Legal Analysis: Contract Law Principles and Companies Act 2006

This case study provides an analysis of contract law and the Companies Act 2006, focusing on key legal principles and their application in business scenarios. The first part examines a breach of contract claim, analyzing the elements required for a valid contract and whether an invitation to offer constitutes a binding agreement. The second part delves into the concept of a company as a separate legal entity, exploring the circumstances under which the corporate veil can be lifted, particularly in cases of fraud or improper conduct by directors and shareholders. Landmark cases like Salomon v. Salomon & Co. Ltd and VTB Capital v. Nutritek are discussed to illustrate these principles. Finally, the study contrasts the case law of Foss v Harbottle with the statutory derivative action introduced by the Companies Act 2006, highlighting the rights of shareholders and the conditions under which they can bring legal action on behalf of the company. Desklib provides access to more solved assignments.

Law for Business Managers

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
PART-1............................................................................................................................................3
PART-2............................................................................................................................................5
PART-3............................................................................................................................................7
CONCLUSION..............................................................................................................................10
REFERENCES................................................................................................................................1

INTRODUCTION
The term law refers to various rules and principles and it is and instruments that regulates
the human behaviour. It is based on general principles of justice enacted by the government
bodies in order to regulate the human activities. The English law is defined as the common law
of England and Wales which is classified into civil law and criminal law and every branch has its
set of rules, regulation and procedure in order to provide justice to the victim and punish the
person committed the crime(Babanina, 2018). The laws related to the business law mainly deals
in protecting the rights of the parties and resolving the disputes between the parties. Various laws
have been enacted by the government which mainly deal in protecting rights and provide justice
by way of compensation to the affected party(Sandberg, 2018). The present report is based on
the case studies related to the contract law and companies act 2006 which specifies the rights of
the parties to sue the other party and shareholder litigation rights which the helps of case study.
MAIN BODY
PART-1
A contract law can be defined as the set of promises for the breach of nay of the terms
and conditions and also provide the remedy. Contract is the legal obligation that binds the
parties into the terms and condition of the agreement. The contract is legally enforceable by the
court of law.
Issue of the case: Beauty and Health Ltd is a manufacture of vitamin pills and it is one of the
popular products of the company which aimed at boosting the hair growth. Karen one of the
customer bought the product but did not see any effects on the growth of the hair as it was said
by the company in one of its commercial ads(Medway, Roper, and Gillooly, 2018). The issue
is whether Karen can sue the company for the breach of contract of not complying with the terms
and conditions of the contract and is the company liable to pay the damages to the party(Karen).
Rule: According to the contract act, it is the agreement that takes place between the parties to the
contract i.e. one party makes the offer and the other party gives their acceptance. The offer and
acceptance should be communicated to both the parties to the contract(Poole, and et.al., 2021). In
order to make a valid contract , all the terms and conditions should be complied with such as

there should be two parties , offer by one party and acceptance by the other and there should
proper and complete communication from both the sides of the parties entering into the contract.
If there is no offer it dies not constitute a valid contract . On the other hand, there is difference
between offer and invitation to offer and this does not imply that the parties have entered into the
contract. It essential of the contract should be mentioned in order to constitute a valid contract
and claim for compensation(Klee, 2018). Apart from this the contract also imposes certain
liabilities on the parties when they do not perform their part of promise which is known as
breach of contract. This situation occurs when the party has entered into the contract and one
party perform its part of promise and the pother fails to perform its part then it is said that the
party has breached the terms of the contract. In this circumstances the affected party can take
legal action against the the party who has failed to perform their part and and after considering
the evidences the court can give their judgment and the failing party is liable to pay
compensation for the damages suffered by the party who has performed their part of promise.
According to the present case study, it has been observed that no terms and conditions of
a valid contract is present in the given case study. The product of the company was just an
invitation to offer rather than the offer(FBA, and et.al., 2020). In order to enter into the contract ,
there should be proper agreement between the parties which specifies the terms and condition
which is not present in the given case study. There was no contract that was taken place between
the company and Karen as there was no offer by the company and neither Karen gave the
acceptance. On the other hand no communication of offer and acceptance was taken place
between the parties. According to the law if there there is no offer and acceptance clause it does
not constitute a contract. So in the given case study Karen has no right to sue the company for
the breach of contract as there was no such contract that took place between the parties and no
provisions of the contract law will be applied. Karen can neither sue nor claim damages from the
company and in order to file the suit against the company , the party is required to shoe the
proper cause and evidence that the parties have entered into the contract and merely invitation to
offer is not considered as to enter into the contract.
The terms of the contract act states that in order to enter into the contract there should be
proper communication of offer and acceptance between the parties which results into formation
of the contract. in the absence of offer and acceptance will not constitute a valid contract(Allam,
2018). Therefore Karen cannot sue the company for the breach of contract as no contract existed

