LAW8916 Final Assessment T3 2025 Page 2 of 4
Assessment Type: Recorded Video Presentation (Individual)
Weighting: 50%
Learning Outcomes Assessed: Learning Outcomes 1, 2 and 3
Video Duration: 30 minutes
Due Date: 12 February 2026 (Friday) 11:59 pm (AEDT)
All submissions must be submitted with a signed Ozford Institute of Higher Education Cover Sheet via Moodle. Late submissions will attract a penalty of 5% of the assessment weighting for each calendar day late unless the lecturer grants an extension.
This assignment consists of two parts. Students are required to provide answers to the questions given in both parts in the form of a recorded video presentation. Students are also required to submit the PowerPoint slides used in the presentation.
Please refer to the marking rubrics for further information on the marking criteria.
Question 1 (10 marks)
a) Identify and briefly describe the two main sources of law that exist in the Australian legal system. (5 marks)
b) Explain how a single event such as a serious car accident can result in both a criminal prosecution and a civil lawsuit. How can the same set of facts lead to two different legal actions with different results? (5 marks)
Question 2 (10 marks)
In the tort of negligence, how does the court decide if a defendant has breached their duty of care? Discuss the role of the 'reasonable person' in this assessment.
Question 3 (10 marks)
a) Identify five differences between a partnership and a company. (5 marks)
b) A company is considering expanding its operations and needs capital to do so. What are the options available to the company in raising further funds? (5 marks)
Question 1 (10 marks)
David, a cafe owner, entered into a contract with Expert Kitchens Ltd (Expert Kitchens) to install a custom commercial oven. The contract price was $15,000, and the installation date was strictly set for 1 October as David had spent $5,000 on advertising for his Grand Opening on 2 October.
LAW8916 Final Assessment T3 2025 Page 3 of 4
On 1 October, Expert Kitchens informed David they cannot perform the installation because they had accepted another job. David was forced to find another supplier at the last minute, and because of the short notice, he has to pay $20,000 for the same oven and installation. Furthermore, the new installation was not finished until 10 October.
As a result, David had to cancel his Grand Opening, losing the $5,000 spent on advertising and also lost $8,000 in estimated profits from the eight days the cafe was closed.
Advise David on the legal remedies available to him under contract law.
Question 2 (10 marks)
Arthur, Bill, and Chris are the only shareholders of Sporting Pty Ltd, each owning 30 shares. Bill and Arthur are the only directors. Following a bitter argument, Bill and Arthur wish to change the company's constitution to ensure Chris can never become a director. However, they lack the 75% majority required for a special resolution because Chris holds more than 25% of the shares.
To bypass this, Bill and Arthur plan to pass a directors' resolution to issue 100 new shares to their friend, David, for $100,000. They know David will vote with them to change the constitution. While the company actually needs the $100,000 for capital works, the primary reason for the issuance is to dilute Chris's voting power.
Advise Bill and Arthur if they would breach any directors' duties under the Corporations Act 2001 (Cth) by going forward with their plan.
END OF ASSESSMENT
LAW8916 Final Assessment T3 2025 Page 4 of 4
| Criteria | High Distinction 80-100% | Distinction 70-79% | Credit 60-69% | Pass 50-59% | Fail 0-49% |
|---|---|---|---|---|---|
| Identification of the relevant rules (both parts) (20 Marks) | All the relevant rules have been stated correctly and in enough detail. All the relevant section(s) of the legislation and/or case(s) have been referred to as the sources of the law. | Most of the relevant rules have been stated correctly and in enough detail. Most of the relevant section(s) of the legislation and/or case(s) have been referred to as the sources of the law. | Many relevant rules have been stated correctly and in enough detail. Some rules may be missing or have not been stated correctly or in enough detail. Many relevant section(s) of the legislation and/or case(s) have been referred to as the sources of the law. | About half of the relevant rules have been stated. Other issues may be missing or have not been stated correctly or in enough detail. Some relevant section(s) of the legislation and/or case(s) have been referred to as the sources of the law. | Less than half of the rules have been stated or the statements of the rules are not correct or detailed enough. There is limited or no reference to the relevant section(s) of the legislation and/or case(s). |
| Critical discussion and analysis (Part A only) or Application of the rules to the facts (Part B only) (20 Marks) | Students deliver an in-depth and sophisticated discussion, demonstrating nuanced critical analysis that evaluates the effectiveness, limitations and policy implications of the rules, with clear originality of thought and strong reasoning. (Part A) All the rules have been applied to the facts of the case. The argument is cogent and very well structured. (Part B) | Students present a thorough and well-reasoned discussion of the rules, critically analysing their purpose, operation, strengths, weaknesses, and practical implications. (Part A) Most of the rules have been applied to the facts of the case. The argument is clear and well structured. However, there is some scope for further development. (Part B) | Students provide a good discussion of the rules, explaining their application and offering some critical commentary on their effectiveness, limitations, or broader impact. (Part A) Many relevant rules have been applied to the facts of the case. The argument is generally supported by reasons. However, some rules have not been applied, or further analysis should be added in some parts of the answer. (Part B) | Students demonstrate a limited discussion of the rules, offering basic commentary on their purpose or effect, with minimal evaluation of implications or limitations. (Part A) About half of relevant rules have been applied to the facts of the case. The argument is clear but not supported in many parts of the answer. (Part B) | Students provide little or no discussion of the rules, with minimal or inaccurate commentary, showing little understanding of implications, purpose, or relevance. (Part A) There is limited or no application of the rules to the facts of the case. Limited or no analysis is included to support the argument. (Part B) |
| Presentation (both parts) (10 Marks) | The presentation is highly professional, visually polished, and engaging, with slides and video seamlessly integrated to enhance understanding, demonstrating exceptional clarity, organisation, and confident, persuasive delivery. | The presentation is wellstructured, clear, and engaging, with slides and video effectively complementing the content, demonstrating professional visual design, smooth delivery, and effective communication of key points. | The presentation is clearly organised and mostly engaging, with slides and video effectively supporting the content, demonstrating competent visual design, clarity, and verbal delivery. | The presentation is understandable but may be inconsistently structured or unclear at times, with slides and video adequately communicating the content, though visual design or delivery may be basic. | The presentation is poorly structured, difficult to follow, with slides and video lacking clarity, coherence, or visual organisation, and the content is inadequately communicated. |
Note: This report is provided as a sample for reference purposes only. For further guidance, detailed solutions, or personalized assignment support, please contact us directly.
