Slater and Gordon Law Firm: Examining Corporate Governance Issues

This case study analyzes the legal issues surrounding the Slater and Gordon law firm, focusing on a class action lawsuit alleging misrepresentation of financial prospects after acquiring a division of Quindells. The analysis examines potential breaches of directors' duties under the Corporations Act 2001 (Cth), specifically sections related to good faith, continuous disclosure, and misleading statements. It discusses the role of the Australian Securities and Investments Commission (ASIC) in enforcing these regulations and the potential civil liabilities for directors. Furthermore, the case explores the concept of piercing the corporate veil, considering whether the directors can be held personally liable for the company's actions due to statutory violations. The document concludes that ASIC can initiate proceedings against the firm, and the corporate veil can be lifted due to the statutory requirements of the Corporations Act. Desklib provides access to similar case studies and solved assignments for students.

Running Head: BUSINESS LAW
BUSINESS LAW
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Author Note

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The case study of Slater and Gordon Law firm
Class action had been led against the firm Slater and Gordon as it had misrepresented its
financial prospects. The Rival firm Maurice and Blackburn had led the class action. This class
action involved 250,000 dollars and 3000 members. It was alleged by the share holders that the
firm had misrepresented its financial position after it suffered a loss by acquiring a division of
the company Quindells. It had been alleged by Plaintiff Matt Hall that he had relied on the
misrepresentation of the Law Firm and subsequently lost a million dollars as the price of the
shares had fallen drastically. He further accused the firm to have knowledge about the financial
trouble it was likely to face, however it failed to disclose the same to the public. It had been
accused by Mr. Watson, a shareholder of the firm that the firm had misrepresented its financial
prospects.
Issue:
The issue in consideration in the given scenario is whether misrepresentation of financial
prospects of the company constituted breach of the duties of the directors.
Rule
The rules regarding the operations of the company are governed by the Corporations Act 2001
(Cth) It is the duty of the Australian Securities and Invest commission (ASIC) to implement the
rules as provided in the Corporations Act1.
Section 183 of the aforementioned act states that it is the primary duty of the directors to act in
good faith and in the best interest of the company and the shareholders.
1 2001(Cth)

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It has been provided in section 674 if the Corporations Act 2001 (Cth) that companies and
corporations are required to continuously disclose information and material facts in accordance
with the listing rules. .
Section 728(1)a states that a person cannot offer securities by disclosing any document which is
misleading or deceptive in nature. Section 728(2) of the Corporations Act states that any person
who provides a statement about a future event without reasonable grounds or information to
believe that such statement is likely to have effect in future, would be considered to be a mis
statement. It can be said in accordance with the provision as provided in section 728(3) that any
person who produces misstatement or omits to mention new circumstances that have arose will
be held to have violated the provision of 728(1).
Section 1041 A states that any person who is engaged in business must not undertake any act
which is likely to effect the creation of an artificial prince for the purpose of trading the financial
market or financial product.
It has been clearly provided in section 1041B that a person should not commit any act or omit to
do any act which is likely to have a misleading and false appearance.
Application
It has been provided through the facts of the case study that the Law Firm Slater and Gordon mis
represented the financial prospects of the firm. The shareholders of the firm had relied on such
statements and had sustained losses subsequently. Thus the firm breached the provision of 728(1)
of the Corporations Act.

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The firm also did not comply with the legal provisions as mentioned in section 674 of the
corporations act which makes it mandatory for businesses to continuously disclose material facts
and information.
The directors of the firm also did not act in good faith and in the best interest of the company and
the shareholders and therefore breached the provision of section 183.
Conclusion
Thus to conclude, it can be stated that firm produced misstatements about their financial
statements and the directors breached their duty to act in good faith
Answer two
Issue
The issue that exists in the given scenario is what options are available to the law enforcement
agencies and the directors of the firm in relation to the legal issues as discussed above.
Rule
It is to be stated that the Australian Securities and Investment Commission has obligation to
enforce the legal provisions as provided in Corporations Act 2001 and regulate the operations of
the companies Australia.
The case Australian Securities and Investments Commission v Sino Australia Oil and Gas
Limited (prov liq apptd) 2 in which siilat issues had been raised and discussed.
2 [2016] FCA 42

