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NonprofitsBusinessesMusiciansArtists & DesignersTeachers+ all categoriesMost FollowedPopular..Emmanuel Dube .We're using Facebook to personalize your experience.Learn MoreDisableView Public ProfileMy DocumentsMy CollectionsMy ShelfMessagesNotificationsAccountHelpLog Out..inShare.0Embed DocCopy LinkReadcastCollectionsCommentGo BackDownload 1 BUSINESS LAWSession 2011-12LECTURE HANDOUTCourse Organiser: Nicholas Grier MA, LLB, WS, Solicitor 2UNIVERSITY OF EDINBURGH MBA 2011/2012BUSINESS LAW Week 1: The British Legal SystemEssential Reading:Black: Business Law in Scotland,Ch.1, 2.Meanings of the Term LawLaw has a variety of meanings usually involving a fair method of resolving disputes,or following procedures that help establish certainty as to ownership or entitlement tocertain assets or advantages. Law also lays down penalties for failure to adhere tocertain social or economic norms.On a more philosophical level, law uses as its benchmark either a universal intangiblesense of justice/equity (the Hartian view) or law is what the state pronounces to be thelaw, (positivism) usually taking into account social mores, religious views,economic attitudes (e.g. capitalism) and sometimes national identity.In this course we are mostly looking at a small section of law, known as private law,and in particular at the commercial aspects of private law. We are not looking atinternational law, criminal law, procedural law, family law or public law. We are justlooking at the law relating to peoples rights and duties towards each other in thecommercial world.Some basic concepts of private law relevant to commercial lawLegal RightsDefinition of a legal right:an interest protected by the law, and enforceable through the courts, whichentitles one person to the uninterrupted enjoyment of an asset or method or means of living his life, together with the requirement that those whodeprive that person of the interrupted enjoyment of the asset or method, or means of living his life, should be required to compensate him for his loss,refrain from depriving the person of the uninterrupted enjoyment, or carryout such acts as should enable him to continue with his previous enjoyment.Classification of rightsThere are two basic categories of rights:(a) Personal rights ( jus in personam) 3enforceable against an identifiable person or group of persons,or against an organisation or Government body, such as a rightto sue someone if he injures you or doesnt pay your bill.(b) Real rights ( jus in rem)an exclusive interest or benefit enjoyed by a person in a thing,enforceable against the world at large, like a mortgage over a property.Legal personsDefinition of a person in the legal sense:any being or entity which the law recognises as being capable of acquiringrights and duties familiar examples being human beings, companies, localauthorities, partnerships, universities, the Government etc;Legal personality is determined by the lawthings never have legal personalityLegal CapacityThis relates to the ability of legal subjects to perform valid legal/juristic acts:for example, children and the

insane have limited legal capacity; localauthorities are not authorised to carry out certain acts.The Law of ObligationsGenerally concerned with personal rightsand divided into voluntary and involuntary obligationsVoluntary obligations(a) Promises,one party makes a unilateral obligation to perform(b) Contractwhere both parties have obligations towards each other 4 Involuntary Obligations(a) DelictThis is where one person must compensate another for wrongscommitted, with damages being the measure of compensationclaimable.(b) Unjustified EnrichmentThis is where one person who is unjustifiably enriched at anothersexpense (as in constructive trusteeship) is required to compensate theother person for his loss.Sources of Scots LawStatuteThe Legislature of United Kingdom of Great Britain and Northern IrelandThe Scottish Parliament;International law: customs and treatiesCommon lawThis comes from the sources indicated below:The CourtsThe courts make law, by interpreting the legislation, by the use of case law(judicial precedent) (see later), by studying the institutional writers and byfollowing custom.CustomInstitutional writersIn Scotland, Roman Law, especially Justinian, through to Stair, Bell etcOther sourcesobiter dicta legal literatureforeign legal systemsSources of English lawStatuteActs of the English Parliament and later the UK ParliamentCommon law and equityCommon law derives from judicial precedent and from custom.In England there is a further body of law known as equity. This arose out of the fact that sometimes the strict adherence to a law, particularly a procedurallaw, could result in people taking advantage of the rules to their own benefit 5without really deserving to have the law on their side. It also arose out of thefact that historically English law was very formalistic and if you did not havethe exact form of wording, you were not allowed a remedy. The following aresome of the 14 principles of equity:Equity follows the law (i.e. the common law or statute should in general beapplied, but equity can displace it if necessary or permitted).Where the equities are equal, the first in time prevails.Equity looks to the substance, rather than the form.Equity will not permit a statute to be used as an instrument of fraud.Equity imputes an intention to fulfil an obligation.Equity regards as done that which ought to be done.Equity will not suffer a wrong to be without a remedy.He who seeks equity must do equity.He who comes to equity must come with clean hands.Delay defeats equity.Equality is equity.Equity will not assist a volunteer.The distinction between enacted and unenacted (common) lawEnacted law (legislation) is that which Parliament has decided is good for us.The virtue of legislation is that it has democratic force behind it, and it may beclearer and easier to access than having to look at lots of common law cases.The Sale of Goods Act 1979 sets out all the law relating to the sale of goods sothat everyone knows what the rules are.On the other hand, politically-driven law does not always make clear law, andlegislation often creates a new but not necessarily better set of winners andlosers.Unenacted law, or common law, is very dependent on good judges and is notnecessarily the democratic will of the people. It is constantly shiftingaccording to different cultural, moral and commercial mores. Sometimeslegislation has to be introduced to reverse the effect of a judges decision(particularly in, say, tax law).A certain amount of recent legislation has been trying to bring about a moralchange in how things are carried out (e.g. Companies Act 2006 tries to makedirectors of companies behave more thoughtfully). This sort of law slides intowhat is known as soft law because there are few clear and obvious sanctionsfor failure to follow the law.Public International Law: Customs and TreatiesCustomary International Law what is customary international

law? presumption that the legislature did not intend to legislate contrary tointernational law primacy of United Kingdom legislation over customary international law:international law gives way to a clearly worded statute to the contrary 6 Treaties what are treaties? requires enabling United Kingdom legislation before the rights created bya treaty become part of national law Failure to implement a treaty may give rights to those disadvantaged by astates refusal or delay in implementing a treatyRight at the moment, with the EU in turmoil, it is not very clear what the UKsstanding on a good deal of future EU law will be.Legislation in more detailDefinitionlegislation is the enunciation of binding rules of law in a formalised way, by an authority endowed with the legal capacity to do so Three types of legislation Primary legislation (Acts of Parliament/Statutes) pre-1707 by the Scots Parliament: e.g. Royal Mines Act 1424 post-1707 by Westminster (and post 1999 by Scottish Parliament) Increasing number of Acts per year Complexity of legislation Secondary (subordinate/delegated) legislationThis is legislation made by a body or person other than Parliamentunder powers delegated by Parliament, sometimes to a minister or to aGovernment department. European Community legislationInterpretation of Legislation: the basics Find the ordinary meaning of the word at the time the Act was passed, by using dictionaries, and the judges sense of language. 7 Golden Rule - grammatical and ordinary sense of the words to beadhered to. But words must be taken in their context. If the meaning is still doubtful ("ambiguity") resort is made to other sections, short and long title, side-notes, heading, punctuation, etc. Also to other statutes, circumstances when Act was passed, reports of committees which led to Act (to find the "mischief" the Act wasintended to correct). Hansard can now be looked at. While the intention of Parliament isgenerally to be found from the words Parliament has used, thestatements in Parliamentary debates may be used to removeuncertainty. If the ordinary meaning is clear, it can be departed from only if itwould lead to absurdity or a wholly unreasonable result. If the Act is addressed to specialists - whether tradesmen or scientists -evidence can be led of the technical meaning of words used. TheGovernment usually publishes explanatory notes though these vary inquality. Problem with legislation is that it is often drafted in a hurry andscrutinised by politicians who are not experts in the required field. Political legislation throws up problems of conflicting desirable aims. Legislation often throws up unintended consequences or unforeseenloopholes. Recently there has been a move towards more intelligible legislation(e.g. Companies Act 2006) Tension between those who believe that it is not Parliaments job tomake legislation intelligible but to get it right, and those who think thatlegislation ought to be intelligible. There are vested interests on bothsides. Sometimes litigants think that they can take advantage of someingenious interpretation of the law to get some remedy they seek. Thisrarely works, though it doesnt stop them trying.Case Law and Judicial PrecedentThese are the past decisions of judges. 8 Scottish Law ReportsSession Cases These are the case reports from the Court of Session and the House of Lords.Scots Law TimesThese cover most of the sheriff courts and the decisions from the higher courts. The SLT comes out weekly. There are also theScottish Civil LawReportsandGreen's Weekly Digest.English Law ReportsThe Law Reports Appeal Cases: AG v De Keyser's Royal Hotel Ltd [1920] AC 508. Queens (or Kings) Bench:Chappelton v Barry UDC [1940] 1 KB 532. Chancery: Re Macaulay's

Estate[1943] Ch 435. Family: Jones v Jones[1976] Fam 8.Weekly Law Reportse.g.R v Secretary of State for Transport ex parte Factortame Ltd [1990] 3WLR 818.All England Reportse.g. DPP v Shaw[1961] 2 All ER 446.Structure of the Courts(i) The Scottish Civil Courts Supreme Court [Privy Council]Court of Session(Inner House)Sheriff Court Court of Session(Sheriff Principal) (Outer House) Other courts & tribunalsSheriff Court(Sheriff) 9The Inner House sits as an appeal court from the lower courts. It is presided over bythe Lord President. If the court really wishes to emphasise its judgement, it ropes in asmany judges as possible. When the House of Lords is sitting on a Scottish appeal,there is normally a preponderance of Scottishtrained judges sitting in the appeal,though it is normal to have English and Northern Irish ones present too. If a matter of European Law arises, there can be an appeal at any time to the European Court of Justice. The sheriff court is divided into different types of court depending on thesums involved and there is a small claims court that deals with very small disputes(less than 1000).(ii) The English Civil CourtsHigh Court of JusticeQueens Bench Division Chancery Division Family DivisionTrusts, equity, bankruptcy, property[General] Commercial Court Admiralty CourtContract, tortFrom the three divisions of the High Court there is an appeal to the Court of Appeal, presided over by the Master of the Rolls. From there, there may be an appeal to theSupreme Court, formerly the House of Lords. Scottish trained judges commonly sit onthe Supreme Court decisions.Below the High Court of Justice is the County Court, which is more or less theequivalent of our Sheriff Court and deals with matters up to 50,000 in value. Appealsare taken from it to relevant division of the HCJ or if the matter is suitably complexdirect to the Court of Appeal and if necessary then on to the Supreme Court. If amatter of European law arises, there can be an appeal at any stage to the EuropeanCourt of Justice.The law relating to judicial precedent: The Doctrine of Stare Decisis(Lit. Let thedecision stand)Judicial precedent works on the principle that the decision of a previously decidedcase should be followed when the same issues come up later on. This gives somedegree of certainty and consistency to the law. A previous decision is known as aprecedent. The most important part of the precedent is itsratio decidendi(thereasoning behind the decision) (see later).There are two factors which determine whether a precedent is binding:1. the relative position in the court hierarchy of the court examining theratio to the court which laid down the precedent initially; 102. whether there is aratioin point (relevant to the particular matter)1. The relative position in the court hierarchy of the court examining aratio and the court which laid down the precedent initiallyIn principle, where there is an existing decision on a point of law, that decisionshould be followed (or as lawyers say, is binding) on all subsequentoccasions where the same point of law arises in order to give some degree of certainty as to what the law is. However, if one of the litigants in a later case believes that the original decision is wrong, he may appeal the case to thecourt higher than the court whence the original decision came from in order tosee if the higher court will overturn the original decision. If the originaldecision came from the highest court of all, the Supreme Court, the SupremeCourt will be invited to reconsider its original decision which it sometimeswill do.The principle applies in criminal matters too.For example, the Scottish law of rape.The good thing about judicial precedent is that you know where you stand. Bylooking at past cases you can work out what the current law.The bad thing is that it requires a good knowledge of existing cases, it canchange without your knowing of the change, and appealing to a higher courtcan be very expensive.But as a system, it works

reasonably well.The basic rule:higher courts bind lower courts;2.Ratio decidendiin PointThis means relevant to the actual legal issue involved in other words it must be the same legal point that is being discussed, not one that is either markedlyor indeed subtly different.Identifying theratioof a case.Unfortunately there is no perfect method of doing this, but generally speakingtheratiois the most significant part of the decision the specific point of law,interpretation of the law, or shift in attitude to a particular law, that is centralto the judges decision and sometimes what the judge thinks is theratioisnot necessarily what later commentators find to be theratio.A Ratioin Point A prior decision is a precedent in point when there was raised, argued anddecided in it as applicable to a certain set of facts some issue of law which isthe same issue of law as arises in the instant case in relation to [the same set of 11facts or+ a different set of facts of the same general kind (Walker,TheScottish Legal System, 7thedn, 420)Persuasive Precedent obiter dicta decisions from the superior courts in England or even abroad factors that affect the weight of a persuasive precedent the status of the court that made it the reputation of the judge whoseobiter it was Civil ProcedureThis is the law that relates to the operation of the courts. There are various rules for the different courts, the complexity increasing with the seniority of the court.Role of the JudgePrinciple of judicial passivity:Strictly speaking it is for the judge to judge the facts as they are presented to him, andon the law as it is argued in front of him. However, if the litigants have not done their homework and are unaware of new legislation or case law that affects the issue, hemay have to make the litigants aware of these in the course of the trial.Types of possible outcomes1) Decree for pursuer, undefended (decree in absence)2) Decree for pursuer, defended (decree in foro)3) Decree for defender - dismissal4) Decree for defender - absolvitor (to assoilzie)In England the courts pronounce judgements. The pursuer is known as the claimant,and the defender as the defendant. If the claimant fails to make out his case, thedefendant is found not liable.Standard of proof In a civil case, the standard of proof is that of a balance of probabilities, not beyond possible doubt. This raises interesting issues (OJ Simpson type cases).3.5 Some types of action or petition Debt. Damages. Divorce. Declarator. Reduction/ rescission. Interdict/injunction. 12 Judicial Review Specific implement/specific performance.3.6 Enforcement of decrees For money decrees:Extract decree or judgementDiligence or enforcementSequestration Liquidation(bankruptcy)Attachment Arrestment Inhibition3.7.In many areas of life there are methods of dealing with legal disputes that donot involve going to the courts. These include various tribunals (such as employmenttribunals, immigration tribunals etc) and arbitration. Some organisations useOmbudsmen.Contract law Reading:Black: Ch. 4, 51. Introduction: The Basis of Contractual LiabilityImportance of consensus in idem(agreement on the same matters)Consensus in idemmeans that both parties must be agreed on what they are buying or exchanging ( RafflesvWichelhaus(1864) 2 H&C 906 two shipsknown as thePeerless).2. The Role of Offer and Acceptance3. The Offer3.1 Requirements 13 a) Firm - madeanimo contrahendi(an intention to contract or to trade). b) Complete.c) Clear and certaind) The contract must be legally permissible.e) The parties must have legal capacity.f) The contract must be a contract not a mere social agreement.3.2 Offers and other pre-contractual statementsOffers must be distinguished from other pre-contractual statements - it must inviteacceptance and be capable of resulting in a contract. Was the following a contract?(BHP was a property known as Bumper Hall Pen).

