Ava meets Titus at a party. Titus is an accountant and financial adviser. Ava tells Titus that she plans to expand her florist business. Titus knows nothing about Ava’s business, but as he was slightly drunk, he tells Ava that her florist business is in a sound position to expand. Relying on that statement, Ava borrows $50,000 from Credit Plus, a small credit union. Unfortunately, things do not go as planned, as Ava has underestimated the costs of expanding the business. Ava has to forfeit $5,000 deposit on new premises and defaults on the loan. Ava now wants to sue Titus for damages.
Advise Ava if Titus owes her a duty of care for negligent statement causing loss. [Donot discuss any other elements of the tort of negligence.]Your answer should include case law.
Issue: Under common law, Titus does not owe Ava a duty of care for negligent statement causing loss.
Rule: Negligent misstatement applies where a defendant owes a duty of care to a claimant but carelessly makes a false or misleading statement to that claimant, who relies on it and suffers loss as a consequence.
To bring a claim for negligence in this context, a claimant must establish that:
Application: Hedley Byrne v Heller
Hedley Byrne asked National Provincial to check on Easipower. NP contacted Heller and Heller gave favorable references on Easipower’s creditworthiness, but each time included a disclaimer stating that the information was being supplied ‘without responsibility on the part of this Bank or its officials’. Easipower later went into liquidation and Hedley sued Heller. In view of the disclaimer, the House of Lords held that no duty of care was accepted by Heller and none arose, so the claim failed. The House of Lords then laid down requirements which claimants would need to satisfy in order to establish a duty of care under Hedley Byrne. There must be: a special relationship between parties, a voluntary assumption of responsibility by the party giving the advice, reliance on that advice by the party receiving it, and it must be reasonable to rely on that advice.
Conclusion: due to the lack of any special or official relationship between the Ava and Titus, the onus of responsibility shifts to Ava .The misstatement on Titus’ part was not deliberate, hence he does not owe her any duty of care.
For quite some time, Otto has been searching for one of Picasso’s original paintings called ‘The Old Guitarist’. By a stroke of luck, he met an art collector, Maximus, who told him he is in possession of ‘The Old Guitarist’ and for the right price, he is prepared to sell it to him. After a lengthy discussion over dinner, they agree on a price. Otto and Maximus then sign a contract setting out the sale price and date of delivery. One week later, Maximus changes his mind and tries to withdraw from the sale.
What remedy is available to Otto if he wants the painting and is not interested in suing for damages?
In the current scenario, Mr. Otto opt for specific performance of the contract entered into between himself and Mr. Maximus. Specific Performance of a contract is available to the plaintiff in cases wherein the remedy of damages does not suffice in itself. Specific performance is equitable relief, given by the court to enforce against defendant, the duty of doing what he has agreed, by contract, to do. An order of specific performance is an order directing a party to a contract to perform the contract according to its terms. The party will be directed to perform all his obligations under the contract. In the current case, Mr. Otto can enforce the contract signed between himself and Mr. Maximus through the remedy of specific performance.
The specific performance of any contract may, in the discretion of the court, be enforced—
(a) when there exists no standard for ascertaining actual damage caused by the non- performance of the act agreed to be done; or
(b) when the act agreed to be done is such that compensation in money for its non-performance would not afford adequate relief.
The remedy for specific performance of contract for transfer of movable property (as is the situation in the current case) shall be granted:
(a) where the property is not an ordinary article of commerce, or is of special value
or interest to the plaintiff, or consists of goods which are not easily obtainable in the market;
(b) where the property is held by the defendant as the agent or trustee of the plaintiff.
The original work of Picasso's "The Old Guitarist" falls under sub-clause (a) wherein the work is one which cannot be said to be an ordinary article, the loss of which can be compensated by damages, and is an article of special value, for which the relief of Specific Performance is available in cases of breach of contract.
In Ryledar v. Euphoric  NSWCA 65, it was held that the Courts will not order specific performance where a monetary sum by way of damages for non-performance are considered to be an adequate remedy. Similarly, they will not order specific performance in a case where some degree of discretion and supervision is required to see whether the performance is adequate.
Otto's loss in the present case cannot be adequately compensated monetarily and hence, the remedy of specific performance may be invoked to get justiciable relief.
