Liability for Pre-Registration Contracts

This assignment delves into the specifics of Australian corporate law, focusing on the liability for pre-registration contracts. It explores the responsibilities of promoters, who act on behalf of a company before it is officially registered, and the consequences of non-ratification by the company after registration. The analysis is based on Section 131 to 133 of the Corporations Act 2001, highlighting the discretion given to courts in deciding liability. Key cases such as Bay v Illawarra Stationary Supplies Pty Ltd (1986) are also discussed. The assignment aims to provide a comprehensive understanding of when a company and its promoters can be held liable for payments made before registration.

Part A Contract Law
Fraudulent representation can be defined as the representation made by one party that
is not true in order to enter into a contract. As per contract law, there are several
requirements to be satisfied in order to held a representation as fraudulent. There are
certain remedies available to the aggrieved party in case of such contracts. In the
present case a man represented himself as Trevor Hunt in order to enter into a contract
and made certain representation to Lance Lincoln with statements and showing certain
things making him belief that he can retrieve the treasure from the wreck and which can
be used by the museum for display purposes and after some time that disappeared and
the real Trevor Hunt appeared. The other man was also arrested. The present study
relates to the civil action that can be taken by the company against the man who
committed the fraud.
Main issues of the case:
 If the contract entered between the parties is a valid contract?
 If there is any action taken by the company against the fraudulent party and
claim the damages?
Relevant laws and legislation and their relationship with the facts of the case
Fraudulent Misrepresentation
It includes presenting false information or giving any false statement given in order to
trick the other party and induce that party to enter into contract. 1
11."Misrepresentation", in Lawhandbook.sa.gov.au, , 2020,
<https://lawhandbook.sa.gov.au/ch10s02s06.php> [accessed 15 January 2020].

Such misrepresentation can occur through several ways. When the essential elements
to the contract are fulfilled and the parties enter into contract, then each party must
agree to the terms of that contract. However if there is any misrepresentation by the
other party, such contract can be held as invalid. 2 There are certain elements that are
required to be satisfied in order to held the contract entered as invalid. These conditions
includes that a representation of fact is required to be made, such representation made
was not true, the person who made such statement knowingly made a false statement
or representation, such statement was made with the intention to induce the other party
to enter into a contract, The party who entered into contract, only entered by relying on
the misrepresentation and if such misrepresentation had not been made, they would not
have entered into any agreement and one party to the contract to whom false
representation was made suffered harm because of such contract.3
In the present scenario, all the essentials to held a contract as invalid by fraudulent
representation are fulfilled. Where false representation is made in the form of
representing himself by taking the identity of other person and made certain statements
in order to induce the company to enter into the contract. The other party, entered into
the contract believing the other party to be Trevor Hunt and the harm to the company
was made in form of monetary harm where certain amount was paid as consideration at
the time of entering into the contract. Hence, the contract entered by the parties is said
to be invalid contract.
Civil suit and action in case of fraudulent misrepresentation under Common law
2 "False or misleading representations", in Lawhandbook.sa.gov.au, , 2020,
<https://lawhandbook.sa.gov.au/ch10s03s03s03.php> [accessed 15 January 2020].
3Q Zhou, "Misrepresentation in English Contract Law from an Economic Perspective", in SSRN Electronic
Journal, , 2008. [accessed 15 January 2020].

