Answers

Part 2 Examination Paper 2.2(ENG) Corporate and Business Law (English) 1 Precedent

June 2007 Answers

The doctrine of binding precedent, or stare decisis, lies at the heart of the English legal system. The doctrine refers to the fact that within the hierarchical structure of the English courts, a decision of a higher court will be binding on a court lower than it in that hierarchy. When judges try cases they will check to see if a similar situation has come before a court previously. If the precedent was set by a court of equal or higher status to the court deciding the new case then the judge in the present case should normally follow the rule of law established in the earlier case. (a) The Hierarchy of the Courts The House of Lords stands at the summit of the English court structure and its decisions are binding on all courts below it in the hierarchy. As regards its own previous decisions, up until 1966 the House of Lords regarded itself as bound by its previous decisions. In a Practice Statement ([1966] 3 All ER 77) of that year, however, Lord Gardiner indicated that the House of Lords would in future regard itself as free to depart from its previous decisions where it appeared right to do so. There have been a number of cases in which the House of Lords has overruled or amended its own earlier decisions (e.g. Conway v Rimmer (1968); Herrington v British Rail Board (1972); Miliangos v George Frank (Textiles) Ltd (1976); R v Shivpuri (1986)) but this is not a discretion that the House of Lords exercises lightly. It has to be recognised that in the wider context the House of Lords is no longer the supreme court and its decisions are subject to decisions of the European Court of Justice in terms of European Community law, and, with the implementation of the Human Rights Act 1998, the decisions of the European Court of Human Rights in matters relating to human rights. In civil cases the Court of Appeal is generally bound by previous decisions of the House of Lords and its own previous decisions. There are, however, a number of exceptions to this general rule. The exceptions arise where: (i) (ii) there is a conflict between two previous decisions of the Court of Appeal. a previous decision of the Court of Appeal has been overruled by the House of Lords. The Court of Appeal can ignore a previous decision of its own which is inconsistent with European Community law or with a later decision of the European Court.

(iii) the previous decision was given per incuriam, i.e. in ignorance of some authority that would have led to a different conclusion (Young v Bristol Aeroplane Co Ltd (1944)). Courts in the criminal division, however, are not bound to follow their own previous decisions which they subsequently consider to have been based on either a misunderstanding or a misapplication of the law. The Divisional Courts of the High Court are bound by the doctrine of stare decisis in the normal way and must follow decisions of the House of Lords and the Court of Appeal. They are also normally bound by their own previous decisions, although in civil cases it may make use of the exceptions open to the Court of Appeal and in criminal appeal cases the Queens Bench Divisional Court may refuse to follow its own earlier decisions where it feels the earlier decision to have been wrongly made. The High Court is bound by the decisions of superior courts. Decisions by individual High Court Judges are binding on courts inferior in the hierarchy, but such decisions are not binding on other High Court Judges although they are of strong persuasive authority and tend to be followed in practice. Crown Courts cannot create precedent and their decisions can never amount to more than persuasive authority. County courts and magistrates courts do not create precedents. It is important to establish that it is not the actual decision in a case that sets the precedent; that is set by the rule of law on which the decision is founded. This rule, which is an abstraction from the facts of the case, is known as the ratio decidendi of the case. Any statement of law that is not an essential part of the ratio decidendi is, strictly speaking, superfluous. Any such statement is referred to as obiter dictum, i.e. said by the way. Although obiter dicta statements do not form part of the binding precedent they are persuasive authority and can be taken into consideration in later cases and clearly the higher the court which makes the obiter statement the more likely it is to be followed subsequently. (b) Advantages of Case Law There are numerous perceived advantages of the doctrine of stare decisis, amongst which are: (i) Time saving This refers to the fact that it saves the time of the judiciary, lawyers and their clients for the reason that cases do not have to be re-argued. In respect of potential litigants it saves them money in court expenses because they can apply to their solicitor/barrister for guidance as to how their particular case is likely to be decided in the light of previous cases on the same or similar points. Certainty Once the legal rule has been established in one case, individuals can act with regard to that rule relatively secure in the knowledge that it will not be changed by some later court.

(ii)

(iii) Flexibility This refers to the fact that the various mechanisms by means of which the judges can manipulate the common law provides them with an opportunity to develop law in particular areas without waiting for Parliament to enact legislation.

The main mechanisms through which judges alter or avoid precedents are: Overruling, which is the procedure whereby a court higher up in the hierarchy sets aside a legal ruling established in a previous case. Distinguishing, on the other hand, occurs when a later court regards the facts of the case before it as significantly different from the facts of a cited precedent. Consequently it will not be bound to follow that precedent. Judges use the device of distinguishing where, for some reason, they are unwilling to follow a particular precedent. Disadvantages of Case Law (i) Uncertainty This refers to the fact that the degree of certainty provided by the doctrine of stare decisis is undermined by the absolute number of cases that have been reported and can be cited as authorities. This uncertainty is increased by the ability of the judiciary to select which authority to follow through use of the mechanism of distinguishing cases on their facts. Fixity This refers to the possibility that the law in relation to any particular area may become set on the basis of an unjust precedent with the consequence that previous injustices are perpetuated. An example of this is the long delay in the recognition of the possibility of rape within marriage, which has only been recognised relatively recently.

(ii)

(iii) Unconstitutionality This is a fundamental question that refers to the fact that the judiciary are in fact overstepping their theoretical constitutional role by actually making law rather than restricting themselves to the role of simply applying it.

