F 4

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QUESTIONS
KAPLAN P UBLI S H I N G
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A C C A F 4 ( EN G ): COR PORA TE AND BUSINESS LAW
OBJECTIVE TEST QUESTIONS

ESSENTIAL ELEMENTS OF THE LEGAL SYSTEM
1
The State
The accused
The victim
Which if the following describes the standard of proof in a civil law case?
A
Beyond reasonable doubt
Balance of probability
Beyond all probability
Which of the following is a remedy available under the civil law?

A
A fine
Imprisonment
Damages
Which of the following courts only hear civil cases?

A
The County Court
The Magistrates Court
The Court of Appeal
The Privy Council
Which of the following is a statement by a judge that is the basis for their decision and is
what becomes binding on future judges?
A
Obiter dicta
Per incuriam
Ratio decidendi
The court of first instance for criminal cases is:

A
Crown Court
Magistrates Court
High Court
Case law is made up of:

A
Common law only
Statute
Common law and equity

K A P LA N P UB L I S H I N G
Which of the following is the prosecutor in a criminal case?

L EC TURER RESO UR CE PAC K Q U ESTIO NS
THE LAW OF OBLIGATIONS

8
11
12
13
14
A sale of land
A transfer of shares
A consumer credit contract
In relation to contract law, how long will an offer remain open if no time period is set for
its expiry?
A
1 day
1 month
For a reasonable time
Which of the following is not a valid method of acceptance of an offer?

A
The offerees express words
The offerees conduct
Silence of the offeree
Which of the following statements regarding implied terms is correct?

A
Terms may be implied into a contract by statute
The courts do not interfere in contracts by implying terms
Terms implied into contracts by custom may not be overridden by express terms to
the contrary
In relation to contract law, which of the following describes an offer?

A
A statement of possible terms
Displaying goods for sale in a supermarket
A verbal promise to be bound on specific terms
In the tort of negligence, which type of loss is usually not recoverable?

A
Pure economic loss
Injury
Damage to property
Which of the following is not needed for a legally binding contract to be in force?
A
Intention to create legal relations
Written contract
Consideration
10
Which of the following contracts must be in the form of a deed?

15
16
18
19
20
Privity of contract means only parties to a contract may sue on it
Privity of contract is not subject to regulation by statute
There are no exceptions to the rule of privity of contract
Privity of contract is only enforceable on commercial contracts
In the tort of negligence, what is the effect of volenti non fit injuria?
A
The defendant is liable for the claimants injury unless proved otherwise
The claimant accepted the risk of injury and the defendant is not liable for the
claimants losses
Neither the claimant nor the defendant is responsible for the claimants injury
Which of the following statements regarding counter-offers is correct?

A
Counter-offers may be accepted by the original offeror
Counter-offers do not terminate the original offer
A statement that enquires whether alternative terms would be acceptable is a

counter-offer
A counter-offer is made by the original offeror to the original offeree
How are express terms incorporated into a contract?

A
By a decision of the courts
By statute law
By the parties themselves
By what is customary in the particular trade
In relation to the tort of negligence, what is novus actus interveniens?

A
A decision by the court that reverses the burden of proof
An intervening act that breaks the chain of causality
An event that makes the damage too remote so that the defendant is not liable
A defence to a liability in negligence
To establish a case of passing off, what must the claimant prove?

A
The consumer purchased fake goods
The defendant is using the same business model as the claimant
The name of the defendants business is similar enough to the claimants to mislead
the consumer
There is some similarity between the name of the defendants business and that of
the claimant
17
Which of the following statements regarding privity of contract is correct?

EMPLOYMENT LAW
21
22
24
25
A contract of service
A contract for services
A contract of agency
Which of the following remedies are available to an employee in the eveny that they are
wrongfully dismissed?
A
Damages
Re-engagement
Re-instatement
Which of the following type of dismissal occurs when no notice is given to the employee?
A
Constructive dismissal
Redundancy
Summary dismissal
Unfair dismissal
In order to qualify for redundancy pay, how long must an employee be continuously
employed for?
A
1 year
1.5 years
2 years
3 years
In order to proceed with a claim for unfair dismissal, the employee must show they were
dismissed?
Which of the following is not counted as dismissal for unfair dismissal purposes?
26
Employee resigning
Constructive dismissal
Expiry of a fixed-term contract without renewal
Summary dismissal
What is constructive dismissal?

A
An employer sacks an employee because they caused trouble
An employee resigns because they dislike their line manager
An employer sacks an employee after a number of disciplinary offences
An employee resigns due to an employer breaching their contract
23
Which of the following describes the type of contract that an employee has?

THE FORMATION AND CONSTITUTION OF BUSINESS ORGANISATIONS

27
28
30
31
32
Partners share of partnership profits
Partners capital contribution
Partnership loans
External debts
The purpose of an agency relationship is to form a business contract between which of

the following parties?
A
Agent and principal
Agent and third party
Principal and third party
In order to form an agency relationship by express agreement, what form should the
agreement take?
A
Oral agreement only
Written agreement only
Either oral or written agreement
Which of the following is created under the Partnership Act 1890?

A
A general partnership
A limited partnership
A limited liability partnership
Which of the following is not a feature of a limited company?

A
The companys separate legal personality
The perpetual succession of the company
The limited liability of the members
The directors immunity from any criminal sanctions
The Memorandum of Association of a company must be signed by:

A
The subscribers and all the directors
The subscribers and at least one of the directors
The subscribers and the company secretary
The subscribers only
29
When a general partnership is terminated, which of the following is paid off first out of
funds realised from the partnership assets?

33
34
36
Directors
Shareholders
Registrars
Promoters
Which of the following is not a type of authority?

A
Actual authority
Apparent authority
Implied authority
Unauthorised authority
35
Persons who take procedural steps to set up a company and who make business
preparations for the company are known as:
Which of the following is not an example of how an agency relationship can come into
existence?
A
By express appointment
Through an act of a third party
Through an act of necessity
By ratification
Which document establishes the constitution of the company and how it may run its
affairs?
A
The articles of association
The certificate of incorporation
The memorandum
A directors contract of employment

CAPITAL AND THE FINANCING OF COMPANIES

37
38
40
41
On a class of current assets which can be identified
On the undertaking of a company
On a class of assets which will not change in the ordinary coure of business
On a class of assets, present or future, which may change in the ordinary course of
business
Which of the following is not a legitimate use of the share premium account?
A
Writing off a discount on the issue of shares
Writing off underwriting commission
Writing off preliminary expenses
Issuing bonus shares
If a company makes an unlawful dividend, who may be involved in making good the
distribution?
A
The company only
The directors only
The shareholders only
The company, the directors and the shareholders
Which of the following statements relating to class rights is incorrect?

A
Class rights are rights that are attached to different classes of shares
Class rights can be altered by the passing of a special resolution
Class rights can include voting rights, dividends and return of capital
Class rights can never be altered
Which of the following statements is correct?

A company is allowed to issue shares:
(i)
at a premium
(ii)
at a discount
(i) only
(ii) only
Neither (i) or (ii)
Both (i) and (ii)
39
A floating charge is a charge:

42
In a public company any shares allotted must be paid:

A
Immediately in full
At least one-quarter of the nominal value
At least one-half of the nominal value
At least one-quarter of the nominal value together with all of the share premium

MANAGEMENT, ADMINISTRATION AND REGULATION OF COMPANIES

43
44
46
47
48
49
10
Two persons being members or proxies for members
Three persons being members or proxies for members
Two persons being members
Which of the following statements is incorrect in relation to directors?

A
Private companies are required to have at least one director
Public companies are required to have at least two directors
All directors must be over the age of 21
Which of the following is not a type of resolution?

A
Written resolution
Selective resolution
Orindary resolution
What is the minimum number of directors that a plc must have?

A
One
Two
Three
How long does a company have to file amended articles of association with the Registrar
if they have been altered?
A
14 days
15 days
21 days
What is a shadow director?

A
A director who has management responsibilities in the company
A person whose directions or instructions the directors of a company follow
A person appointed to attend board meetings and vote in place of a director
Which of the following ways describes how a company can remove a director?
A
By the passing of a special resolution of the general meeting
By the passing of an ordinary resolution of the general meeting
By the passing of a special resolution of the board of directors
45
What is the quorum for a general meeting of a registered company?

INSOLVENCY LAW
50
51
53
54
The person appointed as liquidator need not have any formal qualifications
The person appointed as liquidator must be a qualified accountant
The person appointed as liquidator must be a qualified insolvency practitioner
The person appointed as liquidator must be a solicitor
Which of the following persons or bodies cannot petition the court for compulsory
winding up of a company?
A
The Official Receiver
The company itself
Any creditor
Any director
Who do ring-fencing provisions apply in favour of?

A
Fixed charge holders
Floating charge holders
Unsecured creditors
Members
What are the ring fencing limits?

A
25% of the first 10,000 plus 20% of the rest up to a maximum of 500,000
Frazer has a 60% shareholding in Wombles Ltd. He believes the company should be put
into administration but the other two shareholders disagree. Does Frazer have sufficient
voting power to be able to pass a resolution that an application to court should be made
for the appointment of an administrator?
A
Yes
No
11
52
Which of the following statements is correct?

CORPORATE FRAUDULENT AND CRIMINAL BEHAVIOUR

55
56
58
59
60
12
10 years for an individual and an unlimited fine for a commercial organisation
7 years for an individual and an unlimited fine for a commercial organisation
5 years for an individual and a public reprimand for a commercial organisation
10 years for an individual and 10 years for a director in a commercial organisation
What is it necessary to establish to convict someone of fraudulent trading?

A
That the directors had dishonest intent
That the directors were not shadow directors
That the directors were not shareholders
Who should suspicion of money laundering activity be reported to?

A
The National Crime Agency
The Money Laundering Detection Officer
The Suspicions of Crime Authority
Which of the following constitutes fraud as stated by the Fraud Act 2006?
A
Fraud by false representation
Obtaining property by deception
Obtaining services by deception
Intent to mislead causing loss to another
If a director is found liable for wrongful trading:

A
They could be imprisoned for up to 15 years
They will face a fine of up to 15,000
They could be disqualified for up to 15 years
They will be publicly reprimanded
Which of the following is not a UK offence relating to money laundering?

A
Concealing the proceeds of criminal activity
Tipping off
Dealing in price affected securities
Failure to report suspicion of money laundering
57
What are the maximum penalties under the Bribery Act 2010?

MULTI-TASK QUESTIONS
1
A AND B
A agrees with B, an accountant, to refurbish and redecorate the interior of Bs premises.
As initial estimate for the job is 20,000 and when the work is completed he presents a bill
for that amount to B. B claims that he has recently lost an important client and that he
cannot afford to pay the full amount. A reluctantly accepts 15,000 in full settlement of the
debt.
(a)
Briefly explain the part payment problem.
(2 marks)
(b)
Explain whether A can recover any of the money from B.
(4 marks)
(Total: 6 marks)
13
Required:

RIGHTS IN CONTRACT LAW

Anne is a keen birdwatcher whose house is near a lake on which rare birds have taken up
residence. Unfortunately her neighbour's wall and large tree prevented her from getting a
good view of the lake.
She entered into a contract with Bob to build a special 35 feet high observation tower that
would enable her to see the lake.
When the tower was finished it was only 32 feet high and, although Anne could see over
the wall, the tree still partially obscured her view.
Required:
(a)
Explain how the measure of damages is used for a breach of contract.
(b)
Explain the level of damages which Anne can claim for breach of contract.
(2 marks)
(4 marks)
(Total: 6 marks)
14
As it stands the tower cost 25,000. Had Bob built it to the specified height it would have
only cost a further 1,000. However, because of its special construction its height cannot
now be increased. The cost of replacing the existing structure with one which would meet
the original specification is 35,000.

FAULTY INSTALLATION
Mina is a self-employed accountant who works from her home. Because she deals with
some sensitive accounts, she decided that she should install a security alarm system and
entered into a contract with Nemo Security Ltd to install security equipment in her house.
The brochure from which Mina selected her system contained a statement that Nemo
Security Ltd accepts no liability whatsoever for any injury or loss sustained as consequence
of the wrongful installation or operation of any equipment supplied or fitted by it.
It should be assumed that the exemption clause has been incorporated into the contract
with Nemo Security Ltd.advise Mina whether the clause exempts Nemo Security Ltd from
any or all of the losses she has suffered.
Required:
(a)
Identify whether the exclusion clause has been incorporated into the contract.
(4 marks)
(b) State the impact of the Unfair Contract Terms Act 1977 on any claim Mina mightmake
against Nemo Security Ltd.
(2 marks)
(Total: 6 marks)
15
The installation of Minas security system was carried out incorrectly. During the first night
it short-circuited and caused a fire which destroyed Minas house. As a consequence of the
fire, Mina was badly burned and will not be able to work for six months. Nemo Security Ltd
admits negligence, but is refusing to compensate Mina for any of the losses she has
sustained, relying on the exclusion clause.

ADAM, A SECOND HAND CAR DEALER

Adam is a second hand car dealer. He places an advertisement in the Saturday edition on
his local paper stating:
Once in a lifetime opportunity; a one year old, low mileage, Mota special: 5,000 cash.
This is a serious offer the car will go to the first person who accepts it valid for one day
only.
Dave asks Adam if he will keep the offer open until he can get to his bank to arrange a loan.
Adam agrees but later in the day when Eric says he will pay 6,000 in cash for the car he
agrees to sell the car to Eric.
Required:
(a)
Explain the legal effect of Adams advertisement.
(3 marks)
(b)
Explain whether Dave has any right of action against Adam.
(2 marks)
(c)
State whether Adam has any right of action against Eric.
(1 marks)
(Total: 6 marks)
16
On Monday morning Dave returns to complete his purchase of the car. In the afternoon
Eric phones Adam to say that he has had second thoughts and no longer wishes to buy the
car.

SOURCE AND BID

Bee plc owned 5% of the shares in Cee plc and was considering making a take-over bid for
the shares in Cee plc. In December 20X4, Bee plc wrote to Cee plc's auditors, A & Co, asking
if their audit report could be relied upon as representing an accurate review of the financial
position of Cee plc. Tom, the senior partner of A & Co, replied in writing that Bee plc could
indeed rely on the accuracy of their report. As a result, Bee plc submitted a take-over bid
and gained control of the entire share capital of Cee plc. Bee plc has now discovered that
Cee plc's assets are worth far less than stated by A & Co in their audit report. Bee plc
considers this to have been caused by A & Co carelessly overvaluing Cee plc's assets. This
resulted in Bee plc paying more for the shares than it would have done had the truth been
known.
(a)
Briefly explain the meaning of special relationship within the tort of negligence.
(2 marks)
(b)
Identify what factors will be considered in determining whether Bee plc can make a
claim against A & Co
(4 marks)
(Total: 6 marks)
17
Required:

EMPLOYMENT LAW
6
A, THE TYPIST
A, who is aged 39, has worked for a firm of accountants, BCD, as a typist on a full-time basis
for eight years. Following the introduction of sophisticated word-processing equipment at
BCD, it was decided that several typists, including A, would be made redundant from their
jobs. However, A was offered alternative employment as a telephonist at one of BCDs
offices 100 miles from the original place of work. The job duties were different from those
of a typist and the salary of 350 per week was 150 per week less than that enjoyed by A
while working as a typist. A decided not to accept the job of telephonist. BCD gives A eight
weeks pay in lieu of notice and A is dismissed.
(a)
Explain the meaning of redundancy.
(3 marks)
(b)
Explain whether A has been made redundant.
(3 marks)
(Total: 6 marks)
18
Required:

ACCOUNTANCY FOR ALL

Accountancy for All Ltd is a large commercial training organisation. It is engaged in a
lucrative contract with an accountancy college in Eastern Europe, under which it provides
specialist tuition at the college. Accountancy for All Ltd engages Isobel, who is aged 30, on a
fixed term contract for four years at a salary of 300 per week to write teaching materials
for the college. After Isobel had been employed for 36 months, she was dismissed without
notice and without being given any reason for her dismissal.
Isobel now wishes to bring an unfair dismissal claim against Accountancy for All Ltd and she
seeks your advice as to whether she may be able to claim compensation.
Required:
State TWO categories of a fair reason for dismissal.
(2 marks)
(b)
Explain how Isobels compensation will be calculated assuming she has been
unfairly dismissed.
(4 marks)
(Total: 6 marks)
19
(a)


8
PARTNERS' RIGHTS AND LIABILITIES

Rob, Sam and Tom formed a partnership to run a petrol station. The partnership agreement
expressly stated that the partnership business was to be limited exclusively to the sale of
petrol.
In January 20X0, Sam received 10,000 from the partnerships bank drawn on its overdraft
facility. He told the bank that the money was to finance a short-term partnership debt, but
in fact he used the money to pay for a round the world cruise. In February, Tom entered
into a 15,000 contract on behalf of the partnership to buy some used cars which he hoped
to sell from the garage forecourt.
(a)
Explain whether Sam has acted within his authority.
(3 marks)
(b)
Explain whether Tom has acted within this authority.
(3 marks)
(Total: 6 marks)
20
Required:

SUPERSPEED LTD
Albert was the promoter of a company that was registered on 1 June 2010 under the name
of Superspeed Ltd. Prior to incorporation, Albert had contracted with Typo Ltd on 28 May
2010 for the supply of stationery by Typo Ltd, which the board of directors do not wish to
honour.
Required:
(a)
State the legal effect of a pre-incorporation contract
(2 marks)
(b)
Explain whether Eden plc is liable for the contract.
(4 marks)
(Total: 6 marks)
21


11
SHARE CLASSIFICATIONS
Alfred has recently inherited a number of preference shares in the company for which you
are the company secretary. At the last annual general meeting it was decided by special
resolution to increase the voting power of ordinary shareholders by giving each ordinary
share an extra vote.
Required:
Explain what the procedure for the alteration of class rights when there is no
reference to variation in the articles of association.
(3 marks)
(b)
Explain whether Alfred can take steps to reverse the decision to increase the
powers of the ordinary shareholders.
(3 marks)
(Total: 6 marks)
22
(a)


11
DIRECTORS DUTIES
R is the sole director of V Ltd and controls all the shares in the company. In addition, he is a
non-executive director of A plc. R has recently agreed to sell all his shares in V Ltd to A plc
for 250,000 and also to accept a new contract to act as executive director of A plc for six
years at a salary of 80,000 per annum.
Required:
Explain to whom the above transactions need to be disclosed.
(3 marks)
(b)
Explain whether the approval of the shareholders is necessary for the transactions
to be effective.
(3 marks)
(Total: 6 marks)
23
(a)

12
HYDRANGEA LTD
You have been approached by Diana, who holds 60% of the shares in Hydrangea Ltd, a
company regulated by the Model Articles, which manufactures greenhouses. She wishes to
propose a resolution at the next general meeting of the company to remove four directors,
who between them hold 40% of the shares.
Required:
(a)
advise Diana as to her right to have this resolution on the agenda of a general
meeting
(4 marks)
(b)
explain how the votes of members and proxies should be taken and counted at the
meeting.
(2 marks)
24
(Total: 6 marks)


13
GOODYBAGS LTD
Graham and Tim are directors of Goodybags Ltd, a company specialising in party
accessories. Tim has always left the day-to-day management to Graham and comes into the
office on rare occasions to sign cheques and meet important clients. Tim is becoming
worried that he hasnt seen the company accounts for a while and Graham hasnt been
available to meet with Tim at the last three scheduled meetings.
Required:
Explain the meaning of wrongful trading.
(3 marks)
(b)
Explain the potential effect on Tim of being found liable for wrongful trading.
(3 marks)
(Total: 6 marks)
25
(a)

14
TELEVISION SHARES
Jeffrey lives with Kim. Kim is on the Board of Directors of Large Television plc which has
been considering a take-over bid from Megacorps TV plc. One Friday Kim tells Jeffrey that
she has to attend a very important board meeting of Large Television plc, the outcome of
which could have a crucial impact on the future of the company. At the Board meeting it is
agreed that, subject to some final negotiations to be carried out by the Managing Director
of Large TV, the take-over bid should be accepted. That evening the Managing Director
phones Kim and leaves a message on the answering machine confirming that the
negotiations have been successful and that the take-over bid will therefore be accepted.
When Jeffery comes home, before Kim, he hears the message.
The following events subsequently take place:
At a dinner party, Jeffrey, without actually telling him about the take-over proposals,
advises his brother Pete to buy shares in Large Television plc, and Pete does so.
Required:
(a)
Explain the insider dealing offences.
(3 marks)
(b)
Explain whether Jeffrey and Peter have committed any insider dealing offences.
(3 marks)
(Total: 6 marks)
26
Jeffrey buys shares in Large Television plc.
ANSWERS
KAPLAN PUBLI S H I N G
27

ANSWERS TO OBJECTIVE TEST QUESTIONS

ESSENTIAL ELEMENTS OF THE LEGAL SYSTEM
A
28

L EC TURER RESO UR CE PAC K AN SWER S

A
10
11
12
13
14
15
16
17
18
19
20
29

EMPLOYMENT LAW
A
22
23
24
25
26
30
21


D
28
29
30
31
32
33
34
35
36
27
31


D
38
39
40
41
42
32
37


A
44
45
46
47
48
49
43
33

INSOLVENCY LAW
C
51
52
53
54
34
50


A
56
57
58
59
60
55
35

ANSWERS TO MULTI-TASK QUESTIONS

1
A AND B
The basic rule is, where a creditor is paid only part of the amount contracted, is that
the contract is not discharged and the outstanding amount remains payable even if
the creditor accepts part-payment in full settlement of the debt. As was stated in
Pinnels case (1602), by no possibility can a lesser sum be a satisfaction to the
plaintiff for a greater sum. In other words, the creditor is within his rights to change
his mind and insist on payment of the full amount.
(b)
A has accepted 15,000 in full settlement, but he is not bound by this, at least not in
common law, because B has not given him any fresh consideration for this
acceptance of a smaller sum. The doctrine of accord and satisfaction is sometimes
used as an exception to the common law rule, but it is not really so since
satisfaction implies consideration of some kind. Examples of satisfaction from case
law have included:
(a)
payment of a smaller sum at an earlier date
(b)
payment in kind rather than currency
(c)
payment of a smaller sum by a third party (here a separate contract is made

with the third party which subsequent insistence on the full amount would
breach
In this case there is even doubt about the element of accord, which means full
agreement between the parties.
A defence involves the equitable doctrine of promissory estoppel. The doctrine
states that a promise to accept a smaller sum to discharge a debt for a larger
amount is binding if acted upon, notwithstanding the absence of consideration. This
relies on the principle of not going back on ones word, which equity upholds as far
as possible.
Thus A at common law is entitled to pursue B for the original full amount, despite his
apparent agreement not to do so. If this is shown for any reason not to be fair to B,
the equitable doctrine of promissory estoppel may be helpful in ensuring that justice
is done.
Under this doctrine, equity may uphold an original promise if otherwise it would
lead to hardship. In cases such as this, A can be said to have promised B that he
would not ask for the remaining 5,000. Equity could well hold that he must keep his
promise, on which B has relied. The only conflicting point is the possibility of duress
(i.e. A made threats to B in order to get the money from him). Evidence should be
sought as to whether this were the case.
36
(a)

RIGHTS IN CONTRACT LAW

(a)
Measure of damages relates to the actual amount of loss sustained by the injured
party.
Damages in contract are intended to compensate the injured party for any financial
loss sustained as a consequence of another party's breach. As the object is to
compensate rather than to punish, the amount of damages awarded can never be
greater than the actual loss suffered. The aim is to put the injured party in the same
position he would have been in had the contract been properly performed. At one
time, damages could not be recovered where the loss sustained through breach of
contract was of a non-financial nature, but now it is recognised that such damages
can be recovered.
Particular difficulties may arise in relation to estimating the damages liable in
construction contracts. Where builders either have not carried out the work
required, or have carried it out inadequately, they will be in breach of contract and
liable for damages. The usual measure of such damages is the cost of carrying out
the work or repairing the faulty work. However, this may not be the case where the
costs of remedying the defects are disproportionate to the difference in value
between what was supplied and what was ordered. Thus in Ruxley Electronics and
Construction Ltd v Forsyth (1995) the parties had entered into a contract for the
construction of a swimming pool. Although the contract stated that the pool was to
be 7ft 6in deep at one end, the actual depth of the pool was only 6ft 9in. The total
contract price was 70,000. Fixing the error would have required a full
reconstruction and would have cost another 20,000. The House of Lords considered
that, as the costs of reinstatement would have been out of all proportion to the
benefit gained, the difference in value only should be awarded.
It would appear at first sight that Anne's case is similar to Ruxley Electronics and
Construction Ltd v Forsyth. On this basis it is possible that Ann would only be entitled
to the difference between the value of the tower provided and the value of the
tower she had contracted for; i.e. 1,000. However, Ann's tower was of no practical
use to her in its finished state and it would therefore be more likely that Anne
could claim damages for the complete reconstruction of the tower, i.e. the
35,000.
37
(b)

FAULTY INSTALLATION
Assuming the clause is part of the contract, the question is to the extent of its
effectiveness. As a consequence of the disfavour with which the judiciary have
looked on exclusion clauses, they have tended to interpret uncertainties or
ambiguities in the exclusion clause against the meaning claimed for it by the person
seeking to rely on it. Thus in Hollier v Rambler Motors (1972) it was held that an
exclusion clause which could be interpreted as applying only to non-negligent
accidental damage, or alternatively to include negligent damage, should be
restricted to the narrower interpretation.
(b)
In the particular situation of the question, however, it would appear that the
wording of the exclusion clause is sufficiently clear and specific to cover Nemo Ltds
negligence.
The Unfair Contract Terms Act 1977 (UCTA) is the original statutory attempt to
control exclusion clauses. Section 2(1) of UCTA provides an absolute prohibition on
exemption clauses in relation to liability in negligence resulting in death or injury.
It is therefore apparent that Nemo Ltd cannot avoid responsibility for the injury
sustained by Mina and will be liable for the injuries she suffered.
Section 2 also provides that any exemption clauses relating to liability for other
damage caused by negligence will only be enforced to the extent that they satisfy
the requirement of reasonableness, and s11 provides that the requirement of
reasonableness means fair and reasonable . . . having regard to the
circumstances . . .. In looking at the circumstances of the case, the court will take
into account matters relating to relative strength of bargaining power; inducements
to accept the restrictions; whether the customer knew or ought to have known of
the exclusion; whether the goods involved were specially made or adapted. The final
outcome, therefore, is dependent on judicial interpretation. The onus of showing
reasonableness rests with the party relying on the clause (St Albans CDC v
International Computers Ltd (1994)). If one were to ask the question: Was it
reasonable for Nemo Ltd to deny responsibility for the consequence of their
negligence in this case?, the answer is likely to be no. Consequently Nemo Ltd is
likely to be liable and the exclusion clause to have no effect.
38
(a)

ADAM, A SECOND HAND CAR DEALER

(a)
Adam.
Usually newspaper or other public advertisements only amount to an invitation to
treat and cannot be accepted to form a binding contract (Partridge v Crittenden
(1968)).
There are occasions, however, when an advert can amount to a genuine offer
capable of acceptance by anyone to whom the offer is addressed. Thus for example
in Carlill v Carbolic Smoke Ball Co (1893), the court held that in the particular
circumstances of the case, the defendants advertisement was an offer to all the
world, capable of acceptance, and accepted by the plaintiff.
(b)
Dave
In Daves case, at first sight it would appear that he did not provide any
consideration for Adams keeping the offer open and, therefore, he could not
complain when Adam withdrew the offer as he did by agreeing to sell the car to Eric.
There is the possibility/likelihood, however, that Dave did provide consideration in
the form of a collateral contract, in that his entering into a loan transaction with his
bank provided consideration for Adams keeping the offer to sell the car to him
open. In such circumstances, Adam would be in breach of contract if he did not
complete the sale of the car to Dave.
(c)
Eric
In this instance, Eric offered to buy the car for 6,000 and Adam accepted his offer.
There is a binding contract, therefore, and if Eric refuses to complete the deal, Adam
can sue him for damages for breach of contract.
39
It might appear at first sight that Adams advertisement in the paper was no more
than an invitation to treat and therefore not capable of being accepted by any of the
other parties. However, the wording of the advert was in such categorical terms that
it might be seen as an offer to the whole world stating his unreserved commitment
to enter into a contract with the first person who accepted it.

SOURCE AND BID

(a)
A special relationship exists where a professional person advises a known person

who relies on the statement for a known purpose.
It is clear that liability will only arise where the defendant is in the business of giving
professional advice and the statement is given in that context i.e. not on a social or
informal occasion.
(b)
The tort of negligence could be applied in this situation. There have, in the past,
been several cases in which auditors have been sued in negligence by third parties
who, as a result of relying on careless audit reports, have suffered financial loss.
(1)
gave advice knowing that it would be passed on to a particular person
(2)
had complete knowledge and awareness of the transaction that the claimant
had in mind
(3)
knew it was highly likely that the claimant would rely on the advice or
information provided by the auditors.
Since A & Co wrote directly to Bee plc, it seems that condition (1) is satisfied.
However, additional information is needed to comment on whether conditions (2)
and (3) are satisfied.
40
In Caparo Industries plc v Dickman and others (1990), a shareholder relied on

audited accounts (that were allegedly careless) in order to purchase more shares
and as a result suffered a financial loss. It was held that the auditors of a public
company owe no duty of care to the public at large, who rely on the accounts when
purchasing shares in the company. Nor was any duty owed to existing individual
shareholders who purchased additional shares as they are in no better position than
a member of the public. The court went on to say that to establish a duty of care the
claimant must show there is a 'relationship of proximity' between himself and the
auditors. This is established where the auditors:

EMPLOYMENT LAW
6
A, THE TYPIST
(a)
(a)
the employer has ceased or intends to cease to carry on business for the
purposes of which or in the place where the employee was employed,
permanently or temporarily, or
(b)
the requirements of that business for employees to carry out work of a

particular kind or in a place where they were employed, have ceased or
diminished or are expected to cease or diminish permanently or temporarily
(Employment Rights Act 1996).
It would seem that A is redundant under (ii) above as fewer typists are required
following the introduction of word processing equipment. However, an employee
will be disqualified from receiving redundancy payment if he/she unreasonably
refuses an offer of alternative suitable employment made by his/her employer
before the end of the previous contract to re-engage him/her on terms which differ
from the previous contract. Whether the alternative offer is suitable is a question of
fact to be determined with reference to such matters as the employees skill,
working conditions, the requirements of his/her family, change of earnings, age,
health, sex, etc. In Taylor v Kent County Council (1969) Lord Parker CJ said that
suitable alternative employment in this context meant the employee should be
employed under conditions reasonably equivalent to those of the previous
employment. Even if on the facts the alternative employment were considered
suitable, which is unlikely, given the substantial drop in salary, and the different skills
required of a telephonist, the refusal of A to move 100 miles may nevertheless in the
circumstances be regarded as reasonable.
Thus it would seem A has been made redundant even though she was offered
alternative employment.
41
(b)
Redundancy takes place when the dismissal was wholly or mainly due to the fact
that:

ACCOUNTANCY FOR ALL

(a)
(i)
lack of capability or qualifications
(ii)
misconduct
(iii)
redundancy
(iv)
where the employee could not continue working in their job without
contravention of a statute
(v)
some other substantial reason such as to justify dismissal not appearing within
any of the other heads.
The facts of the problem disclose that Isobel is seeking compensation. In the usual
case of unfair dismissal the compensation which will be awarded comprises two
elements:
(i)
the basic award
(ii)
the compensatory award.
Isobel will be entitled, if unfairly dismissed, to a basic award calculated by a formula

related to the age of the applicant, her weekly wage and her length of service. The
maximum allowable wage is 464 per week, and the age weighting of Isobel, who is
aged 30, is 1. Accordingly, the basic award to which she will be entitled is
1 3 (number of years service) 464 = 1,392.
The compensatory award is such amount as the tribunal considers just and equitable
in all the circumstances, having regard to the loss sustained by the complainant in
consequence of the dismissal (subject to a maximum of 76,574). The award takes
into account such matters as the loss of wages up to the hearing, estimated loss of
future earnings, loss of fringe benefits and expenses incurred in seeking alternative
work. It should be noted that the dismissed employee is expected to mitigate his or
her loss, and this will be taken into account in assessing the compensatory award.
The facts of the problem do not give sufficient information to assess the level of the
compensatory award, but obvious items of loss for Isobel will be the loss of earnings
to the date of the hearing and future losses during any period of unemployment
until she finds another job.
42
(b)
Any of the following two categories:


8
PARTNERS' RIGHTS AND LIABILITIES

Sam has clearly used his powers for an unauthorised purpose. Unfortunately for the
other partners they cannot repudiate his transaction with the bank, even though it
was outside his actual authority. The reason is that it is within his implied authority
as a partner to enter into such a transaction. As a trading partnership, all the
members have the implied authority to borrow money on the credit of the firm and
the bank would be under no duty to investigate the purpose to which the loan was
to be put. As a result, the partnership cannot repudiate the debt to the bank and
each of the partners will be liable for its payment. However, Sam will be personally
liable to the other partners for the 10,000 and, as a further consequence of his
breach of his duty not to act in any way prejudicial to the partnership business, the
partnership could be wound up.
(b)
Toms purchase of the used cars was also clearly outside the express provision of the
partnership agreement. However, the partnership would be liable, because the
transaction would be held to be within the implied authority of a partner in a garage
business (Mercantile Credit v Garrod (1962)). Once again Tom, the partner in default
of the agreement, would be liable to the other members for any loss sustained in the
transaction.
43
(a)

(a)
A pre-incorporation contract is a contract which promoters enter into, naming the

company as a party, prior to the date of the certificate of incorporation and hence
prior to its existence as a separate legal person. The company cannot enter into a
binding contract until it has become incorporated, and it is not bound by any
contract made on its behalf prior to incorporation.
(b)
Albert has contracted with Typo Ltd before Superspeed Ltd received its certificate of
incorporation. This therefore is a pre-incorporation contract. S51 CA06 provides that
a contract which purports to be made on behalf of a company not yet formed has
effect as one made with the person purporting to act on behalf of the company and
he is personally liable on it subject to any agreement to the contrary. In short, the
person acting on behalf of the future company must contract out of personal
liability. Albert is therefore personally liable on the contract. Superspeed Ltd is not
liable and can contract with a cheaper source because it was not bound by the
contract anyway.
44
SUPERSPEED LTD


10
SHARE CLASSIFICATIONS
(a)
(i)
Where the articles set out a procedure for varying class rights, then that
procedure should be followed.
(ii)
If there is no specified procedure within the Articles of Association then,

under s.630 CA 2006, variation needs a special resolution or written consent
from the holders of 75% in nominal value of the shares of that class.
Any alteration of class rights is subject to challenge in the courts. To raise such a
challenge any objectors must:
hold no less than 15% of the issued shares in the class in question (s.633(2));
not have voted in favour of the alteration; and
apply to the court within 21 days of the consent being given to the alteration
(s. 633(4)).
The court has the power to either confirm the alteration or to cancel it as unfairly
prejudicial.
Alfreds problem in this situation is that the variation has been to the ordinary
shares and not preference shares. So Alfred has not participated in the shareholders
meeting to alter the voting rights. Unless there were provisions in the articles for
alteration to be approved by general meeting, Alfred will have no recourse to the
companys internal organisation.
45
(b)
The procedure for altering class rights is set out in s.630 CA 2006. The precise
procedure depends upon whether there is a pre-established procedure for altering
the rights.


11
DIRECTORS DUTIES
(a)
Sale of shares in V Ltd to A plc

Under s.177 CA06 every director with an interest in a contract with his company
must formally disclose this before the company enters into the contract.
Whilst the circumstances of the case suggest that the board of A plc is aware of
Rs interest, he would be advised to ensure that if there is no board minute to that
effect, he makes formal disclosure in writing. R must ensure that the nature and
extent of his interest is disclosed in order to comply with s.177 CA06.
Proposed executive directorship

Whilst directors usually need to be appointed, or have their appointment by the
board confirmed, by the members in general meeting, it is then usually up to the
board to determine the terms of appointment.
(b)
Sale of shares in V Ltd to A plc

Under s.190 CA06 members approval is required if a director is involved in a
contract with his company for the sale or purchase of property by the company.
S.190 does not apply to transactions worth less than 5,000; but higher-value
transactions must be approved if they are worth more than 100,000 or more than
10% of the companys net assets.
A plcs purchase of Rs V Ltd shares for 250,000 clearly requires s.190 approval. The
contract must be approved by the members (by ordinary resolution) before it
proceeds or within a reasonable time thereafter. If not, it is voidable by the
company.
Proposed executive directorship
Under s.188 CA06 the members must approve any directors service contract which
is to run for more than 2 years, unless it provides for the company freely to
terminate it before it expires. Assuming the proposed 6-year contract will contain
restrictions on the companys right to terminate it early, it must be put to the
members.
Under s.188 the members must pass an ordinary resolution, approving the contract,
in general meeting.
46
It is likely that A plcs articles disqualify R from voting in board meetings on

contracts, such as this one, in which he has an interest.