LAW8916 BUSINESS LAW
FINAL ASSESSMENT
SAMPLE SOLUTION
Trimester 3, 2025
Student Name: [Sample Student]
Student ID: [12345678]
Submission Date: 12 February 2026
Part A: Short-Essay Questions....................................................3
Question 1: Sources of Law and Criminal vs Civil Law..........3
Question 2: Breach of Duty of Care in Negligence................5
Question 3: Partnerships vs Companies and Capital Raising...7
Part B: Problem-Based Questions..............................................10
Question 1: Contract Law Remedies (David's Case).............10
Question 2: Directors' Duties (Sporting Pty Ltd).................12
References.............................................................................15
The Australian legal system operates under two primary sources of law: statute law (legislation) and common law (case law/judge-made law).
Statute law, also known as legislation or Acts of Parliament, consists of written laws created by parliament at both federal and state/territory levels. The Constitution of Australia establishes the framework for law-making powers, dividing them between the Commonwealth Parliament and State/Territory Parliaments.
Federal legislation is created by the Commonwealth Parliament and applies across all Australian states and territories in areas of federal jurisdiction such as taxation, immigration, corporations law, and trade and commerce. Examples include the Corporations Act 2001 (Cth), the Competition and Consumer Act 2010 (Cth), and the Australian Consumer Law.
State and territory legislation is enacted by state and territory parliaments and applies within their respective jurisdictions. This includes areas such as criminal law, property law, and contract law (to some extent). Where federal and state laws conflict in an area of concurrent power, federal law prevails under section 109 of the Constitution.
Statute law also includes subordinate legislation (delegated legislation or regulations) made by executive bodies under authority granted by parliament through enabling Acts.
Common law, also referred to as case law or judge-made law, consists of legal principles and rules developed by judges through court decisions over time. Australia inherited the common law system from England, based on the doctrine of precedent (stare decisis).
Under the doctrine of precedent, decisions of higher courts are binding on lower courts within the same hierarchy. The High Court of Australia is the highest court and its decisions bind all courts throughout Australia. State and territory Supreme Courts are the highest courts in their respective jurisdictions.
Common law develops through judicial interpretation of statute law and through the resolution of disputes where no statute applies. Important areas of common law include the law of negligence, contract law principles, fiduciary duties, and equity.
The relationship between these two sources is hierarchical: statute law takes precedence over common law. If parliament enacts legislation that contradicts common law principles, the statute will prevail. However, common law continues to play a vital role in interpreting statutory provisions and filling gaps where legislation is silent.
A single event, such as a serious car accident, can give rise to both criminal prosecution and civil litigation because the Australian legal system recognizes two distinct types of wrongs: crimes against society and civil wrongs against individuals. These operate on different legal principles, have different purposes, and can produce different outcomes even when arising from identical facts.
Criminal law deals with offences against the state or society as a whole. In a criminal prosecution arising from a car accident, the state (represented by the prosecution) brings charges against the alleged offender. Common criminal charges might include dangerous driving causing death or grievous bodily harm, driving under the influence, or negligent driving.
The purpose of criminal law is to punish wrongdoing, deter future offences, and protect society. The burden of proof rests on the prosecution, which must prove guilt "beyond reasonable doubt" - a very high standard reflecting the serious consequences of criminal conviction. If convicted, the defendant faces penalties such as imprisonment, fines payable to the state, community service orders, or license disqualification.
Civil law addresses disputes between private parties regarding rights and obligations. In a civil lawsuit arising from the same car accident, the injured party (plaintiff) sues the person who caused the accident (defendant) seeking compensation for losses suffered. This falls under the tort of negligence.
The purpose of civil law is to compensate the victim and restore them, as far as money can, to the position they would have been in had the wrong not occurred. The burden of proof rests on the plaintiff, who must prove their case "on the balance of probabilities" - a lower standard than criminal law, requiring only that it is more likely than not that the defendant was at fault.
If successful, the plaintiff receives damages (monetary compensation) for losses including medical expenses, lost income, property damage, pain and suffering, and future care costs.
The same factual circumstances can produce different outcomes in criminal and civil proceedings for several reasons:
1. 1. Different Standards of Proof: The criminal standard (beyond reasonable doubt) is significantly higher than the civil standard (balance of probabilities). A defendant might be acquitted in criminal court because the prosecution cannot prove guilt beyond reasonable doubt, yet still be found liable in civil court where the lower standard is met.
2. 2. Different Elements to Prove: Criminal offences require proof of specific elements including criminal intent (mens rea) and the prohibited act (actus reus). Civil negligence requires proof of duty of care, breach, causation, and damage - different elements that may be easier or harder to establish than criminal elements.