(a)

This question invites candidates to examine the law relating to consideration in contract law. English law does not enforce every promise which is made. One way in which the courts limit the type of promise that they have to deal with is through the operation of the doctrine of consideration. English law does not enforce gratuitous promises, i.e. promises given for no return, unless of course such promises are given by way of a formal deed. For a simple promise to be enforceable in a court of law it is necessary that the person to whom the promise was made, the promisee, should have done something in return for the promise from the promisor. That something done in return for a promise is consideration and can therefore be understood as the price paid for a promise. The element of bargain implicit in the idea of consideration may be seen in Sir Frederick Pollocks definition of it, subsequently adopted by the House of Lords in Dunlop v Selfridge (1915), as: An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable. An alternative, and shorter, definition of consideration is some benefit to the promisor or detriment to the promisee. It is important to note that it is not necessary for both elements in the definition to be present to support a legally enforceable agreement. Although in practice there usually is a reciprocal exchange of benefit and detriment it is nonetheless possible for a promisee to provide consideration for a promise without their action directly benefiting the promisor. As long as the promisee acts to their detriment it is immaterial whether that act actually benefits the promisor or not. The promisee will still have provided consideration and the promise made to elicit the promisees action will be legally enforceable against the promisor.

(b)

Consideration can be divided into the following categories: (i) Executory consideration is the promise to perform an action at some future time. One party to a contractual agreement may pay money to another on the understanding that the latter will perform some act for them in the future. Or alternatively they might provide an immediate benefit for the other party on the understanding that the latter will provide a reciprocal benefit in the future. Contracts may also be made solely on the basis of an exchange of promises as to future action, without the need for any present action. In such circumstances the mere promises provide mutual/reciprocal consideration and any such agreement entered into is legally binding and enforceable in a court of law. Such a contract is known as an executory contract. Executed consideration, as may be gathered from the term, refers to consideration that has actually been carried out, thus making the promise for which it was performed enforceable. In the case of unilateral contracts, where the offerer promises something in return for the offerees doing something, the original promise only becomes enforceable when the offeree has actually performed the required act. The action requested does not have to be performed but once it is done then the original promise becomes legally enforceable. For example, if A offers a reward for the return of their lost dog, the reward only becomes enforceable once it has been found and returned to them.

(ii)

(iii) Past consideration does not actually count as valid consideration, therefore no agreement resting on past consideration is legally enforceable. Normally consideration is provided either at the time of the creation of a contract or at a later date. In the case of past consideration, however, the action done is performed before the promise. Such prior action is not deemed sufficient to support the later promise. Thus in Re McArdle (1951) a number of children were entitled to a house on the death of their mother. Whilst the mother was alive, a son and his wife had lived with her, and the wife made various improvements to the house. The children later promised that they would pay the wife 488 for the work she had done. It was held that as the work was completed before the promise was given, it was past consideration and the later promise could not be enforced. There are exceptions to the rule that past consideration will not support a valid contract. For example, where the promisee performed the action at the request of the promisor and payment was expected, then any subsequent promise to pay will be enforceable. Thus in Re Caseys Patents (1892) the joint owners of patent rights asked Casey to find

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licensees to work the patents. After he had done as requested they promised to reward him. When one of the patent holders died his executors denied the enforceability of the promise made to Casey on the basis of past consideration. It was held that the promise made to Casey was enforceable on the basis that there had been an implied promise to reward him before he had performed his action. The later promise merely fixed the extent of that reward.

This question invites candidates to examine the various remedies that may be available to innocent parties when they suffer as a consequence of a breach of contract. Breach of a contract occurs where one of the parties to the agreement fails to comply, either completely or satisfactorily, with their obligations under it. A breach of contract may occur in three ways: (i) where a party, prior to the time of performance, states that they will not fulfil their contractual obligation; (ii) where a party fails to perform their contractual obligation; (iii) where a party performs their obligation in a defective manner. Any breach will result in the innocent party being able to sue for an appropriate remedy. In addition, however, some breaches will permit the innocent party to treat the contract as discharged. In this situation they can refuse either to perform their part of the contract, or to accept further performance from the party in breach. The principal remedies for breach of contract are: damages; quantum meruit; specific performance; injunction. Damages Every failure to perform a primary obligation is a breach of contract. The secondary obligation on the part of the contract-breaker, by implication of the common law, is to pay monetary compensation to the other party for the loss sustained by him in consequence of the breach (Photo Productions Ltd v Securicor Transport Ltd (1980)). Such monetary compensation for breach of contract is damages. There are two issues to consider: remoteness and measure. (i) Remoteness of damage This involves deciding how far down a chain of events a defendant is liable. The rule in Hadley v Baxendale (1845) states that damages will only be awarded in respect of losses which arise naturally, i.e. in the natural course of things; or which both parties may reasonably be supposed to have contemplated, when the contract was made, as a probable result of its breach. The effect of the first part of the rule in Hadley v Baxendale is that the party in breach is deemed to expect the normal consequences of the breach, whether they actually expected them or not. Under the second part of the rule, however, the party in breach can only be held liable for abnormal consequences where they have actual knowledge that the abnormal consequences might follow. Thus in Victoria Laundry Ltd v Newham Industries Ltd (1949) the plaintiff was able to claim for damages with respect to the normal profits, but could not claim abnormal profits which would have resulted from an especially lucrative contract, which the defendant knew nothing about. (ii) Measure of damages Damages in contract are intended to compensate an injured party for any financial loss sustained as a consequence of another partys breach. The object is not to punish the party in breach, so the amount of damages awarded can never be greater than the actual loss suffered. The aim is to put the injured party in the same position they would have been in had the contract been properly performed. Even damages of a non-financial nature can be recovered (Jarvis v Swan Tours Ltd (1973)). It is possible, and common in business contracts, for the parties to an agreement to make provisions for possible breach by stating in advance the amount of damages that will have to be paid in the event of any breach occurring. Damages under such a provision are known as liquidated damages. They will only be recognised by the court if they represent a genuine preestimate of loss, and are not intended to operate as a penalty against the party in breach (Dunlop v New Garage & Motor Co (1915)). Quantum meruit Quantum meruit means that a party should be awarded as much as he had earned, and such an award can be either contractual or quasi-contractual in nature. If the parties enter into a contractual agreement without determining the reward that is to be provided for performance, then in the event of any dispute, the court will award a reasonable sum. Payment may also be claimed on the basis of quantum meruit, where a party has carried out work in respect of a void contract (Craven-Ellis v Canons Ltd (1936)). Specific performance An order for specific performance requires the party in breach to complete their part of the contract. The following rules govern the award of such a remedy.

