Otis Lillicarp is a scallop fisherman in NSW. Stocks of scallops are dwindling, and so the State Parliament has enacted legislation which provides that “Each person wishing to fish for scallops must obtain an annual license, may be granted one license only and is limited to taking 50 scallops from the sea per month”.
Otis has incorporated three companies – Otis’ Fishing Pty Ltd, South Coast Scallops Pty Ltd and Lillicarp’s Fishing Pty Ltd, and as managing director of each applies for 3 licenses, as well as a license for himself.
The legal issues that pertain to this case scenario are pretty straight forward as it regards the determination of legality of Lillicarp’s fishing licenses in the way that they were obtained; this in general is the only issue that would need to be determined. But there are several other issues that are related to this case and which must be considered as well. One, the specifics of this law that regulates fishing of scallop is bound to be under scrutiny in determination of this fact, but because the details of the laws have not been elaborated it means we shall have to make a lot of assumptions. Finally, there are issues to do with separation of businesses from their owners since they are separate entities which we shall have to address as we interpret this particular law.
Foremost, let us set out and establish the position of the law as relates the three limited Companies in which Lillicarp is the managing director and therefore lay the basis for determination of the legality of the four licenses that have been applied by Otis. According to business law the “incorporation of a Company has two legal effects: firstly, it creates a legal person and secondly, that legal person has perpetual succession” (Rodzi, 2008). Based on this fact of law it would then appear that Otis does indeed have three Companies that are separate legal entities that are completely different from him.
In fact, the law explicitly states that “a company is recognized as a person in law” and in addition to this holds that the owner of the Company is quite different from the Company itself and the only difference between a Company and a real person is that the Company is an “artificial person” so to speak (Rodzi, 2008). These facts of laws have great implications to the determination of the issues at hand; one, the fact that Lillicarp’s Companies are persons, albeit artificial ones implies that they can function as real persons and thereby apply for fishing licenses just as any person would do.
Besides, the separation of the Company from its owner usually referred as “the veil of incorporation” is an important distinction in this case (Rodzi, 2008). This is because it would mean that Otis is in compliant with the law since the applications of the other three do not mean that he is the actual person who is benefiting from the proceeds of the fishing, but rather the separate business entities. So far if we had the specifics of this law we would have been able to refer to it and determine if there are any exceptions that are described in any sections of the law.
But despite what the details of this specific law might have been there are two other relevant facts of law to note as far as incorporation of Companies is concerned. One is that the law as a matter of fact is very reluctant in enjoining the owners of a Company with their Companies unless under exceptional circumstances. This is the reason that “the courts usually do not look behind “the veil” to inquire why the company was formed or who really controls it” (Rodzi, 2008). Secondly, the law does allow for Companies to “own property distinct from the property of its members” or owners (Rodzi, 2008). So what would all this mean to our case that is at hand?
Several things; one, that the NSW Fisheries Department has no business knowing the actual owners of the Company and this fact should be considered irrelevant in determination of whether Otis is acting illegally in applying for three other licenses using his Companies as fronts. In fact, as far as NSW Fisheries Department is concerned Otis has only applied for one license only because the others have been instituted by completely different entities.
Secondly, it would also mean that NSW Fisheries Department would have no basis of prosecuting Otis for multiple application of licenses until they obtained recourse to lift the veil of incorporation that ideally exists for these Companies, and that is unlikely to happen without good reason. This is especially the case since existence of Otis as a person has no significance to the issue at hand since the three Companies might very well continue applying for licenses even if Otis was to cease existing, which is our third point. Finally, as a lawyer for the NSW Fisheries Department Otis has complied with the law since there is only one license that has been applied under his name and if Companies are not entitled for this particular license then the Companies are to sue but not Otis.
Benzvi, K. 2009. Contract Law 101 (Part IV): Breach of Contract and Remedies. Web.
Gibson, A., Rigby, S. and Tamsitt, G., (2005). Commercial Law: In Principle. 3rd edition, Sydney: Thomson Law Book Co.
Lillywhite, B. (2011). The Extent of Res Ipsa Loquitur. The Modern Law Review, 22(1): 82-83.
Rodzi, H. (2008). Nature of a Company. Web.
Turner, C. (2008). Australian Commercial Law, 27th edn. Victoria: Thomson Reuters.