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HI6027 Supplementary T3 2021 Solutions

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Question 1                                                                                                                                    (7 marks)

Company XYZ manufactures titanium hip bone replacements. The devices were implanted into patients, mostly elderly patients, who had broken their hips during falls. Within 2 months from implantation, the patients complained of severe pain in their hip joints. This was later proven to be caused by the defective manufacturing of the devices.

How would the law of tort apply in this case? (Maximum 200 words)

ANSWER:  ** Answer box will enlarge as you type

1st answer

The law of tort is applied when an act of a group or an Individual has done something wrong which has resulted in an inhury, harm or loss and due to such results, the one who committed the tort will be held legally liable. The torts can be classiy vatious types such as (a) interntional torts where an undi intentionally commit a wrongful act of causing harm, (b) Negligence torts where there is reasonable failure of exercise that has resulted in a negligent tort, (c) Strict liability torts where the focus shifts from the individual or party committing the tort to the act or incident itself.

The above act can come under intentional tort or negligence tort because the manufacturing company XYZ has caused injury to the patient by delivering infective device.

2nd answer

The law of Tort means a Civil wrong done by a person (defendant) causing harm or injury to another person (plaintiff). For which, The court imposes legal liability on the defendant. In this case, The law of Tort applies based on the Strict product liability.

Strict product liability is a type/form of tort. This law held a seller, distributor, or manufacturer of a defective product legally liable for the injuries or harms of another person. In this tort law, The plaintiff must prove that (1) the product was defective and (2) the defect in the product caused harm, damage, or injury.

We can clearly see the fact pattern that, XYZ’s titanium hip bone replacement was defective. Due to the defect in the device, Patients suffered severe pain in their hip joints. So, even though XYZ has no intention to cause harm or pain to patients, their defective product was the cause making XYZ strictly liable (tort) in the eyes of the law.

3rd answer

Product liability alludes to the liability of any or all gatherings along the chain of trade of any product for harm brought about by that product. At the point when an inadequate product causes injury, the manufacturer of the product, the merchant, the distributer and the retailer who sold the product may all be liable under product liability rules.

The law of product liability is basically found in case law, the Uniform Commercial Code and in many state rules that arrangement with product liability. Likewise, the United States Department of Commerce has executed a Model Uniform Product Liability Act (MUPLA) for willful use by the states.

There are four potential bases for product liability:

1. Defects in design. This happens when the design of the product makes the product nonsensically risky. To build up damaged design, it should be shown that the product is more hazardous that it would somehow or another be however for the design deformity. It is perceived that specific products are characteristically perilous and this doesn’t really comprise deficient design. For example, a firearm manufacturer would not be liable for imperfect design in light of the fact that a weapon was utilized to slaughter somebody, yet might be liable if the weapon’s security component fizzled.

2. Manufacturing defects. A manufacturing imperfection happens when something turns out badly with the development or production of an individual unit. A mistake made on the mechanical production system making a vehicle breakdown is an exemplary example of a manufacturing deformity.

3. Inability to caution. This happens when the product isn’t absurdly perilous, however contains certain threats that the client ought to have been made mindful of. These incorporate ill-advised guidelines and disappointments to caution customers of idle threats in products. This reason for liability is regular in physician recommended drug liability cases.

4. Breach of warranty. Liability will emerge in any event, when a product isn’t nonsensically dangerous if the product neglected to satisfy a wellbeing standard expressly or impliedly guaranteed by the manufacturer or dealer. Express warranties mean warranties expressed or distributed inside and out, while the law adds “suggested” warranties that products will proceed as would sensibly be normal (the “inferred warranty of merchantability”) and where the dealer realized that a buyer required a product for a particular reason (“suggested readiness for a specific reason”).

In the cases of blemished design or inability to caution, some degree of negligence or flaw should be appeared for liability to build. Lawsuits dependent on these defects are negligence lawsuits and are chosen dependent on pertinent negligence rules and principles.

Nonetheless, on account of a manufacturing defects, the manufacturer is strictly liable for damages that outcome from a deformity. It is unessential whether the manufacturer practiced incredible consideration; if there is a deformity in the product that causes damage, the person will be expected to take responsibility for it. The equivalent is valid in a breach of warranty case. Where the product doesn’t satisfy the express or inferred warranties of the manufacturer or vender, the manufacturer or merchant will be strictly liable for damages brought about by these defects.

