Documente Academic
Documente Profesional
Documente Cultură
Title of Module
LAW, CORPORATE GOVERNANCE AND ETHICS
Practice Workbook
PRACTICE WORKBOOK
The aim of this workbook is to support and elaborate fundamental aspects of the syllabus as
found in the study text. It provides you with an opportunity to test your understanding of the
material and thus fully prepare yourself for the assessments. The workbook also incorporates
the coursework so that you may gradually familiarise yourself with the legal concepts
underpinning the coursework. You are strongly encouraged to prepare for seminars in advance
without which you cannot fully comprehend and apply the law.
Table of Contents
Aim of the Workbook..............................................................................................2
Module outcomes...................................................................................................2
Table of Contents...................................................................................................3
Introduction............................................................Error! Bookmark not defined.
Course Outline.......................................................................................................5
Seminar 1-5 briefing notes..5-38
Seminar 6 39
Seminar 7. .40
Seminar 8...48
Seminar 9... 58
Seminar 10..68
Seminar 11.. .79
Seminar 12..88
Seminar 13100
Seminar 14107
Seminar 15109
Seminar 16110
Seminar 17...116
Seminar 18122
Seminar 19126
Seminar 20133
Seminar 21137
Seminar 22138
Seminar 23139
.
BAC 2014
Page 3 of 157
Page 4 of 157
BAC 2014
INTRODUCTION
The module law, corporate governance and ethics is aimed at enabling you to appropriately respond to
legal and ethical issues affecting a business. This workbook is intended to strengthen what is covered in
the study text so that you may evaluate the extent of your understanding of the diverse legal and ethical
concepts of the syllabus. You are strongly advised to prepare well before attempting the questions and
also to come prepared for the seminars.
Course Outline
Law of Contract
Law of Employment
Company formation
Corporate finance
Corporate governance
BAC 2014
Page 5 of 157
Please note:
Always bring the Study text and Practice Kit to class
1.
Societal
Professional
Personal, and
Corporate values.
2.
There are rules based and framework based approaches. That the CIMA
code is framework based (and is a locally adjusted version of the IFAC
code).
3.
Integrity
Objectivity
Professional Competence and Due Care
Page 6 of 157
BAC 2014
Confdentiality
Professional Behaviour
4.
Work through the mini case study shown at questions 122 to 126.
This will teach the 5 main principles.
Note: we will cover the specifc chapters in more detail in further seminars.
Topic areas and practice question information is FOUND IN THE STUDY TEXT
AND PRACTICE KIT. Also see questions below.
Please:
(i)
(ii)
Coursework launch
Seminar 6
There will be a short test in this seminar covering the ethics part of the module.
BAC 2014
Page 7 of 157
At Enron they hid the loans (well they did a lot more but that is what CIMA are
saying). A PCAOB was created as a result.
There's lots of unnecessary detail with the review of all the Codes. Briefly note
what each code was about.
Other reports changed stuff - but this might not reflect the current state of play.
Page 8 of 157
BAC 2014
eg. Cadbury set directors contracts at 3 years max - but this has changed to 12
months
Three
key
committees:
Audit,
Remuneration
and
There are "three" unitary Board structures in Botswana, South Africa and the
UK (and the USA runs unitary boards), a variety of structures in France and
Germany it is predominantly Two Tier due to its stakeholder bias.
Other points:
Fiduciary duties are not considered a part of CG. Business eficacy is considered
part of CG. Fiduciary Duties were created by The Courts of Equity.
Some of these concepts will be well understood after covering the law element of the
module.
BAC 2014
Page 9 of 157
ADDITIONAL QUESTIONS
Test your understanding at the end of the Chapter in the Study Text
Objective Test Questions in the CIM Exam Practice Kit Exam Pack
Note: these are pretty rubbish questions and I don't agree with all the answers
given - but they are the L4 "answers".
Question 19
A Corporate regulations
B Corporate governance
Page 10 of 157
BAC 2014
C Corporate administration
D Corporate compliance
Question 20
Which of the following is suggesting that one person should not occupy the role
of
Chairman andChief Executive of a public listed company.
Question 21
According to the Cadbury Committee Report 1992 independent nonexecutive directors should be appointed to the board of listed UK
companies. This is to ensure
Page 11 of 157
Question 22
C shareholders only
D employees only
Question 23
i A company director could act in breach of the duty of care, and yet
could still comply with the principles of corporate governance.
C i and ii
Page 12 of 157
BAC 2014
D None of them.
Question 24
Question 25
Page 2 of 157
BAC 2014
B ii only
C Both i and ii
D None of them
Question 26
Answers
19
20
CIMA say
A
21
22
23
24
25
26
CIMA code is based upon IFAC code, but adjusted for local regulations.
There are:
Framework approaches
CIMA and IFAC are both framework approaches. CIMA has a virtue ethic embedded in it. The Code can
be used to judge people at disciplinary hearings. It should enhance the standards of members.
Integrity (includes NOT performing dodgy accounting. See comments about Professional
Competence and Due Care. Includes "fair dealing and truthfulness)
Professional Competence and Due Care (Seems to be about theoretically being competent
because of your experience - if you do a piece of work "incompetently" you are typically
breaching something like "Integrity" and not professional competence. It's not about doing things
to further your career. The ethical onus on CPD is driven by the accountant's duty to keep up to
date.)
Confidentiality (this is strong and extends to non disclosure to close friends and family of client
information)
Professional Behaviour (is professional behaviour and not competence. In practice this
means complying with laws and regs and also not filling in fictitious expenses claims forms)
The Personal Qualities (are sometime referred to as VIRTUES) "RRR with a bit of TC"
The CIMA textbook claims that this list provides "the ethical compass and personal motivation" to uphold
the values of the profession. Discussion of this point is beyond the scope of this L4 module.
Page 4 of 157
BAC 2014
Reliability
Responsibility * (here it means "being accountable for your decisions and actions "but it seems
that Social Responsibility is different)
Respect *
Courtesy *
Professional attributes
The seven principles of Public Life are not binding on most accountants - but are seen
as exemplars. The principles seem to create a bit of a standalone list for the purposes of the
questions, and I have struggled to fit it with the other key lists above (this is due to nuances in
the definitions) - but includes
selflessness
objectivity
accountability
leadership
Page
Page 011
Comment about when to disclose information. I think the questions like tension here as there
are conflicting laws, principles and values. The main principle seems to be client confidentiality
(even extending to social situations) but there are times when disclosure is appropriate, namely
Know very briefly about: Financial Reporting Council (ethical lead for Financial Reporting),
Professional Oversight Body for Accountancy (regulate how member bodies regulate their
members), and Auditing Practices Board (cover auditing standards).
Objective test questions from the exam practice kit
60, 61, 62, 63, 64, 65, 66, 67, 68, , 70,71,, 75. (But 68,69, 70 and 71 are ethical
dilemmas.(
Page 6 of 157
BAC 2014
Additional questions
Question 1
Question 2
D Professional Oversight Board and Audit Practices Board are part of FRC
Page
Page 012
Question 3
The following are four of the seven principles of public life issued by the
Committee of Standards in
Public Life, and a brief explanation. Which explanation does NOT match with the
principle?
A Integrity holders of public ofce should not place themselves under any
fnancial or other obligation.
Page 4 of 157
BAC 2014
Questio
n5
CORRECT
i.
Clear ethical values set cultural tone of the
company. ii. Self regulation is based upon trust.
iii.
iv.
i, ii and
iii B
i, iii
and iv C ii,
iii and iv D
1, ii and iv
Questio
n6
Page
Page 014
Questio
n7
A
Confdentialit
y
D
Objectivity
Questio
n8
What
are
statements?
i.
Page 6 of 157
INCORRECT
ii.
The Professional Oversight Board for Accountancy is part of the Financial
Reporting
Council
.
iii.
The Seven Principles of Public Life is applicable only to professional
accountants.
iv.
A i and ii
only
B ii and iii
only C
i and
iv only D iii
and iv only
Questio
n9
What
INCORRECT?
is
Question
10
Page
Page 014
A
It reflects the standards of CIMA expects of its
members and students
Page 8 of 157
BAC 2014
D It sets out aspirations and standards of general behaviour, and attitude for the
profession
Question 11
iii disclosure is not required by law, but the employment contract requires to do so
i The statutory duty takes priority, if the professional duty conflicts with the
statutory duty of a professional accountant.
Page
Page 016
C Both i and ii
D none of them
Question 13
Most of the organisations are producing value-based codes and building values
into their corporate strategies, for all of the following reasons EXCEPT which
one?
CBA Model Question Paper C05
A Corporate values are important for giving guidance to staf about what
the expectations an employer has of them with regard to their behaviour.
B Corporate values are made mandatory under the statutory laws, and
failure to comply amounts to legal breach.
C Corporate values seek to ensure a consistency of conduct across the
entire organisation. D Corporate values directly relate to organisations
risk management strategies and
supports reputation and credibility.
Question 14
Page 8 of 157
BAC 2014
Answers
Questio Answe
n
r
1
D
2
10
11
12
13
14
Page
Page 016
societal,
professional,
personal, and
corporate values.
i.
ii.
iii.
iv.
vi.
vii.
100.12 Threats may be created by a broad range of relationships and circumstances. When a relationship
or circumstance creates a threat, such a threat could compromise, or could be perceived to compromise,
professional accountants compliance with the fundamental principles. A circumstance or relationship
may create more than one threat, and a threat may affect compliance with more than one fundamental
principle. Threats fall into one or more of the following categories:
Page 10 of 157
BAC 2014
a) Self-interest threat the threat that a financial or other interest will inappropriately influence the
professional accountants judgment or behavior;
b) Self-review threat the threat that a professional accountant will not appropriately evaluate the
results of a previous judgment made or service performed by the professional accountant, or by another
individual within the professional accountants firm or employing organization, on which the accountant
will rely when forming a judgment as part of providing a current service;
c) Advocacy threat the threat that a professional accountant will promote a clients or employers
position to the point that the professional accountants objectivity is compromised;
d) Familiarity threat the threat that due to a long or close relationship with a client or employer, a
professional accountant will be too sympathetic to their interests or too accepting of their work; and
e) Intimidation threat the threat that a professional accountant will be deterred from acting objectively
because of actual or perceived pressures, including attempts to exercise undue influence over the
professional accountant.
DISCLOSURE of INFO
140.7 The following are circumstances where professional accountants are or may be required to
disclose confidential information or when such disclosure may be appropriate:
ii) Disclosure to the appropriate public authorities of infringements of the law that come to light; and c)
There is a professional duty or right to disclose, when not prohibited by law:
Page 11
iii) To protect the professional interests of a professional accountant in legal proceedings; or iv) To comply
with technical standards and ethics requirements.
Other
Page 12 of 157
BAC 2014
116 to 130 (but you should have covered 116 to 130 previously)
68,69, 70 and 71
15, 16, 17 and 18 (but don't worry about 17: I think it is worded the wrong way around)
Question 15
All the following are sources of values that give rise to ethical dilemmas
EXCEPT which one? A Society, through the legislative process
B Individuals, through their personal values
Page 13
Question 16
Rexs wife has just got a job as managing director with a great remuneration
package of a successful organisation, which also happens to be one of his
biggest clients.
A Rex should prevent his wife from taking up this job, as it appears unethical.
B By working through the CIMA Code of Ethics, Rex will fnd guidance how to
deal with this ethical dilemma.
C There is no ethical dilemma, as Rex and his wife are independent entities as
far as their jobs are concerned.
D Rex should immediately notify his client that he intends to terminate his
service if it recruits his wife to avoid ethical conflict.
Question 17
All of the following are the Fundamental Principles of CIMA Code of Ethics
professional accountants are supposed to call upon to resolve ethical
conflicts, EXCEPT which one?
