Business Law – duty of care

Huey, Dewey and Louie are the only directors of Duck Palace Pty Ltd (‘Palace’), a company that runs a line of high-quality restaurants with premium priced foods, including Peking Duck as the main specialty. The directors meet once a month to go over the numbers of their 20 restaurants and address any issues that arise. A pandemic hit causing a nation-wide lock down, forcing the restaurants to close. At the end of March, a week after the restaurant closed, the directors met at their regularly scheduled monthly meeting of the board of directors. Huey said that he read on Facebook that the lockdown would last at least six (6) months and that the company would become insolvent if the restaurants were closed for more than two (2) months. The directors all became worried and knew that they needed to do something quickly. Dewey’s cousin, Mr. Launchpad McQuack, is a major investor who often attends directors’ meetings. McQuack also works for an airline that made and served gourmet prepackaged meals on flights (before the pandemic). McQuack thought that if they rented the equipment to package food, they could sell their Peking Duck at local stores because grocery stores were not impacted by the lockdown. All the directors immediately responded that selling food at local stores was a great idea and agreed to rent the necessary equipment for six months at a price of one million dollars. Unfortunately, only one store is willing to carry the packaged food from Palace. Customer feedback is that the food is low quality with bad taste (like most airline food). claims the poor-quality harmed the company’s brand. She wants to know if the directors breached their duty of care.

Please explain the duty of care and whether it was breached.

2. If the duty was breached, which director might be liable? Explain why.
3. Who would be the proper plaintiff in a suit against the directors? Explain.
4. Louie claims the business judgement rule as a defense. What is the business judgment rule and does it apply here?
5. Huey, Dewey, Louie and McQuack each own 10% of the company, Scrooge owns 58% and Sally owns 2%. If Sally wants Dewey removed as a director, how can she accomplish this?
6. In an effort to keep the company solvent, the directors decided not to issue a dividend the company had issued every quarter for years. One shareholder is angry and believes that he is entitled to a dividend. Is the shareholder correct?
7. At a meeting of the board of directors, the directors vote 2-1 (Huey and Dewey voted yes and Louie voted no) in favour of amending the company constitution to require all shareholders to contribute an additional $10.00 per share annually for three years. The directors believe this will be enough to keep the company solvent until the pandemic ends. Will shareholders be required to pay the additional $10.00 per share? Explain. Page 4 of 4 After the pandemic, the directors decided to establish a subsidiary called Airport Café Pty Ltd (Café). The Café is at the local airport and sells pre-packaged food that can be heated in a microwave and bottled drinks. Café manufactures and packages all of the food themselves. To avoid liability, the company places a warning label on all its products that states: “Allergenic Awareness; this product may contain the following allergens: Lupin, Fish, Tree Nuts, Almonds, Peanuts, Dairy, Eggs, Wheat, Shellfish, Soybeans, Seeds, Sesame, Lactose, Bee Products and Gluten” This warning label is placed on all the products, including drinks, regardless of the actual content. One day, the machine used to make plain bagels was contaminated with bits of peanuts and peanut powder. A worker brought this to the attention of the executive director, Mr. McDuck, because the worker was worried a customer could have an allergic reaction. Mr. McDuck said not to worry because there were already warning labels on everything so the company would be fine. A couple months later, Patty went to the airport to catch a flight home to visit her parents. Patty went to Café for something to eat before her flight and purchased an orange juice, a yogurt and a bagel. Although Patty has severe peanut allergies, she was certain that none of those foods should have peanut in them. She saw the warning but seeing as it was also on her orange juice, did not think there was any risk. Unfortunately, about 20 minutes after eating she had an allergic reaction and was rushed to the hospital where the doctors were able to save her life.
8. At common law, who, if anyone, could Patty sue? Under which tort would she sue? Would she likely be successful?
9. Café is doing extremely well and Donny, one of Cafe’s directors, believes the company should expand to the airport in Brisbane. The Managing Director of Palace, who originally appointed Donny to his position as director of Café, tells Donny not to let Café expand to Brisbane because it conflicts with expansion plans of Palace. Donny is not sure if he should follow the wishes of the Managing Director of Palace or do what is in the best interest of Café.

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