3. 3. Different Evidence Rules: Criminal and civil proceedings have different rules of evidence and procedure. Evidence admissible in one may not be admissible in the other, affecting the outcome.
4. 4. Different Purposes: Criminal law focuses on punishment and societal protection, while civil law focuses on compensation and restoration. These different objectives mean different outcomes are appropriate even with identical facts.
Consider a driver who runs a red light while distracted, causing a collision that seriously injures another driver:
Criminal Case: The state prosecutes for dangerous driving causing grievous bodily harm. The prosecution must prove beyond reasonable doubt that the driver was driving dangerously and caused the injuries. The driver might be acquitted if there is any reasonable doubt about their level of fault or whether their driving met the threshold of "dangerous."
Civil Case: The injured driver sues for negligence, claiming damages for medical bills, lost wages, and pain and suffering. They must prove on the balance of probabilities that the defendant owed a duty of care, breached it by running the red light, and caused the injuries. This lower standard makes it more likely the plaintiff will succeed, even if the criminal prosecution fails.
This dual system ensures that even if criminal punishment is not appropriate or provable, victims can still seek compensation for their losses, and society's interest in both punishment and compensation can be served.
In the tort of negligence, once a duty of care is established between the defendant and plaintiff, the court must determine whether the defendant breached that duty. The concept of breach involves assessing whether the defendant's conduct fell below the standard of care expected in the circumstances. The "reasonable person" test is the cornerstone of this assessment, providing an objective standard against which the defendant's conduct is measured.
The reasonable person test is an objective standard that asks: "What would a reasonable person have done in the defendant's position?" This test was established in the landmark English case Blyth v Birmingham Waterworks Co (1856), where breach of duty was defined as "the omission to do something which a reasonable man would do, or doing something which a prudent and reasonable man would not do."
The reasonable person is a legal fiction - a hypothetical individual who exercises average care, skill, and judgment in conducting themselves. This person is not exceptionally cautious or skilled, nor are they careless or incompetent. The reasonable person possesses ordinary intelligence, perception, and memory, and uses them in a reasonably prudent manner.
Critically, the reasonable person test is objective, not subjective. The court does not consider what this particular defendant thought or intended, nor their personal capabilities, experience, or characteristics (with limited exceptions). The defendant's actual state of mind, lack of experience, or personal limitations generally provide no defense.
In Vaughan v Menlove (1837), the defendant argued he had acted to the best of his judgment. The court rejected this subjective approach, holding that the standard is "the judgment of a man of ordinary prudence," not the defendant's personal judgment. This ensures consistent, predictable outcomes and prevents individuals from lowering the standard by pleading incompetence or poor judgment.
While the reasonable person test is objective, courts consider various factors to determine what a reasonable person would do in the specific circumstances. The leading Australian authority is the High Court decision in Wyong Shire Council v Shirt (1980), which identified key considerations:
5. 1. Probability of Harm: How likely was it that harm would occur? A reasonable person takes greater precautions when harm is more probable. In Bolton v Stone (1951), the low probability of a cricket ball hitting someone outside the ground meant no breach occurred despite the occurrence of such an incident.
6. 2. Magnitude of Harm: How serious would the potential injury be? A reasonable person takes more care to prevent serious injuries than minor ones. The severity of foreseeable harm affects the level of precaution required.
7. 3. Burden of Precautions: What would it cost (in time, money, and inconvenience) to eliminate or reduce the risk? A reasonable person balances the risk against the burden of preventing it. If precautions are simple and inexpensive, failure to take them more readily constitutes breach. Conversely, if precautions would be extremely burdensome, their omission may be reasonable.
8. 4. Social Utility: What is the social value or benefit of the defendant's activity? In Watt v Hertfordshire County Council (1954), it was held that greater risks might be acceptable when responding to emergencies or conducting socially valuable activities.
While generally objective, the reasonable person standard is modified for defendants who hold themselves out as having special skills or knowledge:
Professionals: A doctor is judged against the standard of a reasonable doctor, not a layperson. In Rogers v Whitaker (1992), the High Court held that medical professionals must meet the standard of reasonable care expected of their profession, taking into account accepted medical practice.
Skilled Tradespeople: Similarly, electricians, plumbers, architects, and other skilled workers are judged by the standard of a reasonably competent practitioner in their field, not an ordinary person.
Learners and Inexperience: Importantly, learners or inexperienced individuals in skilled activities are generally held to the same standard as experienced practitioners. In Nettleship v Weston (1971), a learner driver was held to the same standard as a competent driver. The rationale is that other road users are entitled to expect a minimum standard of competence.
The main exception to the objective standard is for children. The standard is that of a reasonable child of the defendant's age, not a reasonable adult. This recognizes that children's capacities for foresight and judgment develop with age. In McHale v Watson (1966), the High Court held that the standard is "what could reasonably be expected of a child of the same age, intelligence and experience as the defendant."
In practice, courts determine breach through the following steps:
9. 1. Identify the relevant facts and circumstances at the time of the defendant's conduct (not with hindsight).
10. 2. Determine what risks a reasonable person would have foreseen in those circumstances.
11. 3. Consider what precautions a reasonable person would have taken, weighing probability and magnitude of harm against the burden of precautions and social utility.
12. 4. Compare the defendant's actual conduct to this standard. If it falls below, there is breach.
The reasonable person test provides a fair, consistent, and objective method for determining breach of duty in negligence. By focusing on what a reasonable person would do rather than what this particular defendant did or intended, it sets a minimum standard of care that protects potential victims while allowing for practical considerations of risk, burden, and social utility. The test's flexibility through various factors ensures it can adapt to different circumstances while maintaining its fundamental objectivity.
