Claim
The managing director (MD) of Catering WA Ltd, Jasmine Trendy, attended a cookery fair in Tasmania and introduced herself to Adam who was from Tassie Foods Pty Ltd. Upon invitation by Adam to taste some products from Tassie and being moved by the excellence of the cheeses, salmon, and yogurts, Jasmine made orders for goods worth 40,000 US dollars on behalf of Catering WA Limited. Catering WA Ltd, based in Western Australia, has a constitution that comprises a clause that affirms that it can only buy food and ingredients produced in Western Australia; in addition, all purchases above $20,000 have to be endorsed by the board of directors. In this regard, the board of directors found that products from Tasmania could harm the reputation of the company and hence refused to allow delivery of the products ordered by Jasmine. The part of the law applicable to this question is advising Tassie Foods Pty Ltd if the contract can be enforced concerning the aforementioned set of facts as well as the Corporations Act 2001 (Cth).1
Evaluation
Jasmine decided to order the purchase of products from Tassie on behalf of Catering WA Ltd as the MD. Even though the constitution of Catering WA Ltd does not permit products that are produced outside Western Australia and allows purchases of above $40,000 only under the agreement of the board of directors, the Corporation Act 2001 allows room for compromise2. Jasmine acted with good intentions of the company and without knowing or suspecting that the making of the contract was incorrect. Additionally, products ordered by Jasmine on behalf of Catering WA Ltd were in the company’s name. While making use of a company’s power to create, vary, ratify, or discharge a contract Jasmine exercised the powers with the company’s implied ability and on its behalf while employing a common seal. In the making of this contract Jasmine, Adam and Tassie Foods Pty Ltd for that matter assumed that the constitutions of the respective companies and provisions of the Corporations Act 2001 that are relevant to the companies had complied within the process.3 Adam and Tassie Foods Pty Ltd assumed that Jasmine, the MD of Catering WA Ltd as per the information given by the company, has been accordingly appointed; in addition to having authority to apply the powers and carry out the duties usually exercised or carried out by directors of similar companies.
Outcome
For the purpose of Jasmine taking accountability on behalf of Catering WA Ltd in ordering the products and for a fastidious step in compromising, the two companies should make concessions and the board of directors for Catering WA Ltd should accept the contract.4 The contract made by Jasmine on behalf of Catering WA Ltd is not enforceable as per the common law; however, it is enforceable under section 131(part 1) of the Corporations Act 2001 on condition that the company approves the contract within a reasonable time. Catering WA Ltd can amend its constitution to allow the contract and make the purchase within a suitable time5. If Catering WA Ltd does not approve the contract, Jasmine being the one accountable for accepting the contract on the company’s behalf might also be accountable (section 131(2)) for paying Tassie Foods Pty Ltd an equivalent sum of money to what company could have paid if it had accepted to purchase the products.
References
Adams, Michael. “20 Year Snap-Shot of the Developments in the Regulation of Small Corporations.” Journal of Business Systems, Governance, & Ethics 4, no. 4 (2010):7-22.
Blumberg, Phillip. “Transformation of Modern Corporation Law: The Law of Corporate Groups.” The Connecticut Law Review 37, no.1 (2004): 605.
Cavanagh, Neil. “Corporate Criminal Liability: An Assessment of the Models of Fault.” Journal of Criminal Law 75, no. 5 (2012): 414-440.
“Commonwealth Consolidated Acts.” Corporations Act 2001. Web.
Glover, Trent. “Company law and securities: Imposing civil penalties for contraventions of the insider trading provisions of the corporations act 2001 (CTH): ASIC v PETSAS.” Australian Business Law Review 33, no. 4(2005): 301-304.
Horrigan, Bryan. “Directors’ Duties and Liabilities — Where are we now and where are we going in the UK, broader commonwealth, and internationally?” International Journal of Business & Social Science 3, no. 2 (2012): 21-45.
Middleton, Tom. “The difficulties of applying civil evidence and procedure rules in ASIC’s civil penalty proceedings under the Corporations Act.” Company and Securities Law Journal 21, no.6 (2003): 507-529.
Pascoe, Janine, and Michelle Welsh. “Whistleblowing, Ethics, and Corporate Culture: Theory and Practice in Australia.” Common-Law World Review 40, no. 2 (2011): 144-173.
Tomasic, Roman, Stephen Bottomley, and Rob McQueen. Corporations law in Australia. Australia: Federation Press, 2002.
Van der Laan, Sandra, and Dean Graeme. “Corporate Groups in Australia: State of Play.” Australian Accounting Review 20, no. 2 (2010): 121-133.
Appendix
Self-review
Footnotes
- Janine Pascoe and Michelle Welsh, “Whistleblowing, Ethics and Corporate Culture: Theory and Practice in Australia,” Common Law World Review 40, no. 2 (2011), 147.
- Sandra Van der Laan and Dean Graeme, “Corporate Groups in Australia: State of Play,” Australian Accounting Review 20, no. 2 (2010), 123.
- Tom Middleton, “The difficulties of applying civil evidence and procedure rules in ASIC’s civil penalty proceedings under the Corporations Act,” Company and Securities Law Journal 21, no.6 (2003), 520.
- Neil Cavanagh, “Corporate Criminal Liability: An Assessment of the Models of Fault,” Journal of Criminal Law 75, no. 5 (2012), 434.
- Phillip Blumberg, “Transformation of Modern Corporation Law: The Law of Corporate Groups,” The Connecticut Law Review 37, no.1 (2004), 605.