LAW514 Commercial Law: Yellowscope Liability & Blackspot Analysis

This case study examines the potential liabilities of Yellowscope Pty Ltd and Blackspot Pty Ltd concerning an injury sustained by Fan Bingbing, who is an employee, sole shareholder, and director of Blackspot. The analysis applies principles from Section 119 and 180(1) of the Corporation Act 2001 (Cth), along with precedents set by Salomon v Salomon & Co Ltd and Hollis v Vabu Pty Ltd. The study considers whether Yellowscope is directly liable for the injury, and to what extent Blackspot might be vicariously liable or able to avoid liability based on Fan's role within the company. The conclusion suggests that Yellowscope is primarily liable, while Blackspot's liability is complex, potentially avoidable due to Fan's actions, but also possibly fully liable under vicarious liability principles.

Running Head: COMMERCIAL AND CORPORATION LAW
Commercial and Corporation Law
Name of the Student:
Name of the University:
Author Note

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Answer One:
Issue
The issue in this case is that whether Yellowscope is liable for Fan’s injury. The issue is
also associated with the fact that whether Blackspot is held partially liable for Fan’s injury and
can he avoid liability based on which grounds.
Law:
A company is a separate legal entity which is separate from its shareholders. According
to the provisions of Section 119 of the Corporation Act 2001 (Cth) a company attains the title of
a separate corporate after its registration. Therefore, it is noteworthy to mention here that only
the company has the right to sue and to be sued in its own name (Lozano, Carpenter and
Huisingh 2015). According to the provisions of Section 124(1) every company has the same
capacity and powers which are similar to the general powers of an individual. Therefore, in this
regard, it is worth mentioning that, only the company shall be held liable for the debts incurred
during the process of business transactions (Veldman 2018). According to Section 180(1) of the
Corporation Act 2001 (Cth) directors are required to act in due diligence and care.
Under the law of torts, a person may be held liable for the acts or omission on the part of
another person. In such cases, the persons are not personally held liable for their own conduct.
Therefore, it is worth noting that an employer may be vicariously liable for the acts of their
employees which were held in Hollis v Vabu Pty Ltd (2001) 207 CLR 21. It is noteworthy to
mention here that, the employer shall not be held vicariously liable for the acts done by
independent contractor.

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It is worthwhile to mention here that the company does not act as an agent to its
shareholders; however the shareholders act as an agent to the company. In this regard, the case of
Salomon v Salomon & Co Ltd [1897] AC 22 can be emphasized. In this case, it was held by the
Court that Salomon being the sole shareholder was not personally liable to the creditors. The
company was held liable as it was a separate legal entity. The case Salomon v Salomon & Co
Ltd [1897] AC 22 was a landmark case in which it was established that how a company
functions. The case was concerned with the claims demanded by unsecured creditors during the
process of liquidation. However, as Salomon was the majority shareholder of the company, he
was held personally liable for the debts incurred by the company. in this regard, the Court in its
decision held that Salomon being a shareholder is not personally liable for the loss of the
company and therefore cannot be personally sued. However, in the ruling, the Court was of the
opinion that the company was incorporated by Salomon but the creditors in this case conducted
the business as an agent of Salomon who should according to the application of law be held
liable for the debts incurred by them during the course of agency. It is worth stating that the
shareholders of a company cannot be held liable for any negligence in regard to the company. In
case of negligence occurred as a result of their personal conduct, the shareholders shall be held
liable.
Application:
In the given scenario, it can be observed that Fan Bingbing is the plaintiff who is an
employee, sole shareholder and director of the company Blackspot Pty Ltd. However, the
plaintiff used to work for Yellowscope Pty Ltd as well (defendant no). It can be argued that the
plaintiff was working on a project given by defendant when she received injuries. In this case, it
is worthwhile to refer here that the Court was of the opinion that as the plaintiff was carrying out

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COMMERCIAL AND CORPORATION LAW
the work for the purpose of the defendant no.1 and not for her personal conduct, then in such
case Yellowscope Pty Ltd (defendant) shall be held liable. Blackspot Pty Ltd cannot be held
liable to the injuries caused to the plaintiff because she was using the techniques assigned to her
by the defendant. However, in the opinion of the Court there was a duty of care on the part of the
defendant to check into matters whether it was operating correctly. It is evident that the plaintiff
is the shareholder and director of the company. In this regard, the case of Salomon v Salomon &
Co Ltd [1897] AC 22 can be referred. According to the provisions of Section 119, a company is
a separate legal person. Therefore, the shareholders and directors of the company cannot be held
liable for any loss or negligence on the part of the company. However, in the present case the
plaintiff was carrying on the operations according to her personal conduct and regarding which
her company Blackspot Pty Ltd was not aware. Therefore, the Court opined that there is a ground
to avoid liability on the part of Blackspot regarding the fact that the plaintiff being a shareholder
of the company has performed the techniques on her own personal conduct. However, in this
case, the Court held that the techniques which were implemented by the plaintiff was for her own
personal benefit and was doing it for the defendant. Therefore, the company Blackspot Pty Ltd
shall not be held liable for the activities done by the shareholders outside their authority. In the
present case study, it may be possible on the part of Blackspot Pty Ltd to be liable for the injury
caused to Fan Bingbing. In this regard, the case of Hollis v Vabu Pty Ltd (2001) 207 CLR 21 can
be applied where the employers can be held vicariously liable for the acts of their employees.
Similarly Blackspot can be held 100% liable for the acts of Fan Bingbing.
Conclusion:
In the conclusion, it can be stated that-

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 Yellowscope Pty Ltd is liable for the injury caused to Fan Bingbing.
 Blackspot Pty Ltd can be held to be partially liable for the injury.
 There is a possibility on the part of Blackspot Pty Ltd to avoid liability on the ground that
Fan is sole shareholder and director of the company.
 In this case, Blackspot can be held fully liable for the injury caused to Fan Bingbing.
It can be finally concluded that in the present case study, Fan Bingning won the case on the
ground of being the sole shareholder and director of the company which was held in Salomon v
Salomon & Co Ltd [1897] AC 22. Fan Bingbing also won the case on the ground of vicarious
liability as Blackspot being her employer is liable for her acts according to the case of Hollis v
Vabu Pty Ltd (2001) 207 CLR 21.

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References:
Dodd, E.M., 2017. For whom are corporate managers trustees?. In Corporate Governance (pp.
29-47). Gower.
Joy, J., 2018. Legal Entity Operating Structure. In Divestitures and Spin-Offs (pp. 157-168).
Springer, Boston, MA.
Lozano, R., Carpenter, A. and Huisingh, D., 2015. A review of ‘theories of the firm’and their
contributions to Corporate Sustainability. Journal of Cleaner Production, 106, pp.430-442.
Salomon v Salomon & Co Ltd [1897] AC 22.
Veldman, J., 2018. The Separate Legal Entity and the Architecture of the Modern Corporation.

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