LAW6000-Business and Corporate Law Essay Writing

Question 1

Harry leased a flat in Melbourne from Jeremy under a 2-year lease. During the current pandemic Harry was unable to pay the rent due to a job loss on account of restrictions that were in place and Jeremy agreed to halve the rent for the remainder of the term. When the restrictions eased five months later, Jeremy restored the rent payable to the full amount and demanded that Harry pay the arrears of rent. Harry is concerned that Jeremy should not be permitted to break his promise that the rent payable for the remainder of the term would be halved. With the aid of case law, explain the doctrine under that Harry may rely on to compel Jeremy to keep his promise.

Instructor notes

(Answer, Detailed Marking Guide) 

• The relevant doctrine is promissory estoppel. 
• Promissory estoppel can be used to prevent a party from denying that a contract exists in the first place.                          
• If the promisee has not provided consideration for the promise, the promise will still be enforceable using promissory estoppel if all of the following requirements are satisfied.

1. The promisor intended the promisee to rely upon a clear and unambiguous promise.                                
2. The promisee has, in fact, relied upon the promise by changing their circumstances, and if the promisor does not keep their promise, the promisee will suffer a material disadvantage.                     
3. It would be unconscionable (unfair) for the promisor to break their promise.

• Relevant Cases: 

Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130

Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 

Question 2

Jennifer is looking to buy a large lot of land establish a barley farm. She is advised by the surveyor at the local council office that there are no restrictions relating to the land as it is in “zone four and suitable for agricultural use”. The Surveyor had failed to see the warning on the Council area map that the land was subject to a recent State Government order that all land in zone four was to be used for residential purposes only. After her purchase, Jennifer received a notice from the State Government requiring that she only use the land for residential purposes. With the aid of case law, briefly explain to Jennifer the grounds upon which she can hold the local council responsible for any loss that she has incurred.

Instructor notes 

(Answer, Detailed Marking Guide) 

• This case involves negligent misstatement which is the giving of careless advice that leads to economic loss.
• If a defendant gives advice to the plaintiff, they will owe a duty of care to the plaintiff if three criteria are met.
  • The advice was of a business or serious nature.
  • The defendant knew or should have known that the plaintiff intended to rely on the advice.
  • It was reasonable in the circumstances for the plaintiff to rely on the defendant’s advice.

• If all three of the above elements are satisfied the defendant will owe the plaintiff a duty of care.

• If the other two elements of the tort of negligence are also satisfied — the defendant breached their duty of care by giving careless advice, and the breach of duty caused the harm suffered by the plaintiff — then the defendant will be liable for the harm suffered by the plaintiff.
• Jennifer may therefore hold the council responsible for negligent misstatement if these requirements are met
•  Relevant cases: 
  • Hedley Byrne & Co Ltd v Heller and Partners Ltd [1964] AC 465
  • Rentokil Pty Ltd v Channon (1990) 19 NSWLR 417
  • L Shaddock & Associates Pty Ltd v Parramatta City Council [No 1] (1981) 150 CLR 225                                                                 

Question 3

With the aid of relevant case law, distinguish the concept of insurable interest under common law and under the Insurance Contract Act.

Instructor notes 

(Answer, Detailed Marking Guide) 

• At common law an insurance contract is not enforceable unless the insured has an insurable interest in the subject matter. 

• They have an interest if they will suffer loss in the event of the property being damaged or destroyed. They benefit from its preservation 
• Purpose is to : 
  • prevent the insured from deliberately damaging the subject matter and then claiming on the insurance 
  • exclude the possibility of the contract being one of a wager 
• One cannot insure another person’s property. 
  • Relevant case: Macaura v Nothern Assurance Co. Ltd [1925] AC 619 

• In general insurance the interest must exist at the time of contracting and when a loss occurs. 

• The Insurance Contracts Act however provides that an insurance contract will not be void just because the insured lacked an insurable interest in the subject matter of the contract at the time of making the contract. 

• Under the Act there is also no requirement to have legal or equitable interest in the subject matter of the contract 

Question 4

MegaMalls Pty Ltd (MegaMalls) owns the Mighty Mall in the north of Sydney. Anwar is the manager of the supermarket in the mall. As Anwar is walking to his car in the parking area of the mall one evening at 11:00 p.m. he is attacked by two miscreants, and he sustains injuries to his left arm with which he was trying to ward them off. At the time of the attack the lights in the parking area had already been turned off as was customary for the mall. In an attempt to get quick assistance, Anwar rans back into the mall and proceeds to the security office. The security office is being cleaned at the time and Anwar enters, he slips on the wet floor and fractures his left leg. As a result of his injuries Anwar is hospitalized and is unable to return to work for two months.

Question 4 PART (A)

With the aid of relevant case law, advise MegaMalls Pty Ltd whether they owed Anwar a duty of care in relation to the injury he sustained to his arm. Explain fully with the aid of relevant case law.    

