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DIPLOMA II - PRINCIPLES OF BUSINESS LAW

SOURCES OF LAW The source of a law is the means by which the law comes into existence. The sources of law may be classified into historical sources and legal sources. There are two historical sources of law - the common law and equity. There are four legal sources of law - case law/judicial precedent, legislation, European or EC Law and custom. There is some overlap between the historical sources and the legal sources as the historical sources form the basis of the body of case law/judicial precedent. There are also subsidiary sources of law which are not as relevant today since they are not responsible for the direct creation of law eg Merchant law, Roman law and Canon law. Historical Sources Common Law The common law developed from the merging of the various customs that existed for centuries in the different areas of England arising from Englands historical development. Prior to the 5th century, the Romans occupied England. The Romans left England in AD 410 and took with them their strong army. England was therefore unable to defend itself and succumbed to various invasions. The Anglo Saxons invaded England in the 5th century. They were made up of three main tribes the Angles from Germany, the Saxons from Denmark and the

Jutes from Northern Holland. Each group established separate kingdoms. The Angles settled in the North and East, the Saxons in the South and West and the Jutes on the mainland. They occupied England from the 5th to the 7th century. There was no written law at the time. Each group established its own customary law which was enforced by community elders and tribal chiefs. By the 7th century there were five main Anglo-Saxon kingdoms - Northumbria, Mercia, Wessex, Kent and Anglia. In the 8th and 9th century the Danish Vikings took over England bringing in a Scandanavian influence. They settled in the North east part of England. They called their territory Danelaw and the laws of Danelaw emerged. By the middle of the 11th century there was no law common to the whole of England, The south and west regions were governed by Wessex law, the midlands by Mercia Law and the north by Danelaw. The remaining Saxon Kings had at this time begun to put pre-existing customs into writing. These became known as the law of the Anglo-Saxons. The year 1066 is considered instrumental to the development of the common law. In 1066 the Norman Kings seized control of England. The King realized that in order to have control he needed to have a strong central government and a single system of law. Rather than impose a foreign system of law on the people, he sent out royal officials, known as itinerant justices (royal judges) into the country areas to adjudicate in local disputes. They resolved these disputes using the principles derived from existing customs and local law. They then returned to the centre of government in Westminister and discussed the different customs existing in the different regions. They accepted the rationale rules, rejected the irrational ones and fused the consistent local practices into a body of common rules. This process of unification was done over a period of two centuries. By the middle of the 13th century a common law had emerged which applied throughout the whole of England.

Problems with the Common Law Eventually, the common law became to be viewed as rigid. Its rules were strict and its application led to injustice and oppression in many instances, for example: (i) Obtaining justice was based on the availability of ones claim fitting into a standard writ. One could be denied justice because the required form to file a claim was not available. To commence an action, the plaintiff (the person who complains or brings an action asking the court for relief) obtained from the main royal office, a writ (a written command or order issued under the Kings authority) addressed to the Sheriff of the county in which the defendant (the person against whom a civil action is brought or who is prosecuted for a criminal offence) resided, by which the Sheriff was required to ensure that the defendant appeared for trial. The writ specified the ground of the complaint and gave a brief summary of the facts on which the plaintiff required a judgment. Writs could only be issued on one of the established forms, where the possible grounds of action were identified. If no writ existed with the required ground it was not possible to have a new writ prepared to bring the grievance before the court. This aspect of the common law which was based on the availability of standard writs was an inadequate means of providing justice as it was too rigid. (ii) The focus was mainly on procedure. One could be prejudiced if the wrong procedure was not followed.

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Only limited remedies of damages available. A successful plaintiff could find himself unable to enforce a judgment given in his favour because there was no suitable common law remedy.

Equity Citizens who felt they were unable to obtain justice in the common law courts petitioned the King to intervene to offer some relief. The Kings residuary power as keeper of the fountain of all justice allowed him to intervene to temper the inflexibility of injustice under the common law with the need for justice exercising a sense of reason, good faith, good conscience and morality. He referred these petitions to the Chancellor. In dealing with each petition the Chancellors concern was to establish the truth of the matter and then to impose a just solution without undue regard for the technicalities of procedural points. Because the principles on which the Chancellor decided points were based on fair dealing between two individuals as equals, these principles became known as equity. The word was derived from the Latin phrase aequitas which meant fairness or reasonableness. Equity was administered by the Court of Chancery. The system of equity developed and administered by the Court of Chancery was not an alternative to the common law, but a method of adding to and improving the common law. The two were therefore meant to operate simultaneously. Benefits of Equity The interaction of common law and equity produced three major changes: (1) New rights

Equity recognized and protected rights that were previously unrecognized under the common law, for eg, the rights of a mortgagor. When a mortgage was given, the land was usually held as security or collateral. The borrower (mortgagor) would convey his land to the lender (the mortgagee) for the money the mortgagee lent the mortgagor. The money was usually stated to be repaid at a later date, generally 6 months from the date of the conveyance. The mortgage documents would usually contain a provision whereby the mortgagee would re-convey the land to the mortgagor once all the moneys were repaid by the stipulated date for re payment. Very often, mortgagors were unable to repay on the stipulated date with the result that they lost the right to get back their property. Equity intervened and insisted on adhering to the real intention of the parties. In the Chancellors view the land was only conveyed as a mere security for the loan. Though the legal right of redemption expired with the date of repayment, an equitable right of redemption arose immediately after such expiry. The mortgagor had a new kind of equitable ownership he had his equity of redemption and he resembled a beneficiary under a trust. This equitable right he could sell, devise by will or mortgage again, and he could only lose it after the Court of Chancery had given ample time to repay. Thus, when an application was made to the Court of Chancery to foreclose the mortgagor was given a last chance by order nisi that is, unless he paid within a stated time, he lost his right to redeem. 2. Equity introduced better and more equitable remedies. The standard

award under the common law was an award of damages, that is, monetary compensation for the loss suffered. Equity was able to order: specific performance where the court orders the defendant to perform his side of the contract. injunctive relief - where the court orders the other party to observe certain restrictions. An injunction can be a positive or a mandatory injunction, which requires a party to do a specific act or it can be a prohibitory or

negative injunction, which requires a party to refrain from doing a particular act. There are different types of injunctions A Freezing Order (formerly called a mareva injunction) is an order to restrain the defendant from disposing of his assets so as to render them unavailable or untraceable in the event of a judgment. A search and seizure order (formerly an anton pillar injunction) is an ex parte (meaning an application made without notice) mandatory order requiring the defendant to permit the plaintiff to enter premises and remove the offending items eg pirated goods. It is done ex parte because if the defendant had knowledge of the action he may attempt to destroy the goods. Rectification to alter the document so that it reflects the true intention of the parties. Rescission setting aside of dispositions or transactions so that a contract is regarded as being dissolved from inception (we will explore this concept in depth in later lectures). Equitable Maxims Equity developed with certain equitable maxims (principles) (i) He who comes to equity must come with clean hands to be fairly treated, the plaintiff must have acted fairly himself. In D & C Builders v Rees (1966) a small building firm did some work on the house of a couple named Rees. The bill came to 732 of which Rees had already paid 250. When the builders asked for the balance of 482, Rees announced that the work was defective and that they were only prepared to pay 300. As the builders were in serious financial difficulties (as Rees knew), they reluctantly accepted the 300 in completion of the account. Afterwards the builders sued Rees for the outstanding amount. Rees claimed that the court should apply the doctrine of equitable estoppel. The court refused to apply the doctrine on the ground that Rees had taken unfair advantage of the builders financial difficulties, and therefore had not come with clean hands.

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Equality is equity. The law attempts to play fair and redress the balance, hence what is available to one person must be available to another.

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Equity looks at the intent and not the form. It was concerned with the spirit of the law and not the strict letter of the law. However a person may try to pretend that he is doing something in the correct form, equity will look at what he is actually trying to achieve.

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He who seeks equity must do equity. Anyone who seeks equitable relief must be prepared to act fairly towards their opponent. Delay defeats equity. Where a claimant takes an unreasonably long time to bring an action, equitable remedies will not be available.

The Relationship between Common Law and Equity Equity was not originally a consistent code of law. It was more of along the lines of disconnected intervention in legal disputes in order to bring more equitable relief. Each judge applied a personal and sometimes arbitrary standard of what he considered fair. From the 16th century, the judges who were later recruited from the legal profession were trained in common law. Under the common law influence, equity became a consistent body of doctrine and at least as technical as the common law. In theory, equity accepted common law rights but insisted that they should be exercised in a just fashion. The practical effect was that a decision of the court of chancery often reversed or conflicted with common law rules. The rivalry between chancery and common law courts was resolved in 1615 by a decision of the King in the Earl of Oxfords Case that where the rules of common law and equity conflict, equity must prevail. The dual court system was ended by the Judicature Acts of 1873 and 1875 which amalgamated the English courts. The court of chancery and the common law

courts were abolished and the two rival systems of common law and equity as administered on different principles came to an end. The Supreme Court of Judicature was established for the common law and chancery courts. Every judge had both a common law and an equity mind. The principle still remained that where there was any conflict between the rules of equity and those of the common law, the rules of equity should prevail. It is important to recognise that the Judicature Acts fused only the administration of common law and equity. The two branches of law themselves were not fused. They remained and still remain distinct and separate. Where common law applies it tends to be automatic in its effect. Equity recognises the common law as it always did. It sometimes offers an alternative solution, but the court has a discretion as to whether it will grant an equitable remedy instead of a common law one. The discretionary nature of equitable remedies means that a person who wins an action will not necessarily get the action he wants. In Miller v Jackson (1977), the Court of Appeal held that a cricket club had committed both negligence and nuisance by allowing cricket balls to be struck out of the ground into the plaintiffs adjoining premises. The court however refused to grant the injunction that the plaintiff had sought. Instead, it awarded damages on the ground that the interest of the public in being able to play and watch cricket on the ground where it had been played for over 70 years should prevail over the hardship of a few individual households who had only recently purchased their homes.

Legal Sources 1. Judicial Precedent

The doctrine of precedent states that cases which have the same material facts must be decided the same way. This enables the building of a body of consistent principles in different areas of law as earlier cases form the basis for decisions of later cases once the facts are similar. This underlying principle is called the ratio decidendi, namely the general reasons given for the decision or the general grounds upon which it is based, detached or abstracted from the specific peculiarities of the particular case. What are material facts depends on the particular case, for example, in one case, facts A, B and C exist. The court finds that fact A is immaterial to the issue to be determined and that facts B and C are. He gives decision X based on facts B and C. The doctrine of precedent states that if in the future, facts A, B and C exist or the material facts of B and C exist, then the judge deliberating on those facts must also arrive at decision X. In determining the ratio decidendi of a prior decision, a court will look at the opinions of the judges who decided the case, but these opinions do not necessarily contain the ratio as an explicit statement, and the opinions may in some situations be disregarded by later courts as too wide, too narrow or as inaccurate as a statement of the ratio of the case. Note that a judge may make a distinction between one set of facts and another, and cases with broadly similar facts need not always be decided in the same way if a judge distinguishes one from another on the basis of any particular fact. Obiter Dicta statements made by the way. A judge may think it desirable to give his opinion on a matter although it is not necessary for the decision of the case.

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Statute Law

A Statute is a document containing laws made by Parliament. Each usually deals with a separate topic. Acts of Parliament Parliament is responsible for making legislation. It used to be that in the UK, Parliament was supreme. This meant that any law that it made would be superior to and take precedence over any other law from any other source. Since Britain became part of the European Union (EU) however, EU law can override a law made by the UK Parliament. The UK Parliament consists of: (i) the House of Commons (similar to House of Representatives or elected Lower House in Trinidad and Tobago where the representatives are elected from the various constituencies) (ii) the House of Lords which the consists of persons appointed mostly by the Queen (similar to the Senate or Upper House in Trinidad and Tobago where persons are appointed by the President) (iii) the Monarch (Monarchy in Trinidad and Tobago but for this reference, similar to the President of the Republic of Trinidad and Tobago) The UK Parliament has power to make, amend or revoke any law. A proposal for a new law may be made in either house but the bill must be passed in both. All financial bills however must be initiated in the House of Commons. The Making of an Act Every act must first start as a bill. A bill is a draft of proposed legislation. There are three types of bills: (a) private bills these are bills that affect private rights or interests of a particular group such as corporate bodies or local groups or churches for