A Integrity
Page 14 of 157
BAC 2014
B Efect
C Transparency
D Fairness
Question 18
i think objectively, and take his / her preferences out of the equation
ii act professionally, and seek guidance from the CIMA Code of Practice and CIMA
15
16
Page 15
17
18
SECTION 100
100.2 This Code contains three parts. Part A establishes the fundamental principles of
professional ethics for professional accountants and provides a conceptual framework that
professional accountants shall apply to:
Safeguards are necessary when the professional accountant determines that the threats
are not at a level at which a reasonable and informed third party would be likely to
conclude, weighing
all the specific facts and circumstances available to the professional accountant at that
time, that compliance with the fundamental principles is not compromised.
Page 16 of 157
BAC 2014
100.3 Parts B and C describe how the conceptual framework applies in certain situations.
They provide examples of safeguards that may be appropriate to address threats to
compliance with the fundamental principles. They also describe situations where safeguards
are not available to address the threats, and consequently, the circumstance or relationship
creating the threats shall be avoided. Part B appliesto professional accountants in public
practice. Part C applies to professional accountants in business. Professional accountants in
public practice may also find Part C relevant to their particular circumstances.
100.4 The use of the word shall in this Code imposes a requirement on the professional
accountant or firm to comply with the specific provision in which shall has been used.
Compliance is required unless an exception is permitted by this Code.
Fundamental Principles
c) Professional Competence and Due Care to maintain professional knowledge and skill
at the level required to ensure that a client or employer receives competent professional
services based on
current developments in practice, legislation and techniques and act diligently and in
accordance with applicable technical and professional standards.
e) Professional Behavior to comply with relevant laws and regulations and avoid any
action that discredits the profession.
Page 17
100.6 The circumstances in which professional accountants operate may create specific
threats to compliance with the fundamental principles. It is impossible to define every
situation that creates threats to compliance with the fundamental principles and specify the
appropriate action. In addition, the nature of engagements and work assignments may differ
and, consequently, different threats may be created, requiring the application of different
safeguards. Therefore, this Code establishes a conceptual framework that requires a
professional accountant to identify, evaluate, and address threats to compliance with the
fundamental principles. The conceptual framework approach assists professional
accountants in complying with the ethical requirements of this Code and meeting their
responsibility to act in the public interest. It accommodates many variations in
circumstances that create threats to compliance with the fundamental principles and can
deter a professional accountant from concluding that a situation is permitted if it is not
specifically prohibited.
100.7 When a professional accountant identifies threats to compliance with the fundamental
principles and, based on an evaluation of those threats, determines that they are not at an
acceptable level, the professional accountant shall determine whether appropriate safeguards
are available and can be applied to eliminate the threats or reduce them to an acceptable
level. In making that determination, the professional accountant shall exercise professional
judgment and take into account whether a reasonable and informed third party, weighing all
the specific facts and circumstances available to the professional accountant at the time,
would be likely to conclude that the threats would be eliminated or reduced to an acceptable
level by the application of the safeguards, such that compliance with the fundamental
principles is not compromised.
100.8 A professional accountant shall evaluate any threats to compliance with the
fundamental principles when the professional accountant knows, or could reasonably be
expected to know, of circumstances or relationships that may compromise compliance
with the fundamental principles.
100.9 A professional accountant shall take qualitative as well as quantitative factors into
account when evaluating the significance of a threat. When applying the conceptual
framework, a professional accountant may encounter situations in which threats cannot be
eliminated or reduced to an acceptable level, either because
Page 18 of 157
BAC 2014
the threat is too significant or because appropriate safeguards are not available or cannot be
applied. In such situations, the professional accountant shall decline or discontinue the
specific professional service involved or, when necessary, resign from the engagement (in
the case of a professional accountant in public practice) or the employing organization (in
the case of a professional accountant in business).
100.12 Threats may be created by a broad range of relationships and circumstances. When
a relationship or circumstance creates a threat, such a threat could compromise, or could be
perceived to compromise,
a) Self-interest threat the threat that a financial or other interest will inappropriately
influence the professional accountants judgment or behavior;
b) Self-review threat the threat that a professional accountant will not appropriately
evaluate the results of a previous judgment made or service performed by the professional
accountant, or by another individual within the professional accountants firm or employing
organization, on which the accountant will rely when forming a judgment as part of providing
a current service;
c) Advocacy threat the threat that a professional accountant will promote a clients or
employers position to the point that the professional accountants objectivity is
compromised;
Page 19
d) Familiarity threat the threat that due to a long or close relationship with a client or
employer, a professional accountant will be too sympathetic to their interests or too
accepting of their work; and
Parts B and C of this Code explain how these categories of threats may be created for
professional accountants in public practice and professional accountants in business,
respectively. Professional accountants in public practice may also find Part C relevant to
their particular circumstances.
100.13 Safeguards are actions or other measures that may eliminate threats or reduce
them to an acceptable level. They fall into two broad categories:
100.15 Parts B and C of this Code discuss safeguards in the work environment for
professional accountants in public practice and professional accountants in business,
respectively.
Page 20 of 157
BAC 2014
100.18 When initiating either a formal or informal conflict resolution process, the following
factors, either individually or together with other factors, may be relevant to the resolution
process:
a) Relevant facts;
Page 21
NOTE: this is slightly different from the CIMA checklist which is an expanded
version
Having considered the relevant factors, a professional accountant shall determine the
appropriate course of action, weighing the consequences of each possible course of action.
If the matter remains unresolved, the professional accountant may wish to consult with
other appropriate persons within the firm or employing organization for help in obtaining
resolution.
100.20 It may be in the best interests of the professional accountant to document the
substance of the issue, the details of any discussions held, and the decisions made
concerning that issue.
100.22 If, after exhausting all relevant possibilities, the ethical conflict remains
unresolved, a professional accountant shall, where possible, refuse to remain associated
with the matter creating the conflict. The professional accountant shall determine
whether, in the circumstances, it is appropriate to withdraw from the engagement team or
specific assignment, or to resign altogether from the engagement, the firm or the
employing organization.
Page 22 of 157
BAC 2014
Coursework
(i)
After obtaining appropriate consent: record a semi
structured interview about a workplace related ethical issue.
Where confidentiality has been requested you MUST use
pseudonyms.
(ii)
(iii)
(iv)
You need to submit a written transcript to SHIP of the interview. At the end of
the transcript you should briefly summarise why the person thought that they
faced a dilemma and draw an overall conclusion. A signed consent form must
also be submitted.
Please put the name of your seminar tutor on your script. For
practical reasons this is REALLY
IMPORTANT.
Who can you interview? You can interview :
(a)
(b)
Put another way: you can't just interview your friend who sits beside you.
Family friends.
When is the deadline? See Blackboard for precise details. We have placed
the hand in date after Christmas so that you can interview family members
over the holidays (if necessary). However, please dont leave this as
something to be done in a mad rushwe hope that you will fnd the
experience beneficial.
The word count is 1,600 words. This is explained more fully in the briefing notes.
Page 24 of 157
BAC 2014
Briefing notes
Briefing notes (i)
To obtain consent use the consent form included in this briefng pack.
Semi structured means that you should think about the type of questions that
you want to ask before the interview, but that you can (and should) ask
supplementary questions to make the interview flow like a conversation. Advice
about interviewing can be obtained from books such as Gubrium, J. F. and
Holstein, J. A. (2001) Handbook of Interview Research: context and Method,
Sage, London.
Remember that the best interviews are ostensibly conversations. Try to hold a
conversation - not a formal interview. This will involve "meeting and greeting"
your fellow conversant to put them at ease before the interview/conversation.
You do not need to record this section of the interaction.
This module interprets ethical to carry a moral sense of "right and wrong".
Page 25
You do not have to submit the actual recording. Remember to make sure your
recorder is switched on! You should keep a copy of the sound file - so that if
necessary we can check that the interview did take place.
Page 26 of 157
BAC 2014
If the person has any comments or advice to impart as a result of this lived
experience.
Beliefs: in this context are moral positions about right and wrong that can
only be justifed meta physically. This means justifed by an appeal to the
existence of something over and beyond that which can be empirically tested,
or that which is socially constructed.
Page 27
Social dynamics: means the way that people relate to each other. In particular
many ethical conflicts arise when a subordinate is asked to do something that
they feel uncomfortable doing by a person in authority.
Page 28 of 157
BAC 2014
Most interviewees will not have followed the CIMA Ethical Checklist when
attempting to resolve the situation. This is not a problem.
Your interviewing simply needs to reflect the fact that you are aware that
ethical tensions take time and efort to resolve: and that the decisions made to
resolve the issues will be based upon some kind of ethical framework.
We are suggesting that you familiarise yourself with the CIMA checklist - as this
might be tested in the exam. However, if you have strong ethical, religious or
moral convictions you might want to use another robust framework as a point of
reference as you seek to explore how the issue was resolved.
Carefully transcribe means: record and then use the recording to write
down after the interview. Write down the exact words the speaker used, you
should even include "ums" and "errs". Also, highlight each person in the
transcript in a way that allows the reader to know who is speaking.
The most important sections. This phrase means that you can edit chunks
of the interview out (if you need to get to within the word count). Be careful
not to remove important sections of the interview. If you feel pressured by the
word count - put the most important sections in the main transcript and put
the edited sections in an appendix.
The phrase "The interview" has been included because you should only use
narrative from the interview itself. Making up words, or inserting additional
text of your own making is cheating and should not be done.
Page 29
(i) the verbal language used is consistent with the "normal" language
conventions of the speaker, (ii) their non verbal language is consistent
with their spoken words, and
(iii) their intention is consistent with what
they actually said.
If the listener is not a member of the speaker's culture then even this simple
hermeneutic may be hard to apply. For the avoidance of doubt:
"normal language" would be "normal" for the speaker - and not the listener.
"intention" can only be known truly by the speaker, but can be assessed
by other means - for example by looking at subsequent behaviour.
This is not the only hermeneutic that could be used: but it is the module
hermeneutic. It is specifcally chosen to encourage students to ask "what did
that person really mean", rather than allowing students to jump to rushed and
hostile misunderstandings.
their
Your
their
their
Wider reading is to be encouraged prior to the interview. A nice way to bring this
into the interview is to quote something in the interview and get your interviewee
to comment upon it.
Alternatively, if you can fnd out what an interviewee is going to talk about before
an interview, you could try and read up a bit about the subject prior to the
interview - this will enhance the quality of your interview considerably.
Page 30 of 157
BAC 2014
Word
count
Does the 1,600 word limit include the questions that the
interviewer asks? The answer is: you can choose!
Place the parts of the transcript that you have not used in an Appendix to show
the marker that you have done more work than the 1,600 words you have
presented.
It is
exact.
not
Marking
grid
Please look at the marking grid - as this will help you ensure that you structure
your interview in a way that attracts the highest marks.
Page 31
CONSENT
FORM
Thank you for being willing to take part in this interview exploring
ethical conflict or turbulence. I would like to transcribe the content of
this interview to form a written document to be submitted to BAC as a
piece of assessed piece of coursework. It is important that you only
take part in this interview if you want to. As such I would be delighted
if you would complete and sign this confidentiality questionnaire prior
to the interview taking place.
(i)
In general terms are you willing to take part in this interview:
and an edited transcript of the interview submitted to BAC?
Yes /
No
(ii)
Own name/
Pseudonym
(iii)
Are you happy for the names of other people and organisations
to be used in the final transcript: or do you want all other
names to be content of this transcription to be submitted to
BAC?
Original names/
Pseudonyms
(iv) Are you happy for me to submit the final transcript without you
reviewing it - or do
you want to reserve the right to see the final transcript before I
submit?
Page 32 of 157
BAC 2014
(v)
Dat
e
Page 33
Neil
Sorry. Have you ever faced a situation at work where you have been
asked to do something that you felt uncomfortable with.
Bob
Yeaaah
Neil
Bob
Well - the dogs. When their competitive career ends they are very
expensive to keep, and so they have to be retired.
Neil
Retired? Bob
Retired.
Neil
Bob
They're despatched.
Neil Despatched! Does that means they get sent to diferent farms
all over the UK? Bob
Not really. I deal with them.
Neil
Bob It's like this. Every month I am asked to take some dogs for a walk, and
they dont come back. Neil
So you are saying that you take them for a
walk and you let them of the lead - and they run
away.
Bob [starting to break down in
tears] .. etc.
The point of this example is to show that you need to understand what the
person means - not what you think that they mean. It also shows you a nice way
of setting out a transcript.
Page 34 of 157
BAC 2014
(i)
Explain the nature of the interview and get the confdentiality form signed.
You do not have to record this part of the interview.
Parts to be recorded
(ii)
background, and
beliefs
(ii)
(iii)
(iv)
Get them to explain what the ethical conflict was. Ensure that your
questioning probes deeply here - the nature of the conflict might not
necessarily be exactly what you think it
might be.
(v)
(vi)
Find out what they did to resolve the issue. Perhaps use the CIMA
resolution
4
framework to
guide
your questioning here, and perhaps explore what they did not do that CIMA
might suggest they could have done.
(vii)
(viii)
Page 35
The CIMA resolution framework is 1. Gather and record facts 2. Decide if it is an ethical
issue 3. Decide if it is legal in nature 4. Identify any of CIMA's fundamental principles
that are effected 5. Identify any efected
parties 6. Consider possible course of action 7. If necessary seek professional advice 8.
Refuse to be associated
with conflict
Page 36 of 157
BAC 2014
Name:
Overall mark:
ABILITY TO CREATE A RICH AND STIMULATING EXPLORATION OF A CASE
STUDY (1/3 of the marks)
40% +
50% +
60% +
70% +
80% +
The script stands out from other scripts in terms of its vivid and
creative
40% +
50% +
60% +
70% +
80% +
The script stands out from other scripts in terms of its academic
rigour.
40% +
50% +
60% +
Page 37
70% +
80% +
Page 38 of 157
BAC 2014
10%
cap
20%
cap
30%
cap
60% +
70% +
We hope you will fully engage with the practice exams as they should provide you with confidence going
into your end of term exam. As these exams will take place throughout the academic year, you will only
be assessed on the materials that you will have already studied.
a.#
i only.
b.#
i, ii and iii.
c.#
d.#
ii and iv.
1600
b.#
1300
c.#
1866.
d.#
1688.
3. When interpreting the Human Rights Act 1998, the judiciary must
interpret it consistently with:
i)
ii)
iii)
iv)
a.#
i only.
b.#
c.#
d.#
i and iv.
Page 40 of 157
BAC 2014
b.#
c.#
d.#
Take no action as they have not been given powers under the
Act.
b.#
c.#
d.#
Orders in Council.
b.#
Statutory Instruments
c.#
Public Bills.
d.#
By-laws.
b.#
c.#
d.#
A select committee.
b.#
A standing committee.
c.#
d.#
A special committee.
b.#
c.#
d.#
10. In terms of the hierarchy of the courts, which is the highest court in
England:
a.#
b.#
c.#
d.#
Page 42 of 157
BAC 2014
b.#
c.#
d.#
A Treaty Article
b.#
A Regulation.
c.#
A Directive.
d.#
A Decision.
13. Following accession to the EU, the highest court in England is:
a.#
b.#
c.#
d.#
Tribunals.
b.#
c.#
d.#
15. In the event of a conflict between English law and the law of the
European Union, the judges must:
a.#
b.#
c.#
Decide, based on the facts of the case before them, which law
to give effect.
d.#
Public law
b.#
Private law
c.#
Procedural law
d.#
International law
b.#
c.#
d.#
b.#
c.#
d.#
Germany
b.#
Greece
c.#
Denmark
d.#
France
Page 44 of 157
BAC 2014
Sri Lanka
b.#
China
c.#
Malaysia
d.#
Russia
Fill-in-the-Blank Questions
Type: fill-in-blank
Title: Question 01
XX)
_____ law regulates actions between parties in agreements they have voluntarily
entered or where society has placed an obligation to take reasonable care not to
cause damage or injure others.
END OF QUESTION
Type: fill-in-blank
Title: Question 02
XX)
Whereas criminal cases are decided on the test of 'beyond reasonable doubt' the
test applied in civil cases is on the __________ _ _________
END OF QUESTION
Type: fill-in-blank
Title: Question 03
XX)
The part of the judgment that establishes the precedent is the ____ _________
END OF QUESTION
Type: fill-in-blank
Title: Question 04
XX)
One particular legislative aid to assist the judiciary in interpreting statutes has
been the ____________ ___
END OF QUESTION
Type: fill-in-blank
Title: Question 05
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 06
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 07
XX)
The ____ Court is separated into the three divisions - Queens Bench, Chancery,
and Family.
END OF QUESTION
Type: fill-in-blank
Title: Question 08
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 09
XX)
The source of EU law that require the Member States to transpose the effects of
the law into their own legal system is __________
END OF QUESTION
Page 46 of 157
BAC 2014
Short-Answer Question
b.#
c.#
d.#
b.#
c.#
d.#
6 years.
b.#
6 months.
c.#
3 years.
d.#
3 months.
BAC 2014
25%.
b.#
50%.
c.#
0%.
d.#
100%.
b.#
c.#
d.#
b.#
c.#
d.#
1. In the case of Spartan Steel v Martin & Co. Contractors Ltd. [1973],
it was held that the claimants could receive damages for:
a.#
b.#
c.#
d.#
No damages.
2. Which of the following is NOT one of the factors that establish when
liability for a negligent misstatement will be imposed?
a.#
b.#
c.#
d.#
BAC 2014
safety?
a.#
b.#
c.#
d.#
There must exist close proximity between the claimant and the
person suffering harm.
b.#
c.#
d.#
b.#
c.#
d.#
i and ii.
b.#
ii and iii.
c.#
i and iv.
d.#
b.#
c.#
d.#
b.#
c.#
d.#
BAC 2014
b.#
c.#
iv only.
d.#
ii and iv.
Fill-in-the-Blank Questions
Type: fill-in-blank
Title: Question 01
XX)
Having established the defendant owed the claimant a duty of care, the next
stage in establishing liability is that the defendant _______ duty.
END OF QUESTION
Type: fill-in-blank
Title: Question 02
XX)
The final element necessary in establishing negligence liability, following the duty
of care and breach of duty is ____________ damage.
END OF QUESTION
Type: fill-in-blank
Title: Question 03
XX)
The case Cork v Kirby Maclean identified the ___ __ test as: If the damage would
not have happened but for a particular fault, then that fault is the cause of the
damageif it would have happened just the same, fault or not fault, the fault is
not the cause of damage.
END OF QUESTION
Type: fill-in-blank
Title: Question 04
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 05
XX)
The general rule preventing claims based on pure economic loss is subject to
exception of where a __________ of proximity exists between the parties that
elevates the defendants responsibility to the claimant.
END OF QUESTION
Type: fill-in-blank
Title: Question 06
XX)
Weller v Foot and Mouth Research Institute is authority for the proposition that
actions for losses attributed to ________ loss are not compensatable as they are
not linked with economic losses associated with physical negligence.
END OF QUESTION
Type: fill-in-blank
Title: Question 07
XX)
_________ is a doctrine where an employer will be held liable for the torts of
his/her employee.
END OF QUESTION
Page 54 of 157
BAC 2014
Type: fill-in-blank
Title: Question 08
XX)
The two tests necessary to establish the vicarious liability of an employer is that
the tortfeasor is an.and the tort was committed in the course of his/her
employment.
END OF QUESTION
Type: fill-in-blank
Title: Question 09
XX)
An employer may be liable for an employees tort where an authorized act has
been conducted in an ___________ way.
END OF QUESTION
Type: fill-in-blank
Title: Question 10
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 11
XX)
Where both the employer and an independent contractor were both ________, an
employer may be held vicariously liable for injuries to the victim despite the
general rule that the doctrine is applicable for the torts of an employee only.
END OF QUESTION
Type: fill-in-blank
Title: Question 12
XX)
END OF QUESTION
Essay Question
To what extent is a professional adviser liable in civil law for their misstatement and how
does the law seek to regulate their activities and liabilities?
Indicative Content Outline Answer
The general rule of law was that claims for pure economic loss could not be claimed for many
reasons including the floodgates argument.
In some cases businesses provide expert advice that clients and others rely on when investing
money, making decisions and so on, and when these have been negligently made, the recipient
may suffer losses.
Hedley Byrne & Co. v Heller - The House of Lords held that this case involved a special
relationship of proximity between the parties and this would enable a claim for the losses due to
the negligent misstatement.
In Caparo v Dickman the Lords defined the factors that would establish a special relationship
and where liability for a negligent misstatement would be imposed:
1) The advice is required for a purpose which is made known, either actually or inferentially,
to the adviser at the time when the advice is given;
2) The adviser knows that his advice will be communicated to the advisee, either
specifically or as a member of an ascertainable class, in order that it should be
used by the advisee for that purpose;
3) It is known that the advice so communicated is likely to be acted upon by the advisee for
that purpose without independent inquiry, and
4) It is so acted upon by the advisee to his detriment.
The case of James McNaughten v Hicks demonstrated the necessity of the defendant
being aware of the claimants use of the information that was being provided. The
following points should be considered:
1)
2)
3)
4)
5)
6)
In Yorkshire Enterprise Ltd v Robson Rhodes it was held that liability would be imposed
as the defendants were aware of why the claimants wanted the information, and what
they had intended to do with this information. Therefore when considering whether
liability will be imposed in cases of negligent misstatement, the following points should be
considered:
1) There must have been negligence when the statement was made.
Page 56 of 157
BAC 2014
b.#
c.#
d.#
Always an offer.
b.#
c.#
An invitation to treat.
d.#
Conduct only.
b.#
c.#
d.#
i) It is posted.
ii) It is communicated to the offeree by the offeror.
iii) It is the intention of the offeror to revoke.
iv) It is communicated to the offeree by a reliable third party.
a.#
i only.
Page 58 of 157
BAC 2014
b.#
i and iii.
c.#
d.#
ii and iv.
b.#
c.#
As the value of the car is only 2000 the courts will not hear
the case and no enforcement can be ordered.
d.#
b.#
c.#
d.#
b.#
c.#
d.#
a.#
b.#
c.#
d.#
b.#
Part-payment of a debt.
c.#
d.#
b.#
ii only.
c.#
d.#
i, ii and iv.
11. Which of the following does NOT have the right to enforce a
contract?
a.#
b.#
c.#
d.#
Page 60 of 157
BAC 2014
b.#
Combe v Combe.
c.#
Foakes v Beer.
d.#
Re Selectmove.
13. How would the courts deal with a clause in a contract for the sale
of a horse which promised the seller an additional 5 fee if the horse
proved to be lucky?
a.#
b.#
c.#
d.#
Damages only.
b.#
An injunction only.
c.#
Rescission only.
d.#
b.#
c.#
d.#
i and iii.
b.#
ii and iii.
c.#
d.#
ii and iv.
i) A statement of material fact (not opinion) that induces the other party
into the contract;
ii) A representation that was false;
iii) The innocent party believed the statement to be true; and
iv) The representation induced the party into the contract.
a.#
b.#
ii and iv.
c.#
ii only.
d.#
Fill-in-the-Blank Questions
Type: fill-in-blank
Page 62 of 157
BAC 2014
Title: Question 01
XX)
A _________ contract is one where the injured party has the option to affirm the
contract (he/she can continue with the agreement and bring about an enforceable contract) or he/she can avoid the contract (and the contract is terminated).
END OF QUESTION
Type: fill-in-blank
Title: Question 02
XX)
The _______ is the party that establishes the terms of a contract by which he/she
is willing to be bound.
END OF QUESTION
Type: fill-in-blank
Title: Question 03
XX)
An _____ __ ______ is the term used when a party invites offers (essentially the
party with the goods/services to trade invites offers which he/she is able to accept
or decline).
END OF QUESTION
Type: fill-in-blank
Title: Question 04
XX)
The case of _______ identified the first/last shot approach to which contract will
be the operational one where two businesses use standard form contracts.
END OF QUESTION
Type: fill-in-blank
Title: Question 05
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 06
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 07
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 08
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 09
XX)
Where A gives B a lift to work in As car and at the end of the journey B expresses
his thanks and states that he will give A 10 for her trouble, there is no
enforceable contract to enforce the 10 payment if none is received. This is
because the consideration provided is ____ and this is not, generally, good
consideration to enforce a promise.
END OF QUESTION
Type: fill-in-blank
Title: Question 10
XX)
The case Hartley v Ponsonby demonstrated that where the promisee ______ an
existing duty, this will be good consideration to enforce the promise.
END OF QUESTION
Page 64 of 157
BAC 2014
Type: fill-in-blank
Title: Question 11
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 12
XX)
The doctrine ____ __ _______ establishes that only parties to a contract may sue
or be sued on it.
END OF QUESTION
Type: fill-in-blank
Title: Question 13
XX)
A breach of a _____________ will not enable a breach of contract claim, but may
amount to a misrepresentation that makes the contract voidable.
END OF QUESTION
Type: fill-in-blank
Title: Question 14
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 15
XX)
END OF QUESTION
Essay Question
At what point does a display in a shop window become an offer to sell rather than an
invitation to treat? Compare and contrast the cases of Pharmaceutical Society of Great
Britain v Boots Cash Chemists, Fisher v Bell and Leftkowitz v Great Minneapolis Surplus
Stores.
Indicative Content Outline Answer
An offer is an agreement to a set of terms under which the offeror is willing to be bound.
This offer is made to the offeree, who may be an individual, company, group of people or
even the entire world (Carlill v Carbolic Smoke Ball Co.).
Only the offeree can accept on the contract and he/she must accept in the method
expressed (if stipulated) by the offeror.
An invitation to treat is the term used when a party invites offers (essentially the positions
of the parties are reversed whereby the party with the goods / services to trade invites
offers which he/she is able to accept or decline). In this context, the word treat means to
negotiate, and hence it can be viewed as an invitation to negotiate for a good or service.
Cases that have established the general rule of where an invitation to treat exists did so
in light of traders selling goods; advertisements; auctions; and negotiations. It should be
noted that for businesses, it may be wise to sell goods under invitation to treat rather
than offers as this provides the company with flexibility in its sales strategy.
Pharmaceutical Society of Great Britain v Boots Cash Chemists involved a self-service shop
selling goods that had to be sold in the presence of a registered pharmacist. The Court of Appeal
held that items in a shop with a price tag attached did not constitute an offer to sell, binding the
shop keeper to sell to whoever entered the shop and selected an item. This is necessary to
prevent a shop from displaying goods with an incorrect price tag on and then being compelled to
proceed with the contract on the basis of an innocent mistake.
Fisher v Bell involved the display of a flick-knife (an ejector-knife) with a price tag attached. It was
held that such an item could not establish an offer to sell but would be held as an invitation to
treat.
Page 66 of 157
BAC 2014
b.#
c.#
d.#
i) By the courts.
ii) By statue.
iii) By custom.
iv) With reference to the previous dealing's of the parties.
a.#
ii only.
b.#
c.#
d.#
A lesser term.
b.#
c.#
d.#
b.#
c.#
d.#
b.#
c.#
d.#
A warranty.
b.#
A condition.
c.#
d.#
A representation.
In all contracts.
b.#
c.#
d.#
BAC 2014
a.#
b.#
c.#
d.#
b.#
c.#
d.#
b.#
c.#
d.#
Durability.
b.#
c.#
d.#
Remoteness of damage.
b.#
Quantum.
c.#
Mitigation.
d.#
Damages.
b.#
Specific performance.
c.#
Injunctions.
d.#
Rectification.
14. In the event that a party who had contracted to sell his/her home to
the purchaser subsequently refuses to perform his/her side of the
bargain, which of the following remedies would the courts most likely
award?
a.#
Damages.
b.#
An injunction.
c.#
Restitution.
d.#
Specific Performance.
i and ii.
b.#
i, ii and iii.
c.#
Page 70 of 157
BAC 2014
d.#
i and iv.
16. Breach of which term would always entitle the innocent party to
repudiate the contract?
a.#
A warranty.
b.#
A condition.
c.#
An innominate term.
d.#
An extraordinary term.
17. In relation to a contract that has not been completed, but has been
substantially performed, the innocent party:
a.#
b.#
c.#
May refuse to pay any money owed until full completion has
taken place.
d.#
b.#
c.#
d.#
19. When faced with a breach of contract, what action will the court
b.#
c.#
d.#
Fill-in-the-Blank Questions
Type: fill-in-blank
Title: Question 01
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 02
XX)
The case Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour is authority
for the proposition that a contract which subsequently becomes ________ will be
held to be frustrated.
END OF QUESTION
Type: fill-in-blank
Title: Question 03
XX)
A breach of a __________ of the contract gives the injured party the option to
Page 72 of 157
BAC 2014
Type: fill-in-blank
Title: Question 04
XX)
Where __________ _______ occurs, the innocent party can accept this as a
breach immediately and treat the contract as repudiated. Or he/she can wait for
the time when performance was due, and when the contract is breached, then
seek a remedy.
END OF QUESTION
Type: fill-in-blank
Title: Question 05
XX)
In the event that a contract is not performed, or obligations under the contract are
not fulfilled, the innocent party may be entitled to compensation. Under the
common law, this is usually in the form of _________.
END OF QUESTION
Type: fill-in-blank
Title: Question 06
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 07
XX)
In s. 61(1) of the Sale of Goods Act 1979 ______ are described as all personal
chattels other than things in action and money
END OF QUESTION
Type: fill-in-blank
Title: Question 08
XX)
For the purposes of identifying a consumer applicable to the Sale of Goods Act
1979, section _______ of the Unfair Contract Terms Act 1977 provides the
relevant definition.
END OF QUESTION
Type: fill-in-blank
Title: Question 09
XX)
Section 14(2) of the Sale of Goods Act 1979 requires that goods are of
_________ _________.
END OF QUESTION
Type: fill-in-blank
Title: Question 10
XX)
A ________ is a lesser term of a contract, breach of which only allows for the
recovery of damages.
END OF QUESTION
Type: fill-in-blank
Title: Question 11
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 12
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 13
Page 74 of 157
BAC 2014
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 14
XX)
END OF QUESTION
Essay Question
How have the statutory developments regulating the use of exclusion clauses altered and
restricted their use? Compare how the cases pre-1977 would be decided in the courts
today.
Indicative Content Outline Answer
The function of the Unfair Contract Terms Act (UCTA) 1977 is to ensure that certain terms that
may be unfair (under this Act, namely exclusion clauses) are removed or held invalid by the
courts.
UCTA 1977 also regulates the use of non-contractual notices attempting to restrict liability for
negligence. Certain exclusion clauses will automatically be considered void under the Act (such
as excluding liability for death or personal injury due to negligence) and those remaining have to
satisfy the test of reasonableness.
UCTA 1977 provides protection when exclusion clauses are included in standard form contracts.
These are typically used by businesses and the consumer is in a weak position in attempting to
decline their use it is often a take it or leave it scenario.
If it is the case that the party deals as a consumer on the other partys written standard terms, the
other party cannot exclude or restrict any liability in respect of a breach of contract; or claim to be
able to perform or fulfil a contract in a substantially different way than would reasonably be
expected; or claim to be able to render no performance at all under his/her contractual
obligations.
Therefore, s. 3 UCTA 1977 protects those who deal as consumers, and also who deal on the
other partys written standard terms.
UCTA 1977 contains provision for how the reasonableness or otherwise of an exclusion clause
will be determined.
In the case of SAM Business Systems v Hedley and Co. a software supplier was entitled to rely
on an exclusion clause that enabled it to supply an inadequate product, and this term was
considered reasonable. (Note that this case was between two businesses).
Schedule 2 outlines the tests that the courts will use in determining the reasonableness of an
exclusion clause:
a) the strength of the bargaining positions of the parties relative to each other (the most
important statutory consideration);
Where the parties are of equal bargaining strength, the courts are more likely to accept
exclusion clauses than if the contract was between a consumer and a business (Watford
Electronic Ltd v Sanderson CFL Ltd).
b) whether the customer received an inducement to agree to the term, or in accepting it had
an opportunity of entering into a similar contract with other persons, but without having to
accept a similar term;
c) whether the customer knew or ought reasonably to have known of the existence and
extent of the term (having regard, among other things, to any custom of the trade and any
previous course of dealing between the parties - Interfoto Picture Library Ltd v Stiletto
Visual Programmes Ltd);
d) where the term excludes or restricts any relevant liability if some condition is not complied
with, whether it was reasonable at the time of the contract to expect that compliance with
that condition would by practicable; and
e) whether the goods were manufactured, processed or adapted to the special order of the
customer.
Smith v Eric S Bush: The Lords identified factors that would be used in determining the
reasonableness of an exclusion clause:
1. Whether the parties were of equal bargaining power;
2. In situations involving advice, was it practicable (in costs and time) to obtain
alternative advice;
3. The level of complexity and difficulty in the task which was subject to the exclusion of
liability; and
4. Which of the parties was better able to bear any losses and should insurance have
been sought.
L'Estrange v Graucob the small print excluded all implied terms (included those provided
by statute). This was permitted as the woman signed the contract such exclusion clauses
would not be permitted under UCTA.
Page 76 of 157
BAC 2014
Thornton v Shoe Lane Parking Ltd exclusion clause at a car park (sign inside sought to
exclude liability for death and personal injury). The clause would have been effective had it
been included at the entrance before the contract established. This is made void through
UCTA s.2.
Chapelton v Barry UDC exclusion of liability for personal injury would be prohibited under
UCTA.
b.#
c.#
d.#
b.#
c.#
d.#
The worker has the right to supply a substitute and does not
have to perform the work personally.
b.#
c.#
d.#
BAC 2014
a.#
b.#
c.#
d.#
i and ii.
b.#
ii and iii.
c.#
ii and iv.
d.#
i and iii.
b.#
c.#
d.#
b.#
c.#
d.#
8. Under the Equality Act 2010, pay does not include which of the
following?
a.#
Wages.
b.#
Sick pay.
c.#
Pension contributions.
d.#
Expenses.
b.#
c.#
d.#
i) Time Work;
Page 80 of 157
BAC 2014
a.#
i and ii.
b.#
ii only.
c.#
d.#
11. When a woman claims under the Equality Act 2010 due to
discrimination on the basis of her pregnancy, with whom should she
be compared?
a.#
b.#
c.#
d.#
12. As provided for in the Employment Rights Act 1996, how many
weeks of Ordinary Maternity Leave is a pregnant employee entitled
to?
a.#
4 weeks.
b.#
26 weeks.
c.#
32 weeks.
d.#
50 weeks.
13. Under the Working Time Regulations 1998, what is the maximum
working week of an adult (calculated, typically, over a seventeen week
period)?
a.#
35 hours.
b.#
40 hours.
c.#
48 hours.
d.#
56 hours.
b.#
c.#
Trade secrets.
d.#
Confidential information.
Fill-in-the-Blank Questions
Type: fill-in-blank
Title: Question 01
XX)
Beyond the statutory definition, the ______ ___ identifies the tests used to
establish the employment status of workers.
END OF QUESTION
Type: fill-in-blank
Title: Question 02
XX)
The original common law test used to establish employment status, which was
based on the master/servant distinction, was the _______ test.
END OF QUESTION
Type: fill-in-blank
Title: Question 03
XX)
The common law test of ..was developed in the case Stevenson, Jordan
and Harrison v Macdonald and Evans.
END OF QUESTION
Type: fill-in-blank
Title: Question 04
XX)
Page 82 of 157
BAC 2014
END OF QUESTION
Type: fill-in-blank
Title: Question 05
XX)
The implied term of ________ identifies that an employee must not work in
competition with the principal employer and he/she must give to the employer
his/her faithfulness.
END OF QUESTION
Type: fill-in-blank
Title: Question 06
XX)
Insofar as the employer provides the employee with pay, and with exception of
certain professions (such as in the entertainment / medicine industries), the
employer is not under an implied term to provide an employee with ____.
END OF QUESTION
Type: fill-in-blank
Title: Question 07
XX)
One of the most significant implied terms imposed on both employers and
employees is to maintain mutual _______ ___ _______.
END OF QUESTION
Type: fill-in-blank
Title: Question 08
XX)
END OF QUESTION
Essay Question
Through the last one hundred years, legislative and common law initiatives have failed to establish a
single definitive test to establish the employment status of workers.
Critically assess the above statement and identify reforms in the law that you deem
expedient.
Indicative Content Outline Answer
Employees are provided with greater access to employment rights than independent contractors
such as unfair dismissal, redundancy, various maternity rights and so on. They are also subject
to implied terms that independent contractors are not and the employer has obligations (including
vicarious liability and compulsory insurance) that are not imposed (in most circumstances) when
independent contractors are employed.
Being the highest form of law, the most obvious place to search in establishing how to identify a
workers employment status is statute.
The Employment Rights Act 1996 contains many of the laws relating to employment and under s.
230(1) an employee is classed as an individual who has entered into or works under (or, where
the employment has ceased, worked under) a contract of employment. The term a contract of
employment is defined under s. 230(2), which reads In this Act "contract of employment" means
a contract of service or apprenticeship, whether express or implied, and (if it is express) whether
oral or in writing.
Ultimately, the legislation is unhelpful and very broad and requires reference to case law to extract
the determining factors of employment status. As a consequence, the common law tests have
evolved from control and integration; to the modern mixed test.
It is important to recognise before the tests are discussed that no one test is conclusive and the
courts and tribunals make the decision of the employment status based on mixed law and fact
the employment laws established from statute and the courts (through precedent) and the
individual facts of the case.
This initial test of employment status occurred through the master and servant distinction where
the master held control over the servant who was subservient to him/her.
In Yewens v Noakes where Bramwell LJ stated A servant (employee) is a person subject to the
command of his master (employer) as to the manner in which he shall do his work. This degree
of control was easily seen in employment relationships where the employer exercised complete
control over the actions of the worker. However, soon after the test had been established the
nature of the control in employment relationships began to change.
The control test evolved in a later case involving a professional football player, and how the law
could deal with a skilled worker whose job involved a high degree of independence in completing
the tasks set by the employer (Walker v Crystal Palace Football Club).
Page 84 of 157
BAC 2014
Control was a useful test when it was first established. However, with modern working practices
this was of limited usefulness when applied in isolation. Workers increasingly are skilled and are
employed away from the direct control of the employer.
Contracts of employment are considered to be contracts of personal service. This means that an
employee has to perform the work his/herself and if the worker has the ability to sub-contract the
work, or if he/she can provide a substitute, then he/she will be more likely to be considered an
independent contractor (Express and Echo v Tanton [1999]).
In James v Redcats the Employment Appeal Tribunal remarked on worker status, the essential
question is whether the obligation for personal service is the dominant feature of the
contractual relationship or not. If it is, then the contract lies in the employment field
Therefore, with the limitation of the control test, greater detail and consideration of the
employment relationship in each case had to be included. This led to the integration / organisation
test.
In Stevenson, Jordan and Harrison v Macdonald and Evans Denning LJ considered that One
feature which seems to run through the instances is that, under a contract of service a man is
employed as part of the business and his work is done as an integral part of the business;
whereas, under a contract for services, his work, although done for the business, is not integrated
into it but only accessory to it.
This definition uses common sense and its logic will be obvious to all, but it is unfortunate that
Denning did not define the word integrated to assist in identifying where the demarcation
between employee and independent contractor lay.
Hence the test was sensible but could not be used in future cases.
This led to the development of the mixed / economic reality test.
A very important case in the development of the law in this area was Ready Mixed
Concrete that established three questions that a tribunal should seek to answer in
reaching its conclusion:
(i) The servant agrees that, in consideration of a wage or other remuneration, he
will provide his own work and skill in the performance of some service for his
master;
(ii) He agrees, expressly or impliedly, that in the performance of that service he will be
subject to the other's control in a sufficient degree to make that other master;
(iii) The other provisions of the contract are consistent with its being a contract of service.
However, it is essential to note that in Hall v Lorimer the court stated that the tests
developed in the case law should not be proceeded through mechanically. The tribunals
should have the discretion to come to their own conclusions, and attach whatever weight
they wish to the factors present.
However, these tests should be used as they provide an effective indication as to the
direction the tribunals will take. Also, independent contractors are considered to be in
business on their own account. Per Cooke J in Market Investigations stated: The
fundamental test to be applied is this: Is the person who has engaged himself to perform
these services performing them as a person in business on his own account? If the
answer to that question is yes, then the contract is a contract for services. If the answer
is no, then the contract is a contract of service.
Whether someone is in business on his/her own account may be evidenced through the
questions raised in Lee Ting Sang v Chung Chi-Keung such as:
(i) whether the man performing the services provides his own equipment;
(ii) whether he hires his own helpers;
(iii) what degree of financial risk he takes;
(iv) what degree of responsibility for investment and management he has; and
(v) whether and how far he has an opportunity of profiting from sound
management in the performance of his task.
The cases identified in the mixed test section provide a list of questions that can be used in
assessing employment status. A last case must be addressed as the leading authority in this
area. Montgomery v Johnson Underwoood established two clear factors which the courts /
tribunals will take into consideration control and mutuality of obligations. There must be an
element of control, and mutuality of obligations for the case establishing a worker as an
employee to proceed. If these two questions are answered in the affirmative, then the tribunal
should continue to the Ready Mixed Concrete questions, if not, the claim fails at this stage!
Parliament has left the statutory definition deliberately broad to allow the tribunals to alter the
tests in light of changes in working. The evolution of the common law tests have demonstrated
the need for flexibility in defining employment status, and if Parliament had been overly
prescriptive in defining who would be held an employee, it would have given scope to the
employers to ensure they could avoid the employment protections that are afforded employees.
Employment status is based on mixed fact and law hence statute law may not be the best way
in defining the status.
Parliament may also find defining employment status that could be applied to all forms of
employment very difficult. Some workers are heavily regulated and controlled in their work, whilst
others are provided with a great deal of autonomy despite still being employees.
Page 86 of 157
BAC 2014
b.#
c.#
d.#
b.#
c.#
d.#
Employee status.
b.#
c.#
d.#
b.#
c.#
d.#
b.#
c.#
d.#
One week.
b.#
Four weeks.
c.#
Four months.
d.#
Eight weeks.
Page 88 of 157
BAC 2014
a.#
i only.
b.#
i and iv.
c.#
i, ii and iii.
d.#
b.#
c.#
d.#
i) Employes;
ii) Independent contractors;
iii) Self-employed traders;
iv) Agency workers employed on a casual basis.
a.#
b.#
i only.
c.#
i, ii and iii.
d.#
i, and iv.
8 hours.
b.#
10 hours.
c.#
11 hours.
d.#
18 hours.
11. Under the Health and Safety at Work Act 1974, an employer has a
responsibility for the health and safety of which category of worker?
a.#
b.#
Employees only.
c.#
Non-employees only.
d.#
b.#
c.#
d.#
a.#
b.#
iii only.
c.#
i, ii and iii.
d.#
i, ii and iv.
Page 90 of 157
BAC 2014
Redundancy.
b.#
c.#
d.#
Conduct.
i) Compensation.
ii) Reinstatement.
iii) Re-engagement.
iv) Specific performance.
a.#
i, ii and iii.
b.#
i, ii and iv.
c.#
d.#
b.#
c.#
d.#
b.#
Where the nature of the job is dangerous and women are not
hired to prevent their exposure to the risk of harm.
c.#
d.#
18. Where a person treats a woman, on the ground of her sex, less
favourably (or unfavourably) than he/she treats or would treat a man,
this is an example of?
a.#
Harassment.
b.#
Victimisation.
c.#
Indirect discrimination.
d.#
Direct discrimination.
b.#
An award of damages.
c.#
d.#
Fill-in-the-Blank Questions
Type: fill-in-blank
Title: Question 01
XX)
The Equality Act 2010 provides that age, disability, sex and sexual orientation are
examples of _________ characteristics.
END OF QUESTION
Type: fill-in-blank
Page 92 of 157
BAC 2014
Title: Question 02
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 03
XX)
The Equality Act 2010 identifies the prohibited conduct of ______ __________ as
where a person treats another less favourably because of their protected
characteristic than he/she would of a person without the characteristic.
END OF QUESTION
Type: fill-in-blank
Title: Question 04
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 05
XX)
Under an employers duty to provide workers with a safe system of work, he/she
must ensure systems are in place to allow tasks to be conducted without any
____________ risk of injury or illness attributable to carrying out this function.
END OF QUESTION
Type: fill-in-blank
Title: Question 06
XX)
The main legislative provision covering health and safety in the workplace is the
______ ___ ________ ___ ______ Act 1974.
END OF QUESTION
Type: fill-in-blank
Title: Question 07
XX)
The Health and Safety at Work Act etc. 1974 obliges employers to conduct their
Type: fill-in-blank
Title: Question 08
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 09
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 10
XX)
Where the contract does not provide details, the Employment Rights Act 1996 s.
86 provides that where an employee has been engaged for a period of between
one month and two years continuously for the same employer, he/she is entitled
to ___ weeks notice.
END OF QUESTION
Type: fill-in-blank
Title: Question 11
XX)
END OF QUESTION
Page 94 of 157
BAC 2014
Type: fill-in-blank
Title: Question 12
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 13
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 14
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 15
XX)
Only individuals with the employment status of _________ may bring a claim of
unfair dismissal.
END OF QUESTION
Type: fill-in-blank
Title: Question 16
XX)
Dismissals due to the pregnancy of the worker, a spent conviction under the
Rehabilitation of Offenders Act 1974, or trade union membership or activities are
examples of __________ unfair reasons to dismiss.
END OF QUESTION
Type: fill-in-blank
Title: Question 17
XX)
The Employment Relations Act 1999 ss. 10-13 provide a worker with the right to
be accompanied by a _________ or trades union official at a meeting which may
result in his/her discipline and/or dismissal.
END OF QUESTION
Essay Question
The potentially fair reasons to dismiss under the Employment Rights Act 1996 are far too broad and
enable an employer to dismiss an employee very easily. They should be narrowed and the test of
reasonableness of an employers action made more robust if the legislation is to have any impact on the
abusive exercise of managerial prerogative.
Discuss.
Having established that the employee qualifies for protection under the Act, s. 98 ERA 1996
outlines the reasons in which it may be acceptable, if reasonable on the facts, for the employer to
dismiss the employee. The employer may explain the decision for dismissal as being potentially
fair if the reason or, on the basis of there being more than one reason, the principal reason is due
to:
The employer may select as many of the reasons under s. 98 as he/she wishes, however, the
more that are chosen, the more evidence that will have to be provided to ensure the dismissal is
fair. In Smith v City of Glasgow Council, the employer offered three reasons for the employees
dismissal due to incapability, but as one of them could not be proven, the House of Lords held
that the employee was unfairly dismissed. It was not possible for the court to distinguish if this
reason was any less or more serious than the other two submitted.
Capability / Qualifications
Page 96 of 157
BAC 2014
The ERA 1996 identifies that the issue of capability should have regard to skill, aptitude health or
any other physical or mental quality (s. 98(3)), and qualifications are any degree, diploma or
other academic, technical or professional qualification relevant to the position held.
It is necessary to look to the contract of employment and to what tasks the employee actually
performed at work, and then consider the general standard of performance required, whether that
standard was being met, and if not, how were similar employees treated.
This reason for dismissal generally focuses on whether the employee becomes ill and cannot
perform his/her tasks, or if the employee is incompetent (Alidair v Taylor [1978]) (or becomes
incompetent - perhaps by being promoted to a management position and not having the skills to
perform the job adequately).
Conduct
Here the issue is the misconduct of the employee and it can pose many problems for an
employer in determining the facts surrounding the incident, and deciding how to react to it.
Typical examples of misconduct include fighting, stealing, misuse of company property (examples
of gross misconduct), and poor timekeeping, unauthorised absences from work, or general
disregard for instructions given fairly and lawfully by the employer (misconduct).
Gross misconduct generally refers to a one-off serious offence that may of itself justify a
dismissal, whereas as misconduct may be a lesser offence when considered in isolation, but
when this culminates over a period of time it becomes sufficiently serious to (potentially) justify a
termination of the contract.
Under the common law, a gross misconduct entitles a summary dismissal, but under the statutory
route, the investigation should be followed, the procedures applied, and then the decision
reached.
Cases have demonstrated how an employer may dismiss an employee merely on suspicion of a
misconduct such as theft (Monie v Coral Racing Ltd and British Home Stores v Burchell). Hence,
actual proof of an offence is required if the employer can demonstrate a reasonable suspicion,
that will prove sufficient.
There may also exist situations where a group of employees may be considered to have
been involved in misconduct. In cases where it is reasonable for the employer to assume
that all or one of them were involved, yet following an investigation identification of the
actual perpetrator(s) cannot be achieved, all of the group may be dismissed. See Parr v
Whitbread).
Note that potential problems may exist where an employer cannot identify which of the
employees has committed an offence, but decides to dismiss members of the group selectively.
When one or more of the employees in the group are retained or re-hired despite the
investigation not identifying the employee(s) responsible, there must exist solid and sensible
grounds for the retention or re-hiring of certain members.
Redundancy
Contravention of a Statute
A further potentially fair reason to dismiss is where to continue to employ the employee would be
to break the law. In such a situation, the contract could be frustrated due to a subsequent law
(such as the enactment of legislation prohibiting the employment of foreign nationals) or a
change in the employees situation that makes continued employment in the same capacity
contrary to legislation (Four Seasons Healthcare Ltd v Maughan [2005]).
In the absence of a reason fitting into one of the previous categories, s. 98 provides for some
other substantial reason of a kind such as to justify the dismissal of an employee holding the
position which the employee held (SOSR) to be forwarded as a reason for the dismissal.
There has been a very wide interpretation of the concept of what would amount to SOSR. In the
past tribunals have held that an employee whose spouse was an employee of one of the
employers competitors permitted a dismissal; a homosexual man was dismissed from his job at
a residential holiday camp due to a potentially negative reaction from parents on discovering his
sexuality (Saunders v Scottish National Camps Association [1980]); and an employees refusal to
agree to the inclusion of a restraint of trade clause in his employment contract was deemed
SOSR (RS Components v Irwin [1973]). In Scott v Richardson the EAT held that the tribunal did
not have to be satisfied that the commercial decision of the employer was sound, but rather the
test was whether the employer believed it to be so.
SOSR may also amount to a situation where an employee is dismissed because his/her
attitude at work is sufficiently unpleasant and disruptive that it breaches the implied duty
of trust and confidence (Perkin v St Georges Healthcare NHS Trust [2005]).
As can be seen, there are many reasons that an employer can use to dismiss an
employee. They do not appear particularly onerous and often the employers motives for
the decision or the requirement to justify the decision on the basis of the best interests of
the firm are not necessary.
Particularly in light of SOSR, an employer may dismiss an employee for some very
strange reasons. There is scope for abuse of these reasons and the statute actually
assists the employer by specifically providing guidelines on what will be considered
potentially fair or not. As such it may be considered that the legislation does not protect
the employee, and allows for the exercise of managerial prerogative. However, it may
also be the case that the employer should not have to employ anyone against his/her
wishes, and therefore the reasons should be as relaxed as they currently are to enable
the employer to exercise his/her prerogative.
Page 98 of 157
BAC 2014
A sole trader.
b.#
An employee.
c.#
A limited company.
d.#
b.#
i only.
c.#
d.#
ii and iii.
b.#
c.#
Good faith.
d.#
b.#
c.#
d.#
5. Under the Partnership Act 1890, which of the following events may
b.#
i, ii and iii.
c.#
d.#
b.#
c.#
d.#
By Royal charter.
b.#
By statute.
c.#
d.#
By registration.
BAC 2014
i and iii.
b.#
i, ii and iii.
c.#
ii and iii.
d.#
b.#
c.#
d.#
ii and iv.
b.#
c.#
d.#
b.#
c.#
d.#
Fill-in-the-Blank Questions
Type: fill-in-blank
Title: Question 01
XX)
The word limited in terms of a limited liability company refers to the limited
liability of ___________ for the debts of the company.
END OF QUESTION
Type: fill-in-blank
BAC 2014
Title: Question 02
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 03
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 04
XX)
Where the partner allows his/her name to be used by the partnership, such as on
the letterhead of the firm to add to its credibility with outside bodies, the partner
may be a partner by ________
END OF QUESTION
Type: fill-in-blank
Title: Question 05
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 06
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 07
XX)
One of the drawbacks with trading as a sole trader is that when the sole trader
dies, the business may die with him/her. With a partnership of two people, where
one dies another partner has to be found or the firm wound up or run as a sole
trader/registered as a corporation. The advantage to the limited company is that
once established, it will remain in existence until it is legally wound up, regardless
of who owns or runs the company. This is known as the ________ __________
of a corporation.
END OF QUESTION
Essay Question
'Salomon v Salomon was wrongly decided. Its implications have allowed corporations to defraud
innocent customers and suppliers, and it has facilitated the creation of sham companies with the
protection afforded by the veil of incorporation. Corporations should not possess a legal personality
distinct from those who subscribe to it'
The question is asking for a critique of the ruling in Salomon and the implications of a company
possessing a legal personality separate from the owners and shareholders.
The effects of a company possessing its own legal personality is that it may enter into contracts, sue
and be sued, and commit offences (e.g. corporate manslaughter).
The facts of Salomon should be discussed as should its authority i.e. When correctly formed and
registered (therefore in accordance with the statutory requirements) a company possesses its
own legal personality. This is legally recognized and is separate from the members / directors of
the company.
This case established the importance of the limited company, limiting the liability of the members of the
company to the shares/money owed to the company. Whilst it may have appeared unfair, the
company was correctly registered, and the creditors had been informed of the new status and
hence the potential implications for trading with a limited company.
You may wish to raise wider implications of the ruling such as the veil of incorporation separating the
company from its shareholders.
Separate legal personality affords a distinction between the corporation as an entity and its directors
Page 104 of 157
BAC 2014
and shareholders.
The single biggest feature of the Salomon judgment was of the shareholders limited liability.
The metaphor of the veil identifies a cloak of secrecy / shield of the people behind it the members of
the company are protected from liability for the companys debts.
Further, it transpires that due to the companys separate legal personality, the courts have often been
unwilling to lift the veil and find out what the directors actually did in running the business (what
decisions were taken, and by whom and so on).
Due to this demarcation, it has been said that the veil of incorporation protects the members of the
company.
Whilst the veil is effective, to continue the metaphor, it has been raised by the courts where it has
been deemed relevant. The courts have been notoriously unwilling to establish clear rules as to
when the veil will be lifted, and they have stated that they will not do so merely in the interests of
justice. Further, where one company owns shares in another (subsidiary companies), insofar as
the companies are legally distinct then the courts will not seek to lift the veil (Adams v Cape
Industries Plc).
However, the company must not be established to commit some fraud (Jones v Lipman) or to attempt
to circumvent contractual agreements or the veil will be lifted to identify the true nature of the
undertaking (for example a sham company - Gilford Motor Co. Ltd v Horne).
You may wish to explain the problems arising from separate legal personality when the company goes
into liquidation and the creditors attempt to recover monies. The shareholders liability is limited to
their investment, and the directors may have established some creditors as secured, whilst other
are unsecured with very little scope of recovering money owed. This can have disastrous
financial consequences (particularly for smaller companies).
b.#
c.#
d.#
2. A business has been registered under the name "The Mark Jones
Partnership Co Ltd". What type of business organisation must this be?
a.#
A partnership.
b.#
c.#
d.#
a.#
b.#
c.#
d.#
BAC 2014
(i) only.
b.#
c.#
d.#
Essay Question
We hope you will fully engage with the practice exams as they should provide you with confidence going
into your end of term exam. As these exams will take place throughout the academic year, you will only
be assessed on the materials that you will have already studied.
BAC 2014
21 days.
b.#
15 days.
c.#
28 days.
d.#
14 days.
b.#
21 days.
c.#
28 days.
d.#
14 days.
b.#
c.#
d.#
b.#
i and ii.
c.#
ii and iii.
d.#
i and iv.
Over 25%.
b.#
Over 75%.
c.#
Over 50%.
d.#
Over 85%.
b.#
c.#
d.#
b.#
c.#
It is the opinion of the court that it is just and equitable that the
company should be wound up
d.#
BAC 2014
b.#
c.#
d.#
Fill-in-the-Blank Questions
Type: fill-in-blank
Title: Question 01
XX)
There are two types of meeting which a company may call. An annual general
meeting and a ________ meeting.
END OF QUESTION
Type: fill-in-blank
Title: Question 02
XX)
Where a meeting has been properly requested, the Companies Act 2006 s. 304
requires the director(s) to call a meeting within __days from the date on which
he/she became subject to the requirement.
END OF QUESTION
Type: fill-in-blank
Title: Question 03
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 04
XX)
Where the Companies Act 2006 requires special notice to be given for a
resolution, the resolution is not effective until notice of the intention to move the
resolution at least __ days before the meeting has been provided. However,
where this is not practicable, the company must give its members notice at least
Type: fill-in-blank
Title: Question 05
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 06
XX)
The Companies Act 2006 s. 282 identifies _________ resolutions are those
passed, by a private company, by the members (or a class of the members) with
a simple majority.
END OF QUESTION
Type: fill-in-blank
Title: Question 07
XX)
_______ resolutions are required to be used for certain decisions such as: to
alter the companys articles; alter its name; re-register the company from an
unlimited to a private limited, private to public, or public to private; and to reduce
the companys share capital.
END OF QUESTION
Essay Question
How may the members of the company engage in the management of the company at general
meetings? Explain the rights of the members and how they directly affect the decision-making through
the moving of resolutions.
BAC 2014
Whilst the members of the company delegate the powers of the management of the company to the
directors, who themselves conduct decision-making through powers granted to them and through
their own board meetings, the members themselves take responsibility for moving resolutions of
the company.
There exist two types of meeting that a company may call: The Annual General Meeting (AGM)
and general meetings.
Resolutions may be moved at general meetings insofar as notice of the meeting and the resolution is
given to the members of the company and the meeting is held and conducted in accordance with
the CA 2006 and the companys articles. The calling of these meetings is a power granted to the
directors of a company, however, where the director(s) does not call a meeting and the members
wish one to take place, these members have the power to require the directors to take this action.
The CA 2006 provides details of how the companies must conduct meetings to ensure that resolutions
moved are lawful.
The CA 2006 identifies the quorum necessary at the meeting (the minimum numbers of the companys
members who need to be present to allow resolutions to be effectively moved). A company
limited by shares or by guarantee and having only one member will have reached a quorum
when one qualifying person is present at a meeting. In other cases, and subject to the companys
articles, two qualifying persons present at the meeting are a quorum unless the qualifying
persons are the representatives of the same corporation or the persons are the proxies of the
same member.
A member may be elected to be the chairperson (including a proxy) of the general meeting by a
resolution of the company, but this is subject to the companys articles as who may or may not be
chairperson.
In the case of voting, the companys articles must allow the right for a vote through poll at a general
meeting on any question other than the election of the chairperson or the adjournment of the
meeting.
When a member wishes to exercise his/her right to vote on a poll taken at a general meeting, a
member with more than one vote has the right not to use his/her votes in the same way. This may
be achieved by appointing more than one proxy to vote at the meeting.
The CA 2006 provides the member with the right to appoint another person (the proxy) to exercise any
or all of his/her rights to attend, speak and vote at a meeting of the company.
General Meetings
Every public company must hold an AGM within six months of its financial year-end. The company
must state that the meeting is an AGM, and notice must be provided that such a meeting is to be
called.
The members of the company may require the circulation of resolutions to be moved (or intended to
be moved) at the AGM, and such a resolution may be properly moved unless it would, if passed,
be ineffective (such as being inconsistent with the companys constitution); defamatory of any
person; or if it were frivolous or vexatious.
Resolutions at Meetings
Resolutions are the decisions made at the company meetings. There are various types of resolution
that may be moved by a company. With reference to the resolutions that may be moved by a
private company, a written resolution or one moved at a meeting of the companys members are
available. The benefit of moving a written resolution is that there is no necessity of a meeting of
the members, they are sent the resolution and they sign this resolution if they are in agreement.
A public company must move resolutions at a meeting of the members (or a class of members) and it
may not move written resolutions by a majority using the procedure in CA 2006 ss. 288-300.
However, at common law, such resolutions can be passed if unanimous.
Where the CA 2006 requires a resolution of a company, or of the members (or a class of members)
and the type of resolution required is not specified, it is assumed that an ordinary resolution is
required unless the companys articles requires a higher majority or unanimity. Whilst this does
provide the company with some flexibility, or control over the resolutions to be moved, there are
protections in the CA 2006 to prevent, for example, a director being removed before the expiry of
his/her term of office through a written resolution because the CA 2006 provides for important
safeguards against potential abuse.
BAC 2014
b.#
c.#
d.#
b.#
c.#
d.#
A supreme director.
b.#
An executive director.
c.#
A non-executive director.
d.#
A shadow director.
One.
b.#
Ten.
c.#
Two.
d.#
a.#
Any age.
b.#
16.
c.#
18.
d.#
21.
Preferential creditors.
b.#
c.#
Any shareholder.
d.#
2 years.
b.#
5 years.
c.#
10 years.
d.#
15 years.
(i) only.
b.#
(ii) only.
c.#
d.#
(iii) only.
BAC 2014
b.#
(ii) only.
c.#
d.#
(iii) only.
Fill-in-the-Blank Questions
Type: fill-in-blank
Title: Question 01
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 02
XX)
Companies are required under the Companies Act 2006 to have at least one
director in the case of private companies, and two directors in the case of public
companies. At least one of the directors of the company must be a _______
_______.
END OF QUESTION
Type: fill-in-blank
Title: Question 03
XX)
The Companies Act 2006 established that a director must be at least __ years of
age, although this does not affect the validity of an appointment that is not to take
effect until the person reaches this age.
END OF QUESTION
Type: fill-in-blank
Title: Question 04
XX)
The directors duty to promote the success of the company, codified in the
Companies Act 2006 s.172 was based on the common law duty of the director
acting in ____ ___.
END OF QUESTION
Type: fill-in-blank
Title: Question 05
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 06
XX)
END OF QUESTION
Essay Question
Discuss the implications for directors duties to the company since the enactment of the Companies Act
2006. Explain where the statute has expanded the duties previously established through the common
law, and what steps the company should take to ensure compliance with the Act.
BAC 2014
The CA 2006 had a significant impact on the duties imposed on directors through
codification and extension of duties that, prior to the enactment of CA 2006, had been
developed through the common law.
The provisions under Part 10 A of the CA 2006 (other than the issues of conflict of
interest, the directors residential addresses and age of the directors) came into effect
on the 1st October 2007. The remaining provisions take effect from the 1st October
2008.
Chapter Two of the CA 2006 identifies the duties of the directors and that the duties
under ss. 171 177 are owed by the director to the company (rather than those outside
of the company - JJ Harrison (Properties) Ltd v Harrison [2001]). It provides instructions
as to how these sections are to interpreted when the director ceases to be a director of
the company: such as the duty to avoid conflicts of interest and the duty not to accept
benefits from third parties continues after the director has left office.
Whilst this is a new piece of legislation, s. 170 continues that these general duties
imposed on directors are to be interpreted and applied in the same way as the common
law rules and equitable principles on which they were based.
The director must act in accordance with the companys constitution (now the
articles of association rather than the memorandum) and only exercise powers for the
purposes for which they had been conferred. As such, where authority is provided for a
specific purpose, the power must only be used for this purpose and will not be
extended (even if the director acted in good faith and for the best interests of the
company - Fraser v B N Furman (Productions) Ltd [1967]).
This was based on the common law duty of the director acting in good faith. The
act requires the director to fulfil this requirement in the way he/she considers would be
most likely to promote the success of the company for the benefit of its members as a
whole.
In so doing the director must have regard to the likely consequences of decisions in
the long term; the interests of the companys employees; the need to foster relationship
with outside organisations (suppliers / customers and so on); the impact of the companys
operations on the community and environment; the companys reputation; and the need to
act fairly as between the members of the company.
Duty to Exercise Independent Judgment
The director has an obligation to exercise independent judgment although this will not be
infringed by his/her acting in accordance with an agreement entered into with the company
that restricts the future exercise of discretion by its directors, or in a way authorised by the
constitution of the company.
This codifies existing requirements in the common law, but also reinforces the directors
duty to act for the best interests of the company and, not necessarily, following the
instructions of shareholders whose interests may be selfish and not being made for the
company. This situation comes to prominence, as the shareholders appoint the director,
and where this appointment has been made on a personal basis, the director must remain
independent of the person(s) that made the appointment.
Duty to Exercise Reasonable Care, Skill and Diligence
The director has to exercise reasonable care, skill and diligence. This duty is based on
what a reasonably diligent person with the general knowledge, skills and experience for
carrying out the functions required of the director to the company would consider, and the
general knowledge, skill and experience that the director him/herself actually possess.
A directorship (whether executive or non-executive) of a company is a very important role
involving significant responsibilities, and it should not be accepted without consideration of
the implications of the position and the obligations to the company with reference made
to the CA 2006 and the companys constitution. Diligence was already a common law duty
and requires the director to be vigilant for acts that require appropriate investigations to be
made and questions to be answered. A director will fail in his/her duty by not taking the
appropriate steps when faced with such scenarios.
Duty to Avoid Conflicts of Interest
A director has an obligation to avoid situations where he/she has, or can have, a direct or
indirect interest that conflicts (or has the potential to conflict) with the interests of the
company.
This duty applies particularly to the exploitation of any property, information or opportunity
and it is immaterial whether or not the company could take advantage of the property,
information or opportunity.
Duty not to Accept Benefits from Third Parties
A director of a company is not allowed to accept a benefit from a third party that is due to
he/she being a director of the company and his/her acts or omissions as a director.
Duty to Declare Interest in Proposed Transaction or Arrangement
The director has a duty if in any way, directly or indirectly, he/she has an interest in a
proposed transaction or arrangement with the company. This interest must be declared to
the other directors with specific regard to the nature and extent of the interest. The
declaration may be made in the following way, although others may be used:
(a) at a meeting of the directors, or(b) by notice to the directors in accordance with s. 184
(notice in writing) or s. 185 (general notice).
The declaration must be complete and accurate and if it proves to be, or subsequently
becomes, incomplete and / or inaccurate, then a further declaration is required.
Duty of the Director to Disclose Interests in Contracts
BAC 2014
Beyond the codification of the common law duties imposed on directors, the CA 2006
imposes duties on the director who has an interest (direct or indirect) in a contract or
proposed contract with the company to disclose this. This disclosure must be made as
soon as is reasonably practicable (such as where the matter is first discussed by the
board) and include the nature and extent of the interest, and be made at a meeting of the
directors; or by notice in writing; or by general notice. The provisions of such disclosures
apply to loans, quasi-loans and credit transactions and arrangements.
The directors and the board should take steps, having been made aware of these duties,
to ensure they adhere to the requirements of the Act and the common law. Clear strategies
and guidelines are necessary to ensure compliance.
b.#
c.#
d.#
(i) only.
b.#
c.#
d.#
(iii) only.
b.#
c.#
d.#
Fill-in-the-Blank Question
1.
Essay Questions
1.
Explain the rules laid down in Foss v Harbottle (1843)? Are there any exceptions to
these rules and if so, why were they introduced?
2.
What point of law was confirmed by the case of Pender v Lushington 1877?
3.
Shareholders have the right, and the company is obliged in certain circumstances, to place a resolution
at a general meeting and have this voted upon by the members (the shareholders).
Directors may also be shareholders and they may form a majority and hence would find it relatively easy
to pass through the resolutions that require a simple majority, or even those requiring a 75% majority
(see Foss v Harbottle).
The claim by minority shareholders in Foss failed, but there have been many advances since the case
Page 122 of 157
BAC 2014
was heard, with many exceptions to the rule established that, whilst it remains good law, its usefulness
has been significantly curtailed.
The CA 2006 has introduced protections for minority shareholders where a shareholder may initiate
proceedings against a director on the companys behalf, (a derivative claim) in respect of a cause of
action arising from an actual or proposed act or omission involving negligence, default, breach of duty or
breach of trust by a director of the company.
Note that as claims made through the shareholders are on the companys behalf, any award will be
provided to the company, albeit that the shareholder claimant will be able to recover any expenses
incurred in the action.
In order to use this procedure, the CA 2006 identifies requirements that must be satisfied. The first is that
the member must obtain the courts permission to proceed with his/her action.
The first stage is to determine whether a prima facie case exists against the director. Where this is
satisfied, the case continues and the court may give directions as to the evidence to be provided by the
company, and at the hearing the court may give permission of the claim to continue on the terms it sees
fit; refuse permission and dismiss the claim; or adjourn proceedings and give any directions it thinks fit.
Section 263 identifies situations where permission must be refused, and these occur where the court is
satisfied that:
a.that a person acting in accordance with section 172 (duty to promote the success of the company)
would not seek to continue the claim; or
b.where the cause of action arises from an act or omission that is yet to occur, that the act or omission
has been authorised by the company; or
c. where the cause of action arises from an act or omission that has already occurred, that the act or
omission (i) was authorised by the company before it occurred, or (ii) has been ratified by the company
since it occurred.
Another area of protection available to the minority shareholder, rather than a derivative claim, is
because his/her rights have been unfairly prejudiced by the way in which the company is being run.
Unfair Prejudice
The protection of members against unfair prejudice is contained in Part 30 of the CA 2006 and provides
a right for members to petition a court that the companys affairs are being conducted in a manner that is
likely to unfairly prejudice the interests of members generally, or some part of its members (including at
least him/herself).
The member may also petition on the basis that an actual or proposed act or omission of the company
is or would be so prejudicial. This section of the Act also applies to a person who is not a member of the
company but to whom shares in it have been transferred as they apply to a member of a company.
Where the court is satisfied that the petition is well founded, it is empowered:(a) to order as it thinks fit
relief in respect of the matters complained of such as to regulate the
conduct of the companys affairs in the future, such as altering the articles to prevent future abuses.
(b)(i) to require the company to refrain from doing or continuing an act complained of (for example to
stop directors unusually high salaries that are preventing dividends being provided to the shareholders).
(b)(ii) to do an act that the petitioner has complained it has omitted to do (for example to adhere to
resolutions of the board).
(c) to authorise civil proceedings to be brought in the name of (and on behalf of) the company by such
person(s) and on such terms as the court may direct (for example to avoid the Foss situation and enable
a claim in the companys name, rather than the shareholder).
(e) to provide for the purchase of shares of any members of the company by other members (or by the
company itself); and in the case of purchase by the company, the reduction of the companys share
capital accordingly (as demonstrated in Re London School of Electronics).
This section of the CA 2006 restates the law that had already been included in the CA 1985 and
incorporates a wide range of activities likely to adversely affect shareholders, particularly minority
shareholders.