Instructor notes 

(Answer, Detailed Marking Guide) 

• Even though an occupier of premises owes a duty of care to all persons entering the premises to ensure that the premises are safe, it must be established that the occupier has in fact been careless. 

• To establish the existence of a duty of care the plaintiff must show two things: 
  • that it was reasonably foreseeable that the defendant’s act or omission could cause harm to someone in the plaintiff’s position, and 
  •  that the salient features of the case are consistent with the existence of a duty of care
    • Salient features that may be taken into account include the control the defendant has over the situation and the relative vulnerability of the plaintiff.
• The facts in this case are similar to  Modbury Triangle Shopping Centre Pty Ltd v Anzil (2000) 205 CLR 254
  • The court held that the duty of care owed by Modbury to Anzil did not extend to taking reasonable steps to prevent criminal conduct by third parties that would cause physical injury to Anzil in circumstances where Modbury was unable to control the conduct of the assailants. 
  • Further, Modbury’s failure to leave the car park lit was not the cause of Anzil’s injuries. The direct and immediate cause of the injuries was the conduct of the three attackers who were acting independently of Modbury.
• In the present case it may therefore be argued that the duty of care that MegaMalls had did not extend to the action of the miscreants and the injury suffered by Anwar was not caused by any breach by MegaMalls.

Question 4 PART (B)

Advise Anwar whether he would be successful in a common law negligence claim against MegaMalls Pty Ltd for the injury to his leg. Explain fully with the aid of relevant case law.   

Instructor notes 

(Answer, Detailed Marking Guide) 

• As established in Donoghue v Stevenson, to succeed in negligence a plaintiff must prove each of the three following steps: 
  • that the defendant owed them a duty of care, 
  • that the defendant breached the duty of care, and 
  • that the breach of the duty of care caused the plaintiff damage that was reasonably foreseeable.                                                                         

Duty of Care: 

• It is recognised that occupiers owe a duty of care to people who come onto their premises
  • Relevant case -: Australian Safeway Stores Pty Ltd v Zaluzna
• Therefore, a duty of care is owed to Anwar by MegaMalls.

Breach of the duty of care:  

• A person does not breach their duty of care unless they fail to do that which a reasonable person would have done in the circumstances.
• It would appear that MegaMalls has been careless and that the risk of harm to Anwar as he entered the security office was foreseeable. MegaMalls failed to do that which a reasonable person would have done in the circumstances.
• MegaMalls has breached its duty of care.                                                                          

Damage: 

• It must be shown that damage was caused by the breach and that it is appropriate to extend the defendant’s liability to the harm.  For causation, the “but for” test is usually applicable: 
  • Relevant case -: Yates v Jones [1990] Aust Torts Repts 81-009 
• But for MegaMalls’ breach of the duty of care, Anwar would not have suffered injury to his leg. 

• Furthermore, the harm suffered by Anwar is a reasonably foreseeable consequence of MegaMalls’ carelessness – it is not too remote or far-fetched 
  • Relevant case -: Overseas Tankship v Morts Dock & Engineering    (The Wagon Mound No. 1)

• MegaMalls is liable to Anwar in negligence for the leg injury

Question 5

Scenario: Michael is one of the directors of P-Care Pty Ltd, that manufactures personal protective equipment. Lucy is the other director while Lance is the majority shareholder and has opted not to become a director. Lucy however did not submit a written acceptance of her role as director. Business in the last two years has been very good because of the global pandemic and P-Care wishes to expand the business globally. The company invests in new production machines and triples its capacity. However, as a result of restrictions put in place by the government, economic activity soon slows down significantly and despite the increased capacity, sales have reduced because most of P-Care’s customers are either closed on account of the restrictions or have gone out of business. P-Care is in need of orders for the manufacture of the personal protective equipment, otherwise the company may soon face bankruptcy. It is common knowledge in the industry that P-Care is now facing financial difficulties due to its unplanned expansion of capacity.

MyCare Ltd runs a number of hospitals and care facilities and is looking to order 50000 hazmat suits for their nationwide operations. They have approached Michael with the order agreeing to pay $3 million and to take delivery of the suits within three months of the order being placed. Michael is excited as this will significantly improve the financial position of P-Care and help in avoiding insolvency. Jake is a director of MyCare and has become aware of P-Care’s financial position. Two months after the contract is signed and P-Care has almost completed the manufacture of the hazmat suits, Jake contacts Michael and advises that he believes that they are paying too much for the suits and that unless P-Care reduces the price drastically, Jake's company will not go ahead with the purchase. Jake suggests a price of $2 million. As is customary for significant decisions, Michael speaks with Lucy and they consult Lance. Usually if Lance disagrees with a course of action proposed by Michael and Lucy, they will compromise to suit Lance. On this occasion Lance thinks they should go ahead and P-Care reluctantly agrees to the reduced price.

Michael is still very upset after delivery and believes that P-Care should sue MyCare Ltd and Jake for $1 million in damages for breach of contract. He believes that this amount is still owing to his company. Jake and MyCare Ltd maintain that the contract has been completed and no amount is owing either by Jake or MyCare. Michael however believes that the subsequent agreement to reduce the price of the suits is not valid and that the original agreement for $3 million is valid and has been breached. Michael comes to you for advice.

