ACF4CE11(D) (Glo) Course Exam 1 Questions 3

All FIVE questions are compulsory and MUST be attempted

Question 1 Explain the nature and significance of arbitration in general as a means of settling legal disputes.

What are the advantages of using this means of settling disputes over the ordinary courts? (10 marks)

Note there is no requirement to refer to the UNICITRAL Model Law in your answers

Question 2 (a) Describe the nature and scope of the UN Convention on Contracts for the International Sale of Goods.

(5 marks)

(b) Describe the rules on offer and acceptance in relation to contracts formed under the UN Convention. (5 marks)

(Total = 10 marks)

Question 3 (a) What is authority in the context of partnership law? (5 marks)

(b) What are the main requirements of a limited liability partnership with regard to formation and publicity of information? (5 marks)

(Total = 10 marks)

Question 4

Y and Z (a) Explain the requirement as to quality, quantity and description as set out in the UN Convention on

International Sale of Goods. (5 marks)

(b) Never having dealt with each other before, Y and Z have entered into a new contract governed by the UN Convention for the sale of snurds by Y to Z. Snurds are not explicitly described in the contract and there are no clauses on quality included in it. However, it is stated that the snurds are to be used in a process called tarping, whereas they are usually used just for basic snurding. Delivery is scheduled for 31 October 20X1. The snurds are delivered by Y to Z on 10 October 20X1, and are put into the tarping production process on 24 November 20X1, without having been inspected by Z. The snurds are found to be unsuitable for tarping and are diverted to the snurding production process, but 20% of them are wasted because of the transfer. Z informs Y of the problem on 28 February 20X2, seeking damages for breach of contract, and for the loss of profit on the tarped snurds.

Advise Y on the likely outcome of the case, including the remedies that may be available to Z. (5 marks)

(Total = 10 marks)

4 ACF4CE11(D) (Glo) Course Exam 1 Questions

Question 5

Luc Luc is a Spanish shoe manufacturer who has recently contracted with Hugo, who owns a chain of shoe shops in New Zealand. The agreement was to supply a range of designer shoes that are to be made to Hugo's own specification. After production began, Hugo decided to change the specification and has told Luc that he intends not to pay for the shoes already produced.

Required

Advise Luc, with reference to the remedies available to the seller for breach of contract and anticipatory breach by the buyer under the UN Convention for Contracts for the International Sale of Goods. (10 marks)

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Question 1 Explain, giving illustrations, the postal rules as they affect offer and acceptance where contracts are concluded using the post as the mode of communication. (10 marks)

Question 2 (a) Many contractual clauses purport to exclude liability for injury, loss or damage. Explain the general

rules which determine the effectiveness of such clauses. (5 marks)

(b) Discuss the effectiveness of a notice in a car park which reads 'no liability is accepted for any cars parked here'. (5 marks)

(Total = 10 marks)

Question 3 In relation to the dismissal of an employee, explain

(a) The grounds on which dismissal may be fair (6 marks) (b) The grounds on which a dismissal will be automatically unfair (4 marks)

(Total = 10 marks)

Question 4 A corporation may be defined as a legal entity or artificial person.

Explain what is meant by this statement and state the main features of legal personality. (10 marks)

Question 5 When are:

(a) Private companies (3 marks) (b) Public companies (3 marks)

permitted to declare the payment of a dividend to shareholders?

(c) Under which circumstances are directors held accountable for and must make good dividends paid out of undistributable profits? (4 marks)

(Total = 10 marks)

Question 6 'The articles of a company constitute a contract giving rights to the members but this contract is subject to change and does not have universal effect.'

Discuss. (10 marks)

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Question 7 Explain the main rules which regulate the appointment and the termination of appointment of the directors of a company. (10 marks)

Question 8 As an accountant with a good working knowledge of the law, your finance director has requested some advice on a number of legal issues that have recently arisen.

Your company (Supersave plc) is a growing chain of supermarkets and recently listed on the London Stock Exchange. Wiley and co are the auditors and also provide advice on a range of non-audit matters. Recently two issues have been raised concerning the standard of their work.

(1) A number of accounting mistakes, which were made by junior employees of Supersave, were not picked up in the last audit. As a result, the profit was over-stated by £5 million. Several wealthy individual investors are threatening legal action against Supersave plc and Wiley and Co as they invested heavily in Supersave shares on the basis of the audited accounts.

(2) Supersave plc asked Wiley and Co to carryout initial research to identify a number of potential takeover targets for the company to consider. On receiving the report, Supersave plc took over Chillout Foods Ltd. This was a mistake has the company is making massive losses.