Partnerships and companies are two distinct business structures in Australian law, each with fundamentally different characteristics. While both allow multiple persons to conduct business together, they differ significantly in legal structure, liability, regulation, ownership, and continuity.
Partnership: A partnership is not a separate legal entity distinct from its partners. The partnership is simply the collective of individuals carrying on business together. Partners are the business - there is no separation between the partnership and the partners themselves. This principle derives from common law and is reflected in partnership legislation.
Company: A company is a separate legal entity (legal person) distinct from its shareholders, directors, and employees. This principle, established in the landmark case Salomon v Salomon & Co Ltd [1897] AC 22, means the company can own property, enter contracts, sue and be sued, and incur debts in its own name, separate from its members. The "corporate veil" separates the company from those who own or manage it.
Partnership: Partners have unlimited personal liability for partnership debts and obligations. Each partner is jointly and severally liable for all partnership debts, meaning a creditor can pursue any partner for the full amount owed. Partners' personal assets (homes, savings, etc.) are at risk if partnership assets are insufficient to meet debts. Under the Partnership Act 1892 (NSW) and equivalent state legislation, every partner is liable for obligations incurred while a member of the partnership.
Company: Shareholders have limited liability - they are generally only liable for the amount unpaid on their shares (if any). Shareholders' personal assets are protected from company creditors. This limited liability is a fundamental feature of the corporate form under the Corporations Act 2001 (Cth), though it may be set aside in exceptional circumstances such as fraudulent trading, breach of directors' duties, or corporate groups where courts "pierce the corporate veil."
Partnership: Partnerships are relatively simple to form, requiring minimal formalities. A partnership can be created by express agreement (oral or written partnership agreement) or may arise by implication from the parties' conduct in carrying on business together with a view to profit. Registration is generally not required, though business name registration may be necessary. Partnerships are governed by state-based Partnership Acts (e.g., Partnership Act 1892 (NSW)) and common law principles.
Company: Companies require formal registration with the Australian Securities and Investments Commission (ASIC) under the Corporations Act 2001 (Cth). The formation process involves lodging prescribed documents, adopting a constitution (or relying on replaceable rules), appointing directors, and paying registration fees. Companies face extensive ongoing compliance requirements including maintaining registers, holding meetings, lodging annual returns, and keeping financial records. The Corporations Act is a comprehensive federal statute imposing substantial regulatory obligations.
Partnership: Partnership interests are not freely transferable. A partner cannot transfer their interest to a third party and make them a partner without all other partners' consent. The admission of new partners or retirement of existing partners typically requires unanimous consent unless the partnership agreement provides otherwise. Partnership interests cannot be publicly traded.
Company: Company shares are generally freely transferable property, unless restricted by the company's constitution or shareholders agreement. Shareholders can sell, transfer, or gift their shares (subject to any restrictions). Public companies can have their shares listed on stock exchanges and traded publicly. This makes companies more attractive for raising capital and providing exit opportunities for investors. Share transfers do not require other shareholders' consent unless specifically restricted.
Partnership: Partnerships lack continuity of existence. Traditionally, a partnership dissolves when any partner dies, retires, or becomes bankrupt, though partnership agreements often provide mechanisms to continue the business. Changes in partnership membership technically create a new partnership. The partnership is inherently dependent on the continued participation of its members.
Company: Companies have perpetual succession - they continue to exist regardless of changes in ownership or management. A company continues until it is formally wound up and deregistered. Death, resignation, or replacement of shareholders or directors does not affect the company's existence or its obligations and rights. This provides stability and makes companies suitable for long-term ventures and investments.
A company seeking to expand operations has various options for raising additional capital. The appropriate method depends on factors including the company's size, stage of development, existing capital structure, control considerations, cost, and regulatory requirements. The main options fall into two categories: equity financing and debt financing.
Equity financing involves raising capital by issuing shares, thereby giving investors an ownership stake in the company.
The company can raise capital through a rights issue, offering new shares to existing shareholders in proportion to their current holdings. This maintains existing ownership percentages if all shareholders take up their rights. Under section 254D of the Corporations Act 2001 (Cth), directors must obtain shareholder approval by ordinary resolution to issue shares, unless an exception applies (such as small proprietary companies or where shareholders have given advance approval).
Advantages: Maintains control ratios; often faster and cheaper than seeking external investors; existing shareholders already understand the business.
Disadvantages: Limited by existing shareholders' available capital; may dilute ownership if not all shareholders participate; existing shareholders may lack expertise or resources for expansion.
The company can issue shares to external investors, including private equity firms, venture capitalists, angel investors, or other strategic investors. For proprietary companies, this typically involves private placements negotiated directly with sophisticated investors.
Advantages: Access to larger pools of capital; investors may bring expertise, networks, and strategic value beyond just money; can target investors with specific industry knowledge or resources.
Disadvantages: Dilutes existing shareholders' ownership and control; may involve complex negotiations and due diligence; investors may demand board seats or special rights; generally more expensive in professional fees.
If the company is currently private (proprietary), it could convert to a public company and list on the Australian Securities Exchange (ASX) or another exchange. This involves issuing shares to the public through a prospectus under Chapter 6D of the Corporations Act.
Advantages: Access to significant capital from public markets; increased liquidity for shareholders; enhanced company profile and credibility; ability to use shares for acquisitions or employee incentives.
Disadvantages: Extremely expensive (underwriting fees, legal costs, compliance costs); extensive disclosure and ongoing regulatory obligations; loss of privacy; pressure for short-term performance; potential loss of control; only suitable for larger, established companies meeting listing requirements.
