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Corporate Liability Chapter Summary: 1 Registration of A Company
Corporate Liability Chapter Summary: 1 Registration of A Company
COMPANY NAMES
Protection of company, business and domain names is available through registration of the name as a trademark under the Trade Marks Act 1995 (Cth). Protection may also be available through the common law tort of passing off and the misleading or deceptive conduct provisions of the Trade Practices Act 1974 (Cth) and the various State and Territory Fair Trading Acts.
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(The powers over shares do not apply to companies limited by guarantee because a company limited by guarantee cannot issue shares). Section 124(2) provides that the legal capacity of a company to do something such as entering a contract or selling company property is not affected in anyway whatsoever by the fact that doing the particular thing is not in the best interests of the company. (The directors may still have breached their duties, and the conduct might breach other sections of the Corporations Act, eg s 232).
EXECUTION OF DOCUMENTS
Prior to 1 July 1998, the Corporations Act required every company have a common seal to be fixed to each document evidencing a transaction with the company. The companys seal would be fixed to the document in the presence of authorised company officers. It is now optional for a company to have a company seal. Where a company has a common seal, under s 127(2) the company may execute a document if the seal is fixed to the document and the fixing is witnessed by two directors of the company or by a director and a company secretary. Where a company with a common seal is a proprietary company with a sole director who is also the sole shareholder, the company may execute a document by that sole director witnessing the fixing of the seal: s 127(2). If a company document is executed in accordance with s 127(2), people can rely upon the assumptions set out in s 129(6) for dealings in relation to the company.
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The companys directors and executive officers in relation to management and the company secretary in relation to administration constitute its directing mind and will. The directors may be under the instructions of the shareholders in general meeting. The directors and executive officers are the very personality of the company and are acting, not as agents, but as the company itself. Examples are: Lennards Carrying Co Ltd v Asiatic Petroleum Company Ltd [1915] AC 705; [191415] ALL ER REP 280 Tesco Supermarkets Ltd v Nattrass [1972] AC 153 The actions of several company officers may constitute the directing mind and will of a company. For example: Brambles Holdings Ltd v Carey (1976) 15 SASR 270; (1976) 2 ACLR 176
CONTRACTUAL LIABILITY
Where a company director, senior executive or company secretary act as the directing mind and will of the company, the person is acting not on behalf of the company, rather, the person is acting as the company itself. The issue of agency does not arise. Section 126(1) provides that an individual acting on behalf of and with the express or implied authority of the company may exercise a companys power to make, vary, ratify or discharge a contract. (It does not apply to, but also does not exclude, the general law relating to apparent authority (also known as ostensible authority). Under the general law, an agent has the following duties to the principal (that is, the company): to act in the principals best interests to obey the lawful instructions of the principal to act in person and not delegate responsibility (unless otherwise agreed) to exercise reasonable care, skill and diligence to not accept any secret profits or secret commissions to keep the principals money and property separate from the agents to not disclose confidential information arising out of the agency to account for money or property received as a result of the agency.
6.1 Agency
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person with actual authority may also have apparent authority in respect of actions that go beyond any express or implied authority. In Australia, for apparent authority to arise, the holding out must be by a person who has actual authority: Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Company Pty Ltd (1975) 133 CLR 72. Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd & Kapoor [1964] 2 QB 480 is an example of apparent authority. Only the company, or an actually authorized agent, can bind the company in relation to a representation grounding ostensible authority: Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Aaddressing Co. Pty Ltd (1975) 33 CLR 72; 50 A.L.J.R 203. In Pacific Carriers Ltd [2004] HCA 35; (2004) 78 ALJR 1045, Ms D signed and affixed the banks stamp (not seal) in purported verification of another partys signature, but actually binding the bank without authority. The High Court made the following statements about apparent authority: the only evidence of any representation by BNP to [Pacific] has to be found in Ms Dhiris signature the argument has to be that Ms Dhiri by herself signing the document represented that she had authority to and did bind BNP to a contract to indemnify. A kind of representation is one which flows from equipping an officer with a certain title, status and facilities. Pacifics reliance was based upon the form and contents the letters, the signature of a person who appeared to be (and was) an officer of the bank, the stamp and the fact that Pacific was sent copies of the documents, directly or indirectly, by BNP. The stamp allowed the person who was authorised to use it to give an appearance of authenticity. The importance to a third party of the difference between a banks signature in the capacity of an indemnifying party, and by way of verification of the signature of another party, should have been, and was, obvious to all concerned. If bank was to merely authenticate Ms Dhiri was also the appropriate person to sign and stamp the documents on behalf of the bank. If the bank were an indemnifying party, she was not the appropriate person. There were procedures under which she was to seek legal advice, however, she was placed in a position to sign and stamp the documents, and send them to NEAT and Pacific, without any internal check upon their final form and, in particular, without any qualification or limitation of the capacity in which the bank was participating in the transaction.
