Legal Issues Arising From Two Cases

Case 1: Liability of Meghan and Rachel for Misappropriation of Funds by Charles Windsor III

Facts

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Harry Spencer,a long-time client of Charles Windsor & Sons Solicitors, gave Charles Windsor III some money to invest on his behalf. Harry had dealt with the firm for conveyancing and other matters. For conveyancing he always dealt with Meghan. He has dealt with Meghan since Charles Windsor II and even after the death of Charles Windsor II. He trusted Meghan and considered him the cornerstone of the firm. The firm has retained Meghan and Rachel Engleson as salaried partners; their names also appear on the firm’s letter head. Charles has misappropriated Harry’s funds. Harry now claims that Meghan and Rachel are liable.

Issue

The issue is whether Meghan and Rachel are liable.

Rule

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Partnership exists between people in a common business to make profits.Sharing of profits is considered prima facie evidence of existence of a partnership. However, sharing of profits alone is not proof of a partnership.

Once partnership is established to exist, all the partners are liable for all liabilities and obligations of the firm. The law also allow third parties to recover from other persons who are not really partners but have held themselves out as partners either by words or conduct. This is doctrine of estoppel. Lynch v Stiff, is a case with similar facts, the court found Lynch liable as a partner despite the fact that Lynch was not really a partner. It was stated that for there to be a partnership by holding out the person must have knowingly represented himself as a partner, another person had acted on that representation and dealt with the firm on the faith of that representation.  In Nationwide Building Society v Lewis, Nationwide sought to rely on the doctrine of holding out to make a solicitor liable. The solicitor had been employed under a salaried partner contract. The name of the solicitor also appeared on the firm’s letterhead. It was held that there was no partnership as Nationwide failed to prove that they relied on the solicitor’s status to transact with the firm. In Briggs v Oateseven though the defendant was held out as a partner he was not really a partner because he had not share in the firm’s profit no liability was apportioned to him.

Analysis

The names of both Meghan and Rachel appearing on the firm’s letterhead held them out as partners as Lynch v Stiff. Harry has never worked with Rachel and cannot attest to her competence. However, he has worked with Meghan and has developed trust in Meghan. He considers Meghan to be the cornerstone of the firm. He dealt with the firm because of his trust in Meghan and belief that Meghan is a partner.  

Conclusion

Harry has a cause of action against Meghan but not against Rachel. Rachel’s holding out had no influence on his decision to deal with the firm.

Facts

Down Under Pty Ltd owns a chain of bookstores. Its directors and members are Rydell, Danny, Frenchy and Putzie. It relies on replaceable and its constitution. The company’s directors received an invitation from Top End Pty Ltd to attend a launch of a new book. However, they were unable to attend and Zuko, the company’s accountant, attended on their behalf. Betty, the company purchasing officer, accompanied Zukoto the book launch. At the launch, Betty and Zuku introduced themselves as directors of Down Under. Top End informed Betty of their intention to sell their binding business. Betty negotiated and entered into contract for the purchase of the said binding business without consulting the directors.

Case 2: Authority to Bind Company by Betty for Purchase of Book Binding Business on Behalf of Down Under Pty Ltd

Issue

The issue is whether the contract entered into by Betty on behalf of Down Under and Top End is binding on Down Under.

Rule

Down Under can only be bound where Betty acted as its agent.The law allows any person to act on behalf of the company. Provided expressly or impliedly authorised, that is have actual authority. Actual authority arises where the principal confers the authority on agent and the agent accepts the authority. It is consensual. The agreement provides the limits of the authority. Where the agreement fails to cover some aspects of the authority the agent might still be presumed to have authority. The implied authority is based on the circumstances of the agent’s appointment and the transaction. Hely-Hurchinson v Brayhead Ltdgave the difference between express and implied authority.  In Equiticorp Finance Ltd v Bank of New Zealandit was stated that implied authority depends on possibility of the agent being granted express authority.

However, limitation provided in the company’s constitution do not invalidate contract entered into by the agent in exercise of actual authority. Even where the person lacks actual authority to bind the company to a contract, the company may still be boundprovided it held out the agent to have authority. This is known as ostensible or apparent authority. The company is estopped from denying the agent’s authority. This assumption of authority applies even where the officer has acted fraudulently.