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It has been clearly provided in section 1041H that no person should indulge in activity which is
likely to mislead or deceive people especially in relation to disclosure of information about the
financial products and services. If it is found that any person has contravened this section, such
person is likely to incur civil liability.
The court has the authority to disqualify a person to hold the post of a director if it is notified by
the ASIC and if it is convinced that the director breached his duty in accordance with section 206
of the CA.
. In order to assess whether a director should be disqualified or not the courts generally take into
consideration:
 The director’s conduct in relation to managing the company
 Any matter which is necessary to be taken into consideration and held to be relevant by
the court.
Section 1317e of the Corporations Act lays down the provisions of civil penalty. It has been
provided in this section that courts have the power to make a declaration of the convention.
However, the declaration of the court is required to have the civil penalty provision that had been
breached, name of the breaching party and the name of the court which is passed the declaration..
It has been provided in section 1317s that the courts have the option to relieve a director of his
liability partially or fully if it is convinced that the director had acted honestly while breaching
his duty and contravening the civil liability provisions.
Application

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Thus by analyzing the facts of the given scenario, it can be stated that the law firm Slater and
Gordon had given statements about its financial prospects which were likely to mislead and
deceive the public in accordance with the provision of section 728 of the Corporations Act.
Therefore as provided in section 1041H the directors of the firm would incur civil liability.
The Australian Securities and Investment commission can start proceedings against the company
for breaching the aforementioned sections.
Further it can be stated that the ASIC can bring charges of breach of director’s duty to act in
good faith and in the best interest of the share folders of the company as per the provisions of
section 183. If it is established that the directors had breached their duties, they will incur a civil
liability as per the provisions of section 1315e.
Conclusion
Thus in conclusion, it can be said that the Australian Securities Investment Commission can start
proceedings against the law firm for breaching the provisions of the Corporations Act as
discussed above
Answer three
Issue:
The issue that exists in this case is whether the corporate veil of the Law Firm Slater and Gordon
should be pierced by the court in this case:
Rule:

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The principle of the corporate veil had been established in the landmark case Salomon v.
Salomon and Co. Ltd.3 In this case it had been held that a company should be treated as a
separate legal entity and it should be differentiated from its owners. This had given rise to the
concept of the corporate veil. The courts in general bound by this principle they do not hold the
members of the company liable for the liabilities incurred by the company. However, in the case
Jones v. Lipman4 the courts had decided to pierce the corporate veil and disregarded the principle
of the separate legal entity of the company. The courts generally lift the corporate veil if it
assesses fraudulent activity is being carried on behind the veil of the company.. In this case Prest
v Petrodel Resources Ltd5 it had been held that the corporate veil can be lifted under statutory
provisions. Therefore in accordance with section 1041H of the CA it can be said that the director
would incur civil liability for breaching the section 728 of CA.
Application
In the given case study it has been provided that there had been misrepresentation of the financial
prospects of the law firm. The shareholders had relied on such information and suffered major
loss. It is evident in this case that the directors breached the provision section 728 and incurred
civil liability as provided in section 1041H. Further in this case the directors had failed to act in
good faith and in the best interest of the company of the company and the shareholders of the
company according to section 182 of the Corporations Act. It has been provided in this section
that any person who contravenes the provisions of this section will be personally liable. Thus it
can be stated that the corporate veil in this can be lifted due to the statutory requirements of
Corporations Act.
3 (1897) A.C 22
4 [1962] 1 WLR 832
5 [2013] 2 AC 415

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Conclusion
Thus, to conclude it can be said that the corporate veil can be lifted in this case.

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Reference List:
Corporations Act 2001 (Cth)
Salomon v. Salomon and Co. Ltd. (1897) A.C 22
Securities and Investments Commission v Sino Australia Oil and Gas Limited (prov liq
apptd) [2016] FCA 42
Jones v. Lipman [1962] 1 WLR 832
Prest v Petrodel Resources Ltd [2013] 2 AC 415.