Documente Academic
Documente Profesional
Documente Cultură
Ethical issues may be a matter of law and regulation and accountants are expected to apply them.
The profession requires members to conduct themselves and provide services to the public accordin
g to certain standards. By upholding these standards, the profession's reputation and standing is pro
tected.
Consequences of unethical behaviour include disciplinary action against the accountant by their
employer or CIMA and adverse affects on jobs, financial viability and business efficacy of their
organisation.
Accountants employed in the public sector have a duty to protect tax-payers' money.
TheSevenPrinciplesofPublicLife
Selflessness,Integrity,Objectivity,Accountability,Openness,Honesty,Leadership[HASILO2]
CodeofEthics-'Setofstandardsgoverningtheconductofmembersofacertainprofession,by
specifyingexpected
standardsforcompetence,professionalbehaviourandintegrity'.(CIMAOfficialTerminology)
Compliance-basedapproach(alsoknownasrules-based)-US
Advantages
Rulesarespecifictoeachcircumstance
Encouragesconsistentapplicationofrules
Rulebreachesareclearlyidentifiable
Disadvantages
Longandlengthyrulebooks
Memberscannot'learn'everyrule
Canbeseentoreducememberstorobots,justfollowingasetofrules
Ethics-basedapproach(alsoknownasframework-based)
Advantages
Encouragesproactivemembers,issueshavetobeaddressedratherthanpassivelyfollowingthelaw
Treatsmembersasprofessionalsandenablesthemtomaketheirowndecision
Best-suitedtodealwithcomplexsituationsandevolvingenvironmentswhereitisdifficulttothink
uprulesforevery
possiblecaseMakesitharderformemberstosearchforwaysroundtherules
Disadvantages
Interpretationofrulescanleadtolengthy,complexdisciplinaryhearings
Potentialforinconsistentapplicationofrules
Ambiguousrulesmayconfusemembers
Generalguidelines'maybecomedetailedrulesovertime
Whydevelopanethicalcode?
Communication,ConsistencyofConduct,RiskReduction,CompliancewithU.KCorporateGoverance
Rules
FUNDAMENTALETHICSPRINCIPLES
Integrity:Tobestraightforwardandhonestinallprofessionalandbusinessrelationships
Objectivity:Notallowingbias/conflictofinterest/undueinfluenceofotherstooverride
professional/businessjudgement.
ProfessionalCompetence&DueCare:Tomaintainprofessionalknowledgeandskillatthelevel
requiredtoensurethataclientoremployerreceivescompetentprofessionalservicesbasedoncurrent
developmentsinpractice,legislation&techniquesandactdiligentlyandinaccordancewithapplicable
technicalandprofessionalstandards.
Confidentiality:Torespecttheconfidentialityofinformationacquiredasaresultofprofessionaland
businessrelationshipsand,therefore,notdiscloseanysuchinformationtothirdpartieswithoutproper
andspecificauthority,unlessthereisalegalorprofessionalrightordutytodisclose,norusethe
informationforthepersonaladvantageoftheprofessionalaccountantorthirdparties.
ProfessionalBehaviour:Tocomplywithrelevantlawsandregulationsandavoidanyactionthat
discreditstheprofession.
Thepersonalqualitiesthatanaccountantshoulddemonstrateare:
ReliabilityResponsibilityTimelinessCourtesyRespect
Theprofessionalqualitiesanaccountantshoulddemonstrateare:
IndependenceScepticismAccountabilitySocialresponsibility
corporategovernance
CorporategovernancewasdefinedbytheUKCadburyCommitteeasthesystembywhich
organisationsaredirectedandcontrolled.Inotherwords,howcompaniesarerun.Companieswith
goodgovernancehaveeffectivecontrolsovertheiroperationsandbusinessefficacy,andmanagement
areheldaccountabletostakeholders
Cadbury-BestPracticeGreenbury-DirectorsRemunerationHampel-BestPracticeHiggs-
NonExecutiveDirectorSmith-AuditCommittee
RecommendationsoftheCadburyReport-1992
Boardsoflistedcompaniesshouldincludeindependentnon-executivedirectors.
Anominationcommitteeconsistingofindependentnon-executivedirectorsshouldvetnew
appointmentstotheboard.
Servicecontractsofexecutivedirectorsshouldbelimitedtothreeyearsunlessapprovedby
shareholders.
Aremunerationcommitteeconsistingofmostlynon-executivedirectorsshouldapproveexecutive
directorremuneration.
Anauditcommitteeconsistingofmostlynon-executivedirectorsshouldmonitorthefinancesofthe
company.
TheroleofChairmanandChiefExecutiveshouldnotbeperformedbyonepersontoensurethe
boardisseparatedfrom
thedaytodayrunningofthecompany.
RecommendationsoftheGreenburyReport-1995
TheinterestsoftheshareholdersshouldbeconsideredbytheRemunerationCommitteewhen
settingdirectors'remuneration.
Shareoptionsfordirectorsshouldbedisallowedandannualbonusesshouldnotbepensionable.
Shareholderapprovalshouldbesoughtiflong-termincentivesaregiventodirectors.
Noticeperiodsforexecutivedirectorsshouldnotexceedoneyear.
TheRemunerationCommitteeshouldproduceareportstatingcomplianceornon-compliancetothe
GreenburyReportwhichistobeincludedintheannualreport.
RecommendationsoftheHampelReport-1998
Alldirectors,bothexecutiveandnon-executive,shouldowethesamedutiesandshouldreceive
suitableinformation&instructionastotheirduties.
Executivedirectorsmustbesuitablyexperiencedtounderstandthenatureandinterestsoftheir
company.
Theboardshouldconsistofatleastone-thirdnon-executivedirectorsofwhichthemajorityare
independent.
TherolesofChairmanandChiefExecutiveshouldnotbeperformedbyoneperson.
Nominationcommitteesshouldbeinvolvedinrecommendingnewboardappointmentsanddirectors
shouldbere-electedatleasteverythreeyears.
Directors'remunerationshouldbebasedupontherecommendationsofaremunerationcommittee
consistingentirelyofNED
Remunerationshouldnotbeexcessive.
Servicecontractsofdirectorsshouldbenolongerthantwelvemonths.
TurnbullCommitteeReport1999
Evaluatingsourcesandtypesofriskthatthecompanyisfacedwith.
Providingeffectivesafeguardsandinternalcontrolstomanage,preventorreducetherisks.
Ensuringthetransparencyofinternalcontrolsandprovidinganannualriskassessment.
TheHiggsreport-2003
identifiedtheneedfornon-executivedirectorstoplayanincreasinglyimportantroleintherunning
ofacompany,andthattheboardasawholeshouldacceptcollectiveresponsibilityfortheresultsof
thecompanyanditsactions.Itrecommendedtheuseoftheunitaryboardstructureinsteadof
otherstructurescommoninFrenchandGermancorporations.ThisreportwastheUK'sresponseto
theEnrondisasterintheUSA.
TheSmithReport2003
TheSmithReportproducedguidelinestohelpauditcommitteesperformtheirroleeffectivelyand
alsocontainedessentialrequirementsthatallcommitteesshouldmeet.The'complyorexplain'
principleappliestotheserequirements,butthereportalsostatesthatbestpracticeinvolvesgoing
overandabovetheserequirements.
Symptomsofpoorcorporategovernance
DominationbyasingleindividualLackofinvolvementofboardLackofadequatecontrolfunction
LackofsupervisionLackofindependentscrutinyLackofcontactwithshareholders
Emphasisonshort-termprofitabilityMisleadingaccountsandinformation
Adirectormaybedeterminedasbeingnotindependentifhe/she:
Hasbeenanemployeeofthecompanyorgroupwithinthelastfiveyears;
Has,orhashadwithinthelastthreeyears,amaterialbusinessrelationshipwiththecompany
eitherdirectly,orasapartner,shareholder,directororsenioremployeeofabodythathassucha
relationshipwiththecompany;
Hasreceivedorreceivesadditionalremunerationfromthecompanyapartfromadirector'sfee,
participatesinthecompany'sshareoptionoraperformance-relatedpayscheme,orisamemberof
thecompany'spensionscheme;
Hasclosefamilytieswithanyofthecompany'sadvisers,directorsorsenioremployees;
Representsasignificantshareholder;or
Hasservedontheboardformorethannineyearsfromthedateoftheirfirstelection.
TheNominationCommittee
Thereshouldbeanominationcommitteewhichshouldleadtheprocessforboardappointmentsand
makerecommendationstotheboard.
Over50%ofmembersofthenominationcommitteeshouldbeindependentnon-executive
directors.
Theboardchairmanoranindependentnon-executivedirectorshouldchairthecommittee.
However,theboardchairmanshouldnotchairthenominationcommitteewhenitisdealingwiththe
appointmentofasuccessortothechairmanship.
Thenominationcommitteeshouldmakeavailableitstermsofreference,explainingitsroleandthe
authoritydelegatedtoitbytheboard.
Thenominationcommitteeshouldevaluatethebalanceofskills,knowledgeandexperienceonthe
board.Then,inthelightofthisevaluation,prepareadescriptionoftheroleandcapabilities
requiredforaparticularappointment
Fortheappointmentoftheboardchairman.Thenominationcommitteeshouldprepareajob
specification,includinganassessmentofthetimecommitmentexpected,recognisingtheneedfor
availabilityintheeventofcrises
Achairman'sothersignificantcommitmentsshouldbedisclosedtotheboardbeforeappointment
andincludedintheannualreport.Changestosuchcommitmentsshouldbereportedtotheboard
astheyarise,andincludeinthenextAnnualReport
NoindividualshouldbeappointedtoasecondchairmanshipofaFTSE100company.
Thetermsandconditionsofappointmentofnon-executivedirectorsshouldbemadeavailablefor
inspectionattheregisteredoffice.
Theletterofappointmentfornon-executivedirectorsshouldsetouttheexpectedtime
commitment.Nonexecutivedirectorsshouldundertakethattheywillhavesufficienttimetomeet
whatisexpectedofthem.
Non-executivedirectorsshoulddisclosetheirothersignificantcommitmentstotheboardbefore
appointmentandtheboardshouldbeinformedofsubsequentchanges.
Afulltimeexecutiveshouldnotbeallowedtotakeonmorethanonenon-executivedirectorshipin
aFTSE100companynorthechairmanshipofsuchacompany.
Aseparatesectionoftheannualreportshoulddescribetheworkofthenominationcommittee,
includingtheprocessithasusedinrelationtoboardappointments.
Anexplanationshouldbegivenifneitheranexternalsearchconsultancynoropenadvertisinghas
beenusedintheappointmentofachairmanoranon-executivedirector.
Principlesvsrules
KeyCorporateGovernanceGuidelines(BoDperspective)
Board'sSize
Thenumberoftheboardmembersofthecompanyshallnotbelessthan5(five)andmorethan20
(twenty):
IndependentDirectors
(i)Atleastonefifth(1/5)ofthetotalnumberofdirectorsinthecompanysboard
shallbeindependentdirectors.
(ii)Forthepurposeofthisclauseindependentdirectormeansadirector-
a)whoeitherdoesnotholdanyshareinthecompanyorholdslessthanone
percent(1%)sharesofthetotalpaid-upsharesofthecompany;
b)whoisnotasponsorofthecompanyandisnotconnectedwiththecompanys
anysponsorordirectororshareholderwhoholdsonepercent(1%)ormore
sharesofthetotalpaid-upsharesofthecompanyonthebasisoffamily
relationship.His/herfamilymembersalsoshouldnotholdabovementioned
sharesinthecompany:
Providedthatspouse,son,daughter,father,mother,brother,sister,son-in-law
anddaughter-in-lawshallbeconsideredasfamilymembers;
c)whodoesnothaveanyotherrelationship,whetherpecuniaryorotherwise,
withthecompanyoritssubsidiary/associatedcompanies;
d)whoisnotamember,directororofficerofanystockexchange;
e)whoisnotashareholder,directororofficerofanymemberofstockexchange
oranintermediaryofthecapitalmarket;
f)whoisnotapartneroranexecutiveorwasnotapartneroranexecutive
duringthepreceding3(three)yearsoftheconcernedcompanysstatutory
auditfirm;
g)whoshallnotbeanindependentdirectorinmorethan3(three)listed
companies;
h)whohasnotbeenconvictedbyacourtofcompetentjurisdictionasadefaulter
inpaymentofanyloantoabankoraNon-BankFinancialInstitution(NBFI);
i)whohasnotbeenconvictedforacriminaloffenceinvolvingmoralturpitude.
