The case of examination in this particular question involves two very important principles and these are the principles of contract and the principle that govern the operations of companies and more particularly the law of insurance. We are therefore going to take a step by step analysis into the circumstances in order to establish what is the best cause of action that can be taken within the framework of the relevant law. Now to begin with Jack is a financial adviser and he is a fully qualified accountant and a Certified Practicing Accountant of CPA Australia.
Thus as far as competency is concerned his ability to work as a financial advisor is concerned is not questionable. On the other hand Eels is a small public company whose specialization is in the provision of income protection insurance to its members. Since the company was started Jack has been a consultant and has been holding 4% of shares in the company. Again upon the establishment of the company Jack entered a contract with the company which contract provided that 75% of his (Jack’s) weekly earnings were covered incase he was not able to work either due to injury or sickness.
The other very important scenario is that of the relationship between the company’s financial advisor who is Jack and the company’s solicitor who is Belinda. Jack is friendly to Belinda. Belinda being the company’s solicitor has drafted the constitution of the company which makes Jack’s position of permanent one meaning that is made to be a permanent financial advisor of the company . The constitution goes further and states that being a permanent financial advisor of the company he can only be dismissed form his position only by reason of misconduct, meaning that he cannot be sacked for any other reason.
However we must note one very important aspect that there was no resolution by the company’s directors approving Jack as the company’s permanent financial advisor and that no contract of service was entered between Jack and the company. A few years after the company’s inception that was in 2005, the constitution of the company was amended and this amendment gave the company the power or discretion to refuse to pay out insurance to its members at any time they deem fit to do so.
In the year 2007 the company resolved that they were no longer interested in the services of Jack as a financial advisor of the company and thus terminated his contract with the company. In his place the Company C. E. O’s nephew took over as the new company’s financial advisor. Jack was very upset upon his summary dismissal that when he was leaving the company’s premises on that particular day he was hit by a vehicle and sustained serious injuries. Upon visiting the doctor for treatment Jack was advised by his doctor that his injuries were quite serious and that he could not work for the next three years.
Jack therefore approached the company requiring them to pay him some money under the company’s constitution where he was entitled to weekly earnings incase he was unable to work as a result of illness or injury. However the company argues that pursuant to the 2005 constitutional amendment the company reserved the right to pay or not to pay insurance to their members. They therefore argued that in exercise of their discretion they were not going to pay Jack any money. Jack is caught between a rock and a hard place.
He attempts to seek legal advise from Belinda but she cannot help him since they are friends and therefore there is likely to occur a conflict of interests and argues that the company’s constitution will apply. To be able to advise Jack accordingly we will need to look at every circumstance separately. To begin with Jack did enter a contact with the company to provide services of a financial director. It must be remembered that contract is a binding legal agreement between parties and whenever violated the aggrieved party has right in law to take a legal action against the other party.
However it cannot be ignored that the appointment of Jack as the company’s permanent financial director and further the fact that he could only be dismissed from his potion by misconduct only was not approved by the directors of the company. As far as Company Law is concerned, this was a mistake. To begin with a constitution of the company though drafted by a person with legal knowledge like the company’s secretary the contents of the constitution must be agreed upon by all he directors and other stakeholders including representatives of shareholders.
If this is the case then it therefore means that such a constitution is a nullity . The only exception is that even if the company’s directors do not approve the contents of the constitution but later decides to adopt the constitution as it is then there is a general assumption that they do agree with all contents of the constitution. In this case there it is assumed that the directors agreed with the contents of the constitution as from the circumstances it seems they adopted the contents.