4th ans

The law of Tort means a Civil wrong done by a person (defendant) causing harm or injury to another person (plaintiff). For which, The court imposes legal liability on the defendant. In this case, The law of Tort applies based on the Strict product liability.

Strict product liability is a type/form of tort. This law held a seller, distributor, or manufacturer of a defective product legally liable for the injuries or harms of another person. In this tort law, The plaintiff must prove that (1) the product was defective and (2) the defect in the product caused harm, damage, or injury.

We can clearly see the fact pattern that, XYZ’s titanium hip bone replacement was defective. Due to the defect in the device, Patients suffered severe pain in their hip joints. So, even though XYZ has no intention to cause harm or pain to patients, their defective product was the cause making XYZ strictly liable (tort) in the eyes of the law.

Question 2                                                                                                                                 (11 marks)

A sales representative in a shopping centre handed Karl a flyer promoting a style cut and shave for $12 at Lion’s Mane Barber Shop. As he was actually in need of a haircut and shave, Karl dropped by the barbershop, which was also located in the same shopping centre. When he arrived at the shop and presented his flyer to one of the barbers, he was told that there had been an error in the statement of price on the flyer – it was supposed to be $22 and not $12. The shop manager tried to convince Karl that this was still a bargain price, given that a style cut and shave would normally cost $30 in other barbershops.


Karl got upset as he passed by two other barbershops in the same shopping centre that sold haircuts and shaves for $20 to $25. If he had known about the supposed mistake in the Lion’s Mane flyer, he wouldn’t have bothered coming to the shop.

Required:

** Answer this question using principles from both contract law and the Australian Consumer Law. (Maximum 300 words)

  • Does Karl have any legal grounds to claim the price of $12?

ANSWER a): 

a) No, Karl doesn’t have any legal grounds to claim the price of $12 as he was informed of the mistake on the flyer and the right price of $22 upfront and his willingness to get the haircut and shave at Lion’s Mane Barber Shop is more voluntary after review.

2nd answer part A

Answer a. The Australian Consumer Law under Chapeter 3,  prohibits certain flase or misleading representations, the supply of unsolicited goods or services, practices involving, the display of prices, referral selling, harrasment or coercion.

Chapter 4- Offences, It includes criminal offences relating to certain matters un Chapter 3.

The ALC creates national enforcement powers, to be used by all consumer law regulators, including civil penalties and remedies require a breach to be taken to court.

The above mention are some provisions realated to the case mentioned above. According to this Karl has some legal grounds to claim the price of $12.

3rd answer part A

a) Yes, Karl has the legal grounds to claim the price of $12 because the flyer was a misrepresentation by Lion’s Mane Barber Shop. Irrespective of the fact whether the barber accepts the misrepresentation or not, Karl has the legal grounds to claim the price of $12 as mentioned in the flyer. In the scenario, the misrepresentation of $12 as mentioned in the flyer is a statement that induced Karl to create a sales contract with the barber. Thus, it is a misrepresentation as it was a false statement before the contract was entered and because of which the contract was entered.

4th answer part A

Q a: Yes, Karl has lawful grounds to guarantee the price of $12 as the flyer was given over to him by the agent of Lion’s Mane Barber Shop. In the event that the cost in the flyer contained a mistake, it is a distortion by Lion’s Mane Barber Shop as they should audit the substance of the flyer prior to getting them printed and distributing them. It appears to be out of line with respect to the shop administrator to disclose to Karl that it is as yet a deal value given that a style trim and shave would ordinarily cost $30 in different barbershops, which is inaccurate and truth be told, Karl discovered two different barbershops in similar malls offering similar hairstyles and shaves for $20 to $25. Consequently, Karl can guarantee the cost of $12 on legitimate grounds as the flyer is being circulated with a bogus contribution.

  • Would your answer be different if Karl already had his hair cut and shaved before being informed that the real cost of the services was $22? Does he have to pay the full price in this case?

ANSWER b): 

b) If Karl had been informed of the real cost of services as $22 after he got the hair cut and shave, he can be protected under the Federal Trade Commission Act for false advertising or deceptive information in the flyer.

In this case, Karl need not pay the full price and can only stick to $12 price as advertised by the barbershop.

2nd answer part b

Answer b. There are five essential elements necessary fir legally binding contract formation;

Agreement, Consideration, Capacity, Intention and Certainty.

The absence of any of these elements will decide whether there is law enforceable or is not enforceable as a contract.

