Nurture nature pty ltd organises

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A note on research
In this course it is expected that you will research the law from textbooks, journal articles, government/regulatory web sites etc. Refer to the sources and internet databases in section 6 of this Course Description to start your research. Wandering aimlessly around the internet should be avoided, as should reliance on sites such as Wikipedia. 

You are not expected to spend time finding original cases and reading them. Generally sufficient information on the main cases can be found in texts and articles. In addition Commentary and Cases (with headnotes (summaries)) can be accessed from the CCH online library. 

A note on referencing 
You are required to follow APA referencing style. 

Assignment Criteria: 
You will be assessed on: 

• Readable connected prose NOT point form summaries 
• Accurate spelling, grammar, punctuation, paragraph construction and proofreading 
• Effective use of HEADINGS 
• Consistent and accurate acknowledgment of sources using a recognised style - both in relation to in-text referencing and bibliography. Please refer to this Course Description for warnings regarding plagiarism and referencing. Under University of Ballarat Regulations, if you do not reference in the body of your essay the actual resources you have used (which will mostly be textbooks and articles) you will be given a mark of zero. 
• Identification of the reference style being used (please put on title page) 

Analysis (most of the marks are allocated here) 
• Depth of understanding of the topic and identification of relevant issues 
• Accuracy of the law (legislation and cases) used to support discussion 
• Clarity and coherence of the debate/discussion (think of leading a non-lawyer reader along a pathway, explaining the features, their importance and impact) 
• Quality of discussion and argument 
• Attempt to canvass a range of views and to offer an individual opinion on the state of the law/need for reform (depending on topic chosen) 

Research - depth and quality (needed in order to analyse) 
• The use made of appropriate legal sources, in particular primary legal sources: eg. the Corporations Act 2001 (Cth) and cases (it is appropriate to rely on the summaries of cases located in secondary sources) 
• The breadth and use made of relevant secondary legal sources, in particular a number of legal texts, internet sites and at least two academic journal articles. 

Assignment BULAW2611 Organisations Law 
Semester 1, 2014 
The Business School 

To enable you to apply problem solving skills; to research the nature of some of the duties owed by directors in companies. 

The Assignment will be marked out of 30 and is worth 30% of your total mark for the BULAW2611 course. 

It is important for you to have time to think through how to structure and present arguments, and to review and discuss what the law is or should be in a particular area. Whilst discussion with others is encouraged, the final piece of work must be your own. 

Word Limit 
2,300-2,500 in total (assignments exceeding the word limit may not be marked and may be returned to the student for re-writing; assignments less than the required length will risk not covering the topic adequately and may result in a fail). Do not include synopsis, references or bibliography in the word count. 

Read the fact situation below and complete the tasks in Part A and Part B. 
Nurture Nature Pty Ltd organises 'environmental awareness' getaways in various locations around Australia. It specialises in weekend retreats that involve camping and bushwalking activities that build respect for nature. Many businesses pay $1,000 for each of their employees to attend a Nurture Nature weekend retreat. 
There are three directors of Nurture Nature: Yolande (Managing Director), Shani (Financial Director) and Wei (a non-executive Director). When they started the company in February 2007 they sought advice from an accountant friend of theirs, who suggested that no director should have the capacity to bind the company to contracts worth more than $50,000. This limitation was written into the company's Constitution. 
Yolande and Shani control the business, and Wei, who is Yolande's boyfriend, has little interest in the company and little knowledge about its affairs. 
The three directors each hold 20% of the shares of the company, and there are several non-director shareholders. 
Yolande, Shani and Wei regularly hold directors' board meetings. During a meeting in July 2013 the directors consider the following proposals: 
1. That the company should enter into a contract to purchase camping equipment imported by Outside Life Pty Ltd, a company wholly owned and controlled by Yolande and Shani. Outside Life Pty Ltd is proposing to charge twice the price for camping equipment compared with Nurture Nature's current supplier. 
2. That the company should expand into Papua New Guinea (PNG). Yolande and Shani believe PNG is a great untapped market. Neither Yolande nor Shani provide any financial forecasts or legal information about the proposed expansion into PNG. 
All three directors vote in favour of the above proposals. Wei is wary about both proposals, but a stern look across the board room from Yolande silences him, and he votes in favour of the proposals. 
Wei becomes unhappy because of his passive role in the business. Wei decides to show how useful he is to the company, and while Yolande and Shani are on a business trip to PNG, he approaches A Bank Ltd for a loan of $500,000 to finance Nurture Nature's expansion into PNG. Wei knows the bank staff because he has occasionally deposited Nurture Nature's weekly takings into the company's account. 
Wei signs a loan agreement with A Bank Ltd, signing his name next to the words 'director of Nurture Nature, for and on behalf of Nurture Nature. When the bank's accountant asked for another director to sign as well, Wei explained that this was not possible as both Yolande and Shani were unavailable, could not be contacted because they are in a remote location, and said 'financing the expansion into PNG is urgent'. 
The bank's lending officer was reluctant to approve the loan as it was a large sum for Nurture Nature but Wei convinced him it would be OK. 
Unfortunately, the directors of Nurture Nature soon find out that PNG's government imposes heavy legal restrictions on companies operating adventure activities and Nurture Nature cannot obtain the necessary government approvals to operate in PNG. The proposed expansion into PNG will not be able to proceed. 
Because of this, and because Nurture Nature is now paying twice the price for camping equipment, the company's financial situation deteriorates and it can no longer meet its repayment obligations to A Bank. At a directors' meeting, it is decided that Nurture Nature would argue that the contract was not valid as Wei had no authority to make it. 