At the time of entering into contract both the parties must be acting in good faith, where
one party act the other way, a suit for fraudulent misrepresentation can be bought
against that party 4and also when one party makes a fraudulent representation in order
to enter into the contract causing certain level of harm, the other party may sue for
fraudulent misrepresentation when the essentials to the misrepresentation are satisfied.
The remedies available in such case is that the party to suit may rescind the contract
and further claim the damages for the loss that is occurred.
In the present scenario too, the company can bring a civil action against the fraudulent
person and claim the damages for the harm that it suffered along with the interest
including $20,0000 that was paid as consideration amount. It is the discretion of the
court to award the amount of damages at the end.
Misleading or deceptive conduct under Statutory law
As per section 18 of the Australian Consumer law, Competition and Consumer Act,
Schedule 2, any party must not enter into any conduct in trade or commerce that
misleads or leads to deception in any manner. Trade or commerce only includes the
commercial activity and exclude the personal sales. When any such activity take place a
civil remedy is available to the concerned person where they can claim the damages or
rescind the contract. As per Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd
(2006) ATPR, when there are steps of deception and misleading are evident, the
conduct of the party can be said to misleading and deceptive. The misleading conduct is
nowhere defined under the act and various conducts can be interpreted by the court.5 In
4 Carter, J, "Good Faith in Contract: Why Australian Law is Incoherent.". in SSRN Electronic Journal, ,
2014.
5 P Clarke & S Erbacher, Australian Consumer Law, in , Sydney, Thomson Reuters (Professional)
Australia Pty Limited, 2018.

the present scenario, the conduct of person who represented himself as Trevor Hunt in
order to enter into contract is such that it leads to deception to the company. The steps
for misleading are evident from the misrepresentation as other person, taking the
money and with further non appearance. Later, when the real Trevor Hunt appeared, it
was found by the company that the person was fraud and was later arrested. The
misleading conduct in the present case can be interpreted by the court of law and the
company can be awarded damages.
Conclusion
Hence, considering various elements of the fraudulent misrepresentation under
common law, it can be said that the company can take civil action against the fraudulent
party. Also, necessary action can be taken under Statutory law for the misleading
deception by the other party. In both the cases, the amount of damages will be awarded
by the court of law after considering necessary facts. It is crucial to take any action that
the representation or misleading conduct by the other party causing fraud is evident.
Hence it is evident that both the statutory law and common law provide provisions that
can provide remedy to the company in the present case.
Part B Corporation Law
The contracts that are made prior to registration of the company are known as pre
registration contract. The provisions relating to liability of the pre registration contract
are discussed under section 131-133 of The Corporation Act 2001. In the present case,
Kellie gathered a group of friends to incorporate a company, who agreed to pay a sum
of money. Kellie is responsible for the registration of the company and to make all the

arrangements for registration. Kellie made certain contract with the local designer,
Solicitor to design logo and arrange the documents and also ordered the baskets. The
necessary arrangements we’re made, the friends with personal reasons refuse to
contribute. Now, the liability of payment in case of non registration and Kellie's liability
for contract in case of registration of company will be determined and discussed in the
present study.
Issues of the case:
 If Kellie alone is liable for the contracts made in case of non registration of the
company?
 If Kellie will be liable for the payment, if she successfully register the company.
Relevant laws and legislation and their relationship with the facts of the case
A. Condition when company is not registered
Pre registration contract
These are the contracts that are entered into on behalf of the company or for some
benefit of the company. The contract entered on behalf of the company prior to
registration doesn’t exist because till that time company does not exist. As per the
provisions of Corporation Act 2001, A company can be held liable for the contract which
was entered into when it was registered and also ratify the contract that is being entered
into. 6 The impacts of the contract is different when the company is not registered or
even if registered refuse to ratify the contract. It is said that a way by which company
can be held liable for the contract that was made prior to registration is novation.
6 H Symon, Corporations Act 2001, in , Melbourne, Leo Cussen Institute, 2006.

