ACCA
Paper F4 ENG
CORPORATE AND
BUSINESS LAW (CL ENG)
2008/09 Essential Text
British library cataloguinginpublication data
A catalogue record for this book is available from the British Library.
Published by:
Kaplan Publishing UK
Unit 2 The Business Centre
Molly Millars Lane
Wokingham
Berkshire
RG41 2QZ
ISBN 9781847105387
© Kaplan Financial Limited, 2008
Printed and bound in Great Britain.
Acknowledgements
We are grateful to the Association of Chartered Certified Accountants and the Chartered Institute of
Management Accountants for permisssion to reproduce past examination questions. The answers
have been prepared by Kaplan Publishing.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or
otherwise, without the prior written permission of Kaplan Publishing.
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Contents
Page
Chapter 1
English legal system
Chapter 2
Contract law
21
Chapter 3
The law of torts
65
Chapter 4
Employment law
85
Chapter 5
Agency law
111
Chapter 6
Partnerships
123
Chapter 7
Corporations and legal personality
137
Chapter 8
Capital and financing
175
Chapter 9
Directors
197
Chapter 10
Corporate administration
211
Chapter 11
Insolvency
225
Chapter 12
Corporate governance
237
Chapter 13
Fraudulent behaviour
249
Chapter 14
Questions & Answers
261
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chapter
Introduction
v
Introduction
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chapter
1
English legal system
Chapter learning objectives
Upon completion of this chapter you will be able to:
•
•
explain the difference between civil and criminal law
•
explain the meaning of judicial precedent, ratio decidendi and
obiter dicta
•
illustrate how the doctrine of judicial precedent works in relation
to the civil courts
•
•
explain how legislation is made and the doctrine of sovereignty
•
identify the concept of human rights as expressed in the Human
Rights Act 1998 (HRA 1998)
•
•
explain the impact of human rights law on statutory interpretation
explain the structure and operation of the civil courts and tribunal
systems
set out the rules and presumptions used by the courts in
interpreting statutes
explain the impact of human rights law on the common law.
1
English legal system
1 Criminal law versus civil law
Criminal law
Civil law
A crime is an offence against
the state. The state prosecutes
a person who is accused of a
crime. The object is to prove
guilt.
Burden of proof – guilt must
be shown beyond reasonable
doubt.
Civil law sets out the rights and duties of
persons as between themselves. An
action is brought by one person (the
claimant) against another (the defendant).
The object is to show liability.
Burden of proof – liability must be
shown on the balance of probabilities.
Object – to regulate society by Object – usually financial compensation
the threat of punishment.
to put the claimant in the position he
would have been in had the wrong not
occurred.
The criminal court will sentence
the defendant and it may fine
him or impose a period of
imprisonment.
2
The civil court will order the defendant to
pay damages or it may order some other
remedy, e.g. specific performance or
injunction.
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Test your understanding 1
Which one of the following statements is correct?
A
The aim of the criminal law is to regulate behaviour within society by
the threat of punishment.
B
The aim of the criminal law is to punish offenders.
C
The aim of the criminal law is to provide a means whereby injured
persons may obtain compensation.
D
The aim of the criminal law is to ensure that the will of the majority is
imposed upon the minority.
2 The court system
The main English civil courts
The following diagram shows the main civil courts. The term ‘first instance’
refers to the court in which the case is first heard. Appeals are heard in a
different court. The arrows show the way a case will progress through the
court system.
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English legal system
The threetrack system
When a claim is received, it will be allocated to one of three tracks for the
hearing.
(1) The small claims track – deals with simple claims valued at no more
than £5,000.
(2) The fasttrack – deals with moderately valued claims of between £5,000
and £15,000.
(3) The multitrack – deals with claims of over £15,000 and/or complex
claims.
Note: the County Court deals with all cases allocated to the small claims
track, the majority of fasttrack and some multitrack cases. All other claims
are dealt with by the High Court.
Other courts
Magistrates' Court
European Court European Court
of Justice (ECJ) of Human Rights
(ECtHR)
Jurisdiction is mainly criminal, but ECJ deals with
does have civil jurisdiction in
actions between
family matters such as contact
the EU institutions
orders, adoption, and
and the member
maintenance. There are also
states.
powers of recovery of council tax
arrears and charges for water,
It is the ultimate
gas and electricity.
authority on the
interpretation of
European law.
The final court of
appeal in relation to
matters concerning
HRA 1998.
Proceedings in the
English courts must
have been
exhausted before
ECtHR will hear a
case.
ECJ is therefore
superior to the
House of Lords.