Part A
Discuss whether any of the directors of Nurture Nature Pty Ltd are in breach of any of their directors' duties. 
o Consider each director separately. 
o Identify relevant sections of the Corporations Act 2001 (Cth) and apply these to the facts. 
o Identify and discuss at least two relevant cases. 
o Consider whether there are any defences available to any of the directors. 

Part B
Discuss whether Nurture Nature Pty Ltd is bound to the loan contract with A Bank Ltd. 

o Discuss companies' relations with outsiders, do NOT discuss directors' duties in Part B 
o Identify relevant sections of the Corporations Act 2001 (Cth) and apply these to the facts. 
o Identify and discuss at least two relevant cases. 

The Business School 

Prepared/revised by Philippa Wells, April 2014 

It is highly recommended that you look at a book that has been written to help students improve their skills in note taking and answering law questions. Look on library shelves around the 340.07 area. The following are two examples (earlier or later editions can be used): 
Crosling, G. & Murphy, H.M. (2000). How to study business law. (3rd ed). Chatswood, NSW: Butterworths (any edition would do) 
Krever, R. (2006). Legal problem solving: a guide for law students. (6th ed). Chatswood, NSW: Butterworths. 

The following gives some guidance that will help you pass your tests and exams and answer problem questions. 

PREPARATION FOR TESTS AND EXAMS- what to do and have! 
? DO use your lecture guides and overheads (where provided) to guide you in what you have to learn and which parts of your prescribed textbook are relevant 
? DO learn the material 
? DON'T think you can rely on your notes (if allowed) to find answers in the exam room 
? DON'T think you can just copy passages from your textbooks into your notes (if allowed) and then copy that into the answer booklet - this does not usually display YOUR understanding 
? DON'T try to remember case citations (eg [1932] AC 562 for Donoghue v Stevenson) - this detail is not needed 
• Make your own good notes (hopefully taken over the semester), and then condensed down into a shorter and shorter version, until you know them! 
• Have good knowledge of legal principles and cases (try explaining/teaching them to someone else) - test them on essay and case study questions - reading and re-reading is not generally very useful. 
• Develop good case analysis skills - these should have been developed in tutorials and through preparing answers to other practice questions you have done. 
• Practise writing case study answers - ask your tutor or lecturer if they will give you feedback. Try making up your own case study questions - swap them with friends - have some fun! 
• Set up a study group to look at these questions. Share your answers with your friends and don't forget to have the evidence to support your answers. Challenge others in the group to support their answers too. Ask questions if you do not understand the question or answers that others have. Often the best way to learn is when you have to explain statements and ideas to others. 
• Develop good communication skills (expression, spelling and grammar) over time. The clearer you can write, the more your understanding will come through. 
• If notes are allowed into the test/exam room - check the rules but think of doing diagrams, flow charts with case names (no citations needed) and a few key words to remind you of the facts, reasons, outcomes. Write and re-write your notes so that they become part of your general knowledge and not 'stuff in books'! 
• Be careful if you have an open-book exam - you still have to prepare as if it were closed book - you won't have time to 'find information' in the exam room - the open book exams will be harder and expectations will be greater. Open book exams allow you to check detail - that's all. 
• Go to any revision sessions run by the tutor or lecturer on content or run by your institution concerning exam strategy. 
• Get plenty of sleep the night before. You cannot do your best if you are not at your best for the exam. 
• Check and recheck the scheduled time and place for the examination!!!!! This cannot be stressed enough - there are plenty of people who miss the exam or who are late because they turn up at the wrong time and/or the wrong place.

• Understand the objectives of studying and testing: to demonstrate YOUR knowledge, understanding and analysis skills - think of writing to an intelligent non-lawyer - think of teaching them - so EXPLAIN the principles, cases, and HOW you got to your conclusion. Tests and exams are about showcasing your knowledge and understanding. 
• There is generally no correct answer - there is likely to be some information missing to make the problem more interesting - we are interested in whether you can recognise the legal problem, identify and state the correct principles, apply them to the facts, use cases in your arguments and come to a conclusion (you might have to make some assumptions to do this). For essays: look up key words like 'discuss', 'describe', 'analyse' before entering the exam room, don't be afraid to agree or disagree with statements you are asked to discuss/comment on - be confident - have a go - we are interested in your views (supported by some legal argument!) 

• Have a plan of attack before entering the room and visualise writing good answers (having practised tute and revision/reflection questions will help). The instructions on the format of the exam will have been given out. Work out how many minutes you should spend on each question and stick to it. If you run out of time you will generally get more marks for starting the next question than finishing the previous one. 

STRATEGIES DURING READING TIME (applies to exams only) 
• Read the questions carefully - if the instructions for what you have to do are at the end of the question (as they usually are for case studies), read the end of the question first - then when you read through the facts/quotation you will be looking for answers/issues. 
• Decide which questions you might do - flicking through your 'prompt notes' (if allowed) might help you with the issues.
• Decide the order - (usually it is best to do the one you like the best, first. That gives you confidence, and you might finish a bit earlier - giving you more time for the more difficult questions). 
• If you have time, pick the one you will do first and look through your notes for principles/cases/think about structure. 

? DO try to answer the question asked - marks are given for this, not for just writing down a whole lot of information hoping the marker will pick out the relevant bits! 
? DO try to answer all parts of the question 
? DO try to write as clearly as possible so the marker can understand you (write on every second line if you have large or untidy handwriting) 
? DON'T write out the question - it takes time that you could use to answer the question and does not earn any marks 
? DON'T repeat the facts of a case study 
? DON'T just copy out whole sections of legislation and then say, therefore there is a breach 
? DON'T let a lack of time prevent your answering a question at all - if you are running out of time in the exam and cannot answer a question as fully as you would like, put relevant notes down. Markers cannot give you credit for an answer that is only in your head! 
• For each question do a BRIEF plan - flow chart - before you start writing, you might not have decided the actual conclusion but you have put your thoughts into some sort of order. But remember - no marks are given for a plan so do it quickly 
• If you are running out of time for one question, don't over-run your time limit - make a few notes to finish off and go on to the next question - leave space so you can come back later and fill in the gaps if you have time. (You will usually get more marks for setting up the next question than finishing off the previous one - unless you have spent too much time on facts and other irrelevant matters.) 
• Remember the key points: for essay questions make sure you answer the ACTUAL question asked and give principles, cases and argue. For case studies remember to again discuss the principles, spend most of the time on the contentious areas, argue for both parties, use cases to support, have a conclusion. 
• Get straight to answering the question - no need to repeat the facts of a case study - they will come out as you put your arguments. In fact you get no marks for repeating the facts - it is a waste of words if you can't write fast enough to finish the analysis in time. 
• Make sure you WRITE DOWN THE principles (ie the law) and then USE them. Write for an intelligent non-lawyer. This will help you to EXPLAIN what the law is and how it applies to the scenario given. Think of trying to teach some one else what the law is and what the answer might be, given the set of facts before you. 
• Most marks are given for the analysis ie applying the law to the facts. What does this mean? If the law is from legislation - the easiest way is to take each phrase in the section and give its meaning (from case law) and then see if it is 'satisfied' in the facts. For a question in the tort of negligence you should identify the four aspects to the tort (duty of care; breach of duty; pf suffered loss or injury; close connection between the breach and injury) and then decide whether each one has been satisfied (see sample answer on torts). Note also though that this sample question also asks whether the negligent person has any defences available - more than merely finding negligence then. Sample answer B is the beginning of a student's answer to a common law case study problem in an examination (in contract) and c is one on corporate law- specifically Directors duties. 
• If you write less than 1.5 pages for a case study question, you have not picked up all the issues, the law or not explained things sufficiently. Think like a marker - go back and check you have covered everything. 
• Balance your answer - if the question has two parts and one is worth 1/3 of the marks, only give it that much attention. If it is a short-answer question worth eg 5 marks and you are asked for about a page, don't write 2 or 3 pages and then not have time to answer a 20 mark question. 
• You are not given marks for telling us everything you know about an area but for TRYING to answer the actual question. It is not the marker's job to 'pick out the relevant bits'! 
• If you finish early, my advice is NOT to leave the room. Put your head on the desk and have a snooze if you like - imagine you have walked out of the room.... and you might be surprised to find you remember things to put in your answers!! 



