Business and Corporations Law Relevant Fiduciary Duties

Question: Describe about the Business and Corporations Law for Relevant Fiduciary Duties. Answer: 1. Issue It is given that there is an accounting firm with three partners namely Peter, Aidan and Adrian. As per the partnership agreement, any partner could enact a contract to the tune of maximum amount of $ 10,000 without seeking permission of the other partners. However, despite this Adrian enacts contract in excess of $ 10,000 with Edgar and Tom and does not take consent from the other partners. The central issue is to opine Tom and Edgar with regards to their legal position when the other partners do not honour the contractual obligations. Law As per Section 5, each of the partner acts as the agent of the firm and also of each other with regards to business activities. Also, the partners tend to satisfy dual role of principal and agent and hence in the process they satisfy the fiduciary duties expected from both principal and agent (Bank of Australasia v Breillat (1847) 6 Moo PC 152; 13 ER 642) (Latimer, 2005). Thus, when a particular partner is acting in isolation as the firms agent, it is imperative that the partners oblige by discharging the relevant fiduciary duties (Lindgren, 2011). In this regard, a relevant case is Re Agriculturist Insurance Co (Bairds case) (1870) LR 5 Ch App 725 as per which every partner tends to in the capacity of an indefinite agent to the other in regards to any of the business related activities that is enacted by the firm provided it is as mentioned in the partnership agreement (Gibson and Fraser, 2014). As per the Partnership Act, in the event of any transaction that is enacted by one or more firm partners, the remaining partners are bound by that contract or transaction provided it is within the business scope of the firm. However, if the transaction enacted by the partner is not related to the business activity, then the firm and the partners would not be liable as has been indicated in the Mercantile Credit Co Ltd v Garrod [1962] 3 All ER 1103 case (Davenport and Parker, 2014). From the above case and s 5(1), it is evident that even if the partner enters into any contract with a third party that goes beyond the express authority as extended by the partnership agreement, then also the third party would be successful in establishing liability for the firm and its partners. The requisite parameters for the above to hold true are as follows (Harvey,2009). Transaction should be within the scope of business of the firm The third party should have been acting in good faith The third party was unaware that the partner lacked the requisite authority to execute the contract. Application As per the relevant case facts, a contract has been enacted between Adrian (partner) with the third party (Tom and Edgar) and since the contract value exceeded $ 10,000, hence Adrian should have taken the consent of the other partners. Hence, Adrian has overstepped the express authority derived from the partnership agreement. Further, the scope of the work of the contract was clearly within the ambit of the partnership firms business scope. Also, there is no evidence to suggest that Tom and Edgar knew about Adrian lacking the requisite authority to enact the contract. Since, all the conditions are met, hence the partnership firm and the partners are bound by the contract which would be considered enforceable if the third party desires so as highlighted in the verdict of Mercantile Credit Co Ltd v Garrod [1962] 3 All ER 1103 case. Thus, the teo remaining partners cannot deny making payment and taking delivery as this would amount to breach of contract and result in potential legal act ion by Tom and Edgar against the partners of the firm. Conclusion Based on the above discussion, it would be fair to conclude that Tom and Edgar have an enforceable contract in the given care even though Adrian was not authorized to enact the contract of this value. Also, since Peter and Aldan are the partners of the firm, hence they would have to be comply by the contractual obligations arising from the contract in line with Section 5(1) of the Partnership Act and failing to comply with the contractual obligations would result in breach of contract and potential legal action against the defaulting partners. 