The authority may exist where the agent has actual authority but has acted beyond his authority. An agent’s representation that he has an authority does not establish ostensible authority. Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltddefined apparent or ostensible authority to arise where the principal represents to another personthat the agent possess authority intending the person to rely on it and the person relies in that representation and enters into a contract. Ostensible authority has three elements, that is, a principal’s representation to another person, the person relying on that representation, and the person suffering a detriment.

Analysis

Betty was the purchasing authority. She had authority to enter into purchasing contracts binding the company. However, she needed to seek the director’s authority for contract beyond $50, 000. She entered into a contract beyond $50,000 without the knowledge or consent of the directors. However, under s. 125(1) such contract remains valid despite the limitation.

Conclusion

The company is liable under the contract. Betty had authority to enter into the contract. However, Zuko lacked express, implied or ostensible authority to bind the company and, therefore, the company would not have been bound.

Facts

Putzie was one of the Directors of the company and is still a shareholder of the company. She was removed from the directorship.

Issue

Issue is whether she has any cause of action.

Rule

The Corporations Act 2001 (Cth) s.s 232-235 provides protection for minor shareholders where the majority shareholders have acted oppressively. The Court may grant any of the orders provided in s. 233 of the Act to protect the oppressed shareholder. Section 234 of the Act provides person qualified to apply for the orders. Raymond v Cookit was held that the jurisdiction go beyond the external corporate activity to oppressive internal management and abuses by individual.

Analysis

Putzie was removed from the directorship by majority of shareholders on flimsy ground. This is acting oppressively against Putzie the minority shareholder.

Conclusion

Putzie can apply to the court for orders under s. 233 to be reinstated as a director and order restraining her victimisation by the other shareholders/ directors.

Facts

Zuko was employed under a contract for a term ending 31 December 2030. Zuko was dismissed before the end of the term of his contract.

Issue

The issue is whether Zuko can claim unfair dismissal.

Rule

Fixed term employees are engaged under a contract having operation for a specific time.There is dismissal where employee is dismissed after expiry of the contract term. However, dismissal arises under a fixed term or fixed term contract where the termination occurs before the end of the term of the contract. Where employment is terminated before the end of the term period, the employee was held in Miss Eleanor Downes v The Uniting Church of Australia Property Trust (Q.) T/A Wesley Mission Brisbaneentitled to claim unfair dismissal and seek remedies under s. 390 of the Act.

Zuko was employed under a fixed term period ending 31 December 2030. The contract was terminated at the initiative of the company before the end of the term period. This amounted to dismissal under s. 386(1) and unfair under s. 385.

Conclusion

Zuko’s employment was unfairly terminated and can claim reinstatement or compensation under s. 386.

Bottomley, Stephen, Kaith Hall, Peta Spender and Beth Nosworthy, Contemporary Australian Corporate Law (Cambridge University Press, 2017)

Hor, Joydeep and Keats Louise, How To Attract and Retain Great Employees (CCH Australia, 2008)

Deards, Practice Notes on Partnership Law (Cavendish Publishing, 2013)

Marsh, S.B and J Soulsby , Business Law (Nelson Thornes, 2002)

Morse, Geoffrey,Partnership Law (OUP Oxford, 2010)

Thampapillai, Dilan,Vivi Tan, Claudio Bozzi and Anne Mathew, Australian Commercial Law (Cambridge University Press, 2015)

Tomasic, Roman, Stephen Bottomley and Rob McQueen, Corporations Law in Australia (Federation, 2002)

Briggs v Oates (1990)1 CR 473

Equiticorp Finance Ltd v Bank of New Zealand (1993) 11 ACL 952

Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480

Hely-Hurchinson v Brayhead Ltd (1968)1 QB 549

Lynch v Stiff(1943) 68 CLR 428

Nationwide Building Society v Lewis(1998)3 All ER 143

Mission Brisbane [2013] FWC 8890

Miss Eleanor Downes v The Uniting Church of Australia Property Trust (Q) T/A Wesley

Raymond v Cook (1998)29 ACSR 252

Legislation

Corporations Act 2001 (Cth)

Fair Work Act 2009 (Cth)

Partnership Act of 1985 (WA)