Novation is the process by the way of which a new contract is entered by the company
on the same terms as it was entered prior. Referring to a case Kelner v Baxter [1866]
LR 2 CP 174 it can be said that a person who made the arrangements of the contract
can only be held liable on fulfillment of certain conditions including intention to conclude
the contract on behalf of the promotor. 7
In the present case the company is not registered and the agreement that was entered
into by Kellie was prior to it’s registration. Considering the above principles it can be
said that the company is not liable for the mentioned contract because at the time of
making of the contract, the company was not existing and there can not be any contract
made on behalf of company.
Further, discussing the liability of payment it can be said that the promotor or agent who
entered on behalf of the company can be held personally liable in case the company
does not get itself registered or does not ratify the contract. Also, as per Phonogram
Limited v Lane the company was not registered, but was founded that promoters are to
be held personally liable for the pre incorporation contract. Hence, Kellie can be held
personally liable to make the payment to the various parties including designer and
Solicitor. The other parties including the friends of Kellie can not be held personally
liable for making the payment because necessary actions relating to the registration and
making contract was being performed by one party namely Kellie.
B. Condition when company is registered
The provisions of Ratification
7 P Singh, "Promoter and Pre-Incorporation Contract", in SSRN Electronic Journal, , 2011.

As per the provisions of Ratification it can be said that when a party act on behalf of
another person without the authority of that person, Ratification by latter person
becomes necessary. It is an act by the way of which the latter party held an act or
arrangement to be valid and binding. Similar provisions are mentioned under
corporation Act 2001 for the Ratification by company of pre registration contract in order
to held the contract liable and binding to the company.
Provisions of section 131 to 133 of Corporation Act 2001
As per section 131(1) of the act, if a person enters into contract on behalf of company
and further after the registration it ratifies the contract, the latter party being company
becomes liable for the contract. But if the company does not ratify such contract even
after it’s registration, then the person who enters into contract on behalf of the company
will be held liable as per section 131(2) of the act. As per section 131(3) of the act, it is
the discretion of the course if necessary proceedings are taken under section 131(2)
when the company does not ratify the contract. Such actions may include directing the
company to pay the part or full amount, pay an amount to the party or transfer the
property that is received. 8
Hence, in response to the question that if Kellie will not be liable if the company get
register it can be said that even if the company get registered, if it doesn’t ratify the
contract as mentioned in section131(2), Kellie can yet be held liable for the contract that
is made and the necessary payments. Also, as per Bay v Illawarra Stationary Supplies
Pty. Ltd (1986) only the person who has signed the pre incorporation contract can be
8 "Section 131 133 Of The Corporations Act 2001 Free Essays", in Studymode.com, , 2020,
<https://www.studymode.com/subjects/section-131-133-of-the-corporations-act-2001-page1.html>
[accessed 15 January 2020].

held liable. However, it is the discretion of the court to decide finally upon the said
matter.
Conclusion
Hence in response to the question that who will be liable for the payment to the other
parties when the company is not registered, It can be said that the person who entered
into the contract with the third party namely Kellie can be held liable for the contract and
if the company is registered and ratify the contact, the company will be liable for the
payment. In case of registration or non registration, the person entering into contract
other than company can be held liable for the payment depending upon if ratification is
done or not. Prior to the registration
References
 "Misrepresentation". in , , 2020, <https://lawhandbook.sa.gov.au/ch10s02s06.php> [accessed 15
January 2020].
 "False or misleading representations". in , , 2020,
<https://lawhandbook.sa.gov.au/ch10s03s03s03.php> [accessed 15 January
2020].
 "Zhou, Q, "Misrepresentation in English Contract Law from an Economic Perspective.". in SSRN
Electronic Journal, , 2008.
 Carter, J, "Good Faith in Contract: Why Australian Law is Incoherent.". in SSRN
Electronic Journal, , 2014.
 Clarke, P, & S Erbacher, Australian Consumer Law. in , Sydney, Thomson
Reuters (Professional) Australia Pty Limited, 2018.
 Symon, H, Corporations Act 2001. in , Melbourne, Leo Cussen Institute, 2006.

 Singh, P, "Promoter and Pre-Incorporation Contract.". in SSRN Electronic
Journal, , 2011.
 "Section 131 133 Of The Corporations Act 2001 Free Essays". in , , 2020,
<https://www.studymode.com/subjects/section-131-133-of-the-corporations-act-
2001-page1.html> [accessed 15 January 2020].