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PROBLEM-BASED QUESTION
Mr Barry & Mrs Luke operate a roofing company which manufactures roofs for the commercial market in Darwin. The company is ‘No.1 in Roofs Pty Ltd’. Mr Barry is director of the company and Mrs Luke is also a director and secretary of the company. Both are equal shareholders in the company.
Mr Barry attends a meeting with No.1 in Roofs Pty Ltd’s main steel supplier Steel4u Pty Ltd. Steel4u Pty Ltd has been the company’s supplier for the last 25 years. At the meeting Mr Barry agrees to place an order of $2.5m (ten times the usual order). During the meeting Mr Barry suggest to Steel4u Pty Ltd that he has started a new company Cheap Roofs Pty Ltd with an old friend and they are planning to build roofs in Bali. He also mentions that Mrs Luke is not aware of the new company and is not a director or shareholder of the new company.
Steel4u Pty Ltd prepares a supply contract with No1. in Roofs Pty Ltd and Mr Barry is the only director to sign the supply contract. While Steel4u Pty Ltd’s general manager is aware that both directors of No.1 in Roofs Pty Ltd have always signed the supply contracts and Mr Barry’s comments at the meeting, he makes no further enquiries.
Mr Barry organises the goods to be delivered to the new company’s (Cheap Roofs Pty Ltd) premises without informing Mrs Luke. Cheap Roofs Pty Ltd undertake several jobs in Bali and returns a profit of $1.5m. In addition to this Cheap Roofs Pty Ltd commences tendering for contracts that would usually have been won by No.1 in Roofs Pty Ltd.
Steel4u Pty Ltd requests No.1 in Roofs Pty Ltd pay the outstanding contract of $2.5m. Mrs Luke, responsible for the accounts payable, responds to Steel4u Pty Ltd saying No.1 in Roofs Pty Ltd has no record of these goods and will not be paying the outstanding account.
REQUIRED:
Explain whether Steel4u Pty Ltd can enforce the contract against No.1 Roofs Pty Ltd. Consider whether it can rely on the assumptions in s129 of the Corporations Act. and whether an exception to the assumption by way of s128(4) is applicable. Refer to case law to explain your conclusion. (Words 1,000 (15 marks)
Briefly discuss whether Mr Barry has breached any director duties in establishing the new company and approaching clients. (Words 500 (5 marks)
Important: Your answer must use the IRAC structure and refer to the relevant case law.
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