The directors may be negligent in their management of the company that may, if the facts support it,
lead to unfair prejudice; the directors may pay themselves salaries that reduces or removes
entirely the members dividends (Re Sam Weller & Sons Ltd); shares could be provided to
directors on much more favourable terms than available to members and so on. Many of the
cases based on the unfair prejudice principle have focused on where a major shareholder has
been refused a management role with the company (Re London School of Electronics) or
removed from the board of directors (Ebrahimi v Westbourne Galleries). Where a director (and
shareholder) of a company has been removed so he/she can no longer take an active part in its
management, the court has often ruled that the majority shareholders must purchase the shares
of the removed director (but not necessarily a director who has not been removed and simply
disagrees with the direction of the company - ONeill v Phillips), to allow the affected director to
invest his/her money in another company.
BAC 2014
b.#
c.#
d.#
2. The amount of the nominal share capital that has been paid for by
the company members is called?
a.#
b.#
c.#
d.#
a.#
i only.
b.#
i and iv.
c.#
d.#
Ordinary share
b.#
Special share.
c.#
Preference share.
d.#
Redeemable share.
b.#
c.#
d.#
a.#
(i) only.
b.#
c.#
d.#
(iii) only.
b.#
All new shares issued for cash must be offered to the existing
BAC 2014
d.#
The issued share capital of Wye Ltd is 250,000, and the paid
up capital is 20,000.
b.#
The issued share capital of Wye Ltd is 100,000, and the paid
up capital is 20,000.
c.#
The issued share capital of Wye Ltd is 250,000, and the paid
up capital is 100,000.
d.#
The issued share capital of Wye Ltd is 20,000, and the paid
up capital is 20,000.
b.#
In general, a company can use its share capital for any reason
whatsoever, as long as it ensures that there is sufficient
remaining to meet the companys debts.
c.#
d.#
A company cannot use its share capital and may only return it
to its members with the permission of the court.
Fill-in-the-Blank Questions
Type: fill-in-blank
Title: Question 01
XX)
Where the company is listed on the stock exchange, Listing Rules insist that only
_ per cent of the companys securities can be issued to persons other than
existing shareholders in any year.
END OF QUESTION
Type: fill-in-blank
Title: Question 02
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 03
XX)
END OF QUESTION
Type: fill-in-blank
Title: Question 04
XX)
These are the most common form of shares, and unless different classes of
shares exist, all shares will be _________ shares.
END OF QUESTION
Type: fill-in-blank
Title: Question 05
XX)
___________ preference shares provide the right for a fixed dividend, but if there
are insufficient profits in the given year then there is no payment made. However,
the dividend will carry over to the next year and is added to the dividend that is
applicable to that year.
BAC 2014
END OF QUESTION
Type: fill-in-blank
Title: Question 06
XX)
Where shares are being issued under the Companies Act 2006 s.549, in both
public and private companies, and hence the members have provided their
authority for this action, the company is obliged to offer ordinary shares (not
necessarily preference shares) to the existing members on a proportionate basis
to their existing number of shares held. This right is known as a right of
____________
END OF QUESTION
Essay Question
Explain the process of a company altering its share capital. Provide examples of why a company may
wish to make such an alteration and how the creditors of the company are protected against abuse of
this provision.
Indicative Content Outline Answer
Whilst a private company is not required to have any prescribed amount of share capital, compared
with a public companys requirement of 50,000, it will identify its share capital on formation but
may, at a later date, wish to vary this amount in light of its changing circumstances.
Generally a company is prevented from doing so (s. 617) although there are exceptions where the
company wishes to increase its share capital by allotting new shares; reduce its share capital in
accordance with Chapter 10 of the CA 2006; where it wishes to sub-divide or consolidate all or
any of its shares; where it wishes to reconvert stock into shares; or where it wishes to
redenominate any or all of its shares.
Where a company wishes to allot new shares, a contract has to be established between the parties
that identifies the important information such as the amount of capital involved, when this capital
is to be contributed, the nature and class of the shares to be allotted, and when the shares will
provide the allottee with his/her rights attached to the shares.
Chapter Two of the CA 2006 governs the allotment of shares and identifies the authority of directors
allot.
Where a private company has only one class of share, the director(s) is empowered to allot shares in
the company unless the articles prevent this.
Where a company has more than one class of share, or the company is a Plc, there must be authority
provided by the companys articles or through a resolution of the company. This authority may be
conditional or unconditional, and it must state the maximum amount of shares that may be
allotted, and specify the date on which the power will expire (which must not be more than five
years from the date of incorporation (where the power is from the companys articles) or the date
that the resolution was passed).
To maintain the companys capital, it is not permitted to issue the shares at a discount.
Having allotted shares, the company must inform the Registrar (of Companies) as soon as practicable
and in any event within two months after the date of allotment, and within one month of making
the allotment, the company must deliver to the Registrar a return of allotment detailing the
statement of capital.
Shares may be consolidated for convenience by altering shares that were issued in small
denominations into larger amounts. This does not change the percentage of the total number of
shares.
Sub-dividing is the contrary situation and involves the shares being reduced into smaller
denominations. The company is empowered to make such a change where the members pass
an ordinary resolution to that effect (although the companys articles may require a higher
majority or may exclude or restrict any power conferred by the CA 2006).
If the company does make such a change, it must inform the Registrar within one month of having
made the change along with a statement of capital (detailing the total number of shares of the
company; their nominal value; the amounts of paid and unpaid shares and so on).
Where the shares are to be redenominated, the companys articles may impose restrictions and the
members must pass a resolution authorising this (which may specify conditions that must be met
before the redenomination takes effect).
This will include details such as the exchange rate utilised and the redenomination must take place
within 28 days, ending on the day before the resolution was passed. Following the
redenomination, the company must notify the Registrar of the changes within one month after
doing so, including a statement of capital and, within 15 days of the resolution being passed, a
copy of the resolution. Reduction of Share Capital
A company may seek to reduce its share capital because its assets had permanently decreased in
value, it may be a tactic to eliminate book debts, or to return capital to shareholders where the
capital involved is surplus to the companys requirements and so on.
A private company may achieve a reduction in the share capital by a special resolution supported by a
solvency statement, however, the reduction must still leave at least one member with a share(s)
that is not a redeemable share.
Private and public companies may, through a special resolution confirmed by the court, reduce their
share capital, however, the company may have provisions in the articles that restrict or prohibit
such a reduction.
The private company that wishes to reduce its share capital, supported by a statement of solvency,
requires the directors of the company to make the statement not more than 15 days before the
Page 130 of 157
BAC 2014
date on which the resolution is passed, and the resolution and the statement are registered in
accordance with s. 644.
Where a court confirms the reduction, it may order the company to publish the reasons for the
reduction, or other information that it thinks fit to give proper information to the public. It may also require
the company, where special reasons exists, to add to its name the words and reduced during a period
specified in the courts order. When the court has provided its order confirming the reduction, the
Registrar will register the order and the statement of capital.
b.#
c.#
d.#
b.#
c.#
d.#
b.#
BAC 2014
c.#
d.#
b.#
c.#
d.#
Preferential creditors.
b.#
Unsecured creditors.
c.#
A floating charge.
d.#
A fixed charge.
b.#
c.#
d.#
7. A fixed charge
a.#
b.#
c.#
d.#
Essay Questions
2. What steps can a fixed debenture holder take to enforce their security?
3. What are the various charges that a lender may require to be provided by the company that wishes to
borrow money? Explain the nature of each, their priority, and their effect in the event of the company
being wound up.
Indicative Content
A charge is a contractual agreement in the form of security (on certain assets) on a loan. The borrower
agrees to allow the rights over property to be transferred to the lender on the basis that if the loan is
unpaid, the lender will be able to dispose of the property and secure the return of the loan.
If such a charge is not made, the issue of limited liability may remove the shareholders personal
responsibility to contribute, beyond the value of the shares or any guarantees made, and the
lender, if the borrower (for example a company) has insufficient funds to repay all of its debts, will
have to join the remaining creditors and may not realise all of the money it is owed. Hence
charges are a valuable way in ensuring, as far as possible, that loans are secured on tangible
property.
As the charge involves a security over assets, it may be that the lender wishes to secure (fix) this on
business premises (such as a factory) to ensure that a valuation can be made, and hence the
loan be determined that will ensure the lenders position is secure. There is a second type of
charge that is not attached to any particular asset. These are known as floating charges as they
float over given assets (such as stock). There are advantages to both and it is for the borrower
and lender to identify the most suitable in the circumstances.
Fixed Charges
The nature of a fixed charge is that it is fixed to a particular asset owned by the borrower which may
be real property or personal property and it provides the lender with a proprietary interest over
the asset.
The benefit of the fixed charge for the lender, and a reason why he/she may pursue such a charge in
determining whether to loan money, is the control over the property. It therefore represents the
best form of security.
The borrower may be prevented from selling the property that is subject to the charge until the loan is
Page 134 of 157
BAC 2014
repaid, and the charge remains until the loan is fully repaid. Further, a lender with a fixed charge
is generally considered to be above preferential creditors and creditors who possess floating
charges.
Floating Charges
As opposed to a charge that is fixed to a particular asset, the borrower may apply the charge to a
group of assets (such as the stock with which the company trades).
The benefit for the borrower in this scenario is that he/she is free to trade in the goods / assets subject
to the floating charge, and in the event of non-payment of the loan when it is due, the charge
becomes fixed or crystallises over them. At this stage, the lender has the ability to dispose of the
goods in the same way as someone with a fixed charge.
Crystallisation occurs where a receiver is appointed; if the company goes into administration or is
wound-up; or where an event that was provided for in the contract establishing the floating
charge occurs. Once crystallisation occurs and the assets are traded after this event, the holder
of the charge may bring an action against the party to whom they were transferred.
Clearly, unlike a fixed charge where the charge is applied to a specific asset, the floating charge, by its
nature, does not apply to a specific asset. As such, the borrower appears to be in possession of
the assets and may appear to be more credit worthy than he/she actually is.
To prevent fraud, and perhaps a situation of the borrower attempting to obtain loans on the assets
subject to the floating charge, protection is afforded through a system of registration.
Registration of Charges
Similarly with debentures, a charge must be registered with the Registrar within 21 days of its creation
(s. 870). The company is obliged to provide the Registrar with this information but it is also
possible for the person interested in the registration to register it. The Registrar will then issue a
certificate of registration and include details as to its particulars.
This is because where a charge is not registered, it will be invalid and it will not allow the creditor to
have the right to dispose of the assets to which the charge was to relate.
Priority of Charges
If the charges have been correctly registered, they rank in priority as follows. A fixed charge will rank
higher than existing floating charges unless the existing floating charge has made provision
against this. Fixed charges also have effect from the time they are created. The next level of
charge is a floating charge and this takes effect when it crystallises and attaches to the assets in
the agreement. They will also have priority when the charge was created (hence the first floating
charge will have priority over the last one created over the same asset, unless this is stated to the
contrary).
Preferential creditors take priority over the holders of floating charges, but not over fixed charges.
Preferential creditors include employees who are owed wages and any loan taken to pay the
employees wages. The company will also have to pay any holiday pay due to employees and
any loans from third parties taken for the purpose of paying such costs.
Preferential creditors are paid monies owed before other creditors are paid from the companys assets
(if solvent when wound-up). Where insufficient funds exist to satisfy these debts, they will each
receive a proportion of the debts owed and they rank equally with each other.
We hope you will fully engage with the practice exams as they should provide you with confidence going
into your end of term exam. As these exams will take place throughout the academic year, you will only
be assessed on the materials that you will have already studied.
BAC 2014
This is your opportunity to ask questions regarding any aspect of the topic which you would like to cover.
Please come prepared with the topics and/or questions you would like to cover.
Remember, this is your opportunity to clarify issues before you sit the end of module examination.
This is your opportunity to ask questions regarding any aspect of the topic which you would like to cover.
Please come prepared with the topics and/or questions you would like to cover.
Remember, this is your opportunity to clarify issues before you sit the end of module examination.
BAC 2014