Legal Analysis of Corporate Law Issues in Seedy Vineyards and Organic Wines Pty Ltd

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Contents
Solution1.....................................................................................................................................................2
Major concerns........................................................................................................................................2
The Rule and analysis..............................................................................................................................2
Decision...................................................................................................................................................4
Solution 2....................................................................................................................................................4
Major concerns........................................................................................................................................4
The Rule and Analysis.............................................................................................................................5
The Decision...........................................................................................................................................7
Reference List.............................................................................................................................................8

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Solution1
Major concerns
i. Whether OW is bound by the supply contract with Seedy Vineyards given that
a. Priya has exceeded her authority
b. The agreement is in breach of the objects clause in OW’s constitution;
ii. Ted can enforce the clause in the constitution appointing him as company solicitor
and what type of remedy would be applicable.
The Rule and analysis
When any company is formed then it is an artificial legal personal in law (Salomon v Salomon &
Co Ltd1. As per section 124 of the Corporation Act 2001, a corporation is independent and has
the power to make contracts on its own behalf. As per section 9, the director is the officer who is
appointed at such position including de factor and shadow director (Deputy Commissioner of
Taxation v Austin2. As per section 198C the Managing Director is the person who acts like a
director and is authorized with such powers.3
Now, when a company is not a sole proprietor, then, it must be governed by the replaceable rules
or by constitution or by both. When a constitution is formulated, then, one of the clauses that was
made part of the contract was the object clause. The object clause defines and restricts the
activities of the business. Before 1983 any acts beyond the object clause is not enforceable
against the company (Ashbury Railway Carriage & Iron Co v Riche4. However, as per section
131, it was held that no contract can be held to be invalid on the ground that the same is outside
the object clause of the constitution and is binding on the corporation under section 125 of the
Act.5
Now, as per section 140, the relationship amid the constitution and its members is held to be
contract, that is, Company and each member, Company and each officer, Members and each
other member. A company has the power to take action against the member if the member does
not comply with the provisions (Hickman v Kent or Romney Marsh Sheep-Breeders Association
[1915]). Likewise, the members are also entitled to take action if the corporation does not
comply with the provisions of the constitution (Andres v Queensland Racing Ltd6. However, the
members can take action against those rights which are conferred upon them as a member and
not otherwise (Pender v Lushington7 and Wood v Odessa Waterworks8. However in Eley v
1 Salomon v Salomon & Co Ltd [1897].
2 Deputy Commissioner of Taxation v Austin (1998).
3 Julie Cassidy, Concise Corporations Law, (Federation Press, 2006).
4 Ashbury Railway Carriage & Iron Co v Riche (1875).
5 Susan McLaughlin, Unlocking Company Law, (Routledge, 2013).
6 Andres v Queensland Racing Ltd (2009).
7 Pender v Lushington (1877)
8 Wood v Odessa Waterworks (1889).

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Positive Government Security Life Assurance9, it was held that rights that arise not as a member
cannot be enforced against the company.10
Now, the directors are authorized to represent a corporation The rights that are possessed are:11
i. Actual – The authority that is granted to the directors expressly (Freeman & Lockyer
v Buckhurst Park Properties (Magnal) Ltd12)
ii. Ostensible - The authority that is assumed by the director when some overt act is
undertaken by the company which makes an outsider believe that the director does
possess the requisite authority and has the ability to bind the company. Thus, as per
Hely-Hutchinson v Brayhead [1968] contract made under ostensible authority is
binding on the company. However, the outsider who is dealing with the officer must
be acting in honesty and without knowledge of the defect (Crabtree-Vickers Pty Ltd v
ADMAA Co Pty Ltd13.
Also, when the outsider is acting with the agent on the pretext that the agent does possess the
requite authority then the contract with such agents are binding by applying the rule of indoor
management as held in Morris v Kanssen14 and Royal British Bank v Turquand15. This rule is
enshrined under section 128 and section 129 of the Act.
Now,
Issue 1
Raj and Alana have owned a vineyard/winery in South Australia. In 2010 they decided to include
their children in the business so they incorporated Organic Wines Pty Ltd (“OW”) and
transferred the vineyard/winery to the company. Until 2016, the company comprises of a board
are Raj, Alana, Jack (son and Chief Financial Officer). In February, se appointed Carl as
company secretary of OW.
OW is bound by the supply contract with Seedy Vineyards mainly because:
i. Priya has not exceeded her authority to enter into agreements. On 1st February, Priya
(daughter) was made the managing director for two years. She was not formally
appointed but was carrying the duties of a managing director. A restriction was
imposed on her that she was not to commit the company to any transactions in excess
of $100,000 without approval by the Board. But, In June 2018, she negotiated a
9 Eley v Positive Government Security Life Assurance (1875),
10 Petri Mäntysaari, Comparative Corporate Governance: Shareholders as a Rule-maker, (Springer Science & Business Media,
2005).
11 Stephen Judge, Business Law, (Macmillan Education UK, 2009).
12 Freeman & Lockyer v Buckhurst Park Properties (Magnal) Ltd [1964])
13 Crabtree-Vickers Pty Ltd v ADMAA Co Pty Ltd (1975).
14 Morris v Kanssen [1946]
15 Royal British Bank v Turquand (1856).