(ii)theindependentdirector(s)shallbeappointedbytheboardofdirectorsandapproved
bytheshareholdersintheAnnualGeneralMeeting(AGM).
(iii)thepostofindependentdirector(s)cannotremainvacantformorethan90(ninety)
days.
(iv)theBoardshalllaydownacodeofconductofallBoardmembersandannual
complianceofthecodetoberecorded.
(v)thetenureofofficeofanindependentdirectorshallbeforaperiodof3(three)years,
whichmaybeextendedfor1(one)termonly.
(i)IndependentDirectorshallbeaknowledgeableindividualwithintegritywhoisabletoensure
compliancewithfinancial,regulatoryandcorporatelawsandcanmakemeaningfulcontributionto
business.
(ii)ThepersonshouldbeaBusinessLeader/CorporateLeader/Bureaucrat/UniversityTeacherwith
EconomicsorBusinessStudiesorLawbackground/ProfessionalslikeCharteredAccountants,Cost&
ManagementAccountants,CharteredSecretaries.Theindependentdirectormusthaveatleast12
(twelve)yearsofcorporatemanagement/professionalexperiences.
(iii)Inspecialcasestheabovequalificationsmayberelaxedsubjecttopriorapprovalofthe
Commission.
ChairmanoftheBoardandChiefExecutiveOfficer
ThepositionsoftheChairmanoftheBoardandtheChiefExecutiveOfficerofthe
companiesshallbefilledbydifferentindividuals.TheChairmanofthecompanyshallbeelected
fromamongthedirectorsofthecompany.TheBoardofDirectorsshallclearlydefinerespective
rolesandresponsibilitiesoftheChairmanandtheChiefExecutive
Officer.
TheDirectorsReporttoShareholders
ThedirectorsofthecompaniesshallincludethefollowingadditionalstatementsintheDirectors'
Reportpreparedundersection184oftheCompaniesAct,1994(ActNo.XVIIIof1994):-
(i)Industryoutlookandpossiblefuturedevelopmentsintheindustry.
(ii)Segment-wiseorproduct-wiseperformance.
(iii)Risksandconcerns.
(iv)AdiscussiononCostofGoodssold,GrossProfitMarginandNetProfitMargin.
(v)DiscussiononcontinuityofanyExtra-Ordinarygainorloss.
(vi)Basisforrelatedpartytransactions-astatementofallrelatedpartytransactions
shouldbedisclosedintheannualreport.
(vii)Utilizationofproceedsfrompublicissues,rightsissuesand/orthroughanyothers
instruments.
(viii)Anexplanationifthefinancialresultsdeteriorateafterthecompanygoesfor
InitialPublicOffering(IPO),RepeatPublicOffering(RPO),RightsOffer,Direct
Listing,etc.
(ix)IfsignificantvarianceoccursbetweenQuarterlyFinancialperformanceand
AnnualFinancialStatementsthemanagementshallexplainaboutthevarianceon
theirAnnualReport.
(x)Remunerationtodirectorsincludingindependentdirectors.
xi)Thefinancialstatementspreparedbythemanagementoftheissuercompany
presentfairlyitsstateofaffairs,theresultofitsoperations,cashflowsand
changesinequity.
(xii)Properbooksofaccountoftheissuercompanyhavebeenmaintained.
(xiii)Appropriateaccountingpolicieshavebeenconsistentlyappliedinpreparationof
thefinancialstatementsandthattheaccountingestimatesarebasedonreasonable
andprudentjudgment.
(xiv)InternationalAccountingStandards(IAS)/BangladeshAccountingStandards
(BAS)/InternationalFinancialReportingStandards(IFRS)/BangladeshFinancial
ReportingStandards(BFRS),asapplicableinBangladesh,havebeenfollowedin
preparationofthefinancialstatementsandanydeparturethere-fromhasbeen
adequatelydisclosed.
(xv)Thesystemofinternalcontrolissoundindesignandhasbeeneffectively
implementedandmonitored.
(xvi)Therearenosignificantdoubtsupontheissuercompany'sabilitytocontinueasa
goingconcern.Iftheissuercompanyisnotconsideredtobeagoingconcern,the
factalongwithreasonsthereofshouldbedisclosed.
(xvii)Significantdeviationsfromthelastyearsoperatingresultsoftheissuercompany
shallbehighlightedandthereasonsthereofshouldbeexplained.
(xviii)Keyoperatingandfinancialdataofatleastpreceding5(five)yearsshallbe
summarized.
(xix)Iftheissuercompanyhasnotdeclareddividend(cashorstock)fortheyear,the
reasonsthereofshallbegiven.
(xx)ThenumberofBoardmeetingsheldduringtheyearandattendancebyeach
directorshallbedisclosed.
(xxi)Thepatternofshareholdingshallbereportedtodisclosetheaggregatenumberof
shares(alongwithnamewisedetailswherestatedbelow)heldby:-
a)Parent/Subsidiary/AssociatedCompaniesandotherrelatedparties(namewise
details);
b)Directors,ChiefExecutiveOfficer,CompanySecretary,ChiefFinancial
Officer,HeadofInternalAuditandtheirspousesandminorchildren(name
wisedetails);
c)Executives;
d)Shareholdersholdingtenpercent(10%)ormorevotinginterestinthe
company(namewisedetails).
Explanation:Forthepurposeofthisclause,theexpressionexecutivemeanstop
5(five)salariedemployeesofthecompany,otherthantheDirectors,Chief
ExecutiveOfficer,CompanySecretary,ChiefFinancialOfficerandHeadof
InternalAudit.
(xxii)Incaseoftheappointment/re-appointmentofadirectorthecompanyshalldisclose
thefollowinginformationtotheshareholders:-
a)abriefresumeofthedirector;
b)natureofhis/herexpertiseinspecificfunctionalareas;
c)namesofcompaniesinwhichthepersonalsoholdsthedirectorshipandthe
membershipofcommitteesoftheboard.
ConstitutionoftheAuditCommittee
(i)TheAuditCommitteeshallbecomposedofatleast3(three)members.
(ii)TheBoardofDirectorsshallappointmembersoftheAuditCommitteewhoshallbe
directorsofthecompanyandshallincludeatleasttwoindependentdirectors.
(iii)Allmembersoftheauditcommitteeshouldbefinanciallyliterateandatleastonemember
shallhaveaccountingorrelatedfinancialmanagementexperience.
Explanation:Thetermfinanciallyliteratemeanstheabilitytoreadandunderstandthefinancial
statementslikeBalancesheet,IncomeStatementandCashFlowStatementandapersonwillbe
consideredtohaveaccountingorrelatedfinancialmanagementexpertiseif(s)heposses
professionalqualificationoraccounting/financegraduatewithatleast15(fifteen)yearsexperience
incorporatemanagement.
(iv)WhenthetermofserviceoftheCommitteemembersexpiresorthereisanycircumstance
causinganyCommitteemembertobeunabletoholdofficeuntilexpirationofthetermofservice,
thusmakingthenumberoftheCommitteememberstobelowerthantheprescribednumberof3
(three)persons,theBoardofDirectorsshallappointthenewCommitteemember(s)tofillupthe
vacancy(ies)immediatelyornotlaterthan1(one)monthfromthedateofvacancy(ies)inthe
CommitteetoensurecontinuityoftheperformanceofworkoftheAudit
(v)ThecompanysecretaryshallactasthesecretaryoftheCommittee.
ChairmanoftheAuditCommittee
(i)TheBoardofDirectorsshallselect1(one)memberoftheAuditCommitteetobe
ChairmanoftheAuditCommittee,whoshouldbeanindependentdirector
(ii)ChairmanoftheauditcommitteeshallbepresentinAGMtoanswershareholders
queries
RoleofAuditCommittee:
Roleofauditcommitteeshallincludethefollowing:
(i)Overseethefinancialreportingprocess
(ii)Monitorchoiceofaccountingpoliciesandprinciples
(iii)MonitorinternalcontrolRiskManagementprocess
(iv)Overseehiringandperformanceofexternalauditors
(v)Reviewalongwiththemanagement,theannualfinancialstatementbeforesubmission
totheboardforapproval
(vi)Reviewalongwiththemanagement,thequarterlyandhalfyearlyfinancialstatement
belowbeforesubmissiontotheboardforapproval
(vii)Reviewtheadequacyofinternalauditfunction
(viii)Reviewstatementofsignificantrelatedpartytransactionssubmittedbymanagement
(ix)ReviewManagementLetters/Letterofinternalcontrolweaknessissuedbystatutory
auditors
(x)Appointment,removalandfixesthetermsofreferenceofinternalauditor
ReportingoftheAuditCommittee
ReportingtotheBoardofDirectors
(i)TheAuditCommitteeshallreportonitsactivitiestotheBoardofDirectors.
(ii)TheAuditCommitteeshallimmediatelyreporttotheBoardofDirectorsonthe
followingfindings,ifany:-
a)Reportonconflictsofinterests
b)Suspectedorpresumedfraudorirregularityormaterialdefectintheinternal
controlsystem;
c)Suspectedinfringementoflaws,includingsecuritiesrelatedlaws,rulesand
regulations;and
d)AnyothermatterwhichshallbedisclosedtotheBoardofDirectorsimmediately.
REMUNERATIONCOMMITTEE
(i)ThecompanyshallhaveaRemunerationCommitteeasasub-committeeofthe
BoardofDirectors.
(ii)TheRemunerationCommitteeshallsubmittheproposalofremunerationofall
thedirectorsincludingchairman,chiefexecutive,advisorsandconsultantsto
theBoardofDirectors.IftheBoardofDirectorsdifferswiththeproposalof
remunerationpresentedbytheRemunerationCommitteethenthereasonof
differencewillbementionedintheAnnualReport.
(iii)TheRemunerationCommitteeshallberesponsibletotheBoardofDirectors.
ThedutiesoftheRemunerationCommitteeshallbeclearlysetforthinwriting
ConstitutionofRemunerationCommittee
(i)TheRemunerationCommitteeshallbecomposedofatleast3(three)members.
(ii)TheBoardofDirectorsshallappointmembersoftheRemunerationCommitteewhoshallbe
directorsofthecompanyandshallincludeatleastoneindependentdirector.
(iii)WhenthetermofserviceoftheCommitteemembersexpiresorthereisanycircumstance
causinganyCommitteemembertobeunabletoholdofficeuntilexpirationofthetermofservice,
thusmakingthenumberoftheCommitteememberstobelowerthantheprescribednumberof3
(three)persons,theBoardofDirectorsshallappointthenewCommitteemember(s)tofillupthe
vacancy(ies)immediatelyornotlaterthan1(one)monthfromthedateofvacancy(ies)inthe
CommitteetoensurecontinuityoftheperformanceofworkoftheRemunerationCommittee.
ChairmanoftheRemunerationCommittee
TheBoardofDirectorsshallselect1(one)memberoftheRemunerationCommitteeto
beChairmanoftheRemunerationCommittee.
ReportingoftheRemunerationCommittee
TheRemunerationCommitteeshallreportitsactivitiestotheBoardofDirectors.
PrinciplesofCorporateGovernance
FairnessAccountabilityResponsibilityTransparency
Fairness
Fairnessreferstoequaltreatment,forexample,allshareholdersshouldreceiveequalconsideration
forwhatevershareholdingstheyhold.IntheUKthisisprotectedbytheCompaniesAct2006(CA
06).However,somecompaniesprefertohaveashareholderagreement,whichcanincludemore
extensiveandeffectiveminorityprotection.
Inadditiontoshareholders,thereshouldalsobefairnessinthetreatmentofallstakeholders
includingemployees,communitiesandpublicofficials.Thefairertheentityappearstostakeholders,
themorelikelyitisthatitcansurvivethepressureofinterestedparties.
