Directors Duties in Corporations Act 2001

Running Head: Directors Duties 1
Directors Duties
Name of the Student:
Name of the Institution:
Name of the Tutor:
Time of Tutorial:

Directors Duties 2
Question 1
Part A
Issue
Priya and Seedy Vineyard Ltd entered a contract for $500,000 beyond the limit
provided in Priya’s appointment and OW’s constitution. This is known to Seedy Vineyard
Ltd. Is OW liable in the contract provided they were aware of defects in Priya’s authority and
breach of the company’s constitution?
Law
Corporations Act 2001
S 125
S 128
S 129
Cases
Sunburst Pty Ltd v Agwater Pty Ltd1
Appplication
A company may include a clause restricting the objects and powers of the officers in
the constitution, s 125 of the Corporations Act 2001. However, an act is not invalid merely
because it has gone beyond the restrictions on the objects or powers exercised beyond the
limits as per s 125 (2) of Corporations Act 2001. Even where an officer has acted beyond his
authority and objects the company will still be bound. This might be associated with the
presumptions available to third parties dealing with the company2. A third party may presume
that the officers have complied with the company’s constitution and other internal rules3 and
are authorised to bind the company4.
1 [2005] SASC 335
2 Corporations Act 2001 s 129
3 Corporations Act 2001, s 129 (1)
4 Corporations Act 2001, ss 129 (3) and (4)

Directors Duties 3
However, these presumptions are limited where the third party has knowledge of
defect in the authority and compliance with the company’s constitution, s 128 (4)5. In
Sunburst Pty Ltd v Agwater Pty Ltd6 it was held that the knowledge or suspicion must be
actual and not constructive. The test is subjective and the company contesting the
presumption bears the burden7.
OW is permitted to restrict its objects and officers authority under s 125 of
Corporations Act 2001. Priya’s authority was restricted, however, this does not invalidate the
contract with Seedy Vineyards. The assumptions provided in the Act8 are available to Seedy
Vineyards provide they meet the conditions provided under s 128.
Conclusion
Seedy Vineyards believe that Priya exceeded her authority and the objects of the
contract were beyond the restrictions in the constitution. They cannot, therefore, rely on the
presumptions based on s 128 (4) Corporations Act 2001. They had actual knowledge and
suspicion of the defects in accordance Sunburst Pty Ltd. OW is not bound by the contract.
Part B
Issue
Ted was the company’s solicitor and participated in drafting the company’s
constitution. He inserted a clause appointing himself as the company’s solicitor and
restricting his termination. He was later allotted shares in the company. The issue is can Ted
sue Organic Wines Pty Ltd for contract breach relying on the clause in the constitution.
Law
Corporations Act 2001
S 140
Cases
5 Bede Harris, ‘Third Party Suspicion of Lack of Authority on the Part of Company Agents: A Comparative
Study and a Suggested Rule’ (2015) 8(2) Journal of Politics and Law 98, 102
6 [2005] SASC 335
7 [2005] SASC 335
8 Corporations Act 2001 s 129