Q: How many cases should I know? A: that is up to you. The maximum is those in the lecture guide and those given in lectures and tutorials. You can know more! but are not expected to. You should then cut out a few cases - have at least one case for each important principle or pick cases that you can use for more than one area. Remember you can say 'this case is similar...' 'this case is different to...' If you use the cases to answer practice questions you will remember them. 

Q: How many cases should I use? A: It depends! As a general guide - 3 cases per question should be sufficient. Just putting case names is NOT enough - you need to show why/how the case is relevant to the facts (or different to them) or the issue you are discussing. It is usually better to use 1 or 2 cases well, than just put down 3 names. 

Q: How much of a precedent case do I use? A: as much as you need to make your point and show you know why you are using the case. Again practice and experience is the best teacher. Cases are sometimes used because they have given us a principle - no facts needed here. Mostly cases are used because they are precedent ie a guide to how the current facts can be analysed - therefore you need enough of the facts of the precedent case to be able to do this comparison... remember your precedent rules from earlier study! 

Q: Do I have to give full case citations? A: no - the name of the case or even a reference to a few of its facts is OK - just so as the marker knows that you know the case. 

Q: Do I have to reference? A: no 

Q: Where can I write my plan and do you mark it? A: the place doesn't matter - on the LHS of the page or at the top and then rule a line and write ANSWER. The plans do not get marked so don't worry about making them clear or 'pretty'. Just right down a few points and cases to help clarify the direction you will take in your answer. 

Q: If there are insufficient facts what do I do? A: State what they are and how they will make a difference, make an assumption about which facts you think would exist and then apply the principles. You only know what facts are missing if you know the legal principles. 

Q: Is neatness important? A: not as important as your knowledge. If you make a mistake - just cross it out (ie forget the white paint), if you want to add something - put an * and an arrow or mark the additions 'A', 'B' etc. Just so long as the marker can find the pathway it is OK. 

Q: Can I use headings? A: yes, good idea 

Q: Can I abbreviate names? A: yes 

Q: Can I abbreviate other words? A: not many - you can abbreviate 'and', 'plaintiff', 'defendant' - if you abbreviate a lot of words the marker cannot understand you. 

Q: Can I write in point form? A: no, generally you must write in sentences otherwise your analysis is hard to understand. Some times you can make a few points but remember the criteria: you have to demonstrate YOUR understanding... 

Q: What do students usually do wrong? A: They don't answer the actual question, or they just write down the principles and don't explain what they mean in the context of the facts or actual question asked or they don't even write down principles and answer on a 'gut' feeling ie 'it's not fair', 'that person was stupid' which is entirely inadequate!! Remember you are supposed to have learnt something you didn't know before, so just answering how a member of the public would, is NOT good enough. 

Guidelines for Answering Case Studies: General: 

Legal case studies are the same as other case studies in that they involve a problem. However, many people may find them hard to cope with because legal considerations do not often affect the day-to-day or big picture strategic decisions made in a business. This does not mean they are less important, it just means that legal issues might be ignored or forgotten. 

The purpose of case studies is to develop your understanding of how legal issues may affect a business and to encourage you to think of ways of identifying and dealing with such issues. Consequently, you should always understand that there is no one right answer, how those in business deal with any particular issue can vary enormously. 