among the parties. Furthermore if Karen file a suit against the company and the party proved
wrong as there was no contract with the company then in that case the company can reach to the
court and claim compensation for damaging the reputation of the company from the party who
bought the suit in the court for the breach of contract.
From the above case study it can be said that the terms of contract is binding on the
parties if they fulfil all the valid essential of the contract and in the absence of the essential
elements will not constitute any contract between the parties. The provisions of the breach of
contract is applicable in case the parties have entered into the contract but in the present case
study , there was no such contract took place between the parties so Karen is not liable to sue the
company for the breach of contract as there was no contract entered between the parties and no
provisions of the contract law was applied.
PART-2
According to the company act 2006, company is defined as the business organisation that
is formed by group of person in order to achieve and undertake the activities in the interest and
for achieving goals and objectives of the company. The company consist of various features i.e.
it is voluntary association, it is considered as artificial person created by law , company is not a
citizen , separate legal entity and also it has limited liability. The present report lays emphasis on
the core area that is a company is considered as the separate legal entity distinct from its
shareholders but in what circumstances court can go beyond and take decisions(Banoo, 2018).
According to the companies act, company has a legal entity and it is independent from its
members of the company. The creditors of the company can only recover from the property of
the company and the creditors is not liable to sue any other members of the company. On the
other hand the members cannot claim any ownership right from the assets of the company(Tjio,
and Tung, 2018). Apart from this the members of the company can enter into the contract with
the company. It can be said that company is separate legal entity distinct from its shareholder.
The principle was discussed in the case of Salmon v. Salmon and Co. Ltd and this case
clearly established the rule and states that when the company is incorporated it becomes a legal
person and has its own separate legal entity. In this case Salmon incorporated the company and
consisted of shareholders who was his wife, daughter and four sons. Salmon was the director
with his sons who was also the directors in the same company. The company suffered from
difficulties and the debenture holders appointed the receiver and the company went into

liquidation. It was also observed that Salmon was the principle beneficiary and is liable to pay
the debts of the company(Gelter, 2019). This case was the landmark case which led to corporate
veil and stated that shareholders cannot be personally held liable for the debts of the company.
The corporate veil that is well-advised and is one of the exception of the principle of separate
legal entity stated from the judgement of Salmon case study which separates the rights and
duties of the company with their directors , shareholders and members of the company. As per
the principle of corporate veil is applied in those circumstances by the court in which the illegal
act is conducted by the directors and shareholders and in that case the companies assets will not
used to pay for the loss suffered but on the other hand directors are held liable to pay the
damages and legal action can be taken against those person(Gerner-Beuerle, and Schillig, 2019).
Furthermore, many time it happens that members and directors use the corporate personality in
order to commit the fraud and improper acts. Since the company is artificial person and cannot
conduct fraud and illegal acts on its own then it can be state that the directors and shareholder
can be held responsible for these acts that has resulted the company into debts.
The court can use the corporate veil in to situation that are statutory and judicial
provisions. The statutory provisions includes the default if the officer, reduction of membership ,
improper use of the name of the company, fraudulent conduct of the member of the company and
judicial grounds includes fraud or improper conduct in which any fraudulent act committed by
the members of the company i.e. directors. This can be proved with the help of the case law of
VTB Capital v. Nutritek that was connected with the fraudulent misrepresentation of the loan
agreement . Proper investigation was carrier our and considering the relevant facts and evidences
the court stated that VTB failed to prove its part that England was the appropriate forum for the
related matter. In this case the court pierced the corporate veil and directors of the company was
held liable in the involvement in the fraudulent matter.
The other example in which the court pierced the principle of corporate veil that is Jones v.
Lipman, (1962) I. W.L.R. 832 it is a UK company law case in which the corporate veil was
pierced when the company is used as mere facade concealing the true facts that indicated that is
formed to avoid the pre- existing obligations.
From the above observation it can be concluded that according to the companies act 2006
, company is artificial person and have separate legal entity distinct form its members and the
company will be liable for the debts of the company but in various judgments(Witting, 2019) .

