation that lifts the veil of incorporation includes, Section 75B of the Trade Practices Act 1974 (cth) which states that a director, or any other person who has been found to be guilty of breaching the Trade Practices Act, may be held personally liable and will be tasked with compensation of those individuals and corporations affected. Pt IVA of the Income Tax Assessment Act 1936 (Cth), which states that an individual may be held personally liable for the company tax avoidance Environmental Protection Act 1970, which states that, people who bring about pollution or generate waste will be personally liable for the cost of containment, abatement and avoidance. S26 (1) of the Occupational Health and Safety Act 2004, which states that any person who has the control or management of a work environment, may be held liable if his/her workplace risks the health of other people or is not safe.2 Using Common Law for Piercings In Australia, common law has been used to pierce the veil of incorporation. However, common law does not provide specific principle or doctrine that courts can apply to pierce the veil of incorporation. Courts therefore lack principles or doctrines to apply on making decisions on whether to pierce the veil of incorporation and ascertain liability of persons or other corporate organizations tasked with corporate duties. In Briggs v James Hardier (1989) 16 NSWLR 549 (567), Rogers AJA argued that, The limit issue emerges since there is no specific, unifying guideline, which could help courts to make decisions regarding piercing the veil of incorporation. Despite the fact impromptu clarification that can be provided by a court, there exists no common way that the relevant authorities have provided. Under common law, various cases under agency, improper conduct, façade, sham and avoidance of legal obligation has been referred to for piercing of corporate veil. Piercing Corporate Veil under Agency Piercing corporate veil in relation to agency is not a well-structured legal principle in Australia. Different case laws highlight how the predominance of a separate legal entity had been upheld in the past. For example; In Industrial Equity Ltd v Blackburn (1977) 137 CLR 567, debts were incurred by one company from the corporate group, therefore the creditors sought to gain access to the corporate group’s assets to facilitate payment of debts. The corporate group functioned as a single business entity, having consolidated accounts, while tax was recognized in the within the group. However, the high court, ascertained that the legal legislation of the corporation’s did not expressly deny the separate legal personality of each separate company within the group. Therefore, the creditors could only recover from the company that incurred the debt, since there was no contractual obligation that gave them right to pursue their debt from the corporate group. In Walker v Wimbourne (1976) 137 CLR 1, in their decision, the High Court stressed that liability of a company within a corporate group should be placed on the company that engaged in the transaction and not the corporate group within which the company is a member. Piercing the Veil under Fraud or Improper conduct In Australia, courts will assume the existing corporate structure and hold individuals for examples directors liable for the fraud committed when pursuing the company’s obligation. They are for example, directors who use company’s name and its structure to commit a fraud as were in the case of Gilford Motor Co. Ltd v Horne. Piercing the Veil under Façade, Sham and avoidance of stated Legal obligation In Australia corporate law, a company cannot use its structure to avoid legal duty. In case, a court ascertains that people who have a legal obligation, formed the company with an aim of avoiding or breaching an obligation, the conclusion of the court might be that the actions of the company that breach their legal duty, are the actions of the people under the obligation.3 As was in Jones v Lipman (1962) 1 WLR 832,where Mr. Lipman was to sell a piece of land to Mr. Jones, however, before the settlement of the contract, Mr Lipman acquired a company which he sold the land to. Mr. Lipman was the company’s director and the shareholder. Mr. Lipman later told the court that he decided to sell the land to the company in order to evade a rulling that could facilitate specific performance to the contract of sales to Jones. In their decision,Mr. Lipman was held liable and directed to ensure specific performance of the contract of sale to Mr. Jones. Russell J explained that the company was a “device of and a sham” to which Mr. Lipman used to avoid his legal duties to Mr. Jones. Therefore, under these circumstances it was necessary to lift the corporate veil. However, in Australia courts have taken much caution in relation to piercing the corporate veil in relation to cases where an individual uses the corporate name in order not to be personally liable, for example, as was in Pioneer Concrete Services Ltd. v Yelnah Pty Ltd. In this case, Justice Young stated that holding an individual liable in such a scenario requires enough evidence to ascertain that one of the reasons for the formation of the company was to avoid a legal duty. Conclusion Although courts have the ability in some circumstances to pierce the veil of incorporation, it is still clear that separate legal personality exists between the parent company and its subsidiary, and piercing the corporation veil in Australia still remains an exception rather than a rule. In the commercial environment, there are no specific principles under which courts can pierce the corporation veil. In addition, there exists no specific statues that can give direction on piercing of the corporate veil. References Lipton, P., Herzberg, A., & Welsh, M. (2014). Understanding company law. 18th ed, Pyrmomt, NSW Thomson Reuters Hanrahan, P. F., Ramsay, I. M., & Stapledon, G. (2006). Commercial applications of company law. North Ryde, N.S.W., CCH Australia. Tomasic R., Bottomley, S., & McQueen, R. (2002). Corporations law in Australia. Sydney, Federation Press. Adams, M. A. (2002). Essential corporate law. Sydney, Cavendish Pub. (Australia). Available at http://www.myilibrary.com?id=16565 Hicks, A., & Goo, S. H. (2008). Cases and materials on company law. Oxford, Oxford University Press. Lipton, P., & Herzberg, A. (2001). Understanding company law. Sydney, Lawbook Co. The Impact of the Corporate Form on Corporate Liability for International Crimes: Separate Legal Personality, Limited Liability and the Corporate Veil – An Australian Law Perspective. Available at http://www.hrlrc.org.au/files/XEFE1B1KQZ/ICJ%20Paper%20E%20Howie%20and%20R%20Nicolson%20-%20final%200207.pdf Read More