However, we can give you some guidance: The acronym can be used as a useful guide (an acronym is a "word" made from the first letters of other words). In this case the "word" is commonly referred to as ILAC or IRAC (either will do, it just works to help you remember the process) 

ILAC? Issue, Law, Analysis or Application, Conclusion 

IRAC? Issue, Reference or Rule, Analysis or Application, Conclusion 

1. ISSUE: Find some key words and phrases in the case study that may give you a hint as to the sort of legal problem. (In an examination you will probably be told what it is.) But in case you are not: if words like "agreement" and "breach" are included, this may suggest it involves some contractual issue or issues. If the word "accident" or "negligent" is used, this might suggest tort liability. 
2. LAW or RULE: Based on these key words and phrases, see if you can come up with some questions of possible legal responsibilities. These possible legal responsibilities are related to key facts. For example, if A has breached a contract, can B get his money back from A? Or because A has damaged B's car in an accident, can B get any compensation? 

Think about this basic situation: 
Albert is a builder. Bea is the owner of a piece of land upon which she intends to build a house. Albert and Bea enter a contract for Albert to build a house for $75,000. The contract contains no provision for the price to rise in line with price rises in materials. The price of materials rises significantly. Albert wants an extra $10,000 to continue. Bea agrees and Albert builds the house. 
Question: Does Bea have to pay the extra $10,000? Do you require any further information? 

Key words and phrases? 

"Enter a contract" - indicates a contract is intended between the parties concerned and that they entered it on that basis. (With statements as clear as that, there is probably little to be gained from discussion of the law relating to offer and acceptance; make sure you focus on those areas that are relevant to the question you have to decide.) 

"No provision for price rises"- have the terms agreed on between the parties left any room for change to that agreement? 

"Price of materials rises significantly"- is this outside the control of anyone involved in this actual contract?- this could be significant 

"Albert wants an extra $10,000 and Bea agrees to pay it" - an agreement between these two parties but is it an enforceable contract? Note the rules relating to consideration - a new contract must be supported by new consideration, pre-existing contractual obligation is not adequate. 

Albert builds the house. Albert performs the agreement they entered in the first place. Is this all he did? A new contract or a change to a contract should be supported by consideration, otherwise it is just an empty promise (nudem pactum) - Stilk v Myrick (so-called "sailor cases"). However, more recent authority - Williams v Roffey Bros (House of Lords) suggests the Courts are more prepared to hold people to their promises, despite a lack of new consideration, if there is no duress (unacceptable pressure) exerted on them to make them agree and if they benefit in some way from the other person (the promisee) relying on their promise to carry out their contractual responsibilities. 
3. ANALYSIS or APPLICATION: Apply the law to the key facts. Decide on how the law applies. For example, what does the law of torts provide if A negligently damages B's car? What does B have to prove before he or she can recover anything from A? Is there anything B can say to avoid legal liability? 

Back to case study above: 

No provision for price rises- the parties have entered a contract with no provision for any changes -therefore, in order that any changes can be made it is necessary for the more general law of contract to be considered. As the contract is for a set price, the only possibility appears to be for a new contract to be identified that involves the payment of extra money (consideration). 

"Price of materials rises" - this is something outside the control of either party- although this theoretically is not relevant, it could be important to the decision of the court in this situation. 

"Albert wants an extra $10,000 and Bea agrees to pay it" This is an agreement but is it a contract (see point above)? Look at the basic rules of consideration (existing promise not sufficient) but also at the cases identified under 2. In addition, look at the key facts identified above- such as the fact the price rises are beyond anyone's control- in deciding whether the court might consider it fair that Bea should pay. 

4. Identify the likely outcome, that is, A's responsibility. Here you could also think about anything that could be used to avoid the situation or alternatively to minimise the problems arising from A's legal liability. 

In the case study- you can now answer the question of whether Bea should pay- note the conflicting lines of authority - but also that Williams was decided much more recently than the sailor cases- relevant to the tendency of courts to listen to what is happening outside the courtroom and the concern that contracting parties should act fairly towards each other and not be able to avoid such fairness by relying on technicalities. 

NB note the other question in here- that is - "do you require any further information"? You are highly unlikely to have access to ALL the information you need, just as you are likely to have too much information about some aspects. Therefore, if you are asked this sort of question, think about what extra might be useful - eg, did Bea know about the price rises prior to entering the agreement? Was her promise to pay extra made reluctantly because of the problem she would have finding another person to do the work? Was Albert careless on his quote/contracting for the job? Was the price rise because of increases in taxes or some other predictable cause? Did the parties negotiate towards a middle ground? How quickly after finding out about the price increases did Albert inform Bea? 