Accountability
Corporateaccountabilityreferstotheobligationandresponsibilitytogiveanexplanationorreasonfor
thecompanysactionsandconduct.Inbrief:
Theboardshouldpresentabalancedandunderstandableassessmentofthecompanysposition
andprospects;
Theboardisresponsiblefordeterminingthenatureandextentofthesignificantrisksitiswillingto
take;
Theboardshouldmaintainsoundriskmanagementandinternalcontrolsystems;
Theboardshouldestablishformalandtransparentarrangementsforcorporatereportingandrisk
managementandformaintaininganappropriaterelationshipwiththecompanysauditor,and
Theboardshouldcommunicatewithstakeholdersatregularintervals,afair,balancedand
understandableassessmentofhowthecompanyisachievingitsbusinesspurpose.
Responsibility
TheBoardofDirectorsaregivenauthoritytoactonbehalfofthecompany.Theyshouldtherefore
acceptfullresponsibilityforthepowersthatitisgivenandtheauthoritythatitexercises.TheBoardof
Directorsareresponsibleforoverseeingthemanagementofthebusiness,affairsofthecompany,
appointingthechiefexecutiveandmonitoringtheperformanceofthecompany.Indoingso,itis
requiredtoactinthebestinterestsofthecompany.Accountabilitygoeshandinhandwith
responsibility.TheBoardofDirectorsshouldbemadeaccountabletotheshareholdersforthewayin
whichthecompanyhascarried
Transparency
Aprincipleofgoodgovernanceisthatstakeholdersshouldbeinformedaboutthecompanys
activities,whatitplanstodointhefutureandanyrisksinvolvedinitsbusinessstrategies.
Transparencymeansopenness,awillingnessbythecompanytoprovideclearinformationto
shareholdersandotherstakeholders.Forexample,transparencyreferstotheopennessand
willingnesstodisclosefinancialperformancefigureswhicharetruthfulandaccurate.
Disclosureofmaterialmattersconcerningtheorganisationsperformanceandactivitiesshouldbe
timelyandaccuratetoensurethatallinvestorshaveaccesstoclear,factualinformationwhich
accuratelyreflectsthefinancial,socialandenvironmentalpositionoftheorganisation.
Organisationsshouldclarifyandmakepubliclyknowntherolesandresponsibilitiesoftheboardand
managementtoprovideshareholderswithalevelofaccountability.
Transparencyensuresthatstakeholderscanhaveconfidenceinthedecision-makingand
managementprocessesofacompany.
BenefitsOfCorporateGovernance
Strongcorporategovernancemaintainsinvestorsconfidence,whosesupportcanhelptofinance
furthergrowth.Companieswhoimplementtheprinciplesofgoodcorporategovernanceinto
workingenvironemntlifewillensurecorporatesuccessandeconomicgrowth.Theyarethebasison
whichcompaniescangrow.
NED
Anon-executivedirectordoesnothaveafunctiontoperforminacompany'smanagement
butisinvolvedinitsgoverance
ThemaintasksoftheNEDsareasfollows:
Contributeanindependentviewtotheboard'sdeliberations
Helptheboardprovidethecompanywitheffectiveleadership
Ensurethecontinuingeffectivenessoftheexecutivedirectorsandmanagement
Ensurehighstandardsoffinancialprobityonthepartofthecompany
THEEND
Ashareis'theinterestofashareholderinthecompanymeasuredbyasumofmoney,forthepurposeofa
liabilityinthefirstplace,andofinterestinthesecond,butalsoconsistingofaseriesofmutualcovenants
enteredintobyalltheshareholders.
Ceasingtobeamember
Amemberceasestobeamemberinanyofthefollowingcircumstances.
Hetransfersallhissharestoanotherpersonandthetransferisregistered.
Thememberdies.
Thesharesofabankruptmemberareregisteredinthenameofhistrustee.
Amemberwhoisaminorrepudiateshisshares.
Thetrusteeofabankruptmemberdisclaimshisshares.
Thecompanyforfeitsoracceptsthesurrenderofshares.
Thecompanysellstheminexerciseofalien.
Thecompanyisdissolvedandceasestoexist.
ThestatementofcapitalShouldinclude:
(a)Thetotalnumberofsharesofthecompany
(b)Theaggregatenominalvalueoftheshares
(c)Foreachclassofshare:
(i)Theprescribedparticularsofanyrightsattached
(ii)Thetotalnumberofsharesintheclass
(iii)Theaggregatenominalvalueofsharesintheclass
(d)Theamountpaidupandtheamount(ifany)unpaidoneachshare,eitheronaccountofthenominal
valueoftheshareorbywayofpremium.
(e)Informationthatidentifiesthesubscriberstothememorandumofassociation.
(f)Inrespectofeachsubscriber,thenumber,nominalvalueandclassofsharestakenbythemon
formationandtheamounttobepaidup.
BENEFITSOFPREFERENCESHARE
Thereareseveralbenefitsofapreferencesharefromthepointofviewofacompanywhichis
discussedbelow:
NoLegalObligationforDividendPayment:Thereisnocompulsionofpaymentofpreference
dividendbecausenonpaymentofdividenddoesnotamounttobankruptcy.Thisdividendisnotafixed
liabilityliketheinterestonthedebtwhichhastobepaidinallcircumstances.
ImprovesBorrowingCapacity:Preferencesharesbecomeapartofnetworthandthereforereduces
debttoequityratio.Thisishowtheoverallborrowingcapacityofthecompanyincreases.
Nodilutionincontrol:Issueofpreferencesharedoesnotleadtodilutionincontrolofexistingequity
shareholdersbecausethevotingrightsarenotattachedtotheissueofpreferencesharecapital.The
preferenceshareholdersinvesttheircapitalwithfixeddividendpercentagebuttheydonotgetcontrol
rightswiththem.
NoChargeonAssets:Whiletakingatermloansecurityneedstobegiventothefinancialinstitution
intheformofprimarysecurityandcollateralsecurity.Therearenosuchrequirementsandtherefore,
thecompanygetstherequiredmoneyandtheassetsalsoremainfreeofanykindofchargeonthem.
DISADVANTAGESOFPREFERENCESHARES
CostlySourceofFinance:Preferencesharesareconsideredaverycostlysourceoffinancewhichis
apparentlyseenwhentheyarecomparedwithdebtasasourceoffinance.Theinterestonthedebtisa
tax-deductibleexpensewhereasthedividendofpreferencesharesispaidoutofthedivisibleprofitsof
thecompanyi.e.profitaftertaxesandallotherexpenses.Forexample,thedividendonpreference
shareis9%andaninterestrateondebtis10%withaprevailingtaxrateof50%.Theeffectivecostof
preferenceissamei.e.9%butthatofthedebtis5%{10%*(1-50%)}.Thetaxshieldisthemain
elementwhichmakesallthedifference.Innotaxregime,thepreferencesharewouldbecomparableto
debtbutsuchascenarioisjustanimagination.
SkippingDividendDisregardMarketImage:Skippingofdividendpaymentmaynotharmthe
companylegallybutitwouldalwayscreateadentontheimageofthecompany.Whileapplyingfor
somekindofdebtoranyotherkindoffinance,thelenderwouldhavethisasamajorconcern.Under
suchasituation,countingskippingofdividendasanadvantageisjustafancy.Practically,acompany
cannotaffordtotakesucharisk.
PreferenceinClaims:Preferenceshareholdersenjoyasimilarsituationlikethatofanequity
shareholderbutstillgetsapreferenceinbothpaymentsoftheirfixeddividendandclaimonassetsat
thetimeofliquidation.
FromthepointofviewofaShare-Holder:
Preferencesharescarryanumberofbenefitsforbothcompaniesandinvestors.Thechiefbenefitforshareholdersisthat
preferenceshareshaveafixeddividendthatmustbepaidbeforeanydividendscanbepaidtocommonshareholders.
Whiledividendsareonlypaidifthecompanyturnsaprofit,sometypesofpreferenceshares(calledcumulativeshares)
allowfortheaccumulationofunpaiddividends.Oncethebusinessisbackintheblack,allunpaiddividendsmustbe
remittedtopreferredshareholdersbeforeanydividendscanbepaidtocommonshareholders.
Inaddition,intheeventofbankruptcyandliquidation,preferredshareholdershaveahigherclaimoncompanyassets
thancommonshareholders.Thismakespreferenceshares,alsocalledpreferredshares,particularlyenticingtoinvestors
withlowrisktolerance.Thecompanyguaranteesadividendeachyear,butifitfailstoturnaprofitandmustshutdown,
preferenceshareholdersarecompensatedfortheirinvestmentssooner.
Othertypesofpreferencesharescarryadditionalbenefits.Convertiblesharesallowtheshareholdertotradeinpreference
sharesforafixednumberofcommonshares.Thiscanbealucrativeoptionifthevalueofcommonsharesbeginsto
climb.Participatingsharesoffertheshareholdertheopportunitytoenjoyadditionaldividendsabovethefixedrateifthe
companymeetscertainpredeterminedprofittargets.Thevarietyofpreferencesharesavailableandtheirattendant
benefitsmeansthatthistypeofinvestmentcanbearelativelylow-riskwaytogeneratelong-termincome.
Loancapitalcomprisesallthelongertermborrowingofacompany.Itisdistinguishedfromsharecapital
bythefactthat,atsomepoint,borrowingmustberepaid.Sharecapitalontheotherhandisonlyreturned
toshareholderswhenthecompanyiswoundup.
ADebentureisthewrittenacknowledgementofadebtbyacompany,normallycontainingprovisionsas
topaymentofinterestandthetermsofrepaymentofprincipal.Adebenturemaybesecuredonsomeor
alloftheassetsofthecompanyoritssubsidiaries.
ShareholderVDebentureholder
Is a proprietor or owner of the company
May vote at general meetings
Shares may not be issued at a discount to nominal value
Dividends are only paid
Out of distributable profits
When directors declare them
Statutory restrictions on redeeming shares
Shareholders are the last people to be paid in a winding up
In Contrast Debentureholder :
Is a creditor of the company
May not vote
Debentures may be offered at a discount to nominal value
Interest must be paid when it is due
No restriction on redeeming debentures
Debentures must be paid back before shareholders are paid
Advantages&DisadvantageofDebenture(CompanyPerspective)
Easilytraded
Termsclearandspecific
Assetssubjecttoafloatingchargemaybetraded
Popularduetoguaranteedincome
Interesttax-deductible
Norestrictionsonissueorpurchasebyacompany
Mayhavetopayhighinterestratestomakethemattractive
Interestpaymentsmandatory
Interestpaymentsmayupsetshareholdersifdividendsfall
Debentureholder'sremediesofliquidatorsorreceivers
maybedisastrousforthecompany
Crystallisationofafloatingchargecancausetrading
difficultiesforacompany
JudicialsystemofBangladesh
ThejudicialsystemofBangladeshcomprisestheSupremeCourt,thesubordinatecourtsandthetribunal
courts.ThejudicialsystemisstructuredbasedupontheBritishjudicialsystem.
TheSupremeCourtofBangladesh
TheSupremeCourtBangladeshinisclassifiedintotwodivisions,theHighCourtandtheAppellateCourt.
TheAppellateCourtdecidesoverappealsagainstthedecisionstakenbytheHighCourt.TheAppellateCourt
hassupremepowersofdraftingnewamendmentsoradditionsinthelaw.
TheHighCourtisgivenindependentpowersandjurisdictionbytheConstitutionofBangladesh.ThustheHigh
Court,thoughbeingthesubdivisionofSupremeCourt,workscompletelyinitsownstyleandfollowsdifferent
lawsthantheSupremeCourt.TheHighCourthearsoriginallegalmattersaswellasappealsagainstthe
subordinatecourtjudgments.
TheHighCourthasbeenassignedauthoritytocontrolandadministerallthelowerCourtsandtribunals.
TheSubordinateCourtsandTribunals
TheSubordinateCourtsarethebasiccourtsofthejudicialsysteminBangladesh.Thesesubordinatecourtscan
beclassifiedbroadlyas1)CriminalCourtsand2)CivilCourts.
