Assume that mining operations are regulated by legislation that provide as follows:

1 Mining operations to be under lease or licence.

No mining lease, quarry license, short-term permit or any other permit shall be granted otherwise than in accordance with the provisions of these rules.

2 Transfer of Mining Lease.

(1) The lessee shall not without the previous consent in writing of the Competent Authority

(a) assign, sublet, mortgage or in any other manner transfer the mining lease or any right, title or interest therein, or

(b) enter into or make any arrangement, contract or understanding whereby the lessee will or may be directly or indirectly financed to a substantial extent by, or under which the lessees operations or undertakings will or may be substantially controlled by any person or body of persons other than the lessee.

(2) The Competent Authority may cancel a mining lease that is transferred without its written consent.

Waikato Limestone Partners (the lessee), a partnership firm, held a mining lease for mining limestone in an area of 10 square km near Waitomo at a fixed rent of $20,000.00 per annum. The lease was 40 years old. The lessee applied for a transfer of the lease to Waikato Limestone Ltd (the company), a company incorporated to take over the business of the partnership. The partners of the firm and the shareholders and directors of the company were the same. The application stated that the partners were desirous of converting the business from that of a partnership to that of a company and that the proposed transfer was part of the arrangements to give effect to this conversion. The application further stated that, on the transfer, no consideration would be taken from the transferee. The Competent Authority approved the transfer on that basis on 24 April and immediately thereafter the lease was transferred to the company.

On 23 July the shareholders in the company sold all of their shares to Takapau Lime Works Ltd (the buyer) with the result that the company became a wholly controlled subsidiary of the buyer. The buyer paid $360,000.00 for the shares. On 23 July the sole asset of the company was the mining lease. On 6 August the buyer replaced the directors of the company. Thereafter the outgoing directors had nothing further to do with the business.

On learning of this development, the Competent Authority took the view that there had been a transfer of the lease to the buyer without its consent, in contravention of rule 2(1) above. Acting in accordance with rule 2(2), the Competent Authority cancelled the mining lease and advised all parties of the cancellation.

The buyer and the company have applied to the High Court for judicial review of the Competent Authoritys decision to cancel the lease. They also applied for an order that Waikato Limestone Partners be added as a party to the proceedings and the court has made such an order.

Consider the arguments likely to be made by all parties to the proceedings and the law supporting those arguments. What is the likely outcome?

Confine your answer to company law issues only.

[TOTAL: 30 MARKS] (100%)

NOTE: You will need to have studied the CORPORATE PERSONALITY topic before attempting this assignment.

In preparing your answers, consider the guidance above under the heading Answering Legal Questions.