Meanwhile, while Lance is inspecting the company’s accounts, he notices some accounting anomalies which suggest that Michael has been misappropriating funds from the company. Lance believes that the company has been insolvent for some time.

Question 5 PART (A)

With the aid of relevant provisions of the Corporations Act 2001 (Cth), advise Lance whether he would be liable if the directors are found to have breached the insolvent trading provisions. 

Instructor notes 

(Answer, Detailed Marking Guide)

• Under S9: The definition of an officer is wider than that of director and is defined to include:
  •  directors of the corporation, the company secretary, senior executives, receivers and liquidators. 
  • Also includes any person who plays a part in decision-making or who has the capacity to affect the financial position of the company as well as those who give directions which are followed by the directors will also fall within the definition of officers.
• Lance will therefore be considered to be an officer of the company. 
• This suggests that Lance exerts a significant influence over the decisions of the board as he is participating in making decisions that substantially impact the business of the corporation. 
• Lance is allowed to access financial records of the company. 
• Lance is consulted about any significant company matters and the other directors compromise in their decision-making to agree with Lance’s viewpoint. 
• Even though not officially appointed, he is an officer in accordance with the definition under s 9 and thus liable as an officer of the company for any breach of his duty to the company. 
• Under s588G: The statutory offence of insolvent trading is established if: 
  • A person is a director at time when a company incurs a debt;  
  • At that time the company is insolvent or becomes insolvent by incurring that debt;
  • At that time a reasonable person would have grounds to suspect that the company was insolvent or would become insolvent by incurring that debt;
  • The director is aware at the time the debt is incurred that there are reasonable grounds for suspecting the company is insolvent, or a reasonable person in a similar position would be so aware     
• Duty only applies for directors and not officers of the company. Lance may escape liability.                                                                                              

Question 5 PART (B)

With the aid of relevant provisions of the Corporations Act 2001 (Cth), explain whether Lucy can avoid liability as a director by arguing that she was not officially appointed due to the fact that she did not accept his position in writing.   

Instructor notes 

(Answer, Detailed Marking Guide)

• Under s 9 A director is a person who:
  • has been officially appointed as a director;
  • is acting under a defective appointment; or 
  • is exercising control as a director but who has not been officially appointed.
• If a person is officially appointed to the position of a director, he is considered as a director.
• If a person is a de facto director, he will be treated and considered as a director. A de facto director is a person who is acting under a defective appointment. 
• The person may be considered as a de facto director even in cases where they did not actively consent to be a director, provided that their actions demonstrate that they are acting in the position of a director: 
  • See: Forkserve Pty Ltd v Jake (2001) 19 ACLC 299. 
• If a person exercises directorial control but is not officially appointed to the position of a director, the person would be considered as a shadow director, able to exert significant influence over the decisions made by the board of directors.
• Statutory duties imposed on a director will apply to all the above.
• Lucy was appointed as a director of the company, but her appointment is defective because she has not submitted the written acceptance of this role as a director. She  is also treated by others as a director. 
• She is therefore a de facto director and cannot avoid liability.                                                     

Question 5 PART (C)

With the aid of case law, explain how P-Care Pty Ltd may use the ground of common law unconscionable conduct to challenge the validity of the second and subsequent agreement for $2 million.

Instructor notes 

(Answer, Detailed Marking Guide) 

• Duress:
  •  Where one party compels the other party to enter into the contract by threatening negative consequences                                     
  • the contract is voidable
• The threat may be:
  • To the personal safety of the other party or to that of their loved ones, 
  • To the safety of the other party's goods or property - either is known as physical duress or 
  • To the other party's economic or financial wellbeing, known as economic duress 
• Relevant Cases:
  • North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979) QB 705 (economic)
  • Barton v Armstrong (physical duress)
• MyCare is arguably in a position of power with respect to P-Care and appears to force P-Care into the contract for $2 
• MyCare take unfair advantage of P-Care in forcing the price cut 

The second contract may be voidable on the ground of economic duress.

Question 5 PART (D)

With the aid of relevant provisions of the Corporations Act 2001 (Cth), explain whether Michael can be held criminally liable if it is shown that he has been misappropriating funds from the company.

Instructor notes 

(Answer, Detailed Marking Guide) 

• Under s184 of the Act if directors act dishonestly or recklessly, then a criminal prosecution may be started against them. 
• Under s184 directors may be criminally liable, if: 
  • they act in a manner that is reckless or intentionally dishonest and they breach their duty to act in good faith or proper purpose: s 184(1);
  • they act in a manner that is reckless or intentionally dishonest and such action leads them to misuse their position or the company’s information to gain a personal advantage: s 184(2), (3);
  • they breached the provision of insolvent trading and they acted dishonestly: s 588G(1), (3). 
• If Michael is shown to have been intentionally dishonest then he could be held criminally liable under s 184