Debt financing involves borrowing money that must be repaid with interest, without diluting ownership.
The company can borrow from commercial banks or financial institutions through term loans, lines of credit, or overdraft facilities. Banks typically require security over company assets and may require personal guarantees from directors (especially for smaller companies).
Advantages: No dilution of ownership; interest payments are tax-deductible; fixed repayment terms allow for financial planning; maintains control with existing shareholders.
Disadvantages: Requires repayment regardless of company performance; interest costs; usually requires security/collateral; may include restrictive covenants limiting company activities; personal guarantees expose directors to liability.
Under section 283AA of the Corporations Act, a company can issue debentures (debt securities) to investors. Debentures may be secured (backed by specific company assets) or unsecured. For public companies, debentures can be offered to retail investors through a prospectus or to wholesale investors without disclosure.
Advantages: Can raise large amounts without diluting equity; fixed interest rates provide certainty; longer terms than bank loans; may be secured or unsecured; flexible terms.
Disadvantages: Must be repaid at maturity; interest obligations; secured debentures tie up company assets; complex documentation and trustee requirements; disclosure obligations for public offers.
The company can fund expansion from accumulated profits rather than distributing them as dividends. This is internal financing using the company's own resources.
Advantages: No dilution; no interest or repayment obligations; no external approval required; no transaction costs.
Disadvantages: Limited by profitability; slow accumulation; shareholders may prefer dividends; opportunity cost of not distributing profits.
The company can extend payment terms with suppliers (trade credit) or lease equipment rather than purchasing it outright, preserving capital for expansion.
Advantages: Preserves cash flow; no dilution; readily available for established companies.
Disadvantages: Limited amounts; may incur higher costs; doesn't provide cash for general expansion.
Depending on the industry and expansion nature, the company might access government grants, subsidies, or tax incentives designed to encourage business growth, research and development, or employment.
Advantages: Non-dilutive; no repayment required; can be substantial.
Disadvantages: Highly competitive; strict eligibility criteria; compliance and reporting requirements; not available for all businesses or purposes.
The optimal capital raising strategy often involves a combination of these methods. Companies must carefully evaluate the cost of capital, control implications, financial obligations, regulatory requirements, and strategic fit. For example, a growing proprietary company might combine retained earnings with a bank loan and a small equity injection from strategic investors, while a mature public company might issue debentures or undertake a share placement. Professional advice from financial advisers, accountants, and lawyers is essential to navigate the legal, tax, and commercial complexities of capital raising.
David seeks advice on available remedies following Expert Kitchens Ltd's (Expert Kitchens) breach of contract. Expert Kitchens failed to install the commercial oven on the agreed date (1 October), forcing David to engage an alternative supplier at greater cost and causing delay and financial loss. The issues are: (1) whether Expert Kitchens breached the contract; (2) what remedies are available; and (3) what damages David can recover.
Contract law remedies are designed to place the innocent party in the position they would have been in had the contract been properly performed. The primary remedy is damages (monetary compensation), though specific performance and other equitable remedies may be available in appropriate cases.
A breach of contract occurs when a party fails to perform their contractual obligations without lawful excuse. The refusal or inability to perform by the due date constitutes a breach. Where the breach is sufficiently serious (repudiation or breach of an essential term), the innocent party may elect to terminate the contract and sue for damages.
In David's case, Expert Kitchens' statement on 1 October that they "cannot perform the installation" constitutes anticipatory breach or repudiation - a clear indication they will not fulfill their obligations. This entitled David to accept the repudiation, terminate the contract, and seek remedies. The installation date being "strictly set" suggests time was of the essence, making the failure to perform on the due date a fundamental breach.
The primary contractual remedy is an award of damages. Several principles govern the assessment of damages:
13. 1. Expectation Damages: The fundamental principle, established in Robinson v Harman (1848), is that damages should place the plaintiff "in the same situation... as if the contract had been performed." This covers losses flowing naturally from the breach.
14. 2. Remoteness (Hadley v Baxendale Rule): The plaintiff can only recover losses that were reasonably foreseeable as a probable consequence of breach. In Hadley v Baxendale (1854), the court established that damages are limited to losses: (a) arising naturally from the breach; or (b) which were reasonably in the contemplation of both parties at the time of contract formation as the probable result of breach. Special or unusual losses are only recoverable if the defendant had notice of special circumstances making such losses likely.
15. 3. Duty to Mitigate: The plaintiff must take reasonable steps to minimize their loss. They cannot recover for losses that could have been avoided by reasonable action. However, the duty is to act reasonably, not to take extraordinary measures. If mitigation efforts increase costs (such as David paying more to secure alternative supply), these increased costs are recoverable as part of the loss caused by breach.
16. 4. Causation: There must be a causal link between the breach and the loss. The breach must be the effective cause of the damage suffered.
· Direct Loss and Additional Costs: The difference between the contract price and the cost of obtaining substitute performance is clearly recoverable. This compensates the plaintiff for the additional expense incurred due to the breach.
· Consequential Loss: Losses flowing from the breach beyond the immediate cost of substitute performance may be recoverable if reasonably foreseeable. This includes lost profits, wasted expenditure, and losses arising from delay, provided they were within the parties' reasonable contemplation.
Expert Kitchens clearly breached the contract by refusing to perform the installation on 1 October. Their statement that "they cannot perform the installation because they had accepted another job" constitutes repudiation - a clear renunciation of contractual obligations. The installation date was expressly stipulated in the contract and described as "strictly set," indicating time was essential. Expert Kitchens' failure to perform by this date is a fundamental breach entitling David to remedies.