Albert is a well-known local councillor, who is fulfilling his lifelong dream to open a fish and chips shop, so he purchased an eat-in fish and chips café from Fry Investments. During pre-contractual negotiations, the owner of Fry Investments led Albert to believe that the cafe has the capacity to seat 44 paying customers, and, indeed, the layout of tables and chairs confirms that capacity. Under the terms of the fire restrictions, however, the seating capacity is limited to 28 paying customers, which significantly affects the cafe‘s profitability.
Is Fry Investments in contravention of s 18 of the Australian Consumer Law?
Section 18 of the Australian Consumer Law, which is found in schedule 2 of the Competition and Consumer Act 2010, prohibits conduct by corporations in trade or commerce which is misleading or deceptive or is likely to mislead or deceive. The states and territories of Australia each have Fair Trading Legislation either containing similar provisions in relation to misleading or deceptive conduct by individuals, or simply applies the federal law to the state or territorySection 12DA of the Australian Securities and Investment Commission Act 2001 prohibits misleading or deceptive conduct in financial services.
Section 18 of the Australian consumer law states that -A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
In the given situation, the conduct of Fry investments is in contravention of the section 18(1) Australian consumer law as: a) they promised the buyer that the restaurant would seat 44 when in reality only 28 seats were available.
b) the buyer would not get the profit they were promised for 44-seater.
Tony is the managing director of Aeroventure Ltd, a flight school that trains pilots and offers leisure flights to tourists. The board of directors passes a resolution limiting Tony’s authority. He is not allowed to enter into any contract exceeding $25,000 of spending without written approval from the board. Tony is given the opportunity to purchase a bargain light aircraft for $35,000, which will be ideal for training young people, so he signs an agreement with the seller on behalf of Aeroventure without consulting the board.
How much is the board bound to pay, if any, under the law of agency?
Issue: Whether the board of Aeroventure Ltd. would be bound to pay any sum for Tony’s $35,000 contract.
Rule: The authority of the agent is limited to the scope granted on to him and the agent must always act in accordance to the interests of the principal as stated in Price v Southern Cross Television (TNT9) Pty Ltd  TASSC 70.
Application: The law of agency as prevalent within the common law system comprises of a number of rights and obligations for both the principals. Considering the facts of the case presented, Tony would essentially take on the role of an agent when transacting on behalf of Aeroventure Ltd. However, the board of directors had already passed a resolution requiring Tony to enter into contracts exceeding $25,000 with prior approval for the board. However, since tony failed to do so, the liability of the transaction would rest on Tony and would not be imposed on Aeroventure Ltd. since no approval was obtained from the board. The judgement passed in the case of Price v Southern Cross Television is important in this regard.
Conclusion: The board would not be bound to pay any sum since the liability of the transaction would rest on Tony and not on Aeroventure Ltd.
Aaron and Jacob are both ballroom dance teachers who have been running their own studios independently to each other, with Aaron providing lessons to adult students and Jacob to school children. They want to go into business together and combine their efforts, offering private lessons and group classes to both adults and children. They bring with them into the joint business their students, many of them have been with their respective dance teachers for at least three years having regular lessons, focusing on balance, posture, leading and following, flexibility and style. They hope to expand their business further in 12 months later to have more dance teachers involved.
What type of business structure is most suitable for both Aaron and Jacob to set up and why? Explain fully.
Based on the specification contained in the case study, the structures of a partnership or a registered company would be suitable for the purposes of a dance studio. One of the key benefits of a partnership is that is requires a limited number of formalities and allows for a larger availability of resources and skill sets. However, there is a limited degree of formalisation and a scope for potential also exists in terms of any power drives or imbalances between the partners. Compared to the company structure, the partnership structure is very easy to form but suffers from limited transparency. While the company structure would entail larger costs and reporting requirements, the transparency would be significantly higher. It would also lead to improved levels of consumer as well as investor confidence in the long run.
Another major advantage of the company structure is that it benefits from perpetual legal entity. The business is distinctly separated from the owners, which is not the case for partnership structure. The company structure would remain in operation if the owners die as opposed to the partnership structure. The partnership structure also has a lower scalability potential as compared to the company structure, but enjoys reduced tax compliance requirements and formalities.