Thesearefurthersubdividedas:
1)CriminalCourts:
SessionsCourts
MetropolitanSessionCourts
SpecialCriminalCourts
MetropolitanMagistrateCourts
MagistrateCourts
2)CivilCourts:
AssistantJudgeCourt
SeniorassistantJudgeCourt
JointDistrictJudgeCourt
AdditionalDistrictJudgeCourt
DistrictJudgeCourt
FamilyCourt
MoneyloanCourt
BankruptcyCourt
Criminalcourtsdealwithseriouscriminaloffenses,someofwhichmayevenleadtoadeathsentence.The
SessionCourtshavethreelayersofJudges:namely,SessionsJudges,AdditionalSessionJudges,andJoint
SessionJudges.TheSessionJudgeandtheAdditionalSessionJudgehavemorepowersthantheJointSession
Judge.TheSessionCourtJudgesalsohearcivilmatters.
TheMetropolitanSessionCourtJudgesonlydeliverjudgmentsovercriminalmatters.Suchcourtsalsohavea
systemforprovidingjusticeinlessertimeascomparedtotheregularsystem,whichmaytaketenormoreyears
forresolvingsuchcriminalmatters.TheMetropolitanSessionCourtsofBangladesharelocatedatDhakaand
Chittagong.
ThedifferenttypesoftribunalcourtsinBangladeshincludebutarenotlimitedto:incometax,administrative,
election,andpublicsafetytribunals.
General stages and relevant processes of listing with Stock Exchanges (DSE/CSE) in Bangladesh through IPO
Decision to go Public Prepare Draft Prospectus Apply to BSEC for Public Offer: Bidding by EIIs (for Book Building only): IPO
Approved Subscription andLottery Listing Approval by the Exchanges: Allotment and Refund: Credit Share/Units:
Commencement of Trading of scrips on the Bourse(s):
Decision to go Public:
oTakeBoarddecisiontogopublic
oAppointIssueManager(s)fromBangladeshSecuritiesandExchangeCommission(BSEC)
approvedlist
oDecidemethodofIPOwithassistancefromIssueManagerFixedPriceorBookBuilding
oIncaseofIPOunderBookBuilding-GetAccountsauditedbyBSECapprovedPanelofAuditors
oInitiateprocessforcreditrating-MandatoryforBank,Insurance,NBFIandanyissuewithofferprice
atpremium
oDevelopaCompanyWebsitewithpublicationsofCompanyFinancials
IPO Approved:
oCollectapprovalletterissuedfromBSEC
oPrintAbridgedversionoftheapprovedandvettedprospectusinwidelycirculatedtwoBengaliandtwo
EnglishNewsPapers
oPublishSoftCopyofvettedProspectusonCompanyWebsite
oApplyforListingwithExchangesinaccordancewithregulationsoftheListingRegulationsofthe
Exchanges
oAppointaPostIssueManager(customsnotmandatory)
Credit Share/Units:
oIflistingisapprovedbytheExchange,issuershallapplytoCDBLforcreditingtradableshares/unitsas
perallotment.
AcompanysArticlesof
AcompanysArticlesofAssociation Associationmayprovidethat
TheCompaniesActprovidesthataDirectorcanbe
normallyprovidefortheappointmentof one-thirdofthedirectors(or
removedduringtheirtermofofficebyanordinary
directorsbyordinaryresolutionofasimple thenearestwholenumber)
resolutionatageneralmeeting.
majorityoftheshareholders. mustretirebyrotationat
eachAGM.
Iftwoormorepersonswere
originallyappointedonthe
TheBoardofDirectorsmayalsoappoint Aleast21daysnoticemustbegiveninrelationto
sameday,thosetoretire
additionaldirectorstofillacasualvacancy. theresolutionproposingtoremoveadirector.
shouldbeagreedbetween
themordeterminedbylot.
Itisimportanttonotethatthedirectormustbegiven
Abankruptoracompanysauditorcannot theopportunitytospeakatthemeetingandmust
actasadirectorofacompany,norcanan receiveacopyofthenoticeoftheresolution.The
undischarged. directorisalsoentitledtomakerepresentationsin
writingtothecompanyuponreceiptofthenotice.
TheCompaniesActprovidesthatadirector Thedirectorsretiringcan
appointedbytheBoardofDirectorsmust offerthemselvesfor
seekre-electionatthenextAnnual reelectionatTheAGM
GeneralMeeting(AGM).Thisregulation Whereadirectorisappointedforlifebyacompanys
maybeexcludedbytheArticlesofasmall ArticlesofAssociation,suchadirectorcanonlybe
privatecompany. removedifthecorrectprocedureforthealterationof
theArticlesofAssociationisfollowed.
There-electionisadditionalandnottaken
intoaccountincalculatingwhichdirectors
retirebyrotation.
TheBasicRightsofShareholder ProtectionofMinorityRights:
Theminorityshareholdersshouldbeprotectedfrom
1)Recognitionofbasicshareholderrights theunjustorunfairconductofthemajority
2)Shareholdershavetherightto shareholders.Themostimpressivethingofthis
participateindecisionsconcerning poweristhepermissiontogotothecourtto
fundamentalcorporatechanges preventionofoppressionormismanagement.
3)Votingrightsofshareholders
4)Disclosureofdisproportionatevoting
rightsofcertainshareholderstoobtaina
degreeofcontrol Theminorityshareholdersareprotectedunder:
5)Marketsforcorporatecontrolshouldbe
allowedtofunction Thecommonlaw
6)Shareholdersshouldconsiderthecosts
andbenefitsofexercisingtheirvoting Theprovisionofthecompaniesact
rights.
Thequalifications,powersanddutiesofthecompanysecretary
Company Secretary
Everycompanyisrequiredtohaveacompanysecretary.Thecompanysecretaryactsinaccordancewiththedirectors
instructions.Acompanysecretarysmainfunctionsaretooverseethecompanysdaytodayadministrationandtoensure
specificallythatthecompanycomplieswiththelawandobservesitsownregulations.Everypersonshould,onorbefore
appointmentasacompanysecretary,familiarisethemselveswiththedutiesandobligationsattachingtotheposition.
1. Acceptance of an offer may only be made by a person authorised to do so. This will usually be the offeree
or his authorised agents.
PowellvLee1908
Thefacts:Theclaimantwasappointedtoapostofheadmasterbutwasinformedoftheappointmentbyan
unauthorisedmanager.
Later,itwasdecidedtogivetheposttosomeoneelse.Theclaimantsuedforbreachofcontract.
Decision:Sincecommunicationofacceptancewasunauthorised,therewasnovalidagreementandhence
nocontract.
2. Acceptance may be by express words, by action or inferred from conduct but there must be some act on
the part of the offeree to indicate his acceptance.
Bryen&LangleyLtdvBoston2005
Thefacts:Atenderforbuildingworkwasnotsigned,butonthebasisofanagreementmade,thebuilding
workwasstarted.
Decision:Abindingcontractexistedasthecommencementofthebuildingworkwasapositiveact,enough
toimplyacceptance.
WhatismeantbytheUberrimaefideicontracts?Whattypeofcontractcomewithintheclassof
Uberrimaefideicontracts?
Uberrimae fidei contracts are contracts where law imposes upon the parties the duty of making a full
disclosure of all material facts.
ThefollowingtypesofcontractcomewithintheclassofUberrimaefidei:
1.ContractsofInsurance
2.Fiduciaryrelationship
3.Contractsforthesaleofimmovableproperty
4.Allotmentofsharesofcompanies
5.Familysettlement
Whenaretheconsiderationandtheobjectofanagreementunlawful?
Theconsiderationandtheobjectofanagreementareunlawfulinthefollowingcases:
1.Ifitisforbiddenbylaw.
2.Ifitisofsuchanaturethat,ifpermitted,itwoulddefeattheprovisionofanylaw.
3.Ifitisfraudulent.
4.Ifitinvolvesorimpliesinjurytothepersonorpropertyofanother.
5.Ifthecourtregardsitasimmoral.
6.Ifthecourtregardsitasopposedtopublicpolicy.
Whatdoyoumeanbywager?Whatarethecharacteristicsofawageragreement?
A wager is an agreement by which money is payable by one person to another on the happening or non
happening of a future, uncertain event.
Thecharacteristicsofawageragreementaregivenbelow:
1.Theconsiderationforthepromiseunderawageringagreementistopayorgetmoney.
2.Themoneyispayableonthehappeningorthenon-happeningofanevent.
3.Theagreementdependsonafutureanduncertainevent.
4.Theessenceofgamingandwageringisthatonepartyistowinandtheotherloses.
5.Inwageringagreementnopartyhascontrolovertheevent.
6.Commercialtransactionsarevalid,buttopaypricedifferencesinawageringagreementisvoid.
Whicharethetransactionsnotwagers?
a)Shares.
b)Gamesofskill.
c)Astatutoryexception.
d)ContractofInsurance.
Whatdoyoumeanbycontractofindemnity?
Acontractofindemnityisacontractbywhichonepartypromisestosavetheotherpartyfromlosscaused
tohimbytheconductofthepromisorhimself,orbytheconductofanyotherperson.
Thedoctrine(principle)ofCaveatEmptor
CaveatEmptorisaLatinexpressionwhichmeansbuyersbeware.Thedoctrineofcaveatemptormeans
that,ordinarily,abuyermustbuygoodsaftersatisfyinghimselfoftheirqualityandfitness.Ifhemakesa
badchoicehecannotblametheseller.Therulesprobablyoriginatedatatimewhengoodsweremostlysold
inmarketovert(open)andthebuyerhadtodependuponownskillandjudgment.
Exceptions:
1.Wherethebuyerreliesupontheskillandjudgmentoftheseller.
2.Wherebycustomanimpliedconditionoffitnessisannexedtoacontractofsale(e.g.juiceinthe
containershouldbekeptwithmerchantablequality)
3.Wherethereisasaleofgoodsbydescriptionthereisanimpliedconditionthatthegoodsarefitforsale.
4.Wherethesellerisguiltyoffraudthesellerisnotprotectedbythedoctrineofcaveat.
ComparisonbetweenlawsofEnglishandBangladeshi
ConsiderationinBangladeshilawdiffersintwoimportantaspectsfromthatinEnglishlaw,
namely:
(i)InBangladeshilawpastconsiderationisagoodconsideration.InSinhavs.Abraham
itwasheldthatanagreementwhichwasforcompensatingpastservicesrenderedby
theplaintifftothedefendantwasavalidone.
(ii)Considerationmaymoveeitherfromthepromiseorfromsomeoneotherthanthe
promisee.ThusinChinnyavs.Ratnyyo,A,byadeedofgift,madeoveracertain
propertytoherdaughteronconditionthatthedaughtershouldpayanannuitytoA's
brotherashadbeendonebyA.Onthesamedatethedaughterpromisedinwritingto
paythesaidannuity.
Thedaughterhavingsubsequentlydeclinedtofulfillherpromise,thebrothersuedthedaughter
torecovertheamountdueundertheagreement.Itwascontendedbythedaughterthatno
considerationproceededfromthebrotherandthathe,beingastrangertotheconsideration,had
norighttosue.Itwasheldthatthe"considerationindirectlymovedfromthebrothertothe
daughter"andthathewas,therefore,entitledtomaintainthesuit.
ChapterRoundUP
Avalidcontractisalegallybindingagreement,formedbythemutualconsentoftwoparties.
Thelawseekstoprotecttheideaof'freedomofcontract',althoughcontractualtermsmayberegulated
bystatute,particularlywherethepartiesareofunequalbargainingstrength.
Althoughmostcontractsmaybemadeinanyform,somemustbemadeinaparticularform.Anumberof
commercialcontractsmustbemadeinwriting,forexample.
Thefirstessentialelementofabindingcontractisagreement.Thisisusuallyevidencedbyofferand
acceptance.Anofferisadefinitepromisetobeboundonspecificterms,andmustbedistinguishedfrom
themeresupplyofinformationandfromaninvitationtotreat.Acceptancemustbeunqualifiedagreement
toallthetermsoftheoffer.Acounter-offerisarejectionoftheoriginaloffer.