David can claim the following heads of damage:
17. 1. Additional Cost of Substitute Performance ($5,000): David contracted to pay Expert Kitchens $15,000 but was forced to pay an alternative supplier $20,000 for the same oven and installation. The difference of $5,000 represents the direct loss flowing from the breach - the additional cost of obtaining substitute performance. This is clearly recoverable as it arose naturally from the breach and David acted reasonably in mitigating his loss by securing alternative supply.
Expert Kitchens cannot argue David should have found cheaper alternatives - the duty to mitigate requires reasonable action, not perfection, and David acted under pressure of time given the imminent Grand Opening. The increased cost resulted from the breach creating urgency and reducing David's bargaining position. This $5,000 loss was foreseeable as a probable consequence of late notice of breach.
18. 2. Wasted Advertising Expenditure ($5,000): David spent $5,000 advertising the Grand Opening scheduled for 2 October. When Expert Kitchens breached, this advertising became wasted expenditure as the opening had to be cancelled.
This loss is recoverable if it was within the reasonable contemplation of the parties at contract formation. The critical question is: did Expert Kitchens know or should they have known about the advertising expenditure and its dependency on timely installation? The facts state the installation date was "strictly set for 1 October as David had spent $5,000 on advertising for his Grand Opening on 2 October." If David communicated to Expert Kitchens (or it was otherwise apparent) that:
· - The installation was required for an imminent Grand Opening
· - David had committed substantial advertising expenditure based on the 1 October installation date
· - Delay would cause this expenditure to be wasted
then Expert Kitchens had sufficient notice that breach would probably cause such loss, making it recoverable under Hadley v Baxendale. The phrase "strictly set" suggests David likely communicated the importance and reasons for the deadline. Commercial parties dealing with cafe equipment installations would reasonably foresee that delayed installation might affect planned openings and related promotional activities. Therefore, this $5,000 is likely recoverable, subject to proof that Expert Kitchens had adequate notice of the Grand Opening and associated expenditure.
19. 3. Lost Profits from Eight Days Closure ($8,000): David claims $8,000 in lost profits for the eight days (2-10 October) the cafe remained closed due to delayed installation. Lost profits are recoverable if they were reasonably foreseeable and can be proven with sufficient certainty.
Foreseeability: Expert Kitchens would reasonably foresee that delayed installation of essential commercial equipment would prevent business operations and cause lost trading profits. The very nature of installing a commercial oven for a cafe makes it obvious that delay prevents the cafe from operating and earning revenue. This is a natural and probable consequence of breach, not a special or unusual loss requiring specific notice.
Certainty of Loss: Lost profits must be proven with reasonable certainty - mere speculation is insufficient. Here, David claims "$8,000 in estimated profits" for eight days. The description as "estimated" creates potential difficulty. Courts require reliable evidence of lost profits, such as:
· - Historical trading figures from the same cafe (if it previously operated)
· - Actual trading results after reopening
· - Industry benchmarks and expert evidence
· - Detailed business plans and financial projections supported by evidence
If this is a new cafe (suggested by the "Grand Opening"), proving lost profits is more challenging. New businesses lack trading history, making profit estimates speculative. However, if David can provide credible evidence supporting the $8,000 estimate - such as detailed business plans, projected customer numbers, menu pricing, comparable cafes' performance, expert evidence, or actual trading results after 10 October showing he would likely have earned $1,000 profit per day - the loss may be recoverable. If the $8,000 is purely speculative without supporting evidence, this head of damages may fail for lack of certainty.
Causation: The loss must be caused by the breach. The eight-day delay resulted directly from Expert Kitchens' breach necessitating engagement of alternative suppliers who required additional time. Causation is established.
David's potential recovery:
· • Additional installation costs: $5,000 (clearly recoverable)
· • Wasted advertising: $5,000 (recoverable if Expert Kitchens had notice of Grand Opening plans)
· • Lost profits: $8,000 (recoverable if proven with sufficient certainty)
· • Total potential recovery: $18,000
· Specific Performance: This equitable remedy requiring actual performance of contractual obligations is unavailable here. Specific performance is only granted where damages are inadequate and the contract concerns unique subject matter (typically land or unique goods). Expert Kitchens' installation services are not unique - David successfully obtained substitute performance, albeit at greater cost. Moreover, the breach has already occurred and substitute performance obtained, making specific performance impractical. Damages adequately compensate David.
· Termination: David has already effectively accepted Expert Kitchens' repudiation by engaging an alternative supplier. This terminated the contract, freeing David from any remaining obligations (though none are mentioned). Termination is not a remedy as such but rather a response to serious breach that enables David to pursue damages without remaining bound to the contract.
David should pursue a claim for damages against Expert Kitchens for breach of contract. He has strong grounds to recover:
20. 1. $5,000 additional costs of substitute performance - this is straightforward and clearly recoverable.
21. 2. $5,000 wasted advertising expenditure - recoverable provided David can demonstrate Expert Kitchens knew or should reasonably have known about the Grand Opening and advertising commitment when contracting. Documentary evidence of communications, the contract terms, or Expert Kitchens' knowledge of the cafe's opening would strengthen this claim.
22. 3. $8,000 lost profits - potentially recoverable but dependent on David providing credible evidence to establish the loss with reasonable certainty. David should gather: business plans and financial projections; expert evidence on cafe profitability; industry benchmarks; actual trading results from after 10 October; evidence of projected customer demand; costs and revenue calculations. Without strong evidence, this claim may be rejected as too speculative.
David acted properly by mitigating his loss through securing alternative supply despite increased costs. He should compile all evidence of: the original contract with Expert Kitchens; communications showing Expert Kitchens knew of the Grand Opening; evidence of advertising expenditure; invoices from both Expert Kitchens ($15,000 contract) and the alternative supplier ($20,000 paid); evidence supporting lost profit calculations; and any other documentation of losses suffered.
Expert Kitchens' breach is clear and David has good prospects of recovering at least $10,000 (additional costs and advertising), with potential for full recovery of $18,000 if the lost profits can be adequately proven. David should seek legal advice and consider commencing proceedings or negotiating settlement.
Bill and Arthur, directors of Sporting Pty Ltd, plan to issue 100 new shares to their friend David for $100,000, primarily to dilute Chris's voting power and enable a constitutional change preventing Chris from becoming a director. While the company genuinely needs the capital, the primary motivation is to overcome Chris's blocking stake. The issue is whether Bill and Arthur would breach their statutory directors' duties under the Corporations Act 2001 (Cth) by proceeding with this share issue.
Directors owe statutory duties to the company under Part 2D.1 of the Corporations Act 2001 (Cth). The relevant duties in this scenario are:
Section 181(1) provides:
"A director or other officer of a corporation must exercise their powers and discharge their duties: (a) in good faith in the best interests of the corporation; and (b) for a proper purpose."
This creates two distinct obligations:
· Good Faith in Best Interests: Directors must act honestly and in what they genuinely believe to be the company's best interests, not for personal benefit or improper motives. The test is subjective - what did the director actually believe? However, courts can infer lack of good faith from objective circumstances. In Brunninghausen v Glavanics (1999), the court emphasized directors must act for the benefit of the company as a whole, not sectional interests.
· Proper Purpose: Even if acting honestly, directors must exercise powers for the purpose for which they were conferred. Each power has a proper purpose, determined by examining the company's constitution, the nature of the power, and the circumstances. The power to issue shares exists to raise capital for the company, not to manipulate voting control or entrench existing directors. This is an objective test - what was the substantial or primary purpose of exercising the power?
The leading Australian authority on proper purpose is Whitehouse v Carlton Hotel Pty Ltd (1987), where the High Court held that the power to issue shares must be exercised for the purpose of raising capital, not for controlling voting power. Where directors issue shares primarily to alter the balance of voting power (especially to defeat or dilute opponents), this exceeds the proper purpose of the power even if capital is genuinely needed.
In Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821, the Privy Council held that where shares are issued with dual purposes - both to raise capital and to manipulate control - the court must determine the "substantial purpose." If the primary or dominant purpose is improper (control manipulation), the breach occurs even if a proper purpose (capital raising) also exists.
Section 182(1) states:
"A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation."
Directors must not use their position to benefit themselves or others (such as excluding Chris from directorship) or harm the company or particular shareholders. Using directorial powers to cement control or exclude a shareholder from governance may constitute improper use of position, particularly where it serves the directors' interests rather than the company's.
Section 180(1) requires:
"A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director or officer of a corporation in the corporation's circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer."
While less directly applicable than sections 181 and 182, directors might breach section 180 if they fail to properly consider the company's best interests or make decisions without adequate consideration of relevant factors and consequences. Issuing shares solely to manipulate voting without proper regard for shareholder rights and governance implications could demonstrate lack of care.
The facts reveal Bill and Arthur's plan has dual aspects:
· • Legitimate aspect: The company "actually needs the $100,000 for capital works" - a genuine business purpose.
· • Improper aspect: "The primary reason for the issuance is to dilute Chris's voting power" to change the constitution and prevent Chris becoming a director.
The critical admission is that "the primary reason for the issuance is to dilute Chris's voting power." This suggests control manipulation is the dominant purpose, not capital raising.
Currently:
· • Total shares: 90 (30 each for Arthur, Bill, and Chris)
· • Each shareholder: 33.33% voting power
· • Chris holds >25%, blocking special resolutions (75% required)
After issuing 100 shares to David:
· • Total shares: 190
· • Chris: 30 shares = 15.79% (reduced from 33.33%)
· • Bill: 30 shares = 15.79%
· • Arthur: 30 shares = 15.79%
· • David: 100 shares = 52.63%
· • Bill + Arthur + David: 84.21% (enough for special resolution)
This dramatically shifts control, reducing Chris from a blocking minority to a marginal shareholder, while giving Bill and Arthur (through David) the 75% needed to amend the constitution.
Bill and Arthur's plan almost certainly breaches the proper purpose limb of section 181(1)(b). The power to issue shares exists primarily to raise capital for legitimate business purposes. Using this power to manipulate voting control, entrench directors, or exclude shareholders from governance is an improper purpose, even where capital is genuinely needed.
Applying the Howard Smith test to determine the "substantial purpose": The facts explicitly state "the primary reason for the issuance is to dilute Chris's voting power." This is a clear admission that control manipulation is the dominant purpose. While capital raising is a legitimate secondary purpose, it is expressly subordinate to the improper control objective.
The Whitehouse v Carlton Hotel principle directly applies: directors cannot issue shares primarily to alter voting control, even if the company benefits from the capital raised. The fact that Bill and Arthur formulated the plan specifically "to bypass" Chris's blocking power demonstrates the improper purpose. They are not simply raising capital through the most convenient means; they are deliberately structuring the share issue to achieve a governance outcome (excluding Chris from potential directorship) that they could not achieve through proper channels (special resolution).
Several factors reinforce the improper purpose:
· • The timing: The share issue follows immediately from "a bitter argument" - suggesting it's motivated by personal conflict rather than business needs.