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specific performance will only be granted in cases where the common law remedy of damages is inadequate. It is most commonly granted in cases involving the sale of land, where the subject matter of the contract is unique. (ii) specific performance will not be granted where the court cannot supervise its enforcement. For this reason it will not be available in respect of contracts of employment or personal service (Ryan v Mutual Tontine Westminster Chambers Association (1893)). (iii) specific performance, as an equitable remedy, will not be granted where the plaintiffs themselves have not acted properly. Injunction This is also an equitable order of the court, which directs a person not to break their contract. An injunction will only be granted to enforce negative covenants within the agreement, and cannot be used to enforce positive obligations (Whitwood Chemical Co v Hardman (1891)). However, it can have the effect of indirectly enforcing contracts for personal service (Warner Bros v Nelson (1937)). Quasi-contractual remedies are based on the assumption that a person should not receive any undue advantage from the fact that there is no contractual remedy to force them to account. An important quasi-contractual remedy is an action for money paid and received. If no contract comes into existence for reason of a total failure of consideration, then under this action, any goods or money received will have to be returned to the party who supplied them.

(i)

This question requires candidates to consider the meaning of implied authority before going on to explain the implied authority of a company secretary. (a) Implied authority is the authority that derives from a persons position. It arises from the relationship that exists between the principal and the agent and from which it is assumed that the principal has given authority to the other person to act as their agent. Thus, it is implied from the particular position held by individuals that they have the authority to enter into contractual relations on behalf of their principal and third parties are entitled to assume that agents holding a particular position have all the powers that are usually provided to such an agent. Without actual knowledge to the contrary, they may safely assume that the agent has the usual authority that goes with their position. In Watteau v Fenwick (1893), the new owners of a hotel continued to employ the previous owner as its manager. They expressly forbade him to buy certain articles, including cigars. The manager, however, bought cigars from a third party, who later sued the owners for payment as the managers principal. It was held that the purchase of cigars was within the usual authority of a manager of such an establishment and that for a limitation on such usual authority to be effective, it must be communicated to any third party. In relation to companies, there are many layers of implied authority. For example, a person appointed as managing director usually is entitled to exercise all the powers of the company. Consequently a managing director can bind the company in any contract within its capacity, even if their actual authority has been curtailed in some way. Equally, other agents of the company have different authority, thus shop assistants are able to bind their employers to contracts within the limited area of their authority. (b) As has been stated, authority to enter into contracts on behalf of companies can be implied from the position held by that person. This applies in relation to company secretaries just as much as managing directors, the only question is the extent of the secretarys implied authority. Although the old authorities such as Houghton & Co v Northard Lowe & Wills (1928) treated company secretaries as having very little authority to bind their companies, later cases have recognised the important role of the modern company secretary. Thus in Panorama Developments Ltd v Fidelis Furnishing Fabrics Ltd (1971) the Court of Appeal held that a company secretary was entitled to sign contracts connected with the administrative side of a companys affairs.

This question requires candidates to explain the various conditions under which partnerships may be dissolved. There are a number of possible reasons for bringing a partnership to an end. It may have been established for a particular purpose and that purpose has been achieved, or one of the partners might wish to retire from the business, or the good relationship between the members, which is essential to the operation of a partnership, may have broken down. In all such cases, the existing partnership is dissolved, although in the second case a new partnership may be established to take over the old business. Reference should be made to the Partnership Act 1890 (PA). Grounds for dissolution Partnerships are created by agreement and they may be brought to an end in the same way. However, subject to any provision to the contrary in the partnership agreement, the PA 1890 provides for the dissolution of a partnership on the following grounds: The expiry of a fixed term or the completion of a specified enterprise (s.32(a) and (b)) It is possible for a partnership to be established for a stated period of time and at the end of that time the partnership will come to an end and the partnership will be dissolved. Alternatively it is possible for the partnership to be established in order to achieve a particular goal and again once that goal has been attained the partnership will come to an end. However, it is possible for the partnership to continue beyond this stated period or the goal if the partners agree. If the partnership does continue after the preset limit, it is known as a partnership at will and it can be ended at any time thereafter at the wish of any of the partners.

