Assessment 2 and 3: Analysis of Contract and Corporate Law Issues

This assignment provides a comprehensive analysis of contract and corporate law principles. Assessment 2 examines issues related to breach of contract, including remedies, and the concept of frustration in employment contracts. It explores scenarios where an employment contract was breached, the implications of an offer of reinstatement, and potential legal actions. Assessment 3 delves into corporate law, focusing on the Corporations Act 2001 and the importance of independence tests for auditors and accountants. It discusses the roles of audit committees, the potential conflicts of interest, and the need for independence to ensure financial statements accurately reflect a company's position. The assignment also includes a bibliography of relevant articles, books, reports, cases, and legislations.

Masters of Accounting - Stats
Assignments
(Student Details: )
09-Oct-17

ASSESSMENTS 2
Table of Contents
Assessment 2...................................................................................................................................3
Part 1............................................................................................................................................3
Part 2............................................................................................................................................4
Part 3............................................................................................................................................5
Assessment 3...................................................................................................................................6
Bibliography..................................................................................................................................10
A. Articles/ Books/ Reports.................................................................................................10
B. Cases...............................................................................................................................10
C. Legislations.....................................................................................................................11
D. Others..............................................................................................................................11

ASSESSMENTS 3
Assessment 2
Part 1
The main issue of this case relates to the acceptance of the offer by Tran being the right choice in
this case, or not.
An offer shows a promise made. Upon the formation of a contract, the same can be terminated/
brought to an end through different modes, i.e., through performance, through breach and
through discharge1. When the contractual terms are performed as per the contract, the contract is
discharged by performance. And when the promise made under the contract is not upheld, it
results in the contract being breached2.
There are a range of remedies which can be applied by an individual for the breach of contract.
Included in this is the monetary compensation or the equitable damages in form of injunction or
specific performance3. The damages are not only awarded for physical loss, but also for the
mental distress caused, as was seen in Baltic Shipping v Dillon4 where the damages were
awarded for the loss of belongings. Apart from this, damages can be sought out for the economic
loss also. And an employment contract being a contract, has to follow the common law of
contract5.
The rules stated above have to be now applied to the case study. There was a presence of an
employment contract makes the applicability of contract law on this case. The contract formed
between TrueCom and Tran required a three months’ notice period to be given where Tran had
1 Neil Andrews, Contract Law (Cambridge University Press, 2nd ed, 2015)
2 Linda Mulcahy, Contract Law in Perspective (Routledge, 5th, 2008)
3 Ewan McKendrick, Contract Law (Pearson Education Limited, 11th ed, 2015)
4 (1993) 176 CLR 344
5 Catherine Elliott and Frances Quinn, Contract Law (Pearson Education Limited, 9th ed, 2013)

ASSESSMENTS 4
to be removed from the job by TrueCom. The validity of this contract was for two years and yet
the same was contravened when six months were still left. Tran was dismissed without being
given a notice period as was required pursuant to the drawn employment contract. This means
that there had been a breach of contract by TrueCom which allows Tran to make a case against
the company. The offer given by TrueCom would get her the job back but only with a pay of
three months, and the bonus which she could have earned would not be given to her. So, Tran
should instead sue the company for the breach of contract and claim damages for the pay and for
the lost bonus.
Hence, it is better for Tran to reject the offer and initiate legal action against TrueCom for breach
of contract and claim damages.
Part 2
The main issue of this case relates to the possible frustration of contract.
As has been stated earlier, the contract can be concluded when it is frustrated. A contract is
deemed to be frustrated where the terms of the contract become impossible to be performed and
the commercial purpose of such contract is longer applied. In such cases, the claim of breach of
contract is not upheld as it is not the fault of any of the parties and so blame cannot be fixed on
any party6. Taylor v Caldwell7 saw that the concert had to be performed at the hall which was
destroyed in fire. The claim of breach of contract was denied by the court as the court held that
the contract could not be performed as the same had become impossible to be performed8.
6 Andy Gibson and Douglas Fraser, Business Law (Pearson Higher Education AU, 2013
7 (1863) 3 B & S 826
8 John W. Carter, Carter's Breach of Contract (Hart Publishing, 2012)

