The Provisions of the Scallop Fishing and Marketing Act - Assignment Example

Business Law Case Study By student’s name Course code+ name Professor’s name University name City, state Date of submission Question 1 Issue The issue in the scenario given is whether by incorporating a company Bob can be able to double his commercial fishing and exceed the quota limit set by the Scallop Fishing and Marketing Act. Discussion According to the provisions of the Scallop Fishing and Marketing Act, any person engaged in commercial scallop fishing must apply for a quota whose effect is to limit his or her catch of scallop fish to 50 tonnes in a year. Any fishing that goes beyond the quota limit becomes an offence. Bob’s daughter, Alice, suggests that Bob can double the catch by incorporating a company which will enable him to catch double the fish in a calendar year. This position is not correct since the provisions of the Act apply to every person including a juridical person. According to the Corporations Act 2001 (Cth), an incorporated company is regarded as a separate legal entity. Once the company is incorporated, it becomes a legal person which is different from its owners or shareholders (Judge and Moore 2014, 14). This means that the company gains a personality such that it gains certain rights. These rights include the right to enter into contracts, the right to own and dispose of property and the right to sue and be sued. The company being a legal person means that the company is bound by the same provisions of the Scallop Fishing and Marketing Act as natural persons. Once the company becomes a legal person, the company becomes a nexus for contracts, that is, it becomes the vehicle in which the owners of the company can enter into contracts as a common counterparty other than having all the owners take part in the transaction (Armour et al. 2011, 6). This means that any obligations that arise from the contract will be binding on the company as the legal person. The company will be bound by the terms of the contract. In the same way, the company is bound by the terms of the Scallop Fishing and Marketing Act which limits commercial fishing to 50 tonnes of scallop fish in a calendar year. The same fines that apply to natural persons would apply to the company. This is because the Act does not have provisions that give special considerations to the company over individual persons. Another element of the company being a separate legal entity is the fact that the liability for any obligations or debts of the company are limited to the assets of the company and do not cover the personal property of the owners. This means that even if the company is found liable for exceeding the quota limit set by the Scallop Fishing and Marketing Act, the company will be liable for the fines and not the individual owners. The company is one of limited liability which means that Bob’s liability to the company is limited to the value of the unpaid shares of the company as provided in the Corporations Act 2001 (Armour et al. 2011, 9). This might help Bob because that means that he is not personally liable for the breaching the provisions of the Scallop Fishing and Marketing Act. This, however, exposes the company to various law suits which may lead to insolvency of the company. It is important to note that the insolvency of the company may lead to the piercing of the corporate veil which may lead to liability for the directors of the company who caused the insolvency of the company. This means that since Bob is likely to be a director of the company, he may be found liable and charged. Conclusion Alice is not correct when she says that Bob can double his catch by incorporating a company. The Scallop Fishing and Marketing Act provides that all persons have to apply for a quota whose effect is to limit the amount of commercial fishing that one can do in one year. A company is a legal person which means that it once incorporated it acquires the same rights as an individual. The Act does not give any special benefits to companies. This means that the company is bound by the provisions of the Scallop Fishing Act. Although the Act protects Bob from personal liability, the company can still be liable to pay fines for exceeding the quota limit that is set out in the Act. Even if Bob establishes or incorporates a company, he will still be subject to the quota limit. The only advantage the company gives him is the limited liability. Question 2 Issue The issue is whether New Nirvana Ltd can be held liable for the negligence by Nuclear Blast Sounds Pty Ltd. Rule The Court in the case of Walker v Wimborne (1975-76) 137 CLR 1 expressed its reluctance to pierce the corporate veil and hold a parent company liable for the obligations of the subsidiary company. The Court held that there is a formal separation between the legal identities of the parent company and the subsidiary company. However in the case of Bluecorp Pty Ltd v ANZ Executors and Trustee Co. Ltd (1995) 18 ACSR 566 the court held that the inter-relationship of the parent and the subsidiary company and the control extending from the parent company making the companies a common enterprise are factors that can cause the courts to pierce the corporate veil and hold the parent company liable for the obligations or debts of the subsidiary company (Ramsay and Noakes 2016, 15) Discussion In the case of Salomon v Salomon & Co. Ltd (1897) AC 22 the court held that a company is a separate legal person from its shareholders and, further, that is not an agent of the shareholders. This decision means that the shareholders of a company cannot be held personally liable for the liabilities of the company unless in special circumstances where the law or the courts deem it necessary to do so (Dickens 2017, 1). The courts can pierce the corporate veil, for example in cases of fraud and hold the shareholders and directors liable for the obligations of the company. The same rule applies to the relationship between a parent company and its subsidiaries. A parent company, being the subscriber of the shares of the subsidiary cannot be held liable for the obligations of the subsidiary company (Rankin and Popkin, 2014, 12). However, in Bluecorp Pty Ltd v ANZ Executors and Trustee Co. Ltd it was held that if it can be shown that the inter-relationship between the parent company and the subsidiary and the influence and control the parent company has over the subsidiary is such that it can be said that companies are participating in a common