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example, a local government authority seeking the right to build a bridge or a road. (b) Private members which are selected by ballot after someone who is not a member of the cabinet or an MP wanting to put forward a bill are able to convince the cabinet that parliamentary time should be allocated towards its discussion, for example, a bill on abortion, euthanasia. (c) Public bills these are Government bills that deal with matters of general public interest affecting the entire citizenry and change the law of the entire country, eg, The Unfair Contract Terms Act (1977) and The Sale of Goods Act 1979. A bill must first pass through a series of stages before it can become an act. The preparation of the bill is first done by draftsmen in the office known as the Parliamentary Counsel. Thereafter, there are seven stages to a bill becoming an act: (i) First Reading This involves the reading of the title to the bill in the House of Commons. It is a literal reading of the title of the bill only. There is no debate. It is done as a matter of formality. It is the official introduction of the proposed measure. (ii) Second Reading Here there is a full debate of the main principles of the bill and members of the house then vote on whether or not the bill should proceed to the next stage. (iii) Committee Stage

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The bill is referred to a committee of the House for further examination. Each section of the bill in examined and amendments made. (iv) Report Stage The bill is sent back to the House and the committee reports. There will be further debate on any proposed amendments. (v) Third Reading The bill is presented again to the House. If necessary, a short debate may follow, but it is usually very brief. Members vote on whether to accept or reject the bill in its existing form. (vi) House of Lords The bill is then sent to the other house and the various stages repeated. (vii) Royal Assent This is the assent of the Queen. Technically, she must give her consent to the passage of every single bill before it becomes an act of law. In reality, she does not ever raise objection or refuse to give her consent. Delegated Legislation Delegated legislation is any legislation that is not primary legislation. It is not possible for Parliament by itself to make all laws. There is therefore a process in place whereby Parliament is allowed to delegate its law making powers to ministers or local government authorities. Any such delegation requires the express authority of an Act of Parliament. Many times, the enabling act will identify the parameters of the delegated power. Sometimes the power given can be wide or other times it can be very specific.

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Though this power is delegated, it does not mean that Parliament has given up the right. Parliament still has the right to examine, modify, change or not implement the legislation if it so chooses. There are three main types of delegated legislation: (i) Statutory instruments These are ministerial regulations, namely, authorizations given to a minister or a government department to make a wide variety of rules and regulations. (ii) Bye-laws Power is given to local authorities to make rules. (iii) Orders-in-Council These are usually made by the government in times of emergency. Advantages of Delegated Legislation (i) it reduces the parliamentary time needed to discuss matters. Parliamentary time can be spent discussing matters of general policy. (ii) it can be brought into existence quickly and deal with matters requiring immediate attention. (iii) (iv) it can enable experts to deal with technical areas. it is flexible in that amendments can be made to the various rules without the need to amend an Act of Parliament.

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Disadvantages of Delegated Legislation (i) Parliament does not always have the time to supervise all aspects of delegated legislation. (ii) The law making process is removed from the hands of elected representatives and placed in the hands of government employees. It may at times give the appearance of being less democratic.

SOURCE OF LAW - EC LAW Regulations Regulations are rules of law which are binding on member states. They are directly applicable. A law is directly applicable if there is no need for any further legislation to implement it. It takes immediate effect as it is automatically incorporated into domestic legislation. Such regulations are designed to obtain uniformity throughout member states and may relate to things like EC policies on agricultural, transport, customs duties movement of workers. Regulations also have a direct effect. A law has direct effect if it confers rights and imposes obligations directly on individuals. Regulations have both a vertical direct effect (in that they impose obligations on the state as between the state and the citizen) and a horizontal direct effect (in that they impose obligations as between citizens). One such regulation is the Regulation for the Free Movement of Workers within the Community. Member states are obliged to consider and utilize workers from other member states. This opens up the work market for citizens from the various member states.