STATUTORY ASSUMPTIONS
Prior to the commencement of the Company Law Review Act 1998 on 1 July 1998, the common law indoor management rule provided that persons dealing with a company in good faith could assume the dealings were in compliance with the companys constitution and powers. The rule arose in the decision in Royal British Bank v Turquand (1856) 119 ER 886 where it was held that a party to a deed could assume that a resolution had been passed authorizing its execution on behalf of the company.
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A person can still make the assumptions in dealings with the company when an officer or agent of the company acts fraudulently or forges a document in relation to the dealings (s 128(3)) unless the person knows or suspects, at the time of the dealings, that the assumptions in s 129 are incorrect. An objective test is applied in s 128(4) to determine whether a person knew or suspected that the assumptions were incorrect. Persons dealing with the company may assume that: the companys constitution (if any) and any replaceable rules that apply to the company have been complied with: s 129(1); anyone who appears to be a director of the company or a company secretary of the company, from information available to the public from ASIC, has been properly appointed and has authority to exercise the powers and duties of a director or secretary of a company: s 129(2). This includes in relation to execution of documents under s 127); anyone who is held out to be an officer or agent of the company has been properly appointed and has the necessary authority to carry out the duties of that type of officer or agent: s 129(3); A person is said to have constructive notice if a particular fact ought to have come to their attention if they had made reasonable inquiries regarding the matter. Under s 130(1), a person isnot taken to have constructive notice regarding particular information merely because it is available to the public from ASIC: s 130(1).
PROMOTERS
A promoter is a person who is involved in starting up a company.
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the amount paid or the nature and value of any benefit received.
REMEDIES
The court can order that the contract be rescinded, eg Tracy v Mandalay. Rescission is not available where: it is no longer possible to return the parties to their original position; the company affirms the contract or does not rescind the contract within a reasonable time; an innocent third party has acquired rights in the subject matter of the contract.
9.1 Rescission
9.3 Fundraising
A person who suffers a loss as a consequence of a contravention of s 711 may recover damages from the promoter: s 729(1).
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PRE-REGISTRATION CONTRACTS
Under s 131, as explained below, a company may ratify a pre-registration contract (in contrast to common law, where a company could not ratify contracts entered into on its behalf before registration). Subsection 131(1) provides that where a person enters into a contract on behalf of or for the benefit of the company prior to it being registered, the company subsequently becomes bound by the contract and is entitled to its benefit if that company or one which is reasonably identifiable with it is registered and ratifies the contract. The registration and ratification must occur either within the time specified by the parties or, where there is no agreed time, within a reasonable time after the contract is entered into. Under s 131(2), the person who entered into the contract on behalf of the company is liable to pay damages to each other party to the pre-registration contract if the company is not registered or is registered but does not ratify the contract either within the specified time or within a reasonable time. Section 131(2) also provides that the amount the person is liable to pay is equal to the amount the company would have to pay if the company had ratified the contract but then did not perform the contract. If an action is commenced to recover damages under s 131(2) where a company is registered but fails to ratify a pre-registration contract, the court hearing the matter may make any order it considers appropriate, including making an order that the company do any of the following under s 131(3): pay all or part of the damages that the person who entered into the contract on behalf of the company is liable to pay transfer property that the company received because of the contract to a party to the contract pay an amount to a party to the contract. Section 131(2) only applies to the person or persons who execute a preregistration contract.
