Advise as to the liability of the parties both under common law and the Corporations Law.

nnHow to answer for Questions (you have to use HIRAC method)nnSo how do I answer a HIRAC problem question?nnFor each topic, you will be provided with a ‘guide to problem solving’. Thisnn‘checklist’ will assist you to identify the relevant points which you will need tonnconsider when answering the problem questions.nnWhen answering legal problem questions generally, it is recommended that you usennthe HIRAC method. If you are not familiar with the HIRAC method, please read thennfollowing explanation so that you can draw upon this method when answering legalnnproblem questions. HIRAC simply stands for Heading, Issue, Rule, Application andnnConclusion. That is:nnH – HeadingnnIdentify the major theme as your heading.nnI – IssuennState the legal issue raised.nnR – RulennYour next sentence will be a statement of the legal rule(s) ornnprinciple(s) that applies to the situation. State the principle clearlynnand concisely in your own words, and indicate the case ornnlegislation that is your primary source of that principle.nnA – ApplicationnnYour next sentence should be your application of the law – that is,nnyou apply the legal principle to the facts in the problem. This isnnwhere you can draw heavily upon the case law. You could use thennfollowing ways to apply the legal rule:nn• The legislation could be interpreted to mean … which wouldnnapply to these facts because …nn• B would need to argue that …nn• What B would need to show is … B can show this becausenn…[refer to relevant facts].nn• There is not sufficient information, but B would only successfulnnif she could demonstrate that … then …nn• In the facts given, B has …. This is similar to the facts in A v Bnnwhere the court concluded that ….nn• Unless A could demonstrate that … then …nn• A would not succeed unless …nn• A would only succeed if …nnC – ConclusionnnThis last part is where you state your conclusion. That is, what isnnthe result when you’ve applied the legal principle to the facts you’renngiven? For example, is there a bailment or not, has A breached thennrelevant legislation, does B have a legal remedy? When doing this, have regard to which (if any) party you have beennnasked to advise.nnYou could use the following ways to state your conclusion:nn• It could be argued that…nn• It is arguable …nn• I would advise B to argue that …nn• It would be possible to conclude that …nn• It is unlikely that …nnFinally – revise your answernnOnce you have finished writing your answer, ask yourself thennfollowing questions.nn1. Did you prepare a plan before you started writing your answer?nn2. Did you answer the specific question/s asked by thennProblem / assignment?nn3. Did you support your answer by referring to the relevant legalnnprinciples?nn4. Did you support your answer by referring to the correct andnnmost relevant authorities (primary sources – cases andnnlegislation)?nnNB. There may be case law and statute law that applies to annproblem. Which is the most current law?nn5. Have you applied the law to the relevant facts given in thennproblem?nn6. If you’ve made some assumptions because you weren’t told allnnof the facts you needed to know to answer the question, did younnclearly state those assumptions?nn7. Is your written answer well-constructed?nn• Is it logical?nn• Have you used clear ‘everyday’ language?nnHIRAC ExamplennBelow is an example of a problem question answered using the HIRAC structure.nnBrown’s Steel searches the internet for a new lathe. An Australian supplier isnnlocated which promises delivery in two days. The manager downloads andnncompletes the necessary on-line document and clicks the ‘I agree’ button withoutnnreading all the terms. Two days later when the lathe is delivered, Brown’s Steelnnis advised that it is responsible for the delivery costs. When the managernncomplains, he is told that the cost of delivery, and the fact that the purchaser wasnnresponsible for this cost, was included in the on-line conditions.nnAdvise Brown’s SteelnnHeadingnnThis is a problem dealing with e-commerce and ‘click wrap’ contracts.nnState the basic area of lawnnIssue/snnIs there an enforceable contract between Brown’s Steel and the Australian Supplier?nnSpecifically, is the term regarding delivery costs enforceable?nnTry to phrase this in legal terms – rather than just asking ‘does B have to pay thenndelivery costs’ which is clearly what B is worried about, think ‘if this case camennbefore a court what legal issue(s) would the lawyers be arguing about?’ Here Bnnwould be trying to argue that the contract (or that particular term) was notnnenforceable. This is important because getting the right issue helps you focus onnnwhat rules are relevant and what facts are important in the application)nnRulesnnThe relevant law which applies is the law where the material was downloaded (DownnJones v Gutnick).nnIn ‘click wrap’ contracts, parties may be bound by the terms and conditions bynnclicking the ‘I agree’ button (Hotmail Corp v Van$ Money Pie, Caspi v MicrosoftnnNetwork)nnCondense the rules. Keep them simple and to the point. Try to avoid quoting fromnncases or legislation, put it in your own words. Start with a broad principle (ie tonnestablish jurisdiction) and then work your way down to the more specific rules – donnnot include the facts of the cases just the relevant rule – this could be case lawnnand/or legislation.nnApplicationnnThe appropriate jurisdiction for this matter is the Australian courts as both companiesnnare Australian and the internet agreement was downloaded in Australia.nnAlthough there have been no Australian decisions about ‘clickwrap’ contracts, it isnnlikely that Brown’s Steel will be bound by the terms and conditions of thenndownloaded agreement by virtue of the manager clicking the ‘I accept’ button evennnthough he