H

Corporate Liability: Criminal, Tort & Contract – Detailed Lecture Notes

Course & Housekeeping Points

  • Lecturer apologised for missing the previous Thursday catch-up owing to an all-day negotiation seminar.

  • Recommended elective subjects: LAW316 – Negotiation and LAW317 – Mediation (numbers to be confirmed).
    • LAW317 (Mediation) = understand what happens inside a mediation.
    • LAW316 (Negotiation) = “skills for life”.

  • Multiple-choice quiz: intended only to confirm students have started the readings; not designed to be difficult.

  • Census date reminder: Friday.

  • Plans for the next live session: deep dive on the Partnership / Company comparative assignment.

Key Corporate-Liability Themes Covered

  1. A company is a separate legal person once incorporated but has “no mind or soul”.

  2. The “organic theory”: the directing mind and will of the company = its directors (or senior officers) ➔ their acts can be imputed to the company.

  3. Three liability heads examined:
    • Criminal
    • Tort (civil wrongs, incl. vicarious liability)
    • Contract (binding the company via agents and statutory assumptions).

  4. Overarching statutory framework:
    • Corporations Act 2001 (Cth)
    • Criminal Code (Cth) Pt 2.5 – \text{s 12.1 – 12.6}
    • Acts Interpretation Act 1901 (Cth) – "person" includes “body corporate”.

Criminal Liability of Corporations

Statutory Foundations

  • Acts Interpretation Act – “person” = body corporate ➔ companies can commit crimes.

  • Criminal Code 1995 (Cth):
    • \text{s 12.1(2)} – a body corporate can be found guilty of an offence.
    • \text{s 12.2} – actus reus attributed if performed by employee/agent/officer within actual or apparent scope.
    • \text{s 12.3} – mens rea attributed if company expressly, tacitly or impliedly authorised or permitted offence.
    – Evidence: actions/omissions of board or “high managerial agent” \text{s 12.3(2)}.
    – Corporate culture concept \text{s 12.3(6)}: attitude, policy, rule or practice that encourages tolerance of non-compliance.
    – Due-diligence defence: board must prove it exercised due diligence to prevent the conduct.

  • Strict/absolute liability provisions \text{s 12.4 – 12.5}: intent not required; mere performance of prohibited act = liability.

Key Cases & Illustrations

  1. Lennard’s Carrying Co v Asiatic Petroleum (1915)
    • Ship unseaworthy ➔ cargo destroyed.
    • Director Lennard = “directing mind & will”; his knowledge/fault attributed to company.
    • Viscount Haldane’s classic dicta on the organic theory.

  2. Meridian Global Funds Mgmt v Securities Comm’n (NZ) (1995)
    • Chief Investment Officer breached substantial-shareholding rules & hid this from board.
    • Authority to trade shares ➔ knowledge imputed to company, consistent with statutory purpose.

  3. ABC Developmental Learning Centres
    • Child escaped over fence.
    • Low-level employees failed in duty, but liability imputed because senior management had not ensured safety ➔ fulfils legislative purpose.

Practical Points

  • Only fine can be imposed on the company (no prison), but officers aware of wrongdoing may personally face imprisonment.

  • Culture allowing bullying/racism etc. can create criminal exposure even without specific knowledge.

Tort Liability – Vicarious & Direct

Doctrinal Recap

  1. Duty, breach, damage, remoteness questions identical to human defendants.

  2. Vicarious liability: employer (company) liable for torts committed by employee in the course of employment.

Cases

  • Citizens’ Life Assurance v Brown (1904) – defamatory letters by employee ➔ company liable.

  • Hollis v Vabu (2001)
    • Bicycle courier hit plaintiff.
    • High Court: couriers were employees, not independent contractors: uniforms, inability to refuse work, prescribed hours, minimal capital outlay.
    • Therefore Vabu vicariously liable.
    • Endorses “multi-factor indicia” test with continuing focus on control.

Contractual Liability – Binding the Company

Core Principle

A company can only contract through human agents. Authority of that agent may be:

  1. Express.

  2. Implied (by office held).

  3. Apparent/Ostensible (representation to third party).

Statutory Mechanics

  • Corporations Act 2001 (Cth):
    • \text{s 198A} – Board exercises all powers.
    • \text{s 198C} – Managing director may be given broad powers.
    • \text{s 198D} – Board may delegate.
    • \text{s 198E} – In a single-director proprietary company, the sole director can bind the company.
    • \text{s 126} – Company may contract via individual acting with express/implied authority.
    • \text{s 123} – Use of a common seal is optional; rules for design.
    • \text{s 127} – Statutory execution (with or without seal) – two directors, or director + secretary, or sole director/secretary.

Types of Authority in Detail

  1. Express – resolution, contract or constitution language.
    • Example: Board minute authorising CFO to enter lease.

  2. Implied – authority attaching to senior office (MD, CEO, CFO, Company Secretary).
    • Entwells v National General Insurance (1991): managing director has implied power to bind company to contracts in ordinary course of business.