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The giving of notice (s.32(c)) If the partnership is of indefinite duration, then it can be brought to an end by any one of the partners giving notice of an intention to dissolve the partnership. The death or bankruptcy of any partner (s.33(1)) The ordinary partnership has no legal personality in its own right but merely exists as the collection of individuals it is apparent that the death of a member will bring about the end of the partnership. (N.B. this of course is not the case with limited partnerships formed under the Limited Liability Partnerships Act 2000 which does provide legal capacity to such partnerships formed under its provisions.) Although the occurrence of either of these events will bring the original partnership to an end, it is usual for partnership agreements to provide for the continuation of the business under the control of the remaining/solvent partners who will constitute a new partnership. The dead partners interest will be valued and paid to his or her personal representative, and the bankrupts interest will be paid to his or her trustee in bankruptcy. Where a partners share becomes subject to a charge (s.23 (s.33(2)) Section 23(1) of the PA prevents action against partnership property in relation to any personal debt owed by a partner. However, s.23(2) allows for the creation of a charge against the partners interest in the property or profits in relation to any judgment debt. Such a situation may well prove unsatisfactory to the other partners and therefore s.33(2) allows for the dissolution of the partnership in such circumstances. It should be noted, however, that dissolution in this instance is not automatic; it is merely open to the other partners to dissolve the partnership. Illegality (s.34) The occurrence of events making the continuation of the partnership illegal will bring it to an end. An obvious case would be where the continuation of the partnership would result in trading with the enemy (see R v Kupfer (1915)). The principle applied equally, however, in a more recent, and perhaps more relevant, case: Hudgell, Yeates and Co v Watson (1978). Practising solicitors are legally required to have a practice certificate. However, one of the members of a three-person partnership forgot to renew his practice certificate and thus was not legally entitled to act as a solicitor. It was held that the failure to renew the practice certificate brought the partnership to an end, although a new partnership continued between the other two members of the old partnership. By Court Order In addition to the provisions listed above, the court may, mainly by virtue of s.35 of the PA 1890, order the dissolution of the partnership under the following circumstances: (i) (ii) Where a partner becomes a patient under the Mental Health Act 1983. Where a partner suffers some other permanent incapacity. This provision is analogous to the previous one. It should be noted that it is for the other partners to apply for dissolution and that the incapacity alleged as the basis of dissolution must be permanent.

(iii) Where a partner engages in activity prejudicial to the business. Such activity may be directly related to the business, such as the misappropriation of funds. Alternatively, it may take place outside the business but operate to its detriment. An example might be a criminal conviction for fraud. (iv) Where a partner persistently breaches the partnership agreement. This provision also relates to conduct which makes it unreasonable for the other partners to carry on in business with the party at fault. (v) Where the business can only be carried on at a loss. This provision is a corollary of the very first section of the PA 1890 in which the pursuit of profit is part of the definition of the partnership form. If such profit cannot be achieved, then the partners are entitled to avoid loss by bringing the partnership to an end.

(vi) Where it is just and equitable to do so. The courts have wide discretion in relation to the implementation of this power. A similar provision operates within company legislation (s.122 Insolvency Act 1986) and the two provisions come together in the cases involving quasi-partnerships (Re Yenidje Tobacco Co Ltd (1916) and Ebrahimi v Westbourne Galleries Ltd (1973)).

(a)

Every company is required to submit a memorandum of association to the companies registry. The memorandum, which represents the company to the outside world, must contain the following clauses: (i) (ii) (iii) (iv) (v) (vi) (vii) name clause, dealt with in part (b) below. registered office clause, which states the companys legal address where statutory registers are kept and where documents can be served on the company. objects clause, which states the purpose for which it was created. Action outside this area is said to be ultra vires. Companies can now register as general commercial companies and can thus carry out any trade or business whatsoever. limited liability clause, which states that the liability of the members is limited. authorised share capital clause, which sets out the maximum share capital that the company is authorised to issue. association clause which merely states that the subscribers to the memorandum wish to form a company and agree to take the shares listed against their names. public limited companies must state that they are public.

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(b)

Except in relation to specifically exempted companies, such as those involved in charitable work, companies are required to indicate that they are operating on the basis of limited liability. Thus private companies are required to end their names, either with the word limited or the abbreviation Ltd, and public companies must end their names with the words public limited company or the abbreviation plc. Welsh companies may use the Welsh language equivalents (CA 1985 ss.25, 27 & 30). Although there is no longer an official Business Names Registry, the Registrar of Companies maintains a register of business names, and will refuse to register any company with a name that is the same as one already on that index (CA 85 s.26(c)). This control is less rigorous than that exercised under the previous legislation and has led to an increase in the use of the tort of passing off, as a means of protecting the goodwill attached to particular business names. The tort of passing off prevents anyone from using a business name which is likely to divert business their way through the suggestion that the business is actually that of some other, more reputable, enterprise (Ewing v Buttercup Margarine Company (1917), but see also Stringfellow v McCain Foods (1984)). Certain categories of names are, subject to the decision of the Secretary of State, unacceptable per se, as follows: (i) names which in the opinion of the Secretary of State constitute a criminal offence (s.26(1)(e)). As an example, it is illegal for non-designated businesses to claim to be banks, but the powers of the Secretary of State are wide enough to control names which might be considered as inciting race hatred. (ii) names which in the opinion of the Secretary of State are offensive (s.26(1)(e)). (iii) names which are likely to give the impression that the company is connected with either government or local government authorities (s.26(2)(a)). (iv) names which include a word or expression specified under the Company and Business Names Regulations 1981 (s.26(2)(b)). This category requires the express approval of the Secretary of State for the use of any of the names or expressions contained on the list, and relates to areas which raise a matter of public concern in relation to their use. Under s.28 of the Companies Act 1985 the Secretary of State has power to require a company to alter its name under the following circumstances: (i) (ii) where it is the same as a name already on the Registrars index of company names. where it is too like a name that is on that index.

The name of a company can always be changed by a special resolution of the company so long as it continues to comply with the above requirements (s.28(1)).

