Analysis of Vicarious Liability and Directors' Duties in Company Law

This assignment presents a detailed case study analyzing vicarious liability and directors' duties within the framework of company law. Part A examines the liability of Swimming Pool Co. for the actions of its manager, Martin, exploring issues of vicarious liability, employee duties, and the potential breach of contract. It considers whether the company can avoid liability due to Martin's failure to follow instructions, Martin's liability to the company, and whether Martin breached any laws by starting his own business. Part B shifts focus to Borisda Builders Pty Ltd, assessing the breaches of duty committed by its directors. It scrutinizes the actions of Vesna, Zvaid, Sergey, and Llyych, evaluating their adherence to the Corporations Act 2001, including duties of good faith, care, diligence, and the avoidance of conflicts of interest. The analysis provides a comprehensive understanding of legal principles and responsibilities in both employment and corporate contexts.

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Contents
Part A..........................................................................................................................................................2
Issue........................................................................................................................................................2
Rules........................................................................................................................................................2
Application..............................................................................................................................................3
Conclusion...............................................................................................................................................5
Part B...........................................................................................................................................................5
Issues.......................................................................................................................................................5
Rule.........................................................................................................................................................5
Application..............................................................................................................................................6
Conclusion...............................................................................................................................................8
Reference List.............................................................................................................................................9

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Part A
Issue
There are four major issues that are raised in the given scenario:
i. Is Swimming Pool Co (company) is liable for the actions of Martin?
ii. Can the company claim that they are not liable for the actions of Martin as he has not
follow the directions of the company?
iii. Is Marin liable to the company for any of his actions?
iv. Have Martin breaches any law by setting up his own company?
Rules
The law of vicarious liability is a law that imposes liability on the employer which is raised by
the employee by carrying on the acts during his business course. The main requirements to prove
vicarious liability are: (Sykes 1988)
i. There must be relationship of an employer- employee (Hollis v Vabu [2001];
ii. That the employee must be acting a per the instructions and directions of the
employer;
iii. That the acts must be carried out within employment course (Deatons Pty Ltd v
Flew [1949];
iv. That the acts of the employee are not of personal nature.
Further, there is another concept that prevails in a relationship of an employer and employee.
When employee is appointed by the employer then he must act as per the directions of the
employer as the employee is considered to be his agent. Normally, when the authority is directly
transferred to an employee either expressly or implied then it is an actual authority and will bind
the employer by the acts of the employee carried on in business course (Hely-Hutchinson v
Brayhead Ltd [1967].
But, when an employee carried out activities which are outside his authority then normally it
does not hold the employer liable unless the acts are carried out within ostensible authority. As
per ostensible authority, if the third party is making contract with the agent on the good belief
that the agent doe possess the authority to bind the principal then the acts are enforceable against

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the company (Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971].
(Gibson and Fraser 2013)
Also, when any contract is made amid the parties, then, the parties must company with the terms
of the contract. The terms of the contract can be: (Latimer 2012)
i. Condition – These are the terms which are the essence of the contract and if not
performed will render the contract terminated and the aggrieved can seek damages as
well (Poussard v Spiers and Pond (1876);
ii. Warranty – The terms which are not the essence of the contract are warranty and the
aggrieved can only seek damages (Bettini v Gye (1876).
Also, many a times the employer tries to restrain an employee to carry on his business for
particulate time and at particular geographical region in order to protect his legitimate interest
and good will. Such clause is restrained provided they are made part of the contract (Woolworths
Limited V Mark Konrad Olson (2014). (Brown 2016)
Application
Issue 1
Martin is employed by the company as a manager. It is submitted that the company can be hold
for the liability that is raised by Martin under the law of vicarious liability mainly because:
i. Martin is employed by the company as a manger for their Tasmania division. Thus,
the relationship of the company and Martin is of employer and employee. Martin is
paid with a fixed amount of salary but he can receive bonus if he reaches his annual
target of a particular amount or signing new customers.
ii. The main tasks of Marin were that he has to quote to potential customers on the cost
of installing pools, to draws up any new contract, to make sure that deposits are paid
by the potential buyers and to deposit the money in the bank accounts of the
company.
iii. By carrying out these actions, Martin has made several new customers. Thus, the
contracts that are carried out by Martin are within the course of his employment.