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If the company ratifies the pre-registration contract but fails to perform all or part of it, the court may order the person to pay all or part of the damages that the company is ordered to pay: s 131(4). Further, a party to a preregistration contract may release the person who entered into the contract on behalf of the company from their liability under s 131 by signing a release: s 132(1).
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TORTIOUS LIABILITY
A company is vicariously liable for the tortious conduct of its employees and agents (if within the scope of their employment / agency). Generally, a company is not liable for tortious conduct of independent contractors engaged by the company: Lloyd v Grace, Smith & Co [1912] AC 716.
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CRIMINAL LIABILITY
A company may also be strictly liable for offences which do not require proof of an intention to commit the offence. The directing mind and will of the company is relevant here. Universal Telecasters (Qld) Ltd v Guthrie (1978) 32 FLR 360; (1978) 18 ALR 531 is an example. In Environment Protection Authority v Caltex Refining Co Pty Ltd (1992-1993) 178 CLR 477; (1993) 118 ALR 392; (1993) 12 ACSR 452, the High Court held that the privilege against self-incrimination is not available to corporations. Under s 1316A(1), in a criminal proceedings arising under the Act, a company is not entitled to refuse or fail to comply with a requirement: to answer a question or give information; or to produce a book or any other thing; or to do any other act whatever; on the grounds that the answer or information, production of the book or thing, or doing that other act might tend to incriminate the company or to make the company liable for a penalty.
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fine to be imposed on corporations for offences that only specify imprisonment as a penalty). Section 12.2 provides that if a physical element of an offence is committed by an employee, agent or officer of a body corporate, acting within the actual or apparent scope of their employment, or within their actual or apparent authority, the physical element must also be attributed to the body corporate. Section 3.1(1) states that an offence consists of either physical elements or fault elements. Section 4.1(1) defines a physical element of an offence as either conduct, or a circumstance in which the conduct occurs, or a result of the conduct. Section 4.2(1) defines conduct widely to include an act, an omission to perform an act or a state of affairs. Section 12.3 provides that a fault element for a particular physical element may be intention, knowledge, recklessness or negligence. Under s 12.3(1), if intention, knowledge or recklessness is a fault element in relation to a physical element of an offence, that fault element must be attributed to a body corporate that expressly or impliedly authorised or permitted the commission of the offence. Section 12.3(2) provides that the body corporates authorisation or permission may be established by proving that: the body corporates board of directors intentionally, knowingly or recklessly carried out the conduct expressly or impliedly authorised or permitted the commission of the offence a high managerial agent of the body corporate intentionally, knowingly or recklessly carried out the conduct expressly or impliedly authorised or permitted the commission of the offence a corporate culture existed within the body corporate that directed, encouraged, tolerated or led to non-compliance with the relevant provision. Corporate culture is defined as an attitude, policy, rule, course of conduct or practice existing within the body corporate: s 12.3(6). High managerial agent is defined as an employee, agent or officer of the body corporate with duties of such responsibility that their conduct may be assumed to represent the body corporates policy: s 12.3(6).
12.3 Negligence
Section 5.5 provides that a persons conduct merits criminal punishment for an offence if their conduct, which is negligent with respect to the physical element of the offence, involves: such a great falling short of the standard of care that a reasonable person would exercise in the circumstances; and such a high risk that the physical element exists or will exist. Section 12.4(2) sets out the liability of a body corporate in relation to negligence. It provides that if negligence is a fault element of an offence and no employee, agent or officer of the body corporate is negligent, then the body corporate is only criminally responsible if the body corporates conduct is negligent when viewed as a whole by aggregating the conduct of any number of its employees, agents or officers. Evidence of negligence may be proved by the fact that the prohibited conduct was substantially attributable to:
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inadequate corporate management, control or supervision of the conduct of one or more of its employees, agents or officers failure to provide adequate systems for conveying relevant information to relevant persons in the body corporate.
A person is not is not criminally responsible for a strict liability offence (that is, where fault is not an element), if the physical element of the offence is brought about by another person: s 10.1. However, a body corporate cannot rely upon the defence in s 10.1 if the other person is an employee, agent or officer of the body corporate: s 12.6.
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