Corporation Law Research Essay

The Class Action Lawsuit Against Crown

The Sidney Morning Herald article describes a class action that had been brought against Crown for promoting gambling unlawfully and failing to notify its shareholders of the effects of its business operations in China. The business had integrated gambling as one of its operational operations within its new venture in China, despite the fact that it is illegal to play games there. Crown had disregarded the cautions issued by the Chinese officials. A super fund that owned about 3000 shares of the business in 2015 is the plaintiff in the class action lawsuit against it. (Dunckley, 2017). The primary issue, according to the plaintiff, is the information sent to the stakeholders that the activities of the company were legal in China, yet they were not legitimate. The other issues that the client had raised are the failure by the management of the company to open up to the risks that the company would face and the setbacks that the firm would realize. Crown is an ASX-listed company that ought to disclose the risks that are associated with its business activities.

Relationship with the Course Content

Directors of any company have a responsibility to act in good faith in all the business transactions that they undertake (Hannigan 2015, p. 88). Operating in the best interest of the shareholders would require the company to provide information on the risks and the efficacy of the new business initiatives that are being undertaken by the company (Tricker and Tricker 2015, p. 268; Flinders 2015, p. 45). The case that is being advanced against Crown is likely to be detrimental to the image of the company if the court upholds the class action suit. The judge could dispute the good faith justification that is put up by the directors as is in the case Advance Bank v FAI Insurance Ltd.

The Duty of Directors

Directors have to act for the proper purpose of their work and such should not amount to extending prejudice against the shareholders. Expanding the operations of the crown into the Chinese markets entailed the use of the shareholders’ money. Therefore, the directors of any given company should have the chance to disclose the nature of the business in which they are engaged (French, Mayson & Ryan 2014, p. 141). Such would inform the stakeholders to continue operating with the company or not as outlined in the case of Qld Mines v Hudson.

Regulations on Gambling in Australia

The gaming law in Australia is drawn from a set of laws, such as contract law, constitution law, company law, and criminal law. Therefore, the management of any company needs to ensure that their engagement in any gaming activity is in line with the existent rules in Australia (Gainsbury, Russell, Blaszczynski & Hing 2015, p. 39). The Australian legislation defines gambling as any activity that entails staking money with the intent of winning a prize in part or whole through chance. Australian companies that intend to engage in any gambling activity need to get an approval of a regulator. The regulator has the desecration of regarding their actions as either trade promotion or bookmarking. The only gambling activities that are approved by the Australian authorities include casinos, slot machines, sports betting, and lottery (Darian-Smith 2004, p. 74). Therefore, there is need to determine if Crown’s operations were licensed and in line with the existent regulations to which it has been registered (Francis, Livingstone & Rintoul 2017, p. 69). The legal duties of a director in any Australian firm include care and diligence, use of information, proper use of position, and good faith.

Fiduciary Duty and Breaching of Duties

The directors have a fiduciary duty to reveal to their stakeholders the conflicts that may arise in the course of the business operations being run by the company (McQueen 2016, p. 1903). Additionally, the directors have the legal obligation to forge a trusting relationship with the stakeholders of the company. Furthermore, the information that the directors have should be used in the development and growth of the company. Withholding of information that may lead to the company gaining a negative image or risking legal suits at the expense of the shareholders is an unethical practice that ought to be prosecuted under the Australian laws (Iliev, Lins, Miller & Roth 2015, p. 2177). In the case of Crown, it is apparently evident that the directors had prior information of the company participating in illegal activities against the advisory of the Chinese officially but did not disclose such information to their shareholders.

Conclusion

Concisely, the legal issue that is raised by the article is in regards to the flaunting of Chinese laws on gambling and the director’s absconding duties to which they have been trusted by the shareholders. Under the Australian corporation law, a director can be regarded as having breached his or her duty to diligence and care where he or she partakes in deciding on entering a high-risk transaction that has minimal chance of realizing a profit to the company. Withholding of information by the directors points out to the directors having a personal interest in the business venture that the company has in China. Therefore, the directors of Crown ought to be prosecuted for breaching their duties.

References

Darian-Smith, E., 2004. New capitalists: Law, politics, and identity surrounding casino gaming on Native American land. Wadsworth Publishing Company.

Dunckley, M., 2017. Investors launch class action against Crown over China scandal. The Sydney Morning Herald. [Online] Available at http://www.smh.com.au/business/investors-launch-class-action-against-crown-over-china-scandal-20171202-gzxjl2.html. [Accessed Jan. 2, 2018].

Flinders, J., 2015. Private international law in Australia [Book Review]. Ethos: Official Publication of the Law Society of the Australian Capital Territory, (237), p.45.

Francis, L., Livingstone, C. and Rintoul, A., 2017. Analysis of EGM licensing decisions by the gambling regulator, Victoria, Australia. International Gambling Studies, 17(1), pp.65-86.

French, D., Mayson, S. and Ryan, C.L., 2014. Mayson, French & Ryan on company law. Oxford University Press, USA.

Gainsbury, S.M., Russell, A., Blaszczynski, A. and Hing, N., 2015. The interaction between gambling activities and modes of access: a comparison of Internet-only, land-based only, and mixed-mode gamblers. Addictive behaviors, 41, pp.34-40.

Hannigan, B., 2015. Company law. Oxford University Press, USA.

Iliev, P., Lins, K.V., Miller, D.P. and Roth, L., 2015. Shareholder voting and corporate governance around the world. The Review of Financial Studies, 28(8), pp.2167-2202.

McQueen, R., 2016. A Social History of Company Law: Great Britain and the Australian Colonies 1854–1920. Routledge.

Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.