Harvey v Facey*1893+ AC 552.H: Will you sell BHP? Telegraph lowest cash price.F: Lowest cash price for BHP 900.H: We agree to buy BHP for 900. Please send us your title deeds in order that we mayget early possession.Some pre-contractual statements are merely invitations to treat, i.e. requests for offers;others are statements of fact (e.g. quotations of prices) or verba jactantia(e.g.advertisements). But in every case, it all depends on the objective understanding of thewords used. The intention of the person making the statement, as derived from thewords used and their context, is all important.While you negotiate, or while you are willing to negotiate, you bear your own costsand no offer is made, no acceptance is received, and no-one can sue anyone. Anexpression of intention is not a binding contract ( Dawson InternationalvCoats Paton plc1993 SLT 80).3.3 ExamplesShop Displays -*Fisher v Bell[1961] 1 QB 394; Notice in shop window read - Ejector knife - 4/-. Shopkeeper charged withoffering an offensive weapon for sale.These are known as invitations to treat and do not constitute an offer for sale, and consequently do not amount to a criminal act.Advertisements -Partridge v Crittenden[1968] 1 WLR 1204; 2 All ER 421 advertisement for bramblings an advertisement is not necessarily an offer though note that notto honour an advertisement may be a breach of the Trade Descriptions Act. 14 Withdrawal of offer Offers may be withdrawn within a reasonable time but not after acceptance.Philp v Knoblauch1907 SC 994; 15 SLT 61; 44 SLR 666In this case K made an offer to sell linseed at a certain price. P accepted it, andconfirmed it by letter. K then tried to withdraw, but P was held entitled to hold K to the bargain.It is acceptable to put a time-limit on an offer so that it must be accepted within acertain time.AuctionsA display of goods at an auction is an invitation to treat. Each bid is an offer and lapses when a higher bid is made. Acceptance is indicated by the drop of the hammer. Until the hammer drops the bidder can revoke his offer, bywithdrawing the bid, and the seller may withdraw his goods (Sale of Goods Act1979 s. 57(2)).Websites?See the Electronic Commerce (EC Regulations) 2002 and the Consumer Protection (distance Selling) Regulations 2000.Rewards/offers to the general public*Carlill v Carbolic Smokeball Co. [1893] 1 QB 256The defenders speciously claimed that they were merely entering into negotiations, but the courts held that Mrs C did not have to do any negotiating at all: all sheneeded to do was follow the rules.For a Scottish application of Carlill- Hunter v General Accident 1909 SC (HL) 30Promises to accept highest/lowest offers* Harvela Investments v Royal Trust [1986] AC 207;[1985] 3 WLR 276; 2 All ER 9663.4 Termination of Offersa) Revocation: McMillan v Caldwell1991 SLT 325 even a formal writtenoffer for land can be withdrawn provided the other party receives thewithdrawal before he accepts: b) Rejectionc) Effluction of Timed) Death of Parties4. The Acceptance4.1 Requirements 15a) Conscious acceptance; b) Acceptance must match offer exactly;c) Acceptance must be by party to whom it was made;*Wolf and Wolf v Forfar Potato Co1984 SLT 1004.2 Requests for ClarificationThis may have to be distinguished from the types of reply noted above: see Stevenson v McLean(1880) 5 QBD 346.4.3 Cross OffersTinn v Hoffman & Co(1873) 29 LT 2712/2/91: A writes to B - I wish to buy X for 1,000.2/2/91: B writes to A - I wish to sell X for 1,000.4.4 Battle of Forms Butler Machine Tools v ExCell-O Corp[1979] 1 WLR 401; 1 All ER 965 (CA)Continental Tyre and Rubber Co Ltd vTrunk Trailer Co Ltd 1987 SCLR 584.5 Acceptance by ConductIn general, silence is not acceptance - there is no acceptance unless it iscommunicated to the offeror.In exceptional circumstances uncommunicated conduct may constituteacceptance.4.6 Contracting at a Distance4.6.1The Postal Acceptance RuleThe common law

postal acceptance rule is a mess. It stated that the mere act of posting concludes the contract. This no longer makes sense commercially, and itis prudent nowadays, if an offeror wishes to avoid its consequences, to state inhis offer that any acceptance must reach him to be effective.The old rule was also applicable to telegrams but not to telexes. With regard totelexes it has been judicially observed that no universal rule can cover all suchcases; they must be resolved by reference to the intentions of the parties, bysound business practice and in some cases by a judgement where the risks shouldlie ( Brinkibon Ltd v Stahag Stahl[1983] 2 AC 34). There are many other dicta 16against strict application of the postal rule, but the safest way is to specify howthe acceptance must be made.4.6.2Contracting at a distance When businesses contract with each other, it is normally (unless providedotherwise) the case that the applicable law will be the law of the country that hasthe closest connection with the contract (Contracts (Applicable Law) Act 1990).Generally this will be the place where performance of the required act, service or manufacture takes place, as opposed to the law of the place where the payer is based. So it is usually the suppliers law. However, in a business to consumer contract, it will generally be the consumers law that applies, since they areallowed to rely on their own consumer protection laws.4.7 The requirement of writing The need for writing.Some contracts must be in writing, such as certain transactions involving land,or gratuitous unilateral obligations unless undertaken in the course of business property (Requirement of Writing (Scotland) Act 1995). Many consumer credit transactions must be in writing. Certain other documents also need to bein writing (wills, bills of exchange, HP agreements etc.) but they are not allcontracts.How are other contracts formed?What if someone unscrupulous takes advantage of the requirement of writingto wriggle out of a contract by saying that it was not formally valid?Sometimes a contract which should be in writing is not put in writing. It might be tempting for one party to such a contract to wriggle out of it by saying thatit was not signed and was therefore invalid. The wriggler, however, if hehad benefited from the contract, or if the other party had incurred expenditureor suffered loss, would be personally barred from relying on the requirementfor writing (Requirements of Writing (Scotland) Act 1995 s.1 (2)). This isknown as estoppel in England. See MitchellvStornoway Trustees1936 SC(HL) 564.8 The validity of contracts Some contracts are invalid. This is because they are void voidable unenforceable (dealt with later)Avoid contract is not a contract at all there is a problem right at the heart of the contract, such as lack of true consent, such as, say, when one of the partiesis under age, or does not have title to the goods (ONeill v Chief Constable of Strathclyde1994 SCLR 253 (two cars were exchanged by means of a barter,though one of the cars was in fact stolen. The non-stolen car was sold to athird party who bought in good faith for value. When it turned out that theother car was stolen, the original contract or barter was void, and the innocent 17 purchaser could not get title to the car. He did have a right against the personwho sold him the car who in turn had a right against the thief) or where therewas an error as to the subject matter of the contract (see RafflesvWichelhaus later). With a void contract, even if goods are delivered and money paid, properly the parties should revert to the position before anything happened(restitutio in integrum), and the contract is deemed never to have existed. So if goods are stolen, even if the thief sells them on, the purchaser does not getgood title and the victim can get the goods back. The innocent third partycan sue the thief if he can catch him. Or if someone is forced to sign a

contractagainst his will, he can have the contract set aside (technically reduced). Hewont get damages but at least he is no worse off that he was before he wasforced into the contract.Example of void contracts includes contracts where the parties do not havelegal capacity, where there is an essential error, where some vital paperwork is missing etc. These are examined later.Avoidablecontract is one where there is a problem but that problem does notlie at the heart of the contract and there was consent to the contract at the timethe contract was made. Distinguishing when something lies at the heart of thecontract and when it does not is not always easy. If something is said in acontract to be of the essence of the contract then it does lie at the heart of thecontract. Otherwise it is a question of degree.The significance of a voidable contract is that the contract is initially valid asfar as third parties are concerned and if the challenger does not act quickly toestablish his challenge, he can lose his opportunity to challenge the contract.See MacLeod vKerr 1965 SC 253.Unfortunately, the precise difference between void and voidable is not easy tooperate in practice. Furthermore the case law is not perfectly clear.As a further complication, where there is a voidable contract, but for somereason it is not possible to restore the parties to their original position, perhaps because the goods involved have been consumed, or someone has disappeared,the contract may be as a matter of practice irreducible and the innocent party just has to bear his loss. A voidable contract may also be irreducible if theinnocent party has delayed in enforcing his rights or a third party has obtainedrights in the assets involved.4.9 Contractual capacity Children are protected under the Age of Legal Capacity (Scotland) Act 1995.Children under 16 have no contractual capacity except for reasonabletransactions (relative to age etc.). Children aged 16 and 17 have full capacity, but any transaction that causes them substantial prejudice may be set aside by the court and they have until they are 21 to do so. Substantial prejudicemeans that a sensible adult would not have entered into the transaction. 18However, if a child has misrepresented his age, or been in the course of business, he cannot use these provisions. It is possible to present a contract tothe sheriff for him to approve, thus removing the childs potential objections(s.4). There are similar provisions for incapable adults whose affairs to belooked after by their guardians.Effect of error and illegality, breach of contract, remedies andtermination Reading: Black Ch.4, 51.01 ErrorWhere error has arisen, damages will not normally be payable becausenormally the aggrieved party just wants the contract set aside.There are two main types of error. These are errors of law these meet with little mercy ignorantia juris neminemexcusat the contract will still be valid errors of fact.Errors of fact may be broken down into further categories: error of expression unilateral error common error mutual error incidental error essential error induced error/misrepresentationThese will sometimes result in a contract being void, voidable or valid.With error of expression, it used to be the case that the courts could not rewritethe document, but could merely reduce the contract ( Andersonv Lambie1954SC (HL) 43 although only the farm was meant to be sold, the entire estatewas sold the disposition was reduced, and the solicitor taken out and shot).This was not always very helpful. Nowadays, under the Law Reform(Miscellaneous Provisions) (Scotland) Act 1985 ss.8 and 9 the court canrewrite the document to say what it ought to have said. There are cases in the past where people have tried (in bad faith) to take advantage of clericalmistakes. This Act resolves this problem.Unilateral error is where one party makes a bad bargain. Tough! SeeGillespiev Russell(1856) 18 D 677. Still a valid contract.Common error is when both parties make the same mistake, but the contractmay still be valid ( Leaf v International Galleries[1950] 2 KB 86).Mutual

error is where the parties misunderstand each other ( RafflesvWichelhausabove). This can make the contract void depending on what theissue is (in this case the subject matter of the contract). 19Incidental error is close to unilateral error it is something that does not go tothe heart of the contract, and is no fault of the party being sued seeCloupv Alexander (1831) 9 S. 448. So the contract is still valid.Essential error is an error without which one of the parties would have chosennot to have entered the contract, and it makes the contract void because of theabsence of consent. Where the matter is not essential then it would still be avalid contract. Common examples of essential error include: subject matter price identity of the parties involved. quality, quantity or extent nature of the contractIt is worth noting essential error as a concept has shifted over the years, andmatters that once would have counted as essential error in the past have now been usually remedied by statute or common law.Subject matter see (yet again) RafflesvWichelhaus Price the lack of clarity as to price is now not fatal, since under Sale of Goods Act 1979 s.8 and common law a reasonable price will be fixed (Wilson 20v Marquis of Breadalbane(1859) 21 D 957.Identity this is rare nowadays, but if you would only have contracted with a particular person, thus making it an essential part of the contract, and weremisled as to that person, you did not truly consent to the bargain you enteredinto: Morrissonv Robertson1908 SC 332.However, times change, and error as to identity is less likely to be an issue: Macleod vKerr 1965 SC 253.If the quality is not what one of the parties thought it was, there is no contract:Pattersonv Landsberg & Son(1905) 7F 675. This would now be dealt withunder the Sale of Goods Act 1979. Nature of the contract: some people think they are signing one type of contractwhen in fact they are signing another: so if you sign a deed of conveyancewhile thinking it is a lease you have not given true consent. This does not arisemuch nowadays.Principle of unjust enrichment? This is a somewhat elusive area of law, but broadly speaking, where someone benefits from your mistake and gets morethan he bargains for, he is under no obligation to return the extra benefit toyou; but equally where someone obtains that which he should not haveobtained, or obtained more than he bargained for without any mistake on your part, but particularly if he has not been straightforward in his dealings, he isobliged to return any extra benefit to you.1.02 Misrepresentation otherwise known as induced error Where there is innocent misrepresentation, the remedy isrestitutio in integrum as in Boyd and Forrest vGlasgow and South Western Railway Co No.1 1912SC (HL) 3. No damages are payable. Statements of opinion, such as one 21 persons view of what he might (or might not do) in the future, may wellamount to innocent misrepresentation.Where there is fraudulent misrepresentation, the contract is either void or voidable, depending how serious the misrepresentation is. Trade puffs (verba jacantia) dont count, but nowadays the Trade Description Act 1968 wouldnowadays help. Straight fraud Bile Beans Manufacturing Cov Davidson (1906) 8F 1181. Damages are payable up to the extent of the loss. Negligent misrepresentation is where one party did not mean to provide falseinformation as a result of which the other was induced to enter into thecontract, but he nevertheless still did provide false information ( Hedley Byrne& Co. Ltd v Heller & Partners Ltd [1964] AC 465). Damages are again payable. See Law Reform (Miscellaneous Provisions)(Scotland) Act 1985s.10.Under certain circumstances, the parties have to be particularly honest witheach other particularly in insurance contracts (theuberrimae fideirule) (TheSpathari(1925)

SC (HL) 6).1.03 Other factors which render a contract void or unenforceableFacility and circumvention ( MacGilvrayvGilmartin1986 SLT 89)(mental or physical frailty required)Undue influence (Grayv Binny(1879) 7 R 332) (delightful mum pressuredher own son to make over his property to her)Force and fear ( Earl of OrkneyvVinfra(1606) Mor. 16481) (my favouritecase in the whole of Scots Law) 22Anunenforceablecontract is one where there is nothing there to enforce because the goods do not exist, the parties have no contractual standing, or thecontract is asponsio ludicra. A legally recognised agreement is one that thecourts will enforce. The courts will not uphold social contracts, gentlemensagreements or criminal contracts (known as pacta illicta) ( Hamiltonv Main (1823) 2 S. 356) on the basis of ex turpi causa non oritur actioand its similar rule,in turpi causa melior est conditio possidentis( Barr vCrawford 1983SLT 481). These purported contracts have no legal standing at all and aretherefore void.2. Exclusion clauses Historically, the law assumed that adults should be able to enter into contractsfreely with each other on whatever terms they wished without governmentinterference. This was known as sanctity of contract. But over the years, thiswas found to be unreasonable, particularly in the context of large and powerfulcorporations trying to avoid any liability when dealing with ignorantconsumers, and so in practice many former abuses have been stamped out(such as penalty clauses). There was also a growing awareness that conducting business on the basis of small print or other dubious get-out clauses did not domuch for British business. So the original principle of sanctity of contract isnow much reduced. But it does still exist, particularly on a business-to- business basis, where person is expected to look after his own interests and hisfailure to spot someone elses contractual advantage is his own misfortune.The major area of judicial concern involves exclusion clauses. These are dealtwith under the common law and under statute. Broadly speaking exclusionclauses must be drawn to the weaker partys attention before he signs thecontract (e.g. disclaimer notices in hotel receptions as opposed to bedrooms(Olleyv Marlborough Court Ltd [1949] 1 KB 532). If they are not adequately brought to the attention of the weaker party, the contract will stand but thoseconditions are not binding ( HendersonvStevenson(1875) 2R (HL) 71).However, if both parties know what they are doing, or should know what theyare doing, and are negotiating as businessmen at arms length, the exclusionclause will be perfectly valid:Photo Production Ltd vSecuricor Transport Ltd [1980] AC 827, Ailsa Craig Fishing Co.v Malvern Fishing Co1982 SC (HL)14).2.01 The Unfair Contract Terms Act 1977 The Act was passed to regulate the use of exclusion and limitation clauses incontracts. Its provisions on supply of goods contracts will be discussed later in the course; here we consider its generally applicable rules.UCTA s 16 clauses in contracts and non-contractual notices excluding or restricting liability for any breach of duty arising in the course of any businessare void in respect of death or personal injury, and otherwise subject tofairness and reasonableness test.Smith v Eric S Bush[1990] 1 AC 831 23Four matters always to be considered - relative bargaining power, availabilityof alternative source, difficulty of task, practical consequences.UCTA s 17 - clauses in consumer and standard form contracts which excludeor restrict liability to the consumer or customer in respect of breach of acontractual obligation, or which allow a party to render no performance or a performance substantially different from that which consumer/customer reasonably expected from contract, will also be void, subject to the fairnessand reasonableness test.Consumer contract - where one party deals, and the other does not, in thecourse of a business, and the goods sold are of a type ordinarily supplied for private use and

consumption (UCTA s 25)Standard form contract - undefined in UCTA, but broadly any standard printed contract whose terms the business is unlikely to be willing to negotiateor alter much (as indicated in McCrone v Boots Farm Sales1981 SLT 103).Reasonable expectations see UCTA s.17 Elliot v Sunshine Coast International Ltd 1989 GWD 28-1252 a holidaycompany supplied a coach without a toilet despite having promised one in its brochure and then had the cheek to rely on an exclusion clause.UCTA s 18 in a consumer contract, a consumer cannot be required toindemnify someone else unless it is fair and reasonable for him to do so.UCTA s 19 - controls exclusions via manufacturer's guaranteesUCTA s 23 - no evasion by means of secondary contractsChapman v Aberdeen Construction Group plc1993 SLT 12052.02 The Consumer Protection from Unfair Trading Regulations 2008 (SI 2008 /1277)These are paralleled by the Business Protection from Unfair MarketingRegulations 2008 (SI2008/1276 not discussed in these lectures, but worthknowing about if you go into business).The regulations may be found at:http://www.opsi.gov.uk/si/si2008/pdf/uksi_20081277_en.pdf These regulations replace much of the old Trade Descriptions Act 1968.What it does is prohibit unfair commercial practices. Under reg.3 unfair commercial practices are defined as follows:(3) A commercial practice is unfair if (a) it contravenes the requirements of professional diligence;and 24(b) it materially distorts or is likely to materially distort theeconomic behaviour of the average consumer with regard tothe product.(4) A commercial practice is unfair if (a) it is a misleading action under the provisions of regulation5;(b) it is a misleading omission under the provisions of regulation 6;(c) it is aggressive under the provisions of regulation 7; or (d) it is listed in Schedule 1.Reg. 5 then outlines a whole lot of things that count as misleading actions.3. Restrictive Covenants Clauses which restrict freedom to work of ex-employees, ex-partners or previous owners of business are void unless shown to be reasonable in the parties' interests and in the public interest.The test is therefore one of reasonableness and the onus of showing that a particular covenant is reasonable falls upon the person seeking to up hold it.Three relevant factors in determining reasonableness:(a) Spatial area over which restriction is to operate;(b) Duration in time for which restriction is to operate;(c) Nature of restriction imposed.Example of factors (a) and (b) are* Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co[1894] AC 535 Empire Meat CovPatrick [1939] 2 All ER 85 five mile radius unreasonableso the whole terms set aside. The courts wont rewrite the contract to givedifferent terms.So far as factor (c) is concerned it depends on a balance being struck betweenreasonableness to the parties and reasonableness to the public. The latter element is rarely invoked; but seeGeorge Walker & Co v Jann1991 SLT 771.Several broad types of covenant can be elicited from the cases. 251. Contracts where theseller of a businessundertakes not to competewith the purchaser. ( Nordenfelt (above)).2. Contracts where anemployeeagrees with his employer not to join arival business or not to set up a similar business in competition withthe employer when he leaves his employment ( MasonvProvident Clothing and Supply Co. Ltd [1913] AC 724).3. Contracts of partnership Dallas McMillan & Sinclair v Simpson1989 SLT 454.4. Contracts whereby manufacturers or traderscombineto regulateoutput or disposal or price or commodities. Now covered almostentirely by statute, e.g. Fair Trading Act 1973; Deregulation andContracting Out Act 1994; Competition Act 1998, Enterprise Act2002. The EC Treaty Article 81 (formerly 86) prohibits any abuse byone or more undertakings of a dominant position within the commonmarket or in a substantial part of it in so far as it may affect trade

