Liability of Swimmingpool Co for Negligence of Martin

Martin is an employee of Swimmingpool Co, and he was entering into contracts with clients on behalf of the company. Later it was found out that Martin was giving wrong advice to clients, and he also did not deposit all the money to the company’s bank account. Thus, the first key issue raised in this case is whether Swimmingpool Co can be held liable based on vicarious liability. Since the clients have received wrong advice from Martin, and he has also taken their money rather than depositing into the bank account of the company, the second issue raised whether the element of privity of contract applies in this scenario. The job of Martin was to quote the prices to customers regarding construction of pools and forming contracts on behalf of the company. He was also authorised to deposit the money into the bank which is paid by the customers. Therefore, the third issue raised in this case is whether the conduct of Martin is outside the terms of the employment and whether any actions can be taken against him by Swimmingpool Co. It was also found out that Martin is planning to start his new business in order to compete with Swimmingpool Co. Therefore, the fourth issue raised in this case is whether Swimmingpool Co can impose a restraint of trade on the new business of Martin.

The doctrine of vicarious liability provides that a person can be held liable for the torts of another individual even if such person has not committed the act itself. The principle applies in the case of employer and employee relationship. It provides that the employer is held liable in case the employee has failed to ensure care which resulted in causing damages to third parties. In New South Wales v Lepore (2003) HCA 4 case, the court provided that a negligent act of the employee which is committed during the ordinary course of employment will result in holding the employer liable (Giliker, 2013). Moreover, this doctrine did not exclude the liability of the employee, and the employer can hold him liable to recover the damages paid as given in Lister v Romford Ice & Cold Storage (1957) AC 555 case (Arizon and Semark, 2014). In common law, the doctrine of privity of contract applies which provides that rights and obligations of a contract cannot be imposed on a party who is not part of the contract. This principle was recognised in Tweddle v Atkinson (1861) 1 B&S 393 case in which the court rejected the claim for recovering of the benefit of the contract by a third party (Liu, 2015). Another key element is that if the employee acts outside the terms of employment, then the employer has the right to hold the employee liable for its actions and demand compensation for violation of any employment terms (Fitzpatrick et al., 2017). Furthermore, in Smith v Nomad Modular Building Pty Ltd (2007) WASCA 169 case, the court provided that a post-employment restraint clause can be implemented on an employee if the legitimate interests of the employer should be violated which include leaking of trade secrets, losing of customers, staff members and others (Nicholls, 2015).

Legal Principles of Vicarious Liability, Privity of Contract, and Restraints of Trade

In the given scenario, Martin was working as a salaried employee for Swimmingpool Co, and he was forming contracts on behalf of the company. Martin has failed to provide correct information to the clients due to which they suffered losses as their pools are sinking into the ground. Martin also took the money paid by customers and did not deposit into the bank account of the company. Based on these facts, Swimmingpool Co can be held liable for vicarious liability due to the failure of Martin to maintain a standard of care (New South Wales v Lepore). The contract was formed by Martin on behalf of the company; therefore, he is not the part of the contract. Thus, based on the principle of privity of contract, he cannot be held personally liable by the customers to pay for the damages (Tweedle v Atkinson). Since Martin violated the terms of his employment agreement by giving false information and failing to deposit the money in the company’s bank account. Therefore, Swimmingpool Co has the right to hold Martin liable for violating the terms of the employment contract since his liabilities are not excluded based on the vicarious liability (Lister v Romford Ice & Cold Storage). Martin is opening a new business which can adversely affect the operations of Swimmingpool Co because Martin can take the customers with him and leak the trade secrets. He also acted on behalf of the company which a mislead customers to sign a contract with him, thus, Swimmingpool Co can impose restraints of trade on him to stop him from setting up a rival business (Smith v Nomad Modular Building Pty Ltd).

Conclusion

In conclusion, Swimmingpool Co can be held liable by customers for the negligence of Martin under the doctrine of vicarious liability. Customers can file a suit to recover their damages against the company rather than Martin himself. Martin is not the part of the contract formed between the company and its customers since he was merely acting on behalf of Swimmingpool Co. Therefore, the rights and obligations of the contract cannot be imposed on him based on the principle of privity of contract. Moreover, the terms of the employment contract are violated by Martin because he took the money of its customers rather than deposit it into the bank. He also provided wrong advice to customers; therefore, Swimmingpool Co can hold him personally liable to recover the damages paid by the company to its customers. Lastly, it is valid to impose restraints of trade on Martin because he can take the clients of the company with him and leak the trade secrets which can adversely affect the operations of Swimmingpool Co.  

1. Proprietary company	A privately held corporation which cannot issue its shares in the public.
2. Proprietary companies limited by shares	Shareholders in these companies have limited liability which is limited to the value of their shares (eCompanies, 2018).
3. Unlimited proprietary companies	The liability of members of these companies is unlimited.
4. Public companies	The public companies are authorised to issue their share in the public to raise capital for their operations.
5. Public companies limited by share	The liability of members is limited to the value of shares.
6. Public companies limited by guarantee	Members can guarantee a fixed amount which is given at the time of wound up.
7. Unlimited public companies	The liability of members is unlimited.
8. No liability companies	Formed only for principal activities which include mining or resource exploration.