Cases are
referred to the
ECJ by national
courts.
Appeals to Crown Court or High No appeal.
Court.
No appeal.
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Tribunals
There are two types of tribunal:
•
Administrative tribunals are set up by statute to deal with specialist
disputes as an alternative to the court system.
•
Domestic tribunals are so called because they are set up by a particular
body or club to regulate the conduct of their members.
Your examination concentrates on administrative tribunals and of those the
most important is the employment tribunal.
Employment tribunals
Employment tribunals are local tribunals established to hear disputes
between an employee and their employer on certain statutory employment
matters, such as unfair dismissal.
Employment tribunals are composed of one legally qualified chairman, plus
two expert laymen who are drawn from panels representing both sides of
the industry.
Appeals are to the employment appeal tribunal (EAT) and can only be made
on a point of law.
The EAT is composed of one High Court judge, plus two or four expert
laymen.
Advantages and disadvantages of tribunals
Tribunals have the following advantages:
•
Expertise: the case will usually be heard by someone who has
expertise in that area and can form his conclusion in line with accepted
practice. This may quicken the process and reduce the necessity of
employing expensive expert evidence.
•
Speed: tribunals are much quicker than taking the matter through the
courts.
•
Cost: tribunals are a much cheaper procedure than taking the matter
through the courts. As complainants do not have to rely on legal
representation, there are no court fees and costs are not normally
awarded against the loser.
•
Informality: the proceedings are much less formal and therefore less
intimidating. The strict rules relating to evidence, pleading and
procedure are not binding in tribunal proceedings.
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English legal system
However, tribunals do suffer from the following disadvantage:
•
Legal aid: except for lands tribunals and EATs, legal aid is not
available to people pursuing a case at a tribunal. They may be entitled
to legal advice and assistance, but this is unlikely to provide as much
help as if they were represented at the hearing by a lawyer.
3 Sources of law
Overview
Case law
Throughout this text you will find examples of cases which have come before
the courts. These cases are not simply examples of the way in which the law
is applied; they also illustrate the way in which the law is made. The
examiner expects you to learn the cases and to include them in your
answers.
Case law can be subdivided into:
•
•
common law
equity.
Common law:
•
•
•
•
developed from local customs
introduced the system of precedent (see below)
the only remedy is damages
it is rigid and inflexible.
Equity:
•
•
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developed as a form of appeal to remedy injustices of the common law
it is more flexible than the common law
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•
it introduced new discretionary remedies, e.g. injunctions and specific
performance
•
it is concerned with fairness and therefore will not be granted if there is
undue delay in bringing the case or if the petitioner has himself acted
unfairly.
Doctrine of judicial precedent
The system, adopted by the judges, of following the decisions in previous
cases is called the doctrine of judicial precedent.
•
Some precedents are binding (meaning they must be followed in later
cases).
•
Others are merely persuasive (meaning that a judge in a later case
may choose to follow it but he is not bound to do so).
There are three factors to be considered in deciding whether a precedent is
binding or persuasive:
•
•
•
the hierarchy of the courts
ratio decidendi and obiter dicta
the material facts of the case.
The hierarchy of the courts
As a general rule, the precedents of higher courts bind lower courts, but not
vice versa.
The Constitutional Reform Act 2005 provides for the establishment of a
new, independent Supreme Court. This will be separate from the House of
Lords, with its own independent appointments system, staff and budget. The
objective of this change is to ensure independence of the judiciary from the
government.
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English legal system
Ratio decidendi and obiter dicta
The ratio decidendi is the legal reason for the decision. It is capable of
forming the binding precedent. It is a statement of law which is carried down
to later decisions.
Obiter dicta are statements which are not part of the ratio. They are
persuasive rather than binding.
This means that the judge can take the statement into account when
reaching his decision, but he is does not have to follow it.
Facts of the case
In order for a precedent to be binding on a judge in a later case, the material
facts of the two cases must be the same. If they are significantly different,
the precedent will be persuasive rather than binding.
When is a precedent not binding?
A precedent is not binding where it:
•
•
•
•
has been overruled by a higher court
has been overruled by statute
was made without proper care
can be distinguished from the earlier case, i.e. the material facts differ.
Advantages and disadvantages of judicial precedent
Advantages
•
Reaching decisions as a result of the doctrine of precedent makes the
system consistent. It becomes easier to predict the result of litigation.
•
It allows the English legal system to be flexible. Decisions can be
adapted and extended to reflect changes in society.
•
The law is clear. As it is only the ratio decidendi that is followed it is
easy to see what law is being applied.
•
Decisions arise from actual events, therefore the system is practical.
Disadvantages
•
8
The law is very complex because there is a vast number of cases, and
inconsistencies can arise. The same judgement may contain differing,
and even conflicting, arguments making the precedent hard to
understand and even harder to apply.
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•
The law can become rigid, leading to inflexibility and loss of
development.
•
Case law is reactive rather than proactive.
Test your understanding 2
(1) Which one of the following statements about the law of equity
is untrue?
A Equitable remedies may only be awarded at the discretion of
the court.
B
Equity originally developed as a result of individual appeals to
the King being delegated to the Lord Chancellor.
C
Equitable remedies include damages, injunctions and decrees
of specific performance.
D
Equity will prevail in a case of conflict between it and the
common law.
(2) Which part of a case decided by the courts is binding on
lower courts dealing with the same material facts?
A Obiter dicta.
B
The decision of the judge.
C
The ratio decidendi.
D
All of the above.
(3) Which one of the following is the highest court in England?
A The Court of Appeal.
B
The House of Lords.
C
The High Court.
D
The Crown Court.
(4) Which one of the following statements is untrue?
A Decisions of the House of Lords bind all lower courts.
B
The House of Lords is not bound by its own decisions.
C
Decisions of the House of Lords override statute.
D
Appeals can be made from the House of Lords to the ECJ.
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English legal system
4 Legislation
Types of legislation
Legislation falls into two categories:
•
•
Acts of Parliament
delegated legislation.
Acts of Parliament
Parliament consists of:
•
•
•
the House of Commons
the House of Lords
the Monarch.
In order to become an Act of Parliament, a Bill must go through the following
stages in both Houses:
•
•
•
•
•
first reading
second reading
committee stage
report stage
third reading.
At the end of this process in both Houses, the Bill must receive the Royal
Assent.
Note that an Act does not necessarily come into force immediately. Its
provisions may take effect on a piecemeal basis.
Doctrine of sovereignty of Parliament
Parliament is sovereign. This means that, in theory, it is only Parliament that
can make new law and it can make any law it wishes. However it cannot
pass an Act which can never be repealed.
The courts cannot question the validity of an Act. However, they must refuse
to apply an Act that contravenes EC law.
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Delegated legislation
Delegated legislation is made on behalf of Parliament. It consists of:
•
statutory instruments: made by Government Ministers using powers
delegated by Parliament
•
•
byelaws: made by local authorities
Orders in Council: made by the Privy Council in the name of the
Monarch on the advice of the Prime Minister.
Delegated legislation has a number of advantages:
•
•
It saves Parliamentary time.
•
Flexibility – it is quick and easy to make and to change.
It may benefit from access to technical expertise, thus leaving
Parliament free to consider and debate the underlying principles.
However, it also has a number of disadvantages:
•
Its volume and lack of publicity means that it can be difficult to keep up
with the changes introduced.
•
It is criticised as being undemocratic as it is made without recourse to
the elected House of Commons.
There are a number of means of controlling delegated legislation:
•
Parliamentary – Some statutory instruments must be approved by
Parliament. Others become law after 40 days unless a resolution to
annul is passed.
•
Judicial – The courts can challenge the validity of delegated legislation
through the process of judicial review. It can be challenged on the
grounds that the person making it has acted ultra vires, by exceeding
their powers. If successful the court will declare it void and
unenforceable.
•
Human Rights Act 1998 – Delegated legislation is secondary
legislation, therefore it can be declared invalid by the courts if it is
incompatible with HRA 1998.
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English legal system
Test your understanding 3
(1) Which of the following statements is correct?
I
In the event of a conflict between equity and the common law,
the common law prevails.
II
An Act of Parliament can overrule any common law or equitable
rule
A
(I) only.
B
(II) only.
C
Neither (I) nor (II).
D
Both (I) and (II).
(2) Which of the following is NOT a form of delegated legislation?
A Orders in Council.
B
Statutory instruments.
C
Local authority byelaws.
D
Acts of Parliament.
5 Rules of statutory interpretation
Introduction
The process by which judges assign meanings to ambiguous words or
phrases in statutes is called the interpretation of statutes.
Judges can use certain aids, rules and presumptions to help them assign a
meaning to a word.
Aids to interpretation
The courts can use the following aids to help them interpret a statute:
•
•
•
•
•
12
the legislation itself (i.e. its definition section)
judicial precedents
the Interpretation Act 1978
the Oxford English Dictionary
Hansard (to see what was said in Parliament when the Bill was being
debated)
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