The second element of Consideration might be the one involved here. Because as per the law a promise will be enforceable as a contract only if it is supported by consideration.

According to Australian Consumer Law,

Chapter 2, General protections: It talks about the general ban on misleading and deceptive conduct in the market.

Section 18 of ACL prohibits a person in trade or commerce from engaging in misleading or deceptive conduct.

3rd answer part B

b) No, my answer will not be different if Karl already had his hair cut and shave before being informed by the real cost of the services was $22. Even if Karl had his hair cut done, he would have assumed that the cost is going to be $12. After being informed by the barber that the cost would be $22, then Karl still has the legal grounds to claim the price of $12 as it was a misrepresentation and a tort related to the fraudulent act. Thus, it is a fraudulent misrepresentation and the barber is liable to compensate for the tort action

4th answer part B

No, My answer would continue as before and I trust Karl is obligated to pay $12 as he decided to get the hairstyle and shave by taking a gander at the proposal in the flyer. In any event, when he is being educated regarding the genuine expense of the administrations to be $22 after previously having his hairstyle and shave, he is qualified to pay $12 dependent on the contribution introduced in the flyer of Lion’s Mane Barber Shop.

In view of the standards of agreement laws, The offer has been as of now made to the overall population through the flyer being conveyed by the salesman of Lion’s Mane Barber Shop which is acknowledged by Karl, and by visiting the shop and consenting to get the hairstyle and shave. There is a legitimate thought when a flyer is being referenced with the cost of $12, independent of whether it contains a mistake concerning the offer cost. Karl has the lawful ability to guarantee this proposal by introducing the flyer gave over to him the salesman of Lion’s Mane Barber Shop. Legitimately, the shop can not guard itself as they have neglected to amend the blunder contained in the flyer and continued with its dispersion which has made a bogus portrayal of their offer.

Passing by the standards of the Australian Consumer Law, Karl can either guarantee the real offer introduced in the flyer or he can guarantee to pay for harms for the offer being dropped for being the flawed flyer appropriated and the help offered is being dropped by the retailer. As the Australian Consumer Law sets out buyer rights that are alluded to as purchaser ensures which incorporate remuneration for the undoing of the help offered in the flyer. Karl is responsible to get the proposal for $12 and Lion’s Mane Barber Shop administrator needs to concur and acknowledge this contribution.

Question 3                                                                                                                                 (11 marks)

Miguel, a 16-year old mechanic’s apprentice, borrowed $3,000 from his next-door neighbour, Jono, by telling him that he was 20 years old and had a good, stable income. The loan was payable in three equal fortnightly payments. After the first payment, Miguel stopped paying Jono. Jono wanted to bring legal action against Miguel, but when he discovered his real age, he decided instead to initiate an action in tort for deceit against the latter.

Will Jono likely be successful in his action in tort for deceit against Miguel? Explain your answer. (Maximum 400 words)

ANSWER: 

The answer is NO. Jono cannot be successful in his action in tort for deceit against Miguel.

Explanation:

Rules relating to Agreement with Minor Parties:

Although, as a general rule, a contract with minors is void, we must keep in mind the following rules as well:

1) A contract with a minor is void and, hence, no obligations can ever arise on him thereunder.

2) The minor party cannot ratify the contract upon attaining majority unless a law specifically allows this.

3) No court can allow specific performance of a contract with minors because it is void altogether.

4) The Partnership Act also prohibits minors from becoming partners in a firm. They can, however, receive the benefits of partnership and ratify the same upon attaining majority.

5) The rule of estoppel under evidence law does not apply to minors under contractual obligations. In other words, even if a minor forms a contract claiming majority age, legal obligations cannot arise against him.

6) Parents or guardians of minors can name them in contracts only if it benefits them. But even in this case, the minor cannot be personally liable.

From the above points it is clear that, minor is no way obliged to perform an agreement or control even though he enters into contract claiming himself to be a major.. POINT 5 is clear that ” even if a minor forms a contract claiming majority age, legal obligations cannot arise against him.

Hence, Jono cannot be successful in his action in tort for deceit against Miguel.

2nd answer

Yes , Jono will be successful in his claim .

The tort of deceit is imposed on the person who has willfully spoken a lie for his own benefit and it has caused the loss to the other person. In this case Miguel spoke a lie about his age and job so that he could get loan easily. The non payment of loan is a loss to Jono. Hence Jono now can file a suit against Miguel for Tort of Deceit.