ASSESSMENTS 5
The case saw the factory being burnt down due to the disgruntled employees’ arson attack. This
led to the termination of the staff members, and they were handed down one week’s pay.
Applying Taylor v Caldwell, the commercial purpose was destroyed here and so there would not
be a breach of contract in this case for the staff members. But, Tran had been removed before the
fire actually took place. And so, Tran can still initiate actions against the company for the breach
of contract and still claim the damages as had been stated under the previous answer.
Hence, the contract was frustrated for the staff members and would have to accept the pay.
Hence, the breach of contract can be claimed by Tran.
Part 3
The main issue of this case relates to the requisite steps which can possibly be undertaken by
Tran before the matter goes before the court.
Interim injunction is an option available to the parties, where a breach of contract is cited, and
the effect of this is that the party, against which the interim injunction is applied for, is stopped
from doing a particular task9. This is particularly helpful when a person thinks that the other
person would do something, which needs stopping on immediate basis. On the basis of this, Tran
can stop the company from hiring anyone in her position in TrueCom. Apart from this, she can
also include specific performance in her claim, whereby TrueCom is specifically asked to pay
her the bonus money.
Hence, till the matter goes before the court, Tran should apply for an interim injunction.
9 Richard Stone and James Devenney, Text, Cases and Materials on Contract Law (Routledge, 3rd ed, 2014)

ASSESSMENTS 6
Assessment 3
In Australia, the Corporations Act, 200110 is the commonwealth act which provides the different
provisions based on which the company works. Section 198A(1) of this act provides that the
company’s business has to be operated on the directions which are given by the directors and the
key officers of the company11. Due to this, the persons who hold the position in the board of the
company attain an important position. The financial position of the company is presided over by
the audit committee and the same has to again be formed of such individuals, who are impartial
and who adhere to the legislations which have been drawn. When it comes to selecting such
individuals, an attractive pool for short listing the candidates is the former auditor or accountants,
particularly of the audit firms with which the company has been associated with. These
individuals have detailed knowledge and have practically faced difficult situations to properly
handle the problems being faced by the company12. However, before they are hired in the
company, it becomes necessary to ensure that these individuals are honest and independent. And
so, an independence test is applied on such individuals. In the following parts, the need for this
independence test has been detailed upon.
In the recent time, the issue of independence test has been gaining popularity. This is due to the
increased knowledge of the different stakeholders regarding the need for the auditors and
accountants to be independent. This is because if their independence is prejudiced, the financial
statements prepared for the company would not be able to depict a true and fair view as per
section 297 of this act13. This would mean that the interests of the different stakeholders would
10 Corporations Act, 2001 (Cth)
11 Corporations Act 2001, s198A(1)
12 Jean Jacques du Plessis, Anil Hargovan, and Mirko Bagaric, Principles of Contemporary Corporate Governance
(Cambridge University Press, 2nd ed, 2010)
13 Corporations Act 2001, s297

ASSESSMENTS 7
be impacted, particularly due to the wrong position of the company being presented. Another
major issue is when these auditors or accountants come from an audit firm of which the company
had been a client. This is because when the auditors become the members of audit committee or
of the board of the company, they could use their influencing position to manipulate the audit
firm, to show something which is not true, or to overlook a particularly suspicious transaction.
This would not only be unlawful for the company, but for the audit firm as well14.
Also, when the members of the audit firm specifically resign the firm to join the board of the
company, there is a high chance that they overlook the required due diligence. The individuals
resigning from the audit firm would have the complete knowledge of the matter at hand being
dealt in context of the company by the audit firm and they would also be aware of the manner in
which the same can be dealt with by manipulating or by tapping on the loopholes of the
applicable laws. More importantly, they would know how to manipulate the independence
testing requirements. They would also know the possible test and checks, along with the
procedures used by the audit firm to analyse the wrongdoings of the company; thus, giving the
company a chance to avoid such a test or to tamper the same15.
This makes it necessary for the financial statements of the company to be audited in a manner
that the requirements set out under the Corporations Act are met. There is a need to make certain
that the capital market functions work in a proper manner and that the company follows proper
corporate governance structure. And this has led to the independence test being drawn, which
ensures that the work done by the auditors and the accounts is in such a manner that there is not
bias or prejudice towards or against the company.
14 CCH Australia Limited, Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC Act
2001, related regulations (CCH Australia Limited, 2011)
15 Jean Jacques du Plessis, Anil Hargovan, and Mirko Bagaric, Principles of Contemporary Corporate Governance
(Cambridge University Press, 2nd ed, 2010)