· • The amount: Issuing 100 shares to one new shareholder (when existing shareholders hold only 30 each) dramatically shifts control beyond what capital needs alone would dictate.
· • The recipient: David is "their friend" who "will vote with them" - not selected based on commercial criteria but on loyalty to Bill and Arthur.
· • The stated objective: "To ensure Chris can never become a director" - a governance control objective, not a business efficiency objective.
Even though the $100,000 is genuinely needed, this does not save the transaction where the primary motivation is improper. The company could raise the needed capital through other means that don't disproportionately dilute Chris (such as offering rights to all shareholders proportionately, or using debt financing, or issuing fewer shares to multiple investors).
Therefore, Bill and Arthur would breach section 181(1)(b) by exercising their power to issue shares for an improper purpose.
Bill and Arthur may also breach the good faith limb of section 181(1)(a). The duty requires directors to act in the company's best interests, not their own or sectional interests.
Arguments that they breach good faith:
· • The plan serves Bill and Arthur's interests in maintaining control and excluding Chris, rather than the company's interests as a whole.
· • Excluding Chris from potential directorship may deprive the company of his skills and input.
· • The massive dilution of Chris's shareholding without offering him participation rights harms him as a member of the company.
· • The plan stems from personal conflict ("bitter argument") rather than considered business judgment.
Potential counter-arguments:
· • If Bill and Arthur genuinely believe excluding Chris benefits the company (perhaps due to the conflict), they might subjectively believe they're acting in the company's interests.
· • The company does need the capital for legitimate purposes.
However, courts can infer lack of good faith from the circumstances. Where directors engineer outcomes to serve their own control interests following personal disputes, this suggests they are not acting honestly in the company's best interests. The good faith breach claim is moderately strong, though the proper purpose breach is clearer.
Bill and Arthur likely breach section 182(1) by improperly using their positions as directors to:
· • Gain an advantage for themselves (cemented control, ability to amend constitution, exclusion of potential rival director Chris).
· • Gain an advantage for their friend David (significant shareholding and control).
· • Cause detriment to Chris (massive dilution from 33% to 16%, loss of blocking power, exclusion from directorship).
The use of their directorial power to approve share issues to achieve these outcomes (rather than for legitimate capital raising) constitutes improper use of position. They are leveraging their directorial authority to serve personal and factional interests at Chris's expense.
If Bill and Arthur proceed and are found to have breached their duties, consequences may include:
· • Civil Penalties: Under section 1317E, the court may order pecuniary penalties up to $200,000 for individuals.
· • Compensation Orders: Under section 1317H, the court may order directors to compensate the company or affected persons for damage suffered.
· • Invalidation of Share Issue: Chris could seek orders setting aside the share issue as void or voidable due to the breach of duty.
· • Oppression Remedy: Chris might bring an oppression claim under section 232, arguing the share issue is oppressive, unfairly prejudicial, or unfairly discriminatory. The court can make wide-ranging orders including setting aside transactions or altering the company's constitution.
· • Disqualification: In serious cases, directors may be disqualified from managing corporations.
If Bill and Arthur wish to raise capital lawfully, they should:
· • Rights Issue: Offer new shares to all shareholders proportionately, preserving existing ownership ratios. This raises capital without manipulating control.
· • Debt Financing: Borrow the $100,000 rather than issuing equity, avoiding any control implications.
· • Resolve the Dispute: Address the underlying conflict with Chris rather than using corporate mechanisms to exclude him.
· • Shareholder Approval: Seek shareholder approval for the share issue and constitutional amendment, though Chris would likely block this.
Bill and Arthur should NOT proceed with their plan as currently conceived. They would almost certainly breach their directors' duties, specifically:
· • Section 181(1)(b): Breach of the proper purpose duty by issuing shares primarily to manipulate voting control rather than raise capital. This breach is virtually certain based on the admitted "primary reason" being control dilution.
· • Section 181(1)(a): Likely breach of good faith duty by acting in their own control interests following a personal dispute rather than the company's best interests.
· • Section 182(1): Breach of the duty not to improperly use position by leveraging directorial authority to gain control advantages and cause detriment to Chris.
These breaches expose Bill and Arthur to significant legal consequences including pecuniary penalties, compensation orders, invalidation of the share issue, and potential oppression proceedings by Chris. The fact that the company genuinely needs the capital does not excuse the breach when the primary purpose is control manipulation.
Bill and Arthur should seek legal advice and consider lawful alternatives for raising capital that do not involve breaching their fiduciary obligations to the company and its shareholders. If they have legitimate concerns about Chris's potential directorship, these should be addressed through proper governance mechanisms and negotiation, not by manipulating share capital to circumvent minority shareholder rights.
The current plan is legally impermissible and should be abandoned.
Blyth v Birmingham Waterworks Co (1856) 11 Ex 781
Bolton v Stone [1951] AC 850
Brunninghausen v Glavanics (1999) 46 NSWLR 538
Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145
Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821
McHale v Watson (1966) 115 CLR 199
Nettleship v Weston [1971] 2 QB 691
Robinson v Harman (1848) 1 Exch 850; 154 ER 363
Rogers v Whitaker (1992) 175 CLR 479
Salomon v Salomon & Co Ltd [1897] AC 22
Vaughan v Menlove (1837) 3 Bing NC 468; 132 ER 490
Watt v Hertfordshire County Council [1954] 1 WLR 835
Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285
Wyong Shire Council v Shirt (1980) 146 CLR 40
Get original papers written according to your instructions and save time for what matters most.