3rd answer

Fraud is reffered to as a false representation made by a person, company, or a group with an intention to induce an individual to act independently of it with an aim to let the person takes action which would result in in his/her harm

Similarly,Tort of deceit refers to the tort which occurs when a person shows the false representation of facts with an intention to make another person suffering loss. This has been defined as fraud.

Under fradulent misrepresent, a person who misrepresented him/herself through writing, voice, or gestures will be considered as fraud against whom actions can be taken. For this, the claimant is required to prove the following points :

Defendant has made a false representation to him/her.

Defendant knew that the deception was false.  

Defendant wants the claimant to act upon it to suffer loss.

The claimant trust the defendant’s representation.

In the case of Jono, a similar situation occurs where Miguel despite being 16 years of age, misrepresent himself in front of jona by showing his 20 years of age and stable income and asked to borrow money.Jono trusted Miguel and paid him money. However, Miguel did not return his money. Here, jona can successfully file a complaint under the tort of deceit against Miguel for misrepresenting himself with the intent of causing loss to him.


Question 4                                                                                                                                    (7 marks)

Charles wants to buy a pre-owned Harley-Davidson motorcycle and drop by several motorcycle dealerships before buying a good quality pre-owned, Softail model from Kenny’s Motorcycle Dealership. Kenny tells Charles that the motorcycle was manufactured in 2008 and had only done 12,000 kilometres.

After using the motorcycle for four months, Charles had it serviced at an authorised Harley Davidson repair centre. The repairman told him that the motorcycle was in good condition, considering that it was made in 2004. The repairman did admit that he was surprised that it had done only 12,000 kilometres; because it was clear that the motorcycle had travelled way more than that.

Charles investigates further and finds out that the motorcycle was really made in 2004, and he paid about $4,000 more than what the motorcycle was really worth on the market. Charles wants to get a remedy against Pete’s Motorcycle Dealership.

Explain to him his rights under contract law.

NOTE: Do not answer this question based on Australian Consumer Law. You will not get any credit if you do so. (Maximum 350 words)

ANSWER: 

Answer 1

charles has been a victim of fraud by pete dealership.

The term ‘fraud’ includes all acts committed by a person with an intention to deceive another person. here mr pete ha deceived mr charles by giving wrong information and made the deal.

the aggrieved party i.e,charles has the following remedy to it:

  • he can cancel the contract within reasonable time
  • he can sue for damages
  • he can even insit for specific performance wuth the conditions specified before being true

the contract which is made with fraud is voidable at the option of the aggrieved party

Answer 2

According to Contract law, 1872 Contract is a written agreement between buyer and seller, and on breaching the contract one may sue another under the suit for breach of contract. In the situation given Charles bought a pre-owned Harley-Davidson motorcycle from Kenny’s Motorcycle Dealership. Later Charles finds that he had been cheated when the repairman informs him that the motorcycle had traveled way more than 12,000 km and he had paid $ 4,000 more to the dealer. As Charles feels that there is a contract violation and he was charged more by the dealer so, 1st Charles needs to prove the presence of a contract between him and the dealer and the terms of the contract have been breached by the dealer and then hand the matter legally to the court. Or after finding relevant proof against the dealer Charles can resolve the matter directly with the dealer or sue the dealer to the court on legal terms under the breach of contract and then the dealer has to pay the penalty amount decided by the court.

Answer 3

The rights to him under the contract law are as follows :

1 – He can claim under rights to repairs, refunds or exchanges because this is under contract law, and Charles can claim to his parties because the agreement or contract which is made is not valid because in agreement there is written that it is manufactured in 2008, but after investigating it properly he comes to know that it is manufactured in 2004. So, it is 4 years more old that he will taught to the Charles. So, he can claim to the parties that the information about motorcycles he is given it is totally wrong, and he can refund his money also, and give the motorcycle to him without any hesitation.

2 – He is also claim for the contract of breach or dispute because in this when party contract fails to fulfil its obligation and the agreement which is written in that which fails to obligation and in this case the party is perform the contract of breach which its not give the proper information and rights information to the Charles. So, he can also claim it.

Answer 4

Since there was a contract between the motorcycle seller and Charles,the motorcylce seller wasbound to present accurate information as that was the key to decision making in this case.He however misrepresented the entire information meaning that the basic clause of the contract law about misrepresentation was violated.Charles can sue the seller for the misrepresentation and nullify the contract.