Acceptanceisgenerallynoteffectiveuntilcommunicatedtotheofferor,theprincipalexceptionbeing
wherethe'postalrule'applies.Inwhichcase,acceptanceiscompleteandeffectiveassoonasnoticeofitis
posted.
Thepostalrulestatesthat,wheretheuseofthepostiswithinthecontemplationofboththeparties,
acceptanceiscompleteandeffectiveassoonasaletterisposted.Thisiseventhoughitmaybedelayedor
evenlostaltogetherinthepost.
Considerationiswhateachpartybringstoacontract.Itisusuallyapromiseinreturnforanactor
anotherpromise.
Considerationneednotbeadequate,butitmustbesufficient.Thismeansthatwhatistenderedas
considerationmustbecapableinlawofbeingregardedasconsideration,butneednotnecessarilybeequal
invaluetotheconsiderationreceivedinreturn.
TheprincipleofpromissoryestoppelwasdevelopedinCentralLondonPropertyTrustvHighTreesHouse
1947.Itmeansthatinsomecases,wheresomeonehasmadeapromisetheycanbepreventedfrom
denyingit..
Asageneralrule,onlyapersonwhoisapartytoacontracthasenforceablerightsorobligationsunderit.
Thisisthedoctrineofprivityofcontract,asdemonstratedinDunlopvSelfridge1915.
Bothpartiestoacontractmustintendtheagreementtogiverisetolegalobligations.Theirintentions
maybeexpress'thisagreementisnotsubjecttolegaljurisdiction'ormaybeinferredfromthe
circumstances.
Social,domesticandfamilyarrangementsarenotassumedtobelegallybindingunlessthecontraryis
clearlyshown.
Commercialagreementsareassumedtobelegallybindingunlessthecontraryisclearlydemonstrated.
Acontractenteredintofollowingamisrepresentationisvoidablebythepersontowhomthe
misrepresentationwasmade.Amisrepresentationisastatementoffact,givenbeforethecontractismade,
whichisuntrueandmadebyonepartytotheotherinordertoinducethelattertoenterintothe
agreement.
Fraudulentmisrepresentationisastatementmadeknowingittobeuntrue,notbelievingittobetrueor
carelesswhetheritbetrueorfalse.DerryvPeak
Negligentmisrepresentationisastatementmadeinthebeliefthatitistruebutwithoutreasonable
groundsforthatbelief.HowardMarinevOgden
Innocentmisrepresentation,theresidualcategory,isanystatementmadeinthebeliefthatitistrueand
withreasonablegroundsforthatbelief.LeafvInternationalGalleries
Theobligationsofthepartiesmayalsobedischargedbyagreement.
Ifthepartiestothecontractassumed,atthetimeoftheagreement,thatcertainunderlyingconditions
wouldcontinue,thecontractisdischargedbyfrustrationiftheseassumptionsprovetobefalse.Thisis
becausethecontractisfundamentallydifferentinnaturefromtheoriginalagreement.
ThecommonlawconsequencesoffrustrationaremodifiedbytheLawReform(FrustratedContracts)Act
1943,whichregulatestherightsandobligationsofthepartiestoacontractdischargedbyfrustration.
Breachofaconditioninacontractmayleadtotheentireagreementbeingdischargedbyfundamental
breach,unlesstheinjuredpartyelectstotreatthecontractascontinuingandmerelyclaimdamagesforhis
loss.
Ifthereisanticipatorybreach(onepartydeclaresinadvancethattheywillnotperformtheirsideofthe
bargainwhenthetimeforperformancearrives)theotherpartymaytreatthecontractasdischarged
forthwith,orcontinuewiththeirobligationsuntilactualbreachoccurs.Theirclaimfordamageswillthen
dependuponwhattheyhaveactuallylost.
Damagesareacommonlawremedyintendedtorestorethepartywhohassufferedlosstotheposition
theywouldhavebeeninhadthecontractbeenperformed.Thetwotestsappliedtoaclaimfordamages
relatetoremotenessofdamageandmeasureofdamages.
RemotenessofdamageistestedbythetwolimbsoftheruleinHadleyvBaxendale1854.
Thefirstpartoftherulestatesthatthelossmustariseeithernaturallyfromthebreach(accordingtothe
usualcourseofthings),orinamannerwhichthepartiesmayreasonablyhavecontemplatedasaprobable
resultofabreach.
Thesecondpartoftheruleprovidesthatalossoutsidetheusualcourseofeventswillonlybe
compensatediftheexceptionalcircumstanceswhichcauseditwerewithinthedefendant'sactualor
constructiveknowledgewhentheymadethecontract.
Themeasureofdamagesisthatwhichwillcompensateforthelossincurred.Itisnotintendedthatthe
injuredpartyshouldprofitfromaclaim.
Asimpleactionforthepricetorecovertheagreedsumshouldbebroughtifbreachofcontractisfailure
topaytheprice.Butpropertymusthavepassedfromsellertobuyer,andcomplicationsarisewherethere
isanticipatorybreach
Aquantummeruitisaclaimwhichisavailableasanalternativetodamages.Theinjuredpartyina
breachofacontractmayclaimthevalueofhiswork.Theaimofsuchanawardistorestoretheclaimantto
thepositiontheywouldhavebeeninhadthecontractneverbeenmade.Itisarestitutoryaward.
Anorderforspecificperformanceisanequitableremedy.Thepartyinbreachisorderedtoperformtheir
sideofthecontract.Suchanorderisonlymadewheredamagesareinadequatecompensation,suchasina
saleofland,andwhereactualconsiderationhaspassed.
Aninjunctionisanequitableremedywhichrequiresthatanegativeconditionintheagreementbe
fulfilled.
Therighttosueforbreachofcontractbecomesstatute-barredaftersixyearsfromthedateonwhichthe
causeofactionaccrued:s5LimitationAct1980.Theperiodistwelveyearsifthecontractisbydeed.
Statementsmadebythepartiesmaybeclassifiedastermsorrepresentations.Differentremediesattach
tobreachofatermandtomisrepresentationrespectively.
Asageneralrule,thepartiestoacontractmayincludeintheagreementwhatevertermstheychoose.
Thisistheprincipleoffreedomofcontract.Termsincludedinthecontractareexpressterms.Thelawmay
complementorreplacetermsbyimplyingtermsintoacontract.Termsmaybeimpliedbythecourts,by
statuteorbycustom.
Statementswhichareclassifiedascontracttermsmaybefurthercategorisedasconditionsorwarranties.
Aconditionisavitaltermgoingtotherootofthecontract,whileawarrantyisatermsubsidiarytothe
mainpurposeofthecontract.
Theremediesavailableforbreacharedifferentineachcase.
Itmaynotbepossibletodeterminewhetheratermisaconditionorawarranty.Suchtermsareclassified
bythecourtsasinnominateterms.Thecourtwillonlyconstrueabrokentermasaconditionorwarrantyif
thepartiesintentionswhenthecontractwasformedareveryclear.
AparticularlyimportantsourceofimpliedtermsistheSaleofGoodsAct1979.TheSupplyofGoodsand
ServicesAct1982extendstheseimpliedtermstocovergoodsboughtbyhirepurchase,barteror
exchange,andcontractsforservices.
Anexclusionclausemayattempttorestrictoneparty'sliabilityforbreachofcontractorfornegligence.
Becauseofinequalityofbargainingpower,theUnfairContractTermsAct1977rendersvoidcertain
exclusionclausesinsaleofgoodsorsupplyofservicescontractsandanyclausewhichpurportstoexclude
liabilityfordeathorpersonalinjuryresultingfromnegligence.
Thecourtsprotectcustomersfromtheharshereffectsofexclusionclausesbyensuringthattheyare
properlyincorporatedintoacontractandthenbyinterpretingthemstrictly.
Thegeneralrules
Aclausemaynotusuallybedisputedifitisincludedinadocumentwhichhasbeensigned.
Theclausemustbeputforwardbeforethecontractismade.
Bothpartiesmustbeawareofit.
TheapplicationofUCTA1977dependstoagreatextentuponwhetherthereisaconsumersale.A
contractbetweenbusinessoperationsisconsiderablylessaffectedbytheAct.Bothtypesoftenhaveto
satisfyastatutorytestofreasonableness.
TheUnfairTermsinConsumerContractsRegulations1999definewhatismeantbyanunfairterm.
Thenormalmethodofdischargeisperformance.Obligationsofthepartiesinthevastmajorityof
commercialcontractsaredischargedbyperformance.Performancemustbecompleteandexact.Thereis
norighttoreceivepaymentproportionatetopartiallycompletedworkunlessoneoftherecognised
exceptionsapplies.
DischargeofContract
Acontractbecomesdischargedthroughperformancewherebothpartieshavefullyperformedtheir
contractualobligations.Ifonepartydoesnotfullyperformthecontractthiswillamounttoabreachof
contractandtheotherpartymayhaveaclaimfordamagesunlessthecontracthasbeenfrustrated
Nocompletion,Nopayment.ThisgeneralrulewasestablishedinCutter v Powellandisobviously
capableofcausinginjustice.Theharshnessofthisrulerelatingtodischargethroughperformancehasbeen
mitigatedbythecreationofvariousExceptions:
Thedoctrineofsubstantialperformance
Wherethepromiseeacceptspartialperformance
Wherethepromiseepreventsperformance
Severablecontracts
Wheretimeisnotoftheessence
Severable contracts
Therulerelatingtodischargethroughfullperformanceapplieswherethereexistsanentirecontract.Where
itispossibletodivideacontractintoseparateparts,eg.ifasumisagreedtobepayableperweekorhour,
thenthecourtscanawardasumfortheseparatepartsofthecontractwhichhavebeencompleted:
Acontractmay,insomecircumstances,bedischargedbyabreachofcontract.Wherethereexistsabreach
ofcondition(asopposetobreachofwarranty)thiswillenabletheinnocentpartytherighttorepudiatethe
contract(bringthecontracttoanend)inadditiontoclaimingdamages.Acontractcannotbedischargedby
abreachofwarranty.
Acontractmaybedischargedbyagreementwhenbothpartiesagreetobringthecontracttoanendand
releaseeachotherfromtheircontractualobligations.Foracontracttobedischargedthroughagreement
theremustbeAccord&Satisfaction(agreement&Consideration)
Frustratedcontracts
Acontractmaybedischargedbyfrustration.Acontractmaybefrustratedwherethereexistsachangein
circumstances,afterthecontractwasmade,whichisnotthefaultofeitheroftheparties,whichrenders
thecontracteitherimpossibletoperformordeprivesthecontractofitscommercialpurpose.Wherea
contractisfoundtobefrustrated,eachpartyisdischargedfromfutureobligationsunderthecontractand
neitherpartymaysueforbreach.TheallocationoflossisdecidedbytheLawReform(Frustrated
Contracts)Act1943.
Examplesoffrustratingevents
Nofrustration
Acontractwillnotbefrustratedwhere:
1.Itismoredifficultorexpensivetoperform
2.Impossibilityofperformanceisthefaultofeitheroftheparties
3.Wherethereisaforcemajeureclause
4.Wherethefrustratingeventcouldbeforeseen
1.Acontractwillnotbefrustratedmerelybecauseitbecomesmoredifficultorexpensivetoperform:
DavisContractorsvFarehamUDC[1956]AC696
Tsakiroglou&CoLtdvNobleeThorlGmbH[1962]AC93
2.Acontractwillnotbefrustratediftheimpossibilityisthefaultofeitheroftheparties:
MaritimeNationalFishvOceanTrawlers[1935]AC524
3.Wherethereexistsaforcemajeureclausethiswillapplyratherthanthelawoffrustration.Theclausemustactuallyco
JacksonvTheUnionMarineInsuranceCoLtd(1874)LR10CP125
4.Frustrationwillalsonotexistwherethefrustratingeventshouldhavebeenforeseen:
WaltonHarveyLtdvWalker&HomfraysLtd[1931]1Ch274
PeterCassidySeedCoLtdvOsuustukkuk-AuppaLtd[1957]1WLR273
Affectoffrustrationofacontract
Whereacontractisfoundtobefrustrated,bothpartiesarereleasedfromtheirobligationsunderthe
contractandneitherpartymaysueforbreach.