between member states. Article 80 (formerly 85) applies to concerted behaviour which may affect trade between member states.5. Contracts whereby manufacturers restrict the trading of a distributor solus agreements ( Esso Petroleum v Harpers Garage (Stourport) [1968] AC 269; [1967] 2 WLR 871).In some cases the courts will uphold the severable parts of the covenant anddeclare the other parts invalid. The enforceable elements will be severedfrom the unenforceable elements. Mulvein v Murray1908 SC 5284. Breach generallyIn every contract there are express and implied terms. If one of these terms isnot fulfilled (non-performance), then the contract has been broken, hence"breach of contract". Breach can occur in a number of ways: Total or partial failure to perform (or refusal to perform includinganticipatory breach) Defective performance Failure to perform timeously (within the time allowed)There are a variety of remedies for breach available to the innocent party.These may be classed as SELF-HELP (retention, lien, rescission) or JUDICIAL (implement, damages).4.01. GENERAL PRINCIPLES OF SELF-HELP REMEDIES 26The negative remedies of the innocent party (that is, the party faced by the breach), depend on two interrelated concepts - mutuality and materiality.4.02 Mutuality In each contract the obligations are reciprocal so that either both parties are bound or neither is bound. This means that a party can only insist on performance by the other party if he himself has fulfilled his side of the bargain. Macari v Celtic FC 1999 SC 6284.03 Materiality This simply means the degree of importance of the breach. The remedies opento the innocent party depend to some extent on whether the breach is seriousor trivial.There are three approaches to materiality:(1) It is not for every trifling breach that a party may with-hold performance.(2) It is familiar law, and quite settled by decision, that in any contractwhich contains multifarious stipulations there are some which go so tothe root of the contract that a breach of those stipulations entitles the party pleading the breach to declare that the contract is at an end.There are others which do not go to the root of the contract, but whichare part of the contract, and which would give rise, if broken, to anaction of damages. (Wade v Waldon1909 SC 571, 576 per LordPresident Dunedin). Wade, better known as George Robey, had failedto give 14 days notice (as required under his contract) to appear at aGlasgow theatre. The failure to give the required notice was not held to be material and the theatre manager was liable to Wade in damagesfor not letting him appear. The way to get round this in future wouldhave been for the manager to say that 14 days notice was of theessence of the contract.(3) Emphasis may fall on materiality of breach, rather than of term broken.4.04 What breaches are material? RepudiationRepudiation is a wrongful act by one of the parties to the contract indicatingthat he is refusing to fulfil his contractual obligations.See: BlythvScottish Liberal Club1982 SC 140WadevWaldon1909 SC 571Late performance? 29All this means that the remedy is used sparingly and in particular situationse.g. house sales, restrictive covenants. It is common to petition for implementwith alternative of damages. Retail Parks v Royal Bank of Scotland 1996 SC 227 Highland & Universal Properties Ltd v Safeway Properties Ltd 2000 SC 297Co-operative Insurance v Argyll Stores[1998] AC 15.03. Damages Every breach gives rise to a claim for damages even if only for a nominal sum.What is loss?Generally an economic concept in contract cases - lost profit on resale, extracost of replacement performance, cost of curing defective performance,wasted expenditure (see Anglia TV v Reed [1972] 1 QB 60 and Ruxley Electronics and

Construction Ltd v Forsyth[1996] AC 344). But the courtshave recognised that other forms of loss may be compensated by way of contract damages - see JarvisvSwan Tours Ltd [1973] QB 233. 30 Measure of damages The purpose of damages is to compensate, i.e., to place the injured party in thesame position he would have been in if there had been no breach. Ascompensation is the criterion, damages are measured by the loss to theinnocent party, not gain to the guilty party (Teacher v Calder (1899) 1 F (HL)39.Full compensation could however lead to undesirable results and the lawlimits the measure of damages in three main ways:(a) Causation The pursuer must show that loss suffered attributable to defender's breach.(b) Remoteness In general defender not liable for loss too remote. When is loss too remote?The damages ... should be such as may fairly and reasonably be consideredeither arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have beenin the contemplation of both parties at the time they made the contract as the probable result of the breach. (per Alderson B, Hadley v Baxendale(1854) 9Exch 341, 354 Balfour Beatty v Scottish Power 1994 SC (HL) 20Cosar Ltd v UPS Ltd 1999 SLT 259(c) Mitigation of loss The pursuer is obliged to take all reasonable steps to minimise the lossoccasioned by the defender's breach. He cannot recover a greater sum in 31damages than if he had taken those steps. However, he need not takeexceptional steps.6. CONTRACTUALLY STIPULATED REMEDIES 6.01. Penalty and liquidated damages In order to remove the uncertainty of predicting the quantum of damages the parties may insert a clause in their contract stipulating that a fixed sum will be payable on breach. The courts will only enforce such a clause if it is a genuine pre-estimate of loss (liquidate damages). If the clause penalises or is intendedto pressurise the party in breach then it will be treated as invalid and is notenforceable (penalty clause).6.02. Irritancies An irritancy clause in a contract is one which entitles one party to terminatethe contract in the event of specified breaches or misconduct of the other party. Such clauses are common in leases. The landlords right to terminatefor failure to pay the rent (or other payment) is now subject to his issuing anotice to the tenant - Law Reform (Misc. Prov.) (Scot) Act 1985, s 4.6.03. Ingenious other devices acceleration clauses (if one instalment is not paid, the whole price isimmediately payable); forfeiture clauses (on breach, the breacher forfeits his deposit); indemnity clauses; retention clauses; termination clauses.Sale of GoodsReading:Black: Ch.5Davidson and MacGregor Commercial Law in Scotland Ch.1Sale of Goods Act 1979.Unfair Contract Terms Act 1977Sale and Supply of Goods Act 1994, the Consumer Credit Act 1974Consumer Protection Act 1987Unfair Terms in Consumer Contracts Regulations 1999Sale and Supply of Goods to Consumer Regulations 2002The Consumer Protection from Unfair Trading Regulations 2008 (SI 2008 /1277) 32Sale of Goods Act 1979 (Soga)1. THE SALE OF GOODS ACT 1979 (SOGA)HTTP://WWW.OPSI.GOV.UK/REVISEDSTATUTES/ACTS/UKPGA/1979/CUKPGA_19790054_EN_1 In order to understand SOGA it is worth understanding the various definitionsused throughout SOGA, and indeed throughout the rest of this Chapter. Youneed to read the Act very carefully to understand what it is saying. What itsays is what it means.DefinitionsGoodsmeans corporeal moveables, which in Scotland means physical,tangible andtransportable assetsincluding things growing on or subsisting within landand which can be detached or extracted from land in order to be sold(SOGA, ss.61).The term goods does not include money, except in the context of antique coins and banknotes.Land and

buildings are not goods.If the goods have yet to be obtained or manufactured, they are called future goods(SOGA, s.5).Asaleis defined in SOGA, s.2 as a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a moneyconsideration, called the price.Does this cover (a) a swap or (b) barter?Propertymeans the right of ownership.How does property (sometimes known as title) differ from possession?A contract of sale of goods may beabsoluteor conditional(SOGA, s.2(3)).An absolute contract of sale is one where the property is transferred withoutanything needing to be done first.Where the transfer of the property is to take place after the completion of someact, or after a period of time, the contract is not a contract of sale, but anagreement to sell(SOGA, s.2(5)).An agreement to sell turns into a sale once the act has been performed or therequisite time has elapsed (SOGA, s.2(6)). Breach of contract occurs where a term of the contract is broken by one of the parties to the contract. If a term of the contract is broken by the seller, the buyer is entitled to 33 claim damages for his loss (SOGA, s.15B(1)(a)), but if it is a very serious breach of a term (known as a material breach)the buyer is entitled to reject the goods (i.e.to send them back to theseller without payment)and to treat the contract as repudiated (i.e.to refuse to recognise thecontinuing existence of the contract) which means he can ask for hismoney back.(SOGA, s.15B(1)(b)).Amaterialbreach is a significant or serious breach as opposed to a trivial or minor breach of a term of the contract. SOGA, s.15B(2) states that in aconsumer contract (to be explained later) any breach by the seller of a term inthe contract as to the quality of the goods or their fitness for the purpose for which they were supplied (SOGA, s.15B(2)(a)) is a material breach.Aconsumer contract is defined in the Unfair Contract Terms Act 1977(UCTA) as one where: (a) either the seller or the buyer is a consumer (i.e. someone not dealing, or holding himself out as dealing, in the course of a business) and the other party is dealing in the course of a business; and (b) thegoods which form the subject of the contract are goods that are of a typeordinarily supplied for private use or consumption (UCTA, s.25(1)).If there is a dispute about the nature of the consumer contract, it is for the party who says that the contract is not a consumer contract to prove that this isthe case (UCTA, s.25(1)). Risk is the term used to denote the exposure of the goods to the danger of lossor damage. Why is this important? Damagesis the term used to describe the amount the court may award to cover the difference in value between the value of the contract if it had taken place properly and what the actual value turned out to be.In the context of a sellers breach of contract, it is the estimated loss to the buyer directly and naturally resulting, in the ordinary course of events, fromthe breach (SOGA, s.53A(1)).Damages in general aim to restore or bring the claimant to the position heought to be in if the contract is performed properly, but damages are not meantto be penal in nature. Normally damages will cover the cost of repair,upgrading to the expected standard, or the value of the loss occasioned by thesellers delay or other fault.Interest is usually allowable as part of the damages.Where there has been bodily injury or consequential damage to property as aresult of the faulty goods, there may be damages for these as well (SOGA,s.53A), though such damages are: (a) only available to the buyer and not toothers who may be affected by the faulty goods; and (b) may only be claimedagainst the seller. 34Under the common law, unless the buyer has specifically drawn the sellersattention to matters which are important to the buyer (such as the need for thesupplied goods to be ready by a certain date because some other matter wasdependent on the goods being ready), the seller will not normally be

liable for any further economic loss arising out of the sellers delay or fault ( Hadley v Baxendale(1854) 23 LJ Ex 179).2. EXPRESS AND IMPLIED TERMSIn contracts of sale there are usuallyexpressterms, which are ones clearlyspelt out, andimplied terms, which are not.An implied term is one that is deemed to be in the contract unless it isspecifically disapplied in the actual contract, and even then the attempt tocontract out of the implied term may in certain circumstances be declared void by the courts.In a consumer contract, you cannot contract out of the implied terms (with theexception of the implied terms under s.12).The implied terms in SOGA, ss.12, 13, 14 and 15 all impose strict liability.If the seller breaches the implied terms he will be liable, and it does not matter whose fault caused the breach.Furthermore, if the contract is silent on any of the undernoted matters theimplied terms will automatically apply. The implied terms are that:(a) The seller has the right to sell the goods (SOGA, s.12(1)). Rowland v Divall[1923] 2 KB 500, McDonald vProvan (of Scotland St) Ltd 1960 SLT231. (car welded together)(b) Up to the moment when the property is to pass to the buyer, there is nocharge or encumbrance over the goods, or if there is, it must be disclosed tothe buyer (SOGA, s.12(2)(a)). A charge or encumbrance is a term of Englishlaw and means that some-one else has some right in the goods, thus preventingtheir sale;(c) Irrespective of the time that the property is to pass, the buyer will enjoyquiet possession of the goods except to the extent of any disclosed charge or encumbrance (SOGA, s.12(2)(b)). Niblett Ltd v Confectioners Materials Co. [1921] 3 KB 387. (d) Where either from the terms of the contract, or from the circumstancessurrounding the contract, it is apparent that the seller or a disclosed further person does not have full title (i.e.ownership or the right to sell), provisions 36SP agreed that they did not have to unreasonable to expect durability of such a beat-up old car). However, if defects or unsatisfactory matters are especially drawn to the buyers attention, or where the buyer examines the goods and he ought to havenoticed the defects, or in the case of a sample if a reasonable examination of the sample would have made the defects apparent, the protection afforded bySOGA, s.14(2) as to satisfactory quality is withdrawn (SOGA, s.14(2C)). Bartlett vSidney Marcus Ltd *1965+ 1 WLR 1013 (seller drew buyersattention to the fact that a Jaguar car he was selling had a defective clutchwhich would have cost 3 to fix. The buyer could have had the seller fix it butinstead bought the car at a discount of 25 and had it repaired by his owngarage which cost him 84. He then sued for the cost and lost, as the fault had been drawn to his attention)Under SOGA s.14(2D), when the contract is question is a consumer contract,the relevant circumstances referred to in s.14(2A) include any advertisingand labelling.If the contract is a consumer contract, and the goods are not satisfactory, breach of this term counts as material.(h) Where the buyer explains to the seller the purpose for which the goods are being bought, the goods must be reasonably fit for that purpose (Grant v Australian Knitting Mills Ltd [1936] AC 85)(woolly knickers impregnatedwith dermatitis inducing chemical discomfort) (even if that purpose is not the usual use for those goods)unlesscircumstances show thatthe buyer was not relying on the sellers skill and judgment in satisfying that purpose or where it was unreasonable of him to rely on the sellers skill and judgment (SOGA, s.14(3)) (Griffiths v Peter Conway Ltd [1939] 1 All ER 658). Where it is perfectly understandable that the buyer isrelying on the sellers skill and judgment, the seller will be liable (Ashington 37PiggeriesvChristopher Hill Ltd *1971+ 1 All ER 847 (HL) (buyers relied onsellers skill in providing food for mink on a mink farm. The food turned outto be fatal to mink, though at the time of making the food

no-one could haveknown mink couldnt eat it. Nevertheless, the buyer relied on the seller and socould claim.)S.14(3) applies to any seller of any goods in the course of a business, even if the goods in question are not those normally sold by the seller (Stevensonv Rogers[1999] QB 1028) (in this case a fishing boat was being sold by acommercial fisherman the sale of the boat was still held to be in the courseof a business) (i) The above terms apply to a sellers agents in the course of the sellers business, and to agents for sellers not in the course of business, unless the factthat the seller is not in the course of business is already known to the buyer, or the fact of the sellers not being in business is brought to the attention of the buyer (SOGA, s.14(5)).(j) Where there is a sale by sample, the bulk will correspond with the samplein quality and the goods will be free from any defect making the quality of thegoods unsatisfactory, which would not be apparent on a reasonableexamination of the sample (SOGA, s.15).GodleyvPerry*1960+ 1 All ER 36(wholesaler liable to a retailer who sold the wholesalers dangerous toycatapults)(k) If a term of the contract is broken by the seller, the buyer is entitled to claim damages for his loss (SOGA, s.15B(1)(a)), but if it is a very serious breach of a term (known as a material breach)the buyer is entitled to reject the goods (i.e.to send them back to theseller without payment)and to treat the contract as repudiated (i.e.to refuse to recognise thecontinued existence of the contract) (SOGA, s.15B(1)(b)). 38SOGA, s.15B(2) states that in a consumer contract any breach by the seller of a term in the contract as to the quality of the goods or their fitness for the purpose for which they were supplied (SOGA, s.15B(2)(a)) is a material breach. See J &H Ritchie Ltd v Lloyd Ltd 2007 S.C. (H.L.) 89;In a consumer contract, breach of this term would be material.3. The exclusion of implied termsIt is not possible in any contract of sale to which SOGA applies to contract outof SOGA, s.12 (UCTA, s.20(1)) except, as stated above, to the extent thatsomeone who does not have full title discloses his title as being less than fulland discloses all charges in which case the only person who may destroy the buyers possession of the goods is a disclosed holder of a charge (SOGA,s.12(4), (5)).It is also not possible to contract out of the provisions of SOGA, ss.13 to 15(referred to in paragraphs (f) to (j) above) in a consumer contract (UCTA, s.20(2)).You can contract out of these implied terms in a commercial or non-consumer contract if the relevant contracting-out clause is fair and reasonable asdefined in Unfair Contract Terms Act 1977 s.24.This states that to define what is fair and reasonable, regard should be had tothe circumstances known to, or which ought reasonably to have been knownto, the parties at the time the contract was made.You can also look at UCTA, Schedule 2 which lays down various guidelinesas to: the abuse of any strength of bargaining power; the effect of any inducements to accept the contracting out clause; normal business practice in the trade concerned or between the parties; the practicality of compliance with any condition without whichliability would be excluded; and whether the goods were specially made or adapted to the buyers particular order.As regards the contracting out from implied terms (other than those specifiedin the previous paragraph), it is open to the parties to make such provisions asthey choose, either expressly, by course of dealing, or by such usage as binds both parties to the contract, being actions which indicate that both parties dointend to be bound by any contracting-out of the relevant implied terms andhave an interest in being contracted out (SOGA, s.55(1)). 394. Further exclusion clausesUnder the Unfair Terms in Consumer Contracts Regulations 1999(UTCCR), , where consumers are required to enter into contracts where theopportunity for

individual negotiation is not available (as in standard termcontracts for such things as satellite televisions, portable telephones, etc.),consumers will not be bound where a non-negotiable term is unfair(UTCCR reg.8).Unfairness is judged by the criteria of being contrary to the requirements of good faith, being significantly in favour of the non-consumer party to the contract,and being detrimental to the consumer (UTCCR, reg.5(1)),although the courts are also required to take account of the nature of the goodsand services referred to in the contract and to all the circumstances attendingthe conclusion of the contract (UTCCR, reg.6(1)).The seller or supplier must ensure that each written term of the contract isexpressed in plain language intelligible to the consumer (UTCCR, reg.7(1)).If a term is ambiguous or unclear, the term will be construed in favour of theconsumer (UTCCR, reg.7(2)).5. Capacity to buy and sell Not everyone is legally empowered to enter into contracts. Some individualsareincapaxwhich means that by virtue of mental incapacity or other causethey are incompetent to contract. Where such individuals are sold necessaries(i.e.items such as food, drink and clothing) they must pay (and indeed areonly obliged to pay) a reasonable price for them (SOGA, s.3(2)).The law on sales to children is regulated by the Age of Legal Capacity(Scotland) Act 1991 (ALC). Children below the age of 16 have nocontractual capacity and their guardians (normally their parents) must act ontheir behalf. However, below the age of 16 it is acceptable for them to enter into contracts appropriate to their age and on terms that are not unreasonable(ALC, s.2(1)).Children aged 16 or over may enter into contracts of sale and purchase in thenormal manner, except that between the ages of 16 and 18 if a contract is prejudicial to the childs interest the courts may set it aside at any stage up tothe childs 21st birthday if a prudent adult would not have entered into thecontract on the terms that the child suffered (ALC, s.3(1),(2)).If the child has lied about his age in order to enter the contract he will not be protected, and if he is in the course of a business he also loses the protection of the statute (ALC, s.3(3)).6. FORMATION OF CONTRACTS OF SALE OF GOODSContracts for sale of goods may be made verbally, 40 in writing, by a combination of these means or may be inferred from the actions of the parties to the sale (SOGA, s.4).In any event the implied terms, referred to above, are deemed to be part of thecontract of sale (except where variation of the implied terms is both agreed bythe parties and permissible, which in the case of consumer contracts it may not be).As with all contracts, there must beconsensus in idem(agreement on the samematters), a buyer and a seller, both with the necessary legal capacity, a price(which in the absence of any other agreement must be reasonable under thecircumstances (SOGA, s.8)) and goods (present or future) to be transferredalong with the property in the goods.Where specific goods have perished without the knowledge of the seller before or at the time that the contract is made, there are clearly no goods so thecontract is void (SOGA, s.6) and no contract of any sort exists. See Asfar &Co Ltd v Blundell [1896] 1 QB 123.(A cargo of dates was on a ship thatsank in the Thames: the dates were recovered from the river as a pulpy massinfected with sewage and the owner claimed on the insurance. The insurerssaid that the dates were still serviceable as alcohol could be made from them.The courts said that while that might be true for a chemist it was not true for a businessman and that the goods had indeed perished. This casedemonstrated what is meant by perished.)not

41 Where there is an agreement to sell specific goods and goods subsequently perish through no fault of the buyer or seller before the risk passes to the buyer, the agreement is frustrated (i.e.cannot be brought to fruition) or avoided, the contract terminated, the seller has no obligation to deliver thegoods (SOGA, s.7) and any money the buyer had given to the seller for thenow perished goods has to be returned to the buyer.This rule does not apply in the case of unascertained goods, since the seller ought to be able to produce more (unperished) goods from his warehouse. Asstated above goods generally must be of satisfactory quality and fit for therelevant purpose for which they were acquired.7. When does the buyer get the property in the goods?This depends whether or not the goods are unascertained. If the goods areunascertained, no property in the goods passes to the buyer until the goods areascertained (SOGA, s.16).Where the goods are specific or ascertained, the property in the goods passeswhen the parties intend the property to pass. This will normally be established by the terms of any written or oral contract, the conduct of the parties and anyother circumstances (SOGA, s.17).However, sometimes buyers and sellers are not as careful as they should beand do not expressly state when they intend the property to pass, and in theabsence of any other expressed intention, SOGA, s.18 has set up five rules 42which may be used to establish the intention of the parties. If you wish to findout more about them they are in all the books.8. Retention of titleThere is nothing to prevent the seller retaining a right of disposal until thefulfilment of some condition (SOGA, s.19). This is commonly known as aretention of title clause. Armour vThyssen Edelstahlwerke AG[1991] 2 AC3399. When does risk pass?Why is this important?Unless there is some agreement to the contrary, the normal rule is that the risk in the goods remains with the seller until the property is transferred to the buyer, irrespective of the date of delivery to the buyer (SOGA, s.20(1)).As exceptions to the general rule above, if there has been any delay in thedelivery of the goods, and the delay is attributable to one of the parties to thecontract, the goods are at the risk of the party at fault to the extent of the losswhich arose as a result of the fault (SOGA, s.20(2),Pignataro v Gilroy(19191 KB 459) (bags of rice were left at the sellers by the purchaser: the purchaser was asked speedily to uplift them, (since it was the purchasers rice) but hedelayed doing so. The rice was stolen but because it was the purchasers faultthat the rice had not been uplifted it was the purchasers loss and the seller wasnot liable) and secondly, sellers and buyers acting as custodiers or carrierscannot rely on the above general rule to avoid the duty to take adequate care of the goods while goods are in their care or in transit (SOGA, s.20(3)).If, however, the sale is a consumer contract, the goods remain at the sellersrisk until they are delivered to the consumer (SOGA s.20(4)). Why is this?10. Transfer of title/propertyIf someone obtains goods which he does not own, and sells those goodswithout the authority or consent of the owner, the buyer gets no better titlethan the person purporting to sell the goods (SOGA, s.21(1)), also known bythe Latin phrasenemo dat quod non habet (no-one may dispose of what hedoes not own).So if a thief sells stolen goods, the buyer may be required to hand the goods back to the true owner and sue (if he can) the thief for the value of the goodsthat he had to relinquish.Are there any problems with this rule?This rule is disapplied where the owners own conduct prevents him fromobjecting to the sellers right to sell the goods (SOGA, s.21(1)).This is known in Scotland as personal bar (in England, estoppel) and veryrarely happens in practice, except perhaps where an owner has permitted hisagent to sell the owners goods and then changes his mind.

43This rule is also disapplied where goods are being sold following anattachment or other court order, or where agents are acting on the owners behalf even though the owner had withdrawn his authority (SOGA, s.21(2)).Where the seller of goods has a voidable title (i.e.a title that could bechallenged, as when a seller sells goods obtained by fraud) but that title hasnot been reduced at the time he sells the goods to a buyer, the seller maytransfer title to the goods to a buyer who buys in good faith and without noticeof the sellers defect in title (SOGA, s.23). This arose in Macleod v Kerr 1965SC 253.The other significant feature is that section 23 only applies in the context of avoidable title. Where the contract is void from the beginning, because, for example, the seller does not have contractual capacity, section 23 does notapply and the original owner will be able to retrieve his goods from the person possessing the goods.In the context of hire purchase, where a purported seller of a motor vehicle being acquired by the seller under a hire purchase agreement sells that vehicle,a buyer (other than a car dealer) buying it in good faith without notice of thefinance companys interest in the vehicle may obtain good title to the vehicle(Hire-Purchase Act 1964, ss.27-29). Why is this?Where a seller has sold goods to a buyer and received payment for the goods, but the goods are in the possession of the seller, if the seller inadvertently or fraudulently transfers or delivers the goods to a new buyer buying in goodfaith and without knowledge of the fact that the goods belong to the first buyer, the new buyer gets good title to the goods (SOGA, s.24).What can the first buyer then do?Sometimes a seller will deliver goods to a buyer but will retain the ownershipof those goods , usually until he has been paid (commonly known as retentionof title as permitted under s.19). If the buyer then delivers or transfers thegoods to a subbuyer who buys the goods in good faith and without notice of any rights of the original seller, the subbuyer obtains good title to the goods(SOGA, s.25(1)) ( Archivent Sales and Development Ltd v Strathclyde Regional Council1985 SLT 154). Accordingly section 25(1) limits theapplicability of retention of title clauses.This rule does not, however, apply in the context of conditional saleagreements regulated under the Consumer Credit Act 1974, s.25 or in thecontext of acquisitions by car dealers (referred to above).11. How is the contract of sale to be carried out?It is the duty of the seller to deliver the goods and the duty of the buyer toaccept the goods and to pay for them, all in accordance with the terms of thecontract for the sale of the goods (SOGA, s.27). 44Unless the contract says otherwise, delivery and payment are concurrent, and both parties should be ready to perform their parts of the contractsimultaneously.There are varied and pragmatic rules to govern such matters as where deliveryis to take place (SOGA, s.29), the delivery of more or less goods than had been requested (SOGA, s.30) delivery by instalments (SOGA, s.32) anddelivery to carriers, where generally delivery to the carrier is deemed to bedelivery to the buyer; but in each of these events the precise details may bevaried by agreement between the parties, and if the buyer is a consumer,delivery of the goods to the carrier is not delivery of the goods to the buyer (SOGA s.32(4)).Where the seller delivers goods to the buyer, the buyer must be allowed areasonable time to examine the goods to see if they conform to the contract or to see if the bulk of the goods matches previously seen samples (SOGA, s.34).He is not held to have accepted the goods until he has been afforded theseopportunities for examination even if he has signed an acceptance receipt(SOGA, s.35(2)).In a consumer contract, a consumer is not deprived of this right even if apparently made to do so by the terms of his contract (SOGA, s.35(3)).The buyer is held to have accepted the goods where he tells the seller he has done so (SOGA, s.35(1)(a)), or where he treats the goods in a manner which is

inconsistent with theownership of the seller, for example, where he uses them as securityfor some other transaction.Subject to the next paragraph, if a buyer retains the goods for a reasonabletime without telling the seller that he is rejecting them, he is deemed to haveaccepted the goods (SOGA, s.35(4)).If the buyer asks the seller to repair the goods, the request does not signifyacceptance (SOGA, s.35 (6)(a)); and even if the goods are delivered tosomeone else through a sub-sale the buyer may still be entitled to reject thegoods within a reasonable time (SOGA, s.35(6)(b), J&H Ritchie Ltd v Lloyd Ltd 2007 S.C. (H.L.) 89).Where the goods are units within a bigger but ultimately indivisible set of goods, as, for example, one print within a narrative series of prints all within alimited edition, the acceptance of the one item is deemed to be an acceptanceof all the items (SOGA, s.35(7)).12. The buyers right of rejection and other rightsIf the goods have something wrong with them, the buyer may if necessaryreject the goods, except where he has accepted the goods in the circumstances outlined in the previous paragraph (SOGA s.35), or where the breach by the seller of a term of the contract is notsufficiently material to entitle the buyer to reject the goods (SOGA,s.15B).Accordingly, if the courts decide in a case that the time for rejection of delivered goods is past, but the goods are still not to the buyers satisfaction interms of quality, the buyers remaining remedy, assuming the claim is 45 justified, isdamages arising out of the loss directly and naturally resulting from the breach of the contract in terms of quality(SOGA, s.53A).It is sometimes possible both to claim damages and to reject the goods(SOGA, s.15B).Unless the terms of the contract say otherwise, it is possible to have partialrejection, where the buyer is entitled to reject all of an entire consignment of goods but instead chooses to keep the satisfactory goods and reject theunsatisfactory goods (SOGA, s.35A).If a buyer legitimately rejects goods, he is not bound to return them to theseller unless the terms of the contract of sale say otherwise. He must, however,intimate his rejection to the seller (SOGA, s.36).If the buyer after a reasonable time delays or refuses to accept the goods whenhe should properly do so, the buyer is liable to the seller for the cost of storageand care of the goods (SOGA, s.37).If the buyer is a consumer, the time for rejection is now up to six months fromthe period of delivery, (SOGA, s.48A(3)).Under SOGA, s.48B the buyer (if a consumer) may require the seller to repair the goods if they are faulty, or to replace them within a reasonable time andwith minimal inconvenience and expense to the buyer. As a further option, thesame buyer can insist on the price being lowered instead (SOGA, s.48C).These remedies are subject to safeguards for the seller to allow him reasonabletime to effect repairs or replacements (SOGA, s.48D), or to allow him to provethat the goods were conform to requirements in the first place (SOGA,s.48A(3)). See J&H Ritchie Ltd v Lloyd Ltd 2007 S.C. (H.L.) 89.13. Other rights for the buyerWhere the seller neglects or refuses to deliver the goods to the buyer, the buyer may claim damages for nondelivery (SOGA, s.51). Equally, in the caseof a contract of sale of specific or ascertained goods, the buyer may raise anaction of specific implement to enforce delivery of the goods (SOGA, s.52).If a seller has provided a guarantee either from himself or the manufacturer,the guarantee must be in plain intelligible English and comes into effect at thetime of delivery of the goods. It also allows the consumer to sue themanufacturer directly without involving the retailer (SSGR, reg.15). Whymight this be useful?14. The sellers rightsWhere a seller has not been paid (the unpaid seller) he is entitled to retainthe goods until payment while he possesses the goods, even if the property inthe goods has transferred to the buyer, and in the event of the insolvency of the buyer, he may also stop any goods that are in transit to the buyer (SOGA,s.39(1)(a), (b)).

46 Where some of the goods have been delivered by the unpaid seller to the buyer, but the remainder has not, the unpaid seller may withhold delivery of the remainder pending payment.The unpaid seller also has a right of resale (SOGA, s.39(2)), subject tointimation to the buyer giving him a reasonable time within which to make payment. Where the unpaid seller is no longer in possession of the goods or they are still in transit to the buyer as above, he may raise an action for the price (SOGA, s.49(1)), or claim damages for non-acceptance where the buyer ought properly to have accepted and paid for the goods (SOGA, s.50).15. DELICTUAL LIABILITYProblems with SOGA, s.14 and the duty of careIf a seller sells goods whose defects cause damage to the buyer, the seller incurs strict liability under SOGA, s.14. However, under SOGA only the buyer may sue only the seller for the goods defects, as opposed to suing themanufacturer (who may be better placed to meet any claim). So if a buyer bought goods as a present for his uncle, his uncle could not sue the seller for any injury caused to him by the goods. What the buyer can sue for is theestimated loss directly and naturally arising in the ordinary course of eventsfrom the breach (SOGA, s.53A) and any consequential losses where thosecause damage to the buyer personally or to his propertybut not to the uncleor the uncles property.So what could the uncle do?He could make a claim for negligence arising out of a breach of themanufacturers general duty of care, under the common law, as in Donoghue vStevenson1932 SC (HL) 1.Or when handing goods over to the uncle, the nephew could put a card sayingTo Uncle Bert, with all my love and all my rights under the Sale of GoodsAct 1979.More seriously, where a victim suffers injury from defective components inmanufactured goods, he may raise an action against the producer of the goodsunder theConsumer Protection Act 1987(CPA), which provides for strictliability for defective products.This provide a remedy for victims of defective products produced by a producer (commonly a manufacturer, but the term producer can also meanretailer if it is not apparent who the manufacturer is (CPA, s.2 and see next paragraph)).Victims making a claim still have to overcome the hurdles imposed by the permissible defences open to producers under CPA, s.4.It is not possible for the producer to contract out of the strict liability provisions (CPA, s.7) though it is possible for a victim to be contributorilynegligent, whereupon any damages payable by the producer will be abated tothe extent of the victims own negligence (CPA, s.4, referring to the Law 51Employment disputes are sometimes resolved through the ordinary courts andsometimes through specialist Employment Tribunals. ETs have normally anemployment lawyer as chairman and two independent lay members, one usually froma managerial background, the other from a union background. A decision of one ET isnot binding on another, albeit that it may be influential. The maximum award from atET is about 70K. If you want anything bigger, youll have to go the ordinary courts.There is an appeal from an ET to an Employment Appeal Tribunal and from there tothe Inner House of the Court of Session, but only on a point of law.The following items may be heard by ETs: National minimum wagesAccess to recordsRedundancy paymentsDiscrimination on the grounds of age, race, religion, sexual orientation and disabilityHoliday pay and time off Unlawful deductions from wagesEqual payAppeals against Health and Safety improvement notices and other noticesFailure to consult employees on business transfers or redundancyExclusion from trades unionsRefusal of employment on grounds of membership of a trade unionWritten statements of terms of employment or reasons for dismissalUnfair dismissal (see later)ET Litigants may be legal aided, and claims may be timebarred if not made withinthree months of the right being infringed.At the heart of much employment

law is the question: is the litigant an employee or self-employed? If he is employed, he has all the rights of employment law(particularly the Employment Rights Act 1996) open to him, but if he is self-employed he only has such rights as he has bargained for.However, a new concept of worker which can cover self-employed people andenables the provisions of the Sex Discrimination Act 1975, the Race Relations Act1976 and the Disability Discrimination Act 1995 to apply to them even if nottechnically employed by the employer. There are also special protective provisions for agency workers where a contract of employment between a worker and an end-user(i.e. the organisation that approaches the agency to find a worker for it) may beimplied from the facts ( Brook Street Bureau (UK) Ltd v DacasCA 2004 EWCA Civ.217) and where the end-user insists on a particular worker and where the worker onlyworks for the end user.However, where the end-user cannot insist on a particular worker and the worker isnot working exclusively for the end-user, Jamesv London Borough of Greenwich[2007] IRLR 168 indicates that the worker is not employed by the end-user.The issue is between a contract of service (i.e. an employee) or a contract for services(not an employee).So how does one tell whether a person is an employee or not? 52 The control testPerforming Rights Societyv Mitchell and Booker [1924] 1 KB762Provision of equipmentCan the person hire other staff to help him?Who bears the financial risk?Opportunity to profitThe label the parties put on their relationship is not conclusive as to what therelationship actually is, but the genuine intention of the parties may still havesome validity.Tax and NI statusMutuality of obligation:OKellyvTrusthouse Forte plc*1983+ ICR 728 Nethermere (St Neots) Ltd vTaverna*1984+ ICR 612Carmichaelv National Power plc[2000] IRLR 43As employers also have to pay NI and PAYE on employees wages, but dont have to pay anything for self-employed people, they have an incentive not to have employees.Equally it is generally advantageous for a person to be an employee since he then gets paternity right, entitlements to pensions etc.Creation of the employment contract This may be by any of the normal methods of creating a contract, but it is advisable tohave them in writing. Even so, certain items of information must be given by way of some form of statement to any employee, these beingThe name of the employeeThe name of the employer Date the employment beganThe scale, rate or method of calculation of remuneration (i.e. payment)Working hoursHoliday paySickness payPension arrangements Notice requirementsJob titleThe period of employment (if a fixed term)The place of work Any collective agreements affecting all employeesTerms applicable to working outside the UK An indication where to find any disciplinary rulesGrievance procedure rulesAll this information must be provided to the employee within two months of the startof the employment. The information itself is not a contract: the contract may well be aseparate document, but the information still needs to be provided.If a contract is reduced to writing, the assumption is that it contains all the terms thatwere meant to be in the contract (Contract (Scotland) Act 1997) but if the writtencontract does accurately reflect what was meant to have been in the contract, it is 53 possible to bring extrinsic evidence to the court to show what was meant to have beenin the contract and thereby to have the contract amended.Wages If wages are specified in the contract, clearly they must be paid at the agreed rate.Unilateral reduction of wages by the employer entitles the employees to continue their contracts and sue for damages ( RigbyvFerodo Ltd [1987] IRLR 516). Employers areexpect to pay Statutory Sick Pay to employees but they do so as agents for

theGovernment and are reimbursed by the Government. Employers may not makeunauthorised deductions from wages (Employment Rights Act 1996 s.13) but theymay transfer their employees to less well paid work (provided the contract providesfor this)( Hussman Manufacturing Ltd vWeir [1998] IRLR 288). If the employee is inthe retail trade, the employer may not take more than10% of the employees wages if there is a shortfall in the cash takings or stock.There is a national minimum wage which goes up from time to time, and employerscan be forced to adhere to this. HMRC will enforce this, as may employees whoshop their employers.Working HoursThe Working Hours Regulations 1998 prevent workers working more than 48 hours per seven day period unless they are domestic servants, workers who can determinetheir own hours (i.e. generally those in the professions) or where the worker hasagreed in writing to work longer hours. There are special provisions for night workersand for rest periods for workers working long hours. Workers are entitled to four weeks paid annual leave (1998 Regulations reg.13). Workers are allowed time off for trade union duties, public duties and jury service. They may also take time off for retraining or to look for new work if they have worked for over two years and are being made redundant. Safety reps. may take time off for training and youngemployees are entitled to reasonable time off with pay for education and training.Maternity rights enable a worker to take 26 weeks paid Ordinary Maternity Leave anda further 26 weeks Additional Maternity Leave for women who have had 26 weekscontinuous employment by the 14thweek before their anticipated week of childbirth.The Mum gets Statutory Maternity Pay. There is also a right to return to work.Paternity rights enable a Dad (or whatever) to two weeks leave within a period of 56days of the birth. The Dad gets paid too. His right to return to work is secured.There are special provisions for adoption.Workers are entitled to flexible working arrangements (Employment Act 2002 s.47)for parents (etc.) who had a child under 6 and who has worked for the employer for over 26 weeks. It enables the parent to insist to the employer that he give the parentcertain changes to his or her hours. The employer has limited grounds for refusal.Workers are entitled to some time off for domestic incidents, such as when a childis unexpectedly ill at school.Mutual trust and confidence An employer and an employee should behave with mutual trust and confidence ineach other, and the absence of this entitles the victim to damages ( Malik v BCCI [1997] IRLR 462,TSB Bank plcv Harris[2000] IRLE 157). An employer is alsoentitled to expect a degree of obedience but not if the employers requirements areclearly oppressive and intolerable ( Johnstonev Bloomsbury Health Authority[1991]IRLR 118) or pretty well impossible to carry out (United Bank Ltd v Akhtar [1989] 54IRLR 507). Employees should not be expected to undertake risky activities for whichthey are unsuitable (FerrievWestern District Council[1973] IRLR 162). Anemployee is expected to show fidelity to his employer but that does not necessarily preclude him working for a rival firm in his own time (GrahamvPaton1917 SC203). He should not disclose trade secrets. He may have restrictive covenantsimposed upon him, even worldwide ones ( Bluebell Apparelv Dickinson1980 SLT157).Employees liability to the employerIf an employee messes up and causes his employer loss, the employee could be sued by the employer (or his insurer) Lister v Romford Ice and Cold Storage Ltd [1957]AC 555.Frustration A contract of employment may become impossible to perform, in which case it is saidto be frustrated (F C Shepherd Co Ltd v Jerrom[1986] IRLR 358).Can you be forced to work for a particular employer?As a contract of employment is one for the provision of personal services, specificimplement is not available (Trade Union and Labour Relations (Consolidation) Act1992 s.236). So

you cannot be forced to work for someone, but you might have to payyour employer damages for your refusal to do so.Can you receive pay in lieu of notice? Generally, yes, since the worker is no worse off than he would have been.Unfair dismissal This is dismissal where the employer has either not acted reasonably or acted contraryto various statutory rules (Employment Rights Act 1996, Transfer of Understakings(Protection of employment) Regulations 1981, Trade Union and Labour Relations(Consolidation) Act 1992, ACAS Code of Practice). This is a matter for EmploymentTribunals.To be protected by the rules, the employee must have been continuously employed for at least a year (subject to permitted reasons for time off (see above))(since 2011 twoyears). The rules still protect employees over the age of 65. An employee cannotcontract out of his statutory rights save where there has been some agreementinvolving ACAS or made some other agreement with the benefit of independentadvice. The police, armed forces, and certain civil servants are contracted out.To claim your rights under unfair dismissal, you do genuinely need to be dismissedand to be aware of it.An employee may also claim constructive dismissal which is where he terminatesthe contract (with or without notice) because of the employers conduct towards him.This is a tangled area of law, but an employee may not terminate the contract withoutnotice merely because he thinks the employers conduct unreasonable. What theemployer does must be something that is significant, or shows that that the employer does not see fit to adhere to the important terms of the employment contract.Once it has been established that the employee really is dismissed, it is for theemployer to show that the dismissal was for a potentially fair reason, these beingindicated in the Employment Rights Act 1996 s.98(2). Fair reasons include: 55Related to the capacity or qualifications of the employeeRelated to the conduct of the employee (Thomsonv Alloa Motor Co Ltd [1983] IRLR 403)Redundancy of the employeeContravention of a statutory requirement (e.g. to have a valid registration as adoctor)RetirementSome other substantial reason justifying the dismissal (usually criminalconduct (Singhv London Country Bus Services Ltd [1976] IRLR 176), sexual proclivities (SaundersvScottish National Camps Assoc.[1981] IRLR 277etc.Refusal to accept changes of conditions provided it can be shown that thereare pressing business needs justifying the reason ( Hollister v NFU [1979]IRLR 238)Where there has been a transfer of business and there is economic,organisational or technical reason entailing charges in the workforce of thetransferee, or transferor (TUPE Regs 2000 reg.7)The employer may only produce in court evidence of which he was aware at the timeof the dismissal, not later.The ET will then decide whether or not the dismissal was unfair and falls within the band of reasonable dismissals.Effect of Employment Act 2002 This was designed to make employers set up sensible grievance procedures. Normallyan employer will first write to the employee about the employees conduct, invite himto discuss it, hold the meeting before any disciplinary action, inform the employee of any decision and tell him of his appeal rights, and after any appeal tell him of the finaldecision. The Employment Act 2002 makes much play of procedural fairness sounless the employers procedure is followed pretty much to the letter, any dismissalwill be unfair. This particular rule has given rise to much misunderstanding and islikely to be revised shortly.There is a number of automatically unfair dismissals which echo the permittedgrounds for time out: so to dismiss someone for his trade union activities would beunfair, as would be dismissing someone for asserting a statutory right.TUPE regulations 2006 In essence these protect employees when a business is being transferred, so that theexisting employees rights are transferred and the businesss new owner has to

takeaccount of them. An employee may not be dismissed because of a transfer unless thedismissal was for an economic, technical or organisational reason entailing changesin the workforce (reg.7(2)).WhistleblowersUnder the Employment Rights Act 1996 s.103A whistleblowers are protected. Evenso, everybody still hates them.Remedies under the Employment Rights Act 1996. 56The available remedies are re-engagement (in practice, rare), compensation (basicaward, compensatory award and occasionally additional award where the employer will not reemploy).Redundancy Provided an employee has been continuously employed for two years, he is entitled toa payment if he is dismissed on the grounds of redundancy. If he is offeredreasonable other employment he should take it unless the circumstances belie that:Cahuc, Johnson and Crouchv Allen Amery Ltd [1966] ITR 313.Discrimination Sex Discrimination Act 1975Equal Pay Act 1975There are a few exemptions where one sex may be used in preference to others (e.g.male or female parts in plays, lighthouse keepers, prison wardens, work in certainforeign countries etc.)Specifically, harassing of someone (of either sex) is actionable under s.4A of theSDA or the Protection From Harassment Act 1997. There are provisions to protecttranssexuals or and to protect someone from being discriminated against on thegrounds of their sexual orientation.Race Relations Act 1976. This is very similar to the SDA. Again, there are specific provisions to allow for the situation where someone of a particular race may belegitimately preferred (e.g. a Thai waiter in a Thai restaurant).Disability Discrimination Act 1995. This sets up extensive definitions of disabilityand puts the onus on employers to ensure that their premises are suitable for disabled persons, and that disabled persons (with certain exemptions) are not precluded fromapplying for or retaining jobs.The Human Rights Act 1998 guarantees freedom of religion and belief and employersmay not discriminate against someone because of his religion (again, with certainexceptions, such as being a rabbi or imam).Employment Equality (Age) Regulations 2006 prevent employees being discriminatedagainst because they are wrinkly.There are various bodies that will enforce these rights, now under the umbrella of theEquality and Human Rights Commission.Part-time workers are protected to some extent by the Part-time Workers (Preventionof Less Favourable Treatment) Regulations 2000.Health and Safety RegulationsThis is a large area of law, beyond the ambit of the course, but if you are an employer,or potential employer, you will need to be aware of the regulations:http://www.hse.gov.uk/pubns/hsc13.pdf Bankruptcy 57Purpose and effect of bankruptcy; constitution of bankruptcy; the trustee insequestration; the ingathering of the debtor's estate; distribution to creditors; trustdeeds for creditors; discharge of debtor.Reading Black Ch.17 (first part)Davidson and MacGregor Ch.9 ???Gloag and Henderson Ch.54There is also an excellent website run by the Accountant in Bankruptcy, at . http://www.aib.gov.uk/ Once there you can access the Bankruptcy (Scotland) Act 1985, available athttp://www.aib.gov.uk/guidance/Legislation What is good about this version is that it is the up to date version with all theamendments in.You should also look at the Bankruptcy and Diligence etc (Scotland) Act (known asthe BAD Act) athttp://www.opsi.gov.uk/legislation/scotland/acts2007/asp_20070003_en_1 You should read all you can of the AIB website as it contains much usefulinformation.1. DefinitionsThe process of bankruptcy in Scotland is known assequestration, and isgoverned by the Bankruptcy (Scotland) Act 1985, as amended by the DebtArrangement and Attachment (Scotland) Act 2002 and by the BAD ActThe bankrupt is known

as thedebtor .The person who looks after a debtors affairs once he has beensequestrated isknown as thetrustee in sequestration.Atrust deed is a form of bankruptcy where the debtor transfers all or most of his assets to a trust for his creditors, which is then administered by a trustee for the creditors benefit. Trust deeds may become protected trust deeds.Atrust estateis the body of assets that the trustee looks after and comprisesthose of the debtors assets available for division amongst creditors.The person who keeps an eye on trustees etc is the Accountant in Bankruptcy(AiB). He, or his delegates, may also act as a trustee, particular for smallestates.There are special cross-border provisions in the EU designed to cope with thefact that nowadays debtors commonly have assets in more than one country.The provisions are known as the Insolvency Scotland Regulations 2003 (SI1346/2000). They enable main proceedings to be brought in the debtorsmain place of residence or business, and subsidiary ones elsewhere; eachcountrys trustees are to co-operate with each other and to give effect to eachothers rules, transfer surpluses etc where available etc.To be bankrupted, you must have had to pay all your money to the person who bought hotels in Mayfair and Park Lane. You must in law be apparently 58insolvent. For the definition of apparent insolvency see Bankruptcy (Scotland)Act 1985 s.7.2. Apparent insolvency is triggered by (amongst other things)* sequestration;* bankruptcy elsewhere in UK;* written notice that the debtor cant pay his debts;* the granting of a trust deed for creditors (see later in the course);* the expiry of the induciae of a charge (14 days) without payment(irrespective of the size of the debt);* the attachment or seizing of the debtors assets in pursuance of asummary warrant for rates or taxes without payment after 14 days;* a receiving order in England and Wales;Do the above mean that he is actually insolvent?But the next item definitely makes him apparently insolvent:* the failure to pay a debt or debts amounting to more than 750 within 3weeks following notice in the prescribed form to do so without the debt being disputed (s.7(1)(d)).This does have to be a valid claim: if it is disputable then it will not do asa ground for sequestration.3. Who may petition for sequestration ?The debtor may by means of a debtor application to the AiB:* provided the debtors debts are greater than 1,500, there has been no previous award of sequestration within the previous five years and thedebtor is apparently insolvent or granted a trust deed which was unableto be a protected trust deed (s.5(2B)). A creditor may in the sheriff court, provided* the debtor has been apparently insolvent (see para.2 above) within thelast four months, and* the creditor is qualified (i.e. the debt must be for over 3,000) unless he joins up with other creditors to make up the sum of 3,000 (s.5(2)(b)).The trustee under a trust deed may (s.5(2C)) provided* the debtor has unreasonably failed to comply with any term of thetrust deed, or any order arising therefrom, or * the trustee asserts that it would be in the best interests of the creditorsto have an award of sequestration.There are special provisions for LILA (low income, low asset) debtors toallow them to apply for to the AiB for sequestration (BSA 1985 s.5A), andseparately other provisions for the very poor to have themselves certified as being eligible for sequestration (s.5(2B)(c)(ib)).4. Who may be sequestrated ?* ordinary human beings (not estate agents as they are a form of insectlife somewhat less advanced than cockroaches); 63various things which the debtor may not do, the commission of any of whichconstitutes a criminal offence (s.67). What are they?35. It is possible for a debtor to come to a voluntary arrangement with

hiscreditors. This is known as a composition (Sch.4) but they are little used.They require a majority in number and 2/3rds in value approval from thecreditors and a payment of at least 25p in the . They can only be used after the act and warrant is in place.36. Trust deeds and protected trust deedsA (private) trust deed for creditors is a unilateral undertaking, not binding onthe creditors, by a debtor transferring some or all of his assets to a trustee for the benefit of his creditors.A protected trust deed is where all the debtors estate passes to a trustee(s.5(4A)), except for assets that were not his to pass, such as assets held intrust for another, or non-attachable property. See also Sch.5 to the Act.THE LAW OF DELICT (TORT)Reading: Black Ch.10If someone injures you, you can sue him for compensation.But to do so, you have to prove(a) that he injured you;(b) that he owed you a duty of care to you not to injure you;(c) that you suffered loss;(d) that it was his act that caused you to be injured;(e) that you didnt make the situation any worse yourself;The law on the one hand wants those who have been injured to receive redress, but onthe other, the law has to recognise that some people claim to be injured when theyhave not been, and that some people are chancers and should have acted with moresense (Titchener v British Railways1984 SLT 192).On top of that, life is risky: sometimes bad things happen that are no-ones fault- liketsunamis. Sometimes you have to live with misfortune (like the lady with the earwigin her chocolate liqueur).Sometimes you have to look out for yourself and take responsibility for your ownactions.Sometimes an injury might indirectly be someones fault, but it is unreasonable toexpect that person to have had you in mind when he carried out the negligent act that 64caused the injury ( BourhillvYoung1943 SC (HL) 78). The law has to strike a balance between making the negligent pay up while notcompensating people who are either stupid or greedy. The law also has to recognisethat there may be considerable commercial implications if people are found liablewho did not expect to be found liable. Businesses may be closed down and insurance premiums may go up. People may not be allowed to do things which they used to beallowed to do. Business might leave the country to go to more business-friendlycountries such as the USA.This is all part of the law relating to negligence, known in Scotland as Delict, and inEngland as Tort.Pursuer (Plaintiff or claimant in England)Defender (Defendant)Delict is part of the Civil lawA delict is a legal wrong (a breach of duty) which causes loss or injury. It is however nothing to do with the criminal law.Delictual Remedies1) Interdict2) Compensation (reparation)(usually in the form of damages (money)) 65An act can be both a crime and a delict e.g. assault, careless driving.General PrincipleFirstly, the loss or injury must have been caused by someonesculpa(fault)This word coversintentional wrongdoing (i.e. deliberate)unintentional wrongdoing (i.e. negligent).Exceptions:- (i.e.culpanot required)strict liability e.g. under a statutevicarious liability- where the defender is liable for the acts of another person(commonly an employee)Damnum injuria datumSecondly, the loss must be caused by a legal wrong. Only where these three elements(fault, loss and a legal wrong) are present may someone make a claim in delict. Damnum-loss or injury Injuria-legal wrong (breach of duty)(intentional or negligent) Datum-causation i.e. a link between the legal wrong and the lossIt is possible to haveinjuria sine damno (a legal wrong without loss as for example in an invasion of privacy or trespass)or to havedamnum absque injuria (loss without a legal wrong, as for example where someone suffers loss without it being anyones fault, such as being affected by an earthquake).The main area where delicts take place is where someone has been negligent in hisdealings with another.NEGLIGENCEdoes not simply mean

general carelessness - it means carelessness within specificoccasions, and in particular where there is a duty of care, and where that duty hasnot been exercised to a proper standard (known as the standard of care).DUTY OF CAREIts existence is a question of law.When does it arise?When you do something silly or reckless, you should consider who would be affected by your actions. Donoghue v Stevenson1932 SC (HL) 31 66 -Lord Atkin's "neighbourhood principle""You must take reasonable care to avoid acts or omissions which you canreasonablyforesee would be likely toinjure your neighbour. Who then in law is my neighbour?The answer seems to be persons who are so closely and directly affected by my actsthat I ought reasonably to have them in contemplation as being so affected."The duty is not owed to everyone but only those within the AMBIT of the duty, thosewhom you could reasonably foresee would be affected by your actions: Bourhill v Young1942 SC (HL) 78. People cannot be expected to have an infinite duty to an infinite class of persons(Caparo IndustriesvDickman[1990] 2 AC 605).STANDARD OF CAREThe standard of care is that expected of the reasonable man.If you can actually findone, do let me know. It is therefore an objective test. Nettleship v Weston[1971] 2 QB 691.The reasonable man is neither over cautious nor over confident.Glasgow Corporation v Muir 1943 SC (HL) 3.The greater the risk involved, the greater is the care which is required to satisfy thereasonable standard.Strict LiabilityThis means that it does not matter whether a duty of care was exercised to the proper standard: what is important is that the victim suffered loss by whatever cause at thehand of the defender and so the defender is automatically liable. In these cases, mostlywhich arise under statute, the standard of care of the reasonable man is ignored and amore demanding standard is expected. For example, see the Consumer Protection Act1987.PROOF OF NEGLIGENCE Normally the burden of proof is on pursuer (this means that it is up to the pursuer to prove that the defender owed him a duty of care and failed in that duty)standard of proof -on the balance of probabilities (for example, see the O J Simpsoncivil claim for murder).However, the burden of proof is sometimes reversed when the facts so clearly showthat the defender was at fault. This is known as "res ipsa loquitur ", (the thing speaksfor itself)Scott v London and St Catherines Docks, (1865) 3 H&C 596. It is then for the defender to show why he should not be liable, or how the damages that he wouldhave to pay should be reduced. 67 CAUSATIONThe defender must have caused the injury to the pursuer (the victim). This is notalways the case. McWilliamsvSir Wm Arrol & Co Ltd and Lithgows Ltd 1962 SC (HL) 70What if there are several factors leading up to the act/omission which is the immediatecause of injury? (Wagon Mound No.2[1961] AC 388)A new factor which disturbs the sequence of events is known as a novus actus interveniens(a new intervening factor).It breaks the chain of causation.The person responsible for the original breach is not liable for injury occurring after that point ( McKew v Holland, Hannen & Cubitts (Sc) Ltd.1970 SC (HL) 20)He is also not responsible if his failure to do something would not have made anydifference anyway ( Barnett vChelsea and Kensington Hospital[1969] 1 QB 42).In deciding whether the chain of causation is broken the court applies the test of reasonable foreseeability.The person who caused the original breach of duty will be liable if a reasonable manin his position would have foreseen that the breach was likely to result in injury.1) The wrongdoer remains liable if he creates a situation which was likely to lead tothe injured party taking emergency action.

68 2) If a foreseeable result of wrongdoer's action is intervention by a third party whichcauses injury, the chain of causation is not broken. MacDonald v David MacBrayne Ltd.1915 SC 716Vicarious LiabilityThe general rule for liability: culpa tenet suos auctores(he who does the wrong is responsible and liable for it).In some circumstances, the commission of a delict by one person imposes liability onanother who is not at fault.The concept of vicarious liabilitycan arise in the field of employment.("vicarious"-in place of another).An employer is liable for the wrongful acts or omissions of an employeeprovidedthat the act is done within the scope of employment:Williams v Hemphill1966 SC (HL) 31 RosevPlenty[1976] 1 All ER 97An employer is not liable if the employee goes off on "a frolic of his own."Where the employee commits a delict while doing something which he was notauthorised to do, the court will consider the purposeof his actions.If the purpose was to1. further the employer's interests2. protect the employer's propertythat will be within the scope of employment:Poland v Parr [1927] 1 KB 236and so the employer will be liable.The concept of vicarious liability is justified by two maxims: respondeat superior let the master be responsiblequi facit per alium facit per sea person who does something through the actions of another is liable as if he had doneit himself.The injured party may sue the employee personally and/or the employer who isvicariously liable.If the employer is found vicariously liable, he (or in practice his insurers) may sue theemployee for damages: Lister v Romford Ice and Cold Storage Co[1957] AC 555.This is rarely done as the employer will be insured against such liability and theemployee will not. 69PROFESSIONAL NEGLIGENCEA professional person is expected to reach the standard of a reasonably carefulmember of that profession: Hunter v Hanley1955 SC 200 No account is taken of inexperience:Wilsher v Essex Area Health Authority[1988] 2 WLR 557The standard of care depends on the wrongdoers rank or position: greater skill isexpected from a consultant than from a GP.In deciding whether the standard has been met, reference is made to professionalknowledge, methods and practice possessed at the date of the alleged negligence: Roe v Minister of Health[1954] 2 QB 66Denning LJ:"We must not look at the 1947 accident with 1954 spectacles."Departure from normal and accepted practice is not necessarily negligent.If no other member of profession would have taken such a course of action, that is astrong indication of negligence.In medical cases, causation can be difficult to prove:Kay's Tutor v Ayrshire and Arran Health Board 1987 SLT 577PRODUCT LIABILITYEC directive on product liability-UK Parliament passed the Consumer Protection Act 1987 Part 1.Under the Act, pursuer does not have to prove negligence only that1) there has been injury/damage2) there is a dangerous defect in the product3) the defect caused the injury/harmLiability is in the first place on the producer but liability will fall on the supplier whodoes not identify the producer/ his own supplier.DEFENCES IN DELICTThere are defences which are applicable to particular types of delict only.e.g. self defence in assaultveritasin defamation.Defences which are more generally available:Statutory authoritySometimes statute provides a defence 70 Metropolitan Asylum District Board v Hill1881 6 App Cas 193volenti non fit injuria-A wrongful act is not done to some-one who is willing to accept the risk: Morris v Murray[1991] 2 WLR 195There must be evidence of 1) knowledge of the nature and extent of the risk 2) acceptance of the risk The pursuer must besciens et volens Nature of ones jobWhitevChief Constable of Yorkshire*1999+ 2 AC 455as compared to McLoughlinvOBrian*1983+ AC 410Sporting Events-spectators:Wooldridge v Sumner [1962] 2 All ER

978-participants increasing cases involving rugby players and boxers insurance problemsRescuer Situations Baker v Hopkins[1959] 3 All ER 225Contributory negligenceSee the Law Reform (Contributory Negligence) Act 1945.Damages are reduced according to percentage blame which attaches to pursuer:Titchener v British Railways1984 SLT 192Onus is on defender to prove pursuer was at fault.Illegality defence Duncan v Ross Harper & Murphy1993 SLT 105PRESCRIPTION AND LIMITATIONThe right to bring an action in delict or the obligation to pay damages may be lost or extinguished through passage of time by thePrescription and Limitation (Scotland)Act 1973Prescription-5 year prescription extinguishes obligations to make reparation.-The prescriptive period usually (but not always) runs from the date when the loss,injury or damage occurred.Limitation-differs from prescription 71-limitation does not extinguish a claim but simply makes it unenforceable by legalaction-an action of damages for personal injury or death must generally be commencedwithin 3 years from the date of injury or death-the court may extend the period if it deems it equitable to do soREMEDIES1) Interdicta preventative proceeding directed against a continuing wrong or a threatened wrong:Webster v Lord Advocate1985 SLT 361.2) Compensation (reparation) The purpose of a damages award is to restore the pursuer as far as possible to the position he was in before the delict.The law lays down the heads of damages.The actual losses are questions of fact.Compensation for pain and suffering is known assolatium. Compensation for financial losses is known as patrimonial loss.AgencyDifferent types of agent; creation of agency; ostensible authority; ratification; liabilityof principal for agent; fiduciary duty of agent; delegation.Reading: Black, Ch 9Davidson and MacGregor Ch.Agency1. Agency may be defined as the fiduciary relationship which exists between two persons, one of whom expressly or impliedly consents that the other should acton his behalf, and the other of whom similarly consents so to act or so acts.2. Agency requires aprincipaland a person who carries out acts for him, knownas the agent. The principal gives the agentauthorityto act on his behalf, toarrange deals for him etc. The agent's authority may beexpress(either clearlydefined, commonly written, and limited to specific areas) or implied(arisingout of circumstances, common for the type of business etc.). He is not toexceed that authority, though despite that, if he does, the principal may still beheld liable for acts entered into by the agent on the principal's behalf if the actin question was within theapparent or ostensibleauthority of the agent. The principal may then claim against the agent personally. There aregeneralagents andspecialagents.Why do we have agents anyway? 723. Agency arises in many contexts, such asestate agent and clientsolicitor and clientdirector and his companya partner and his partnershipinsurance broker and an insurance companycar dealer and his supplier employee and his employer (sometimes)servant and master etc.4. How is an express agency set up ?Ideally it is written, though it may be oral. An express agency will specifyexactly what the agents duties are, his remuneration, the duration of theagency, his commission (if any), the terms applicable, the liability attaching tothe agent for failure to bring matters to fruition (clawbacks etc.) A commercialagent is entitled to ask for written terms under the Commercial Agents(Council Directive) Regulations 8.1.1993/3053 reg. 13. If it is to be a soleagency it should say so(Lothianv Jenolite Ltd 1969 SC 111) and the positionof commission not being paid if the sale falls though ought to be clearly statedto avoid difficulties(Menzies, Bruce-Low and Thomsonv McLennan(1895)22R 299).The principal must have a legal existence (Companies Act 2006 s.51 andPhonogram Ltd v Lane[1982] QB 938) and the principal

must be legallycapable of carrying out the act that the agent is carrying out for him (n.b. Ageof Legal Capacity (Scotland) Act 1991).5. Negotiorum Gestio.This means an agency of necessity, and where an agentdoes what is vital to preserve a principals assets, where the principal is not ina position to do so himself, and where it is likely that authority would have been given. The agent (gestor)can get his expenses and be relieved of anyliability(Ferniev Robertson(1871) 9M 347).6. Equally agency may be established from the actings of the parties(BarnetsonvPeterson(1902) 5 F 86). It may be established byholding outwhich iswhere the principal takes no steps to counter the impression that the agent hadthe authority to act as he does(Freemanv Buckhurst Park Properties(Mangal) Ltd [1964] 2QB 480).7.Ratificationis the post-dated approval by a principal of an act carried out bythe agent. Such ratification may be express or may be established by the principals actings, in particular by accepting without demur the agentsactions. But the ratifying principal must have the full facts before him andgenerally the principal must belucratusas a result. Furthermore the agentmust have made it clear to the third party that he was acting as an agent(Keighley Maxstead &Co.v Durant [1901] AC 240.8. Agency sometimes arises through operation of law, as a director acts for hiscompany, or a partner for his partnership (Partnership Act 1890 s.5). 739. Agency depends upon thefiduciaryrelationship. This means that the principalmust be able to trust that the agent will take no unauthorised benefits from his position, nor any incidental advantage, unless he has disclosed it first andsought approval. This concept is very important in company law, partnershiplaw and to a certain extent employment law. This means no secretcommissions(Boston Deep Sea Fishing Co.v Ansell(1888) 39 Ch D 339), noconflict of interest between the agent and the principal(McPhersons Trs.vWatt (1877) 5R (Ill.-) 9 -see Lord 0Hagans speech) -general requirement of uberrimae fidei.10. Consequences of secret commission:agent dismissed and commission recovered from the agent;damages from the briber;agent loses right to commission for the transaction from the principal;rescission of the contract and recovery of any deposit.11. Other duties of an agent include the fact that an agent mustnt sell his own produce to the principal without approval(Maffett vStewart (1887) 14 R 506),nor even a good idea to buy it(McPherson's Trs.vWatt, supra).He must keepaccounts and make good any loss to the principal occasioned by the agentsactions (Taylor v Logan(1904) 7F 123). There is also a duty of confidentiality( Liverpool Victoria Friendly Societyv Huston(1900) 3F 42). If he acts beyond his authority, the principal may still be bound by the contract but the principal may recover from the agent ( Milnev Ritchie(1882) 10 R.365).12. No delegation without approval:delegatus non potest delegare,though thereare in fact many exceptions to this rule, especially where the agent's tasks arenot particularly unusual or skilful. Normally a well drafted agency agreementwill allow for some degree of delegation.13. An agent is not normally responsible for the actions carried out on behalf of his principal, and the principal must indemnify him for any loss he suffers(Stone& Rolfe Ltd vKimber Coal Co Ltd 1926 SC (HL) 45). He is alsonormally entitled to be paid, according to the general custom of trade andwhere there is no custom, he should be paid reasonable remuneration(Commercial Agents Reg.6(1)) The principal is not bound to provide an agentwith work unless the contract of agency says otherwise. An agent is entitled toa lien over the principals assets in his possession if he has not been paid(Glendinningv Hope1911 SC (HL) 73). The contract is terminated by any of the normal methods of terminating contracts, though the Regs. allow for minimum notice and compensation for short notice, both of which must beexercised in good faith (Reg. 17 and seeGraham PagevCombined Shippingand

Trading Ltd [1997] 3 All ER 656).14. When an agent contracts with a third party, he does so either as agent for anamed principal, as agent for an unnamed principal, or as agent for anundisclosed principal of whose existence the third party is unaware. 7415. Where the agent is an agent for a named principal, he has no liability (see BellComm.,I, 540) and no title to sue. However this may be disproved by precisecircumstances, such as when the agent appears to be making his ownobligation in writing) even though he is acting on behalf of a client (in asolicitors obligation to deliver writs Johnstonv Little1960 SLT 129) -so notethe use of the words on behalf of or acting on instructions received frometc.16. Agent for an unnamed or undisclosed principal. If the principal could beidentified without great effort, the agent is deemed to be an agent and hencethe principal is liable for his contracts(Armour vT L Duff &Co.1912 SC120). Where there is an undisclosed principal but the agent is acting under the principals express authority, the agent will be liable unless he is prepared toreveal who the principal is(GibbvCunningham and Robertson1925 SL T608) since otherwise the third party would have no-one to sue.17. Where the agent contracts ostensibly as principal, both agent and the hidden principal are potentially liable (but not jointly liable) for any contracts that theagent may have set up, and may sue and be sued (Bell,Comm.,540, Gloag onContract,128/9). If the principal comes out of hiding he may sue and be suedwithout difficulty. In the absence of disclosure, the third party may sue theagent personally as he has relied on the agents credit (Bell,Comm.,540). Thethird party may, however, when he discovers the principal, elect to sue either the agent or the principal (guess which one!)( LaidlawvGriffin1968 SLT278) but having done so may not change his mind (Ferrier v Dodds(1865)3M 561).18. If the agent acts without any form of authority whatsoever, or acts in such amanner that no reasonable person could seriously believe that a principlewould authorise him to behave in that manner, the principal is not bound( British Bata Shoe Co. Ltd v Double M Shah Ltd 1980 SC 311) by theapparent actions of the agent -which may mean that the third party still has to pay the principle even though he had already paid the agent.19. Ostensible authority arises where an agent has had dealings in the past with a principal, and the agent carries out an act for which he has no authority, but isnot countermanded by the principal, or the principal suffered the third party to believe that the agent had authority (First Energy (UK) Ltd v Hungarian International Bank [1993] 2 LI. Rpts. 194; International Sponge ImportersvWatt 1911 SC (HL) 57). The principal is personally barred from denying theauthority. If there used to be such authority and it has been withdrawn, other parties should be informed or the principal will still be held liable for the actsof the unauthorised agent (WatteauvFenwick [1893] 1 QB 346). Some professions, such as solicitors, have general authority which covers mostmatters and for which a principal will be liable. But you can have specialauthority for one matter alone, which is expressly limited. Ostensibleauthority doesn't arise in the context of special authority. Nor does it arisewhere the apparent agent's actions are well beyond the normal course of business practice ( British Bata Shoe Co. Ltd v Double M Shah Ltd 1980 SC311).Apparentauthority is another term for ostensible authority, and arises 75where an agent acts in the course of business common to people in his position, even if in reality he is up to something naughty (Panorama Developments (Guildford) Ltd vFidelis Furnishing Fabrics Ltd [1971] 2 QB711). 17. An agent is expected to show the same standard of care as he would use in hisown business dealings (a prudent man acting in his own affairs (Bell,CommentariesI 517), though if the

agent has particular qualifications moremay be expected of him ( Ibid.517). An agent is expected to keep proper accounts.An agent is normally liable only to the person with whom he is in an agencyrelationship (Caparo Industries picv Dickman and Ors[1990] 2 AC 605). If an agent exceeds his authority, he may be sued for breach of warrant of authority ( AndersonvCroall(1903) 6F 153).20. The Commercial Agents (Council Directive) Regulations 1993, SI 1993/3053and 3173 are deemed to apply where the common law is silent, or possiblywhere a clause in an agency contract is to be set aside. The regulations arevery sensible and designed to protect commercial agents from unscrupulous principals and indeedvice versa. They set up industry norms of fair treatmentfor agents and principals. They are slightly at variance with what under Scotslaw is treated as an agent: for example under Scots law an employee is anagent, but for the purposes of the Regulations he is not. The Regulations donot apply to one-off transactions and to agents who act for no remuneration.The expectation under the Regulations is that the agent must act dutifully andin good faith on the principals behalf, and likewise the principal must actdutifully and in good faith towards the agent. In the absence of a paymentclause, the principal must pay the agent the normal commercial rates for thework the agent has done. There are sensible notice provisions andcompensation payments for early termination.21. One can still get round the regulations, however, by an artful use of choice of law clause (Reg. 1(3)) if one of the parties is from a non-EU country .For the application of the regulations in Scotland, see Royv MR Pearlman Ltd 2000 SLT 727, 1999 SC 459. The emphasis will be on harmonisation of ruleswithin the EC and accordingly the EU rules will prevail over any localcommon law rules where there is a disparity. But see Lonsdale (t/a Lonsdale Agencies)v.Howard & Hallam Limited *2007+ UKHL 32, where the Frenchrule of two years wages by way of damages was ruled inappropriate and a UK rule of what the agent might have been expected to earn on the basis of his past work was substituted instead. 76Law of PartnershipLimited Liability Partnership Act 2000 (LLP A)http://www.opsi.gov.uk/acts/acts2000/ukpga_20000012_en_1 Partnership Act 1890 (PA)http://www.opsi.gov.uk/acts/acts1890/pdf/ukpga_18900039_en.pdf If these links dont work, google the names of the Acts.It is possible to see these Acts in books of statutes available from bookshops. You canalso access more recent Acts at the Stationery Office Website, the Parliament websiteor the DBERR website.Case law Business OrganisationsThere are five main types of business organisation and each will be examined in turn. Sole Trader Partnership Limited Liability Company Limited Partnership Limited Liability PartnershipThe sole trader The advantages of being a sole trader are as follows:.complete independence.freedom to enter into any kind of legal business.flexibility. privacy.the benefit of self-employed taxation status.there are few difficulties in selling his business.there are very few procedural requirements for setting up his business.opportunities for significant wealth creation.The disadvantages of being a sole trader are as follows:.the law makes very little distinction between the person's assets and his business assets.he could be made personally bankrupt for his business losses 77.there is no one with whom to share his losses.his business is as good as his health.it may be difficult to raise working capital without mortgaging his familyhome.it requires considerable financial ability and administrative skill.he can never go on holiday.he never has a social life.it is generally very hard work.Common businesses run as sole traderships include tradesmen, farmers, freelanceauthors and

journalists, musicians, website designers, small shop-keepers etc.There are very few legal rules applicable to sole traders.PartnershipsPartnership Act 1890 (PA)http://www.opsi.gov.uk/RevisedStatutes/Acts/ukpga/1890/cukpga_18900039_en_1 (if this doesnt work, google the Acts name)For a good overview, see Black: Ch.15Davidson and MacGregor; Ch ???As sole tradership is so risky, it is safer and indeed common to have initiallyacolleague, commonly a spouse, sibling or friend share the burden of running the business. Later on there may be many more partners: some big accountancy partnerships have many hundreds of partners. Partnerships are governed by the PA1890, which sets out a standard set of rules to establish the following (amongst other things):.whether or not a partnership actually is in existence (sometimes it can bedifficult to tell whether someone is actually a partner or a lender taking avariable rate of interest according to how the partnership prospers);.default rules relating to the management (s.25) and dissolution of the partnership(ss.32-44) (Popat vShonchhatra[1997] 3 All ER 800)..default rules relating to the division of profits and losses of the partnership(s.24).the liability of the partners for the partnership debts (s.9).the joint and several liability of the individual partners (s.9)A partnership is defined in PA 1890 s.1 as a business involving two or more personsrun in common with a view of profit. SeeKhan and Anr.v Miah and Anr.1998] 1WLR 477.In Scotland, and soon to be in England, a partnership has its own legal personality(s.4), although the practical benefits of this are negligible. A retiring partner is notnormally liable for debts of the partnership after he leaves (s.17(2)) and an incoming partner is not liable for the debts of the partnership before he arrived (s..17(1)). 78Advantages of partnership are:.sharing of risk . pooling of talent. privacy.support in the event of illness.ability to regulate the partners' responsibilities in terms of a partnershipagreement.ability to enter any kind of legal business provided the partners work is incommon.few bureaucratic requirements and little paperwork needed.no minimum capital.flexibility within the constraints of PA 1890.self-employed status.entitlement of each partner to a pro indivisoshare of his interest in the partnershipDisadvantages of partnership are:.the inability to borrow funds except on an unsecured basis (except over heritable assets or real estate).the partnership is only as good as its weakest partner, and no partner can claimignorance of another partner's acts (s.16): any one partner can bind the firm(s.16). potential difficulty of transferring one's partnership interest.high degree of trust required of fellow partners;. joint and several personal liability for the partnership's debts -leading to potential sequestration (PA 1890 s.9) ADT Ltd v BDO Binder Hamlyn[1996]BCC 808 Not the significance of partnership agreements and the difference between theexternal rules that bind the partnership with outsiders (s.6) and the internal rules thatapply to the partners alone (known as the agency rules)(Mercantile Credit vGarrod [1962] 3 All ER 1103).A partnership will be vicariously liable for the acts of its partners (s.10) providedthose acts are within the normal range of acts carried out by partners in the course of their business:Kirkintilloch Co-operative Societyv Livingstone1972 SLT 154.But sometimes an act is clearly beyond the normal course of business:Paterson BrosvGladstone(1891) 18 R 403FortunevYoung1918 SC 1Historically certain professions, such as doctors, lawyers, accountants etc. used not to be allowed to safeguard themselves from personal liability for their actions. This was because the threat of personal liability was thought to concentrate peoples minds ondoing the job properly. But equally, some claims are so huge that they could bankrupt

98 Racking his brains to record and report What he thinks they think they ought to have thought.AuditorsThe need for auditorsAll companies with the exception of dormant companies (s.480) and certain smallcompanies (s.477) need auditors (s.475). An auditor may be an individual, a partnership, a limited liability partnership or a registered company but under whatever form the auditor is operating, the auditor must be independent of the company, andeligible in terms of his professional requirements by being a member of a recognised professional supervisory accountancy body (s.1209). Should the auditor turn out notto be eligible the Secretary of State may order a second audit (CA 2006 s.1248).2.Appointment of auditorsA company's first auditors are appointed by the directors, and they hold office untilthe first general meeting at which accounts are laid, whereupon they may bereappointed for the period up to the next general meeting at which accounts are laid(CA 2006 s.485).Thereafter the auditors are usually re-appointed annually or until the next generalmeeting at which accounts are laid.3. The rights of auditorsAuditors have the right of access to all the company's books and accounts, and areentitled to obtain such information and explanation from the company's officers asthey need (s.499). Misleading the auditors is a criminal offence. Directors of subsidiaries are required to give the auditors of holding companies all the informationthat the auditors of the holding company may reasonably require (CA 2006 s.500).Auditors have the right to receive notices of and attend all general meetings and tospeak at such meetings. Auditors must disclose the terms of their appointment (CA2006 s.493). Furthermore, auditors and their associates must also disclose in detailwhat other benefits the firm of accountants carrying out the audit receives from theaudited company (CA 2006 s.494).4.Removal and resignation of auditorsWhen an auditor leaves, he must deposit a statement at the company's registeredoffice (s.519). The statement must disclose any circumstances in connection with theauditor's ceasing to hold office and which he considers should be brought to theattention of the members or creditors of the company.What is the point of all this laborious procedure?5. The role of the auditorAuditors have various tasks, of which the primary one is the scrutiny of the company'saccounts. They are not there to check that every entry in the company's accounts issatisfactory. They could not possibly inspect every single entry in the company's 99 books. They merely provide some degree of reassurance as to the accuracy of thecompany's finances, but are not there to track down every transgression.Lopes L.J. in Re Kingston Cotton Mill (No.2),"the auditors are watchdogs not bloodhounds".Ultimately it is the directors' duty to prepare the accounts, even if the directors haveaccountants to do the work for them, and it is the directors who are responsible for theaccounts.The auditors' job is to provide the report, qualified or not as the case may be, to theaccounts, such that it reassures the members that it is reasonable for the directors tohave paid a dividend.7.The liability of auditorsIt is not permissible for the auditors to be indemnified by the company against claims by the company in the case of negligence or default (CA 2006 s.532), though thecompany may indemnify the auditor for his costs in the event of his defending himself against a claim successfully.Although there may be contractual arrangements to the contrary, the primary duty of care that auditors owe is to the company that hires them to carry out the audit. Thiswas established in the well-known case of Caparo Industries pIcv. Dickman Touche Ross[1990] 2 WLR 358. Normally the only way the auditors could have a responsibility to individual membersor bodies other than the company which commissioned the audit was if they were puton notice that a particular member or body was relying on the audit,(ADT Ltd v. Binder Hamlyn[1996] B.C.C. 808), or where it could be reasonably

anticipated that a particular member (Electra Private Equity Partnersv.KP MG Peat Marwick [2000]B.C.C. 368) or body would be relying on the audit even if there were no contractualrelationship(Royal Bank of Scotland v Bannerman Johnstone Maclay2003 S.C. 125,'2003 S.L.T.181).Auditors of subsidiaries can reasonably expect that the holding company memberswill have an interest in their subsidiaries' accounts and auditors may then be liable tothe holding company(Barings plcv.Coopers and Lybrand [1997] 1 BCLC 427,[1997] B.C.C. 498).TheCaparodecision is still the current law, but increasingly the duty of care that is to be expected in each case will be specified in the terms under which the audit is carriedout. Auditors are becoming very cautious as to the terms under which they will dotheir audit and making it quite clear that only the commissioners of the audit(generally the company) will have the legal standing to sue on the audit if it isinaccurate.In particular since the Bank of Scotland v Bannerman Johnstone Maclaycase it isimportant that there should be a clear disclaimer of liability towards anyone other thanthe intended recipient of the audit.Auditors may now limit their liability by means of a liability limitation agreement if isfair and reasonable and is approved by the members (CA 2006 ss.534589)8.Fraudulent directors who mislead the auditors 100Auditors will not in general be liable if they had been misled by fraudulent directors(Galoo Ltd v. Bright Graham Murray[1994] BCLC 319, Barings pic(in liqu.) vCoopers and Lybrand (No.5) [2002] EWHC 461 (Ch.D))If autitors uncover fraud they are expected to report it to the relevant authorities andwill be liable for any loss to the company arising out of their failure to do so(SaseaFinance Ltd vKPMG[2000] 1 BCLC 236, [2000] B.C.C. 989).Directors are expected to tell auditors everything that the auditors might be expectedto want to know about (s.500).Traditional minority protectionHistorically, minority shareholders had a raw deal, as a result of the logical severity of theFossv Harbottlerule. Unless the minority shareholder's claim fell within one of the few permitted exceptions, minority shareholders just had to suffer in silence or selltheir shares (if they could) unless they could persuade the courts to have the companywound up on the "just and equitable" grounds of IA 1986 s.122(1)(g). For a very longtime judges were reluctant to entertain minority protection cases.Typical types of minority prejudiceCommon types of minority prejudice include the following: .lack of information about the company;high-handed decision-making; preferential treatment for some shareholders(re Bird Precision Bellows Ltd [1986]Ch.685)misuse of company funds, especially where the majority shareholders are also thedirectors;majority shareholders using their majority to approve a rights issue which theminority could not afford to take up(Re Cumana Ltd (1986) BCLC 430);majority shareholders using their voting power to give directors (themselves)excessive benefits;failing to raise an action which ought to be raised against a company with which themajority shareholders are closely connected;altering the articles in a way disadvantageous to the minority; 101dismissing a minority shareholder from his directorship and and/or refusing to buyouthis shareholding.General observations about minority protectionShareholders should look after their own interests(R A Noble (Clothing) Ltd 273[1983] BCLCThe court may be merciful in its decisions Re H R Harmer Ltd [1958] 3 All ER 689).Litigants ought to know better. In Re Elgindata Ltd [1991] BCLC 959 there was adispute over shares purchased for 40,000; after the 320,000 worth of costs, theshares were found to be worth 24,600.The problematic areasThe courts will not entertain any commercial disputes, because judges consider thattheir role is to decide on the law, not to choose which of two

commercial decisions isthe better. At the same time it is sometimes difficult to establish where a legal disputestarts and a commercial dispute ends.Need to prove unfair prejudiceIn order to petition successfully for minority protection, the minority shareholdersneed to prove that they fulfill the criterion of CA 2006 ss.994-999, in that the majorityhas conducted or proposes to conduct the affairs of the company in a way that isunfairly prejudicialto the interests of the minority members or indeed all members of the company. So an act by the majority may be prejudicial but not unfair, if, for example, the minority has previously consented to its happening, if it is in the articles(which the members are assumed to understand) (see Re Saul Harrison and Sons plc[1995] 1 BCLC 14, CA) or if it is anticipated in a shareholders' agreement.The significance of O'Neill v Phillips[1999] 2 All ER 961This case is the current leading case on minority protection, and what it has tried to dois rein back the law from being too generous to minority shareholders and to set outmechanisms to limit the opportunities for minority shareholders to make claimsagainst majority shareholders. The case also clarifies some ambiguities arising fromtheSaul Harrisoncase. In O'NeillvPhillipsthe minority shareholder was unable toestablish on the basis of either contract, statute, the memo or the arts that he had avalid claim against the majority shareholder who in the minority shareholder's eyeshad let him down.How to avoid minority claims if you are a minority shareholderFrom the point of view of the majority shareholder, the way to avoid a potential claimis to do the following:

102 make sure the matter to be objected about is a commercial matter; don't put undertakings to minority shareholders in writing; allow yourself room for manoeuvre and backing out: it may not be good for your eternal soul, but you are allowed to do this; remember that shareholders rights are normally as outlined in thememorandum, articles and any shareholders or other contractual agreements;if you stick within the wording of those three documents, it will be hard tofault you(Re Saul D. Harrison and Sons plc); it is unwise to prevent a former director receiving a fair offer for his shares,though for a minority shareholder either to lose his directorship or to havetrouble withdrawing his capital from a company is in its own right notautomatically good grounds for a petition unless the company is a quasi- partnership company; remember that mere loss of trust by the minority in the majority is notautomatically grounds for a successful petition; when drafting the articles or shareholders' agreement, make sure there is a fair and sensible exit route for minority shareholders.Afair and sensible exit routeA fair and sensible exit route, as stated in 0'NeillvPhillips,is that in the event of adispute, the majority may consider offering to buy the minority shareholder out. If themajority offers to do this at a fair value, with no discount for a minority shareholding, with the value if necessary being established by independent valuers acting asexperts not arbiters, and with both parties being entitled to equal access to all relevant informationit will be difficult for the minority to complain that he is the victim of unfairly prejudicial conduct at least as regards the making of an offer to buy him out.Derivative claims (CA 2006 ss.260-269)This part came into force on 1stOctober 2007.This is not to be confused with a CA 1985 s.459 (CA 2006 s.994) petition which iswhere a minority shareholder petitions for a personal remedy for himself. It is bestused as an exit strategy. A derivative action is one where the shareholder seeks aremedy for the whole company on the grounds that the directors have beenmisbehaving and failing to promote the success of the company.The law on this area

was seen as unsatisfactory, and in line with similar procedures inCanada, the law is being changed. Henceforth a shareholder will be able to use thenew procedure to bring an action in respect of any actual or proposed act or omission 103involving negligence, default, breach of duty (such as the ones above) or breach of trust by a director. It will be available even where the director has not personally benefited or even when the director or directors concerned does or do not control themajority of the companys shares. It will provide a remedy for shareholders whootherwise would find it difficult to make a claim. The legislation also extends toformer directors as well (CA 2006 s.260).Winding up.As a more drastic alternative, it is possible to wind up the company under the just andequitable grounds ofIA 1986 s.122(1)(g), as in EbrahimivWestbourne Galleries[1973] AC 360 or the Scottish case of Jesner v Jarrad Properties1993 SC 34, (1993)BCLC 1032. But the company must be solvent as otherwise there would be nothing toget back, and the petitioner must demonstrate that there is no better alternative (IA1986 s.125).DTI inspections.It is also possible to ask for DTI inspectors to be sent in, but this is potentiallyexpensive, and you need at least 10% of the members to support you (CA 1985 s.431)- this is to deter frivolous complaints.THE CAPITAL MAINTENANCE RULEThe creditors buffer Company law postulates that capital once paid into a company is predominantly for the benefit of the creditors and forms a "creditors buffer" which may not be eateninto by the members except under restricted circumstances.The theory behind it is noble, in that there should always be some funds for creditors,and it prevents members extracting the company's money ahead of creditors beforethe company becomes insolvent.It is more of an issue for public companies because they all have to have a minimumcapital of 50,000. This is to ensure that plc status is not lightly embarked upon and togive some reassurance to creditors.The commercial reality is that it is all a bit of a nuisance, especially for privatecompanies with a share capital of only 100. Nevertheless we have it and we haveimposed our rules, rightly or wrongly, upon Europe.The capital maintenance rule applies to: the acquisition or redemption by a company of its own shares, the prohibition on financial assistance, reduction of capital the payment of dividends only out of distributable profits, the net asset rule for plcs. Acquisition or redemption by a company of its own shares 104 Why was there a general prohibition on the purchase by a company of its ownshares? Talking up the share price; Owning its own shares - how should it vote?Why might a company wish to buy its own shares? Getting rid of a shareholder The company rich but the members poor Buying shares could thwart a takeover bid Increase in asset value per share Increase in earnings per share - plus cash benefit for remaining shareholders Company has more cash than it knows what to do with Buying back employees' shares Better home for the cash Cheaper to borrow than to pay dividends? Buying back shares from a manager The off-market method - see CA 2006 ss. 694-700 Not suitable for listed companies though technically available. Only really appropriatefor private purchases Contract in writing first; special resolution to approve contract; no voting by interested parties preferably; time limit of 18 months for plcs; contract retained for ten years.The market method - see CA 2006 ss.701 Only really suitable for companies whose securities are traded on a recognisedinvestment exchange; ordinary resolution required; limits of time period and amount that maybe spent or alternatively price may be within a certain price range (why?); information to Stock Exchange.Law relating to both procedures: Registrar of Companies must be informed on appropriate forms; purchase price must be

made from the proceeds of a new issue of shares or thefrom distributable profits, though private companies may under certaincircumstances use capital; share premium account may also be used under restricted circumstances; Creation of capital redemption reserve if there are no funds with which to effect the redemption or repurchase thecompany cannot be liable in damages for failure to redeem or repurchase.Financial assistance(CA 2006 s.677)Sometimes a company wants to have a particular person as a shareholder, but thatshareholder does not have the funds to pay for his shares. It is permissible under limited circumstances for a private company to lend that person money with which to buy the shares, or to provide security for a loan with which to buy the shares. It isvery difficult for plcs to provide such assistance, unless it is to benefit employees. The 105legislation on this area is well recognised to be unsatisfactory, but is designed both to permit innocent transactions while prohibiting Guinness-style scandals.The rules relating to financial assistance are likely to be much simplified for privatecompanies, and clarified for public ones.Reduction of capital(CA 1985 ss.135-141)This is not very common, but sometimes a company has more capital than it knowswhat to do with, or the company's assets are not represented by its capital, because of the devaluation of the assets. In this case, it is possible to apply to court to reduce thecompany's capital, following prescribed procedures. This means that the companywrites off its capital losses, but may be able to start paying dividends again. Thetheory is that reduction of capital could mean that there would be less recourse for creditors, and so creditors need to be protected by laborious court procedures.The rules relating to reduction of capital are soon likely to be much simplified for private companies and made easier for public ones.DividendsA company may normally only pay dividends where its accumulated realised profitsexceed its accumulated realised losses (CA 2006 s.830). Note the importance of accumulated andrealised.An unrealised profit does not count, as when a property is revalued upwards. You cancreate a revaluation reserve, but you cannot treat that as profit. You can only have profits when you actually sell (i.e. realise) an asset; you can't book a profit ahead of sale.Dividends for plcsFor plcs the rules are stricter. The net asset rule applies (CA 2006 s.831) (sometimesknown as the full net worth rule). This means that before a plc pays a dividend thecompanys net assets must be greater than its share capital plus any other undistributable reserves (i.e. its share premium account, revaluation reserve and anyother special reserves); and the dividend payment must not reduce the net assets to afigure less than all its capital and reserves. This can be a disadvantage for plcs andclients should be warned about this. Private companies don't need to worry about this.Payment of dividendsIt is the job of the directors to decide at what level to pay dividends. Fund managersdon't like surprises, so directors like to smooth the dividend path. Some companies'articles prescribe when and how and at what level dividends may be made, but mostleave it up to the directors. The members may not usually challenge their decisionunless the articles say otherwise.The directors base their decision on the basis of the accounts. CA 2006 lays downvarious complicated rules about accounting, but broadly speaking, both under CA1985 and the Listing Rules, you have to play straight by the accounts. Off-balancesheet accounting, as practised by Enron, should not be possible. If the directorsdeclare a dividend which at the time was reasonable, even if in retrospect it wasunwise, it can still be a valid dividend; but if it is a dividend that cannot be justified,the directors will become personally liable for the dividend and so will any recipientsof the dividends who know that the dividend is unjustified(BairstowvQueens Moat Houses plc[2000] 1 BCLC 549).

106 Why have meetings?Companies have meetings, but mostly they would prefer not to. Meetings are all aboutaccountability-the accountability of the directors to the members. In addition, certainmatters regarding the company are reserved to the members alone and not thedirectors. These include:(i) changes to the name and articles of association;(ii) changes to the capital of the company(iii) the removal of directors and auditors;and other matters as specified under the articles.Annual general meetingsOnly public limited companies have to have general meetings, though privatecompanies may do so.When a plc is founded, it must have its first annual general meeting ("AGM") withinat most 18 months of its incorporation(CA 2006 s.336). Thereafter it should have anAGM every year with no more than 15 months between each AGM. At an AGM, byconvention, it is common to do the following: table and have signed the minutes of the last AGM (if there was one); approve the annual accounts and the directors' report; approve the recommended dividend; appoint or re-appoint auditors; direct the directors to fix the remuneration of the auditors; appoint any new directors.The members may if they wish discuss anything else, or discuss any other resolutionsincluding "requisitioned" resolutions (i.e. ones that the members have insisted beincluded in the AGM) (CA 2006 s.338). Normally the directors instruct the company secretary to send out a notice of theAGM to the members. The notice will contain all the required information (date, timeand place, text of resolutions to be discussed, provisions for proxies, additionalinformation, maps, parking arrangements etc). There must be 21 days notice of anAGM (CA 2006 s.337). It is possible to dispense with the 21 days notice if all themembers agree (s.307). There are various provisions to enable all this to be doneelectronically.Extraordinary general meetingsAny other meeting of all the members is known as an extraordinary general meeting("EGM"). It is permissible for the members to requisition an EGM if necessary. Notice of an EGM is given in the same manner as for an AGM, but only 14 daysnotice is required (CA 2006 s.307), though the 14 days notice may be dispensed with. 107Practice of the meetingThe chairman presides over the meeting and deals with each matter on the agenda,usually beginning with the approval of the previous minutes. The company secretaryguides the chairman through the meeting, provides legal advice where needed andmakes all the arrangements. He or she also takes the minutes. The minutes are deemedto be a proper record of the proceedings and of the passing of the various resolutions(CA 2006 s.355). If registrable resolutions are passed, the company secretary makes acertified copy of the relevant resolutions and sends them to the Registrar of Companies.Types of resolutionThe main types of resolution are as follows: Special-75% of the votes cast in favour -used for constitutional changes (i.e.to the Memorandum and Articles) and major alterations to the company'scapital (CA 2006 s.283); all such resolutions must be registered with theRegister of Companies within 15 days. Ordinary - bare majority of votes cast in favour -used for less contentiousmatters; only some such resolutions, mostly involving capital, need to beregistered as above (CA 2006 s.282). Ordinary resolutions with special notice (CA 2006 s.312) - bare majority, butthere must be 28 days notice to the company beforehand so that on the noticeof the meeting it may say that "Special notice has been received of thefollowing resolution". This is supposed to alert members to the significance of the resolution. Ordinary resolutions with special notice are used for thedismissal of directors and of auditors (and of an auditor's appointment under certain circumstances). The 28 days notice requirement for these mattersoverrides the normal ability to hold meetings at short notice.Further types of resolutions for private companiesThe above four types of resolution are

common to all types of company. However, private companies may do everything bywrittenresolutions, except dismiss director or auditors.Written resolutions must be signed by all the members, though not necessarily on thesame piece of paper. A written resolution that were it not written would have beenregistered with the Register of Companies anyway will still need to be registered. Normally a written resolution will require to be signed within 28 days of itscirculation date and the relevant percentage for approval obtained.VotingVoting is normally initially done by a show of hands, but there may be a demand for itto be done by poll (s.373), which means that you vote according to the number of shares you represent in person or in proxy. This sometimes overturns the vote on ashow of hands. It is not permissible to "fix" the articles so as to make it difficult to prevent a poll being taken. Some companies will have aquorumwithout whichmeetings will be invalid. E-voting is permitted under the Companies Act 2006, andinstitutional investors in quoted companies will be required to be more transparent intheir voting in quoted companies.Single member companies 108Such companies are often particularly careless about meetings, but they still have tohave meetings, to pass resolutions and to keep records (s.382B) of decisions. Ideallythe company secretary (who must be different from the director) should be present.See Neptune (Vehicle Washing Equipment) Ltdv Fitzgerald [1996.] Ch 274.Board meetingsThese are a matter for the board to regulate, but records must be kept (s.248).Members are not normally allowed to see board meeting minutes.The relevance of meetingsOn a wider scale, it is becoming apparent that general meetings are increasingly futileas a means of rendering directors accountable to the members, mainly due to thedominance of the Institutions, shareholder apathy, scepticism about thecomprehensibility and accuracy of the information being given to the shareholders,not to mention the inability of most private shareholders to understand the accounts or read the directors' report. There is also a widening gap between small shareholdersand the Institutions, many of which in their own right are invested in by smaller shareholders. The current view is that meetings in principle are a good idea, but thereis very little need for them in private companies unless the members specifically want.them.Corporate insolvency1. Liquidation is the conversion (usually into cash) of a companys assets inorder that they may distributed in the first place to the creditors and in thesecond place to the members in accordance with the terms of the articles.The official carrying out this task is a liquidator who is an insolvency practitioner.Once a company is in liquidation it cannot carry on any further businessexcept through the liquidator, no shares may be transferred and the directorscease to manage the company.The liquidator is like a director in that he is in a fiduciary relationship with thecompany. He also has various public duties such as reporting to the Secretaryof State if there are matters concerning the directors conduct which may besignificant.2. If liquidation did not exist, what would happen ?Balance between punishing errant directors and allowing genuine but faileddirectors a second chance.3. A summary of liquidation procedure:(i) the company is put into liquidation;(ii) an interim liquidator is appointed;(iii) creditors are invited to submit their claims;(iv) a (full) liquidator is appointed; 109(v) the liquidator gathers in the companys assets in all the permissibleways;(vi) the liquidator then pays out funds to the creditors, in full if possible,otherwise in proportion to their claims;(vii) if there are still funds, the shareholders are repaid their capital, infull if possible, otherwise in proportion to their shareholding;(viii) the liquidator applies to have the company struck off if necessary; if the company has been sold as a going concern this may not benecessary. Occasionally companies may be revived if

undiscoveredassets emerge later.1. The liquidator can be contrasted with the (old style) receiver. (Note thatreceivers are gradually been phased out following the operation of theEnterprise Act 2002).So what exactly is the difference?2. Thereceiver is only interested in the assets subject to a floating charge.Theliquidator is interested in what is left over, subject to the prior claims of secured creditors such as standard security-holders and receivers.Liquidation in its own right will trigger receivership for any pre-Enterprise Actfloating charges and will entitle fixed charge holders (such as standardsecurity holders) to exercise their rights too.Where there are no charges, the liquidator can deal with all the companysassets.Increasingly, however, following the Enterprise Act 2002administratorsare being appointed, and they will try to rescue the company if they can, rather than putting the company into liquidation. But the nuclear option of liquidation still will remain.5. There are three types of winding up:* winding up by the court* members voluntary winding up* creditors voluntary winding up.Winding up by the court is compulsory in the circumstances where it isallowed.Voluntary means what it says: the company chooses to wind itself up.Amembers voluntary winding upmeans that there should be funds repayableto the members after payment in full to the creditors, and so the winding up isfor the members benefit. 110Acreditors voluntary winding upmeans that there will be no funds repayableto the members but there should be some for the creditors. Consequently acreditors voluntary winding up is for the creditors benefit.6. Winding up by the courtSee Insolvency Act 1986 s.122Various grounds are stated, but the most common are* the inability to pay its debts (IA 1986 s.122(1)(f), which is defined ins.123 (1) as(a) a failure to pay 750 or more when given three weeks notice todo so (s.123(1)(a);(b) a failure to pay within theinduciaeof a charge (15 days)following an extract decree, registered bond or protested bill(S.123(1)(c);(c) the companys inability to pay its debts as they fall due(S.123(1)(e). This means(i) that the company cannot pay its bills even thoughtechnically it is solvent - it is just that it has a severecash flow problem; or (ii) that the companys assets are less than its liabilitiestaking into account all its contingent and prospectiveliabilities (s.123(2));* that it would be just and equitable to wind the companyup(s.122(1)(g)). Grounds that have come within this definition includethe following:(a) quasipartnership cases ( EbrahimivWestbourne Galleries Ltd [1973] AC 360,Virdiv Abbey Leisure Ltd [1990] BCLC 342)(b) oppressive conduct by the majority shareholders or directors( Lochv John Blackwood Ltd [1924] AC 783).7. Who can petition to wind up the company (IA 1986 s.124) ?Basically, the company itself, the directors, creditors, contributories (memberswho owe the company money), the S of S, and various others. The commonestis a creditor, though the courts have a limited discretion if other creditorsobject and the petitioning creditor is motivated by bad faith (IA 1986 s.195).8. Once the petition has been granted, the interim liquidator is put in place and publicity given to the liquidation (use of Gazette, notices in the press etc.). Thetemporary (sometimes known as interim) liquidator convenes a meeting atwhich a (full) liquidator is appointed (IA 1986 s.138). He then has the task of dealing with all the companys assets. Thereafter he proceeds with theliquidation as narrated later.9. Members voluntary winding upThis is where the members choose to wind up the company in the expectationthat they will get something out of it. They vote for the winding up, generally by means of an extraordinary resolution (IA 1986 s.84(1)(c)). Publicity is thengiven and a liquidator of the members choice appointed. Not more than 5weeks (IA 1986 s.89(2)(a)) prior to the resolution the directors must have

111made a statutory declaration to the effect that having made a full inquiry intothe companys affairs they are of the view that the company can pay all itsdebts within a year (IA 1986 s.89(1)).Why is this statutory declaration important?The liquidator then gets on with it as narrated later.10. Creditors voluntary winding-upThis is where the members vote to wind up the company (IA 1986 s.84(1)(c)) but they know there will be nothing left over for them. No statutorydeclaration is necessary. A creditors meeting must be arranged within 14 daysand all creditors invited (IA 1986 s.98). At the meeting a liquidator isappointed, of the creditors choice usually (IA 1986 s.110(2)). The assets of the company are then vested in the liquidator in the usual manner.11. Getting in or ingathering the companys assetsThe liquidator assesses what assets the company still has. He then tries to getin all the debts the company is due. In particular he can:(a) have certain forms of diligence against the companys assets set asideunder the equalisation of diligence rules (IA 1986 s.185) whereby anyattachments and arrestments within a period of 60 days prior to theappointment of the liquidator are all treated as taking place at the sametime: the creditors then have to hand back what they have received fromthe company and then can claim as ordinary creditors later;(b) set aside certain antecedent transactions (IA 1986 s.242, 243) if they aregratuitous alienationsor unfair preferences: (c) set aside dodgy floating charges (s.245).(d) make directors repay or return to the company in liquidation such sums of money or other assets as they may have misappropriated or been otherwiseliable for under the misfeasance provisions of IA 1986 s.212 ( Re DKGContractors Ltd [1990] BCC 903 payment by about to be insolventcompany to a sub-contractee company personally controlled by thedirectors)( Re Barton Manufacturing Co Ltd [199] 1 BCLC 741 insolventcompany made gifts for dubious purposes and circulated cheques (to giveappearance of solvency) not in good faith, and diverted insurance funds payable to company into hands of others);(e) make anyone involved in fraudulent trading re-imburse the company inliquidation (IA 1986 s.213) (actual dishonesty must be proved rePatrick and Lyon Ltd [1933] CH 786);(f) make any officer of the company who had caused the company to tradewrongfully to contribute to the companys assets (IA 1986 s.214) ( ReProduce Marketing Consortium Ltd (No.2)[1989] BCLC 520); 112 (g) make any director involved in themanagement of a phoenix companycontribute to the company in liquidation (IA1986 s.216).All these methods are known collectively as swelling the companys assets.12. Once the liquidator has got everything in, he begins the distribution. He makessure he gets his own fees and expenses first. He doesnt need to worry aboutthe fixed security creditors, who sell their secured assets, take what they can,reimburse the receiver or the liquidator (as the case may be) if there is asurplus or claim as unsecured creditors for any deficit.Floating charge holders are given their entitlement and if they receive asurplus they hand it to the liquidator. If there is a deficit the floating charge-holder will claim for it as an unsecured creditor. The liquidator divides theremains between first the preferential creditors, then the unsecured creditors,the deferred creditors, and finally the members, in each case in proportion totheir claim.13. Administrationis very procedural and technical so this is only a summary.Under the Enterprise Act 2002 instead of a company being put intoliquidation, a qualifying floating charge holder (or indeed, the directors, acreditor or the members) may put the company into administration, either through the courts or directly, and this freezes the company (by means of amoratorium for up to a year) and insulates it from its creditors. The creditorsclaims remain the same but they cannot enforce them without leave from thecourt.14. The administrator, who is an IP, then takes over the management of thecompany, sorts out the mess, sells

off the worthwhile bits and puts the rest intoliquidation. Occasionally he may be able to nurse the company back intohealth. Most commonly nowadays he sets up a prepack which is the sale of the good bits of the company to people who have been set up beforehand to buy the good bits off the administrator. The good thing about this is that itkeeps the company going and employees in jobs; the bad thing is that it stuffsthe unsecured creditors as the liabilities are all left with the administrator whothen puts the remaining bits into liquidation.15. The administrators primary job is to rescue the company as a going concern,which failing to repay all the creditors, which failing to repay the securedcreditors.16. Out of the money he gathers in he has to pay a prescribed part to unsecuredcreditors. This is believed will save some small businesses from collapsing.

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Meanings of the Term Law Law has a variety of meanings usually involving a fair method of resolving disputes, or f... (More) Course Organiser: Nicholas Grier MA, LLB, WS, Solicitor

Meanings of the Term Law Law has a variety of meanings usually involving a fair method of resolving disputes, or following procedures that help establish certainty as to ownership or entitlement to certain assets or advantages. Law also lays down penalties for failure to adhere to certain social or economic norms.

On a more philosophical level, law uses as its benchmark either a universal intangible sense of justice/equity (the Hartian view) or law is what the state pronounces to be the law, (positivism) usually taking into account social mores, religious views, economic attitudes (e.g. capitalism) and sometimes national identity. In this course we are mostly looking at a small section of law, known as private law, and in particular at the commercial aspects of private law. We are not looking at international law, criminal law, procedural law, family law or public law. We are just looking at the law relating to peoples rights and duties towards each other in the commercial world. (Less) Download or Print527 ReadsInfo and Rating Category: Uncategorized. Rating: Upload Date: 01/23/2012 Copyright: Attribution Non-commercial Tags: university of edinburgh mba 2011/2012 business lawuniversity of edinburgh mba 2011/2012 business law(fewer). Free download as PDF File (.pdf), text file (.txt) or read online for free.Flag document for inapproriate content This is a private document. Uploaded by eholmes80 FollowFollowing .DownloadEmbed DocCopy LinkAdd To CollectionCommentsReadcastShare.Share on Scribd: Readcast SearchTIP Press Ctrl-FF to quickly search anywhere in the document. SearchSearch History: Searching...Result 00 of 0000 results for result for p. More from This UserRelated DocumentsMore From This User

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