Company Registration in Australia

In the given scenario, the selection of a proprietary limited company is the most suitable option while registering the company with ASIC. The company will be able to raise capital by issuing its shares in case a public company is formed. However, the legal formalities of a public company are complex, and the enterprise has to face various restrictions which include preparation and submission of annual reports, holding meetings of directors and shareholders and others (Fitzpatrick et al., 2017). The entire process is costlier than compared to registering a proprietary company. The selection of a proprietary corporation will offer privacy and flexibility in operations. In case of a proprietary company, the membership of the corporation will be limited to the family members and its operations can be governed by introducing a constitution which provides information regarding rights and duties of members. This option will not be available in case of a public company, thus, selection of proprietary company is an ideal option in this scenario.

Based on the findings, the following are the key information which is given from the Australian Securities and Investments Commission and the Corporations Act 2001 (Cth) (CA) regarding a proprietary company. Section 45A of CA provides there are both small and large proprietary corporations in Australia which differentiate based on their size and legal compliances (Fitzpatrick et al., 2017). These corporations are limited by shares or have unlimited liability of members; they cannot hire 50 non-employee shareholders. Subsection 2 provides that if a company complies with two of the three elements given below, then it is considered as a small proprietary company (ASIC, 2018a).

1. The consolidated revenue of the enterprise must be less than $25 million in a financial year.
2. The corporation must have consolidated gross assets of less than $12.5 million in a particular financial year.
3. The number of employees in the company must be below 50 in a particular financial year.

Moreover, subsection 3 provides that in case a proprietary company complies with any two of the following three requirements, then it is considered as a large proprietary company (Austlii, 2018).

1. In a financial year, the consolidated gross operating revenue of the company must be $25 million or more.
2. The consolidated gross assets of the enterprise must be $12.5 million or more in a specific financial year.
3. In a particular year, the corporation should hire 50 or more employees.

According to subsection 5 of the act, the part-time employees hired by the company are considered as full time while counting the total number of employees for the corporation.

Based on these regulations, the company formed in this scenario will be considered as a small proprietary company since the revenue of the enterprise will be below $25 million. The assets of the company will also be less than $12.5 million as well along with less than 50 employees. Therefore, the company will be considered as a small proprietary corporation. As per the five year plan, in the fifth year, the assets of the company will be increased to $13 million, and the estimated revenue of the enterprise will be $26 million as well. The number of employees will be 66 as well which include both full time and part-time employees. Therefore, the company will be considered as a large proprietary corporation since it fulfilled all three requirements given under subsection 3 of section 45A of CA. Based on these facts, the company will have to appoint an auditor, comply with continuous disclosure and reporting requirements along with lodge its annual reports.

While selecting the name of a company, parties cannot choose any names which could mislead people regarding the activities of the company which include ex-servicemen’s organisations or Royal Family and others (ASIC, 2018b). Other words such as university, trust, chamber of commerce and building society are restricted as well. Similar names are also not approved by ASIC. Following are different words and phrases which are considered unacceptable to select as the name of the company.

Bank, Banker or Banking	Names which are related to financial institutions require the consent for APRA (Australian Prudential Regulation Authority).
Made in Australia	Consent of government authorities is required before choosing these names.
Royal	Parties are required to apply for ministerial consent before selecting this word.

Parties can check the availability of their names from the website of ASIC which displays the available names in green colour, unavailable names in red colour and names which needs approval from ASIC in amber colour. In case of ‘Anzac Coffee, the name is showing in amber colour due to which approval of ASIC is required to use this name. The name requires approval because it shows connection to Australia and a corporation exists with similar name which can mislead people. Therefore, approval of ASIC is required before registering this name. 

References

Arizon, F. and Semark, D. (2014) Maritime Letters of Indemnity. Abingdon: Routledge.

ASIC. (2018a) Are you a large or small proprietary company. [Online] Available at: https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/preparers-of-financial-reports/are-you-a-large-or-small-proprietary-company/ [Accessed 19/09/2018].

ASIC. (2018b) Company name availability. [Online] Available at: https://asic.gov.au/for-business/registering-a-company/steps-to-register-a-company/company-name-availability/ [Accessed 19/09/2018].

Austlii. (2018) Corporations Act 2001 – Sect 45a. [Online] Available at: https://www5.austlii.edu.au/au/legis/cth/num_act/ca2001172/s45a.html [Accessed 19/09/2018].

eCompanies. (2018) Australian companies by type. [Online] Available at: https://www.ecompanies.com.au/company-registration/resources/different-types-of-companies/ [Accessed 19/09/2018].

Fitzpatrick, J., Symes, C., Velijanovski, A. and Parker, D. (2017) Business and Corporations Law. 3^rd ed. Chatswood, NSW: LexisNexis Butterworths Australia.

Giliker, P. (2013) Vicarious Liability ‘On the Move’: The English Supreme Court and Enterprise Liability. Journal of European Tort Law, 4(3), pp.306-313.

Liu, H.Y. (2015) Law’s impunity: Responsibility and the modern private military company. London: Bloomsbury Publishing.

Nicholls, R. (2015) Restraints of trade: Tips and traps for enforceability. Proctor, The, 35(8), p.14.