Required:

Write a brief report to the finance director that explains any potential liability of Supersave plc and Wiley and Co. Assume no agreement exists which limits the liability of Wiley and Co to Supersave plc. (10 marks)

Question 9 Alan is a shareholder of Bottle's Tiles Ltd and owns 9% of the voting rights. He receives notice of a general meeting on 1 April 20X8. The relevant extracts are:

General Meeting of Bottle's Tiles Ltd

To be held on 15 April 20X8

Agenda

To pass a resolution for the removal from office of director Mr A J Higgot.

Other important business that shall be revealed during the meeting but which does not require a vote.

Other information

The Company Secretary will distribute copies of the resolution and a memorandum from Mr Higgot at the start of the meeting.

This meeting is only open to ordinary shareholders; preference shareholders are not permitted to attend.'

Required:

(a) Alan is concerned that this meeting has not been correctly convened; advise him. (6 marks)

(b) Alan is unhappy with the performance of the other directors of the company. Advise him if he can requisition a resolution for their removal. (4 marks)

(Total = 10 marks)

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Question 10 Martha is the finance director of a publicly listed chain of fashion stores. The company is finding it increasingly hard to pay its creditors as its sales are falling rapidly and the point has been reached where Martha must decide whether to close the failing business down or to battle on, even though the business is unlikely to pull through.

She is also deciding whether or not to sell her shares in the company - if it goes into liquidation, the value of the shares will plummet.

Em jointly owns a rival store (a private limited company) with her friend Jo. It too is experiencing financial difficulties (although they can still currently pay their bills) and they have both decided to start a member's voluntary winding up to close the company down.

Required:

(a) Advise Martha of any criminal acts she may potentially commit (8 marks) (b) Advise Em and Jo of any criminal acts they may be involved in. (2 marks)

(Total = 10 marks)

RELEVANT TO ACCA QUALIFICATION PAPER F4 (GLO)

© 2011 ACCA

ICC introduces new International Commercial Terms ‘Incoterms’ is an abbreviation of International Commercial Terms. These terms

have been published by the International Chamber of Commerce (ICC) since 1936 and have been subject to review and updating since that date. The most

recent updates were announced in Paris by the ICC on 16 September 2010. Although earlier versions of Incoterms may still be incorporated into future

contracts if the parties agree, it is likely that most contracts made now will refer to this latest edition of Incoterms. In order to avoid the possibility of

confusion, contracts should refer specifically to the ‘Incoterms 2010’ rather than just Incoterms, if the parties wish the new terms to apply. This will avoid

any subsequent dispute as to which set of rules apply. The assumption is that the new version of the ICC terms will apply to Paper F4 (GLO).

The Incoterms are often to be found in international contracts, and they seek to provide a common set of rules for the most frequently used international

terms of trade with the aim of removing confusion over their interpretation. For example, the terms set out exactly who is under the obligation to take control

of and/or insure goods at a particular point in the shipping process. The terms also deal with the obligation for the clearance of the goods for export or

import, and requirements on the packing of items. Classes of terms

Among the changes made in the 2010 rules is the reduction in the overall number from 13 to 11. This is the result of the removal of four previous terms

and the inclusion of two new ones. In effect, this is a replacement of four previous rules, DAF, DES, DEQ and DDU, by two new rules that may be used

irrespective of the agreed mode of transport. These new rules are DAT (Delivered at Terminal), and DAP (Delivered at Place) (see below for more

details).

Changes have also been made to better deal with cargo security and insurance, and the language has been changed to reflect the modern usage in international trade.

The new rules have been separated into two classes rather than the previous

four categories. The current two classes of terms are:

(i) rules for use in relation to any mode or modes of transport These can be used in cases where either maritime transport is not involved in the carriage of the goods, or where maritime transport is

used for only part of the carriage. This first class includes the following seven Incoterms that can be used irrespective of the mode of transport

selected and irrespective of whether one – or more than one – mode of transport is employed:

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INCOTERMS

AUGUST 2011

© 2011 ACCA

EXW Ex Words FCA Free Carrier

CPT Carriage Paid To CIP Carriage and Insurance Paid To

DAT Delivered at Terminal DAP Delivered at Place DDP Delivered Duty Paid

Most of the terms retain their former meanings, so no further

explanation will be provided. However, as DAT and DAP are new and replace previous delivery terms, they need some, if brief, explanation.

DAT replaces the more specific DEQ (Delivered ex Quay). It requires the

seller to pay for carriage to the terminal, except for costs related to import clearance, and to assume all risks up to the point that the goods are unloaded at the terminal. The seller delivers when the goods, having

been unloaded from the arriving means of transport, are placed at the buyer's disposal at a named terminal at the named port or place of

destination. As indicated, DAT requires the seller to clear the goods for export where applicable but the seller has no obligation to clear the

goods for import, pay any import duty or carry out any import customs formalities.