Question 5                                                                                                                                    (7 marks)

Samantha signs a contract to buy a brand new unit in Kogarah. The contract is subject to an extended settlement period of 120 days. Samantha, through her solicitor, transfers the 10% deposit to the vendor’s solicitor and then speaks with her mortgage broker about obtaining a loan. While all this is going on, Samantha sells her own unit in Oatley. She intends to use the money realised from the sale of the Oatley unit to pay the balance of the purchase price of the Kogarah unit.

A problem arises when Samantha’s unit does not sell by the expected date. Samantha needed to secure short term finance at an almost exorbitant interest rate so that she could buy the Kogarah unit. Samantha consults her solicitor, who advises her that she can sue the buyer of her Oatley unit for breach of contract and ask for damages, including the additional interest charges she incurred.

Is Samantha’s solicitor correct? Explain your answer. (Maximum 150 words)

ANSWER: 

1st answer

Agreement

A contract is an agreement between two or more parties that is binding in a legal way. If the agreement is to do a legally accepted action then it will definitely get legal protection. If there is any breach in the agreement by any of the parties then the affected party can sue others. This the sue for breach of contract. There are some conditions and the affected party must prove that the contract is breached.

Breach

Here in this case, Samantha sells her own unit in Oatley. She intends to use the money realized from the sale of the Oatley unit to pay the balance of the purchase price of the Kogarah unit. a problem arises when Samantha’s unit does not sell by the expected date. So there is a breach of contract in the sale agreement of Oatley unit. Samantha can sue the other party for breach of contract and ask for compensation through the court. But Samantha must prove that as a result of breach, she suffered loss and has the deserve to be compensated.

Any loss she suffered must have been a direct consequence of the breach of the contract. Here the case is like that. She intends to use the money realized from the sale of the Oatley unit to pay the balance of the purchase price of the Kogarah unit. Due to the delay in the buyer’s side the sale didn’t take place according to the agreement. So the Samantha’s side is clear and she will get the compensation according to the Law.

2nd Answer

Indeed. Samantha’s specialist is right.

Clarification:
Various methods of Breaching
An individual is penetrating an agreement at whatever point he is abusing any term specified in an agreement.

Different approaches to break an agreement of offer under the Sale of Goods Act, 1930 are as per the following:

1. Non-Payment:-
When under an agreement of offer the great has been passed to the purchaser and the purchaser disregards or will not compensate for the merchandise as indicated by the terms of the agreement he is supposed to be in penetrate of the agreement.

2. Infringement of condition:-
As per segment 12(2), a condition is a specification fundamental for the primary motivation behind the agreement. At the end of the day, it’s essential whereupon the entire agreement depends. For instance, if An advises a vehicle sales rep B that he needs to purchase a vehicle with a mileage of 20Km/L then offer of any vehicle with less mileage than that won’t satisfy this condition and would be viewed as a break of condition. Penetrate of the condition offers the right to regard the contract as renounced.

3. Disapproval of good:-
At the point when a purchaser dismisses or won’t acknowledge the conveyance of products, he is in penetrate of agreement.

Cures accessible to Sellers against Buyers

Coming up next are the cures under the Sale of Goods Act, 1930 which are accessible to the dealers if there should be an occurrence of penetrating made by the purchaser:

1. Suit at the cost:-
As per segment 55 when under an agreement the great has passed to the purchaser after which he won’t pay for the merchandise; the dealer has the privilege to sue him at the cost of the products.

In addition, the segment additionally makes the installment of the great on a specific date essential regardless of whether the purchaser has gotten the conveyance of the merchandise or note gave there exists a condition to something similar in the agreement. On the off chance that under such an agreement of offer the purchaser will not compensate for the great on the specified date independent of if he got the great; the purchaser can sue him at the cost of the products.

2.Recuperation of misfortunes in the event of reoffer of good while practicing the right of lien/stoppage of good on the way:-
As per area 54 on the off chance that where the merchandise is of short-lived nature or the neglected dealer has practiced his right of lien or stoppage on the way after pulling out to the purchaser of his aim to sell the great if the purchaser doesn’t pay him inside a sensible time and in the wake of offering it to an outsider in a lower cost can sue the first purchaser for the misfortunes he supported because of his (unique buyer’s) break.

3.Harms for renunciation:-
As indicated by segment 56 when under an agreement of offer purchaser has offered a decent to a dealer and thereafter the purchaser is improper will not acknowledge and pay for the merchandise; the vendor can sue the purchaser for renunciation.