Obviously this case study is unlikely to be the one you would need to solve in an assignment or examination, but you can use the same approach. Just a word of warning- do make sure your approach answers all the questions you need to address. The approach you use is up to you but make it logical!!! AND reference where you use someone else's work in the case of the assignment !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! (We don't worry so much for an examination but that does not mean you can copy out of the text - mainly because it is unlikely that you would be answering the question.) 

Sample answer A - showing how to incorporate case analysis and legislation -using the duty to prevent insolvent trading section in the Corporations Act 2001 (Cth). 
Since it has been proven that X breached his duty under s.588G(2), the next question is whether he has a defence. He might argue, using s.588H(2), that he had reasonable grounds and did expect (not just suspect) that at the time the $10,000 debt was incurred the company would remain solvent. However, the facts show that he didn't know what was going on in the company. To expect that the company was solvent he would need to show he was confident, not just hoped, that all would be well. In fact, like in Metropolitan Fire Systems case, he knew that the office was receiving phone calls from people asking to be paid and that the company couldn't get an extension on its bank loan. The directors in Metropolitan failed to establish their defence and so would X. 

X might argue that he was relying on what the finance officer had told him. To be successful under s.588H(3), he would have to show that he, X, had reasonable grounds to believe, and did believe, that the finance officer was competent and reliable in providing adequate information about whether the company was solvent AND that he was doing well AND on the basis of what the finance officer told him, he (X) expected the company was solvent at the time the $10,000 debt was incurred. 

The facts say that X rarely took an interest in the company but relied on others. However, in Morley the court said a director must be active and can't hide behind ignorance. X would argue that he did ask the finance officer how things were going at Board meetings and relied on what he was told. But the facts say that the non-executive finance officer was busy with his full-time job and didn't always have figures for the directors to look at and couldn't always answer questions. X did more than the directors in Metropolitan who just expected the managing director to manage everything and to tell them what they needed to know. However, because the finance officer could not provide proper information, there were no reasonable grounds to believe that he was reliable, so X cannot rely on the s.588G(3) defence. 

[Note: reading the case of Metropolitan Fire Systems Pty. Ltd. v Raymond Wayne Miller & Ors. [1997] 399 FCA (22 May 1997) is actually very useful as the judgment sets out how the court systematically went through the sections and applied the law, bringing in cases - just as you need to do in analysing exam questions!] 

Sample answer B - case law example. Part of a student's answer to a restraint of trade contract exam question. 

This case concerns contract law, particularly restraint of trade clauses. The parties are RoadSafe Pty. Ltd. and their former employee Varuni. Restraint of trade clauses are considered void (of no effect) but it can be argued that they should be treated as [legal] if they are considered reasonable. This contract is an employment contract, meaning that the law presumes an unequal bargaining position also. The main issue is whether the clause in the employment contract would be considered reasonable to protect the business but is also in the public interest. The type of business, time and geographic frame as well as the activity should all be considered when deciding whether it is reasonable. 

Varuni would argue that because she was not privy to trade secrets, she was simply a salesperson, that the company is not protecting its own interests but trying to stop competition. She would also argue that the activity is not the same as the new company does not sell to a specialised market, road signs, but to a broad range including businesses and so the nature of the activity has changed. The principles established in Atward v Ramont may support her argument that they are trying to stop competition. In that case it was a tailor whom a clause applied to, another activity which is not extremely specialised. It was decided that as the tailor had not been privy to special knowledge the clause to allow him only to work outside a 15 km radius of Melbourne was only to stop competition and was not in the public interest. Varuni also was not involved in the tendering process, which is where all contracts were negotiated, so can argue that she didn't have specialised knowledge or contacts in this sector that she could bring to the new business. 

Sample answer C: A problem plus answer from corporate/company law showing how to breakdown and discuss the different aspects where there is more than one to consider: 

Simone is the managing director of Youth Unlimited Pty. Ltd., a profitable company specialising in selling anti-aging products. There seems to be an increasing market for these types of products. 

