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Key Topics
- Requirements
- Solution
- Introduction of the case:
- Breach of contract
- i) Implied term in the SPA:
- ii) Implied term in the exit agreement:
- Misleading or deceptive conduct:
- Analysis of the decision taken up by the court:
- The implication of the decision taken up in this case in respect of the overall law structure of the country:
- Conclusion:
- Reference
Requirements
1- Write a report on Corporation Law in 2000 words with reference to Havard.
Solution
Introduction of the case:
In the present case the applicants were Forty Two International Pty. Ltd, BlueFreeway Limited and The Gang of 4 Pty. Ltd. Corresponding to the applicants the respondents of the company were the founders of FTI and Gang of four. The respondents were engaged in the development and sale of digital marketing products and they developed software called Campaign Master. The company went on to establish a commercial relationship with the Campaign Master (UK) Limited for conducting the distribution of the campaign master in UK.
In the month of May 2006 BlueFreeway expressed its interest in respect of acquiring FTI and Gang of four. Consequently, a share purchase agreement was being signed between the parties in the month of October 2006. Three amounts were being considered for determining the sale price under the SPA. The three components were namely ‘Additional Payment’, ‘Earn out Payment’ and the tax targets corresponding to the FTI for the year 2007-2009 financial years. In respect of the Earn out payment and the Additional payment, reference was being made to earnings before interest. For the purpose of delivery of the consideration the shares of BlueFreeway and cash was to be utilised (Le Vaillantet al. 2016).
During the signing of the agreement of the share purchase agreement the respondents of the case signed a service agreement with the FTI and the Gang of 4 in respect of continuing their employment in the company and perform the role of joint General Managersof the FTI and Gang of 4.
A license in respect of exploiting the Campaign Master that was being used in the UK, Finland and India was being granted by BlueFreeway to CMUK.in the month of May in the year 2007. This required payment to be made by CMUK to FTI that amounted to $4.1 million. The respondents were able to arrange for the requisite financial means that enabled CMUK to make the payments in respect of the licence fee payments. The information regarding the involvement of the respondents in the financing was not being disclosed to the applicants (McGregoret al. 2017).
In the late 2007, the respondents were able to get into an exit agreement with BlueFreeway in respect of leaving the FTI. The reason for leaving the FTI was taken by the respondents due to their doubt regarding the future of FTI and Campaign Master under the leadership and the management of BlueFreeway. As per the provision of the agreement the license fees was to be included in the calculation of the EBIT for the year 2007. In addition to that, it contained a provision under which the respondent were to receive $16 million given that FTI is able to generate EBIT for the year 2007 (Von Delftet al. 2015). It was found that FTI was able to record EBIT and the payment to the respondents was made by BlueFreeway in the month of November of 2007.
Subsequently it was found out by BlueFreeway that the respondent was involved in the financing arrangements that were being made in respect of the CMUK. The applicants made several allegations against the respondent after the discovery of the fact of their involvement. The allegations stated that several things would not have happened if the respondents were not involved in the financing for the CMUK. The various allegations were that, if the respondents were not involved in the financing they would not have:
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a) Entered into the Exit Agreement.
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b) As per the terms of the SPA, it would have remained enforceable.
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c) The additional payments to be made would not have formed part of the entitlements and the payment to the tune of $16 million would not have been made to the respondent.
As per the claims made by BlueFreeway in the respect of the respondent connection with the SPA it is entitled to damages. The claims made by BlueFreeway were able to raise the following cause of actions: Brach of contract, breach of director’s common law fiduciary duties, breach of director’s statutory duties under the provision of the corporation act 2001 and misleading and deceptive conduct under the provision of the section 42 of the Fair Trading Act 1987 (Scottet al. 2018).
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Place Your OrderDuties, the responsibilities breached, and the explanation of the reasons for the breach of the duties:
Breach of contract
Two parts contribute to the breach of contract. They are as follows:
i) Implied term in the SPA:
It was found by the court that the term should have been implied in the SPA. For coming to this conclusion, the consideration that was being made by Griffiths J was that whether the it was necessary for the term to be implied for the purpose of business efficacy of the SPA. The opinion formed by his honour was that as per the point of viewpoint of a bystander it could be ascertained that the respondents were obliged to disclose their involvement in the financing of the BlueFreeway under the SPA (Rangamuwaet al. 2017). This was concluded due to the huge degree of independence exercised by them in terms of running the business of FTI and the significant greater access that has been granted to them in respect of the Fit’s financial records than was exercised by BlueFreeway.
It was also emphasised by the judge that the implied term of the SPA would have to be considered as complimentary to the express terms that have already been stated out in the SPA. The reason for this conclusion was that if the implied term was added with the existing obligation of providing the BlueFreeway with the monthly sales reports would have added to the assistance in the process of calculation of EBIT for the year 2007.
The respondents argument that the addition of the phrase ‘might become relevant’ in the implied term can be said to be vague and uncertain. In the opinion of the judge, the addition of the phase did not render the implied term from being able to express clearly and certainty that is offered in respect of its operation. It was analysed by the judge that due to the fact that the EBIT of the company for the year 2007 was the result of the availability of the information that led to the time of the calculation, the information which was in knowledge of the respondents and ‘might become relevant’ was simply responsible for the purpose of reflecting the nature of the calculations to be conducted (Koeberlet al. 2018).