The court held that in various and severe circumstance and after proper inquiry if the court found
that due to various grounds such as fraudulent act of the directors or shareholders or any other
member of the company, the principle of lifting up of corporate veil will be applied and the
directors and shareholders due to which the company suffered loss or damage then they will be
held liable for the fraudulent act conducted by the directors.
PART-3
The difference between the case law of Foss v Harbottle and the statutory derivative
action introduced by the Companies Act 2006 can be explained by considering the facts of the
case. Foss v. Harbottle is one of the leading cases of company law. The facts of the case were
that there where two minority shareholder of the Victoria Park Company that was incorporated
for the purpose of laying out and maintaining the ornamental park. The shareholders claim that
the property was wasted inappropriate manner and the mortgagees were also given in improper
way. By considering this both the minority shareholder decided to take legal action against the
directors and other members of the company.
The shareholders claimed that firstly, fraudulent transactions are being done by the
directors of the company and the property of the company is used inappropriately. Secondly, the
directors of the company are nor well qualified to operate the company and thirdly, it dos not
have clerk or office(Hamadziripi, and Osode, 2021). According to the judgement of the court, it
was observed that an individual shareholder or any outsider of the company has no right to take
any legal action against the person who have committed wrong doers as according to the
companies act 2006 both the company as well as shareholders are considered as separate legal
entity and it is also said that the company may sue or can be sued by its own name. The reason
behind that shareholders cannot take any legal action as the damage has been caused to the
company and not the members and it is on the discretion of the company and its owners to take
legal action against the directors or any members who have committed the illegal activity and
fraudulent actions against the company. While taking into consideration the precedent cases the
minorities have no right to take any legal action against and also stated that courts will not
interfere in those matters of the company where the majority of the shareholders can handle these
cases without going to the court.
The former provisions mentioned under the companies act 2006 stated that shareholders
can bring derivative actions only in severe circumstances as according to the provisions company

is the only claimant and can take legal actions against the person who has committed illegal act
against the company(Greco, 2018). Derivative action is claim which are commitment against the
company. In that action company have right to peruse and refuse the claim against the minorities
shareholders. A derivative action is that claim which is brought by the shareholders agianst the
directors third party. It is described in the complaint on the director of the company form other
minorities shareholders and other members outside from the companies. This claim regime under
the section 11 of the United Companies Act 2006 which helps in identify the problematic areas
as well as providing the suggestion reforms. This article objective is not only to identify the
current provisions but also analysis the omission which comes under the section 11. this article is
focus on the issues which are merit great attention as well as there are several objectives which
are reform in the article to remove the complexity and balance the derivative claim. In further
illustration, this article also aims to ensure that all the legal framework on derivative claims
regarding the risk of companies are addressed the claims. It can be commenced under the
common law by the minorities shareholders and other members. The shareholders case prima
facie on the company and the case relief in the expectation to the rule which is Foss V.
Harbottle. According to the law , the company is the only claimant and court will not interfere in
the internal management of the company(Zouridakis, 2019). If the majority of the shareholders
of the company in the meeting agrees not to bring claim than it is on the discretion of the
company and its members to bring claim against the company or not Whereas according to the
new statutory provisions states that more wide and complex provisions regarding the situations
related to derivative claim that can be bought by the shareholders. The provisions states that in
severe cases such as negligence, fraudulent conduct , breach of duty and trust by the directors or
any other member of the company registered under Companies Act 2006. In this case if the
directors commits any illegal act which affects the company , then they are liable for that
particular act. The court after considering various circumstances and in the interest of the
company laid down certain exceptions where litigation by the shareholders are allowed i.e.
where the act committed is illegal and ultra vires to provisions of the act then in that case
litigation is allowed and shareholders can take legal action against the directors or other
members. The other circumstances where the alleged act could have been done in legal manner
but there has been violation of the articles of the company and the third circumstances where the
act committed has resulted into invasion of the claimant personal and individual rights as a