Whilst at the supermarket Simone chats with another customer (Tania) who asks Simone if she would be interested in helping her to market a new product "be blonde" which is supposed to stop hair from going grey. Simone says she doesn't think the company she works for would be interested. However, she personally would be interested and suggests she and Tania set up a company together to be called 'Bright Spark Pty. Ltd.'. Simone and Tania are the only shareholders and directors. 

Six months later, Bright Spark is finding it difficult to market its product and there have been some customer complaints. Simone is trying to find ways of selling more Bright Spark product. She suggests to the Board of Youth Unlimited that they should diversify and stock Bright Spark products. The other directors agree. They also agree that she should receive a commission on each sale of a Bright Spark product by Youth Unlimited stores. She did not disclose her connection with Bright Spark but thought that most of the Board of Youth Unlimited would know of this connection s as she and Tania had been featured in the media. 

Assume that Maria, one of shareholders of Youth Unlimited, finds out about the Board of Youth Unlimited paying Simone these commissions. She is angry as she was one of those customers who had complained to Bright Spark about "Be Blonde" and was ignored. Maria knows Simone is involved in Bright Spark. She reports the matter of the commissions to the corporate regulator, ASIC. 

Required: Discuss whether Simone might be in breach of any of her duties and whether the Board of Youth Unlimited has acted appropriately. In your answer identify relevant sections and DISCUSS their meaning and how they would apply from the perspectives of Simone, the Board of Youth Unlimited and ASIC. You should USE (not just put the name) at least two cases in your answer to demonstrate what the likely consequences might be. 

Guidelines to solution for this problem: 

When doing it, it is probably easiest to first underline or identify what you think are key words or phrases: My suggestion is that rather than write them out again, see above - lines underneath 

The issues to be discussed: 
Is Simone in breach? 
Did the Board act appropriately? 


What sort of duties does Simone owe that are relevant to this situation? What sort of responsibilities does the Board have in relation to those duties? (Because you need to discuss the duties from the point of view of Simone and the Board and also refer to ASIC). 


Is she a Director (Directors owe duties to the company)? - s9 definition 

Conflict of Interest and disclosure - they must not let a position develop that means that there is a conflict between the interests of the company and their own. This includes: 
where they improperly use information (s183) 
personal profits arising from acting as a Director (Regal Hastings v Gulliver) - or improper use of position (ASIC v Adler) 
taking up a corporate opportunity - where the Director takes an opportunity that should have been or was offered to the company 

directors have a responsibility to disclose material interest or conflict to the other directors (s191) 

Analysis: points to cover: 

Simone is clearly a Director within the definition in s9 - she is answerable to the Board, she is the Managing director and she has the power to influence Board decisionmaking. Therefore, she has the duties of a Director. Note as such she is also in a fiduciary position and must act in accordance with the duties of a person in that position. 

What then are her duties and has she breached them? 
Improper use of information (s183 and 184): 

Tania discussed the new product with Simone in a casual atmosphere (the supermarket) but could be assumed to know Tania was the MD of the company. (But is this enough? The section says that that the information must be obtained BECAUSE of the position as Director - it is not clear here that this was the case) If the section is relevant, it is important that without even going to the Board, Tania decided that the company would not be interested. Because of her decision to do so, she created an opportunity for herself to gain an advantage (a provision in s183) and therefore is in potential breach. 

The consequences: the company could take action (s183) or ASIC as 184 provides for a criminal offence if this misuse is dishonest. (nb, the fact Simone thought the Board knew she was involved in Bright Spark is irrelevant as there was no reason for members to think that Bright Spark was formed on the basis of this information on Be Blonde that was kept from the board. 

Personal profits/improper use of position (s182): this relates to being a fiduciary - in South Australia v Clark - Clark in his position as MD for the Sate Bank of SA had a conflict of interest when he arranged for a contract between the bank and another company in which he was shareholder and director. The reason is very similar as in the present case - Simone clearly will benefit from the deal between Youth Unlimited and Bright Spark, not only from the commissions but also from the fact Bright Spark gains access to an established market. 

ASIC v Adler is also relevant as Adler used his position as a Director and major shareholder of HiH to buy shares in it, thereby artificially increasing its share price and therefore increasing the chance of Adler Corporation to gain on sale of HiH's shares. Here Simone was facing potential losses in Bright Spark (sales of Be Blonde were not going well and there had been complaints) that could be avoided if Youth Unlimited sold and supported the product. 