TheallocationoflossisdecidedbytheLawReform(FrustratedContracts)Act1943.Thisprovides:
s.1(2)Allmoneypayableunderthecontractceasestobepayableandanymoneyalreadypaidmaybe
recovered.Whereexpenseshavebeenincurredthismaybedeductedfromtheamountspayableorpaid.
Thisisatthediscretionofthecourtandissubjecttowhatisjustandequitableinthecircumstancesofthe
case.Thereisnoprovisionallowingexpensestoberecoveredwhichexceedtheamountspaidorpayable.
S.1(3)-Whereavaluablebenefithasbeenconferredthismustbepaidfor.
Variousremediesexistincontractlaw.Theseinclude:
Damages
Repudiation
Rescission
Specificperformance
Injunctions
Restitutionaryawards
Damages
Damagesincontractlawarealegalremedyavailableforbreachofcontract.Damagesareanawardof
moneytocompensatetheinnocentparty.Theprimarypurposeofdamagesincontractlawistoplacethe
injuredpartyinthepositiontheywouldhavebeeninhadthecontractbeenperformed.
Anawardofdamagesincontractlawissubjecttotheapplicationoftherulesoncausation,remoteness
andadutytomitigateloss
Repudiation
Repudiationisaremedyavailableforbreachofcontract.Repudiationinvolvesbringinganendtothe
contract.Itisonlyavailableforbreachofconditionasopposetobreachofwarranty:
Rescission
Rescissionisanequitableremedyavailableatthediscretionofthejudge.Rescissionseekstoplacethe
partiesbackintheirpre-contractualpositionandthusrepresentsanunravelingofthecontract.Rescission
isavailablewhereacontractisvoidableasaresultofavitiatingfactorsuchasmisrepresentation,undue
influenceorduress.Therighttorescindmaybelostiftheclaimantaffirmsthecontract,whereathirdparty
acquiresrightsinthegoods,throughlapseoftimeorwhererestitutioinintegrumisnotpossible.
Specificperformance
Specificperformanceisanequitableremedyavailableatthediscretionofthejudge.Itisanorderbythe
courtrequiringonepartytoperformtheircontractualobligation.Whilstitisoftensaidthatcontractsare
madetobeperformedandpartiesshouldbeheldtotheircontractualobligations,thecourtsareoften
reluctanttoorderapartytounwillinglyperformthecontractandspecificperformanceisonlyavailablein
limitedcircumstances.Inconsideringwhethertograntspecificperformancethecourtslooktowhether
damageswouldbeanadequateremedy,thetypeofcontractandwhetherequityrequiressuchanorder.
Injunctions
Injunctionsareanotherformofanequitableremedyavailableonlyatthediscretionofthejudge.There
arethreetypes:
1.Interlocutoryorinterim(temporaryinjunctionuntilacourthearing)
2.Prohibitory(acourtorderthatapartymustnotdosomething)
3.Mandatory(anorderthatapartymustdosomething)
Offer- Supply of Information
HarveyvFacey1893
Thefacts:Theclaimanttelegraphedtothedefendant'WillyousellusBumperHall
Pen?Telegraphlowestcashprice'.Thedefendanttelegraphedinreply'Lowestprice
forBumperHallPen,900'.Theclaimanttelegraphedtoacceptwhatheregardedas
anoffer;thedefendantmadenofurtherreply.
Decision:Thedefendant'stelegramwasmerelyastatementofhisminimumpriceifa
saleweretobeagreed.Itwasnotanofferwhichtheclaimantcouldaccept.
However,ifinthecourseofnegotiationsforasale,thevendorstatesthepriceat
whichhewillsell,thatstatementmaybeanofferwhichcanbeaccepted.
FishervBell1961
Thefacts:Ashopkeeperwasprosecutedforofferingforsaleanoffensiveweaponbyexhibitingaflickknifeinhisshop
window.
Decision:Thedisplayofanarticlewithapriceonitinashopwindowismerelyaninvitationtotreat.
PharmaceuticalSocietyofGreatBritainvBootsCashChemists(Southern)1952
Thefacts:Certaindrugscouldonlybesoldunderthesupervisionofaregisteredpharmacist.Theclaimantclaimedthis
rulehadbeenbrokenbyBootswhodisplayedthesedrugsinaself-serviceshop.Bootscontendedthattherewasnosale
untilacustomerbroughtthegoodstothecashdeskandofferedtobuythem.Aregisteredpharmacistwasstationedat
thispoint.
Decision:ThecourtfoundforBootsandcommentedthatifitweretruethatacustomeracceptedanoffertosellby
removinggoodsfromtheshelf,hecouldnotthenchangehismindandputthembackasthiswouldconstitutebreachof
contract.
Rejection-counter-offer
HydevWrench1840
Thefacts:Thedefendantofferedtosellpropertytotheclaimantfor1,000on6June.Twodayslater,theclaimantmade
acounter-offerof950whichthedefendantrejectedon27June.Theclaimanttheninformedthedefendanton29June
thatheacceptedtheoriginalofferof1,000.
Decision:Theoriginalofferof1,000hadbeenterminatedbythecounter-offerof950.
Lapse of time
RamsgateVictoriaHotelCovMontefiore1866
Thefacts:ThedefendantappliedtothecompanyinJuneforsharesandpaidadeposit.AttheendofNovemberthe
companysenthimanacceptancebyissueofaletterofallotmentandrequestedpaymentofthebalancedue.The
defendantcontendedthathisofferhadexpiredandcouldnolongerbeaccepted.
Decision:Theofferwasforareasonabletimeonlyandfivemonthswasmuchmorethanthat.Theofferhadlapsed.
Revocation of an offer
RoutledgevGrant1828
Thefacts:Thedefendantofferedtobuytheclaimant'shouseforafixedsum,requiringacceptancewithinsixweeks.
Withinthesixweeksspecified,hewithdrewhisoffer.
Decision:Thedefendantcouldrevokehisofferatanytimebeforeacceptance,eventhoughthetimelimithadnotexpired.
***postingaletterisnotasufficientactofrevocation.
ByrnevVanTienhoven1880
***revocationofoffermaybecommunicatedbyanythirdpartywhoisasufficientlyreliableinformant
DickinsonvDodds1876
Failure of a condition
FinancingsLtdvStimson1962
Thefacts:Thedefendantwishedtopurchaseacar,andon16Marchsignedahire-purchaseform.Theform,issuedby
theclaimants,statedthattheagreementwouldbebindingonlyuponsignaturebythem.On20Marchthedefendant,not
satisfiedwiththecar,returnedit.On24Marchthecarwasstolenfromthepremisesofthedealer,andwasrecovered
badlydamaged.On25Marchtheclaimantssignedtheform.Theysuedthedefendantforbreachofcontract.
Decision:Thedefendantwasnotboundtotakethecar.Hissigningoftheagreementwasactuallyanoffertocontract
withtheclaimant.Therewasanimpliedconditioninthisofferthatthecarwouldbeinareasonablecondition.
Acceptance-Authorisation
PowellvLee1908
Thefacts:Theclaimantwasappointedtoapostofheadmasterbutwasinformedoftheappointmentbyanunauthorised
manager.Later,itwasdecidedtogivetheposttosomeoneelse.Theclaimantsuedforbreachofcontract.
Decision:Sincecommunicationofacceptancewasunauthorised,therewasnovalidagreementandhencenocontract.
Acceptance- By Conduct
Bryen&LangleyLtdvBoston2005
Thefacts:Atenderforbuildingworkwasnotsigned,butonthebasisofanagreementmade,thebuildingworkwas
started.
Decision:Abindingcontractexistedasthecommencementofthebuildingworkwasapositiveact,enoughtoimply
acceptance.
Acceptance- Silence
FelthousevBindley1862
Thefacts:Theclaimantwrotetohisnephewofferingtobuythenephew'shorse,adding'IfIhearnomoreabouthim,I
considerthehorsemine'.Thenephewintendedtoaccepthisuncle'sofferbutdidnotreply.Heinstructedthedefendant,
anauctioneer,nottosellthehorse.Owingtoamisunderstandingthehorsewassoldtosomeoneelse.Theunclesued
theauctioneer.
Decision:Theactionfailed.Theclaimanthadnotitletothehorse.
Thepostalrule
AdamsvLindsell1818
Thefacts:Thedefendantsmadeanofferbylettertotheclaimanton2September1817requiringananswer'incourseof
post'.Itreachedtheclaimantson5September,whoimmediatelypostedaletterofacceptancethatreachedthe
defendantson9September.Thedefendantscouldhaveexpectedareplyby7Septemberandassumedthatthelackof
onewithintheexpectedperiodindicatednon-acceptanceandsoldthegoodstoanotherbuyeron8September.
Considaration
Performance of an existing contractual obligation, or one imposed by statute is no consideration. But if some extra service is given this may be
sufficient consideration.
Majorie McArdle carried out certain improvements and repairs on a bungalow. The bungalow formed part of the estate of her husband's father
who had died leaving the property to his wife for life and then on trust for Majorie's husband and his four siblings. After the work had been carried
out the brothers and sisters signed a document stating in consideration of you carrying out the repairs we agree that the executors pay you 480
from the proceeds of sale. However, the payment was never made. Held : The promise to
make payment came after the consideration had been performed therefore the promise to make payment was not binding. Past consideration is
not valid.
CollinsvGodefroy1831
Thefacts:Theclaimanthadbeensubpoenaedtogiveevidenceonbehalfofthedefendantinanothercase.Healleged
thatthedefendantpromisedtopayhimforappearing.
Decision:Therewasnoconsiderationforthispromise.
GlasbrookBrosvGlamorganCC1925
Thefacts:Atatimeofindustrialunrest,collieryowners,rejectingtheviewofthepolicethatamobileforcewasenough,
agreedtopayforaspecialguardonthemine.Latertheyrepudiatedliabilitysayingthatthepolicehaddonenomore
thanperformtheirpublicdutyofmaintainingorder,andthatnoconsiderationwasgiven.
Decision:Thepolicehaddonemorethanperformtheirgeneralduties.Theextraservicesgiven,beyondwhatthepolice
intheirdiscretiondeemednecessary,wereconsiderationforthepromisetopay.
HarrisvSheffieldUnitedF.C.Ltd1988
Thefacts:Thedefendants(afootballteam)arguedthattheydidnothavetopayforalargepolicepresenceattheirhome
matches.
Decision:TheyhadvoluntarilydecidedtoholdmatchesonSaturdayafternoonswhenlargeattendanceswerelikely,
increasingtheriskofdisorder.Theywouldthereforehavetopay.
StilkvMyrick1809
Thefacts:Twomembersofthecrewofashipdesertedinaforeignport.Themasterwasunabletorecruitsubstitutes
andpromisedtherestofthecrewthattheywouldsharethewagesofthedesertersiftheywouldcompletethevoyage
homeshort-handed.Theship-owners,however,repudiatedthepromise.
Decision:Inperformingtheirexistingcontractualdutiesthecrewgavenoconsiderationforthepromiseofextrapayand
thepromisewasnotbinding.
HartleyvPonsonby1857
Thefacts:17menoutofacrewof36deserted.Theremainderwerepromisedanextra40eachtoworktheshipto
Bombay.Theclaimant,oneoftheremainingcrew-members,suedtorecoverthisamount.
Decision:Thelargenumberofdesertionsmadethevoyageexceptionallyhazardous,andthishadtheeffectof
dischargingtheoriginalcontract.Theclaimant'spromisetocompletethevoyageformedconsiderationforthepromise
topayanadditional40.
WilliamsvRoffeyBros&Nicholls(Contractors)Ltd1990
Thefacts:Theclaimantsagreedtodocarpentryworkforthedefendants,whowereengagedascontractorstorefurbisha
blockofflats,atafixedpriceof20,000.Theworkranlateandsothedefendants,concernedthatthejobmightnotbe
finishedontimeandthattheywouldhavetopaymoneyunderapenaltyclause,agreedtopaytheclaimantsanextra
10,300toensuretheworkwascompletedontime.Theylaterrefusedtopaytheextraamount.
Decision:Thefactthattherewasnoapparentconsiderationforthepromisetopaytheextrawasnotheldtobe
important,asinthecourt'sviewbothpartiesderivedbenefitfromthepromise.Thetellingpointwasthatthedefendants'
promisehadnotbeenextractedbyduressorfraud:itwasthereforebinding.
Promissoryestoppel
CentralLondonPropertyTrustvHighTreesHouse1947
Thefacts:InSeptember1939,theclaimantsletablockofflatstothedefendantsatanannualrentof2,500p.a.Itwas
difficulttolettheindividualflatsinwartime,soinJanuary1940theclaimantsagreedinwritingtoacceptareducedrent
of1,250p.a.Notimelimitwassetonthearrangementbutitwasclearlyrelatedtowartimeconditions.Thereduced
rentwaspaidfrom1940to1945andthedefendantssubletflatsduringtheperiodonthebasisoftheirexpectedliability
topay1,250p.a.only.In1945theflatswerefullylet.Theclaimantsdemandedfullrentof2,500p.a.,both
retrospectivelyandforthefuture.Theytestedthisclaimbysuingforrentatthefullrateforthelasttwoquartersof1945.
Decision:TheagreementofJanuary1940ceasedtooperateearlyin1945.Theclaimwasupheld.However,hadthe
claimantssuedforarrearsfortheperiod1940-1945,the1940agreementwouldhaveservedtodefeattheclaim.
DandCBuildersvRees1966
Thefacts:Thedefendantsowed482totheclaimantswhowereinacutefinancialdifficulties.Theclaimantsreluctantly
agreedtoaccept300infullsettlement.Theylaterclaimedthebalance.
Decision:Thedebtmustbepaidinfull.Promissoryestoppelonlyappliestoapromisevoluntarilygiven.Thedefendants
hadbeenawareofandhadexploitedtheclaimants'difficulties.
Privityofcontract
As a general rule, only a person who is a party to a contract has enforceable rights or obligations under it. This is the
doctrine of privity of contract, as demonstrated in Dunlop v Selfridge 1915.
TweddlevAtkinson1861
Thefacts:TheclaimantmarriedthedaughterofG.Ontheoccasionofthemarriage,theclaimant'sfatherandG
exchangedpromisesthattheywouldeachpayasumofmoneytotheclaimant.Gdiedwithoutmakingthepromised
paymentandtheclaimantsuedG'sexecutorforthespecifiedamount.
Decision:TheclaimanthadprovidednoconsiderationforG'spromise.
Intention
BalfourvBalfour1919
Thefacts:ThedefendantwasemployedinCeylon.HeandhiswifereturnedtotheUKonleavebutitwasagreedthatfor
healthreasonsshewouldnotreturntoCeylonwithhim.Hepromisedtopayher30amonthasmaintenance.Laterthe
marriageendedindivorceandthewifesuedforthemonthlyallowancewhichthehusbandnolongerpaid.
Decision:Aninformalagreementofindefinitedurationmadebetweenhusbandandwifewhosemarriagehadnotatthe
timebrokenupwasnotintendedtobelegallybinding.
MerrittvMerritt1970
Thefacts:Thehusbandhadleftthematrimonialhome,whichwasownedinthejointnamesofhusbandandwife,tolive
withanotherwoman.Thespousesmetandheldadiscussion,inthecourseofwhichheagreedtopayher40amonth
outofwhichsheagreedtokeepupthemortgagepayments.Thewifemadethehusbandsignanoteofthesetermsand
anundertakingtotransferthehouseintohernamewhenthemortgagehadbeenpaidoff.Thewifepaidoffthemortgage
butthehusbandrefusedtotransferthehousetoher.
Decision:Inthecircumstances,anintentiontocreatelegalrelationswastobeinferredandthewifecouldsueforbreach
ofcontract.
JonesvPadavatton1969
Thefacts:TheclaimantwantedherdaughtertomovetoEnglandtotrainasabarrister,andofferedtopayheramonthly
allowance.Thedaughterdidsoin1962.In1964theclaimantboughtahouseinLondon.Partofthehousewasoccupied
bythedaughterandtheotherpartlettotenantswhoserentwascollectedbythedaughterforherself.In1967the
claimantandherdaughterquarrelledandtheclaimantissuedasummonsclaimingpossessionofthehouse.The
daughtersuedforherallowance.
Decision:Thereweretwoagreementstoconsider.Thedaughter'sagreementtoreadforthebarinexchangefora
monthlyallowance,andtheagreementbywhichthedaughterlivedinhermother'shouseandcollectedtherentfrom
tenants.Itwasheldthatneitheragreementwasintendedtocreatelegalrelations.
SimpkinsvPays1955
Thefacts:Thedefendant,hergranddaughterandtheclaimant,apayingboarder,tookparttogethereachweekina
competitionorganisedbyaSundaynewspaper.Thearrangementsoverpostageandotherexpenseswereinformaland
theentriesweremadeinthegrandmother'sname.Oneweektheywon750.Thepayingboarderclaimedathirdshare,
butthedefendantrefusedtopayonthegroundsthattherewasnointentiontocreatelegalrelations.
Decision:Therewasa'mutualityinthearrangementsbetweentheparties',amountingtoacontract.
RoseandFrankvCrompton1923
Thefacts:AcommercialagreementbywhichthedefendantsappointedtheclaimanttobeitsdistributorintheUSA
containedaclausedescribedas'theHonourablePledgeClause'whichexpresslystatedthatthearrangementwas'not
subjecttolegaljurisdiction'ineithercountry.Thedefendantsterminatedtheagreementwithoutgivingtherequired
notice,andrefusedtodelivergoodsorderedbytheclaimantsalthoughtheyhadacceptedtheseorderswhenplaced.
Decision:Thegeneralagreementwasnotlegallybindingastherewasnoobligationtostandbyanyclauseinit.However
theordersforgoodswereseparateandbindingcontracts.Theclaimfordamagesforbreachoftheagreementfailed,but
theclaimfordamagesfornon-deliveryofgoodsorderedsucceeded.
Misrepresentation
BissetvWilkinson1927
Thefacts:Avendoroflandwhichbothpartiesknewhadnotpreviouslybeengrazedbysheepstatedthatitwould
supportabout2,000sheep.Thisprovedtobeuntrue.
Decision:Inthecircumstancesthiswasanhoneststatementofopinionastothecapacityofthefarm,notastatementof
fact.
Express terms
Hillas&CoLtdvArcosLtd1932
Thefacts:Theclaimantsagreedtopurchasefromthedefendants'22,000standardsofsoftwoodgoodsoffair
specificationovertheseason1930'.Theagreementcontainedanoptiontobuyafurther100,000standardsin1931,
withouttermsastothekindorsizeoftimberbeingspecified.The1930transactiontookplacebutthesellersrefusedto
supplyanywoodin1931,sayingthattheagreementwastoovaguetobindtheparties.
Decision:Thelanguageused,wheninterpretedbyreferencetothepreviouscourseofdealingsbetweentheparties,
showedanintentiontobebound.
Implied terms
LiverpoolCityCouncilvIrwin1977
Thefacts:Thedefendantsweretenantsinatowerblockownedbytheclaimants.Therewasnoformaltenancy
agreement.Thedefendantswithheldrent,allegingthattheclaimantshadbreachedimpliedtermsbecausetheliftsdid
notworkandthestairswereunlit.
Decision:Tenantscanonlyoccupyabuildingwithaccesstostairsand/orlifts,sothesetermsneededtobeimplied.
TheMoorcock1889
Thefacts:Theownersofawharfagreedthatashipshouldbemooredalongsidetounloaditscargo.Itwaswellknown
thatatlowtidetheshipwouldgroundonthemudatthebottom.Atlowtidetheshipsettledonaridgeconcealed
beneaththemudandsuffereddamage.
Decision:Itwasanimpliedterm,thoughnotexpressed,thatthegroundalongsidethewharfwassafeatlowtidesince
bothpartiesknewthattheshipmustrestonit.
PoussardvSpiers1876
Thefacts:MmePoussardagreedtosinginanoperathroughoutaseriesofperformances.Owingtoillnessshewas
unabletoappearontheopeningnightandthenextfewdays.Theproducerengagedasubstitutewhoinsistedthatshe
shouldbeengagedforthewholerun.WhenMmePoussardrecovered,theproducerdeclinedtoacceptherservicesfor
theremainingperformances.
Decision:Failuretosingontheopeningnightwasabreachofconditionwhichentitledtheproducertotreatthecontract
fortheremainingperformancesasdischarged.
BettinivGye1876
Thefacts:AnoperasingerwasengagedforaseriesofperformancesunderacontractbywhichhehadtobeinLondon
forrehearsalssixdaysbeforetheopeningperformance.Owingtoillnesshedidnotarriveuntilthethirddaybeforethe
opening.Thedefendantrefusedtoaccepthisservices,treatingthecontractasdischarged.
Decision:Therehearsalclausewassubsidiarytothemainpurposeofthecontract.
It may not be possible to determine whether a term is a condition or a warranty. Such terms are classified by the courts
as innominate terms.
HongKongFirShippingCoLtdvKawasakiKisaKaishaLtd1962
Thefacts:Thedefendantscharteredashipfromtheclaimantsforaperiodof24months.Aterminthecontractstated
thattheclaimantswouldprovideashipwhichwas'ineverywayfittedforordinarycargoservice'.Becauseofthe
engine'sageandthecrew'slackofcompetencetheship'sfirstvoyage,fromLiverpooltoOsaka,wasdelayedfor5
weeksandfurtherrepairswererequiredattheendofit.Thedefendantspurportedtoterminatethecontract,sothe
claimantssuedforbreach.Thedefendantsclaimedthattheclaimantswereinbreachofacontractualcondition.
Decision:Thetermwasinnominateandcouldnotautomaticallybeconstruedaseitheraconditionorawarranty.The
obligationof'seaworthiness'embodiedinmanycharterpartyagreementswastoocomplextobefittedintooneofthe
twocategories.Theshipwasstillavailablefor17outof24months.Theconsequencesofthebreachwerenotsoserious
thatthedefendantscouldbejustifiedinterminatingthecontractasaresult.
TaylorvCaldwell1863
Thefacts:Ahallwaslettotheclaimantforaseriesofconcertsonspecifieddates.Beforethedateofthefirstconcertthe
hallwasaccidentallydestroyedbyfire.Theclaimantsuedtheownerofthehallfordamagesforfailuretolethimhavethe
useofthehallasagreed.
Decision:Destructionofthesubjectmatterrenderedthecontractimpossibletoperformanddischargedthedefendant
fromhisobligationsunderthecontract.
CondorvBaronKnights[1966]1WLR87
A16yearoldagreedbycontracttoplaythedrumsforthedefendantbandfor7nightsperweekfor5years.Theclaimantsufferedamentalbreakdownandwas
Theclaimant'sactionwasunsuccessfulashismedicalconditionmadeitimpossibleforhimtoperformhiscontractualobligationsandthecontractwasthusfrustra
FibrosaSpolkavFairbairn[1943]AC32
AnEnglishcompanywhichmanufacturedtextilemachineryagreedbycontractdated12thJuly1939tosupplysomemachinestoaPolish
company.Themachinesweretobedeliveredin3-4months.1,600waspayableupfrontandthebalanceof3,200payableondelivery.The
Polishcompanypaid1000on18thofJulyonaccountoftheinitialpaymentdue.On1stSeptGermanyinvadedPolandandon3rdSeptGreat
BritaindeclaredwaronGermany.On23rdofSeptemberOrdersinCouncilmadePolandanenemyterritorymakingitillegalforBritishcompanies
totradewithPoland.
Held:thecontractwasfrustratedasitwasnolongerpossibletoperformthecontractbecauseofthesuperveningillegality.
