Legal Strategies
for Business
Sources of NZ Laws
• Legislation (Statute Law)
– NZ Parliament supremacy
– UK laws before 1840 (unrepealed)
– UK laws adopted since 1840
• Cases (Common Law)
– Precedents decided by NZ or other courts
– Higher courts usually bind lower courts in
precedents
Business Forms
• Sole Trader
– “John Wayne Gunsmithing”
• Partnership
– “Woods and Norman Golf School”
• Incorporated Company
– “Robert Redford Agency, Ltd.”
• Miscellaneous
– Trusts, Foundations, etc.
Proprietorship/Sole Trader
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Unincorporated business
Usually one principal operator
Personal, unlimited liability
IT IS SILLY TO OPERATE THIS WAY!
There is no reason to use this business
format, EVER!
Partnership
• Two or more partners
– Carry on as a business
– Must be with view to a profit
– Must be in common
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Personal, unlimited liability
Can be informal
Each partner taxed personally
Complex issues arise when partners
leave/join
Corporations
• A corporation is a separate legal
person. It is separate from its
shareholders. (s15 Companies Act 1993)
– Can enter into contracts
– Can sue and be sued
– Can be convicted of a crime
– Has no natural lifespan and dies through
removal from the register
The “Corporate Veil”
• Protects shareholders, directors and
others from liability for acts done on
behalf of the company.
• Lifted by the courts in the event of fraud.
• Different treatment for groups of
companies.
Separate Entity Principle
• Is there injustice?
• Is there fraud?
• Is there knowledge?
– “The position of the brain of the company”
Case Study
Mr Ivory instructed the plaintiff to use a certain
grass herbicide, but failed to instruct on proper
protection of their raspberry crop. The crop was
lost and Mr Ivory and his company were sued.
Trevor Ivory Ltd v Anderson (1992) 6 NZCLC 67, 611
in Understanding Commercial Law, Gerbic/Lawrence 4th Edition
Case Study
The Court held that Mr Ivory had acted as the company,
and to hold him personally liable would interfere with the
principle of corporate personality. Mr Ivory mad made it
clear to the world that he was trading as a company and
there was no reason for personal liability. The Court
further stated that in order to establish a personal duty to
a third party, the breach of which might entail personal
liability, it was necessary to see whether there was an
implied or actual assumption of the duty of care.
“Something special is required to find personal liability”
Trevor Ivory Ltd v Anderson (1992) 6 NZCLC 67, 611
in Understanding Commercial Law, Gerbic/Lawrence 4th Edition
Incorporated Corporation
• Shareholders own in perpetuity
• Limited liability for shareholders
• Corporate structure with director(s) and
operator(s)
• Transferable ownership, usually with some
restrictions in small firms
• Taxed as a whole
• Shielded by a Corporate Veil
• Annual/special meetings
Advantages of Incorporation
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Ease of investment/divestment
Ease to increase scale of operation
Perpetual life
Separation of ownership and control
Limited liability
Borrowing
Acceptance
Corporate Veil
Corporate Liability
• Some criminal liability, except were
prohibited by statute (manslaughter:
“the killing of one human by another…”)
• Civil liability
– Contracts
– Torts, for employee/agent actions
(“vicarious liability)
Fiduciary Duty
• “A duty to act for someone else’s benefit
while subordinating one’s personal
interests to that of the other person. It is
the highest standard of duty implied by
law.”
• A promoter owes a fiduciary duty to the
company.
Incorporation
• Minimum Requirements:
– Name
– 1 shareholder
– 1 director
– 1 share
– Registered Office/Address for Service
Incorporation
• Name Selection
– Must include “Limited”
– Certain words excluded (“Crown”)
– May not be in use, misleading, prohibited,
offensive
– Anyone can select a name
• Name Reservation
• Application for Registration
• Funding
Incorporation
• Name Selection
• Name Reservation
– Pay the Companies Office
– Anyone can reserve a name
– No incorporation without name reservation
• Application for Registration
• Funding
Incorporation
• Name Selection
• Name Reservation
• Application for Registration
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Shareholder consent
Director consent
Name approval/reservation
Constitution (if any, not needed)
Registrar MUST issue certificate
• Funding
Incorporation
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Name Selection
Name Reservation
Application for Registration
Funding
– May trade immediately after incorporation
certificate is issued
– Loans (repayment by its terms)
– Shares (dividends, no scheduled repayment, right
to sell with restrictions, surplus at liquidation)
Registered Office
• Anywhere in NZ
• Street address required
• Indicates good address for communication,
does not have to be trading location
• Mail to the Registered Office is “good” notice
• Can change address at any time with notice
to Companies Office
Case Study: Valid Service?