member of the company and having interest in the company. The last one is the where the
company is controlled by the majority of the shareholders and fraudulent act has been committed
against the minority shareholder than in that case this gives the right to the minority shareholders
to bring claim against the shareholders who have committee the act that also caused loss to the
company.

CONCLUSION
From the above report it can concluded that laws are considered important to regulate the
human behaviour. It is also observed that every country has its own laws and regulations and it is
the responsibility of the citizen and organisation to comply with those acts. The report has
summarized the validity of the contract law and states that in order to enter into valid contract it
is necessary to have valid offer by the party and acceptance by the other. According to the case
study Karen has no right to file suit against the company for the breach of contract as no contract
was entered between the parties. The report also reflects on the situations where the principle of
corporate veil can be applied by the court where director can be held liable for their acts which
affected the company. The case study of Foss v Harbottle is also discussed where there is
change in the derivative actions under the company act 2006 has been amended and gives right
to the minority shareholders to take legal action against the directors of the company.

REFERENCES
Books and journals
Allam, Z., 2018. On smart contracts and organisational performance: A review of smart
contracts through the blockchain technology. Review of Economic and Business
Studies. 11(2). pp.137-156.
Babanina, V., 2018. Definition of the Criminal Legislation and its Correlation with Criminal
Law. Науковий вісник Національної академії внутрішніх справ.(4). pp.133-145.
Banoo, S., 2018. Lifting of the Corporate Veil: Decoding the Doctrine of Separate Legal
Personality. Available at SSRN 3609245.
FBA, and et.al., 2020. Anson's law of contract. Oxford University Press.
Gelter, M., 2019. Centros and defensive regulatory competition: some thoughts and a glimpse at
the data. European Business Organization Law Review. 20(3). pp.467-492.
Gerner-Beuerle, C. and Schillig, M.A., 2019. Comparative company law. Oxford University
Press.
Greco, E., 2018. Shareholders' remedies: the derivative action in the UK, the USA and Italy.
Hamadziripi, F. and Osode, P.C., 2021. The Leave of Court Requirement for Instituting
Derivative Actions in the UK: A Ten-Year Jurisprudential Excursion. Potchefstroom
Electronic Law Journal (PELJ). 24(1). pp.1-25.
Klee, L., 2018. International construction contract law. John Wiley & Sons.
Medway, D., Roper, S. and Gillooly, L., 2018. Contract cheating in UK higher education: A
covert investigation of essay mills. British Educational Research Journal. 44(3). pp.393-
418.
Poole, and et.al., 2021. Contract law concentrate: law revision and study guide. Oxford
University Press.
Sandberg, R., 2018. Clarifying the definition of religion under English law: the need for a
universal definition. Ecclesiastical Law Journal. 20(2). pp.132-157.
Tjio, H. and Tung, C., 2018. Reverse veil-piercing in Singapore and its consequences. SacLJ. 30.
p.1133.
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Witting, C.A., 2019. The basis of shareholder liability for corporate wrongs. In Enforcing
Shareholders’ Duties. Edward Elgar Publishing.
Zouridakis, G., 2019. Shareholder Protection Reconsidered: Derivative Action in the UK,
Germany and Greece. Routledge.
Online references
Foss v Harbottle., 2020. [Online]. Available through <https://lawlex.org/lex-bulletin/case-
summary-foss-vs-harbottle-1843/24620 >
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