Consequences: Both the Board and ASIC could take action (both civil and criminal (s184) However, Simone did not tell the Board of her involvement in Bright Spark because she thought they knew. Is this enough? Probably not - as a fiduciary she is under an obligation to disclose, she cannot just assume the other directors know. In addition her persuading the board to pay her commissions is potentially a breach also of her fiduciary position -profiting in an unfair way. (ASIC v Adler is of some relevance here - although that case did not involve commissions it did involve avoiding a loss and anticipation of future gains)Taking up a corporate opportunity: where a director takes up an opportunity without appropriate disclosure or approval. (ss181 and 182 as well as common law) The director in this situation may be required to account to the company for any profits. This is diversion of contract - without any disclosure - is in breach. There is a requirement that a director to do this must gain the approval of shareholders. This was not done. 
Does it make a difference that Maria knew of the commissions and knew that Simone was involved in Bright Spark - common knowledge of her role in that company? The onus is on Simone to prove that the shareholders gave consent as well as knew so no, not sufficient. 
Does it make a difference that Tania spoke to Simone in the supermarket? It would probably be up to her to show that discussion had nothing to do with her position - that Tania was unaware of her role as MD of Youth Unlimited - unlikely
Conclusion: It is possible for the Board on behalf of the company, or shareholders (derivative action) to take action against Simone for breach of Directors duties. Actions could be taken in respect of the fact she has clearly benefitted herself at the expense of the company through taking the opportunity; failing to disclose and benefitting herself though her position as MD. ASIC could also take criminal action against her for breach of duties under s184 (for breach of ss 182 and 183). 

Sample answer D: Question and guidelines to answer in torts: 

Ali runs all-night parties in an old warehouse. Tom went to one on a hot evening in January. A small sign outside the door to the warehouse said: "All night parties are potentially dangerous. You must take responsibility for your own welfare by drinking plenty of water and taking plenty of rest when you feel tired. The organisers of this event are not responsible to party-goers for any deliberate or careless act or omission by them or anyone else." 

During the party, Ali had water available for sale at $6.00 per bottle. This was the only drink available. There was only one tap in the washrooms and the water from that tap was undrinkable. Patrons were also not permitted to carry their own water into the warehouse. 

By 2am it was clear that the bottled water was going to run out. To prevent this, Ali increased the bottle price to $12.00. Without enough cash, by 3am Tom had stopped drinking at all. Twenty minutes later, he collapsed from heat exhaustion and dehydration. He suffered injuries after hitting his head on the floor and had to be taken to hospital. 

Required: Advise Tom on the following. Support your answer by referring to relevant cases and legal principles: 
a. Can Tom sue Ali in the tort of negligence? On what basis? If not, why not? 
Tom could argue that Ali was negligent in not providing enough water at a reasonable price. It was completely foreseeable by a reasonable person - especially since Ali had experience in running such functions- that on a hot night such as this, there would be a high demand for water. He also knew or should have known that the water was not drinkable in the toilets and make provision to cover for this. BUT - the questions are: 
Did Ali owe Tom a duty of care? He was responsible for ensuring that those legally on the premises (and Jamie was) should not be injured (Donoghue v Stevenson, Safeway v Zaluzna) 
Did Ali breach his duty of care? On the face, yes, Tom was a foreseeable plaintiff and his injuries also are - if you have a hard floor and a person collapses, it is highly likely that they will hit their head - there is no indication that Tom was especially susceptible (Levi v Colgate Palmolive) 
Was there a close proximity between the negligence and the injury? Yes, it is clear that the head injury was due to heat exhaustion and dehydration 
b. Are there any defences available to Ali? What are they and would he be successful? 
First - the sign - be careful, look after yourself, take rests, drink plenty- this sign was by the doors- the question then is: 

Did this absolve Ali from liability? (Volenti non fit injuria - voluntary assumption of risk - it is at least arguable that a person who goes to all night parties on a hot night and does not drink enough and ignores a sign warning of the dangers is taking a risk for themselves.) However- here it was small - although the details and wording is probably sufficient to cover this type of injury the size of the sign may be a problem for Ali and affect his ability to rely on it. 

Second - at least in some states, Ali can be absolved from liability if the injured person was taking part in a patently obviously risky physical activity and suffers the effects posed by an obvious risk - is dehydration an obvious risk of an obviously risky activity of all night parties on a hot night???

Reference no: EM13135610

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