QUESTION 1

Exclusive Coffee Club Pty Ltd, has 4 directors Miranda, Celine, John and Peter, and they are planning to open a second shop in the upmarket suburb of Peppermint Grove in Perth. Miranda, one of the directors, has identified a shop to lease but it needs major refurbishment (redecoration). At the directors' meeting, Miranda presents a business plan, financial statements and the details of a contract for the purchase of equipment and refurbishing the shop. The contract is for $40,000. Miranda has not had much time to work on the documents and has not checked the contract thoroughly.

At the monthly directors' meeting, the directors discuss the business plan and contract but it is the last item on the agenda and there are only 20 minutes left for the directors to consider the information that is provided by Miranda. The directors decide to go ahead with the lease and refurbishment, even though they have not all inspected the premises. Miranda and Celine sign the lease and the contract for refurbishment on behalf of the company.

Some days later John and Peter discover that the shop is not actually suitable and that certain items of necessary equipment have been overlooked from the contract. The additional equipment will add a further $10,000 to the contract. This has exposed the company to financial risk.

REQUIRED:

Using relevant provisions of the Corporations Act 2001 (Cth) and any relevant cases discuss the facts above framing your answer on whether the directors have breached any of the directors' duties. If they have breached their duty, explain what defences may be available to the directors

Note: You are required to use the 4-step process in answering this question. The marks allocated for the steps are as follows: