Law Workbook

ACCOUNTING AND FINANCE

Title of Module

LAW, CORPORATE GOVERNANCE AND ETHICS

Practice Workbook

PRACTICE WORKBOOK

Aim of the Workbook

The aim of this workbook is to support and elaborate fundamental aspects of the syllabus as found in the study text. It provides you with an opportunity to test your understanding of the material and thus fully prepare yourself for the assessments. The workbook also incorporates the coursework so that you may gradually familiarise yourself with the legal concepts underpinning the coursework. You are strongly encouraged to prepare for seminars in advance without which you cannot fully comprehend and apply the law.

Module Learning Outcomes

By engaging successfully with this module, a student will be able to:

1. Demonstrate an understanding of the fundamentals of the English Legal system, company law and business law.

2. Articulate company and business law, corporate governance and ethical issues within an international context.

3. Recognise and respond in a mature and reflective manner to ethical conflict and turbulence in their professional careers and the workplace.

4. Appreciate philosophical theories and professional body ethical guidance and advice.

Table of Contents

Aim of the Workbook..............................................................................................2

Module outcomes...................................................................................................2

Table of Contents...................................................................................................3

Introduction............................................................Error! Bookmark not defined.

Course Outline.......................................................................................................5

Seminar 1-5 briefing notes…………………………………………………………..5-38

Seminar 6……………………………………………………………………………………………… 39

Seminar 7………………………………………………………………………………………………. .40

Seminar 8………………………………………………………………………………………………...48

Seminar 9………………………………………………………………………………………………... 58

Seminar 10………………………………………………………………………………………………..68

Seminar 11…………………………………………………………………………………………….. .79

Seminar 12………………………………………………………………………………………………..88

Seminar 13………………………………………………………………………………………………100

Seminar 14………………………………………………………………………………………………107

Seminar 15………………………………………………………………………………………………109

Seminar 16………………………………………………………………………………………………110

Seminar 17……………………………………………………………………………………………...116

Seminar 18………………………………………………………………………………………………122

Seminar 19………………………………………………………………………………………………126

Seminar 20………………………………………………………………………………………………133

Seminar 21………………………………………………………………………………………………137

Seminar 22………………………………………………………………………………………………138

Seminar 23………………………………………………………………………………………………139

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LAW, CORPORATE GOVERNANCE AND ETHICS:

INTRODUCTION

The module law, corporate governance and ethics is aimed at enabling you to appropriately respond to legal and ethical issues affecting a business. This workbook is intended to strengthen what is covered in the study text so that you may evaluate the extent of your understanding of the diverse legal and ethical concepts of the syllabus. You are strongly advised to prepare well before attempting the questions and also to come prepared for the seminars.

Course Outline

Comparison of English law with alternative legal systems

Law of Contract

Law of Employment

Company formation

Corporate administration and management

Corporate finance

Ethics and business

Corporate governance

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MODULE SEMINAR BRIEFING NOTES

Please note:

Always bring the Study text and Practice Kit to class

Seminar 1: Corporate Governance (Chapter 8 of the Study Text)

Questions at the end of chapter 8 of the Study text shall be answered

Seminar 2: Introduction to Ethics (Chapters 6 and 7 of the Study Text)

1. Explain why ethical dilemmas occur, these typically arise when “conflicts of interest” exist between:

• Societal

• Professional

• Personal, and

• Corporate values.

2. There are rules based and framework based approaches. That the CIMA code is framework based (and is a locally adjusted version of the IFAC code).

3. The 5 main principles: Integrity

Objectivity

Professional Competence and Due Care

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Confidentiality

Professional Behaviour

4. Work through the mini case study shown at questions 122 to 126. This will “teach” the 5 main principles.

Note: we will cover the specific chapters in more detail in further seminars.

Seminar 3: Business and Ethics (Chapter 6 of the study text)

Topic areas and practice question information is FOUND IN THE STUDY TEXT AND PRACTICE KIT. Also see questions below.

Seminar 4: Ethical conflict (Chapter 7 of the study text)

Please:

(i) Go through the CIMA eight point checklist for resolving ethical conflict (this links to the coursework)

(ii) Work through the Ethical Conflict questions.

Seminar 5: Coursework Briefing (which is to do with Ethical Conflict)

Coursework launch

Seminar 6

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There will be a short test in this seminar covering the ethics part of the module.

* BELOW SEE SOME MATERIALS AND QUESTIONS FOR THE SEMINARS

Corporate Governance Seminar

Remember to bring your Study Text and the

Practice Exam Pack to all seminars

Key areas we need to cover from the Study Text Chapter 8

Cadbury definition " the system by which companies are directed and controlled" The

Directors are considered to "represent the shareholders" in the objective test

questions

Stakeholders are those "directly or indirectly" affected by the company activities

At Enron they hid the loans (well they did a lot more but that is what CIMA are saying). A PCAOB was created as a result.

There are 28 members of the EU and they issue directives

There's lots of unnecessary detail with the review of all the Codes. Briefly note what each code was about.

Cadbury split the CEO and the Chairman.

Other reports changed stuff - but this might not reflect the current state of play.

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eg. Cadbury set directors contracts at 3 years max - but this has changed to 12 months

Three key committees: Audit, Remuneration and Nominations Non

execs are considered to be more independent than execs UK

Corporate Governance Code

• split CEO and Chairman

• at least half independent non execs

• remuneration has 3 members (I think non execs)

• internal controls reviewed yearly

• audit has 3 independent non execs

There are "three" unitary Board structures in Botswana, South Africa and the UK (and the USA runs unitary boards), a variety of structures in France and Germany it is predominantly Two Tier due to its stakeholder bias.

UK Corporate Governance Code if for listed public companies, it "Comply or Explain" and not enshrined in statute.

The key 5 principles of the UK Code: Leadership, Effectiveness, Accountability, Remuneration and Relations with Shareholders

Other points:

Fiduciary duties are not considered a part of CG. Business efficacy is considered part of CG.

Fiduciary Duties were created by The Courts of Equity.

Some of these concepts will be well understood after covering the law element of the module.

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ADDITIONAL QUESTIONS

Test your understanding at the end of the Chapter in the Study Text

There are 5 questions here.

Objective Test Questions in the CIM Exam Practice Kit Exam Pack

131, 132, 133, 134, 135, 136

Note: these are pretty rubbish questions and I don't agree with all the answers given - but they are the L4 "answers".

From the Mock Assessment - in the CIMA Exam Practice Kit

48, 49, 50 and 51

Additional Corporate Governance Questions taken from the Example Paper, publically available at:

htt p : // w w w . c i mag l o b a l . co m / S tud e nt s/ E n t r y -l eve l- c e rt i fi c a t e- i n -bu s in e s s - a cco un t in g /C e rt i fi c a t e-i n-bu s in e s s - a cco u n tin g- f r o m -20 1 1 /C 0 5 - s t u d y -r e s o ur c e s/Ex am - qu e s ti o n s/

Question 19

The system by which companies are directed and controlled is called

A Corporate regulations

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http://www.cimaglobal.com/Students/Entry-level-certificate-in-business-accounting/Certificate-in-business-accounting-from-2011/C05-study-resources/Exam-questions/




B Corporate governance

C Corporate administration

D Corporate compliance

Question 20

Which of the following is suggesting that one person should not occupy the role of

Chairman andChief Executive of a public listed company.

A The Hampel Committee Report 1998

B The Cadbury Committee Report 1992

C The Greenbury Committee Report 1995

D The Smith Report on Audit Committees 2003

Question 21

According to the Cadbury Committee Report 1992 independent non-executive directors should be appointed to the board of listed UK companies. This is to ensure

A it is cheaper to recruit non-executive directors than executive directors

B non-executive directors are more experienced than executive directors

C non-executive directors are perceived to be more independent than executive directors

D it is more difficult to remove non-executive directors from the board than executive directors

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Question 22

Which of the following are represented at board level in the United

Kingdom? A both shareholders and employees

B both shareholders and creditors

C shareholders only

D employees only

Question 23

i A company director could act in breach of the duty of care, and yet could still comply with the principles of corporate governance.

ii A professional accountant acting as a company director has got a strict duty of care towards the shareholders.

Which of the following is CORRECT in relation to the above

statements? A i only

B ii only

C i and ii

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D None of them.

Question 24

The all-executive board

A is only found in the UK public companies

B is commonly found in private companies in Germany

C has no company secretary

D is comprised of directors, all of whom have managerial roles

Question 25

The UK Corporate Governance Code is a ‘comply or explain’ code.

i The UK Corporate Governance Code is not contained in any statute.

Ii Companies may opt ignore the recommendations of the Code, as long as it explains.

Which of the following is CORRECT in relation to the above statements?

A i only

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B ii only

C Both i and ii

D None of them

Question 26

Which of the following types of committee are not recommended by the UK best practices?

A Nominations Committee and Audit Committee

B Nominations Committee and Remuneration Committee

C Remuneration Committee and Audit Committee

D Planning Committee and Strategic Committee

Answers

19 B

20 CIMA say A

21 C

22 C

23 A

24 D

25 C


26 D

CBA Model Question Paper – C05

Ethics and business: Chapter 6

CIMA code is based upon IFAC code, but adjusted for local regulations.

There are:

• Rules based approaches, and

• Framework approaches

CIMA and IFAC are both framework approaches. CIMA has a virtue ethic embedded in it. The Code can be used to judge people at disciplinary hearings. It should enhance the standards of members.

Fundamental Principles "Confidential IP OP"

• Integrity (includes NOT performing dodgy accounting. See comments about Professional

Competence and Due Care. Includes "fair dealing and truthfulness)

• Objectivity (has a sense of not being compromised, or "free from bias")

• Professional Competence and Due Care (Seems to be about theoretically being competent because of your experience - if you do a piece of work "incompetently" you are typically breaching something like "Integrity" and not professional competence. It's not about doing things to further your career. The ethical onus on CPD is driven by the accountant's duty to keep up to date.)

• Confidentiality (this is strong and extends to non disclosure to close friends and family of client information)

• Professional Behaviour (is professional behaviour and not competence. In practice this means complying with laws and regs and also not filling in fictitious expenses claims forms)

The Personal Qualities (are sometime referred to as VIRTUES) "RRR with a bit of TC"

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The CIMA textbook claims that this list provides "the ethical compass and personal motivation" to uphold the values of the profession. Discussion of this point is beyond the scope of this L4 module.

• Reliability

• Responsibility * (here it means "being accountable for your decisions and actions "but it seems that Social Responsibility is different)

• Respect *

• Timeliness (sometimes punctuality)

• Courtesy *

* these virtues are explicitly referred to in the CIMA Code of Practice.

Professional attributes

(sometimes qualities)(these are professional not personal)

• Independence (Of Mind, and In Appearance. As considered by an observer looking in)

• Accountability (again carries a "sense of responsibility")

• Social Responsibility (but see comments about virtues)

• and BPP include Scepticism


Seven principles of public life go to "S 'c' HOOL" with Integrity

The seven principles of Public Life are not binding on most accountants - but are seen

as exemplars. The principles seem to create a bit of a standalone list for the purposes of the questions, and I have struggled to fit it with the other key lists above (this is due to nuances in the definitions) - but includes

• selflessness

• integrity: don't let pay or incentives influence your judgement

• objectivity

• accountability

• openness: as far as possible be transparent on decision making


• honesty: must declare your own interests

• leadership

Comment about when to disclose information. I think the questions like tension here as there are conflicting laws, principles and values. The main principle seems to be client confidentiality (even extending to social situations) but there are times when disclosure is appropriate, namely

• when you are authorised to

• when you have a professional duty to

• when the law demands (can be via regulation)

Know very briefly about: Financial Reporting Council (ethical lead for Financial Reporting),

Professional Oversight Body for Accountancy (regulate how member bodies regulate their

members), and Auditing Practices Board (cover auditing standards).

Objective test questions from the exam practice kit

101 to 115. These are very different to the BPP questions.

There are 6 test your understanding questions with answers: in Chapter 6

Mock assessment questions: at the back of the exam practice kit

60, 61, 62, 63, 64, 65, 66, 67, 68, …, 70,71,…, 75. (But 68,69, 70 and 71 are ethical dilemmas.(

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Additional questions

Questions 1 to 14 of the Model Question Paper

Question 1

Legal and disciplinary frameworks provide ALL of the following EXCEPT which one?

A An effective means of challenging serious wrong-doing

B Deterrents to bad practice through punishment and censure

C Means of controlling behaviour

D Financial compensation only to the affected parties

Question 2

Which of the following statement is INCORRECT regarding Financial Reporting Council (FRC)?

A it is the United Kingdom’s independent regulator for corporate reporting and governance

B It must always seek to insure professional integrity of practicing accountants

C It aims at promoting confidence in corporate reporting and governance

D Professional Oversight Board and Audit Practices Board are part of FRC

Question 3


CIMA Code of Ethics takes what is called a ‘framework-based’ approach. What is the INCORRECT

statement?

A It does not provide a list of ‘you should not’ commands to accountants

B It provides steps to identify, explain and solve ethical problems

C It helps accounting practitioners to deal with immediate practical problems

D Framework-based approach must be approved by the highest court in the country of the CIMA

member registers the practice

Question 4

The following are four of ‘the seven principles of public life’ issued by the Committee of Standards in

Public Life, and a brief explanation. Which explanation does NOT match with the principle?

A Integrity – holders of public office should not place themselves under any financial or other obligation.

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B Objectivity – in carrying out public business, the holder of public office must ensure personal objectives behind public objectives

C Honesty - holders of public office have a duty to declare any private interests relating to their public duties

D Openness - holders of public office should be open as much as possible about all decisions and actions they take.

Question 5

What are the CORRECT statements?

i. Clear ethical values set cultural tone of the company. ii. Self regulation is based upon trust.

iii. The objective of ethics is detection and prevention.

iv. CIMA Code of Ethics has got a framework-based approach

A i, ii and iii

B i, iii and iv

C ii, iii and iv

D 1, ii and iv

Question 6

A Professional accountants have a duty to maintain professional knowledge and skill at the level required to ensure that the client or employer receive competent professional service.

B Professional accountants have a duty to learn all accounting software to ensure competent professional service to client and employer.


C The concept of competent professional service includes both attaining and maintaining professional competence.

D Reliability, Responsibility, Timeliness, Courtesy and respect are personal qualities expected from a professional accountant.

Question 7

Knowledge, skills, diligent delivery, awareness of relevant issues etc are most related to which fundamental principal in CIMA Code of Ethics?

A Confidentiality

B Professional competence & due care


C Integrity

D Objectivity

Question 8

What are INCORRECT statements?

i. The Audit Practices Board reviews the regulatory activities of the professional accounting bodies.

ii. The Professional Oversight Board for Accountancy is part of the Financial Reporting

Council.

iii. ‘The Seven Principles of Public Life’ is applicable only to professional accountants.

iv. The CIMA Code of Ethics includes reference to how a professional accountant can raise concern about unprofessional or unethical behaviour.

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A i and ii only

B ii and iii only

C i and iv only

D iii and iv only

Question 9

What is INCORRECT?

A Professional accountants are always bound by the principle of confidentiality

B Integrity denotes an attitude of personal and professional consistency in the way in which professional accountants act.

C Professional accountants can be required by law to disclose confidential information about their clients.

D Professional accountants are required to be independent both of mind and in appearance.

Question 10

Which statement is INCORRECT regarding the CIMA Code of Ethics?

A It reflects the standards of CIMA expects of its members and students

B It provides a basis for any complaints or cases under CIMA’s disciplinary procedures

C It is more in common with rules than guidance to provide basis for punishing members only

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D It sets out aspirations and standards of general behaviour, and attitude for the profession

Question 11

Professional accountants are bound by the principle of confidentiality in all that they do unless:

i disclosure is permitted by law and it authorised by client or the employer

ii there is a professional duty or right to disclose, when not prohibited by law

iii disclosure is not required by law, but the employment contract requires to do so

Which statements are CORRECT?

A i and ii only

B i and iii only

C ii and iii only

D i, ii and iii only

Question 12

i The statutory duty takes priority, if the professional duty conflicts with the statutory duty of a professional accountant.

ii A professional accountant may break a contractual duty, if the employer instructs him or her to act in a professionally unacceptable way.


Which of the above statements are INCORRECT?

A i only

B ii only

C Both i and ii

D none of them

Question 13

Most of the organisations are producing value-based codes and building values into their corporate strategies, for all of the following reasons EXCEPT which one?


A Corporate values are important for giving guidance to staff about what the expectations an employer has of them with regard to their behaviour.

B Corporate values are made mandatory under the statutory laws, and failure to comply amounts to legal breach.

C Corporate values seek to ensure a consistency of conduct across the entire organisation.

D Corporate values directly relate to organisation’s risk management strategies and

supports reputation and credibility.

Question 14

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‘How much recycling of waste and paper undertaken by an organisation?’ relates to which one of the following?

A Corporate governance of an organisation

B Corporate values of an organisation

C Social responsibility of an organisation

D Corporate policy towards sustainability

Answers

Question Answer

1 D

2 B

3 D

4 B

5 D

6 B

7 B

8 B

9 A

10 C

11 A

12 D

13 B

14 C


Ethical conflict: Chapter 7

Identifying ethical dilemmas

These typically arise when conflict arises between

• societal,

• professional,

• personal, and

• corporate values.

This is sometimes called a "conflict of interest".

Ethical conflict resolution: per CIMA Ethical Checklist (parts in bold are in the

Kaplan book - but I think we need them all)

i. Gather the relevant facts

ii. Decide if the issue is ethical

iii. Decide if it is legal in nature

iv. Identify the CIMA fundamental principles relevant to the case v.Identify affected parties

vi. Consider other courses of action including (vi) possible internal procedures that could be invoked

vii. If necessary seek professional or legal advice viii.Refuse to be associated with conflict

Threats and Safeguards

100.12 Threats may be created by a broad range of relationships and circumstances. When a relationship or circumstance creates a threat, such a threat could compromise, or could be perceived to compromise, professional accountant’s compliance with the fundamental principles. A circumstance or relationship

may create more than one threat, and a threat may affect compliance with more than one fundamental

principle. Threats fall into one or more of the following categories:

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a) Self-interest threat – the threat that a financial or other interest will inappropriately influence the professional accountant’s judgment or behavior;

b) Self-review threat – the threat that a professional accountant will not appropriately evaluate the results of a previous judgment made or service performed by the professional accountant, or by another individual within the professional accountant’s firm or employing organization, on which the accountant will rely when forming a judgment as part of providing a current service;

c) Advocacy threat – the threat that a professional accountant will promote a client’s or employer’s position to the point that the professional accountant’s objectivity is compromised;

d) Familiarity threat – the threat that due to a long or close relationship with a client or employer, a professional accountant will be too sympathetic to their interests or too accepting of their work; and

e) Intimidation threat – the threat that a professional accountant will be deterred from acting objectively because of actual or perceived pressures, including attempts to exercise undue influence over the professional accountant.

DISCLOSURE of INFO

140.7 The following are circumstances where professional accountants are or may be required to disclose confidential information or when such disclosure may be appropriate:

a) Disclosure is permitted by law and is authorized by the client or the employer;

b) Disclosure is required by law, for example:

i) Production of documents or other provision of evidence in the course of legal proceedings; or

ii) Disclosure to the appropriate public authorities of infringements of the law that come to light; and c) There is a professional duty or right to disclose, when not prohibited by law:

i) To comply with the quality review of a member body or professional body;


ii) To respond to an inquiry or investigation by a member body or regulatory body;

iii) To protect the professional interests of a professional accountant in legal proceedings; or iv) To comply with technical standards and ethics requirements.

Other

Understand the consequences to the profession if accountants act unethically. CIMA

students are expected to behave as ethically as full members. Understand how ethics

programs might be set up and work.

A common pragmatic checklist used in practice is:

• am I happy to be transparent about this?

• do I understand the effect?

• will others think I have been fair?

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Objective test questions

116 to 130 (but you should have covered 116 to 130 previously)

Test your understanding in the Study Text

There are four questions

Mock assessment questions

68,69, 70 and 71

Extra Model Paper Questions

15, 16, 17 and 18 (but don't worry about 17: I think it is worded the wrong way around)

Question 15

All the following are sources of values that give rise to ethical dilemmas EXCEPT which

one? A Society, through the legislative process

B Individuals, through their personal values

C Organisations, through codes of ethics for their staff to follow


D Courts, through higher judicial precedents

Question 16

Rex, a CIMA Member, is facing with the following ethical dilemma.

Rex’s wife has just got a job as managing director with a great remuneration package of a successful organisation, which also happens to be one of his biggest clients.

Which statement is CORRECT?

A Rex should prevent his wife from taking up this job, as it appears unethical.

B By working through the CIMA Code of Ethics, Rex will find guidance how to deal with this ethical dilemma.

C There is no ethical dilemma, as Rex and his wife are independent entities as far as their jobs are concerned.

D Rex should immediately notify his client that he intends to terminate his service if it recruits his wife to avoid ethical conflict.

Question 17

All of the following are the Fundamental Principles of CIMA Code of Ethics professional accountants are supposed to call upon to resolve ethical conflicts, EXCEPT which one?

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A Integrity

B Effect

C Transparency

D Fairness

Question 18

When a professional accountant faces choices which amounts to conflict or breach, he / she should always:

i think objectively, and take his / her preferences out of the equation

ii act professionally, and seek guidance from the CIMA Code of Practice and CIMA

iii reflect on the situation, and continue to learn and develop

A only i and ii are correct

B only ii and iii are correct

C only i and iii are correct

D only i, ii and iii are correct

15 D


16 B

17 A

18 D

Other note…..Extracts from the CIMA Code

SECTION 100

Introduction and Fundamental Principles

100.1 A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. Therefore, a professional accountant’s responsibility is not exclusively to satisfy the needs of an individual client or employer. In acting in the public interest, a professional accountant shall observe and comply with this Code. If a professional accountant is prohibited from complying with certain parts of this Code by law or regulation, the professional accountant shall comply with all other parts of this Code.

100.2 This Code contains three parts. Part A establishes the fundamental principles of professional ethics for professional accountants and provides a conceptual framework that professional accountants shall apply to:

a) Identify threats to compliance with the fundamental principles;

b) Evaluate the significance of the threats identified; and

c) Apply safeguards, when necessary, to eliminate the threats or reduce them to an acceptable level.

Safeguards are necessary when the professional accountant determines that the threats are not at a level at which a reasonable and informed third party would be likely to conclude, weighing

all the specific facts and circumstances available to the professional accountant at that time, that compliance with the fundamental principles is not compromised.

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A professional accountant shall use professional judgment in applying this conceptual framework.

100.3 Parts B and C describe how the conceptual framework applies in certain situations. They provide examples of safeguards that may be appropriate to address threats to compliance with the fundamental principles. They also describe situations where safeguards are not available to address the threats, and consequently, the circumstance or relationship creating the threats shall be avoided. Part B appliesto professional accountants in public practice. Part C applies to professional accountants in business. Professional accountants in public practice may also find Part C relevant to their particular circumstances.

100.4 The use of the word ‘shall’ in this Code imposes a requirement on the professional accountant or firm to comply with the specific provision in which ‘shall’ has been used. Compliance is required unless an exception is permitted by this Code.

Fundamental Principles

100.5 A professional accountant shall comply with the following fundamental principles:

a) Integrity – to be straightforward and honest in all professional and business relationships. b) Objectivity – to not allow bias, conflict of interest or undue influence of others to override professional or business judgments.

c) Professional Competence and Due Care – to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional services based on

current developments in practice, legislation and techniques and act diligently and in accordance with applicable technical and professional standards.

d) Confidentiality – to respect the confidentiality of information acquired as a result of professional and business relationships and, therefore, not disclose any such information to third parties without proper and specific authority, unless there is a legal or professional right or duty to disclose, nor use the information for the personal advantage of the professional accountant or third parties.

e) Professional Behavior – to comply with relevant laws and regulations and avoid any action that discredits the profession.

Each of these fundamental principles is discussed in more detail in Sections 110–

150.


Conceptual Framework Approach

100.6 The circumstances in which professional accountants operate may create specific threats to compliance with the fundamental principles. It is impossible to define every situation that creates threats to compliance with the fundamental principles and specify the appropriate action. In addition, the nature of engagements and work assignments may differ and, consequently, different threats may be created, requiring the application of different safeguards. Therefore, this Code establishes a conceptual framework that requires a professional accountant to identify, evaluate, and address threats to compliance with the fundamental principles. The conceptual framework approach assists professional accountants in complying with the ethical requirements of this Code and meeting their responsibility to act in the public interest. It accommodates many variations in circumstances that create threats to compliance with the fundamental principles and can deter a professional accountant from concluding that a situation is permitted if it is not specifically prohibited.

100.7 When a professional accountant identifies threats to compliance with the fundamental principles and, based on an evaluation of those threats, determines that they are not at an acceptable level, the professional accountant shall determine whether appropriate safeguards are available and can be applied to eliminate the threats or reduce them to an acceptable level. In making that determination, the professional accountant shall exercise professional judgment and take into account whether a reasonable and informed third party, weighing all the specific facts and circumstances available to the professional accountant at the time, would be likely to conclude that the threats would be eliminated or reduced to an acceptable level by the application of the safeguards, such that compliance with the fundamental principles is not compromised.

100.8 A professional accountant shall evaluate any threats to compliance with the fundamental principles when the professional accountant knows, or could reasonably be expected to know, of circumstances or relationships that may compromise compliance with the fundamental principles.

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100.9 A professional accountant shall take qualitative as well as quantitative factors into account when evaluating the significance of a threat. When applying the conceptual framework, a professional accountant may encounter situations in which threats cannot be eliminated or reduced to an acceptable level, either because

the threat is too significant or because appropriate safeguards are not available or cannot be applied. In such situations, the professional accountant shall decline or discontinue the specific professional service involved or, when necessary, resign from the engagement (in the case of a professional accountant in public practice) or the employing organization (in the case of a professional accountant in business).

100.10 A professional accountant may inadvertently violate a provision of this Code. Depending on the nature and significance of the matter, such an inadvertent violation may be deemed not to compromise compliance with the fundamental principles provided, once the violation is discovered, the violation is corrected promptly and any necessary safeguards are applied.

100.11 When a professional accountant encounters unusual circumstances in which the application of a specific requirement of the Code would result in a disproportionate outcome or an outcome that may not be in the public interest, it is recommended that the professional accountant consult with a member body or the relevant regulator.

Threats and Safeguards

100.12 Threats may be created by a broad range of relationships and circumstances. When a relationship or circumstance creates a threat, such a threat could compromise, or could be perceived to compromise,

a professional accountant’s compliance with the fundamental principles. A circumstance or relationship may create more than one threat, and a threat may affect compliance with more than one fundamental principle. Threats fall into one or more of the following categories:

a) Self-interest threat – the threat that a financial or other interest will inappropriately influence the professional accountant’s judgment or behavior;

b) Self-review threat – the threat that a professional accountant will not appropriately evaluate the results of a previous judgment made or service performed by the professional accountant, or by another individual within the professional accountant’s firm or employing organization, on which the accountant will rely when forming a judgment as part of providing a current service;


c) Advocacy threat – the threat that a professional accountant will promote a client’s or employer’s position to the point that the professional accountant’s objectivity is compromised;

d) Familiarity threat – the threat that due to a long or close relationship with a client or employer, a professional accountant will be too sympathetic to their interests or too accepting of their work; and

e) Intimidation threat – the threat that a professional accountant will be deterred

from acting objectively because of actual or perceived pressures, including attempts to exercise undue influence over the professional accountant.

Parts B and C of this Code explain how these categories of threats may be created for professional accountants in public practice and professional accountants in business, respectively. Professional accountants in public practice may also find Part C relevant to their particular circumstances.

100.13 Safeguards are actions or other measures that may eliminate threats or reduce them to an acceptable level. They fall into two broad categories:

a) Safeguards created by the profession, legislation or regulation; and b) Safeguards in the work environment.

100.14 Safeguards created by the profession, legislation or regulation include: Educational, training and experience requirements for entry into the profession. Continuing professional development requirements.

Corporate governance regulations. Professional standards.

Professional or regulatory monitoring and disciplinary procedures.

External review by a legally empowered third party of the reports, returns, communications or information produced by a professional accountant.

100.15 Parts B and C of this Code discuss safeguards in the work environment for professional accountants in public practice and professional accountants in business, respectively.

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100.16 Certain safeguards may increase the likelihood of identifying or deterring unethical behavior. Such safeguards, which may be created by the accounting profession, legislation, regulation, or an employing organization, include:

• Effective, well-publicized complaint systems operated by the employing organization, the profession or a regulator, which enable colleagues, employers and members of the public to draw attention to unprofessional or unethical behavior.

• An explicitly stated duty to report breaches of ethical requirements.

Ethical Conflict Resolution

100.17 A professional accountant may be required to resolve a conflict in complying with the fundamental principles.

100.18 When initiating either a formal or informal conflict resolution process, the following factors, either individually or together with other factors, may be relevant to the resolution process:

a) Relevant facts;

b) Ethical issues involved;

c) Fundamental principles related to the matter in question;

d) Established internal procedures; and


e) Alternative courses of action.

NOTE: this is slightly different from the CIMA checklist which is an expanded version

Having considered the relevant factors, a professional accountant shall determine the appropriate course of action, weighing the consequences of each possible course of action. If the matter remains unresolved, the professional accountant may wish to consult with other appropriate persons within the firm or employing organization for help in obtaining resolution.

100.19 Where a matter involves a conflict with, or within, an organization, a professional accountant shall determine whether to consult with those charged with governance of the organization, such as the board of directors or the audit committee.

100.20 It may be in the best interests of the professional accountant to document the substance of the issue, the details of any discussions held, and the decisions made concerning that issue.

100.21 If a significant conflict cannot be resolved, a professional accountant may consider obtaining professional advice from the relevant professional body or from legal advisors. The professional accountant generally can obtain guidance on ethical issues without breaching the fundamental principle of confidentiality if the matter is discussed with the relevant professional body on an anonymous basis or with a legal advisor under the protection of legal privilege. Instances in which the professional accountant may consider obtaining legal advice vary. For example, a professional accountant may have encountered a fraud, the reporting of which could breach the professional accountant’s responsibility to respect confidentiality. The professional accountant may consider obtaining legal advice in that instance to determine whether there is a requirement to report.

100.22 If, after exhausting all relevant possibilities, the ethical conflict remains unresolved, a professional accountant shall, where possible, refuse to remain associated with the matter creating the conflict. The professional accountant shall determine whether, in the circumstances, it is appropriate to withdraw from the engagement team or specific assignment, or to resign altogether from the engagement, the firm or the employing organization.

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Coursework

(i) After obtaining appropriate consent: record a semi structured interview about a workplace related ethical issue. Where confidentiality has been requested you MUST use pseudonyms.

(ii) In your conversation you should not only obtain a rich description of the ethical issue but you must also seek to explore tensions arising from societal, personal, corporate and professional values.

This interaction requires an appreciation of the nuanced interaction between laws, rules, guidance, beliefs, values, organisational culture and social dynamics.

(iii) Explore how the interviewee went about resolving this conflict: ensuring that you (as an interviewer) demonstrate that you are aware of CIMA's Ethical checklist (or other robust framework) for attempting to resolve ethical conflict.

(iv) Carefully transcribe the most important sections of the interview ( up to 1,600 words).

(v) Note: your questioning should be informed by the module hermeneutic; the ethical

ideas alluded to in the module material and relevant wider literature.

What you need to submit

You need to submit a written transcript1 to SHIP of the interview. At the end of the transcript you should briefly summarise why the person thought that they faced a dilemma and draw an overall conclusion. A signed consent form must also be submitted.

P l ea s e put t he na me o f y our s e m i na r t u t o r o n y ou r s c r i p t. F o r p r a c t i c a l r ea s on s t h i s i s R E A L LY I M PO R T A N T .

Who can you interview? You can interview :

(a) somebody you would not normally talk to, or

(b) a person you know - so long as you are talking about something that you would not normally talk about.

Put another way: you can't just interview your friend who sits beside you.


Practically who might you interview?

• Parents and older family members.

• Family friends.

• Students with different beliefs or values to you.

• Anybody else that your seminar tutor approves.

When is the deadline? See Blackboard for precise details. We have placed the hand in date after Christmas so that you can interview family members over the holidays (if necessary). However, please don’t leave this as something to be done in a mad rush…we hope that you will find the experience beneficial.

1 The word count is 1,600 words. This is explained more fully in the briefing notes.

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Briefing notes

Briefing notes (i)

To obtain consent use the consent form included in this briefing pack.

You can use a mobile phone to record the interview.

Semi structured means that you should think about the type of questions that you want to ask before the interview, but that you can (and should) ask supplementary questions to make the interview flow like a conversation. Advice about interviewing can be obtained from books such as Gubrium, J. F. and Holstein, J. A. (2001) Handbook of Interview Research: context and Method, Sage, London.

Remember that the best interviews are ostensibly conversations. Try to hold a conversation - not a formal interview. This will involve "meeting and greeting" your fellow conversant to put them at ease before the interview/conversation. You do not need to record this section of the interaction.

If you are uncertain as to whether or not the ethical dilemma/issue is workplace related - please ask your seminar tutor. For example: a general discussion about vivisection would be about an ethical issue - but would not be workplace related. However, a discussion about whether or not a person who thought vivisection was wrong would carry out the audit of a company that used animals for experiments would be a workplace related ethical dilemma.

Workplace may also be interpreted as "school, college or university" as these are places where students have worked (or, are working).

This module interprets ethical to carry a moral sense of "right and wrong".

Issue can be interpreted broadly. It might mean a specific conflict or dilemma; or a time of turbulence; or merely a potential issue - one which the conversant considers might be problematic one day.

A pseudonym is a name that is not the actual name of a person, or a company (or even a place), but an alternative name that is used to conceal their identity. If you interviewed me, and I asked you conceal my identity, you could call me something like "Simon" or "Mike".


You do not have to submit the actual recording. Remember to make sure your recorder is switched on! You should keep a copy of the sound file - so that if necessary we can check that the interview did take

place.

YOU MUST RESPECT THE CONFIDENTIALITY REQUESTS OF THE OTHER PERSON

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Briefing notes (ii)

In simplistic terms your questioning should seek to find out:

• What the issue was?

• Why the issue arose?

• What the person did to seek to resolve it?

• How the issue was practically resolved?

• If the person has any comments or advice to impart as a result of this lived experience.

CIMA suggest2 that conflict can be understood by looking at the interaction between the following four values:

• s o ci e tal: which is taken to be represented by the law

• p ers o n al : which refers to personal values and beliefs

• c o r p o r at e : which is an amalgamation of rules, corporate values, organisational culture and social dynamics

• p r o fess i o n al: which can be interpreted as professional guidance eg. the CIMA Code of Ethics

Technical ideas that you might find helpful to explore in the interview are:

Laws: these are enforceable at Law by the Courts.

Rules: these are generally enforceable by an organisation (or another organisation) - but do not carry the full weight of the Law.

Guidance: again this is subtly different to Law. Guidance is generally an attempt to implement the Law in a particular situation.

Beliefs: in this context are moral positions about right and wrong that can only be justified meta physically. This means justified by an appeal to the existence of something over and beyond that which can be empirically tested, or that which is socially constructed.

Values: in this context are socially relative positions about right and wrong.


Organisational culture: can helpfully be described as "the way things get done around here".

Social dynamics: means the way that people relate to each other. In particular many ethical conflicts arise when a subordinate is asked to do something that they feel uncomfortable doing by a person in authority.

2 Notice the careful wording here: "CIMA suggest".

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Briefing notes (iii)

Most interviewees will not have followed the CIMA Ethical Checklist when attempting to resolve the situation. This is not a problem.

Your interviewing simply needs to reflect the fact that you are aware that ethical tensions take time and effort to resolve: and that the decisions made to resolve the issues will be based upon some kind of ethical framework.

We are suggesting that you familiarise yourself with the CIMA checklist - as this might be tested in the exam. However, if you have strong ethical, religious or moral convictions you might want to use another robust framework as a point of reference as you seek to explore how the issue was resolved.

Briefing notes (iv)

Carefully transcribe means: record and then use the recording to write down after the interview. Write down the exact words the speaker used, you should even include "ums" and "errs". Also, highlight each person in the transcript in a way that allows the reader to know who is speaking.

The most important sections. This phrase means that you can edit chunks of the interview out (if you need to get to within the word count). Be careful not to remove important sections of the interview. If you feel pressured by the word count - put the most important sections in the main transcript and put the edited sections in an appendix.

The phrase "The interview" has been included because you should only use narrative from the interview itself. Making up words, or inserting additional text of your own making is cheating and should not be done.

Briefing notes (v)

A hermeneutic is a way of interpreting. The module hermeneutic is:

a person means what they intend something to mean: so long as

(i) the verbal language used is consistent with the "normal" language conventions of the speaker, (ii) their non verbal language is consistent with their spoken words, and


(iii) their intention is consistent with what they actually said.

If the listener is not a member of the speaker's culture then even this simple hermeneutic may be hard to apply. For the avoidance of doubt:

"normal language" would be "normal" for the speaker - and not the listener.

"non verbal" communication would be as interpreted by a person of the speaker's culture - and not the listener's.

"intention" can only be known truly by the speaker, but can be assessed by other means - for example by looking at subsequent behaviour.

"culture" might mean a subset, or subgroup, of a larger population.

This is not the only hermeneutic that could be used: but it is the module hermeneutic. It is specifically chosen to encourage students to ask "what did that person really mean", rather than allowing students to jump to rushed and hostile misunderstandings.

To facilitate the use of this hermeneutic students should ensure that their questioning allows them to find out what the other person really means. Your transcript should seek to represent what the person intended to mean. So if their answers are sparse you need to help the interviewee fully communicate their intention by asking appropriate supplementary questions.

Wider reading is to be encouraged prior to the interview. A nice way to bring this into the interview is to quote something in the interview and get your interviewee to comment upon it.

Alternatively, if you can find out what an interviewee is going to talk about before an interview, you could try and read up a bit about the subject prior to the interview - this will enhance the quality of your interview considerably.

Word count

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Does the 1,600 word limit include the questions that the interviewer asks?

The answer is: you can choose!

Word count: what if I am longer than 1,600 words?

Edit the script for the most interesting and helpful bits.

Place the parts of the transcript that you have not used in an Appendix to show the marker that you have done more work than the 1,600 words you have presented.

Word count: I am an accountant… how exact is 1,600 words?

It is not exact.

Marking grid

Please look at the marking grid - as this will help you ensure that you structure your interview in a way that attracts the highest marks.


CONSENT FORM

Thank you for being willing to take part in this interview exploring ethical conflict or turbulence. I would like to transcribe the content of this interview to form a written document to be submitted to BAC as a piece of assessed piece of coursework. It is important that you only take part in this interview if you want to. As such I would be delighted if you would complete and sign this confidentiality questionnaire prior to the interview taking place.

(i) In general terms are you willing to take part in this interview: and an edited transcript of the interview submitted to BAC?

Yes / No

(ii) Are you happy for your own name to be used in the transcript: or do you want the final transcript to written up with a pseudonym?

Own name/ Pseudonym

(iii) Are you happy for the names of other people and organisations to be used in the final transcript: or do you want all other names to be content of this transcription to be submitted to BAC?

Original names/ Pseudonyms

(iv) Are you happy for me to submit the final transcript without you reviewing it - or do you want to reserve the right to see the final transcript before I submit?

Submit unseen/ review before

(v) Sometimes the ethical dilemmas described in these transcripts provide real life case studies that can be helpful to show other students, and can provide rich data for research projects. Would you be willing for this transcript to be used in further

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teaching or research - or would you prefer the transcript to be solely used in the submission of an assessed piece of coursework?

Willing for further use / Limit to coursework submission

Signed

Date


Example of a transcript layout

Neil Where do you work?

Bob At the Greyhound track in Hillsborough. Neil Have you ever faced an ethical dilemma? Bob Yer what?

Neil Sorry. Have you ever faced a situation at work where you have been asked to do something that you felt uncomfortable with.

Bob Yeaaah

Neil [gesticulates non verbally]

Bob Well - the dogs. When their competitive career ends they are very expensive to keep, and so they have to be retired.

Neil Retired? Bob Retired.

Neil That sounds great - do they go to a nice farm in the countryside?

Bob They're despatched.

Neil Despatched! Does that means they get sent to different farms all over the UK? Bob Not really. I deal with them.

Neil I am not really understanding what is going on here…

Bob It's like this. Every month I am asked to take some dogs for a walk, and they don’t come back. Neil So you are saying that you take them for a walk and you let them off the lead - and they run

away.

Bob [starting to break down in tears] …….. etc….

The point of this example is to show that you need to understand what the person means - not what you think that they mean. It also shows you a nice way of setting out a transcript.

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Possible interview format

(i) Explain the nature of the interview and get the confidentiality form signed. You do not have to record this part of the interview.

Parts to be recorded

(ii) Ask the person about their

• background, and

• beliefs

(ii) Find out where they work and what they do.

(iii) Get them to describe an ethical conflict that they have experienced. Ask supplementary questions to ensure that the descriptive element of the situation is well communicated.

(iv) Get them to explain what the ethical conflict was. Ensure that your questioning probes deeply here - the nature of the conflict might not necessarily be exactly what you think it

might be.

(v) Explore with the interviewee the ethical tensions here. Nuanced interaction with law, guidance, internal policies, organisational culture, social dynamics and also personal beliefs is required here3. Perhaps see if the interviewee can see the situation from "the other person's perspective".

(vi) Find out what they did to resolve the issue. Perhaps use the CIMA resolution framework4

to guide your questioning here, and perhaps explore what they did not do that CIMA might suggest they could have done.

(vii) Find out how (if at all) the situation was resolved.

(viii) Perhaps ask the interviewee to reflect upon the situation and to offer any words of advice that they might have.

Remember - you do not have to follow this format, it is only a suggestion.


Remember - this coursework it is about understanding what the other person means - not judging them.

3 The CIMA text suggests looking at the interaction between Societal/Personal/Corporate/and Professional

Values. You might want to use this framework.

4 The CIMA resolution framework is 1. Gather and record facts 2. Decide if it is an ethical issue 3. Decide if it is legal in nature 4. Identify any of CIMA's fundamental principles that are effected 5. Identify any effected

parties 6. Consider possible course of action 7. If necessary seek professional advice 8. Refuse to be associated

with conflict

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Name:

Overall mark:

ABILITY TO CREATE A RICH AND STIMULATING EXPLORATION OF A CASE STUDY (1/3 of the marks)

40% + An interview has taken place and been recorded with a word count of at least

50% + The interview has a clear structure and clearly relates to a real life situation.

60% + Questioning has clearly moved beyond pre prepared questions and clearly

70% + Questioning has clearly elicited a response that has explored ethical issues in

a way that allows the reader to be convinced that they understand the

80% + The script stands out from other scripts in terms of its vivid and creative

INTERACTION WITH TECHNICAL MODULE CONTENT (INCLUDING CIMA FRAMEWORK and also

PHILOSPHOCAL AND LEGAL NUANCE) (1/3 of the marks)

40% + The interview is clearly about an ethical issue.

50% + Ethical conflict is clearly identified by the interviewer.

60% + Multiple ethical tensions are clearly explored and an awareness of the CIMA

guidelines (or other robust ethical framework) for resolving ethical conflict is

70% + Strong academic reading (or awareness) is clearly evident in the way that the

80% + The script stands out from other scripts in terms of its academic rigour.

OVERALL FEEL (including CONCLUSION) (1/3 of the marks)

40% + Largely descriptive with weak links to ethics.

50% + Clear links to ethics but not richly explored.

60% + Ethical CONFLICT examined.

70% + Ethical CONFLICT critically explored in an academic manner.


80% + The script stands out from other scripts.

Comment (if applicable)

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Low mark notes:

10% cap Largely unintelligible prose or a word count of less than 200 words.

20% cap Very unclear prose or word count less than 400 words.

30% cap Unclear prose or word count less than 800 words caps mark.

High mark notes:

60% + Developing, fluid prose evident in the summary section.

70% + Mature interaction with module hermeneutic

Seminar Six: PRACTICE EXAM 1

This session will involve you sitting the first of three scheduled practice examination papers in preparation for the end of module CIMA exam.

The exam paper will be distributed in the seminar and you will obtain feedback and a grade to identify areas which you understand and those where you may need further revision and/or guidance.

We hope you will fully engage with the practice exams as they should provide you with confidence going into your end of term exam. As these exams will take place throughout the academic year, you will only be assessed on the materials that you will have already studied.


Seminar Seven: Introduction to ELS / Alternative Legal Systems

Introduction to English Law: Chapter 1

Multiple Choice Questions

1. Supremacy of Parliament provides the power to:

i) Allow individuals to become Members of Parliament even when they have not been subject to a public vote at an election;

ii) Make or repeal any laws;iii) Make the judiciary subservient to Parliament;iv) Establish laws that are contrary to the treaties of the

European Union.

a.# i only.

b.# i, ii and iii.

c.# ii, iii and iv.

d.# ii and iv.

2. The supremacy of Parliament established through the ‘Glorious Revolution’ occurred in which year?

a.# 1600

b.# 1300

c.# 1866.

d.# 1688.

3. When interpreting the Human Rights Act 1998, the judiciary must interpret it consistently with:

i) The European Convention of Human Rights;ii) The European Court of Justice;iii) Judgments of the Crown Court;iv) Judgments of the European Court of Human Rights.

a.# i only.

b.# i, ii, and iv.

c.# All of the above.

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d.# i and iv.

4. In the event that a consistent interpretation with the Human Rights Act 1998 cannot be achieved, the judiciary may:

a.# Dis-apply the inconsistent Act.

b.# Enable a torts claim for damages against the State.

c.# Issue a declaration of incompatibility.

d.# Take no action as they have not been given powers under the Act.

5. When interpreting legislation transposed from the EU or with a Human Rights dimension, which of the following approaches will the judiciary most commonly take:

a.# The common practice of the courts is to adopt the purposive approach to statutory interpretation.

b.# The common practice of the courts is to adopt the literal rule of interpretation.

c.# The common practice of the courts is to adopt the golden rule of interpretation.

d.# The common practice of the courts is to adopt the mischief rule of interpretation.

6. Which of the following is NOT a form of delegated legislation:

a.# Orders in Council.

b.# Statutory Instruments

c.# Public Bills.

d.# By-laws.

7. Which part of the judgment establishes the precedent that is to be followed by lower courts?

a.# The Ratio Decidendi.

b.# The facts that are identified as binding by the judge.


c.# The section of the judgment entitled ‘Precedent.’

d.# The Obiter Dicta.

8. The committee stage of the legislative process refers to which committee?

a.# A select committee.

b.# A standing committee.

c.# A interested members committee.

d.# A special committee.

9. Which of the following statements is correct?

a.# The Court of Appeal is bound by judgments of the Supreme Court.

b.# The Court of Appeal is bound by judgments of the High Court.

c.# The Court of Appeal is bound by its own previous judgments.

d.# The Court of Appeal is bound by the judgments of tribunals.

10. In terms of the hierarchy of the courts, which is the highest court in England:

a.# The Court of Appeal.

b.# The Supreme Court.

c.# The High Court.

d.# The Crown Court.

11. Which of the following statements is incorrect:

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a.# England is a common law country.

b.# Courts make law when they interpret statutes.

c.# There is no difference between the Court of Appeal and the Supreme Court.

d.# Judges make law.

12. The highest form of law from the EU is:

a.# A Treaty Article

b.# A Regulation.

c.# A Directive.

d.# A Decision.

13. Following accession to the EU, the highest court in England is:

a.# The Court of Appeal

b.# The Supreme Court.

c.# The European Court of Justice.

d.# Tribunals.

14. A Directive can be defined as:

a.# A law that is binding in its entirety upon those to whom it is addressed.

b.# A law that is binding, as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods.

c.# A law that has general application and is binding in its entirety and directly applicable in all Member States.

d.# An instruction from the European Court of Justice as to how a law must be interpreted and given effect in a judgment.

15. In the event of a conflict between English law and the law of the European Union, the judges must:

a.# Always give effect to the EU law.

b.# Always give effect to the English law.

c.# Decide, based on the facts of the case before them, which law to give effect.


d.# Follow the EU law UNLESS there is a specific instruction by Parliament to the contrary.

Alternative Legal Systems: Chapter 3

1. Under which type of law would a contractual dispute between a company and a supplier be heard?

a.# Public law

b.# Private law

c.# Procedural law

d.# International law

2. Apostasy is a term which is related to which of the following under Sharia law?

a.# The restrictions on the role of women in religious practice

b.# Rules concerning the interpretation of the Quran

c.# The prohibition of criticising the Prophet Muhammad

d.# The conversion of Muslims to another religion

3. Which statement regarding codified legal systems is correct?

a.# There is no distinction between those who draft law and those who apply it

b.# Judges decisions can never be influenced by previous cases

c.# Codified law is detailed and complex

d.# Judges are involved in judicial review

4. Judges in which European country are appointed at the start of the legal career?

a.# Germany

b.# Greece

c.# Denmark

d.# France

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5. Which country’s legal system involves mediation committees?

a.# Sri Lanka

b.# China

c.# Malaysia

d.# Russia

Fill-in-the-Blank Questions

Type: fill-in-blank

Title: Question 01

XX) _____ law regulates actions between parties in agreements they have voluntarily entered or where society has placed an obligation to take reasonable care not to cause damage or injure others.

END OF QUESTION

Type: fill-in-blank

Title: Question 02

XX) Whereas criminal cases are decided on the test of 'beyond reasonable doubt' the test applied in civil cases is on the __________ _ _________

END OF QUESTION

Type: fill-in-blank

Title: Question 03

XX) The part of the judgment that establishes the precedent is the ____ _________

END OF QUESTION

Type: fill-in-blank

Title: Question 04


XX) One particular legislative aid to assist the judiciary in interpreting statutes has been the ____________ ___

END OF QUESTION

Type: fill-in-blank

Title: Question 05

XX) The case Re Sigsworth is an example of the ______ rule of statutory interpretation.

END OF QUESTION

Type: fill-in-blank

Title: Question 06

XX) The highest court in country is the _______ Court.

END OF QUESTION

Type: fill-in-blank

Title: Question 07

XX) The ____ Court is separated into the three divisions - Queen’s Bench, Chancery, and Family.

END OF QUESTION

Type: fill-in-blank

Title: Question 08

XX) The EU institution that considers the interpretation and application of EU law is the _________ ________ _ ______

END OF QUESTION

Type: fill-in-blank

Title: Question 09

XX) The source of EU law that require the Member States to transpose the effects of

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the law into their own legal system is __________

END OF QUESTION

Short-Answer Question

‘List three sources of international law.’

1. X2. y3. z


Seminar Eight: Torts and Vicarious Liability: Chapter 2


Negligence


1. The three elements required to establish a claim for negligence does NOT include:

a.# The defendant owes the claimant a duty to take reasonable care not to cause injury or loss.

b.# The defendant breaching the duty of care.

c.# The claimant suffering damage as a consequence of the breach.

d.# A contractual agreement outlining the potential liability of the defendant.

2. The criteria required in establishing a duty of care owed to the claimant does NOT include:

a.# A prior agreement to accept the duty.

b.# Proximity of relationship between the parties.

c.# Reasonable forseeability of loss.

d.# Whether it is fair, just and reasonable to impose the duty.

3. A claim for damages due to personal injury must be brought within which of the following time frames, from the date giving rise to the action?

a.# 6 years.

b.# 6 months.

c.# 3 years.

d.# 3 months.

4. When the defence of contributory negligence is raised in a claim of personal injury, and the claimant has suffered damage that would not

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have occurred if he/she had been wearing their safety belt, the reduction in the award of damages will be:

a.# 25%.

b.# 50%.

c.# 0%.

d.# 100%.

5. The case Donoghue v Stevenson involved which of the following facts?

a.# The claimant being injured by a cricket ball struck by a batsman in the adjacent ground.

b.# The claimant suffered nervous shock following seeing the aftermath of an accident.

c.# The claimant suffered loss following the negligent preparation of company accounts.

d.# The claimant suffered shock and severe gastro-enteritis following the presence of the remains of a snail in a bottle of ginger beer.

6. Which of the following will NOT be considered by the courts when assessing whether a defendant’s actions have resulted in a breach of the duty to take reasonable care?

a.# The principle of exposing the claimant to unreasonable risk of harm.

b.# The social utility and desirability of the defendant’s actions.

c.# The remoteness of damage.

d.# The cost and practicality of measures to minimise the risk of harm.


Pure Economic Loss: Chapter 2


1. In the case of Spartan Steel v Martin & Co. Contractors Ltd. [1973], it was held that the claimants could receive damages for:

a.# Damages for all physical and economic losses.

b.# Damages only for the losses associated with the physical damage (damage to the furnace and the ‘lost’ molten metal).

c.# Damages only for the losses associated with pure economic loss.

d.# No damages.

2. Which of the following is NOT one of the factors that establish when liability for a negligent misstatement will be imposed?

a.# The advice is volunteered by the adviser in the absence of a request.

b.# The adviser knows that his advice will be communicated to the advisee, either specifically or as a member of an ascertainable class, in order that it should be used by the advisee for that purpose.

c.# It is known that the advice so communicated is likely to be acted upon by the advisee for that purpose without independent inquiry.

d.# It is so acted upon by the advisee to his detriment.

3. Which of the following may claim damages for a psychiatric injury

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when in the zone of physical danger and fearing for his/her own safety?

a.# Any person within 50 yards of the incident.

b.# The claimant held as a tertiary victim.

c.# The claimant held as a secondary victim.

d.# The claimant held as a primary victim.

4. To be held by a court as a secondary victim, which of the following is NOT one of the tests used?

a.# There must exist close proximity between the claimant and the person suffering harm.

b.# The claimant must have feared for his/her personal safety.

c.# The claimant must have been present at the scene of the accident or present in the immediate aftermath.

d.# The claimant must have perceived directly the events of the accident or the immediate aftermath.

5. When faced with a claim from an employee that he/she is suffering from stress due to their workload, what action must an employer take?

a.# The employer need not take any action.

b.# The employer must reduce the employee’s stress regardless of any costs involved.

c.# The employer may dismiss the employee for ‘some other substantial reason.’

d.# The employer must take reasonable steps to reduce the employee’s workload.

Vicarious Liability: Chapter 2


1. To establish an employer’s vicarious liability for a tort, which TWO of the following criteria are necessary.

i) Employee status of the original tortfeasor.

ii) The employer must have been directly responsible for the tort.

iii) The employee must have been continuously employed for at least


one year.

iv) The tort was committed in the ‘course of employment.’

a.# i and ii.

b.# ii and iii.

c.# i and iv.

d.# iii and iv.

2. For which of the following is an employer NOT liable?

a.# The employee’s negligent act when he/she is instructed to perform the act with care.

b.# The employee’s negligent act that was incidental to his/her employment.

c.# Criminal acts committed by an employee not connected with that employment.

d.# The employee’s wrongful act authorised by the employer.

3. The term ‘course of employment’ does NOT include:

a.# Providing lifts to assist the employee in his/her employment.

b.# Travelling between workplaces during contracted hours.

c.# When an employee travels from his/her ordinary residence to an unusual place of work.

d.# The employee deviates from a task, travelling in the opposite direction to where he/she is instructed, on his/her own business.

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4. In which situation will an employer be liable for the torts of independent contractors:

i) Where an employer is not at fault but the independent contractor does not have his/her own insurance.

ii) If the tort was ratified or authorised by the employer.

iii) Where the employer owes a duty for the health and safety of their employees.

iv) Where the law / statute imposes a duty on the employer that may not be delegated.

a.# ii, iii and iv.

b.# All of the above.

c.# iv only.

d.# ii and iv.


Type: fill-in-blank

Title: Question 01

XX) Having established the defendant owed the claimant a duty of care, the next stage in establishing liability is that the defendant _______ duty.

END OF QUESTION

Type: fill-in-blank

Title: Question 02

XX) The final element necessary in establishing negligence liability, following the duty of care and breach of duty is ____________ damage.

END OF QUESTION

Type: fill-in-blank


Title: Question 03

XX) The case Cork v Kirby Maclean identified the ___ __ test as: ‘If the damage would not have happened but for a particular fault, then that fault is the cause of the damage—if it would have happened just the same, fault or not fault, the fault is not the cause of damage.’

END OF QUESTION

Type: fill-in-blank

Title: Question 04

XX) In identifying whether a breach of the duty of care exists, ____________ of damage involves the test of reasonable foreseeability of loss.

END OF QUESTION

Type: fill-in-blank

Title: Question 05

XX) The general rule preventing claims based on pure economic loss is subject to exception of where a __________ of proximity exists between the parties that elevates the defendant’s responsibility to the claimant.

END OF QUESTION

Type: fill-in-blank

Title: Question 06

XX) Weller v Foot and Mouth Research Institute is authority for the proposition that actions for losses attributed to ________ loss are not compensatable as they are not linked with economic losses associated with physical negligence.

END OF QUESTION

Type: fill-in-blank

Title: Question 07

XX) _________ is a doctrine where an employer will be held liable for the torts of his/her employee.

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END OF QUESTION

Type: fill-in-blank

Title: Question 08

XX) The two tests necessary to establish the vicarious liability of an employer is that the tortfeasor is an…………….and the tort was committed in the course of his/her employment.

END OF QUESTION

Type: fill-in-blank

Title: Question 09

XX) An employer may be liable for an employee’s tort where an authorized act has been conducted in an ___________ way.

END OF QUESTION

Type: fill-in-blank

Title: Question 10

XX) Where an employer has a responsibility that cannot be delegated, he/she may be liable for a tort committed by an _________ ________

END OF QUESTION

Type: fill-in-blank

Title: Question 11

XX) Where both the employer and an independent contractor were both ________, an employer may be held vicariously liable for injuries to the victim despite the general rule that the doctrine is applicable for the torts of an employee only.

END OF QUESTION

Type: fill-in-blank

Title: Question 12

XX) One of the most significant advantages to a claimant using the Consumer Protection Act 1987 is of ______ _________ and as such the claimant does not need to prove intention or negligence on the part of the defendant.

END OF QUESTION


Essay Question

‘To what extent is a professional adviser liable in civil law for their misstatement and how does the law seek to regulate their activities and liabilities?’

Indicative Content Outline Answer

The general rule of law was that claims for pure economic loss could not be claimed – for many reasons including the floodgates argument.

In some cases businesses provide expert advice that clients and others rely on when investing money, making decisions and so on, and when these have been negligently made, the recipient may suffer losses.

Hedley Byrne & Co. v Heller - The House of Lords held that this case involved a ‘special relationship of proximity’ between the parties and this would enable a claim for the losses due to the negligent misstatement.

In Caparo v Dickman the Lords defined the factors that would establish a ‘special relationship’ and where liability for a negligent misstatement would be imposed:

1) The advice is required for a purpose which is made known, either actually or inferentially, to the adviser at the time when the advice is given;

2) The adviser knows that his advice will be communicated to the advisee, either specifically or as a member of an ascertainable class, in order that it should be used by the advisee for that purpose;

3) It is known that the advice so communicated is likely to be acted upon by the advisee for that purpose without independent inquiry, and

4) It is so acted upon by the advisee to his detriment.

The case of James McNaughten v Hicks demonstrated the necessity of the defendant being aware of the claimant’s use of the information that was being provided. The following points should be considered:

1) The purpose for which the statement is made.2) The purpose for which the statement was communicated.3) The relationship between the advisor, advisee, and any relevant third party.4) The size of any class to which the advisee belongs.5) The state of knowledge of the adviser.6) Reliance by the advisee.

In Yorkshire Enterprise Ltd v Robson Rhodes it was held that liability would be imposed as the defendants were aware of why the claimants wanted the information, and what they had intended to do with this information. Therefore when considering whether liability will be imposed in cases of negligent misstatement, the following points should be considered:

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1) There must have been negligence when the statement was made.2) The statement must be given by an expert acting in the course of his/her

expertise.3) There must be a duty of care owed to the person who acts on the statement

– an assumption of responsibility.4) There must be reliance on the statement by the persons to whom it was

addressed.5) There must be foreseeable loss arising out of the reliance.6) Following Caparo, it must be fair, just and equitable to impose the duty.

Note, however, that the Lords stated in Commissioners for Customs and Excise v Barclays Bank Plc that the tests established in the cases above were correct and had led to justice being served, but they are specific to the cases to which they relate, and sweeping statements regarding the application of tests are not possible. The cases have to be considered on their facts.


Seminar Nine: Establishing Contractual Obligations: Chapter 4


1. To whom may an offer be made?

a.# Only a specified individual.

b.# Only a single group of people specifically identified in the offer.

c.# The entire world.

d.# Only to persons over the age of 21.

2. A display in a shop window will generally be held to constitute what?

a.# Always an offer.

b.# It cannot be identified in advance as it depends upon the perceived intention of the seller.

c.# An invitation to treat.

d.# It has no legal significance.

3. Acceptance is NOT effective if through:

a.# Conduct only.

b.# Express words (whether oral or written) only.

c.# The offeree's non-communicated intention.

d.# Conduct and/or express words.

4. Revocation of an offer is effective when:

i) It is posted.

ii) It is communicated to the offeree by the offeror.

iii) It is the intention of the offeror to revoke.

iv) It is communicated to the offeree by a reliable third party.

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a.# i only.

b.# i and iii.

c.# i, ii, and iii.

d.# ii and iv.

5. Michelle contacts Hannah and asks her if she would be interested in purchasing her car for £2000. Hannah immediately takes £2000 to Michelle and says she wants to buy the car. Michelle subsequently does not wish to proceed. What is the consequence of the above scenario.

a.# A contract was made when Hannah accepted Michelle’s offer.

b.# Michelle has the right to refuse before she takes possession of the cash.

c.# As the value of the car is only £2000 the courts will not hear the case and no enforcement can be ordered.

d.# There is no contract as Michelle only requested information and did not make an offer to sell.

6. Where the post is a valid means of acceptance, at what point will the offeree have been held to have accepted the offer?

a.# When the letter of acceptance has been written.

b.# When the letter of acceptance has been correctly addressed, its postage paid, and posted.

c.# When the letter of acceptance is received by the offeror.

d.# When the letter of acceptance is opened and its contents read by the offeree.

7. In relation to acceptance through instantaneous forms of communication, in which of the following locations have the courts held the contract as being formed?

a.# The place where the offeree is based when deciding to accept the offer.

b.# The place where the acceptance is sent.

c.# The place where the acceptance is received.

d.# The place where the parties choose to select.

8. Consideration, an essential element in the formation of a valid


contract, may be identified as:

a.# The need for fairness in the contract.

b.# The intention of the parties to be legally bound.

c.# A balance in the terms of the agreement.

d.# The 'bargain' element of a contract.

9. Which of the following is an example of good consideration?

a.# Exceeding an existing duty.

b.# Part-payment of a debt.

c.# Performing an existing duty.

d.# Agreeing to pay a tenant for improvements already made to a rented property.

10. Intention to create legal relations is presumed in which of the following relationships:

i) Husband and wife living together.

ii) Parties to a commercial contract.

iii) Husband and wife who are separated.

iv) Friends who are part of a lottery syndicate.

a.# All of the above.

b.# ii only.

c.# ii, iii and iv.

d.# i, ii and iv.

11. Which of the following does NOT have the right to enforce a contract?

a.# The parties to it.

b.# Third parties to an insurance contract in their benefit.

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c.# Third parties to a contract concerning the carriage of goods.

d.# A party subject to a restrictive covenant on land.

12. Which of the following cases established the doctrine of promissory estoppel?

a.# Central London Property Trust v High Trees House Ltd.

b.# Combe v Combe.

c.# Foakes v Beer.

d.# Re Selectmove.

13. How would the courts deal with a clause in a contract for the sale of a horse which promised the seller an additional £5 fee if the horse proved to be lucky?

a.# It would be enforced in the same way as any other clause.

b.# It would be held as illegal as a gaming contract.

c.# The entire contract would be held as unenforceable.

d.# The clause would probably be held unenforceable due to lack of certainty.

14. When a contract has been agreed on the basis of a fraudulent misrepresentation which of the following remedies are available?

a.# Damages only.

b.# An injunction only.

c.# Rescission only.

d.# Both damages and rescission.

15. In the case of misrepresentation, which of the following would NOT be actionable?

a.# An answer to a question which is designed to mislead the other party.

b.# The non-disclosure of material changes between the time of the agreement and the subsequent contract.

c.# A statement of opinion without fact.

d.# The non-disclosure of relevant facts in a contract of good faith.


16. How is economic duress evidenced in the agreement to a contract:

i) Evidence of a bad bargain.

ii) Illegitimate pressure.

iii) A false statement that has induced the other party into the contract.

iv) There was no other option for the claimant than to accept the contract.

a.# i and iii.

b.# ii and iii.

c.# All of the elements above.

d.# ii and iv.

17. To identify a misrepresentation there must be:

i) A statement of material fact (not opinion) that induces the other party into the contract;

ii) A representation that was false;

iii) The innocent party believed the statement to be true; and

iv) The representation induced the party into the contract.


b.# ii and iv.

c.# ii only.

d.# ii, iii and iv.

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Type: fill-in-blank

Title: Question 01

XX) A _________ contract is one where the injured party has the option to affirm the contract (he/she can continue with the agreement and bring about an enforceable contract) or he/she can avoid the contract (and the contract is terminated).

END OF QUESTION

Type: fill-in-blank

Title: Question 02

XX) The _______ is the party that establishes the terms of a contract by which he/she is willing to be bound.

END OF QUESTION

Type: fill-in-blank

Title: Question 03

XX) An _____ __ ______ is the term used when a party invites offers (essentially the party with the goods/services to trade invites offers which he/she is able to accept or decline).

END OF QUESTION

Type: fill-in-blank

Title: Question 04

XX) The case of _______ identified the ‘first/last shot approach’ to which contract will be the operational one where two businesses use standard form contracts.

END OF QUESTION

Type: fill-in-blank

Title: Question 05

XX) In face to face contractual negotiations, an effective acceptance of an offer must be ___________ to the other party.

END OF QUESTION


Type: fill-in-blank

Title: Question 06

XX) Felthouse v Bindley established the need for the offeree to positively communicate, and hence make an outward sign of, his/her __________ .

END OF QUESTION

Type: fill-in-blank

Title: Question 07

XX) When the postal rule of acceptance is valid, acceptance is considered effective when _____.

END OF QUESTION

Type: fill-in-blank

Title: Question 08

XX) Consideration must be __________ but need not be adequate.

END OF QUESTION

Type: fill-in-blank

Title: Question 09

XX) Where A gives B a lift to work in A’s car and at the end of the journey B expresses his thanks and states that he will give A £10 for her trouble, there is no enforceable contract to enforce the £10 payment if none is received. This is because the consideration provided is ____ and this is not, generally, ‘good’ consideration to enforce a promise.

END OF QUESTION

Type: fill-in-blank

Title: Question 10

XX) The case Hartley v Ponsonby demonstrated that where the promisee ______ an

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existing duty, this will be good consideration to enforce the promise.

END OF QUESTION

Type: fill-in-blank

Title: Question 11

XX) The rule that part-payment of a debt is not good consideration is subject to an equitable defence of________ ________ which prevents a party who has made a gratuitous promise from reneging.

END OF QUESTION

Type: fill-in-blank

Title: Question 12

XX) The doctrine ____ __ _______ establishes that only parties to a contract may sue or be sued on it.

END OF QUESTION

Type: fill-in-blank

Title: Question 13

XX) A breach of a _____________ will not enable a breach of contract claim, but may amount to a misrepresentation that makes the contract voidable.

END OF QUESTION

Type: fill-in-blank

Title: Question 14

XX) The general rule of contract is that _______ cannot amount to a misrepresentation, even if the disclosure of such information would in all probability dissuade the other party from contracting.

END OF QUESTION

Type: fill-in-blank

Title: Question 15


XX) A false statement that has been made knowingly or recklessly is an example of a __________ misrepresentation.

END OF QUESTION

Essay Question

‘At what point does a display in a shop window become an offer to sell rather than an invitation to treat? Compare and contrast the cases of Pharmaceutical Society of Great Britain v Boots Cash Chemists, Fisher v Bell and Leftkowitz v Great Minneapolis Surplus Stores.’


An offer is an agreement to a set of terms under which the offeror is willing to be bound. This offer is made to the offeree, who may be an individual, company, group of people or even the entire world (Carlill v Carbolic Smoke Ball Co.).

Only the offeree can accept on the contract and he/she must accept in the method expressed (if stipulated) by the offeror.

An invitation to treat is the term used when a party invites offers (essentially the positions of the parties are reversed whereby the party with the goods / services to trade invites offers which he/she is able to accept or decline). In this context, the word ‘treat’ means to negotiate, and hence it can be viewed as an invitation to negotiate for a good or service.

Cases that have established the general rule of where an invitation to treat exists did so in light of traders selling goods; advertisements; auctions; and negotiations. It should be noted that for businesses, it may be wise to sell goods under ‘invitation to treat’ rather than ‘offers’ as this provides the company with flexibility in its sales strategy.

Pharmaceutical Society of Great Britain v Boots Cash Chemists involved a self-service shop selling goods that had to be sold in the presence of a registered pharmacist. The Court of Appeal held that items in a shop with a price tag attached did not constitute an offer to sell, binding the shop keeper to sell to whoever entered the shop and selected an item. This is necessary to prevent a shop from displaying goods with an incorrect price tag on and then being compelled to proceed with the contract on the basis of an innocent mistake.

Fisher v Bell involved the display of a flick-knife (an ejector-knife) with a price tag attached. It was held that such an item could not establish an offer to sell but would be held as an invitation to treat.

Leftkowitz v Great Minneapolis Surplus Stores involved a company advertising a sale with specific details regarding the sale items, the restrcted number of items, the time of the sale and details of when it would end. It was held to be an offer to sell the items rather than an invitation to treat.

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Leftkowitz demonstrated an alternative view to the general rule of advertisements being an invitation to treat, and demonstrates the importance of the correct drafting, and the legal significance, of advertising materials. It was the level of detail in the advertisement that elevated this situation to constitute an offer rather than an invitation to treat. The more definite the detail and description of what is for sale and under what terms the sale will take place, the more likely the court will hold the advertisement as an offer.


Seminar Ten: Performing / Discharge of Contract: Chapter 5 & 6


1. Which of the following is NOT a method used by the courts to identify a term from a representation?

a.# The relative degrees of the parties' knowledge.

b.# The parties' non-expressed intentions as to the classification of the term.

c.# The party's reliance on the statement.

d.# The timing of the statement.

2. Terms are implied into contracts:

i) By the courts.

ii) By statue.

iii) By custom.

iv) With reference to the previous dealing's of the parties.

a.# ii only.

b.# i, ii, and iv.

c.# i, iii, and iv.

d.# All of the above.

3. A warranty can be classified as:

a.# A lesser term.

b.# A term that may only be identified following assessment of the consequences of a breach.

c.# The most important term in a contract.

d.# Not a term of a contract at all.

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4. Which of the following is NOT a valid method of including an exclusion clause into a contract?

a.# Incorporating it at the agreement stage of negotiations.

b.# Bringing the term to the other party's attention.

c.# Including the exclusion clause on the back of a receipt provided when purchasing food.

d.# Highlighting the term in red in a standard form contract.

5. Where the courts interpret an exclusion clause contra proferentem, what does this mean?

a.# The clause will not be applied if not fair to all parties.

b.# The clause is interpreted against the party who wishes to rely on it.

c.# The clause will not be applied where a statute prevents its application.

d.# The clause will only be given effect where a statute specifically allows for its application.

6. Which of the following is not a type of term?

a.# A warranty.

b.# A condition.

c.# An Innominate / Intermediate term.

d.# A representation.

7. In which of the following circumstances will sections 14(2) and 14(3) of the Sale of Goods Act imply terms into a contract?

a.# In all contracts.

b.# In contracts only where the parties specifically agree to the terms being implied.

c.# In all situations where consumers purchase goods from someone acting in the course of business.

d.# Only in cases involving sales between two consumers.

8. Under the Unfair Contract Terms Act, the reasonableness of an


exclusion clause is NOT assessed by:

a.# The strength of the bargaining position of the parties.

b.# Where the party has received an inducement to contract.

c.# The party's reasonable knowledge of the existence of the exclusion clause.

d.# Whether the term was a bad bargain for the party.

9. In which Statute is a 'consumer' defined for the purposes of the Sale of Goods Act.

a.# The Sale of Goods Act.

b.# The Sale and Supply of Goods Act.

c.# The Definition of Terms and Conditions in Consumer Sales Regulations.

d.# The Unfair Contract Terms Act.

10. In assessing the quality of goods as provided for in section 14(2) of the Sale of Goods Act 1979, which of the following is NOT a consideration?

a.# Appearance and finish.

b.# Whether the good cost over £100.

c.# Freedom from minor defects.

d.# Durability.

11. Where a consumer has obtained goods with a guarantee and wishes to exercise the rights contained, which of the following Acts affords him/her such a right?

a.# The Sale of Goods Act 1979.

b.# The Sale and Supply of Goods to Consumers Regulations 2002.

c.# The Supply of Goods and Services Act 1982.

d.# The Unfair Contract Terms Act 1977.

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12. Which of the following is NOT included in an assessment of damages:

a.# Remoteness of damage.

b.# Quantum.

c.# Mitigation.

d.# The sum identified in a penalty clauses.

13. Which of the following is NOT an equitable remedy?

a.# Damages.

b.# Specific performance.

c.# Injunctions.

d.# Rectification.

14. In the event that a party who had contracted to sell his/her home to the purchaser subsequently refuses to perform his/her side of the bargain, which of the following remedies would the courts most likely award?

a.# Damages.

b.# An injunction.

c.# Restitution.

d.# Specific Performance.

15. When will the courts make an order of frustration of contract:

i) When the contract becomes impossible to perform with no fault of either party;

ii) When the contract becomes radically different from that agreed by the parties with no fault of either party;

iii) When the contract becomes too expensive to be profitable;

iv) When the contract cannot be performed in the exact manner specified in the agreement.

a.# i and ii.

b.# i, ii and iii.



d.# i and iv.

16. Breach of which term would always entitle the innocent party to repudiate the contract?

a.# A warranty.

b.# A condition.

c.# An innominate term.

d.# An extraordinary term.

17. In relation to a contract that has not been completed, but has been substantially performed, the innocent party:

a.# Is required to pay the full contractual amount.

b.# Is required to pay the amount due, taking into account the shortcomings of the contract and deducting an amount accordingly.

c.# May refuse to pay any money owed until full completion has taken place.

d.# Must pay 50% of the contractual fee and nothing more, regardless of the amount of work completed.

18. In the absence of any specific agreement by the parties, where a contract has been frustrated, but before the frustrating event a valuable benefit (other than a payment of money) has been received by one of the parties, what right does the other party have?

a.# No rights, under frustration benefits and losses lie where they fall.

b.# To establish a new contract that includes the benefit.

c.# To claim for all of those benefits received by that party.

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d.# To share in those benefits.

19. When faced with a breach of contract, what action will the court expect the injured party to take?

a.# To wait until the full consequences of the breach are realised without taking action to prevent these, to enable the damages to mount up.

b.# To mitigate his/her losses.

c.# To take any measures possible to lessen the effects of the breach.

d.# To take out a new contract with another party, regardless of costs, to minimise any negative effect for the injured party.


Type: fill-in-blank

Title: Question 01

XX) ___________ is a doctrine developed by the courts in order to provide relief in circumstances whereby a contract could not be performed or had become radically different from that contemplated (and this was the fault of neither party).

END OF QUESTION

Type: fill-in-blank

Title: Question 02

XX) The case Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour is authority for the proposition that a contract which subsequently becomes ________ will be held to be frustrated.

END OF QUESTION

Type: fill-in-blank

Title: Question 03


XX) A breach of a __________ of the contract gives the injured party the option to both end (repudiate) the contract and claim to damages.

END OF QUESTION

Type: fill-in-blank

Title: Question 04

XX) Where __________ _______ occurs, the innocent party can accept this as a breach immediately and treat the contract as repudiated. Or he/she can wait for the time when performance was due, and when the contract is breached, then seek a remedy.

END OF QUESTION

Type: fill-in-blank

Title: Question 05

XX) In the event that a contract is not performed, or obligations under the contract are not fulfilled, the innocent party may be entitled to compensation. Under the common law, this is usually in the form of _________.

END OF QUESTION

Type: fill-in-blank

Title: Question 06

XX) A pre-assessment of damages in the event of a breach and included in the contract is called ___________ damages.

END OF QUESTION

Type: fill-in-blank

Title: Question 07

XX) In s. 61(1) of the Sale of Goods Act 1979 ______ are described as ‘all personal chattels other than things in action and money…’

END OF QUESTION

Type: fill-in-blank

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Title: Question 08

XX) For the purposes of identifying a ‘consumer’ applicable to the Sale of Goods Act 1979, section _______ of the Unfair Contract Terms Act 1977 provides the relevant definition.

END OF QUESTION

Type: fill-in-blank

Title: Question 09

XX) Section 14(2) of the Sale of Goods Act 1979 requires that goods are of _________ _________.

END OF QUESTION

Type: fill-in-blank

Title: Question 10

XX) A ________ is a lesser term of a contract, breach of which only allows for the recovery of damages.

END OF QUESTION

Type: fill-in-blank

Title: Question 11

XX) A _________ is an important term of the contract, often described as a term that goes to the ‘heart of the contract.’ A breach enables the injured party to claim damages and he/she has the option to bring the contract to an end.

END OF QUESTION

Type: fill-in-blank

Title: Question 12

XX) An _______ is a term of the contract whereby one party seeks to remove or restrict a liability or legal duty that would otherwise exist.

END OF QUESTION

Type: fill-in-blank


Title: Question 13

XX) For an exclusion clause to be incorporated into a contract, it must be included at the _________________ stage of formation.

END OF QUESTION

Type: fill-in-blank

Title: Question 14

XX) The courts have traditionally interpreted exclusion clauses _____ ___________, and thereby against the party wishing to rely on it.

END OF QUESTION

Essay Question

‘How have the statutory developments regulating the use of exclusion clauses altered and restricted their use? Compare how the cases pre-1977 would be decided in the courts today.’


The function of the Unfair Contract Terms Act (UCTA) 1977 is to ensure that certain terms that may be unfair (under this Act, namely exclusion clauses) are removed or held invalid by the courts.

UCTA 1977 also regulates the use of non-contractual notices attempting to restrict liability for negligence. Certain exclusion clauses will automatically be considered void under the Act (such as excluding liability for death or personal injury due to negligence) and those remaining have to satisfy the test of ‘reasonableness.’

UCTA 1977 provides protection when exclusion clauses are included in standard form contracts. These are typically used by businesses and the consumer is in a weak position in attempting to decline their use – it is often a ‘take it or leave it’ scenario.

If it is the case that the party deals as a consumer on the other party’s written standard terms, the other party cannot exclude or restrict any liability in respect of a breach of contract; or claim to be able to perform or fulfil a contract in a substantially different way than would reasonably be expected; or claim to be able to render no performance at all under his/her contractual obligations.

Therefore, s. 3 UCTA 1977 protects those who deal as consumers, and also who deal on the other party’s written standard terms.

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Reasonableness of the Exclusion Clause

UCTA 1977 contains provision for how the reasonableness or otherwise of an exclusion clause will be determined.

In the case of SAM Business Systems v Hedley and Co. a software supplier was entitled to rely on an exclusion clause that enabled it to supply an inadequate product, and this term was considered ‘reasonable.’ (Note that this case was between two businesses).

Schedule 2 outlines the tests that the courts will use in determining the reasonableness of an exclusion clause:

a) the strength of the bargaining positions of the parties relative to each other (the most important statutory consideration);

Where the parties are of equal bargaining strength, the courts are more likely to accept exclusion clauses than if the contract was between a consumer and a business (Watford Electronic Ltd v Sanderson CFL Ltd).

b) whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having to accept a similar term;

c) whether the customer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties - Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd);

d) where the term excludes or restricts any relevant liability if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would by practicable; and

e) whether the goods were manufactured, processed or adapted to the special order of the customer.

Smith v Eric S Bush: The Lords identified factors that would be used in determining the reasonableness of an exclusion clause:

1. Whether the parties were of equal bargaining power; 2. In situations involving advice, was it practicable (in costs and time) to obtain

alternative advice; 3. The level of complexity and difficulty in the task which was subject to the exclusion of

liability; and 4. Which of the parties was better able to bear any losses and should insurance have

been sought.

Cases Subject to Change


L'Estrange v Graucob – the small print excluded all implied terms (included those provided by statute). This was permitted as the woman signed the contract – such exclusion clauses would not be permitted under UCTA.

Thornton v Shoe Lane Parking Ltd – exclusion clause at a car park (sign inside sought to exclude liability for death and personal injury). The clause would have been effective had it been included at the entrance before the contract established. This is made void through UCTA s.2.

Chapelton v Barry UDC – exclusion of liability for personal injury would be prohibited under UCTA.

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Seminar Eleven: The Employment Contract: Chapter 7


1. Which test is used to most commonly (and effectively) identify employment status?

a.# The distinction provided in s. 230 of the Employment Rights Act 1996.

b.# The control test.

c.# The integration / organisation test.

d.# The mixed / economic reality test.

2. Which of the following features are the most indicative of an ‘employee’?

a.# The existence of control by the employer, mutuality of obligations, and that the worker is not in business on his/her own account.

b.# The worker has the right to participate in the management of the organisation.

c.# The worker has a financial risk in the venture.

d.# The worker has the right to supply a substitute and does not have to perform the work personally.

3. The common law test of establishing the status of employment of a worker through ‘integration’ in Stevenson, Jordan and Harrison v Macdonald and Evans was flawed because:

a.# The term ‘integration’ was not defined.

b.# Alternative common law tests were already established.

c.# Existing statutory definitions were adequate for establishing employment status.

d.# The case concerned negligence rather than an employment dispute.

4. According to Hall v Lorimer, how should tribunals approach the tests established through the common law when assessing a worker’s employment status?

a.# The tests should be applied strictly according to the instructions provided in the judgments.

b.# The tests are merely persuasive and do not establish precedents that have to be followed.


c.# The tests should not be proceeded through mechanically.

d.# The tests should be proceeded through mechanically.

5. The case of Montgomery v Johnson Underwood established which TWO tests necessary to establish employment status, before the tribunal proceeds to the remaining tests?

i) Control exercisable by the employer;

ii) The intentions of the parties;

iii) Mutuality of obligations;

iv) Any employment status identified in the contract of employment.

a.# i and ii.

b.# ii and iii.

c.# ii and iv.

d.# i and iii.

6. Which of the implied terms in a contract of employment is often considered the most important?

a.# The employee’s duty to cooperate with the employer.

b.# The employer’s duty to provide a safe system of work.

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c.# The duty of mutual trust and confidence.

d.# The employee’s duty of fidelity.

7. The written statement of particulars has to be provided to employees when?

a.# Within one year of the commencement of employment.

b.# At the discretion of the employer.

c.# Within two months of the commencement of employment.

d.# Not needed as it is included in the contract of employment.

8. Under the Equality Act 2010, ‘pay’ does not include which of the following?

a.# Wages.

b.# Sick pay.

c.# Pension contributions.

d.# Expenses.

9. When faced with a claim of equal pay, which of the following automatic defences is NOT available to the employer?

a.# The difference in pay is due to market forces.

b.# The difference in pay is due to the claimant and the comparator working in different geographical locations.

c.# The difference in pay is due to a collective agreement established after a transfer due to compulsory competitive tendering.

d.# The difference in pay is genuinely not due to the sex of the workers.

10. Which of the following are methods available to determine the pay received by a worker when considering conformity with the National Minimum Wage Act 1998:

i) Time Work;

ii) Salaried Work;

iii) Output Work;

iv) Unmeasured Work.


a.# i and ii.

b.# ii only.

c.# iii and iv.


11. When a woman claims under the Equality Act 2010 due to discrimination on the basis of her pregnancy, with whom should she be compared?

a.# Herself in a non-pregnant state / or a woman exercising, seeking to exercise or having exercised a maternity right.

b.# A man who is sick for a prolonged period of time.

c.# A man who is ill for a nine-month period.

d.# There is no claim as no comparator exists.

12. As provided for in the Employment Rights Act 1996, how many weeks of Ordinary Maternity Leave is a pregnant employee entitled to?

a.# 4 weeks.

b.# 26 weeks.

c.# 32 weeks.

d.# 50 weeks.

13. Under the Working Time Regulations 1998, what is the maximum working week of an adult (calculated, typically, over a seventeen week period)?

a.# 35 hours.

b.# 40 hours.

c.# 48 hours.

d.# 56 hours.

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14. When the courts protect an employer through enforcement of a restraint of trade clause, which of the following would NOT be considered applicable for protection?

a.# Common knowledge and or skills obtained through the employment relationship.

b.# The employer’s client and employee contact details.

c.# Trade secrets.

d.# Confidential information.


Type: fill-in-blank

Title: Question 01

XX) Beyond the statutory definition, the ______ ___ identifies the tests used to establish the employment status of workers.

END OF QUESTION

Type: fill-in-blank

Title: Question 02

XX) The original common law test used to establish employment status, which was based on the master/servant distinction, was the _______ test.

END OF QUESTION

Type: fill-in-blank

Title: Question 03

XX) The common law test of …………..was developed in the case Stevenson, Jordan and Harrison v Macdonald and Evans.

END OF QUESTION

Type: fill-in-blank

Title: Question 04

XX) Section 1 of the Employment Rights Act 1996 obliges an employer to provide an employee with ______ ________ of employment within two months of starting work.

END OF QUESTION


Type: fill-in-blank

Title: Question 05

XX) The implied term of ________ identifies that an employee must not work in competition with the principal employer and he/she must give to the employer his/her faithfulness.

END OF QUESTION

Type: fill-in-blank

Title: Question 06

XX) Insofar as the employer provides the employee with pay, and with exception of certain professions (such as in the entertainment / medicine industries), the employer is not under an implied term to provide an employee with ____.

END OF QUESTION

Type: fill-in-blank

Title: Question 07

XX) One of the most significant implied terms imposed on both employers and employees is to maintain mutual _______ ___ _______.

END OF QUESTION

Type: fill-in-blank

Title: Question 08

XX) In establishing the national minimum wage rate, the government takes recommendations from the ___ ___ Commission.

END OF QUESTION

Essay Question

‘Through the last one hundred years, legislative and common law initiatives have failed to establish a single definitive test to establish the employment status of workers.’

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Critically assess the above statement and identify reforms in the law that you deem expedient.


Employees are provided with greater access to employment rights than independent contractors – such as unfair dismissal, redundancy, various maternity rights and so on. They are also subject to implied terms that independent contractors are not and the employer has obligations (including vicarious liability and compulsory insurance) that are not imposed (in most circumstances) when independent contractors are employed.

Being the highest form of law, the most obvious place to search in establishing how to identify a worker’s employment status is statute.

The Employment Rights Act 1996 contains many of the laws relating to employment and under s. 230(1) an employee is classed as ‘an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment.’ The term ‘a contract of employment’ is defined under s. 230(2), which reads ‘In this Act "contract of employment" means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing.’

Ultimately, the legislation is unhelpful and very broad and requires reference to case law to extract the determining factors of employment status. As a consequence, the common law tests have evolved from ‘control’ and ‘integration;’ to the modern ‘mixed’ test.

It is important to recognise before the tests are discussed that no one test is conclusive and the courts and tribunals make the decision of the employment status based on mixed law and fact – the employment laws established from statute and the courts (through precedent) and the individual facts of the case.

The Control Test

This initial test of employment status occurred through the master and servant distinction where the master held control over the servant who was subservient to him/her.

In Yewens v Noakes where Bramwell LJ stated ‘A servant (employee) is a person subject to the command of his master (employer) as to the manner in which he shall do his work.’ This degree of control was easily seen in employment relationships where the employer exercised complete control over the actions of the worker. However, soon after the test had been established the nature of the control in employment relationships began to change.

The Right to Control

The control test evolved in a later case involving a professional football player, and how the law could deal with a skilled worker whose job involved a high degree of independence in completing the tasks set by the employer (Walker v Crystal Palace Football Club).

Control was a useful test when it was first established. However, with modern working practices this was of limited usefulness when applied in isolation. Workers increasingly are skilled and are employed away from the direct control of the employer.

Contracts of employment are considered to be contracts of personal service. This means that an employee has to perform the work his/herself and if the worker has the ability to sub-contract the work, or if he/she can provide a substitute, then he/she will be more likely to be considered an independent contractor (Express and Echo v Tanton [1999]).

In James v Redcats the Employment Appeal Tribunal remarked on worker status, the essential question is ‘… whether the obligation for personal service is the dominant feature of the contractual relationship or not. If it is, then the contract lies in the employment field…’


Therefore, with the limitation of the control test, greater detail and consideration of the employment relationship in each case had to be included. This led to the integration / organisation test.

The Integration / Organisation Test

In Stevenson, Jordan and Harrison v Macdonald and Evans Denning LJ considered that ‘One feature which seems to run through the instances is that, under a contract of service a man is employed as part of the business and his work is done as an integral part of the business; whereas, under a contract for services, his work, although done for the business, is not integrated into it but only accessory to it.’

This definition uses common sense and its logic will be obvious to all, but it is unfortunate that Denning did not define the word ‘integrated’ to assist in identifying where the demarcation between employee and independent contractor lay.

Hence the test was sensible but could not be used in future cases. This led to the development of the mixed / economic reality test.

The Mixed / Economic Reality Test

1

A very important case in the development of the law in this area was Ready Mixed Concrete that established three questions that a tribunal should seek to answer in reaching its conclusion:

(i) The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master;

(ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other's control in a sufficient degree to make that other master;

(iii) The other provisions of the contract are consistent with its being a contract of service.

Further, essential, factors to consider and be addressed in establishing employment status were developed in Market Investigations Ltd v Minister of Social Security. A fundamental element in identifying an employee is mutuality of obligations. This question must be added to the three questions developed in Ready Mixed Concrete.

However, it is essential to note that in Hall v Lorimer the court stated that the tests developed in the case law should not be proceeded through mechanically. The tribunals should have the discretion to come to their own conclusions, and attach whatever weight they wish to the factors present.

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However, these tests should be used as they provide an effective indication as to the direction the tribunals will take. Also, independent contractors are considered to be in business on their own account. Per Cooke J in Market Investigations stated: ‘The fundamental test to be applied is this: “Is the person who has engaged himself to perform these services performing them as a person in business on his own account?” If the answer to that question is “yes,” then the contract is a contract for services. If the answer is “no,” then the contract is a contract of service.’

Whether someone is in business on his/her own account may be evidenced through the questions raised in Lee Ting Sang v Chung Chi-Keung such as:

(i) whether the man performing the services provides his own equipment; (ii) whether he hires his own helpers; (iii) what degree of financial risk he takes; (iv) what degree of responsibility for investment and management he has; and (v) whether and how far he has an opportunity of profiting from sound management in the performance of his task.

The cases identified in the mixed test section provide a list of questions that can be used in assessing employment status. A last case must be addressed as the leading authority in this area. Montgomery v Johnson Underwoood established two clear factors which the courts / tribunals will take into consideration – control and mutuality of obligations. There must be an element of control, and mutuality of obligations for the case establishing a worker as an employee to proceed. If these two questions are answered in the affirmative, then the tribunal should continue to the Ready Mixed Concrete questions, if not, the claim fails at this stage!

Parliament has left the statutory definition deliberately broad to allow the tribunals to alter the tests in light of changes in working. The evolution of the common law tests have demonstrated the need for flexibility in defining employment status, and if Parliament had been overly prescriptive in defining who would be held an employee, it would have given scope to the employers to ensure they could avoid the employment protections that are afforded employees.

Employment status is based on mixed fact and law – hence statute law may not be the best way in defining the status.

Parliament may also find defining employment status that could be applied to all forms of employment very difficult. Some workers are heavily regulated and controlled in their work, whilst others are provided with a great deal of autonomy despite still being employees.


Seminar Twelve: Employment Protection: 8


1. Which of the following would establish a dismissal under the common law?

a.# The frustration of the contract.

b.# A resignation freely offered in response to the worker being offered alternative employment.

c.# A resignation made due to the threat of a dismissal.

d.# The death of the employer.

2. Which of the following situations would NOT enable the employer to summarily dismiss the worker?

a.# Performing an act of gross negligence.

b.# Taking bribes in the awarding of company contracts.

c.# Refusal to falsify company accounts.

d.# Unauthorised removal of company property for personal use.

3. Which of the following qualifications is required to enable a claim under wrongful dismissal?

a.# Employee status.

b.# The claimant to have completed one year’s continuous employment only.

c.# A claim within three months of the effective date of termination only.

d.# A fundamental breach of the contract by the employer.

4. For the purposes of a claim through redundancy, in which of the following circumstances will a dismissal have been deemed to take place?

a.# The employer has ceased to continue to carry on the type of work that was previously undertaken by the employee.

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b.# The employer has offered the employee faced with redundancy a suitable offer to renew their contract or of re-engagement.

c.# An associated employer has made a suitable offer of employment.

d.# The employee’s contract has been transferred to another employer under the TUPE 2006 Regulations.

5. Which of the following would NOT constitute an automatically unfair selection for redundancy?

a.# Due to an agreement between the employer and the employees’ representatives (such as ‘last in first out’ in a section of the workforce where everyone performs the same job).

b.# Due to membership or non-membership of a trade union, or activities connected with the membership.

c.# Due to pregnancy or childbirth, or if the employee has asserted statutory rights or made complaints under health and safety legislation.

d.# Due to unreasonable selection on the basis of a discriminatory policy.

6. Where an employer has offered an employee (who is subject to redundancy) alternative employment, this is considered a trial engagement to assess its suitability for the employee for how long?

a.# One week.

b.# Four weeks.

c.# Four months.

d.# Eight weeks.

7. The Transfer of Undertakings (Protection of Employment) Regulations 2006 consider a ‘relevant transfer’ to include:

i) The transfer of the business between the current owner (the transferor) and the new owner (the transferee).

ii) Contracting-out / out-sourcing (such as where a service previously undertaken by the client is awarded to a new contractor).

iii) Re-tendering (such as where a contract for a service is awarded to a new contractor).

iv) Contracting-in / In-sourcing (such as where a contract with the previous contractor is performed ‘in-house’).


a.# i only.

b.# i and iv.

c.# i, ii and iii.


8. Which of the following is a potentially fair reason to dismiss an employee when the dismissal is connected with a transfer covered by TUPE 2006?

a.# An economic, technical or organisational reason.

b.# Due to the sex of the employee.

c.# Due to the employee’s race.

d.# As the employee has a disability that would make the business more difficult to operate with him/her employed.

9. An employer is obliged to carry Employers’ Liability Insurance in respect of which category(s) of worker:

i) Employes;

ii) Independent contractors;

iii) Self-employed traders;

iv) Agency workers employed on a casual basis.


b.# i only.

c.# i, ii and iii.

d.# i, and iv.

10. In relation to the Working Time Regulations, adult workers are

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entitled to how much rest in each 24-hour period?

a.# 8 hours.

b.# 10 hours.

c.# 11 hours.

d.# 18 hours.

11. Under the Health and Safety at Work Act 1974, an employer has a responsibility for the health and safety of which category of worker?

a.# Employees and non-employees (such as independent contractors).

b.# Employees only.

c.# Non-employees only.

d.# Only employees with a minimum one years’ continuous service.

12. Which of the following is NOT a necessary criterion to qualify for the right to claim unfair dismissal.

a.# The status of ‘employee.’

b.# There was a dismissal (that is unfair).

c.# The claim was lodged at an Employment Tribunal within three months of the effective date of termination.

d.# The claimant is under the normal retirement age.