DAP (Delivered at Place) replaces DAF (Delivered at Frontier), DES (Delivered ex Ship) and DDU (Delivered Duty Unpaid). Under DAP, a

seller bears all the costs, other than import clearance costs and risks involved in bringing the goods to the named destination. Consequently,

the seller assumes all risks and costs prior to the point that the goods are ready for unloading by the buyer at the agreed destination.

It should be emphasised that although all the terms listed apply when

there is no maritime transport, they can be used in cases where a ship is used for part only of the carriage.

(ii) rules for sea and inland waterway transport These rules apply where the point of delivery and the place to which the

goods are carried to the buyer are both ports. There are four substantives rules:

FAS Free Alongside Ship FOB Free on Board

CFR Cost and Freight CIF Cost Insurance and Freight

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INCOTERMS

AUGUST 2011

© 2011 ACCA

None of these rules has been changed in practice, although in relation to the

last three – FOB, CFR and CIF – reference to the ‘ship's rail’ as the point of delivery has now been deleted and this has been replaced with the goods being

delivered when they are ‘on board’ the vessel. This is clearly done in the pursuit of updating language and as the ICC’s own introduction to the new

rules states: ‘This more closely reflects modern commercial reality and avoids the rather dated image of the risk swinging to and fro across an imaginary perpendicular line.’

Sphere of application

A further change and recognition of existing practice is that the new rules apply to domestic as well as international trade, whereas previous Incoterms applied

to international sale contracts. As a result, the new rules state that the obligation to comply with export/import formalities exists only where

applicable. This alteration is in recognition of the fact that some trade blocs, such as the European Union, have minimised – if not removed – the significance of border formalities. It is also expected that this particular

alteration should lead to greater use of the Incoterm rules within the US.

Sale of goods in transit Reflecting the fact that commodities may be sold several times over during

transit, through a string of sale contracts, the new rules have been amended to indicate that in reality a purchaser/seller in the middle of the string of

contracts does not actually ship the commodities, as they are already on board when they acquire title over them. Consequently, under the new the rules, only the first seller will be responsible for shipping the goods and subsequent

sellers will be under the obligation to ‘procure goods shipped’. This is not a major change but it does tidy up the rules.

Security

Given the context of uncertainty regarding potential terrorism and the need for heightened security, many countries have introduced security checks in

relation to goods crossing their boundaries. The new Incoterm rules now require both sellers and buyers to provide sufficient information to one another

so that export/import clearance can be obtained. Terminal handling charges

The new rules look to clarify responsibility for costs arising at the end of the journey. Under the old Incoterms rules CPT, CIP, CFR, CIF, DAT, DAP, and

DDP, the seller was required to make arrangements for the carriage of the goods to the agreed destination but it was actually the buyer who actually paid

the costs, as these were included in the total selling price. This gave rise to problems where the carrier or terminal operator charged further handling costs

to the buyer/receiver of the goods. The new Incoterms rules seek to avoid this eventuality by clearly allocating such costs between the parties.

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INCOTERMS

AUGUST 2011

© 2011 ACCA

Electronic documentation

The previous rules provided for the use of electronic data interchange, where the parties had agreed its use. The new rules provide for the use of paper

communications or ‘equivalent electronic record or procedure’ where agreed or customary, with customary indicating recognition of current practice in this

regard. Conclusion

Incoterms are a core constituent of international contracts and have frequently formed the basis for questions in the Paper F4 Global exam. Although in the

manner of an updating exercise, the new Incoterms 2010 do introduce significant new rules for students of the Paper F4 Global syllabus to take into

consideration in their preparation for future exams.

David Kelly is examiner for Paper F4

Fundamentals Level – Skills Module

Time allowedReading and planning: 15 minutesWriting: 3 hours

ALL TEN questions are compulsory and MUST be attempted.

Do NOT open this paper until instructed by the supervisor.

During reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet untilinstructed by the supervisor.

This question paper must not be removed from the examination hall.

Pape

r F4

(G

LO)

Corporate and Business Law(Global)

Tuesday 7 June 2011

The Association of Chartered Certified Accountants

ALL TEN questions are compulsory and MUST be attempted

1 In relation to a common law legal system, explain and distinguish between civil and criminal law, providing astatutory example of each category, and identify the different courts that deal with each category of law.

