David Bradbury used to run a second-hand car yard as a sole trader. However, as part of a sentence for fraud imposed by a court two years ago, David was prohibited from “buying and selling new or used vehicles” for a period of five years. Breach of this order is prosecutable as contempt of court.
David is however desperate to go into business again. He hears that a good opportunity exists to start a second-hand car dealership in a suburb of Sydney. He also hears that a vacant lot is available for lease. Because several other businesses are eager to lease it, he rushes to the owner of the site, Cenvest Real Estate Ltd, and signs a 1-year lease for $ 50 000 on 5 January. Occupation of the premises and payment of the $ 50 000 are due to take place on 1 February. He signs the lease “David Bradbury, as Managing Director, Sydney Auto Group Pty Ltd”. On 10 January he goes to ASIC and registers Sydney Auto Group Pty Ltd. On the ASIC documentation he is listed as sole shareholder and as Managing Director. Sydney Auto Group Pty Ltd starts trading the next day, operating from David’s back yard, buying two old Mercedes cars and selling them to vintage car collectors a few days later. All contracts are signed “David Bradbury, as Managing Director, Sydney Auto Group Pty Ltd.”
On 15 January, David decides that the company needs extra capital, and so his three brothers, Christopher, Anthony and Richard each contribute $ 70 000 to the business in exchange for shares and a position on the board. When the board first meets on 17 January, Christopher is elected Managing Director. At the meeting Christopher, Anthony and Richard say that $ 50 000 is too much for the lease and decide that the company should lease a different lot for $ 30 000. They send a letter to Cenvest Real Estate Ltd stating that Sydney Auto Group Pty Ltd refuses to move its business to the vacant lot and refuse to pay the $ 50 000.
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David is facing prosecution for contempt of court and has been sued for breach of contract by Cenvest Real Estate Ltd. Advise him on his legal position, citing relevant legal authority.