LAW 8500: Australian Commercial & Corporations Law Case Study Solution

This assignment provides solutions to two case studies related to Australian Commercial and Corporations Law. The first case study examines the validity of a trust creation for Basil Electrical Co Pty Ltd, focusing on the certainty of subject matter under the Trustee Act 1925. It concludes that due to uncertainty regarding the ownership of 50 shares, the essential requirements for a valid trust were not met. The second case study analyzes whether Tina acted as an agent for her company when contracting with an architect and whether the company is liable for her actions. Applying principles of agency law, it determines that Tina was an ostensible agent, and the company is responsible for the fees owed to the architect. Desklib provides access to a wide range of past papers and solved assignments for students seeking academic support.

LAW 8500 Australian Commercial and Corporations Law
Assignment 2
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Contents
Introduction...........................................................................................................................................3
Question1..............................................................................................................................................4
Question 2.............................................................................................................................................7
Conclusion...........................................................................................................................................10
References...........................................................................................................................................11
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Introduction
In the given assignment the laws of Australia have been focused for finding the suitable
answers. In fist case study law of trust creation is applied and in second case study the law of
agency has been applied and the liability of the company has been discussed.
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Question1.
Research Question
Whether there were sufficient certainty for creation of Basil Electrical Co Pty Ltd. as trust
organisation within the applicable rules of Trust Law?
Relevant Law
There are various purposes for which a trust is created. The manner in which are trust can be
created are by declaration under this the owner of the property declares expressly about the
holding of the property in trust for the benefit of others another mode is by transfer wherein
the owner transfer the property to another for the benefit of others and last is by direction
under which owner of the property directs that the property will be held by the person for
particular purpose. The below given are the key features that has to be there for creation of
valid trust as without these there can be created no valid trust. These essentials were
highlighted by the judgment in Knight v Knight (1840). Trustee Act 1925 governs the entire
trust creation procedure. For the creation of Express trust there are three essential
requirements as to certainty of the contract (Bryan, 2012). These are
A. Certainty of Intention
B. Certainty of Subject Matter
C. Certainty of Object
Certainty of Intention: Under this head the settler of the property must be willing to create
the trust rather than settling the property as gift and loan. The case of Re Armstrong in this
case it was held that though the word trust was not used at the end of the name but the
intention of the settler before his death was not give the property in gift therefore trust was
the right way of giving effect to the intention of settler.
In the certainty of the intention it has to be proved that the owner of the property wish to
apply the benefits and the interest arising out of the property not only for own personal
benefits but for the benefit of the beneficiaries for whose interest trust was created. In
determining the question whether the contract creates trust or not for that objective test is
applied (Findlaw, 2017).
Another requirement is Certainty of the subject matter of Trust: The subject matter of the
trust has to be certain otherwise there will be created no valid trust. For the certainty of the
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subject matter it is necessary that the subject matter of the trust is recognized as per the law.
The property can be either real or personal like land, building, intangible assets etc. the
property can be legal and equitable as well. However the property will not be certain if it is
entirely based on the expectations only like by way of will, deed etc. Another requirement is
that amount of the property also have to be defined clearly. The case of Estate of Chau
(dec’d) [2008] it was held that the problem as to certainty of the subject matter of trust arises
when the property is part of trust property which is identical. If the subject matter of the trust
cannot be identified specifically the subject matter of the trust is not certain and no valid trust
can be created there.
Certainty of the objects also have to be there. The need of certainty of the object of trust was
identified in McPhail v Doulton. as per the beneficiary principle states that on the creation of
trust it must either be for the benefit of person or for the benefit of charity etc. as per Sir
William Grant in Morice v Bishop of Durham (1804). There are two exceptions to the
certainty of trust which includes the charitable trust and another is trust for the animals. The
case of Morice v Bishop of Durham (1804) states that there can be no trust if the court does
not have controlling power over that (Creighton, 2012).
Apart from these property has to be there within the ambit of section 5 of the Trust act. The
trust property can be anything like real and personal property or tangible or intangible. If the
property of the trust is not adequate for the establishing trust than also valid trust cannot be
created. The trustee of the property also have to be identified and the personal settling the
property by way of trust also have to be identified.
Research Methodology
For finding the correct answer to the given issue about the creation of valid trust the
secondary sources were used. The main sources from where the useful and relevant matter
was collected includes the legislation, case laws and common law principle, published
articles and journal and authoritative texts.
Application of Rule:
In the above given case study Basil Electrical Co Pty Ltd. was trust in which 5% shares were
held by Basil who was one of the trustee of the trust. Out of total shares of 1000, there was
issue of trustee of 50 shares of the company. The holder of the 50 shares of the company was
not known. It falls under the category of the subject matter of trust and therefore it has to be
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certain so as to ensure the legality of the trust created thereby. As per section Estate of Chau
(dec’d) [2008] the subject matter had to be certain in terms of the identity of property and in
the given case of Basil Electrical Co Pty Ltd. the 50 shares of the company were uncertain.
Hence the essential of the certainty of the subject matter was not fulfilled and therefore Basil
Electrical Co Pty Ltd. cannot be classified as trust as per the Trustee Act 1925. The essential
requirement for establishing the valid trust are not fulfilled. Therefore trust must always be
created for the legal purpose only and the same must be declared duly for the beneficiaries for
the interest of who trust was created (Massola, 2017).
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Question 2.
Research Question
1. Whether Tina was acting in the capacity of the agent while exercising the powers of
the managing directors of the company?
2. Whether act of Tina binds the company for all its possible consequences even when
she was not expressly appointed as managing director of the company?