13. The automatically unfair reasons to dismiss an employee include:

i) Dismissal due to a spent conviction.

ii) Dismissal due to a transfer of the undertaking protected under TUPE 2006.

iii) Dismissal due to the worker’s capability.

iv) Dismissal due to the worker being pregnant.


b.# iii only.

c.# i, ii and iii.


d.# i, ii and iv.

14. Which of the following is NOT a potentially fair reason to dismiss as identified in the Employment Rights Act 1996.

a.# Redundancy.

b.# Some other substantial reason.

c.# Trade union activities.

d.# Conduct.

15. The remedies available for a tribunal to award in successful cases of unfair dismissal include:

i) Compensation.

ii) Reinstatement.

iii) Re-engagement.

iv) Specific performance.

a.# i, ii and iii.

b.# i, ii and iv.

c.# ii, iii and iv.


16. Which of the following is NOT a component in establishing the compensation remedy for unfair dismissal.

a.# The basic award.

b.# The compensatory award.

c.# The distress award.

d.# The additional award.

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17. There exist several exceptions to a claim of direct sex discrimination. Which of the following would NOT amount to an exception?

a.# Where the job requires privacy (for example a man / woman for a same-sex changing room).

b.# Where the nature of the job is dangerous and women are not hired to prevent their exposure to the risk of harm.

c.# Where the employment requires business to be conducted outside of the UK where, for example, a woman could not negotiate or perform the job.

d.# Where the essential nature of the employment necessitates the employment of a man / woman (such as the lead performance in a play).

18. Where a person treats a woman, on the ground of her sex, less favourably (or unfavourably) than he/she treats or would treat a man, this is an example of?

a.# Harassment.

b.# Victimisation.

c.# Indirect discrimination.

d.# Direct discrimination.

19. Following a successful claim of discrimination, which of the listed remedies may NOT be awarded by a tribunal?

a.# To declare the rights of the complainant.

b.# An award of damages.

c.# An order for specific performance.

d.# A recommendation for the discrimination to be brought to an end.


Type: fill-in-blank

Title: Question 01

XX) The Equality Act 2010 provides that age, disability, sex and sexual orientation are examples of _________ characteristics.


END OF QUESTION

Type: fill-in-blank

Title: Question 02

XX) Indirect discrimination, harassment and victimization are examples of __________ conduct in the Equality Act 2010.

END OF QUESTION

Type: fill-in-blank

Title: Question 03

XX) The Equality Act 2010 identifies the prohibited conduct of ______ __________ as where a person treats another less favourably because of their protected characteristic than he/she would of a person without the characteristic.

END OF QUESTION

Type: fill-in-blank

Title: Question 04

XX) The health and safety of employees is a ____________ duty on the employer which means the employer cannot remove / transfer his/her duty.

END OF QUESTION

Type: fill-in-blank

Title: Question 05

XX) Under an employers duty to provide workers with a safe system of work, he/she must ensure systems are in place to allow tasks to be conducted without any ____________ risk of injury or illness attributable to carrying out this function.

END OF QUESTION

Type: fill-in-blank

Title: Question 06

XX) The main legislative provision covering health and safety in the workplace is the

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______ ___ ________ ___ ______ Act 1974.

END OF QUESTION

Type: fill-in-blank

Title: Question 07

XX) The Health and Safety at Work Act etc. 1974 obliges employers to conduct their undertaking in such a way as to ensure that employees and ______________ who may be affected by their actions, are not exposed to risk of their health and safety.

END OF QUESTION

Type: fill-in-blank

Title: Question 08

XX) A RESTRAINT OF TRADE________ ___ _______ clause may be used by an employer to prevent a (former) employee from working in competition with him/her for a period of time, or to prevent the employee from using confidential information gained from the employment.

END OF QUESTION

Type: fill-in-blank

Title: Question 09

XX) ________ awards following a successful wrongful dismissal claim aim to place the dismissed worker in the position he/she would have been had the contract not been breached.

END OF QUESTION

Type: fill-in-blank

Title: Question 10

XX) Where the contract does not provide details, the Employment Rights Act 1996 s. 86 provides that where an employee has been engaged for a period of between one month and two years continuously for the same employer, he/she is entitled to ___ week’s notice.

END OF QUESTION

Type: fill-in-blank

Title: Question 11

XX) A worker wrongfully dismissed has a duty of _________ to (reasonably) attempt


to reduce the damage / losses sustained as a result of the breach.

END OF QUESTION

Type: fill-in-blank

Title: Question 12

XX) A claim of wrongful dismissal must be made within___ years following the termination of the contract.

END OF QUESTION

Type: fill-in-blank

Title: Question 13

XX) As a potentially fair reason to dismiss, _________ involves two broad scenarios. The employer may be closing the business and hence there is no work for the employee to do; or the employee may be surplus to the employer’s requirements following, for example, a reorganization or refocus to the business.

END OF QUESTION

Type: fill-in-blank

Title: Question 14

XX) Where an employee is selected for redundancy because of his/her membership (or non-membership) of a trade union, this is an example of an _________ unfair selection.

END OF QUESTION

Type: fill-in-blank

Title: Question 15

XX) Only individuals with the employment status of _________ may bring a claim of unfair dismissal.

END OF QUESTION

Type: fill-in-blank

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Title: Question 16

XX) Dismissals due to the pregnancy of the worker, a spent conviction under the Rehabilitation of Offenders Act 1974, or trade union membership or activities are examples of __________ unfair reasons to dismiss.

END OF QUESTION

Type: fill-in-blank

Title: Question 17

XX) The Employment Relations Act 1999 ss. 10-13 provide a worker with the right to be accompanied by a _________ or trades union official at a meeting which may result in his/her discipline and/or dismissal.

END OF QUESTION

Essay Question

‘The potentially fair reasons to dismiss under the Employment Rights Act 1996 are far too broad and enable an employer to dismiss an employee very easily. They should be narrowed and the test of reasonableness of an employer’s action made more robust if the legislation is to have any impact on the abusive exercise of managerial prerogative.

Discuss.’


Having established that the employee qualifies for protection under the Act, s. 98 ERA 1996 outlines the reasons in which it may be acceptable, if reasonable on the facts, for the employer to dismiss the employee. The employer may explain the decision for dismissal as being potentially fair if the reason or, on the basis of there being more than one reason, the principal reason is due to:

The capability or qualifications of the employee (s. 98(2)(a)). The conduct of the employee (s. 98(2)(b)). That the employee was made redundant (s. 98(2)(c)). That to continue the employment would amount to a contravention of a statute (s.

98(2)(d)). Some other substantial reason of a kind to justify dismissal (s. 98(1)(b)). (Following enactment of the Employment Equality (Age) Regulations 2006) retirement

is a potentially fair reason to dismiss.

The employer may select as many of the reasons under s. 98 as he/she wishes, however, the more that are chosen, the more evidence that will have to be provided to ensure the dismissal is fair. In Smith v City of Glasgow Council, the employer offered three reasons for the employee’s dismissal due to incapability, but as one of them could not be proven, the House of Lords held


that the employee was unfairly dismissed. It was not possible for the court to distinguish if this reason was any less or more serious than the other two submitted.

Capability / Qualifications

The ERA 1996 identifies that the issue of capability should have regard to ‘skill, aptitude health or any other physical or mental quality’ (s. 98(3)), and qualifications are ‘… any degree, diploma or other academic, technical or professional qualification relevant to the position held.’

It is necessary to look to the contract of employment and to what tasks the employee actually performed at work, and then consider the general standard of performance required, whether that standard was being met, and if not, how were similar employees treated.

This reason for dismissal generally focuses on whether the employee becomes ill and cannot perform his/her tasks, or if the employee is incompetent (Alidair v Taylor [1978]) (or ‘becomes’ incompetent - perhaps by being promoted to a management position and not having the skills to perform the job adequately).

Conduct

Here the issue is the misconduct of the employee and it can pose many problems for an employer in determining the facts surrounding the incident, and deciding how to react to it.

Typical examples of misconduct include fighting, stealing, misuse of company property (examples of gross misconduct), and poor timekeeping, unauthorised absences from work, or general disregard for instructions given fairly and lawfully by the employer (misconduct).

Gross misconduct generally refers to a one-off serious offence that may of itself justify a dismissal, whereas as misconduct may be a ‘lesser’ offence when considered in isolation, but when this culminates over a period of time it becomes sufficiently serious to (potentially) justify a termination of the contract.

Under the common law, a gross misconduct entitles a summary dismissal, but under the statutory route, the investigation should be followed, the procedures applied, and then the decision reached.

Cases have demonstrated how an employer may dismiss an employee merely on suspicion of a misconduct such as theft (Monie v Coral Racing Ltd and British Home Stores v Burchell). Hence, actual proof of an offence is required – if the employer can demonstrate a reasonable suspicion, that will prove sufficient.

There may also exist situations where a group of employees may be considered to have been involved in misconduct. In cases where it is reasonable for the employer to assume that all or one of them were involved, yet following an investigation identification of the actual perpetrator(s) cannot be achieved, all of the group may be dismissed. See Parr v Whitbread).

Note that potential problems may exist where an employer cannot identify which of the employees has committed an offence, but decides to dismiss members of the group selectively. When one or more of the employees in the group are retained or re-hired despite the investigation not identifying the employee(s) responsible, there must exist solid and sensible grounds for the retention or re-hiring of certain members.

Redundancy

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Redundancy is included in s. 98 as another form of dismissal. It enables a claim under unfair dismissal legislation where the employee considers that he/she has been unfairly selected for redundancy; where no warning or consultation had taken place; or where redeployment had not been considered. Unfair selection may occur where one or more employees have been selected for redundancy in breach of a customary or agreed procedure (for example an agreement between an employer and trade union to use a selection process such as ‘last in, first out’; voluntary agreements and so on); or if the employee was selected in connection with trade union membership.

Contravention of a Statute

A further potentially fair reason to dismiss is where to continue to employ the employee would be to break the law. In such a situation, the contract could be frustrated due to a subsequent law (such as the enactment of legislation prohibiting the employment of foreign nationals) or a change in the employee’s situation that makes continued employment in the same capacity contrary to legislation (Four Seasons Healthcare Ltd v Maughan [2005]).

Some Other Substantial Reason

In the absence of a reason fitting into one of the previous categories, s. 98 provides for ‘some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which the employee held’ (SOSR) to be forwarded as a reason for the dismissal.

There has been a very wide interpretation of the concept of what would amount to SOSR. In the past tribunals have held that an employee whose spouse was an employee of one of the employer’s competitors permitted a dismissal; a homosexual man was dismissed from his job at a residential holiday camp due to a potentially negative reaction from parents on discovering his sexuality (Saunders v Scottish National Camps Association [1980]); and an employee’s refusal to agree to the inclusion of a restraint of trade clause in his employment contract was deemed SOSR (RS Components v Irwin [1973]). In Scott v Richardson the EAT held that the tribunal did not have to be satisfied that the commercial decision of the employer was sound, but rather the test was whether the employer believed it to be so.

SOSR may also amount to a situation where an employee is dismissed because his/her attitude at work is sufficiently unpleasant and disruptive that it breaches the implied duty of trust and confidence (Perkin v St George’s Healthcare NHS Trust [2005]).

As can be seen, there are many reasons that an employer can use to dismiss an employee. They do not appear particularly onerous and often the employer’s motives for the decision or the requirement to justify the decision on the basis of the best interests of the firm are not necessary.

Particularly in light of SOSR, an employer may dismiss an employee for some very strange reasons. There is scope for abuse of these reasons and the statute actually assists the employer by specifically providing guidelines on what will be considered potentially fair or not. As such it may be considered that the legislation does not protect the employee, and allows for the exercise of managerial prerogative. However, it may also be the case that the employer should not have to employ anyone against his/her wishes, and therefore the reasons should be as relaxed as they currently are to enable the employer to exercise his/her prerogative.


Seminar Thirteen: Organisations and Corporate Personality: Chapter 9


1. Which of the following is NOT an example of a business organisation?

a.# A sole trader.

b.# An employee.

c.# A limited company.

d.# A limited liability partnership.

2. Which of the following are types of partner:

i) A ‘typical’ partner under the Partnership Act 1890.

ii) A silent partner.

iii) A salaried partner.

iv) A partner by estoppel.


b.# i only.

c.# ii, iii and iv.

d.# ii and iii.

3. Which of the following is NOT a duty imposed on partners?

a.# Disclosure of full information.

b.# To account for benefits received.

c.# Good faith.

d.# Fidelity (where the partner enters a partnership in another, unrelated, industry).

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4. Which of the following is NOT a feature of a simple partnership?

a.# Unlimited liability of the partners.

b.# Joint and several liability.

c.# The right to participate in the management of the firm.

d.# Partnerships may only involve up to 20 persons.

5. Under the Partnership Act 1890, which of the following events may lead to a partnership being brought to an end:

i) When a partner suffers some permanent form of incapacity.

ii) Where a partner wilfully or persistently breaches the partnership agreement.

iii) Where it is just and equitable to end the partnership.

iv) Where a partner enters into competition with the partnership (with the other partners’ consent).


b.# i, ii and iii.

c.# ii, iii and iv.

d.# iii and iv.

6. Which of the following is NOT a feature of a limited company?

a.# The immunity from criminal prosecutions of the directors of a company.

b.# The limited liability of the shareholders.

c.# The perpetual succession of the business.

d.# The separate legal personality of the company.

7. A limited company may be established by three methods. Which is NOT one of these methods?

a.# By Royal charter.

b.# By statute.

c.# By contractual agreement of the members.

d.# By registration.


8. In relation to a private limited company and a public limited company, which of the following are correct:

i) Only one shareholder is necessary and no secretary is required for a private limited company.

ii) The public limited company must have an allotted share capital of £50,000.

iii) The public limited company must hold an Annual General Meeting each calendar year.

iv) Only the private limited company may offer its shares to the public.

a.# i and iii.

b.# i, ii and iii.

c.# ii and iii.


9. One of the following features is NOT indicative of a ‘small’ company as provided for in the Companies Act 2006 (as amended)?

a.# The company is registered as a public limited company.

b.# The company has a turnover of not more than £6.5 million.

c.# The company has not more than 50 employees.

d.# The company has a balance sheet of not more than £3.26 million.

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10. In relation to the ‘veil of incorporation’ that is a feature of a limited company’s separate legal personality, in which of the following circumstances will a court NOT lift the veil to identify the true nature of the relationship:

i) Where the company has been established to commit a fraud.

ii) Where the company has been established to circumvent contractual agreements.

iii) In the interests of justice.

iv) Where two separate legal entities are run as one economic undertaking.

a.# ii and iv.

b.# ii, iii and iv.


d.# iii and iv.

11. Which ONE of the following statements in relation to partnership law is incorrect?

a.# In England, a partnership has no existence separate from the partners.

b.# Each partner can bind the firm in contract if acting in the ordinary course of business.

c.# Partners are not liable for debts contracted before they became partners.

d.# To be binding, a partnership agreement must be in writing.


Type: fill-in-blank

Title: Question 01

XX) The word ‘limited’ in terms of a limited liability company refers to the limited liability of ___________ for the debts of the company.


END OF QUESTION

Type: fill-in-blank

Title: Question 02

XX) Separate legal personality affords a distinction between the corporation as an entity and its directors and shareholders. This separation identifies a cloak of secrecy/shield of the people behind it and is often referred to as the ____ of incorporation.

END OF QUESTION

Type: fill-in-blank

Title: Question 03

XX) A partnership may also trade as a limited partnership under the Limited Partnerships Act 1907. Since 2000, a firm can be established as a _______ _______ Partnership

END OF QUESTION

Type: fill-in-blank

Title: Question 04

XX) Where the partner allows his/her name to be used by the partnership, such as on the letterhead of the firm to add to its credibility with outside bodies, the partner may be a partner by ________

END OF QUESTION

Type: fill-in-blank

Title: Question 05

XX) A significant feature of the business organization of partnerships is that if one partner commits a tort or crime in the course of the business, the partnership will be liable (including each partner) if this was within the offending partner’s actual or apparent authority. This results in the partners being held responsible for any losses incurred whilst they are partners. This is known as the ______ ___ _____

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liability of the partners.

END OF QUESTION

Type: fill-in-blank

Title: Question 06

XX) A Limited Liability Partnership continues despite changes to its internal membership and will only come to an end when formally _______ __

END OF QUESTION

Type: fill-in-blank

Title: Question 07

XX) One of the drawbacks with trading as a sole trader is that when the sole trader dies, the business may die with him/her. With a partnership of two people, where one dies another partner has to be found or the firm wound up or run as a sole trader/registered as a corporation. The advantage to the limited company is that once established, it will remain in existence until it is legally wound up, regardless of who owns or runs the company. This is known as the ________ __________ of a corporation.

END OF QUESTION

Essay Question

'Salomon v Salomon was wrongly decided. Its implications have allowed corporations to defraud innocent customers and suppliers, and it has facilitated the creation of sham companies with the protection afforded by the veil of incorporation. Corporations should not possess a legal personality distinct from those who subscribe to it'

Critically assess the above statement.


• The question is asking for a critique of the ruling in Salomon and the implications of a company possessing a legal personality separate from the owners and shareholders.

• The effects of a company possessing its own legal personality is that it may enter into contracts, sue and be sued, and commit offences (e.g. corporate manslaughter).

• The facts of Salomon should be discussed as should its authority – i.e. When correctly formed and registered (therefore in accordance with the statutory requirements) a company possesses its own legal personality. This is legally recognized and is separate from the members / directors of the company.

• This case established the importance of the limited company, limiting the liability of the members of the company to the shares/money owed to the company. Whilst it may have appeared unfair, the


company was correctly registered, and the creditors had been informed of the new status and hence the potential implications for trading with a limited company.

• You may wish to raise wider implications of the ruling such as the veil of incorporation separating the company from its shareholders.

• Separate legal personality affords a distinction between the corporation as an entity and its directors and shareholders.

• The single biggest feature of the Salomon judgment was of the shareholders’ limited liability.

• The metaphor of the ‘veil’ identifies a cloak of secrecy / shield of the people behind it – the members of the company are protected from liability for the company’s debts.

• Further, it transpires that due to the company’s separate legal personality, the courts have often been unwilling to ‘lift the veil’ and find out what the directors actually did in running the business (what decisions were taken, and by whom and so on).

• Due to this demarcation, it has been said that the veil of incorporation protects the members of the company.

• Whilst the veil is effective, to continue the metaphor, it has been ‘raised’ by the courts where it has been deemed relevant. The courts have been notoriously unwilling to establish clear rules as to when the veil will be lifted, and they have stated that they will not do so ‘merely’ in the interests of justice. Further, where one company owns shares in another (subsidiary companies), insofar as the companies are legally distinct then the courts will not seek to lift the veil (Adams v Cape Industries Plc).

• However, the company must not be established to commit some fraud (Jones v Lipman) or to attempt to circumvent contractual agreements or the veil will be lifted to identify the true nature of the undertaking (for example a ‘sham’ company - Gilford Motor Co. Ltd v Horne).

• You may wish to explain the problems arising from separate legal personality when the company goes into liquidation and the creditors attempt to recover monies. The shareholders’ liability is limited to their investment, and the directors may have established some creditors as secured, whilst other are unsecured with very little scope of recovering money owed. This can have disastrous financial consequences (particularly for smaller companies).

