Question 3 [20 marks]

Mary is a director and Chief Financial Officer in Purple Energy Ltd, a company which supplies natural gas to various parts of Australia. The company is experiencing significant distribution problems, and is unable to reach lucrative markets in growing cities such as Perth. Mary enters into a contract with Pipeline Solutions to construct a pipe from an offshore facility off the coast of Western Australia. Pipeline solutions does not have any track record of constructing underwater pipelines, but Mary wants to enter into a contract with them because they have agreed to pay her a commission. Under the 4 terms of the contract, the pipeline will cost a total of $7 million and Mary receives a commission of $50,000. The approval of other directors is not obtained. Under the terms of Mary's contract of employment, she must obtain board approval for contracts over $5 million. Pipeline Solutions encounter a number of issues when developing the pipeline, and there is a considerable delay constructing the pipeline. As a result, Purple Energy Ltd loses a $5 million contract to supply energy to Perth and Fremantle. The other directors of Purple Energy Ltd are furious that Mary let this happen. They were not monitoring this aspect of the business's affairs at the time, so they missed this issue.

Use your knowledge of Australian company law to advise whether: (a) Purple Energy Ltd is bound to comply with the contract [10 marks]

(b) Purple Energy Ltd can seek any remedies from Mary and, if so, why [5 marks]

(c) any penalties can be imposed on Mary and, if so, why [3 marks]

(d) in your opinion, Mary's actions could be ratified by the board [2 marks]