This question requires candidates to consider the procedures relating to the issuing of shares to the public and the rules relating to the payment for shares issued. It is a requirement of English law that the capital of any company having share capital must be divided into shares of a designated and fixed amount (s.2(5)). This designated amount, set out in the companys memorandum of association at the initial registration of the company, establishes the nominal value of the shares in the company. Once issued the market value of the shares may diverge from that nominal value, but that nominal value remains fixed. (a) It is possible, and not at all uncommon, for a company to require prospective subscribers to pay more than that nominal value of the shares they subscribe for. This is especially the case when the market value of the existing shares are trading at above the nominal value. In such circumstances the shares are said to be issued at a premium, the premium being the value received over and above the nominal value of the shares. Section 130 of the Companies Act (CA) 1985 provides that any such premium received must be placed into a share premium account. The premium obtained is regarded as equivalent to capital and, as such, there are limitations on how the fund can be used. Section 130 provides that the share premium account can be used for the following purposes: (i) (ii) (iii) (iv) to to to to pay up bonus shares to be allotted as fully paid to members; write off preliminary expenses of the company; write off the expenses, commission or discount incurred in any issue of shares or debentures of the company; pay for the premium payable on redemption of debentures.

Applying the rules relating to capital maintenance it follows that what the share premium account cannot be used for is to pay dividends to the shareholders. The rules relating to share premiums apply whether the issue is for cash or otherwise and so a share premium account can arise where shares are issued in exchange for property which is worth more than the par value of the shares (Shearer v Bercain Ltd (1980)). In the light of that case, relief from the strict application of the rules relating to premium was introduced in the case of company mergers (s.131 CA 1985) and certain company group reconstructions (s.132 CA 1985). (b) It is a long established rule that companies are not permitted to issue shares for a consideration that is less than the nominal value of the shares together with any premium due. The strictness of this rule may be seen in Ooregum Gold Mining Co of India v Roper (1892). In that case the shares in the company, although nominally 1, were trading at 125p. In an honest attempt to refinance the company, new 1 preference shares were issued and credited with 75p already paid (note the purchasers of the shares were actually paying twice the market value of the ordinary shares). When, however, the company subsequently went into insolvent liquidation, the holders of the new shares were required to pay a further 75p. This common law rule is now given statutory effect in s.100 Companies Act 1985 and is supported by s.99 which states that shares are only treated as paid up to the extent that the company has received money or moneys worth. If a company

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does enter into a contract to issue shares at a discount it will not be able to enforce this against the proposed allottee. However, anyone who takes shares without paying the full value, plus any premium due, is liable to pay the amount of the discount as unpaid share capital, together with interest at 5% (s.100(2)/CA 1985). Also any subsequent holder of such a share who was aware of the original underpayment will be liable to make good the shortfall (s.112 CA 1985). The reason for such rigour in relation to preventing the issue of shares at a discount is the protection of the companys creditors. Shareholders were seen to enjoy the benefit of limited liability but that privilege was only extended to them on the basis that they fully subscribed to the companys capital. That capital being seen as a creditor fund against which they could claim in the event of a dispute. In private companies it is possible to avoid the strict effect of this rule by exchanging shares for property that is overvalued (Re Wragg (1897)). In public companies all such non-cash consideration has to be valued (s.103 CA 1985). Equally the effect of issuing shares at a discount may arise where the company pays underwriting commission under s.97 of the Companies Act 1985 which permits a company, subject to authorisation in its articles and to disclosure, to issue shares at up to a 10% commission. It should also be noted that the above only applies to shares. Debentures may be issued at a discount. This is the case even where they are convertible into shares, as long as they do not carry an immediate right to conversion (Mosely v Koffyfontein Mines (1904)).

This question requires candidates to explain the meaning and procedures involved in the course of a voluntary winding up in company law. One of the many consequences of incorporation is that a registered company becomes a legal entity in its own right having an existence apart from its member shareholders. One of the attributes of this legal personality is that the company has not only separate, but perpetual existence, in that it continues irrespective of changes in its membership. Indeed the company can continue to exist where it has no members at all. Winding up, or liquidation, is the process whereby the life of the company is brought to an end and its assets realised and distributed to its members and/or creditors. The rules governing winding up are detailed in the provisions of the Insolvency Act 1986 (IA) and the exact nature of procedure depends on the type of winding up involved and depends upon the solvency of the company at the time when liquidation commences. Winding up can be conducted on a voluntary basis, in which case the members of the company themselves determine that the time has come for it to come to an end, or alternatively the court may make an order that the companys life should come to an end. This question refers to the first of these alternatives, voluntary winding up. Section 84 IA states that a company may be wound up voluntarily: (i) when any period fixed for the duration of the company by the articles expires or any event occurs which shall, according to the articles, lead to its dissolution. Under such circumstances the winding up has to be approved by an ordinary resolution. (ii) for any other reason whatsoever. Under these circumstances a special resolution is required to approve the winding up. (iii) where its liabilities make it advisable for it to be wound up. In this last case an extraordinary resolution is required to approve the winding up. In any case the winding up is deemed to have started on the date that the appropriate resolution was passed. There are two distinct forms of voluntary liquidation: (a) members voluntary winding up This takes place when the directors of the company are of the opinion that the company is solvent and is capable of paying off its creditors. The directors are required to make a formal declaration to the effect that they have investigated the affairs of the company and that in their opinion it will be able to pay its debts within 12 months of the start of liquidation. It is a criminal offence for directors to make a false declaration without reasonable grounds. On appointment, by an ordinary resolution of the company, the job of the liquidator is to wind up the affairs of the company, to realise the assets and distribute the proceeds to its creditors. On completion of this task the liquidator must present a report of the process to a final meeting of the shareholders. The liquidator then informs the Registrar of the holding of the final meeting and submits a copy of his report to it. The Registrar formally registers these reports and the company is deemed to be dissolved three months after that registration. creditors voluntary winding up This takes place when the company is insolvent when it is decided to wind it up. The essential difference between this and the former type of winding up is that, as the name implies, the creditors have an active role to play in overseeing the liquidation of the company. Firstly a meeting of the creditors must be called within 14 days of the resolution to liquidate the company at which the directors must submit a statement of the companys affairs. The creditors have the final say in who should be appointed as liquidator and may, if they elect, appoint a liquidation committee to work with the liquidator. On completion of the winding up the liquidator calls and submits his report to meetings of the members and creditors. The liquidator then informs the Registrar of the holding of these final meetings and submits a copy of his report to them. The Registrar formally registers these reports and the company is deemed to be dissolved three months after that registration.