Based on the above fact scenario in Question 5, should they choose to incorporate their business as a small proprietary company as opposed to a public company and why? Explain your reasoning fully with relevant sections of the Corporations Act 2001 (C’th).
Based on the above fact scenarios presented, the small proprietary company structure would be far more suitable considering their needs and demands as well as the resources available. One of the most prominent advantages of the small proprietary structure as compared to the public company structure is embedded in Chapter 6D of the Corporations Act 2001. As stated in the provision, small proprietary companies are not required to furnish their investor or shareholders. It allows for a far greater degree of anonymity to the business as compared to the public company structure. Another major benefit is the corporate tax rate, which is stipulated at 27.5% for small businesses as opposed to public companies that may be taxed at 49% or higher. Furthermore, the degree of control that Aaron and Jacob would be able to exercise would be far higher as compared to public company since they could control all the shares and securities of the organisation. A public company structure could also witness a takeover by a majority of the shareholders if they agree to bid and engage in the takeover process. Small proprietary companies also do not need professional directors, which further add to the freedom of control for Aaron and Jacob.
Funfill Village Ltd is in the business of manufacturing electronic toys for children such as battery-operated miniature cars, aeroplanes and boats. All three directors in Fulfill Village Ltd are also shareholders, each having 30% holding in the company. The remaining 10% of the shares are held by Adam. Adam is a mechanical engineer and has been giving lots of ideas to the directors on how to improve the company’s products. The directors are tired of constant interference from Adam, and propose to amend a clause in the constitution so as to allow the company to acquire shares from members who are not already a director of the company.
Can the directors amend the constitution to remove Adam from the shares register? Explain with supporting provisions of the Corporations Act 2001 (C’th).
Section 136 of the Corporations Act 2001 allows for updating or modifications within the existing constitution of a company, albeit through the process of a special resolution that entails 75% of the majority vote. Based on the facts of the case presented above, the majority of the control is held by the 3 directors amounting to 90%. Naturally, any motion of changing the constitution and allowing the company to acquire shares from members who are not already directors could certainly be possible. However, a 21 day notice and written disclaimer would have to be provided in accordance to the provisions of Section 249H of the Corporations Act 2001. Section 249J also requires written provision of notices to all the members and shareholders entailed. Furthermore, directors’ resolution could also be signed by the three directors that propose the adoption of the new constitution and its provision. While not mandatory, it is certainly considered as part of the best practises.
Additionally, the directors could also engage in enforcing replaceable rules for Funfill village Ltd. in accordance to Section 141 of the Corporations Act 2001. It would serve the purposes of preventing interference by Adam while also not requiring the changes necessary to the constitution of the company otherwise.
Modern Design Ltd is a property developer and Gerry is a major shareholder of that company. He discovers that Bellman, who is the managing director of the company, has made recommendation to the board of directors to enter into a building supply contract with Brick and More Pty Ltd, a company belonging to Bellman’s cousin, which has low financial standing and is in need of promoting. As a result of entering into that building supply contract, Modern Design Ltd makes a massive loss in profits and its share prices suffer. The board of Modern Design Ltd does not want to see the company institute legal proceedings against Bellman.
Can Gerry successfully initiate a court action against Bellman on behalf of Modern Design Ltd for breach of his duties as a director? If so, how and on what grounds? Explain with supporting case law and sections of the Corporations Act 2001 (C’th).
Directors in Australian companies entail a number of duties and liabilities that are specifically entailed within the Corporations Act 2001. The facts of the case present that Bellman, who was the managing director of the company, was engaging in reckless dealings by deliberately handing over a contract to More Pty Ltd, a company with a low financial standing. Section 180 requires directors to act with care and diligence, while Section 181 requires directors to always act in good faith. Furthermore, Section 182 requires the directors of Australian companies to use their position for proper purposes and Section 183 prevent the improper use of information. A relevant case law in this regard refers to the judgement passed in the matter of ASIC v Citigroup Global Markets Australia Pty Ltd (No 4)  HCA 963, where the avoidance of conflict of interest was highlighted as one of the primary duties.
In terms of whether Gerry could initiate a case against Bellman, the proceeding would stand full merit since Bellman had been in explicit violation of his duties as a director. The results could involve anything from impeachment to prevention of further responsibilities as a director along with criminal sanctions based on the exercise of judicial discretion.
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