  3. Ostensible/Apparent – representation to third party + reliance.
    • Freeman & Lockyer v Buckhurst Park Properties (1964)
    – Kapoor acted as MD without formal appointment.
    – Representation by board + customary authority ➔ company bound.
    – Classic four-part test (representation, made by persons with actual authority, reliance, company capacity).
    • Brick & Pipe Industries v Occidental Investments (1992) – mistaken description of officer as “secretary” on sealed guarantee; third party entitled to rely on \text{s 129(6)} assumption.

Statutory Assumptions – \text{s 128 – 129}

A person dealing with a company may assume:

  1. Company’s constitution & replaceable rules have been complied with.

  2. Named directors/secretaries are duly appointed.

  3. Officers/agents properly perform duties.

  4. Documents are duly executed per \text{s 127}.

  5. \text{s 128(4)} – Assumptions lost if third party knew or suspected they were incorrect (actual knowledge or formed suspicion).

Limiting Doctrines

  • Rule in Turquand’s Case (1856) – constructive notice removed; outsiders can assume internal compliance unless put on inquiry. Now codified in \text{s 128 – 129}.

  • Northside Developments v Registrar-General (1990) – bank should have suspected irregularity when sole asset used as security; therefore assumptions unavailable.

  • Auris Funds Mgmt v NAB (2001/03) – bank could rely on assumptions; one-director endorsement sufficient despite constitution requiring two signatures.

Ultra Vires Obsolete

  • \text{s 125(1)-(2)} – Acts not invalid merely because they exceed constitution.

  • Combination of \text{s 125} with \text{s 128-129} means outsider rarely caught by company’s self-imposed limits.

Execution of Documents & Use of Seals

  1. With seal – \text{s 127(2)}: affix seal + witnessed by
    • two directors, or
    • director + secretary, or
    • sole director/secretary (proprietary).

  2. Without seal – \text{s 127(1)}: document signed by same officer combinations above; deemed validly executed.

  3. Assumptions:
    • \text{s 129(5)} – persons may assume proper execution w/out seal.
    • \text{s 129(6)} – may assume seal properly affixed.

  4. Even forged seals/signatures can bind company to protect innocent third parties (subject to \text{s 128(4)} knowledge exception).

Criminal v Civil Distinctions Recap

Criminal

Tort

Contract

Element

actus\ reus + mens\ rea (or strict)

Duty, breach, damage

Offer, acceptance, authority

Result

Fine on company; possible prison for officers

Damages; vicarious liab.

Company bound or able to rescind

Study & Revision Strategies Proposed by Lecturer

  1. Print the PDF slides/notes and scribble annotations while listening.

  2. Create a running list per module:
    • Statutory sections.
    • Key cases + ratio.

  3. After lecture, review within 24 hours, then next day, then weekend (three-touch memory consolidation).

  4. For problem questions: write mini-ILAC bundles immediately after class; store as templates for exam/assignment.

  5. Open-book exam: have modules printed and tabbed for quick typing-reference.

  6. Draw diagrams for agency chains; use colour/highlighter to tag sections s 126, 127, 128, 129 etc.

Upcoming Assignment Guidance (Partnership vs Company)

  • Main focus: Partnership Act (topics 3 & 4) – agency of partners.

  • Secondary question: briefly contrast outcome if Hilda & Zelda had incorporated.

  • Likely 80-90 % partnership analysis, 10-20 % corporate overlay.

  • Use single ILAC structure but treat two issues (agency, incorporation) in separate law+application clusters.

Miscellaneous Illustrations & Anecdotes

  • Checkout operator accepting payment = binding supermarket corporation (offer/acceptance).

  • Lecturer’s personal wax seal example (family crest: “Concilio et Impetu” – wisdom & force).

  • Pop-culture reference: Letterkenny – “allegedly”.

  • Suggested fictional names for assignment (Hilda, Zelda, Sabrina, Salem – Sabrina the Teenage Witch).

Quick Reference – Statutory Sections Mentioned

Acts Interpretation Act – definition of “person”.
Criminal Code: s 12.1 – 12.6.
Corporations Act 2001 (Cth):

  • s 117(3) – constitution lodgement.

  • s 123 (seal).

  • s 125 (capacity).

  • s 126 – 130 (agency & assumptions).

  • s 198A – 198E (board powers, delegation, sole director).

  • s 127 (execution).

  • s 128 – 129 (outsider assumptions).

  • s 130 (abolition of constructive notice).

Take-Away Formulae / Definitions (LaTeX examples)

  • Attribution of mens rea: Company\ liable\ iff\ Board\ or\ High\ Managerial\ Agent\ authorised\ or\ permitted\ offence.

  • Vicarious liability test: Employee\ acting\ in\ course\ of\ employment \Rightarrow Employer\ liable.

  • Ostensible authority four-part test (Freeman & Lockyer):
    \begin{aligned}
    1.&\ Representation\ of\ authority;\
    2.&\ Representation\ made\ by\ person\ with\ actual\ power;\
    3.&\ Reliance\ by\ third\ party;\
    4.&\ Company\ capacity\ under\ constitution.
    \end{aligned}