(b)

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This question invites candidates to examine the operation of the rules relating to offer, acceptance, and the revocation of offers within the specific context of unilateral offers. Offer and acceptance are essential attributes in the formation of contractual relations. An offer is a promise, which is capable of acceptance, to be bound on particular terms. The offer sets out the terms upon which the offeror is willing to enter into contractual relations with the offeree. Sometimes, however, adverts engage in what are known as sales puffs, which everyone recognises are not meant to be taken seriously. These are not to be taken as offers and therefore are incapable of acceptance. Offers may be made to a particular person, or to a group of people, or to the world at large. If the offer is restricted then only the people to whom it is addressed may accept it; but if the offer is made to the public at large, it can be accepted by anyone. Acceptance is necessary for the formation of a contract. Once the offeree has assented to the terms offered, a contract comes into effect. Both parties are bound: the offeror can no longer withdraw his offer, nor can the offeree withdraw his acceptance. The general rule is that acceptance must be communicated to the offeror. As a consequence of this rule, silence cannot amount to acceptance (Felthouse v Bindley (1863)). All of the preceding points were considered in Carlill v Carbolic Smoke Ball Co (1893). In that case the defendant company advertised that it would pay 100 to anyone who caught influenza after using their smoke ball as directed. Carlill used the smoke ball but still caught influenza and sued the company for the promised 100. Amongst the many defences argued for the company, it was suggested that the advert could not have been an offer as it was not addressed to Carlill. It was held that the advert was an offer to the whole world which Mrs Carlill had accepted by her conduct. The defendant company also argued that its promise was a mere sales puff but that claim was undermined by the fact that it had claimed to have placed 1,000 in a bank as security to back its claim. The third element in its case was that Carlill had never informed it that she had accepted its offer and that there could be no contract without such notification. The court held that in such cases as this, and in reward cases generally, notification of acceptance was unnecessary, and all that was required was that the plaintiff should do what was required of her in the offer notice. There was, therefore, a valid contract between Carlill and the company and she was entitled to claim the 100 reward. The Carlill case is an example of a unilateral contract where one party makes an offer which the other party accepts by performing the required action. As was seen, whereas communication of acceptance is a requirement in ordinary contracts, this is not the case in unilateral contracts. Unilateral contracts also have particular, not to say peculiar, rules relating to the revocation of offers. Revocation, the technical term for cancellation, occurs when the offeror withdraws their offer. Normally an offer may be revoked at any time before acceptance and once revoked it is no longer open to the offeree to accept the original offer (Routledge v Grant (1828)). Revocation is not effective until it is actually received by the offeree, which means that the offeror must make sure that the offeree is made aware of the withdrawal of the offer, otherwise it might still be open to the offeree to accept the offer (Byrne v Tienhoven (1880)). Usually in the case of an advertised offer it would be acceptable that the revocation was made in the same way as the original offer. In relation to unilateral contracts revocation is not permissible once the offeree has started performing the task requested. In Errington v Errington (1952) a father promised his son and daughter-in-law that he would convey a house to them when they had paid off the outstanding mortgage. After the fathers death his widow sought to revoke the promise. It was held that the promise could not be withdrawn as long as the mortgage payments continued to be met. A final point to bear in mind in relation to this question is the rule that a person cannot accept an offer that they do not know about. Thus if a person offers a reward for the return of a lost watch and someone returns it without knowing about the offer, they cannot claim the reward. Motive for accepting is not important as long as the person accepting knows about the offer (Williams v Carwadine (1883)). With regard to the scenario presented in the problem, Ace Ltd may argue a number of points. Firstly it may claim that its original notice was not a serious offer and therefore could not be accepted by anyone. Such an argument is likely to fail as the defence of the Carbolic Smoke Ball Co did in the Carlill case. Although there is the difference that Ace Ltd did not put any money aside for the reward as the Smoke Ball Co had done, nevertheless it was in a difficult situation and required help to come up with a solution. In those circumstances the notice appears to have been a serious offer, and one capable of acceptance. It would be equally ineffective for Ace to argue that none of the parties communicated their acceptance of the offer as is usually required. Again on the authority of the Carlill case communication of acceptance is not necessary in the case of unilateral offers. The next argument Ace Ltd might deploy is that it withdrew its offer before anyone had approached it with a solution. It would no doubt cite the fact that it had used exactly the same method for withdrawing the offer as they had for making it in the first place and argue that the second notice constituted a proper withdrawal. This is also a dubious contention. The notice in the March edition would certainly prevent anyone who had not already started work on the problem from accepting the original offer but as the original notice was in the form of a unilateral offer the later notice could not affect those who had accepted the original offer by starting work on it. The situation with regard to Cid is that he cannot claim the reward as the original offer was not addressed to him. The original offer made in the journal was clearly not the same as the offer in the Carlill case; it was not an offer to the world at large but was an offer made to a limited number of people, the employees of Ace Ltd. As Cid was not one of that limited group, the offer was not made to him and he could not accept it. He therefore has no grounds for complaint against Ace Ltd. Dans situation is different from Cids as he was an employee of Ace Ltd and therefore it was open to him to accept the original offer. His difficulty is that he did not know about it as he had not read the journal and was simply working on the problem for his own sake. As one cannot accept an offer one does not know about, Dan also has no grounds of complaint against Ace Ltd.