2. (A) Issue One os the issues is with regards to the Nu-Slim Pty Ltd taking legal action for the termination of a rival company Fat-Away Pty Ltd citing breach of employment contract. Law It is noteworthy that there is liability of employee if the employment contract is breached without informed consent of the employer. At times, it may require that the corporate veil be lifted so as to understand the actual human controllers besides a particular action (Carter, 2012). The relevant case in this regard would be Gilford Motor Co Ltd v Horne [1933] Ch 935 where the court had to life the corporate veil as there were attempts by the company to hide their true controllers so as to escape contractual liabilities (Taylor and Taylor, 2015). As per the relevant details of this case, there was an agreement by plaintiff with regards to trade restraint. But despite this, he started a business in the same name and started executed contracts on behalf of the new company. The other shareholders of the company were his wife along with a former employee. The court in this case passed the verdict that there has been a breach of the trade restraint (Pendleton and Vickery, 2005) Application In the given case, Richard worked with a company named as Nu-Slim Pty from 2008 -2013. As per the employment contract, Richard could not start a business in the same field till three years had elapsed since her termination of employment. However, in 2014, Richard established a business named Fat-Away PtyLtd in the same domain as his previous employer. Additional shareholder in the company was his sister Frances who owned 1% of the company. It is apparent that by starting the company in the same line of business, Richard has breached the employment contract which is evident from the court verdict in Gilford Motor Co Ltd v Horne [1933] Ch 935 and hence Nu-Slim can claim damages from Richard for the loss caused. Also, an injunction order may be sought from the court to as to ensure that Richard refrains from engaging into such a business again till the cooling period of three years is over. Conclusion From the above discussion, it would be fair to conclude that Richard has indeed violated the trade restraint and hence Nu-Slim can claim damages for losses and injunction to ensure that such activity is not repeated in the cooling period. (B) Issue The central issue is to opine if United Bank Ltd could initiate legal action against Richard for non-payment of the loan installment of $ 40,000. Law In accordance with Section 124(1), Corporations Act 2001, a company unlike other legal structures tends to have a legal existence which allows the company to be separated from the owners and management (Latimer, 2005). The business of the company is conducted by the management acting as principle for the firm. The various assets and liabilities essentially belong to the company and are separate from the personal assets and liabilities of the owners (Gibson and Fraser, 2014). Also, the company can enter into contracts and can be sued by other parties to whom the company has undischarged liabilities. In accordance with law, the liabilities of the shareholders extend only to unpaid component of equity shares but not to the payment of companys debts (Section 516) (Paterson, Robertson and Duke, 2015).This is because the owners typically have limited liability with regards to the obligations of the company. This is apparent from the verdict pronounced by the court in the Salomon v Salomon Co Ltd [1897] AC 22 case. In the given case, the shareholders were not held liable for the debentures issued by the company (Pathinayake, 2014). Application As per the relevant details, the company Fat-Away Pty Ltd has two shareholders i.e. Richard (99% owner) and his sister Frances (1% owner). The company assumed a loan of $ 500,000 as the start up capital but due to adverse conditions prevailing in the business has not been able to make a loan installment payment of $ 40,000 to the United Bank. In the given case, the loan has been extended by the bank to the company which in accordance with Section 124 is a separate legal entity separate from the shareholders. Also, as per section 526, the shareholders are not liable for the liabilities of the company which is a separate entity. Hence, in the given case the lender (United Bank) in order to receive money can initiate proceedings against the company but not against the shareholders i.e. Richard and Frances. Conclusion Based on the above discussion, it is fair to conclude that the United Bank for recovery of the loan installment cannot sue Richard and hence should instead sue the company Fat-Away Pty Ltd.. References Carter, J. (2012), Contract Act in Australia, Sydney: LexisNexis Publications Davenport, S. and Parker, D. (2014), Business and Law in Australia, Sydney: LexisNexis Publications Gibson, A. and Fraser, D. (2014), Business Law, Sydney: Pearson Publications Harvey, C. (2009), Foundations of Australian law. Victoria: Tilde University Press Latimer, P. (2005). Australian business law, Sydney: CCH Australia Lindgren, K.E. (2011), Vermeesch and Lindgren's Business Law of Australia, Sydney: LexisNexis Publications Pendleton, W. and Vickery, N. (2005), Australian business law: principles and applications, Sydney: Pearson Publications Pathinayake, A. (2014), Commercial and Corporations Law, Sydney: Thomson-Reuters Paterson, J., Robertson, A. and Duke, A. (2015), Principles of Contract Law, Sydney:Thomson Reuters Taylor, R. and Taylor, D. (2015), Contract Law, London: Oxford University Press