Reference no: EM13983435

Question 1 - Gigi is an employee of Shiba Pty Ltd. Shiba Pty Ltd operates a factory that manufactures S20L16U8G23. S20L16U8G23 is a nitrogen-based chemical widely used in plastics manufacturing. All of the shares in Shiba Pty Ltd are owned by Chow Ltd. Shiba Pty Ltd only has assets of $10,000. Most of the assets used in the manufacture of S20L16U8G23 (such as the factory, laboratory equipment and central machinery) are leased from Chow Ltd.

Gigi is a research assistant who has worked in ShibaLtd's factory for the last 10 years. She was recently diagnosed with a rare form of kidney disease. Gigi and her doctors believe that her constant exposure to the chemicals involved in the manufacture of S20L16U8G23 caused her kidney disease. Gigi is angry that she was never warned about the risks associated with her job and wants compensation of at least $3.5 million given her reduced life expectancy.

(a) Can Gigi sue Chow Ltd for compensation for her illness?

(b) Would your answer be different if you knew that the directors of Chow Ltd are the same as the directors of Shiba Pty Ltd and that they incorporated Shiba Pty Ltd to isolate Chow Ltd from the risks associated with the manufacture of S20L16U8G23?

Question 2 - Down Under Pty Ltd owns a chain of book stores. Its directors and members are Spikey, Buffy, Angel and Cordelia. They each own 100 shares in the company. Down Under Pty Ltd relies on the replaceable rules in the Corporations Act. In addition, it has a constitution that contains the following clauses:

• The directors of the company shall be Spikey, Buffy, Angel and Cordelia for a period of 10 years from 1 July 2012.
• Xander shall be employed as the company's accountant until 31 December 2022.
• The board of directors must authorise all contracts entered by the company in excess of $50,000.

The directors of Down Under Pty Ltd receive an invitation from Collie Pty Ltd to attend a launch of a new book. The directors are not able to attend the book launch so they ask Xander to attend the book launch on their behalf. Without the knowledge of the directors, Xander attends the book launch with his girlfriend, Faith, the company's purchasing officer.

At the book launch, Xander introduces himself and Faith as directors of Down Under Pty Ltd. During the evening, Faith enters into a conversation with Willow, a director of Collie Pty Ltd. Willow informs Faith that Collie Pty Ltd wishes to sell its book binding business for $100,000. Faith believes that Down Under Pty Ltd should diversify its activities so she contacts Willow in the week after the function and after negotiations have taken place she enters into a contract on behalf of Down Under Pty Ltd to purchase the book binding business. Faith uses Down Under Pty Ltd funds that are available to her as the purchasing officer to pay a deposit of $10,000.

When the directors learn what Faith has done, they are furious. They contact Collie Pty Ltd and advise them that they do not believe that they are bound by the contract because Faith does not have the authority to bind the company and the constitution was not complied with.

(a) Discuss whether or not Down Under Pty Ltd is bound by the contract to buy the book binding business. Would your answer be different if Xander and not Faith had entered the contract with Collie Pty Ltd on behalf of Down Under Pty Ltd?

(b) Spikey, Buffy and Angel have been unhappy with Cordelia and Xander for some time. At a meeting of the directors, they terminate Xander's employment contract. The following week, the directors call a members' meeting at which they pass a resolution removing Cordelia from her position as a director of the company.

• What are Cordelia's rights in relation to her removal from her position as a director of Down Under Pty Ltd?

• What are Xander's rights in relation to his removal from his position as accountant of Down Under Pty Ltd?