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Ed, however, was not only a member of the group to whom the original offer was made but he actually saw it and acted in response to it. He started working on solving the problem and therefore had accepted the offer before the company tried to withdraw it. He is in the position of the wife in Errington v Errington, and the company cannot withdraw its unilateral offer after his acceptance. Fran is in a similar position to Cid in that the offer was not actually made to her. She might argue that the offer on the website was a general one, but would be unlikely to succeed as the offer was clearly limited in its scope. In conclusion it would appear that Ed is the only one of the three with a legitimate argument for claiming the reward.

10 This question requires candidates to explain and apply the law relating to redundancy and unfair dismissal and the appropriate remedies. The law relating to unfair dismissal and redundancy Both the right to claim compensation in the event of redundancy and compensation for unfair dismissal are important statutory employment rights contained in the Employment Rights Act 1996. Although the two rights are conceptually different, there is considerable overlap between them and it is convenient to deal first with those matters which are common to both. As indicated above, both rights are based in statute and both are enforced by claims to an employment tribunal. Generally speaking the qualifying period of employment for actions in relation to unfair dismissal is one year and that for redundancy is two years, although in certain limited cases there is no qualifying period of employment before protection against unfair dismissal is gained. In order to claim compensation for either redundancy or unfair dismissal, an employee is required, as a precondition of a successful claim, to show that he or she has been dismissed. The same definition of dismissal applies to both rights. An employee is regarded as having been dismissed if: (i) the contract of employment is terminated by the employer with or without notice. This is the most straightforward of all the cases of dismissal and the only difficult situations occur where it is not clear whether the form of words used by the employer amount to a clear termination of the contract: see Futty v Brekkes (1974). (ii) a contract for a fixed term expires without being renewed. (iii) the employee terminates the contract, with or without notice, in circumstances such that he is entitled to terminate it without notice by reason of the conduct of the employer. In this situation, the resignation of the employee will be treated as a dismissal this is known as constructive dismissal: see Western Excavating (CC) Ltd v Sharp (1978). Turning now specifically to redundancy, redundancy is defined in s.139(1) of the Employment Rights Act 1996. The definition of redundancy embraces two situations and occurs where: (a) (b) the employer has ceased or intends to cease to carry on the business for which the employee was employed, or ceases or intends to cease carrying it on in the place where the employee was employed. the requirements of the business for employees to carry out work of a particular nature has ceased or diminished.

Where an employee has been dismissed by way of redundancy then he or she is entitled to a redundancy payment. This is calculated according to a formula based on the age of the employee, rate of remuneration and length of service. For each year of service the employee is entitled to 05, 1 or 15 weeks pay, depending on the age of the employee at the date of dismissal (1821, 2240, 4164), subject to a maximum of 20 years service and a maximum weekly pay of 290. The maximum available payment therefore is 8,700. In the event that the employer refuses to make a redundancy payment the employee is entitled to complain to an Employment Tribunal within six months of the date of dismissal. In relation to unfair dismissal, a dismissal will not be regarded as unfair if the reason for the dismissal is one of those regarded as statutorily acceptable and the employer acted reasonably in dismissing for that reason. Under ss.98(1) and 98(2) of the Employment Rights Act 1996 there are five reasons set out on which an employer may rely as justifying a fair dismissal. These are dismissals for: 1. 2. 3. 4. 5. Lack of capability or qualifications Misconduct Redundancy Where continued employment would be a breach of a statutory provision Some other substantial reason of a kind which justifies dismissal.

As a result of the Employment Equality (Age) Regulations 2006 all employees now have a right to request to work beyond the default retirement age of 65. However, the Employment Rights Act 1996 has been amended to provide that dismissal at or after a justified retirement age, in specified circumstances, will be potentially fair reason for dismissal. Considerable case law has developed on most of the above headings. The effect of this is that considerable caution must always be exercised by an employer before reaching a conclusion that a particular reason falls within one of the above headings. In any event, as well as the employee having to prove the fact of dismissal, as defined above, and the employer having to establish that the reason for the dismissal fell within one of the statutorily acceptable categories, the tribunal will still have to adjudicate on the fairness of the employer for dismissing for the reason given. This will depend on whether, in the circumstances (including the size and administrative resources of the employers undertaking) the employer acted reasonably or unreasonably in treating the reason given as sufficient reason for dismissing the employee... (Employment Rights Act 1996 s.98(4)). The question of reasonableness will relate both to the reason given for the dismissal (e.g. a dismissal for incapability may not be fair because of the failure of the employer to train the employee to do the task required) and to the procedure used to bring the dismissal about.

