Question 1

SpeedTechLtd is engaged in the business of designing and manufacturing high-performance racing cars. It wishes to build a racetrack upon which it can test its prototype models. To that end, it creates a subsidiary company calledOpenTracksLtd.

A suitable piece of land on which to buildtheracetrackis located andOpenTrackspurchased it using capital borrowed fromSpeedTech. However, shortly thereafter,theDirectorsofOpenTracks(all of whom are alsoDirectors ofSpeedTech) discover that the land does not have planning permission and soOpenTracksentered in to agreement to sell the land to ABC Construction Ltd, a local construction company.

Several days after the agreement for sale on the property betweenOpenTrack, a member of the local council indicated to the Directors ofOpenTracksthat, should it apply for planning permission, it would certainly be granted. Accordingly, before the sale of the land to ABCConstructionwascompleted,OpenTrackstransfers ownership of the land toSpeedTech, and argues that the contract with ABC Construction is no longer valid as it no longer owns the land.OpenTrackssuccessfully applies for planning permission.

SpeedTechdecided that it wishes to expand into the consumer car market, and to this end, it created another subsidiary calledHonkaDrive Ltd. The articles of incorporation ofHonkaDrive provides that only Directors nominated bySpeedTechmay sit on its Board of Directors , accordingly, all the Directors ofHonkaDrive are either persons nominated bySpeedTech, orDirectors ofSpeedTech.HonkaDrive engages in research and development on a new car and this is funded exclusively by issuing shares that are purchased bySpeedTech(with the result thatHonkaDrive becomes a wholly owned subsidiary).

However, more capital is required, but the directors ofSpeedTechrefuse to provideHonkaDrive with any more capital and instead order the board ofHonkaDrive to cut back on its research and development. Accordingly, the Directors ofHonkaDrive agreed to cut back on research into the car's safety features.HonkaDrive completedthedesignof thenew car and it is manufactured and sold to the public. However, the car turns out to be unsafe due to a defectinit'sbraking systemwhich caused numerous accidents to occur.

Those who suffered injury and loss due to the defects in the cars initiate proceedings againstHonkaDrive but, by this time,HonkaDrive has entered insolvent liquidation, and has insufficient funds to meet any liability.

Upon liquidation ofHonkaDrive it is discovered that the Directors ofSpeedTechcaused a sale of some of the cars to them at a significantly reduced value which they later sold at a higher price.

Provide detailed discussions based on established legal principles to advise the parties above on the following:

1.Whether ABC Construction Ltd can enforce the agreement made between itself andOpenTracksLtdforthesale of the land againstSpeedTechLtd; who is now the purported owner of the property?

2.On what grounds can those who suffered injuries from the defectivebrakingsystemof the car created byHonkaDrive claim againstSpeedTechLtd for their injuries?

3.Whether a claim can be made against theDirectorsofSpeedTechLtd for the cars purchased by themHonkaDrive Ltd?