Applicable Rule
The term agent refers to the person who is either expressly or impliedly authorised to do any
act for the benefit and interest of the company. Whoever is appointed as the agent of the
company has the responsibility to do all such act for which he is authorised. The issue of
agency is determined sometime by the express terms of the contract and in some cases by the
circumstances of the case. The directors of the company also act under the capacity of the
agent and whatever decision is taken by them than it is assumed that all those acts are done
by the company personally. The concept of agency makes free to the agent from all personal
liabilities. In case of implied agency the authority must be exercised by the agent personally.
In this case the authority of the director as agent of the company was justified as they hold the
shares of the company and interference is not made in the exercise of their authority (Norton
Rose Fulbright, 2017).
In the case of National Australia Bank Ltd v Sparrow Green Pty Ltd (1999), it was decided
by the court that the directors of the company can bind the company for their all lawful acts
even when there is no express authority is given to the agent of the company.
The agent of any company is entrusted with the authority in following manner; express
actual authority; under this head the agent of the company is clearly declared either in
writing orally. Implied actual authority: Under this head no oral or written declaration is
made regarding the authority of a person as agent but from the circumstances of the case and
the nature of the business it is construed that the person acted as agent of the company and in
Ostensible authority; under this head the authority of the agent depends on the manner in
which person in question was represented to the third party with which dealing was
concluded. It includes that the company acted in such a manner and represented that the
person dealing as agent of the company is expressly empowered to act as such. Such
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representation was made to manage the affairs of the company and third party completely
relied on such representation. If the agent falls under above categories than the company will
always be liable for all the lawful acts done by the agent (KMW, 2013).
Research Methodology
In finding the solution of the issue of agency secondary data was collected in which case laws
and the common law principle is mainly focused.
Application
In the given case study Tina and Susie were the co-owners of the company which they
opened in the partnership. They both were also board of directors of the company. Tina was
entrusted with the function of managing and developing the land with due notice of board of
directors of the company. However there was never express declaration of fact of her agency
in the company.
From the facts of the case study it can said that Tina was ostensible agent of the company
since the fact of her acting as agent of the company was within the knowledge of the all the
directors of the company. The act of her was also ratified by the company since she was
acting for the interest of the company only. Therefore Tina was agent of the company as her
act was fitting under the type of ostensible agent (Craddock, 2014).
Tina being an agent of the company had various kinds of duties like duty to act with due care
and in good faith for the interest of the company. Tina while contracting with the architecture
of the company was doing all dealings in good faith for serving the interest of the company
only. Therefore she cannot be made personally liable for her dealing with the architecture and
thereby to pay fees and other connected expenses thereto.
Since Tina was agent of the company and she was working for serving the interest of the
company only the company will is liable for all acts of her done in that capacity. The
company cannot deny the fact of her agency for avoiding the liability to third part for the acts
of Tina. The denial of the company for the acts of Tina as agent cannot be denied at all and if
any loss was sustained by the third party due to the act of her. Therefore as per the applicable
law of agency in the case study the company is liable to make the payment of fees to architect
of the company who was hired and contacted by Tina under her capacity of agency (Law
Teacher 2018).
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The company being the lawful principle of Tina and for ratifying the act of her as agent at the
time when she was dealing with the architecture of the company cannot be ignored. Such
approval of act impliedly validate the act of agent. Hence company will be liable for act of
her and Tina will not bear any personal liability for hear dealing with the architecture of the
company since her dealing and the object of her dealing all were lawful.
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Conclusion
The law of trust states essentials to form the trust they are explained for the purpose of
examining in the case study as to whether trust was created or not. Since the key
requirements have to be there so that a valid and successful trust can be created. In the second
case study the law of agency has been discussed and the liability of the company for the acts
of the agent in also considered for finding the appropriate solution.
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References
Bryan, M. (2012). 14 - Certainty Requirements in The Law of Trusts. Cambridge University
Press.
Craddock.com (2014). The authority of an agent to enter into contracts on behalf of a
corporation. Available at:
http://www.craddock.com.au/Document/The+authority+of+an+agent+to+enter+into+
contracts+on+behalf+of+a+corporation.aspx. [24 May 2018]
Creighton, P. (2012). Certainty of Objects of Trusts and Powers: The Impact of McPhail v
Doulton in Australia. Sydney Law Review.
Findlaw (2017). The Essential Elements of Creating a Testamentary Trust. Available at:
http://www.findlaw.com.au/articles/4344/the-essential-elements-of-creating-a-
testamentary-.aspx. [24 May 2018]
KMW (2013). Case Update: EPCM Contractors and Agency Law - a cautionary tale.
Available at: http://www.kwm.com/en/au/knowledge/insights/case-update-epcm-
contractors-and-agency-law-a-cautionary-tale-20130601. [24 May 2018]
Law Teacher (2018). Defining The Agency Relationship. Available at:
https://www.lawteacher.net/free-law-essays/commercial-law/defining-the-agency-
relationship-commercial-law-essay.php. [24 May 2018]
Massola, J. (2017). The trouble with trusts: Australia's multibillion-dollar legal tax avoidance
loophole. . Available at https://www.smh.com.au/politics/federal/the-trouble-with-
trusts-australias-multibilliondollar-legal-tax-avoidance-loophole-20170720-
gxf3k7.html. [24 May 2018]
Norton Rose Fulbright (2017). Agent v Principal? Agency in Australian Competition Law.
Available at:
http://www.nortonrosefulbright.com/knowledge/publications/155188/agent-v-
principal-agency-in-australian-competition-law. [ 24 May 2018]
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