Legal Obligations of CMS, CM and Lazarus Pty Ltd for Loss Sustained by Terry

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Contents
Answer 2..........................................................................................................................................2
Issue.............................................................................................................................................2
Applicable Law............................................................................................................................2
Application of law........................................................................................................................3
Conclusion...................................................................................................................................4
Reference list...................................................................................................................................6

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Answer 2
Issue
Whether any legal obligations can be raised against CMS, CM or Lazarus Pty Ltd for the loss
that is sustained by Terry?
Applicable Law
One of the business forms that are generally availed by the people of Australia is to run their
business by way of a company. A company is created by getting the same registered as per the
law of Australia. A register company is an entity which has its own existence in law. Once a
company is registered it acquires a distinct legal personality with perpetual succession. In the
leading case of Salomon v A Salomon and Co Ltd [1897], the House of Lords submitted that
separate legal personality is the concept which signifies that the company has its own individual
identity and which is separate from its employees and officers. The acts of the company are its
own acts and will not hold its officers liable in any manner whatsoever. In Lee v Lee's Air
Farming Ltd [1960] the concept of Separate legal personality was retreated. (Gibson and Fraser,
2013)
However, at times, the distinction amid the officers and the company are disregarded by courts
and the acts of the company are held to the officer’s act, holding them personally liable for the
same. This rule is called the piercing the veil of the company and is regarded by the courts at
several instances, such as, fraud, agency, tax avoidance, group enterprise, etc. (Tomasic et al
2002)
The veil is also pierced when the relationship amid the parties is that of a subsidiary and parent
company. At times, the subsidiary company is indulged in act of torts resulting in loss. In such
situation, when the parent company is holding the subsidiary company and the subsidiary
company is not in the position to reimburse the loss, then, the veil amid the parent and the
subsidiary company is pierced by the courts and the liabilities of the subsidiary is then borne by
the parent company (Witting 2018). It is necessary that there is closeness amid the parent and
the subsidiary company and the parent company can reasonably foresee the acts of the subsidiary
company and is rightly evaluated in the leading case of CSR Ltd v Wren (1997). The court in the

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leading case of CSR v Young, (1998), held that the parent company will reimburse the liabilities
of the subsidiary company, that is, the loss that is caused to the children of the employees of the
subsidiary because of the wrongful acts of the subsidiary itself. In the leading case of Stone and
Knight v Birmingham Corporation (1939), the court has pierced the veil amid the subsidiary and
the parent when the acts of the subsidiary are found to be controlled and owned by the parent
company. (Latimer 2012)
In Dennis Willcox Pty Ltd v Federal Commissioner of Taxation (1988), the court held that when
the creation of the new company is to incur fraud on the aggrieved parties then the new company
is held to be on the same footing as the old company and the aggrieved was held liable to sue the
new company for the losses so incurred because of the wrongful acts of the old company. in
Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) and Peate v Federal Commissioner of
Taxation (1964) veil is pierced on the establishment of sham and fraud. (Bottemley et al, 2017)
Also, under section 236-237 of the Corporation Act 2001, any former employee of the company
has the right to bring a statutory derivative action against the wrongful person if the company
itself is not taking action against such person provided it is in the interest of justice and the action
is carried on honestly and is held in Westgold Resources NL v Precious Metals Australia Ltd
[2002].. (Adams, 2002)
Application of law
The facts simply submits that,
Cosmo Mining Services Pty Ltd (CMS) is a company wherein Terry holds the position of an
employee. Cosmo Mine Ltd (CM) is the parent company of CMS. However, as per the rule held
in salmon case, once a company is formulated, then such a company has its own existence in
law. so, both CMS and CM have their own identity and the acts of one company is considered to
be the acts of its own.
It is found that CMS has undertaking mining activities which have resulted in the contamination
of the nearby river. The water of the river is supplied to the mine and Gunbarrel (the place where
Terry lives). Because of the use of the water, Terry and other residents have suffered cancer.