ASSESSMENTS 8
Part 2M.416 covers the independence requirements under Subdivision 3 of this act and as per this
division a conflict of interest has to be avoided at every instance. To put it more simply, such a
situation has to be avoided where there is a failure on part of the auditor or there is a situation
where the auditor makes a deliberate decision to be biased while conducting their audit. This is
also due to the provisions which are covered under section 324CD17. The ASIC has clearly
highlighted the different requirements which have to be fulfilled for ensuring the independence
of the auditors and the accountants. In this regard, there is a need to fulfil the provisions which
have been set out under section 307C of this act, where the auditor has to declare their opinion
about certain things18; along with Part 2M.4’s Division 3, 4 and 5. There is also a need to adhere
to the code of ethics as have been drawn by different professional bodies for the accountants,
along with the auditing standards which ensure the quality control of the audit19.
Hence, apart from the conflict of interest situation, there is a need for auditors to be rotated for
the listed companies. There is also a need for the auditors to be diligent when they identify and
evaluate the threats of independence and also have to apply the requisite safeguards. In such
cases where a conflict of interest is continued beyond seven day period, the auditor has the duty
of informing the ASIC in writing and stating that there is a presence of conflict of interest20.
Thus, in the preceding segments, the reasons for which the independence test is applied on the
auditors and the accountants, was properly highlighted. And these independence requirements
are not only covered under the statutory requirements, but also in the different standards set by
different bodies. It is important that the financial position of the company depicts a true position
16 Corporations Act 2001, Pt2M.4
17 Corporations Act 2001, s324CD
18 Corporations Act 2001, s307C
19 ASIC, Auditor independence and audit quality (2014) <http://asic.gov.au/regulatory-resources/financial-reporting-
and-audit/auditors/auditor-independence-and-audit-quality/>
20 Ibid

ASSESSMENTS 9
of the company, and if the independence of the auditor or the accountant is compromised, the
same cannot be done. Hence, it is important that the requisite declarations are made by the
auditors to ensure that such a conflicting position is not present and where it is, the declaration
would make the stakeholders aware of the same.

ASSESSMENTS 10
Bibliography
A. Articles/ Books/ Reports
Andrews N, Contract Law (Cambridge University Press, 2nd ed, 2015)
Carter JW, Carter's Breach of Contract (Hart Publishing, 2012)
CCH Australia Limited, Australian Corporations & Securities Legislation 2011: Corporations
Act 2001, ASIC Act 2001, related regulations (CCH Australia Limited, 2011)
Clarke F and Dean G, Indecent Disclosure: Gilding the Corporate Lily (Cambridge University
Press, 2007)
Elliott C, and Quinn F, Contract Law (Pearson Education Limited, 9th ed, 2013)
Gibson A, and Fraser D, Business Law (Pearson Higher Education AU, 2013)
McKendrick E, Contract Law (Pearson Education Limited, 11th ed, 2015)
Mulcahy L, Contract Law in Perspective (Routledge, 5th, 2008)
Plessis JJD, Hargovan A and Bagaric M, Principles of Contemporary Corporate Governance
(Cambridge University Press, 2nd ed, 2010)
Stone R, and Devenney J, Text, Cases and Materials on Contract Law (Routledge, 3rd ed, 2014)
B. Cases
Baltic Shipping v Dillon (1993) 176 CLR 344
Taylor v Caldwell (1863) 3 B & S 826

ASSESSMENTS 11
C. Legislations
Corporations Act, 2001 (Cth)
D. Others
ASIC, Auditor independence and audit quality (2014)
<http://asic.gov.au/regulatory-resources/financial-reporting-and-audit/auditors/auditor-
independence-and-audit-quality/>