From the above focuses obviously, Samantha has an option to guarantee harms caused because of infringement of conditions specified in the agreement.

3rd answer

Yes, In this case Samantha could sue the buyer for breaching the contract, provided the contract terms and conditions should support this legal action. Contracting conditions on the contract terms will prevent such issues. Let’s discuss in detail

A breach of contract might occurs when a party has failed to fulfill obligations of a valid contract terms

For example, the terms of a contract are directing the parties about what they should do and how they should do to maintain their obligated promise. If a party does failed to meet this obligation, then the non breaching party can to take legal action by file a lawsuit against them in court.

The court will also evaluate whether the breach was a significant one based on the underlying conditions on the contract. This will aid the court to determine what kind of damages the breaching party should have to pay to compensate the other party.

So, in this case the buyer has breached the contractual agreement and if the terms and conditions are support to collect the losses which arise due to his breach, then obviously the solicitor is right and we could get compensated the loss by collecting the same from the default buyer.

4th answer

A contract is a legal agreement between two or more parties for a specified consideration. If such a contract is breached by any party, then the affected parties can sue the party in default and claim for all the damages incurred due to the non-performance of the contract.

In the given case, Samantha sells her own unit in Oattey, but the details regarding such a contract between Samantha and the buyer of Oatley are not mentioned. If such contract is made for a specific time period and the buyer of such property failed to pay within such time then Samantha can sue such person and claim damages (interest). She intends to use the money received from the Oatley unit to pay the balanced purchase price of the Kogarah unit but had to pay interest for borrowing such amount as short-term finance. This is solely due to the buyers delay in making payment for the Oatley unit. Hence Samantha has the right to sue the buyer of Oatley for the interest she paid to the short-term finance and the solicitor’s statement stands correct.

If there was no such contract between Samanth and the buyer of the Oatley unit to pay the amount at a specified time then Samantha cannot claim damages from such buyer. In this scenario the Samantha solicitor’s statement stands incorrect.

Question 6                                                                                                                                    (7 marks)

Octagon Supplements is a company registered in Australia. It is a seller of organic health and nutrition supplements. The company’s directors approved a resolution to invest the company’s money in a new business venture. This resolution was approved only after the company hired a management consultant, someone who possessed expert knowledge of the health and nutrition supplement industry who researched and prepared a report on the viability of the new business venture. The expert advised the company that the new business venture would very likely be successful and make the company $5 million in the first year.

Eight months after the company has made this investment, the company has lost money on it. The expert’s revenue projections now look impossible. And in hindsight, it is now clear to the directors that investing in the new business venture was a bad idea. The shareholders now blame the directors for their decision.

Have the directors violated any of their DUTIES under the Corporations Act 2001 (Cth)? If so, which DUTY or DUTIES did they violate?

Is there any DEFENCE available to the directors? If so, is this DEFENCE valid?

Explain your answer citing specific sections of the Corporations Act. (Maximum 300 words)

ANSWER: 

The I.R.A.C. method is as follows:

Issue:

  1. Whether Directors violated any of the duties under Corporation Act, 2001 or not?
  2. Whether Directors have any defence available or not?

Rules

  1. Section 180 of the Corporation Act, 2001

Application

  1. The given rule will be dealt with section 180 of the Corporation Act, 2001 which states the Directors to act with care and due diligence.
  2. The Directors have two defence available for their actions including Doctrine of bona fide and doctrine of Proper purpose.

Conclusion

The directors violated none of their duties because they took reasonable care and diligence to make the decisions . Thus, since there is no duty violated, they would not be required to plead for any defence either.

.

Explanations:

The I.R.A.C. method is as follows:

Issue:

  1. Whether Directors violated any of the duties under Corporation Act, 2001 or not?
  2. Whether Directors have any defence available or not?

Rules

  1. Section 180 of the Corporation Act, 2001 which states an obligation on the director to exercise and take all the decisions while discharging duties with a reasonable care and diligence which is assumed to be carried by a reasonable person in alike situation.

However, it is important observe the following requirements to ensure no fault of duties on the part of the directors:

  1. They believe that the decision is for the best interest of the company;
  2. The did not have any personal interest in the decision; and
  3. They made the judgement in good faith and for a legal purpose.

2. There are two defences available for the directors including the doctrine of bona fide and the doctrine of proper purpose. The doctrine of bona fide helps them in proving their best of the intentions whereas the proper purpose doctrine helps in proving the purpose of the decision which should be in the interest of the company.