(10 marks)

2 In the context of the UNCITRAL Model Law on International Commercial Arbitration explain:

(a) the procedures for appointing the members of an arbitration panel; (4 marks)

(b) the grounds for challenging the appointment of an arbitrator; (2 marks)

(c) the procedure to be followed by the arbitration panel in reaching its decision. (4 marks)

(10 marks)

3 In relation to the formation of a contract in the context of the UN Convention for the International Sale of Goods,explain:

(a) the meaning of an offer; (5 marks)

(b) the circumstances under which an offer may be terminated. (5 marks)

(10 marks)

4 In relation to the formation of a company explain:

(a) the role and duties of promoters, and how they are regulated; (5 marks)

(b) a pre-incorporation contract, and its legal consequences. (5 marks)

(10 marks)

5 With regard to payment for shares in the context of capital maintenance, explain the meaning and legal effect ofthe following:

(a) issuing shares at a premium; (5 marks)

(b) issuing shares at a discount. (5 marks)

(10 marks)

6 In relation to company regulation explain:

(a) the concept of ‘corporate governance’; (3 marks)

(b) the role of either:

(i) the Organisation for Economic Co-operation and Development Principles of Corporate Governance; or(ii) the United Kingdom Corporate Governance Code. (3 marks)

(c) the role of non-executive directors in the context of corporate governance. (4 marks)

(10 marks)

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7 In relation to international business transactions explain:

(a) the meaning of a bill of lading; (5 marks)

(b) the function of the bill of lading in relation to the passage of risk in the context of the UN Convention for theInternational Sale of Goods. (5 marks)

(10 marks)

8 Az is an international metals broker with clients all round the world.

In January he entered into three contracts:

(a) the first, to supply Brad with 1,000 tonnes of aluminium;(b) the second, to supply Chad with 1,000 tonnes of copper;(c) the third, to supply Dan with 1,000 tonnes of tin.

Although Az had immediate access to the metals from his extensive reserves, delivery on all three contracts was totake place on 1 May. However, as he wanted to reduce his exposure to such a large inventory of metals Az decidedto supply the metals to the three other parties earlier than the contract date; 1 March rather than 1 May.

Because Az’s inventory of aluminium was only 1,000 tonnes that is what he sent to Brad.

However, as he had larger inventory of copper and tin, he decided to send an additional 500 tonnes to both Chadand Dan, over and above their agreed amounts.

At the end of February, after Az had despatched the metals, the international metals market suffered a severeupheaval, with the price of copper falling by 50% and the price of tin increasing by the same percentage. The priceof aluminium remained constant.

Required:

Advise Brad, Chad and Dan as to their rights under the UN Convention for the International Sale of Goods.

(10 marks)

9 Goal Ltd is a property development company. Before its incorporation 12 months ago, its business was carried out byHope, as a sole trader. On the formation of Goal Ltd, Hope expanded the business by asking three of his businesscontacts to supply additional capital in return for which they, together with Hope, became its directors. Although neverformally appointed, Hope took the role and title of chief executive and the other directors left the day-to-day runningof the business to him and were happy simply to receive feedback from him at board meetings.

Six months ago Hope entered into a contract, on Goal Ltd’s behalf, with Ima, to produce plans for the redevelopmentof a particular site that it hoped to acquire. However, Goal Ltd did not acquire the site and due to its current precariousfinancial position and their fear of potential losses, the board of directors has refused to pay Ima, claiming that Hopedid not have the necessary authority to enter into the contract with her.

Required:

Analyse the situation with regard to the authority of Hope to make contracts on behalf of Goal Ltd, and inparticular advise the board of directors if the company is liable on the contract with Ima.

(10 marks)

3 [P.T.O.

10 On the advice of his accountant, Mat registered a private limited company to conduct his small manufacturingbusiness in January 2010. One of the reasons for establishing the company was to avoid liability for potential losses.The initial shareholders of the company were Mat, his wife Mary and her father Norm, who each took 1,000 sharesin the company, each with a nominal value of $1. The accountant explained that they did not have to pay the fullnominal value of the shares at once, so they each paid only 25 cents per share taken, with the result that they stillowed the company a further 75 cents per share, to be paid at a later date.

When the company was established it became apparent that it needed to borrow money from a bank to finance anexpansion in production. To that end Oop bank plc lent the company $20,000 secured by a fixed charge against theland Mat had previously transferred to the company, with an additional personal guarantee from Mat for any debtsowed by the company to the bank.

Unfortunately the business has not proved successful and Mat and the other shareholders have decided that it is betterto liquidate the company rather than run up any more debts. The current situation is that the company’s land is worth$20,000 and it has further assets to the value of $7,750, but it has debts to business creditors (payables) of $10,000and owes the bank a further $10,000 on its bank overdraft.

Required:

Explain the rights of the various creditors (payables) and the potential liability of Mat, Mary and Norm. (The actualcosts of winding up may be ignored.)

(10 marks)

End of Question Paper

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