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iv. But the acts that are carried out by Martin has resulted in loss to the customers. The
advice by Martin related to the placement of the pool was found to be inadequate
which has resulted in the sinking of the pools in the ground. If the repairs are carried
out then it will cost company considerable.
Thus, the acts of Martin are carried within employment course and the acts are not of personal
nature. Thus, the company is liable for the acts of Martin and must pay the aggrieved customers
for the losses that are suffered by them.
Issue 2
It is submitted that are various duties that are assigned to martin by the company. However,
Martin did not comply with the same as he entered into contracts with the potential customers for
the construction of the pools but which were later found out to be different from what they have
contracted for. Thus, martin is not following the directions of the company. But, if the customers
can prove that they are carrying on the contractual relationship with Martin on a goof belief that
Martin has the requisite authorities to make contracts with the customers then such contracts are
brining on the common y.
Issue 3
Now, Martin can be held to be liable to the company mainly because the company has imposed
various duties on Martin one of which was that Martin must deposit the money to the bank
accounts of the Company, Now, this is one of the most fundamental term of the contract of
employment and thus must be considered as a condition.
But, it is found that some of the deposits are not deposited by Martin in the bank account of the
company. It is appeared that Martin has kept the part of the money to himself.
So, the major term of the contract was vaulted by Martin. So, the company can breach the
contract and sue martin for the losses that are suffered by the company.
Issue 4
Martin is setting up his own business which will compete with the business of the company.
Company can only restrain Martin provided a restrain clause was made part of the contract.

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Since no such clause was made part of the contract. Thus, Company cannot take any action
against Martin.
Conclusion
So, the company is liable for the actions of Martin under vicarious liability. Also, the company is
liable for the actions of Martin by applying ostensible authority. Also, Martin is liable to the
company as a condition is violated by him. Also, Martin is not in breach by setting up his own
company as the restrain clause was not made part of his employment contract.
Part B
Issues
What are the various duties that are violated by the directors of Borisda Builders Pty Ltd
(Borisda)?
Rule
The corporation Act 2001 is the governing legislation that deals with the provisions that help in
the running of the company. Section 9 of the Act defines a director as a company officer who is
appointed at such position. Section 198A of the Act defines a managing director who is dealing
with the day to day activities of the company (Howard Smith Ltd v Ampol Petroleum Ltd (1974).
The directors must comply with several duties which include: (Dermansky 2018)
i. Section 180- The duty of good faith must be carried out by all the directors officers of
the company like a prudent man in the like situation (ASIC v Cassimatis (No. 8)
[2016].
ii. Section 181- the directors and officers must act with all due care and diligence in
order to achieve the best interest of the company and the acts must be carried with
proper purpose (ASIC v Fortescue Metals Group Ltd [No 5] [2009].
iii. Section 182 and section 183 – no company director must use his position and
information in such a manner which is detrimental to the company and advantageous
to the directors (R v Byrnes (1995).

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iv. Section 191-195 – the directors must avoid conflict of interest and if the conflict
exists then the interest of the company must prevail.
v. Section 588G – the directors must prevent insolvent trading. A director must make
sure that no financial burden must be imposed on the company which results in its
insolvency and if any debt is incurred then the directors are in breach of section 588G
(McLellan in the matter of The Stake Man Pty Ltd v Carroll [2009].
Application
Borisda Builders Pty Ltd is engaged in the business of home building. The company has 15
shareholders including the numbered of directors. The directors met in July and decided that a
divided on 9c per share must be declared. But, there was severe declined in the new contracts in
last 2 months. This has made financial difficulties to the company.
The company has five directors and there are several duties that are breached by them.
Breach by Vesna
Vesna holds engineering and an MBA degree. She has the expertise to understand the working
of a home building industry and how the finances work.
Thus, the acts are in violation of section 180 of the Act as Vesna has not acted in good faith as
she advices Doug company and by attending its board meetings. Doug (brother of Vesna) is the
owner of Doug the designer Pty Ltd. thus she acted in such manner so that advantages are
attained by Dough at the cost of Borisda.
There is breach of duty of section 181 as she did not act in a careful and diligent manner. The
Doug Company relies on the advices of Vesna and a contract was made amid Doug and Borisda.
Vesna made efforts to make sure that a contract must be made amid the two companies by
agreeing all the other directors of Borisda. She is the person who collected all the quotes for this
contract work and which exceeded all the quotes of Dough Company. This was mainly because
of the fact that Dough company was quoting below the cost price of the work mainly because
Vesna has promised that there would be more work that can come this way. Thus, her acts are
totally carried out considering the interest of Dough and not Borisda.