Conclusion

Thus, according to the provisions cited above, it can be concluded that the decision taken by the directors to invest in the new business venture was after an extensive research thus it involves all the due diligence and care. Although, the investment in new business resulted in the loss for the company but the directors would not be liable for the breach of any of their duties because they took all the possible efforts required to take for the interest of the company, and the loss resulted would not make them liable for the breach of the duty.

However, the directors of the company have two defences available to them including the doctrine of bona fide and the doctrine of proper purpose, but, since they did not violate any of their duties, none of the defence is required to plead to prove their innocence.

Thus, the directors violated none of the duties given under the Corporation Act, 2001 and hence no defence is required to plead for.

2nd Answer

Octagon supplement is a company registered in Australia.The shareholders in the company invested there money on the basics of the study carried out by the directors of the company. The Investment Decision Maker’s main responsibility is to commit funds for the programme or project. The role represents senior management’s commitment to the programme or project and the requirements for regularity, propriety and value for money.

Purpose of the IDM role

The Investment Decision Maker (IDM) role is applied in several ways in programmes and projects. It also has specific responsibilities in construction procurement projects within the Achieving Excellence initiative. The IDM’s main responsibility is to commit funding for a programme or project.

Responsibilities of the IDM

  • ensuring a viable and affordable business case exists for a programme or project
  • ensuring the business case remains valid throughout the programme or project
  • ensuring the systems of control set out in the Managing Public Money guidance and other relevant Dear Accounting Officer letters are put into place and are followed
  • agreeing the appointment of an SRO, where the roles of IDM and Senior Responsible Owner (SRO) are separate, with sufficient authority to ensure that the necessary resources are in place to implement the programme or project and provide proper support for the programme manage.
  • establishing and monitoring a scheme of delegation, clearly defining the extent of individual responsibilities
  • maintaining the visible and sustained commitment from the top of the organisation to deliver

Corporations Act 2001 (Cth) (the Corporations Act)

The Corporations Act imposes a number of additional fiduciary duties on directors of entities incorporated under that legislation. The Individuals appointed as directors of companies must comply with the Corporations Act in carrying out their duties.

Under the Corporations Act, directors are required to:

  • act in good faith and for a proper purpose
  • act with care and diligence
  • avoid improper use of information
  • avoid improper use of position
  • disclose certain interests.

The Corporations Act 2001 specifies four main duties for directors:

  • Care and diligence – This duty requires a director to act with the degree of care and diligence that a reasonable person might be expected to show in the role (s 180). A very similar duty is also imposed on directors at common law. Recent court cases have emphasised this duty in relation to the approval of financial statement and board approval of statements issued by a company .
  • Good faith – The duty requires a director to act in good faith in the best interests of the company and for a proper purpose (s 181), including to avoid conflicts of interest, and to reveal and manage conflicts if they arise.
  • Not to improperly use position – This duty requires directors to not improperly use their position to gain an advantage for themselves or someone else, or to the detriment to the company (s 182).
  • Not to improperly use information – This duty requires directors to not improperly use the information they gain in the course of their director duties to gain an advantage for themselves or someone else, or to the detriment to the company (s 183).

consequences of breaching directors’ duties laws

  • Criminal sanctions – There can be very severe penalties for failure to comply with duties under the Corporations Act 2001 or other laws governing a company’s activities. Under the Corporations Act 2001, contraventions of the duty of good faith or improper use of information or position, if they involve dishonesty or recklessness, can be punished by imprisonment for five years (s 184)
  • Civil sanctions – A contravention of the duties under the Corporations Act 2001 can make a director liable to a substantial fine. Shareholders or others (for example, creditors) may also take action against directors who have failed to comply with their duties.
  • Disqualification – Both he Australian Securities and Investments Commission (ASIC) and the courts have the power to disqualify directors for long periods of time for failure to comply with their duties under the Corporations Act 2001.
  • Commercial consequences – The most serious consequences of breaching directors’ duties are often not the legal ones but the commercial ones. A corporation’s most valuable asset is its reputation. The company will likely be subjected to much greater scrutiny, both by investors and regulators, where directors breach duties.

Here in this case the duties of the directors like good faith detroyed because there is a huge loss in income.The directors fail in there duties and responsibilities which they have with the share holders come to an end.And they have to face the consicounces related to the mistake from there side.

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