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Seminar Fourteen: Company Formation / Constitution: Chapters 10 & 11


1. Which ONE of the following statements is incorrect?

a.# The Articles of Association form a contract between the shareholders and the board.

b.# The Articles of Association form a contract between the shareholders and the company.

c.# The Articles of Association form a contract between each shareholder and the other shareholders.

d.# The Articles of Association are only contractual in respect of ordinary membership rights.

2. A business has been registered under the name "The Mark Jones Partnership Co Ltd". What type of business organisation must this be?

a.# A partnership.

b.# A private limited company.

c.# A public limited company.

d.# Any of the above as this is a business name.

3. Which of the following is correct?

(i) Purchasing a “shelf company” enables business to commence more quickly.

(ii) It is generally cheaper to purchase a “shelf company” than to arrange for a solicitor or accountant to register a new company.

(iii) Incorporating a company by registration enables the company’s documents to be drafted to the particular needs of the incorporators.

a.# (i) and (ii) only.

b.# (ii) and (iii) only.

c.# (i) and (iii) only.

d.# (i), (ii) and (iii).

4. Which of the following are INCORRECT?

(i) The first directors are appointed by a resolution of the members at the company’s first Annual General Meeting.

(ii) A director is a person who occupies the position of director by whatever name he or she is called.


(iii) A shadow director is a person in accordance with whose directions or instructions the directors of the company are accustomed to act.

a.# (i) only.

b.# (i) and (ii) only.

c.# (ii) and (iii) only.

d.# (i), (ii) and (iii).

Essay Question

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Seminar Fifteen: PRACTICE EXAM 2





Seminar Sixteen: Meetings and Resolutions: Chapters 11 & 12


1. Where a meeting has been properly requested, s. 304 Companies Act 2006 requires the directors of the company to call a meeting within how many days from the date on which he/she became subject to the requirement?

a.# 21 days.

b.# 15 days.

c.# 28 days.

d.# 14 days.

2. In relation to general meetings of a public company (other than an Annual General Meeting), how many days’ minimum notice are required to be provided to members under the Companies Act 2006, s. 306?

a.# At least one calendar month.

b.# 21 days.

c.# 28 days.

d.# 14 days.

3. The quorum required at a meeting to allow resolutions to be effectively moved, for a company limited by shares and with more than one member, is?

a.# One, majority, shareholder.

b.# Not less than 50% of the members.

c.# Not less than 20% of the members.

d.# Two qualifying persons.

4. A special resolution is required to be moved at a meeting in order to achieve which of the following?

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i) To alter the company’s articles.

ii) To re-register the company.

iii) To reduce the company’s share capital.

iv) To alter the company’s name.


b.# i and ii.

c.# ii and iii.

d.# i and iv.

5. To pass an ordinary resolution, what is the necessary percentage of the votes in favour?

a.# Over 25%.

b.# Over 75%.

c.# Over 50%.

d.# Over 85%.

6. The records of resolutions of members moved otherwise than at general meetings must be held for a minimum period of how long?

a.# One year from the date of the resolution.

b.# Ten years from the date of the resolution.

c.# Six years from the date of the resolution.

d.# Until the company is formally wound-up.

7. The Insolvency Act 1986 s. 122 provides for grounds where an order for the compulsory liquidation of a company may be made. Which of the following is NOT included in that section?

a.# The company has by special resolution resolved that the company be wound up by the court

b.# A public company, registered as such, has not been issued with a trading certificate and more than one year has expired since it was so registered

c.# It is the opinion of the court that it is just and equitable that the company should be wound up

d.# The number of members of the company is reduced below 10.


8. The purpose of a liquidator appointed to a company is NOT to take which of the following actions?

a.# Wind-up the company.

b.# Attempt to save the company as a going concern where possible.

c.# Dispose of the company’s assets in the best interests of the creditors.

d.# Formally remove the company’s registration at Companies House.


Type: fill-in-blank

Title: Question 01

XX) There are two types of meeting which a company may call. An annual general meeting and a ________ meeting.

END OF QUESTION

Type: fill-in-blank

Title: Question 02

XX) Where a meeting has been properly requested, the Companies Act 2006 s. 304 requires the director(s) to call a meeting within __days from the date on which he/she became subject to the requirement.

END OF QUESTION

Type: fill-in-blank

Title: Question 03

XX) A general meeting of a _______ company must be called by giving notice of at least 14 days.

END OF QUESTION

Type: fill-in-blank

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Title: Question 04

XX) Where the Companies Act 2006 requires special notice to be given for a resolution, the resolution is not effective until notice of the intention to move the resolution at least __ days before the meeting has been provided. However, where this is not practicable, the company must give its members notice at least 14 days before the meeting through an advertisement in a newspaper having an appropriate circulation, or other manner specified in the company’s articles..

END OF QUESTION

Type: fill-in-blank

Title: Question 05

XX) A _______ company must move resolutions at a meeting of the members (or a class of members) and it may not move written resolutions by a majority using the procedure in the Companies Act 2006 ss. 288–300. However, at common law, such resolutions can be passed if unanimous.

END OF QUESTION

Type: fill-in-blank

Title: Question 06

XX) The Companies Act 2006 s. 282 identifies _________ resolutions are those passed, by a private company, by the members (or a class of the members) with a simple majority.

END OF QUESTION

Type: fill-in-blank

Title: Question 07

XX) _______ resolutions are required to be used for certain decisions such as: to alter the company’s articles; alter its name; re-register the company from an unlimited to a private limited, private to public, or public to private; and to reduce the company’s share capital.

END OF QUESTION

Essay Question

‘How may the members of the company engage in the management of the company at general meetings? Explain the rights of the members and how they directly affect the decision-making through the moving of resolutions.’



• Whilst the members of the company delegate the powers of the management of the company to the directors, who themselves conduct decision-making through powers granted to them and through their own board meetings, the members themselves take responsibility for moving resolutions of the company.

• Resolutions are used to perform functions of the company.

• There exist two types of meeting that a company may call: The Annual General Meeting (AGM) and general meetings.

• Resolutions may be moved at general meetings insofar as notice of the meeting and the resolution is given to the members of the company and the meeting is held and conducted in accordance with the CA 2006 and the company’s articles. The calling of these meetings is a power granted to the directors of a company, however, where the director(s) does not call a meeting and the members wish one to take place, these members have the power to require the directors to take this action.

• The CA 2006 provides details of how the companies must conduct meetings to ensure that resolutions moved are lawful.

• The CA 2006 identifies the quorum necessary at the meeting (the minimum numbers of the company’s members who need to be present to allow resolutions to be effectively moved). A company limited by shares or by guarantee and having only one member will have reached a quorum when one qualifying person is present at a meeting. In other cases, and subject to the company’s articles, two qualifying persons present at the meeting are a quorum unless the qualifying persons are the representatives of the same corporation or the persons are the proxies of the same member.

• A member may be elected to be the chairperson (including a proxy) of the general meeting by a resolution of the company, but this is subject to the company’s articles as who may or may not be chairperson.

• In the case of voting, the company’s articles must allow the right for a vote through poll at a general meeting on any question other than the election of the chairperson or the adjournment of the meeting.

• When a member wishes to exercise his/her right to vote on a poll taken at a general meeting, a member with more than one vote has the right not to use his/her votes in the same way. This may be achieved by appointing more than one proxy to vote at the meeting.

• The CA 2006 provides the member with the right to appoint another person (the proxy) to exercise any or all of his/her rights to attend, speak and vote at a meeting of the company.

General Meetings

• Every public company must hold an AGM within six months of its financial year-end. The company must state that the meeting is an AGM, and notice must be provided that such a meeting is to be called.

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• The members of the company may require the circulation of resolutions to be moved (or intended to be moved) at the AGM, and such a resolution may be properly moved unless it would, if passed, be ineffective (such as being inconsistent with the company’s constitution); defamatory of any person; or if it were frivolous or vexatious.

Resolutions at Meetings

• Resolutions are the decisions made at the company meetings. There are various types of resolution that may be moved by a company. With reference to the resolutions that may be moved by a private company, a written resolution or one moved at a meeting of the company’s members are available. The benefit of moving a written resolution is that there is no necessity of a meeting of the members, they are sent the resolution and they sign this resolution if they are in agreement.

• A public company must move resolutions at a meeting of the members (or a class of members) and it may not move written resolutions by a majority using the procedure in CA 2006 ss. 288-300. However, at common law, such resolutions can be passed if unanimous.

• Where the CA 2006 requires a resolution of a company, or of the members (or a class of members) and the type of resolution required is not specified, it is assumed that an ordinary resolution is required unless the company’s articles requires a higher majority or unanimity. Whilst this does provide the company with some flexibility, or control over the resolutions to be moved, there are protections in the CA 2006 to prevent, for example, a director being removed before the expiry of his/her term of office through a written resolution because the CA 2006 provides for important safeguards against potential abuse.


Seminar Seventeen: Directors and Secretaries: Chapter 13


1. The necessary requirement to dismiss a director before the expiry of his/her term in office involves the moving of which of the following resolutions?

a.# An ordinary resolution with 14 days’ notice.

b.# A written resolution with 14 days’ notice.

c.# An ordinary resolution with 28 days’ notice.

d.# A special resolution with 14 days’ notice.

2. The register of directors is a document that may be inspected by which of the following?

a.# Only members of the board.

b.# Only members of the company.

c.# Only secured creditors.

d.# Any interested person whether he/she has an interest in the company or not.

3. Which of the following is NOT a type of company director?

a.# A supreme director.

b.# An executive director.

c.# A non-executive director.

d.# A shadow director.

4. In relation to Public limited Companies, the minimum number of directors required is?

a.# One.

b.# Ten.

c.# Two.

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d.# One if this is not a natural person.

5. The minimum age of a director, as required in the Companies Act 2006, s. 157, is?

a.# Any age.

b.# 16.

c.# 18.

d.# 21.

6. Which of the following may make a claim of unfair prejudice?

a.# Preferential creditors.

b.# Only shareholders holding not less than 15% of the company’s issued shares.

c.# Any shareholder.

d.# Only a director removed from office by fellow directors.

7. If an officer or receiver of a company in liquidation has been guilty of fraud in relation to the company, or has breached his/her directors’ duties, or committed an offence of knowingly being a party to fraudulent trading, the court may issue an order disqualifying the director for a maximum term of?

a.# 2 years.

b.# 5 years.

c.# 10 years.

d.# 15 years.

8. Which of the following is correct?

(i) Directors may vote themselves such salary payments as they think fit, irrespective of anything in the company’s Articles of Association.

(ii) Directors are only entitled to be paid for their services if the constitution of the company so provides.

(iii) Directors must be paid a salary.

a.# (i) only.

b.# (ii) only.

c.# (i) and (ii) only.


d.# (iii) only.

9. Which of the following can enforce the fiduciary duties owed by a director?

(i) The majority shareholders.

(ii) The company.

(iii) Individual directors.

a.# (i) and (ii) only.

b.# (ii) only.


d.# (iii) only.


Type: fill-in-blank

Title: Question 01

XX) Companies may appoint ______ directors who are defined as ‘a person in accordance with whose directions the directors of the company are accustomed to act’.

END OF QUESTION

Type: fill-in-blank

Title: Question 02

XX) Companies are required under the Companies Act 2006 to have at least one director in the case of private companies, and two directors in the case of public companies. At least one of the directors of the company must be a _______ _______.

END OF QUESTION

Type: fill-in-blank

Title: Question 03

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XX) The Companies Act 2006 established that a director must be at least __ years of age, although this does not affect the validity of an appointment that is not to take effect until the person reaches this age.

END OF QUESTION

Type: fill-in-blank

Title: Question 04

XX) The directors’ duty to promote the success of the company, codified in the Companies Act 2006 s.172 was based on the common law duty of the director acting in ____ ___.

END OF QUESTION

Type: fill-in-blank

Title: Question 05

XX) The Companies Act 2006 ss.232–239 provide for the ______________ of directors. This assists directors by providing that the company will repay any costs incurred (in certain circumstances) by the director in the course of his/her duties.

END OF QUESTION

Type: fill-in-blank

Title: Question 06

XX) The Companies Act 2006 made an important change to the previous requirements under the Companies Acts by removing the requirement for private (but not public) companies to have a company _________

END OF QUESTION

Essay Question

‘Discuss the implications for directors’ duties to the company since the enactment of the Companies Act 2006. Explain where the statute has expanded the duties previously established through the common law, and what steps the company should take to ensure compliance with the Act.’



• The CA 2006 had a significant impact on the duties imposed on directors through codification and extension of duties that, prior to the enactment of CA 2006, had been developed through the common law.

• The provisions under Part 10 A of the CA 2006 (other than the issues of conflict of interest, the directors’ residential addresses and age of the directors) came into effect on the 1st October 2007. The remaining provisions take effect from the 1st October 2008.

Directors Duties under the Companies Act 2006

• Chapter Two of the CA 2006 identifies the duties of the directors and that the duties under ss. 171 – 177 are owed by the director to the company (rather than those outside of the company - JJ Harrison (Properties) Ltd v Harrison [2001]). It provides instructions as to how these sections are to interpreted when the director ceases to be a director of the company: such as the duty to avoid conflicts of interest and the duty not to accept benefits from third parties continues after the director has left office.

• Whilst this is a new piece of legislation, s. 170 continues that these general duties imposed on directors are to be interpreted and applied in the same way as the common law rules and equitable principles on which they were based.

Duty to Act Within their Powers

• The director must act in accordance with the company’s constitution (now the articles of association rather than the memorandum) and only exercise powers for the purposes for which they had been conferred. As such, where authority is provided for a specific purpose, the power must only be used for this purpose and will not be extended (even if the director acted in good faith and for the best interests of the company - Fraser v B N Furman (Productions) Ltd [1967]).

Duty to Promote the Success of the Company

• This was based on the common law duty of the director acting in good faith. The act requires the director to fulfil this requirement in the way he/she considers would be most likely to promote the success of the company for the benefit of its members as a whole.

• In so doing the director must have regard to the likely consequences of decisions in the long term; the interests of the company’s employees; the need to foster relationship with outside organisations (suppliers / customers and so on); the impact of the company’s operations on the community and environment; the company’s reputation; and the need to act fairly as between the members of the company.

Duty to Exercise Independent Judgment

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• The director has an obligation to exercise independent judgment although this will not be infringed by his/her acting in accordance with an agreement entered into with the company that restricts the future exercise of discretion by its directors, or in a way authorised by the constitution of the company.

• This codifies existing requirements in the common law, but also reinforces the director’s duty to act for the best interests of the company and, not necessarily, following the instructions of shareholders whose interests may be selfish and not being made for the company. This situation comes to prominence, as the shareholders appoint the director, and where this appointment has been made on a personal basis, the director must remain independent of the person(s) that made the appointment.

Duty to Exercise Reasonable Care, Skill and Diligence

• The director has to exercise reasonable care, skill and diligence. This duty is based on what a reasonably diligent person with the general knowledge, skills and experience for carrying out the functions required of the director to the company would consider, and the general knowledge, skill and experience that the director him/herself actually possess.

• A directorship (whether executive or non-executive) of a company is a very important role involving significant responsibilities, and it should not be accepted without consideration of the implications of the position and the obligations to the company – with reference made to the CA 2006 and the company’s constitution. Diligence was already a common law duty and requires the director to be vigilant for acts that require appropriate investigations to be made and questions to be answered. A director will fail in his/her duty by not taking the appropriate steps when faced with such scenarios.

Duty to Avoid Conflicts of Interest

• A director has an obligation to avoid situations where he/she has, or can have, a direct or indirect interest that conflicts (or has the potential to conflict) with the interests of the company.

• This duty applies particularly to the exploitation of any property, information or opportunity and it is immaterial whether or not the company could take advantage of the property, information or opportunity.

Duty not to Accept Benefits from Third Parties

• A director of a company is not allowed to accept a benefit from a third party that is due to he/she being a director of the company and his/her acts or omissions as a director.

Duty to Declare Interest in Proposed Transaction or Arrangement

• The director has a duty if in any way, directly or indirectly, he/she has an interest in a proposed transaction or arrangement with the company. This interest must be declared to the other directors with specific regard to the nature and extent of the interest. The declaration may be made in the following way, although others may be used:

(a) at a meeting of the directors, or(b) by notice to the directors in accordance with s. 184 (notice in writing) or s. 185 (general notice).

• The declaration must be complete and accurate and if it proves to be, or subsequently becomes, incomplete and / or inaccurate, then a further declaration is required.

Duty of the Director to Disclose Interests in Contracts


• Beyond the codification of the common law duties imposed on directors, the CA 2006 imposes duties on the director who has an interest (direct or indirect) in a contract or proposed contract with the company to disclose this. This disclosure must be made as soon as is reasonably practicable (such as where the matter is first discussed by the board) and include the nature and extent of the interest, and be made at a meeting of the directors; or by notice in writing; or by general notice. The provisions of such disclosures apply to loans, quasi-loans and credit transactions and arrangements.

• The directors and the board should take steps, having been made aware of these duties, to ensure they adhere to the requirements of the Act and the common law. Clear strategies and guidelines are necessary to ensure compliance.

Seminar Eighteen: Majority Control / Minority Protection: chapter 14


1. Jack has acted in breach of his fiduciary duty as a director of JK Ltd. If the breach does not amount to fraud on the minority, which ONE of the following is correct?

a.# The breach cannot be ratified by the shareholders.

b.# The breach may be ratified by a written or ordinary resolution.

c.# The breach may be ratified by a provision in the company’s Memorandum of Association.

d.# The breach may be ratified by a resolution of the board of directors.

2. Section 994 of the Companies Act 2006 empowers the court to grant a remedy in the event of a company’s affairs being conducted in a manner “... unfairly prejudicial to the interests of its members...”.

Who may petition for an order under this Section?

(i) Any member.

(ii) The holders of at least 10% of the company’s issued share capital. (iii) The directors.

a.# (i) only.


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d.# (iii) only.

3. The CA 2006 introduced protections for minority shareholders where a shareholder may initiate proceedings against a director on the company’s behalf, (a derivative claim). In which of the following circumstances will a court permit a claim to proceed?

a.# Where a cause of action arises from a breach of trust by a director of the company.

b.# That a person acting in accordance with section 172 (duty to promote the success of the company) would not seek to continue the claim.

c.# Where the cause of action arises from an act or omission that is yet to occur, that the act or omission has been authorised by the company.

d.# Where the cause of action arises from an act or omission that has already occurred, that the act or omission (i) was authorised by the company before it occurred, or (ii) has been ratified by the company since it occurred.

Fill-in-the-Blank Question

1. The protection of members against _____ ________ is contained in Part 30 of the CA 2006 and provides a right for members to petition a court that the company’s affairs are being conducted in a manner that is likely to adversely affect the interests of members generally, or some part of its members (including at least him/herself).

Essay Questions

1. Explain the rules laid down in Foss v Harbottle (1843)? Are there any exceptions to these rules and if so, why were they introduced?

2. What point of law was confirmed by the case of Pender v Lushington 1877?

3. Critically assess the development of minority shareholders’ protection in the Companies Act 2006. Specifically comment on the broadening of derivative actions and claims of unfair prejudice. Identify the consequences for a director in breach of duty, and assess whether the legislative mechanisms provide adequate protection for this group of shareholders.

Minority Protection

Shareholders have the right, and the company is obliged in certain circumstances, to place a resolution at a general meeting and have this voted upon by the members (the shareholders).