At the end, the judgement made by the court concluded that the arguments made by the respondent could be easily rejected. This led to the rejection of the argument that the implied term was completely inconsistent with the provisions that were laid down in the SPA.
ii) Implied term in the exit agreement:
Completely in contrast with the operation of the implied term in the SPA, the judge was of the view that for giving the Exit Agreement efficacy the term was not essential for providing the services to the FTI.
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Breadth of fiduciary and statutory duties: The applicants were pressing for the breach of duties in this respect very significantly but failed to take the right course of actions in this respect as on their closing address. It was actively acknowledged by them that one of the most significant factor for the determination is that the duties extend to the circumstances in which, although FTI was able to garner some profit with the receipt of the license fee was that based on the increased obligation on the part of its parent company in the future for paying additional monies to the respondents of the SPA. It was established that the applicants were aware of the difficulties that were being presented by the fact that the duties that were to be performed by Messrs Barnes and Hawksley in the role of the Directors of the FTI were duties that actually owed to the company and not to the parent company of which they were not the directors (Chapmanet al. 2015).
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Misleading or deceptive conduct:
i) The respondents pleading objections:
It was claimed by the respondent that a new case of misleading or deceptive conduct in their closing address has been presented by the applicants. The reason for this is that the case has now advanced as being categorised as one of the ‘failing to correct an impression earlier made’. This is in reference to the fact that it failed to inform BlueFreeway that CMUK was in the possession of the funds required for paying the license fee. It was not subsequently informed by Messrs Barnes and Hawksley that they personally had to jump in for arranging the funds for the use of CMUK when the third party financier failed to provide the requisite finance.
ii) Some of the relevant legal provisions:
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a) For determining any contravention of the provisions of the section 42 of the FT Act, it has to be ascertained that in the given circumstances whether there has been any conduct, which is misleading or deceptive in nature.
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b) It is not necessary for the conveying of the express or implied representations for determining the conduct to be misleading or deceptive.
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c) In the cases that involve non-disclosure of information, all the relevant circumstances and the context of the case and the situation are to be objectively considered (Barnesand MacMillan 2014).
Analysis of the decision taken up by the court:
The issue of causation was being considered by the judge. The decision of the judge held that the determination of the causation must be approached based upon the proof that is obtained from the balance of probabilities. In the view pf, the court the evidence led to the establishment of only a weak link between the respondents conduct and the opportunity that was lost b BlueFreeway for the purpose of negotiation of lower termination payment.
Finally, the court turned towards the issue relating to the valuation of the opportunity that was lost. As per the decision of the judge whether any value can be allocated to the opportunity that is lost will be dependent upon the presence of a probabilities or multiple probabilities relating to the case. It was further emphasised by the court that a percentage figure can be effectively used for the purpose of calculating the amount that has to be given out as an award for the damages in respect of the loss of the opportunity, it is the entitlement of the court to adopt a global approach and that could result in the award of a lump sum(Barnes and MacMillan 2014).
The implication of the decision taken up in this case in respect of the overall law structure of the country:
The practical impact of the decisions is as follows:
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a) The case re-confirmed the notion that the courts are eligible for implying a term into a contract. The only stipulation being that it should be capable enough to give business efficacy to the contract and leads to complementing of the express terms that are laid down in the contract.
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b) The clauses of the entire agreement do not operate for the purpose of automatically exclude the implication of the terms that otherwise is capable of giving business efficacy to the contract. This can take place unless as per the provisions it is expressly referred to exclude the implied terms.
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c) Balance of probabilities is the standards of proof for the purpose of causation between the lost opportunity and the damages that have been suffered.
Conclusion:
After conducting an in-depth analysis of this case it can be ascertained the importance of the disclosures that are to be made by both the parties that are involved in any sort of agreement. In the present case, it is established that the respondents should have communicated their involvement in the process of arranging finance for the company when the third parties backed off from the agreement to provide the requisite finance to the CMUK project of the company.
Reference
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Barnes, A. and MacMillan, C., 2014. The difficult challenge faced by hybrid employee voice in the Australian university sector. Voice and Involvement at Work: Experience with Non-Union Representation. London: Routledge, pp.101-124.
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Chapman, J.J., Fraser, S.J., Brown, W.J. and Burton, N.W., 2015. The feasibility and acceptability of questionnaires and accelerometry for measuring physical activity and sedentary behaviour in adults with mental illness. Journal of Mental Health, 24(5), pp.299-304.
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Koeberl, M., Clarke, D., Allen, K.J., Fleming, F., Katzer, L., Lee, N.A., Lopata, A.L., Said, M., Scheelings, P., Shepherd, N. and Sherlock, R., 2018. Food Allergen Management in Australia. Journal of AOAC International, 101(1), pp.60-69.
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Le Vaillant, M., Saleem, A., Barnes, S.J., Fiorentini, M.L., Miller, J., Beresford, S. and Perring, C., 2016. Hydrothermal remobilisation around a deformed and remobilisedkomatiite-hosted Ni-Cu-(PGE) deposit, Sarah’s Find, Agnew Wiluna greenstone belt, YilgarnCraton, Western Australia. MineraliumDeposita, 51(3), pp.369-388.
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McGregor, D., Rankin, N., Butow, P., York, S., White, K., Phillips, J., Stone, E., Barnes, D., Jones, R. and Shaw, T., 2017. Closing evidence?practice gaps in lung cancer: Results from multi?methods priority setting in the clinical context. Asia?Pacific Journal of Clinical Oncology, 13(1), pp.28-36.
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