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IRAC Method to Answer Problem-style Questions

IRAC Method to Answer Problem-style Questions

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Categories:Types, Business/Law
Published by: Ahmad Syafiq Mohd Amin on Oct 15, 2010
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08/14/2013

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© J O’Relly
BTW2220 – Answering Company/Trusts/business law problems : ‘IRAC’ methodA logical way to demonstrate your understanding or business law principles in answering problem-style questions is to use the ‘IRAC method’.:I Issue(s) identify the issue(s)R: Rule explain the relevant legal rule, using relevant cases and/or legislation. Explainthe legal principles/criteria/rules in YOUR words to show your understanding of them.A: Application apply the law to the facts of the problem stating how the facts do or donot satisfy the legal tests/criteria and comparing/contrasting the facts of your problem to thefact *(and outcomes) of relevant cases. This will justify your..C Conclusion: draw a conclusion (your opinion) on that issue , then move to the nextissue to repeat the process.issue, rule , application, conclusion, issue rule, application, conclusion, I R A C etc etc.
What does the IRAC method look like in an full answer – well this is something you are expected to havemastered in the prerequisite units. Students articulating form TAFE are (and have been) encouraged towrite a full answer to tutorial problem(s) early in semester and obtain feedback form your Tutor/Unitadviser about your method as well as the contents of your answer.However, as requested, I have now created the beginnings of a ‘sample answer’ for a hypotheticalproblem, and I have annotated it to clarify what I mean by ‘identify issue(s); ‘explain the law’, ‘apply thelaw to the facts’ and ‘draw a conclusion’. The sample question is a simple one and I have tried to makethe sample answer brief –you should consider ways in which this ‘sample’ answer’ could be improved.
The problem
:Fred Flubber has been running a business for many years in which he manufactures rubber wares.Late last year, Fred’s accountant recommended that he form a company to carry on that business.A new company was duly registered with the name “Flubber’s Rubber Pty Ltd”, with Fred as thesole director and the major shareholder. Fred is the sole shareholder, owning 1000 shares with anissue price of $1, but paid to 20 cents. Fred also received 50,000 , $1 shares in payment for hisbusiness’ assets.In July this year, Fred ordered $1 M of raw rubber from the wholesaler for his business, as Fredhas done on many occasions. When the manufacturer confirmed details of the invoice, Fred saidthat it needed to be made out to his company, Flubber’s Rubber Pty ltd. Unfortunately thisinvolve has remained unpaid. The manufacturer ins now suing both Flubber’s Rubber Pty Ltd andFred, claiming that claiming if Flubber’s Rubber Pty Ltd won’t or cannot pay, then Fred should bepersonally liable for the debt – as he both ran the company and owned all the shares in it.Advise Fred orf the extent (if any) to which he is liable for this debt.Below is a sample answer to this problem.
You may well disagree with some or all of theconclusion – but the important thing about an answer to this problem is that it raises theissues discussed below as these are raised by the problem set; AND that for each issue theanswer must explain the relevant law and apply that law to the problem’s facts (whereimportant facts are missing, consider all alternatives) and then draw a conclusion on thatissue (and an overall – BRIEF- conclusion at the end of the answer).
 
 
© J O’Relly
Fred ordered the rubber on behalf of the business. That business now operates a s acompany, taher than as a sole tradership. In determining Fred’s potential personalliability, we must consider the nature of companies and also the type of company here,in order to ascertain Fred’s personal liability as a director and/or as a shareholderFirstly I will discuss Fred’s possible liability being a director of Flubber’s Rubber PtyLtd. This involves the nature of companies as ‘separate legal entities’ and theexistence of the ‘corporate veil’.Since Fred’s Flubber Pty Ltd was registered as a company, it exists as a separate legalentity capable of making contracts in the same way that a human being (naturalperson) may make contracts and then sue or be sued on those contracts. Thisrecognised by s124(1)
Corporations Act,
which gives every registered company thefull legal capacity of natural person. For Fred, this means that Fred’s Flubber Pty Ltdhad the legal capacity to form the contract with the rubber manufacturer, and then it isthe company., Fred’s Flubber Pty Ltd, that is legally reponsible to fulfil that contract(or be sued for breach of contract). This is similar to
Salomon v Salomon & Co Ltd 
 where Mr Salomon was held to be separate form the company which he ran and of which he owned nearly all the shares
.
Fred may be the sole director and run thecompany, but in the eyes if the law, Fred is separate to his company and he is NOTautomatically responsible for debts like this rubber purchase debt. Although heoperates and runs the company, like all company directors and managers, he isprotected from personal responsibility for the company’s actions by a protectivebarrier known as the ‘corporate veil’ - unless there are grounds to lift that veil. Thismeans that as a director, Fred is NOT responsible for this debt of the company
unless
 there are grounds to lift the corporate veil.For lifting of the corporate veil, there must be certain circumstances to allow the veilto be lifted either at common law or under legislation. At common law, grounds forlifting the corporate veil include where a company was created to commit fraud (eg
 Re Darby)
, or to avoid a legal obligation (eg
Gilford Motor Co v Horne
) , or where thecompany has been knowingly involved in breaches of director’s duties. In thisscenario, there are no facts to indicate that any of these circumstances existed, sounlike
 Re Darby
or
Gilford 
’s case, there are no grounds to lift the veil at commonlaw. The only possible relevant statutory grounds for lifting the veil under
Corporations Act 
here might be insolvent trading. S588G prohibits companydirectors from allowing the company to incur new debts at a time when the companyis unable to pay existing debts as they fall due (ie ‘insolvent’, a95A), or if incurringsuch new debt(s) would make the company insolvent. On the facts, we are only toldthat Flubber’s Rubber Pty Ltd (‘FR’)has not paid the $1M invoice - we haveinsufficient facts to decide whether the company was engaging in insolvent trading, sowe cannot be sure either way. If there were facts that FR was insolvent, then as in[use a caseas a comparison], Fred would be personally liable for the insolvent trading debt under s588J,K and M. Without such facts, Despite being a director, Fred wouldnot be personally liable for this $1M debt, only FR (the company) would be liable.Being a shareholder of FR, Fred may be liable to contribute money to FR to payoutstanding debts if FR is would up. Since FR is a limited proprietary limitedcompany, the liability of Fred as a shareholder is limited to ... On the facts, thismeans that ..........
identify firstissueexplain law,using casesand/orlegislationapply eachlegal point/test/criteria tothe facts ofproblem, soyou can drawa conclusionon each pointconclusionon (first)issueidentify allareas/issueto bedisucssedinthesolutionidentify 2ndissueexplain law,using cases(and/orlegislation)apply the law to thefacts of problem
 
conclusion(s)on 3rd issueidentify 4thissue... then at end : overall conclusion - make sure you have ANSWERED the specific question asked.repeatprocess(I,R,A,C)identify 3rdissueexplain lawapply the law to thefacts of problem
 
conclusionon 2nd issue
One solution, using ‘IRAC method’ described above. Please note, this is intended as a sample answer,not a perfect, ‘Model answer’. [This answer has been prepared in Exam style (no case citations)]

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