12
HYDRANGEA LTD
(a)
In order to get this resolution on to the agenda of the meeting, Diana can make use
of s.303 CA 2006. This enables members representing at least 10% of the paid up
capital of the company that carries voting rights or (where there is no share capital)
at least 10% of the voting rights to require the directors to call a general meeting.
The requisite percentage is reduced to 5% in the case of a private company, if more
than 12 months has elapsed since the last general meeting. The request must state
the general nature of the business to be dealt with at the meeting and must include
the text of any resolutions that it is proposed to move.
Members representing at least 5% of the total voting rights, or at least 100 members
holding an average of 100 in paid-up share capital, may require the company to
circulate a statement of up to 1,000 words in respect of any resolution or other
business to be dealt with at the meeting: s.314
(b)
Normally at a company meeting, voting on the resolutions which have been

proposed is by a show of hands. The decision of the chair of a meeting on a show of
hands is conclusive unless a poll is asked for. This may happen where it is clear that
the show of hands does not fairly reflect the actual number of votes that the
members of the company can command. Where there is a poll, the number of votes
a member may hold by virtue of his shareholding is counted.
In relation to proxies, every notice calling a meeting must include a statement that
every member who is entitled to attend and vote at a company meeting is entitled
to appoint a proxy to attend, speak and vote in their place: s.325.
47
Within 21 days of any such requirement, the directors must call a meeting to take
place within 28 days from the date of the notice: s.304. If they fail to do so, the
members who requested the meeting (or any members representing over 50% of
the total voting rights) may call a meeting to take place within three months of the
initial request to the directors: s.305.


13
GOODYBAGS LTD
(a)
S.214 IA 1986 empowers the court to declare a director or shadow director of a

company liable to contribute to the assets of the company if the director knew, or
ought to have known, that the company had no reasonable prospect of not going
into insolvent liquidation and did not take every step that ought to have been taken
to minimise the potential loss to the companys creditors.
Directors will only risk an action of wrongful trading if the company goes into
liquidation at a time when its assets are insufficient for the payment of company
debts and other liabilities and the liquidator applies to the court for a declaration.
(b)
The effects of s.214 IA 1986 lead to a civil claim against directors to recover
damages, which are then added to company assets to help towards the payment of
creditors. If a director is found guilty of wrongful trading the court can at the same
time make a disqualification order for up to 15 years against the director by virtue of
s.10 of the Company Directors Disqualification Act 1986.
In the light of recent events, Tim must insist on seeing the company accounts and
taking a more inquisitional role in respect of the directorship. If the company is
insolvent and Graham is still trading on behalf of the company, Tim may face an
action by the liquidator based on his inaction.
48
It is possible for a director or shadow director to defend the case by showing that he
took every step he ought to have taken to minimise creditors losses.

14
TELEVISION SHARES
(a)
Insider dealing is governed by part V of the Criminal Justice Act 1993 (CJA).
Section 52 CJA sets out the three distinct offences of insider dealing.
An individual is guilty of insider dealing if they have information as an insider
and deal in price-affected securities on the basis of that information.
(ii)
An individual who has information as an insider will also be guilty of insider

dealing if they encourage another person to deal in price-affected securities in
relation to that information.
(iii)
An individual who has information as an insider will also be guilty of insider

dealing if they disclose it to anyone other than in the proper performance of
their employment, office or profession.
Jeffrey is an 'insider' as he receives inside information from an insider, i.e. the MD of

Large Television plc. The information fulfils the requirements for 'inside information'.
It relates to: particular securities, the shares in Large Television, it is specific, in that
it relates to the takeover. It has not been made public and is likely to have a
significant effect on the price of the securities. On that basis, Jeffrey is clearly guilty
of an offence under s.52 when he buys shares in Large Television plc.
When Jeffrey advises his brother Pete to buy shares in Large Television plc, he
commits the third offence under s.52 of encouraging another person to deal in priceaffected securities in relation to inside information. Pete on the other hand has
committed no offence for the reason that, although he has bought shares in Large
Television plc, he has not received any specific information and therefore cannot be
guilty of dealing on the basis of such information.
49
(b)
(i)

50
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OBJECTIVE TEST QUESTIONS

Beyond reasonable doubt

Beyond all probability

Which of the following is a remedy available under the civil law?

Which of the following courts only hear civil cases?

The County Court

The Magistrates Court

The Court of Appeal

The Privy Council

The court of first instance for criminal cases is:

Case law is made up of:

Common law only

Common law and equity

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Which of the following is the prosecutor in a criminal case?

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THE LAW OF OBLIGATIONS

A consumer credit contract

For a reasonable time

Which of the following is not a valid method of acceptance of an offer?

The offerees express words

The offerees conduct

Silence of the offeree

Which of the following statements regarding implied terms is correct?

Terms may be implied into a contract by statute

The courts do not interfere in contracts by implying terms

In relation to contract law, which of the following describes an offer?

A statement of possible terms

Displaying goods for sale in a supermarket

A verbal promise to be bound on specific terms

In the tort of negligence, which type of loss is usually not recoverable?

Pure economic loss

Intention to create legal relations

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Which of the following contracts must be in the form of a deed?

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Privity of contract means only parties to a contract may sue on it

Privity of contract is not subject to regulation by statute

There are no exceptions to the rule of privity of contract

Privity of contract is only enforceable on commercial contracts

Which of the following statements regarding counter-offers is correct?

Counter-offers may be accepted by the original offeror

Counter-offers do not terminate the original offer

A statement that enquires whether alternative terms would be acceptable is a

A counter-offer is made by the original offeror to the original offeree

How are express terms incorporated into a contract?

By a decision of the courts

By the parties themselves

By what is customary in the particular trade

In relation to the tort of negligence, what is novus actus interveniens?

A decision by the court that reverses the burden of proof

An intervening act that breaks the chain of causality

A defence to a liability in negligence

To establish a case of passing off, what must the claimant prove?

The consumer purchased fake goods

The defendant is using the same business model as the claimant