Directors may also be shareholders and they may form a majority and hence would find it relatively easy to pass through the resolutions that require a simple majority, or even those requiring a 75% majority (see Foss v Harbottle).


The claim by minority shareholders in Foss failed, but there have been many advances since the case was heard, with many exceptions to the rule established that, whilst it remains ‘good law,’ its usefulness has been significantly curtailed.

The CA 2006 has introduced protections for minority shareholders where a shareholder may initiate proceedings against a director on the company’s behalf, (a derivative claim) in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company.

Note that as claims made through the shareholders are on the company’s behalf, any award will be provided to the company, albeit that the shareholder claimant will be able to recover any expenses incurred in the action.

In order to use this procedure, the CA 2006 identifies requirements that must be satisfied. The first is that the member must obtain the court’s permission to proceed with his/her action.

The first stage is to determine whether a prima facie case exists against the director. Where this is satisfied, the case continues and the court may give directions as to the evidence to be provided by the company, and at the hearing the court may give permission of the claim to continue on the terms it sees fit; refuse permission and dismiss the claim; or adjourn proceedings and give any directions it thinks fit. Section 263 identifies situations where permission must be refused, and these occur where the court is satisfied that:

a.that a person acting in accordance with section 172 (duty to promote the success of the company) would not seek to continue the claim; or

b.where the cause of action arises from an act or omission that is yet to occur, that the act or omission has been authorised by the company; or

c. where the cause of action arises from an act or omission that has already occurred, that the act or omission (i) was authorised by the company before it occurred, or (ii) has been ratified by the company since it occurred.

• Another area of protection available to the minority shareholder, rather than a derivative claim, is because his/her rights have been ‘unfairly prejudiced’ by the way in which the company is being run.

Unfair Prejudice

• The protection of members against unfair prejudice is contained in Part 30 of the CA 2006 and provides a right for members to petition a court that the company’s affairs are being conducted in a manner that is likely to unfairly prejudice the interests of members generally, or some part of it’s members (including at least him/herself).

• The member may also petition on the basis that an actual or proposed act or omission of the company is or would be so prejudicial. This section of the Act also applies to a person who is not a member of the company but to whom shares in it have been transferred as they apply to a member of a company.

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• Where the court is satisfied that the petition is well founded, it is empowered:(a) to order as it thinks fit relief in respect of the matters complained of such as to regulate the

conduct of the company’s affairs in the future, such as altering the articles to prevent future abuses.

(b)(i) to require the company to refrain from doing or continuing an act complained of (for example to stop directors’ unusually high salaries that are preventing dividends being provided to the shareholders).

(b)(ii) to do an act that the petitioner has complained it has omitted to do (for example to adhere to resolutions of the board).

(c) to authorise civil proceedings to be brought in the name of (and on behalf of) the company by such person(s) and on such terms as the court may direct (for example to avoid the Foss situation and enable a claim in the company’s name, rather than the shareholder).

(e) to provide for the purchase of shares of any members of the company by other members (or by the company itself); and in the case of purchase by the company, the reduction of the company’s share capital accordingly (as demonstrated in Re London School of Electronics).

• This section of the CA 2006 restates the law that had already been included in the CA 1985 and incorporates a wide range of activities likely to adversely affect shareholders, particularly minority shareholders.

• The directors may be negligent in their management of the company that may, if the facts support it, lead to unfair prejudice; the directors may pay themselves salaries that reduces or removes entirely the members’ dividends (Re Sam Weller & Sons Ltd); shares could be provided to directors on much more favourable terms than available to members and so on. Many of the cases based on the unfair prejudice principle have focused on where a major shareholder has been refused a management role with the company (Re London School of Electronics) or removed from the board of directors (Ebrahimi v Westbourne Galleries). Where a director (and shareholder) of a company has been removed so he/she can no longer take an active part in its management, the court has often ruled that the majority shareholders must purchase the shares of the removed director (but not necessarily a director who has not been removed and simply disagrees with the direction of the company - O’Neill v Phillips), to allow the affected director to invest his/her money in another company.


Seminar Nineteen: Share Capital and Capital Maintenance: Chapter 15


1. Where a company limited by shares transfers these at a higher value than the nominal value, what must happen to this income?

a.# Be kept by the directors for an annual distributable bonus.

b.# Be distributed to the members as dividends.

c.# Be used to write off expenses such as when debentures are issued.

d.# Be transferred into a share premium account.

2. The amount of the nominal share capital that has been paid for by the company members is called?

a.# Paid-up share capital.

b.# Issued share capital.

c.# Allotted share capital.

d.# Called-up share capital.

3. Where a private company wishes to reduce its share capital, and is not restricted or prohibited from so doing in its articles, to be effective it must:

i) Pass an ordinary resolution to that effect.

ii) Pass a written resolution to that effect.

iii) Pass a special resolution to that effect.

iv) Have the resolution supported by a solvency statement.

a.# i only.

b.# i and iv.

c.# iii and iv.

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4. Which of the following is NOT a type of share of a company?

a.# Ordinary share

b.# Special share.

c.# Preference share.

d.# Redeemable share.

5. Which ONE of the following is CORRECT?

a.# The shares of all public limited companies are quoted on the Stock Exchange.

b.# The company secretary of a public limited company must be qualified.

c.# A private limited company must have at least two shareholders.

d.# A public limited company cannot trade until it has paid-up share capital of at least £50,000.

6. Which of the following would be regarded as an issue of shares for an improper purpose?

(i) An issue of shares in return for a non-cash consideration.

(ii) An issue of shares to enable the directors to maintain control of the board.

(iii) An issue of shares to prevent a take-over bid.

a.# (i) only.



d.# (iii) only.

7. Which ONE of the following statements is correct in relation to companies limited by shares?

a.# All new shares issued must be offered to the existing members first.


b.# All new shares issued for cash must be offered to the existing members first in the case of a public company only.

c.# All new shares must be offered to the existing members first in the case of a private company.

d.# All shares issued for cash must be offered to the existing members first.

8. The authorised share capital of Wye Ltd is £250,000 divided into 250,000 ordinary £1 shares. The asset value of each share is £2. Angela and Brian are the only shareholders. Each has taken 50,000 shares and each has, so far, paid £10,000. Which ONE of the following statements is correct?

a.# The issued share capital of Wye Ltd is £250,000, and the paid up capital is £20,000.

b.# The issued share capital of Wye Ltd is £100,000, and the paid up capital is £20,000.

c.# The issued share capital of Wye Ltd is £250,000, and the paid up capital is £100,000.

d.# The issued share capital of Wye Ltd is £20,000, and the paid up capital is £20,000.

9. Which ONE of the following correctly describes the “maintenance of capital” principle?

a.# A company cannot use its share capital which must be set aside as a fund for creditors.

b.# In general, a company can use its share capital for any reason whatsoever, as long as it ensures that there is sufficient remaining to meet the company’s debts.

c.# In general, a company must use its capital for the purposes of the company and cannot return it to its members.

d.# A company cannot use its share capital and may only return it to its members with the permission of the court.

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Type: fill-in-blank

Title: Question 01

XX) Where the company is listed on the stock exchange, Listing Rules insist that only _ per cent of the company’s securities can be issued to persons other than existing shareholders in any year.

END OF QUESTION

Type: fill-in-blank

Title: Question 02

XX) A private company may achieve a reduction in the share capital by a _______ resolution supported by a solvency statement.

END OF QUESTION

Type: fill-in-blank

Title: Question 03

XX) A company must issue ______ __________ on allotment of shares within two months unless the issue provides otherwise; the allotment is to a financial institution; or if, following the allotment, the company has issued a share warrant in respect of the shares.

END OF QUESTION

Type: fill-in-blank

Title: Question 04

XX) These are the most common form of shares, and unless different classes of shares exist, all shares will be _________ shares.

END OF QUESTION

Type: fill-in-blank

Title: Question 05

XX) ___________ preference shares provide the right for a fixed dividend, but if there are insufficient profits in the given year then there is no payment made. However,


the dividend will carry over to the next year and is added to the dividend that is applicable to that year.

END OF QUESTION

Type: fill-in-blank

Title: Question 06

XX) Where shares are being issued under the Companies Act 2006 s.549, in both public and private companies, and hence the members have provided their authority for this action, the company is obliged to offer ordinary shares (not necessarily preference shares) to the existing members on a proportionate basis to their existing number of shares held. This right is known as a right of ____________

END OF QUESTION

Essay Question

‘Explain the process of a company altering its share capital. Provide examples of why a company may wish to make such an alteration and how the creditors of the company are protected against abuse of this provision.’


• Whilst a private company is not required to have any prescribed amount of share capital, compared with a public company’s requirement of £50,000, it will identify its share capital on formation but may, at a later date, wish to vary this amount in light of its changing circumstances.

• Generally a company is prevented from doing so (s. 617) although there are exceptions where the company wishes to increase its share capital by allotting new shares; reduce its share capital in accordance with Chapter 10 of the CA 2006; where it wishes to sub-divide or consolidate all or any of its shares; where it wishes to reconvert stock into shares; or where it wishes to redenominate any or all of its shares.

• Where a company wishes to allot new shares, a contract has to be established between the parties that identifies the important information such as the amount of capital involved, when this capital is to be contributed, the nature and class of the shares to be allotted, and when the shares will provide the allottee with his/her rights attached to the shares.

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• Chapter Two of the CA 2006 governs the allotment of shares and identifies the authority of directors allot.

• Where a private company has only one class of share, the director(s) is empowered to allot shares in the company unless the articles prevent this.

• Where a company has more than one class of share, or the company is a Plc, there must be authority provided by the company’s articles or through a resolution of the company. This authority may be conditional or unconditional, and it must state the maximum amount of shares that may be allotted, and specify the date on which the power will expire (which must not be more than five years from the date of incorporation (where the power is from the company’s articles) or the date that the resolution was passed).

• To maintain the company’s capital, it is not permitted to issue the shares at a discount.

• Having allotted shares, the company must inform the Registrar (of Companies) as soon as practicable and in any event within two months after the date of allotment, and within one month of making the allotment, the company must deliver to the Registrar a return of allotment detailing the statement of capital.

• Shares may be consolidated for convenience by altering shares that were issued in small denominations into larger amounts. This does not change the percentage of the total number of shares.

• Sub-dividing is the contrary situation and involves the shares being ‘reduced’ into smaller denominations. The company is empowered to make such a change where the members pass an ordinary resolution to that effect (although the company’s articles may require a higher majority or may exclude or restrict any power conferred by the CA 2006).

• If the company does make such a change, it must inform the Registrar within one month of having made the change along with a statement of capital (detailing the total number of shares of the company; their nominal value; the amounts of paid and unpaid shares and so on).

• Where the shares are to be redenominated, the company’s articles may impose restrictions and the members must pass a resolution authorising this (which may specify conditions that must be met before the redenomination takes effect).

• This will include details such as the exchange rate utilised and the redenomination must take place within 28 days, ending on the day before the resolution was passed. Following the redenomination, the company must notify the Registrar of the changes within one month after doing so, including a statement of capital and, within 15 days of the resolution being passed, a copy of the resolution. Reduction of Share Capital

• A company may seek to reduce its share capital because its assets had permanently decreased in value, it may be a tactic to eliminate book debts, or to return capital to shareholders where the capital involved is surplus to the company’s requirements and so on.

• A private company may achieve a reduction in the share capital by a special resolution supported by a solvency statement, however, the reduction must still leave at least one member with a share(s) that is not a redeemable share.

• Private and public companies may, through a special resolution confirmed by the court, reduce their share capital, however, the company may have provisions in the articles that restrict or prohibit such a reduction.

• The private company that wishes to reduce its share capital, supported by a statement of solvency,


requires the directors of the company to make the statement not more than 15 days before the date on which the resolution is passed, and the resolution and the statement are registered in accordance with s. 644.

• Where a court confirms the reduction, it may order the company to publish the reasons for the reduction, or other information that it thinks fit to give proper information to the public. It may also require the company, where special reasons exists, to add to its name the words ‘and reduced’ during a period specified in the court’s order. When the court has provided its order confirming the reduction, the Registrar will register the order and the statement of capital.

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Seminar Twenty: Borrowing and Loan Capital: Chapter 16


1. The articles of association of Dee Ltd, a property development company, states that the company has power to borrow in furtherance of its objects and that the directors have authority to borrow up to £200,000. The board has resolved to purchase a piece of land for £300,000. The Midwest Bank plc has agreed to make a loan of £250,000 to Dee Ltd to acquire the land.

Which ONE of the following is correct?

a.# The loan is void as Dee Ltd has acted ultra vires.

b.# As the directors have exceeded their authority, the bank cannot enforce the loan against Dee Ltd.

c.# As the directors have resolved to obtain the loan, the transaction is lawful.

d.# The loan is ultra vires the directors who will be personally liable for any loss caused to the company unless their actions are ratified by the shareholders.

2. Immediately before XY Ltd was placed in insolvent liquidation, Alex, the company’s sole director, arranged for the company to make an early repayment of an unsecured loan of £15,000 which he had provided to the company.

Which ONE of the following is correct?

a.# The repayment may amount to a "preference", and Alex may be required to hand back the £15,000 to XY Ltd.

b.# Alex may be fined.

c.# The repayment of the loan is valid so long as Alex was acting in good faith.

d.# XY Ltd and Alex may be guilty of fraud.

3. Which ONE of the following statements is correct?

a.# A floating charge has priority over a fixed charge.

b.# The preferential creditors take priority over fixed charge holders.

c.# A fixed charge has priority over a floating charge.

d.# Unsecured creditors take priority over floating charge holders.

4. When a charge is applied to a company’s asset, within which time


period must this charge be registered with the Registrar of Companies?

a.# Within 2 months of its creation.

b.# Within 14 days of its creation.

c.# Within 21 days of its creation.

d.# Within 28 days of its creation.

5. Unless provision is made expressly to the contrary, and assuming the charges listed have been correctly registered, which of the following ranks highest in priority when a company is wound-up?

a.# Preferential creditors.

b.# Unsecured creditors.

c.# A floating charge.

d.# A fixed charge.

6. Which of the following are correct statements about the relationship between a company’s ordinary shares and its debentures?

Select all that apply.

a.# Debentures do not confirm voting rights, whilst ordinary shares do.

b.# The company’s duty is to pay interest on debentures, and to pay dividends on ordinary shares.

c.# Interest paid on debentures is deducted from pre-tax profits, dividends are paid from net profits.

d.# A debenture holder takes priority over a member in liquidation.

7. A fixed charge

a.# Cannot be an informal mortgage.

b.# Can be a legal mortgage.

c.# Can only attach to land, shares or book debts.

d.# Cannot attach to land.

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Essay Questions

1. What are the elements of the definition of a floating charge?

2. What steps can a fixed debenture holder take to enforce their security?

3. What are the various charges that a lender may require to be provided by the company that wishes to borrow money? Explain the nature of each, their priority, and their effect in the event of the company being wound up.

Indicative Content

• A charge is a contractual agreement in the form of security (on certain assets) on a loan. The borrower agrees to allow the rights over property to be transferred to the lender on the basis that if the loan is unpaid, the lender will be able to dispose of the property and secure the return of the loan.

• If such a charge is not made, the issue of limited liability may remove the shareholders’ personal responsibility to contribute, beyond the value of the shares or any guarantees made, and the lender, if the borrower (for example a company) has insufficient funds to repay all of it’s debts, will have to join the remaining creditors and may not realise all of the money it is owed. Hence charges are a valuable way in ensuring, as far as possible, that loans are secured on tangible property.

• As the charge involves a security over assets, it may be that the lender wishes to secure (fix) this on business premises (such as a factory) to ensure that a valuation can be made, and hence the loan be determined that will ensure the lender’s position is secure. There is a second type of charge that is not attached to any particular asset. These are known as ‘floating’ charges as they float over given assets (such as stock). There are advantages to both and it is for the borrower and lender to identify the most suitable in the circumstances.

Fixed Charges

• The nature of a fixed charge is that it is ‘fixed’ to a particular asset owned by the borrower which may be real property or personal property and it provides the lender with a proprietary interest over the asset.

• The benefit of the fixed charge for the lender, and a reason why he/she may pursue such a charge in determining whether to loan money, is the control over the property. It therefore represents the best form of security.

• The borrower may be prevented from selling the property that is subject to the charge until the loan is repaid, and the charge remains until the loan is fully repaid. Further, a lender with a fixed charge is generally considered to be above preferential creditors and creditors who possess floating charges.


Floating Charges

• As opposed to a charge that is fixed to a particular asset, the borrower may apply the charge to a group of assets (such as the stock with which the company trades).

• The benefit for the borrower in this scenario is that he/she is free to trade in the goods / assets subject to the floating charge, and in the event of non-payment of the loan when it is due, the charge becomes fixed or ‘crystallises’ over them. At this stage, the lender has the ability to dispose of the goods in the same way as someone with a fixed charge.

• Crystallisation occurs where a receiver is appointed; if the company goes into administration or is wound-up; or where an event that was provided for in the contract establishing the floating charge occurs. Once crystallisation occurs and the assets are traded after this event, the holder of the charge may bring an action against the party to whom they were transferred.

• Clearly, unlike a fixed charge where the charge is applied to a specific asset, the floating charge, by its nature, does not apply to a specific asset. As such, the borrower appears to be in possession of the assets and may appear to be more credit worthy than he/she actually is.

To prevent fraud, and perhaps a situation of the borrower attempting to obtain loans on the assets subject to the floating charge, protection is afforded through a system of registration.

Registration of Charges

• Similarly with debentures, a charge must be registered with the Registrar within 21 days of its creation (s. 870). The company is obliged to provide the Registrar with this information but it is also possible for the person interested in the registration to register it. The Registrar will then issue a certificate of registration and include details as to its particulars.

• This is because where a charge is not registered, it will be invalid and it will not allow the creditor to have the right to dispose of the assets to which the charge was to relate.

Priority of Charges

• If the charges have been correctly registered, they rank in priority as follows. A fixed charge will rank higher than existing floating charges unless the existing floating charge has made provision against this. Fixed charges also have effect from the time they are created. The next level of charge is a floating charge and this takes effect when it crystallises and attaches to the assets in the agreement. They will also have priority when the charge was created (hence the first floating charge will have priority over the last one created over the same asset, unless this is stated to the contrary).

• Preferential creditors take priority over the holders of floating charges, but not over fixed charges. Preferential creditors include employees who are owed wages and any loan taken to pay the employees’ wages. The company will also have to pay any holiday pay due to employees and any loans from third parties taken for the purpose of paying such costs.

• Preferential creditors are paid monies owed before other creditors are paid from the company’s assets (if solvent when wound-up). Where insufficient funds exist to satisfy these debts, they will each

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receive a proportion of the debts owed and they rank equally with each other.

Seminar Twenty-One: PRACTICE EXAM





Seminar Twenty-Two: Revision: Corporate Governance and Ethics

This is your opportunity to ask questions regarding any aspect of the topic which you would like to cover. Please come prepared with the topics and/or questions you would like to cover.

Remember, this is your opportunity to clarify issues before you sit the end of module examination.

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Seminar Twenty-Three: Revision: Corporate Law

This is your opportunity to ask questions regarding any aspect of the topic which you would like to cover. Please come prepared with the topics and/or questions you would like to cover.

Remember, this is your opportunity to clarify issues before you sit the end of module examination.


Page 140 of 158 © BAC 2014

Documents

Law Workbook