The plaintiff served a s218 notice of demand under the
Companies Act 1955 at the defendant’s registered
office and a copy was sent to the defendant’s place of
business. Subsequently, a notice of an application to
wind up was served at the defendant’s place of
business. The winding up order was granted and the
defendant applied to set it aside on the basis, inter alia,
that it had had no notice.
Kensington Swan v New Zealand Fisheries Ltd (1990) 5 NZCLC 66, 186
The Law of Business Organizations, Watson, 3rd Edition
Case Study: Name Confusion
A company called Stanley-Hunt Earthmovers
Ltd appealed against the decision of the
Registrar not to require a company called
Stanley-Hunt Earthmovers (1996) Ltd to
change its name.
Stanley-Hunt Earthmovers v Registrar of Companies (1997) 9 NZCLC 261, 403
The Law of Business Organizations, Watson, 3rd Edition
Case Study: Name Confusion
Flight Centre (NZ) Ltd objected to the use of the
name Rotorua Flight Centre.
Flight Centre (NZ) Ltd v Registrar of Companies (1994) 7 NZCLC 260, 612
The Law of Business Organizations, Watson, 3rd Edition
Case Study: Name Confusion
Taylor Bros Ltd had a well-established dry
cleaning business in Wellington. Taylors Group
Ltd operated similar businesses in Auckland.
Taylors Textile Serbices Auckland Ltd v Taylor Bros Ltd (1988) 2 NZBLC 103, 032
(CA)
The Law of Business Organizations, Watson, 3rd Edition
Fundraising
• Public
– Securities Act controls
– Extensive Disclosure Statement/
Investment Statement required
– Liability for incorrect, misleading, boastful
statements
• Private
• Public
• Private
Fundraising
– Investors look out for themselves
– Relatives/close business associates
– Professional investors
– Selected other than from public
– Founding shareholders
– Need to have all necessary information to make
an informed decision
Agency
• Corporations act through others
– Employees
– Shareholders
– Officers
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Fiduciary relationship
General, Special, Estoppel Agency
Apparent Agency
Agent’s Duties
Agency
• Corporations act through others
• Fiduciary relationship
– An Agent acts on behalf of a Principal
– Powers of the Principal are assumed, no
more, can be less
• General, Special, Estoppel Agency
• Apparent Agency
• Agent’s Duties
Agency
• Corporations act through others
• Fiduciary relationship
• General, Special, Estoppel Agency
– General: Authority in matters of particular
business
– Special: Narrowed to fit purpose
– Estoppel: Principal ‘estopped’ from denying
agent’s authority
• Apparent Agency
• Agent’s Duties
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Agency
Corporations act through others
Fiduciary relationship
General, Special, Estoppel Agency
Apparent Agency
– Principal must make/support the
representation of agent’s authority
– Would a reasonable person understand that
the agent is authorized?
• Agent’s Duties
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Agency
Corporations act through others
Fiduciary relationship
General, Special, Estoppel Agency
Apparent Agency
Agent’s Duties
– Act by instruction and only within the scope
of authority
– Act with due care
– Cannot sub-delegate
– Has a right to compensation
Contracts
• Legally recognised promises or
bargains made by two or more persons
including all rights and duties resulting
from the promises or bargains.
What is a Contract?
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An Agreement
Between Parties
Which defines Rights and Duties
Resulting in Obligations
Of a specific Subject Matter
• Same contract rules apply from handshake
agreements over pennies to complex Billion $
transactions
Enforcement of Contracts
• None, if against specific statutory
provisions
• None, if against public policy
• Specific performance if practical,
desired and possible
• Damages, if ascertainable
The Offer
• Without a valid offer, there cannot be valid
acceptance
• “Yes, I have a 2001 VW Bug for sale, and I
want $2,000” is not an offer
• The intended person must receive the
offer, including all terms
• Offers terminate when accepted, rejected,
lapsed or revoked
• Inquiries as to changes are not rejections
Communication of Offer
• C offers a reward to anyone who finds
her wallet. B finds and returns it, but
does not know of the reward until he
arrives at C’s house and sees the
“Reward” posters. B cannot claim the
rewards, as there was no offer when B
found the wallet.
Termination of the Offer
• By acceptance
• By rejection
– By words or by conduct
– No subsequent acceptance allowed
• By lapsing
– After specified time lapse
– After reasonable time lapse
• By revocation (must reach offeree)
Revocation
• Offeror holds the power of life and death
over the offer.
• Offers can be revoked even if an
express promise is made not to revoke.
• Promises are not binding until all
contract elements are satisfied.
• No consideration = no contract.
Byrne v Van Tienhoven
(1880) 5 CPD 344
1 October: Van Tienhoven posted an offer to sell
to Byrne.
8 October: Van Tienhoven posted a letter of
revocation to Byrne.
11 October: Byrne received the offer and
telegraphed back an acceptance.
20 October: The letter of revocation reached
Byrne.
Byrne sues for breach of contract.
Revocation
• Any words or conduct can serve as
revocation
• Revocation must be communicated to
the offeree
• A revocation is not possible if there is
an option contract (a paid for option)
Option Contract
• If payment is made to hold an offer
open, a binding agreement is created =
Option.
• Consideration is needed, and, when
given, the Option becomes a contract in
itself.
Acceptance
• Absolute and unqualified assent to all terms
of the offer, only by offeree
• Overt act is needed, can be oral, in writing, or
by conduct
• An offer must be received before it can be
accepted
• Acceptance must reach the offeror
• Inquiries, counter offers and conditional
acceptance are invalid
Can Silence be Acceptance?
• Offeror may bind himself
• Silence is an acceptance if offeree
reasonably fails to speak up and reject
• If the offeree solicits the offer, must let
the offeror know within reasonable time
of intent to reject
Operation of Acceptance
• General principle: Mailbox Rule,
acceptance is effective when sent
• Offeror may not know when
acceptance occurred
• “Proper Dispatch” is required
• “Reasonable Time” is required
Eliason v Henshaw
(1849) 4 Wheaton 225
Eliason made an offer to buy flour from Henshaw.
The offer arrived in a wagon and stated that the
answer be sent in the wagon, which was returning
to Eliason.
Henshaw sent his acceptance by post, because
he thought that it would be quicker.
The acceptance arrived after the return of the
wagon. Eliason refused to be bound by any
contract.
Is there Acceptance?
Jeffrey calls Mary and offers her his 1976
Triumph Stag for sale at $9,500. She tells
him she can’t afford an old car like that and
makes a date with him for the following
Friday.
Meanwhile she talks to her friend Brittany
who mails Jeffrey a cheque for $9,500 and
writes “This is for your 1976 Triumph Stag, I
will pick it up on Friday.”
Jeffrey tells Brittany he doesn’t want to sell
anymore, and she sues him.
Is there an Offer?
Jim and Louise are chatting after school. Jim
says “I am thinking of selling my computer
for $500. What do you think?”
Louise replies: “That is a great price, I
would very much like to buy a computer
like that.”
Next day, Jim bring over his computer and
Louise throws him out of the house.
Jim sues Louise.
Meeting of the Minds
• Was there an agreement to all terms?
• Were all terms meaningful?
• Look at regular conduct between the
parties
Is there Meeting of the Minds?
• Harry writes to Bob and offers to buy all of the
TV sets Bob has coming in on his next
container from China, for $120 each.
• Bob agrees. When the container arrives, it
contains 15,000 TV sets and Harry tells Bob
he thought there would only be 5,000 TV sets
on board, so he will only take 5,000.
• Bob sues Harry to take all TVs.
May & Butcher v The King
(1934) 2 KB 17
The plaintiff made an arrangement to buy surplus
war tentage from the government at “a price to be
agreed upon from time to time”.
Difficulties in setting the price occurred and the
parties went to Court.
May & Butcher v The King
(1934) 2 KB 17
There was no contract, because the parties had
failed to agree on essential terms.
The parties had ‘agree to agree’, and this was
insufficient to show that the parties had intended
to be bound by the arrangement.
Must a Contract be in Writing?
• No, except where statutes require it:
– Real Estate commissions
– Hire purchases
• Contracts Enforcement Act
– Sale of land/mortgage on land
– Debts of Third Party/Guarantees
– Verbal contracts are valid, but
unenforceable
Consideration
• Giving up something = forbearance
• Consideration must have some value
– A benefit to the promisor, or a detriment to
the promisee
• Consideration offered after performance
is not enforceable
Is there Consideration?
• I will continue to go to school until age
16, if you pay for my new piano.
• If you mow my lawn for 2 weeks next
May, I will let you use my car until
then, for free.
• I will tell my sister Anne to babysit for
you tomorrow, if you pay me $6 per
hour.
Sale of Goods Act
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Applies to property/goods sales
Informal contracts are enforceable
Major Breach: Repudiation or damages
Misrepresentation: Rescisssion
Term Breach: Rescission
Warranty Breach: Damages
Can only sell with good title
Fitness for a particular purpose
Fair Trading Act
• Prohibits business conduct
– Misleading/deceptive conduct
– False/misleading representation
– Unfair practices
• Commerce Commission enforces
• Breach of the Act is a crime
Consumer Guarantees Act
• Guarantees and remedies for:
– Goods and services
– From a supplier/manufacturer
– To a consumer
• Must be ‘in trade’
• Goods/services must be of a kind ordinarily
acquired for personal use
• Guarantee as to acceptable quality
• Goods to be fit for particular purpose stated