KrellvHenry[1903]
ThedefendanthiredaflatonPallMallforthesolepurposeofviewingKingEdwardVII'scoronationprocession.Thepriceagreedwas75fortwo
days.Thedefendantpaid25deposit.DuetoillnessoftheKingthecoronationwascancelled.Consequently,thedefendantdidnotusetheflat.
Theclaimantsoughttoclaimtheoutstanding50.
Held:Thecontractwasfrustratedascancellationoftheprocessiondepriveditofitscommercialpurpose.Theclaimant'sactionforbreachof
contractwasthusunsuccessful.
NichollandKnightvAshton,Eldridge&Co[1901]
BycontractthepartiesagreedthatacargoofcottonseedwastobeshippedfromEgypttoEngland.Thecontractspecifiedtheship,TheOrlando,
whichwastocarrythecargo.Thisshipbecamedamagedandwasinforrepairswhenthecontractwasduetobeperformed.
Held:Bynamingtheexactshipwhichwastocarrythecargo,thecontractwasfrustratedasitwasimpossibleforthisshiptocarrythecargo
withinthecontractuallyagreedperiod.
HerneBaySteamBoatvHutton[1903]
Thedefendanthiredouttheclaimant'ssteamship.ThepurposeofthecontractwastotakepayingpassengerstoviewtheNavalReviewwhich
waspartofKingEdwardVII'scoronationcelebrations.Thedefendantswerealsoofferingadayscruiseforthepassengers.TheNavalReviewwas
cancelledastheKingwasill.Thedefendantdidnotusethesteamshipandtheclaimantbroughtanactionfortheagreedcontractprice.The
defendantarguedthecontracthadbecomefrustratedduetothecancellationoftheNavalReview.
Held:Thecontractwasnotfrustrated.Thecontracthadnotbeendeprivedofitssolecommercialpurposeasitwasstillpossibletoperformthe
dayscruise.TheNavalReviewwasnottheonlycommercialpurposeofthecontract.
Bisset v Wilkinson
Must be a false statement of fact rather than opinion
Esso v Mardon
Estimate of future profits not statement of fact
Smith v Land & House Property Corp
An opinion may amount to misrepresentation if D was in a position to know the facts
Pankhania v LB Hackney
Flase statement of law will now count as misrep
Smith v Hughes
Silence will not generally amount to a misrep
With v O Flanagan
There is an obligation to disclose a change in circumstances which renders a statement untrue
Horsfall v Thomas
C must be induced by the representation, if they are unaware of it there is no inducement
Attwood v Small
If the represententee relies on advice of their own expert, the representation did not induce them to enter the contract
Redgrave v Hurd
If the representee is given the opportunity to check out the statement but decline they have relied on the statement
Offer&Acceptance
AdamsvLindsell Setthepostalrule
CarlillvCarbolicSmokeBall Newspaperadvertwasanoffer
PartridgevCrittenden Newspaperadvertisgenerallyaninvitationtotreat
FishervBell Goodsondisplayinshopsareaninvitationtotreat
HarveyvFacey Anofferrequiresintentiontobebound
DickinsonvDodds Anoffermaybewithdrawnanytimebeforeacceptance
HydevWrench Acounterofferdestroystheoriginaloffer
EntorresvMilesFarEast Acceptancemustbecommunicatedtoofferor
FelthousevBindley Cannothavesilenceasacceptance
IntentiontoCreateLegalRelations
CowardvMIB Amotorcyclistgavehisfriendalifttowork
AlbertvMIB Adockergaveseveralcolleaguesliftstowork
BalfourvBalfour Ahusbandagreedtosendmoneyhometohiswife
Ahusbandandwifewereseparatedandheagreedtopay
MerritvMerrit
hermoney
Amotherboughtahouseforherdaughtertoliveinwhilst
JonesvPadavatton
studying
SimpkinsvPays Agrandmother,granddaughterandlodgerenteredalottery
EssovCustoms&Excise Dofferedfreeworldcupcoinswiththesaleofpetrol
Theclaimantwaspromisedanexgratiapaymenton
EdwardsvSkyways
redundancy
Consideration
ReMcArdle Considerationmustnotbepast
Partpaymentofadebtisnotgoodconsiderationfora
Pinnel'scase
promisetoforegothebalance
StilkvMyrrick Anexistingcontractualdutyisnotvalid
Goingbeyondanexistingcontractualdutycanbevalid
HartleyvPonsonby
consideration
ScotsonvPegg Anexistingdutyowedtoathirdpartyisvalid
CollinsvGodfrey Anexistingpublicdutyisnotvalid
GlasbrookBrosvGlamorgan Goingbeyondapublicdutyisvalidconsideration
Obviatingadisbenefitorconferringapracticalbenefitmay
WilliamsvRoffeyBros
constitutevalidconsideration
LampleighvBraithwaite Pastconsiderationatpromisor'srequestisvalid
ChappellvNestle Considerationmustbesufficient,butneednotbeadequate
TweddlevAtkinson Considerationmustmovefromthepromisee
ContractualTermorRepresentation
BannermanvWhite SaleofhopsDstatedtheyhadnotbeentreatedwithsulphur
EcayvGodfrey Saleofboat-theselleradvisedpurchasertogetasurvey
SchawelvRead Saleofahorseforstud.Horsehadhereditoryeyedisease
RoutledgevMackay Saleofamotorcycle.Mis-statedtheageofvehicle
OscarChessvWilliams Dtradedinhercarandmis-statedtheageofthevehicle.
DickBentleyvHaroldSmith CaskedD,acardealer,torecommendasuitablecar
SaleofGoodsAct1979
Section Summary
S.2 Thetransferormusthavearighttotransferthegoods
S.3 Goodstransferredmustcorrespondtodescription
S.4 Goodstransferredmustbeofsatisfactoryquality
S.5 Goodstransferredmustcorrespondtosampleinquality
S.7 Incontractsofhirethebailormusthavetherighttotransferpossessionofthegoods
S.8 Incontractsofhirethegoodsmustcorrespondtoadescription
S.9 Incontractsofhireinthecourseofabusiness,thegoodsmustbeofsatisfactoryquality
S.13 Servicemustbecarriedoutwithreasonablecareandskill
S.14 Thesevicemustbecarriedoutwithinareasonabletime
S.15 Wherenopriceisagreed,areasonablechargeispayable
Title,orthe Section12(1)impliesintocontractsforthesaleofgoodsanundertakingastotitle,
seller'srightto confirmingthatthesellerhasarighttosell.Section12(2)impliesundertakingsasto
sellthegoods freedomfromotherclaims,andquietpossession.
Theconditionastotitleisbrokenifthesellercanbestoppedbyathirdpartyfrom
RowlandvDivall sellingthegoods.Ifthesellerdeliversgoodstothebuyerwithouthavingtherightto
1923 sell,thereisatotalfailureofconsideration.Ifthebuyerhastogiveupthegoodsto
therealownerhemayrecovertheentirepricefromtheseller.
Description Section13appliestoallsales.Sections13(1)and(2)providethatwherethereisa
ofthegoods: contractforthesaleofgoodsbydescription,thereisanimpliedconditionthatthe
goodscorrespondwiththedescription.
BealevTaylor1967 Itisnotthecasethatalldescriptivewordsusedformthecontractterms.However,
Descriptionisinterpretedtoincludeingredients,age,dateofshipment,packing,
quantity,etc.
Qualityof Thereisanimpliedconditionthatgoodssuppliedunderacontractareof
thegoods: satisfactoryquality.Thisconditionappliesonlytogoodssoldinthecourseofa
business,thereforeprivatesalesareexcluded.
Theconditionappliestoallgoodssuppliedunderthecontract.Thereforeitapplies
notonlytothegoodsthemselvesbutalsotoanypackagingandinstructions.
TheAct(section14(2B))identifiesfactorswhichmayinappropriatecasesbe
aspectsofthequalityofgoods.
Fitnessforallthepurposesforwhichgoodsofthekindinquestionare
commonlysupplied
Appearanceandfinish
Freedomfromminordefects
Safety
Durability,suggestingthatgoodswillhavetoremainofsatisfactory
qualityforareasonableperiod.
Theconditionofsatisfactoryqualityisexcludedifthebuyer'sattentionisdrawnto
defectsbeforethecontractismade,orthebuyerexaminesthegoodsbeforethe
contractismade,andthatexaminationoughttorevealthedefects.
Inadditiontotheusualremediesforbreachofcontract,abuyerwhoisaconsumer
hastheaddedbenefitoftheSaleandSupplyofGoodstoConsumersRegulations
2002.Theseprovidethatabuyermaytakeintoaccountspecificclaimsmadebya
sellerabouttheproductwhenjudgingitsquality.Abuyercanalsorequiretheseller
torepairorreplacefaultygoods,orgoodsthatarenototherwiseinconformity
withthecontract.Theymayalsorequirethesellertoreducethepurchasepriceorto
rescindthecontract.
Fitnessofthe Section14(3)impliesaconditionthatthegoodsbefitforanyparticularpurpose
goodsforthe whichthebuyerexpresslyorbyimplicationmakesknowntotheseller.
purposefor Usually,abuyermustmakeknowntheparticularpurposeforwhichhewantsthe
whichtheyare goods.Ifthegoodshaveonlyoneobviouspurpose,thebuyerbyimplicationmakes
supplied: knownhispurposemerelybyaskingforthegoods.
Wheregoodsarerequiredforaparticularpurposewhichisnotobvioustothe
sellerorwherethereissomepeculiarityaboutthatpurpose,thebuyermustmake
GrantvAustralian thesecleartotheseller.However,abuyermayspecifythe'particularpurpose'quite
KnittingMills1936 broadly.
Saleby Undersection15oftheActtherearerequirementsinasalebysample.Inthecase
sample: ofacontractforsalebysamplethereisanimpliedcondition.
(c)Thatthebulkwillcorrespondwiththesampleinquality.
(d)Thatthebuyerwillhaveareasonableopportunityofcomparingthebulkwith
thesample.
(e)Thatthegoodsshallbefreefromanydefectrenderingtheirquality
unsatisfactorywhichwouldnotbeapparentonreasonableexaminationofthe
sample.
UndertheAct,anaccountantowesthefollowingimpliedduties.
Demonstratethelevelofskillthathasbeenprofessed
Anaccountant's Honesty
dutiesunderthe Goodfaith
SupplyofGoodsand Obediencetoclient'sinstructions(unlessillegal)
ServicesAct Tokeepproperrecords
Confidentiality
Totakereasonablecare-thestandardofcareishigh.
Aclauseinacontractwhichpurportstoexcludeliabilityaltogetherortorestrictitbylimitingdamagesorbyimposing
Exclusionclause
otheronerousconditions.'Theyaresometimesreferredtoasexemptionclauses.
Thecourtshavegenerallysoughttoprotectconsumersfromtheharshereffectsofexclusionclausesintwoways.
Anexclusionclausemustbeproperlyincorporatedintoacontractbeforeithasanylegaleffect.
Exclusionclausesareinterpretedstrictly.Thismaypreventtheapplicationoftheclause.
Aclausemaynotusuallybedisputedifitisincludedinadocumentwhichhasbeensigned.
Theclausemustbeputforwardbeforethecontractismade
Bothpartiesmustbeawareofit.
Uncertaintyoftenarisesoverwhichtermshaveactuallybeenincorporatedintoacontract.
Thedocumentcontainingnoticeoftheclausemustbeanintegralpartofthecontract.
TheGeneralrules Ifthedocumentisanintegralpartofthecontract,atermmaynotusuallybedisputedifitisincludedina
documentwhichapartyhassigned.
Thetermmustbeputforwardbeforethecontractismade
Itisnotabindingtermunlessthepersonwhoserightsitrestrictswasmadesufficientlyawareofitatthe
timeofagreeingtoit.
Oneroustermsmustbesufficientlyhighlighted.
Heneithermakesthecontractinthecourseofabusinessnorholdshimselfoutasdoingsoand
Theotherpartydoesmakethecontractinthecourseofabusiness
Consumer
Inthecaseofacontractgovernedbythelawofsaleofgoods.....thegoodsareofatypeordinarilysuppliedfor
privateuseorconsumption.'