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There is breach of section 191-195 as Vesna prevail her own interest over the interest of the
company by giving suggestions to Dough which will hamper the functioning of Doug.
Breach by Zvaid
Zvaid helped Sergey be made part of the board of directors even though he does not have much
of expertise and has history of depression and low self esteem. Thus, Zvaid did not acted in a
care full and diligent manner and thus there is breach of section 181.
Breach by Sergy
Sergy has not read single financial reports that are sent to him after his appointment or he read
any reports before his appointment. Thus, he is not acting in good faith and in the best interest of
the company by giving decisions which are based on no knowledge of the company financial
position. Thus, there is breach of section 180 and section 181 of the Act.
Breach by Llyych
He is an account and manages the monthly financial reports of all the directors.
Llyych attended the meetings of Borisda and suggested that the company must indulge in the
business of the construction of cubby houses for children by reviewing the financial position of
the company. the idea which was rejected by Vesna along with other members did not approve
the proposal. Disappointed, Llyych enters into a contract with Canweafixdat? Pty Ltd. as per the
contract Llyych will be paid 10% of the commission for every cubby house sold and he was also
placed on their board.
Thus, there is clear breach of section 182 and 183 as llyynch misuse his position and financial
information of the company for his own benefit at the cost of the company.
Breach by Mikhail and Zvaid
Mikhail and Zvaid are working directors and manages the day to day activities of the business
and thus by not reviewing the activities of the other directors they are in breach of section 1180-
181 of the Act;
Breach of section 588G

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The company is facing financial crunches but is still allowed to trade. Thus, the directors raised
dent knowing that the same might result in insolvency of the company and thus there is breach of
section 588G.
Conclusion
There are several breaches that are incurred by the directors, that is breach of section 180-183,
section 191-195 and section 588G of the Act.

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Reference List
Books/Articles/Journals
Brown , Mayor 2016, ‘A global guide to ‘restrictive covenants’ .
Dermansky, P. (2018) Should Australia Replace Section 181 Of the Corporations Act 2001 (Cth)
With Wording Similar to Section 172 of the Companies Act 2006 (UK)?. <
https://law.unimelb.edu.au/__data/assets/pdf_file/0003/1709832/60-
Should_Austalia_replace_s181_of_the_Corporations_Act3.pdf>.
Gibson, Andy and Fraser, Douglas 2013. Business Law 2014, Pearson Higher Education AU.
Sykes, Al, 1988, The Boundaries of Vicarious Liability: An Economic Analysis of the Scope of
Employment Rule and Related Legal Doctrines, Harvard Law Review
Latimer, Paul 2011, Australian Business Law 2012. CCH Australia Limited.
Case laws
ASIC v Cassimatis (No. 8) [2016].
ASIC v Fortescue Metals Group Ltd [No 5] [2009].
Bettini v Gye (1876) 1 QBD 183
Deatons Pty Ltd v Flew [1949];
Howard Smith Ltd v Ampol Petroleum Ltd (1974).
Hely-Hutchinson v Brayhead Ltd [1967] 1 QB 549 .
Hollis v Vabu [2001].
McLellan in the matter of The Stake Man Pty Ltd v Carroll [2009].
Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711;
Poussard v Spiers and Pond (1876) 1 QBD 410.
R v Byrnes (1995).

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Woolworths Limited V Mark Konrad Olson (2014).