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Directives Directives are issued to member states and lay down an objective or policy that each member state must achieve by a certain time. Parliament then has to make changes to the member states existing laws as prescribed by the directive. Unlike regulations, they are not directly applicable. They do not have an immediate binding force. It is up to the individual member state to implement them. It is not possible for a directive to have a horizontal direct effect, only a vertical direct effect. This means that it will not be binding between individuals but between the state and an individual. For example, in a case involving a dispute between an employee and an employer, if the employee in each case had the same grievance, the ultimate result would depend on whether or not the employer was a state body or a private company. If a directive required the member state to take a particular position in relation to employees, and the employer as a state body, for example, and the Ministry of Health, did not take it, and such non action was detrimental to the employee, the employee could sue for relief. If however the employee were a private medical institution, the employee would not be able to insist that the employer comply with the directive since the employer would not be under any obligation to comply. This is illustrated in the following case. In Marshall v Southampton and South West Hampshire Area Health Authority (1986) the Plaintiff wanted to continue working until age 65 but was dismissed at age 62. The Defendants policy was that all employees who reached the age to receive a state pension had to retire. A directive on the need for equal treatment between men and women had been issued sometime prior to this. The Court found that since the qualifying age for the receipt of a state pension was different depending on whether a person was a male or a female, the domestic legislation was discriminatory on the ground of sex and therefore contrary to the directive. The Plaintiff was therefore deemed entitled to continue working until age 65. If

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the Defendant were a private institution the Plaintiff would have been unsuccessful with her action, principally because the directive was not applicable as between individuals/private institutions. Decisions These are not judgments of the European Court of Justice, but rather are a formal method of advising on policy decisions. Very often they are aimed at addressing a specific problem or issue. They may be sent to individuals or to member states. They are binding on all those to whom they are addressed, for example, the Council Decision concerning emergency measures relating to the export of cattle and produce to the Community and to third countries. Decisions can have both direct applicability and direct effect.

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THE COURT SYSTEM Civil v Criminal Civil law governs relationships between legal persons individuals and Corporations e.g. contract law, torts, employment law etc. Cases are decided applying a balance of probabilities test i.e. is it more likely that a person is liable having regard to the evidence. Criminal Law describes the wrongs important to society, which through the intervention of the state are outlawed and for which penalties are imposed e.g. fines, imprisonment etc. Criminal cases are decided applying a different test beyond a reasonable doubt. The standard of proof is higher that in civil cases. Hierarchy of Courts The House of Lords (In Trinidad and Tobago Privy Council) Consists of five judges (seven in very important matters) and hears appeals from the Court of Appeal, or on rare occasions the High Court. The Lords have jurisdiction over criminal and civil matters, and hear approximately 90 100 cases per year. This number is relatively small because of (a) the fact that appeals can only be made on points of law and not every decision displeasing to a party will be heard and (b) the cost is extremely high. The Court of Appeal Two divisions Civil and Criminal Civil Division hears appeals from the High Court and County Courts and consists of two to three Justices of Appeal. Criminal Division hears appeals from the Crown Courts and consists of two to three judges selected from the Lord Chief Justice, Lords justices of Appeal and High Court judges.

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The High Court Consists of three divisions: Queens Bench, Chancery Division and Family Court Queens Bench Admiralty Court Maritime law Commercial Court banking, international trade, international credit Chancery Division Companies Court liquidation of companies, insolvency, Companies Act disputes Patents Court intellectual property matters, patents, copyrights etc. Family Court Adoption, Divorce etc. The County Court These Courts emerged in the 19th Century and consist of two tiers the District Judges and Circuit Judges (the more senior). Appeals from the former go to the latter. The matters are similar in nature to the High Court but less complex or of lower monetary value. The Crown Court Deals with criminal trial and appeal of more serious matters e.g. assault, murder etc. This is the only Court where a Judge often sits with a jury. The function of the Judge is to guide the jury and provide advice on how the law should be applied. The Crown Court is the appellate Court from the Magistrates Court.

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The Magistrates Court These Courts are all first instance Courts and the bulk of the matters heard here are less serious criminal offences and the matters (90%) are tried by Magistrates. There is also a civil element to the jurisdiction of these Courts so liquor licenses, tax arrears and some family matters are heard here. These matters are heard by Justices of the Peace who are lay people with little formalized legal training but who obtain legal advice from a legally qualified Justices Clerk. Tribunals and Other Courts There are several tribunals many of which deal with administrative matters. They control a vast range of activities including employment matters, issuing airplane licenses, parking fines, social security benefits etc. These Tribunals are all creatures of statute and operate within the controls of the statute which created them. Some of these Courts have rights of appeal to High Courts or Courts of Appeal. The Employment Tribunal appeals are heard by the Employment Appeal Tribunal and then to the Court of Appeal.

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