did not read the terms. This is provided all requirements regardingnnformation of contract have been complied with. There is nothing in the facts whichnnsuggests that this is not the case.nnRefer to the specific facts to explain why/how the rules apply to the scenario ie bothnncompanies are Australian thus…., the manager clicked the ‘I agree’ button, thus… This is also the part in which you can refer to facts of cases if they are relevant – iennto explain why B may be bound by a rule (the facts are very similar to x v y or to trynnto distinguish why B may not be bound by a rule – ie x v y involved fraud so notnnapplicable to B.nnConclusionnnThe term is enforceable against Brown’s Steel, even though the manager was unawarennof it. Brown’s Steel is liable to pay the delivery costs. Be specific – include thennpractical consequence – tell your client what the outcome is most likely to be basednnon the law.nnBusiness law QuestionsnnQuestion 1nnJack, Nolan, Andy, Helen and Erica were the directors of Gemsales Pty Ltd, a company engaged in the business of importing and supplying jewellery as wholesalers to the local market.nnThe company decided that as the market was becoming more competitive it needed to expand its business as it felt with increased volumes of sales it would be able to lower its prices and be more competitive. In order to do so it obtained a $4 million dollar loan from the Friendly Bank Ltd. $3 million was used to buy more stock and $1 million was used to buy a large new warehouse and showrooms from Traders Pty Ltd.nnAndy was not at the meeting that had made these decisions as he was in hospital recovering from a serious accident. Erica, as was her usual custom, had not attended the meeting but signed the requisite documentation agreeing to the expansion of the business and the getting of the loan. Helen who attended, said she did not know if she agreed and abstained from voting. Jack and Nolan both voted to go ahead with the expansion and the getting of the loan.nnAt about this time Nolan has established contact with Mark, who was setting up a new business as a retailer of jewellery. Mark was looking for reliable suppliers, but said he would not deal with Gemsales Pty Ltd as he did not like Jack, the Managing Director. Not wishing to miss out on such a lucrative business opportunity, Nolan arranged to set up his own business as a jewellery wholesaler and a contract was entered into between Mark and Nolan for the supply of jewellery.nnSix months later, Nolan resigned as a director. At the same time it was clear the company had over-extended itself and was insolvent and could not pay the interest on its loans.nnIt also became clear that Nolan was a major shareholder in Traders Pty Ltd and the other directors were unaware of this at the time of the purchase of the warehouse and showrooms. Furthermore, Nolan had been approaching other established customers of Gemsales Pty Ltd and had secured orders for his own business.nnAdvise as to the liability of the parties both under common law and the Corporations Law.nnQuestion 2nnEric, Mary and Mei Ling are the only shareholders and directors of Nemo Pty Ltd, a trading company that supplies food products to cafés around Brisbane. In recent times, Nemo’s cash flows have been pressured because several large customers, including CafeNow (a large franchise coffee shop with hundreds of outlets), have been late in paying their invoices. This has meant that on several occasions Nemo has not had sufficient funds to pay its bills, particularly rent. The owner of its warehouse (Leaseco Ltd) has written several letters warning that if Nemo is late in paying its rent, it will be evicted from the premises.nnAt the same time as the company’s cash flow troubles, the employees take industrial action in an attempt to receive a pay increase. This s trike stops deliveries from the warehouse for two days, with several customers cancelling their supply contracts with Nemo. The cash flow problems are increased, when the company’s bank, Eastbank Ltd, threatens to appoint a receiver over the company, if it does not pay its monthly interest within two weeks.nnEric, Mary and Mei Ling convene a board meeting to consider their options. Eric and Mei Ling would like to negotiate with their creditors to restructure the company’s debts. Mary, however, would like to sell out and change industries.nnAdvise Eric, Mary and Mei Ling as to their options under the external administration procedures under the Corporations Act, including the advantages and disadvantages of such procedures.nnQuestion 3nnCompany A (which markets computer software) and company B (which runs a computer training college) enter into an agreement to form a new company, company C. Company C is to provide onsite computer training for retail businesses that use company A’s software. Shirley (a director of company A) and Laverne (a director of company B) are authorised by the boards of directors of their respective companies to, as a matter of urgency, take whatever steps are necessary to form company C and to secure training contracts on its behalf.nnShirley and Laverne instruct solicitors to register a company. More quickly than they anticipate, they manage to attract a large training job from company Y. Purportedly on behalf of company C, they execute a contract with company Y. They have told the company Y representatives that company C is not yet registered. The parties agree to include a clause that provides that if company C (or a company reasonably identifiable with it) is not registered within two months of the date of the contract, then company Y can rescind the contract.nnConsider these facts in the light of each of the following scenarios and questions.nn1. Assume company C is registered a month after the contract is executed. What steps must Shirley and Laverne take to ensure that:nn· the contract with company Y is binding on company C; andnn· neither of them is personally liable for the actions of company C under the contract.nn2. Assume company C is not registered within the two-month period. What remedies does company Y have and against whom?nn3. Assume Shirley and Laverne do procure the registration of company C. Company A, company B and two individuals, C and D, become its shareholders. Shirley and Laverne organise the transfer of assets from their own company, company SL, to company C at grossly inflated values. Company C becomes insolvent and a liquidator is appointed. Once registered, neither Shirley nor Laverne have taken any role in the management of company C. Despite this, what remedies might the liquidator still pursue against Shirley and Laverne?nnQuestion 4nnMNK Mining Ltd is a company that needs funds to expand its business. The company plans to engage in a large scale equity capital raising in the next 12 months but wishes to raise as much debt as possible before that time while cheap debt is readily available.nnMNK has been involved in fundraising discussions with a venture capital firm Debt Capital LLP (based in New York). Debt Capital has agreed to lend MNK $30 million in a single loan facility. Debt will also assist MNK to establish a further $30 million unsecured note issue for domestic investors that will carry 12 per cent interest and may be convertible to ordinary shares in MNK at the option of the noteholder in 5 years’ time. MNK makes a presentation to wealthy investors at a private function conducted by Debt Capital in Sydney.nnDebt Capital’s loan document is based on an old precedent and contains a floating charge clause covering all of the company’s property. MNK also has a long-term lease with LeaseCo covering mining equipment for the next 8 years.nnWhat legal issues under the Corporations Act and the PPSA are raised by this situation?nn Question 5 nnThaiwood Ltd (Singapore) develops plantation land. It instructs Rocker to setup an Australian subsidiary. Rocker lives in Australia, the other directors live in Singapore. Rocker is instructed by Thaiwood to buy a property in Victoria. Rocker signs a purchase contract in his name, for and on behalf of Auswood Ltd. Rocker is one of three directors of Thaiwood Ltd and the same directors are proposed for Auswood. Rocker tells the vendor Greenhills Limited that the contract is to be changed to the name of Auswood Ltd as soon as it is established. Rocker also engages Treefellers Pty Ltd to clear the boundary. Without checking with Rocker, Treefellers begin clearing only to be stopped by an injunction filed by the EPA. nnAuswood Ltd is established. Auswood’s prospectus aims to raise money to develop plantation wood. Auswood’s directors learn that the Victorian site is not suitable because of environmental legislation. The EPA have filed for breaches of their Act against Treefellers Pty Ltd. Greenhills provides notice requiring settlement. nnExplain who is liable, if anyone: nn(a) On the contract for the purchase of land. (b) On the contract for clearing. nnAdvise the directors of Auswood Pty Ltd regarding their duties. nnAnswer only in respect to the Corporations Act 2001; do not address any property or conveyancing issues or law. nn Question 6 nnA and B run a successful plant nursery for about ten years. A runs her business activities through a company called A Pty Ltd. B runs her business activities through a company called B Pty Ltd. nnA convinces B to incorporate in order to raise money and decrease their liability. A contacts her accountant who sets up a new company Anzac Nursery Inc. (ANI) with A and B as directors and A Pty Ltd as the shareholder. B, through B Pty Ltd lends $10,000 to ANI. nnAfter some period, A and B fall out and are unable to decide anything together. nnAdvise B of her legal remedies and how a court might assess any action for remedies she might pursue. nn Question 7 nnThree Diamonds is a car manufacturer and is a listed entity with roughly 100,000 shareholders. Three Diamonds board consists of Peta (Chairperson), Ruth (MD) and Tom (CFO) and two non- executive directors Vince and Xantha. The company secretary and general counsel is Belinda who is in charge of legal compliance and governance. The company’s review date is 30 March each year. nnThree Diamonds relies on corporate fleet sales for about 40% of its business. The global financial crisis results in a serious downturn in sales volumes from corporates. This puts sudden and severe nnconstraints on its cashflow. It is not able to quickly reduce its overheads to meet the falling demand. Its mechanisms to raise funds by utilising its assets are already ‘maxed out’ due to a major reengineering plan. Its banks are unwilling to provide further funds. nnAs a result Three Diamonds embarks on a strict credit management plan, delaying payments as long as possible, mostly until legal action is threatened. Many suppliers require cash only on supply. nnThree Diamonds continues to trade until 30 June 2011, when the ATO lodges a director penalty notice on the board members for failing to pay company taxes. nn1. Is the company insolvent at any particular time? 2. What liability could the directors face if the company were insolvent? 3. Would the company secretary also face this potential liability? nnnn Question 8 nnRaising capital is a challenging activity. nnExplain the application of the Corporations Act 2001 as it affects listed and proprietary companies in their pursuit of funds from both share and debenture sources. Pay particular attention to the responsibilities of directors and any remedies available relative to directors’ breaches of the Act. nnIf economic rationalism is the primary determinant, do you agree that the Act effectively balances the interests of those raising money and those investing money?nn