enterprise, then the parent company can be held liable. According to the facts of the case, New Nirvana Ltd is controlled by the members of the rock band, N/N. The company has subsidiaries which are responsible for setting up and running the concerts held by the band. This means that the subsidiary companies can be said to carrying on the same business as the parent company which is owned by the band. They were organising and setting up concerts for the band whose members are the shareholders of the parent company. In such a case, one can say that the companies are participating in a common enterprise (Ramsay and Noakes 2016, 16). This means that the injured audience can make the parent company, New Nirvana Ltd, liable for Nuclear Blast Sounds Pty Ltd’s negligence. Conclusion From the above discussion, the injured audience can make the parent company, New Nirvana Ltd, liable for Nuclear Blast Sounds Pty Ltd’s negligence. Question 3 Issue The issue is whether Simon and Michael acted within the provisions of the constitution and, if not, the best solution regarding their legal solution. Rule According to the Corporations Act 2001, the constitution of a company is the binding agreement between the shareholders and the company and the shareholders themselves. The parties to this contract which is the constitution is, therefore, the company and its members. It binds the members such that their actions must be within the provisions of the constitution. Application Simon, Michael and Don have set up a company where Don is nominated as the solicitor of the company through the company’s constitution. The shareholders of the company also agree through the constitution that any disputes that arise between the members should be referred to an arbitrator before instituting any legal proceedings. The fact that Simon, Michael and Don are the shareholders of the company means that they are also the directors of the company. This means that the decisions of the company must be made by the directors including the decision to appoint a new solicitor. It is worth noting that Don had been appointed as a solicitor through the constitution of the company. This means that the decision to replace him should be made through a special resolution where the decision is made by all the directors present. The constitution, as stated above, becomes the agreement or the contract that guides the relationship between the members of the company (Lee 2016, 2). The decision to make Don the solicitor of the company was made through the agreement between the directors and was incorporated into the contract that binds them all. It, therefore, follows that the parties ought to have agreed to the decision to appoint another solicitor. The right move was to hold a meeting of the members of the company and a pass a special resolution to nominate another person as the solicitor of the company. The decision by Simon and Michael to nominate another person as the solicitor of the company without informing Don or even consulting him was inconsistent with the constitution of the company (Duffy 2015, 9). The decision by Simon and Michael gives Don the right to sue for the failure to adhere to the procedure for his removal as a solicitor. Assuming that Michael and Simon took Don’s position as a solicitor as an employee of the company, they could not have replaced him without informing him. The decision to appoint another solicitor without informing him of his termination, in case he is an employee, would have amounted to a case of unfair dismissal which gives Don a course of action to institute legal proceedings (Fair Work Ombudsman 2016, 1). Even if he was an employee, they ought to have followed due procedure by giving him notice of his termination as the solicitor. In the current situation, Don is also a member of the company and also a director since they are only three members in the company who are all involved in the running of the company. His removal from the position of a solicitor does not affect his position as a member or director of the company. This means that the decision by Michael and Simon could affect the relationship between the members of the company hence affecting the company as well. Since Don has already instituted a legal action, Michael and Simon have the right to oppose Don’s suit and instead push for the matter to be referred to arbitration. The fact that the arbitration clause was in the constitution which is the contract that dictates the relationship between the members means that the dispute that has arisen should be settled through arbitration (Lee 2016, 4). This will ensure that the relationship between the parties is not affected and they can continue running the company once the dispute is resolved. They ought to follow the right procedure for replacing Don as a solicitor by informing him of the decision and allowing him to take part in the vote. The company may have to compensate him for the termination or follow any other procedures, if any, stipulated in the constitution. Conclusion The company should oppose the suit instituted by Don and have the dispute resolved through arbitration as outlined in the constitution. They should also offer to follow the right procedure when replacing Don as the solicitor to avoid further legal challenges which may also affect the running of the company. Michael and Simon have a duty to follow the internal rules of the company. References Armour, J, Hansmann, H and Kraakman, R 2011, The essential elements of corporate law: What is corporate law? John M. Olin Centre for Law, Economics and Business. Dickens, T 2017, When is a subsidiary not a separate legal entity? Available at: https://www.birkettlong.co.uk/site/library/commercialclient/When_is_a_subsidiary_not_a_separate_legal_entity [Accessed 29 May 2017] Duffy, M 2015, Shareholders agreements and shareholders’ remedies: Contract versus statute, Monash University. Fair Work Ombudsman 2016, Termination of employment, Australian Government. Judge, S and Moore, I 2014, Company law: Questions and answers, Oxford University Press. Lee, J 2016, Intra-corporate dispute arbitration and minority shareholder protection: A corporate governance perspective, University of Exeter, UK. Ramsay, I and Noakes, D 2016, Piercing the corporate veil in Australia, Company and Securities Law Journal 19, 1-40. Rankin, G and Popkin, M 2014, Parent, director and related company exposures: The erosion of limited liability- Extending the reach of liquidators, Allens Arthur Robinson Publications. Read More