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Review Your SQE 1 Practice Records

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Tranquil Retreats Ltd. owns and manages a chain of boutique hotels in the South West of England. The shareholders are Felicity, George, Venture Properties Ltd., and Horizon LLP. The directors are Anna, Robert, Stephen, and Diana. Each director manages one property, though they do not attend the hotels they manage on a daily basis. Hotel staff, including a duty hotel manager for each location, are employed. One of the hotels mistakenly allows a large group of guests to double book and consequently cannot accommodate them upon arrival. The guests secure alternative accommodation at short notice but have to pay a much higher rate. 

Who is legally liable for the loss incurred by the guests resulting from the hotel's breach of contract? 

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Tranquil Retreats Ltd. has a separate legal personality and is bound by the actions of its directors and employees. The company, as a legal entity, is responsible for the consequences of mistakes made by its directors and staff when acting within the scope of their employment. Therefore, Tranquil Retreats Ltd. is liable for the breach of contract that resulted in the guests' losses. The shareholders have limited liability, and the individual directors are not personally liable for the company's contractual obligations unless they have acted outside their authority or breached their fiduciary duties. 

Key Point: The principle of separate legal personality, established in the case of Salomon v A Salomon & Co Ltd, ensures that a company is treated as a distinct legal entity. This principle protects shareholders and directors from personal liability for the company's debts and obligations, provided they act within the scope of their authority and comply with their legal duties.

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