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A fair procedure for example, such as recommended by the Advisory, Conciliation and Arbitration Service (ACAS) in its Code of Practice on Disciplinary Practice and Procedures in Employment is an important precondition of a finding that an employer has acted reasonably in dismissing for the reason given. There are a number of circumstances where a dismissal will be regarded as automatically unfair because the dismissal is for an inadmissible reason. These situations include dismissal for: 1. 2. 3. 4. health and safety reasons dismissal for certain trade union reasons dismissal for asserting a statutory right dismissal on grounds of pregnancy or childbirth.

Where an individual feels that he or she has been unfairly dismissed an application should be lodged with the employment tribunal within three months of the date of dismissal. The tribunal can order, if it finds the dismissal to have been unfair: 1. 2. 3. Reinstatement of the employee, or Re engagement of the employee, and/or Compensation.

In the usual case an order of compensation will consist of a basic award, calculated in a similar way to a redundancy payment (see above), and a compensatory award. The compensatory award is designed to compensate the employee for losses suffered as a consequence of the unfair dismissal and will cover such matters as loss of wages (both to the date of the hearing and in the future), loss of pension rights and other benefits. The compensatory award is subject to a maximum of 58,400. In certain circumstances, where the dismissal is for one of the inadmissible reasons mentioned above, or for reasons to do with discrimination on grounds of sex or race, the tribunal will make an additional award of compensation. Ida It is at least certain that Ida is entitled to redundancy payments as she qualifies under s.139(1)(a). However even in the case of redundancy the company must have acted reasonably and if it has not done so then Ida may have a claim for unfair dismissal and access to potentially higher compensation. For instance the question could be asked as to whether the company could have retrained Ida rather than simply dismiss her. It should be noted that in order to reduce the number of workplace disputes being taken to Employment Tribunals (ET), the Employment Act 2002 made provision for employers and employees to use a compulsory internal dispute resolution procedure. Subsequently the Employment Act 2002 (Dispute Resolution) Regulations 2004 place substantial emphasis on the resolution of grievances and disciplinary matters within the workplace. Significantly in relation to this question, the new regime also applies to cases of alleged unfair dismissal. Under the 2004 regulations employers, regardless of their size must have minimum statutory procedures in place for dealing with dismissal, disciplinary action and grievances in the workplace. Both employers and employees are required to follow a minimum three-stage process to ensure that disputes are considered in the workplace before going to the ET. The three-stage process is as follows: 1. 2. 3. The employer must write a letter to the employee explaining the employees conduct or any other issues that may result in dismissal or disciplinary action; The employer must have a meeting with the employee to discuss the issues raised in the letter; If the employee appeals the employers decision, the employer must have a further appeal meeting with the employee.

Dismissal without complying with the above procedure will be automatically unfair dismissal, with minimum compensation of four weeks pay, as long as the normal qualification period of continuous employment, currently one year, has been completed. The Regulations also provided that any compensation awarded to the employee must be increased by between 10% and 50%. Equally, if an employee fails to follow the procedure, any compensation subsequently awarded will be reduced by between 10% and 50%. The regulations do not cover oral or written warnings or suspension on full pay. Also if there is a significant threat or harassment, or if it is not practical to complete the procedures within a reasonable period, then the parties may be exempt from compliance with the regulations. However, simply following the three-step process is not in itself enough, as the employer must act reasonably at all times. As a result of the new regulations the ACAS Code of Practice on Disciplinary and Grievance Procedures (CoP 1) has been rewritten to take account of the statutory scheme. It would appear that Healthfoods Ltd are in clear breach of the 2004 regulations and Idas compensation would be significantly increased as a result of its refusal to act in line with those regulations.

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11 The question makes it clear that the articles of Lux Ltd were altered to incorporate the rights of its new member Kudos Ltd. Consequently the question requires candidates to consider the effect of articles of association, rights of shareholders and the alteration of their rights as set out in the articles of association. In particular the question requires a consideration of class rights and the distinct process through which they can be altered. The articles primarily regulate the internal working of the company. They govern the rights and relations of the members to the company and vice versa, and the relations of the members between themselves. As provided in s.14 of the Companies Act (CA) 1989, the articles are to be treated as an enforceable contract between the members and the company, although it has to be stated that it is a peculiar contract, in that its terms can be altered by the majority of the members without the consent of each member. The articles do not form a contract with outsiders or with insiders in any other capacity than as members (Ely v Positive Government Life Assurance (1876)). Articles can be altered by the passing of a special resolution (s.9 of the CA 1985). Any such alteration has to be made bona fide in the interest of the company as a whole, but the exact meaning of this phrase is not altogether clear. It is evident that it involves a subjective element in that those deciding the alteration must actually believe they are acting in the interests of the company. There is additionally, however, an objective element. In Greenhalgh v Arderne Cinemas Ltd (1951), it was stated that any alteration had to be in the interests of the individual hypothetical member. A company cannot be prevented from altering its articles, even if the effect is to break a contract of employment (Southern Foundries v Shirlaw (1940)). A company might only issue one class of shares giving the holders the same rights. However, it is possible, and quite common, for companies to issue shares with different rights. Thus, preference shares may have priority rights over ordinary shares with respect to dividends or the repayment of capital. Nor is it uncommon for shares to carry different voting rights. Each of these instances is an example of class rights and the holders of shares which provide such rights constitute distinct classes within the generality of shareholders. It is usual for class rights to attach to particular shares, but it is now recognised that such class rights may be created by external agreements and may be conferred upon a person in the capacity of shareholder of a company, although not attached to any particular shares. Thus, in Cumbrian Newspapers Group Ltd v Cumberland and Westmorland Herald Newspaper and Printing Co Ltd (1986), following a merger between the plaintiff and defendant companies, the defendants articles were altered so as to give the plaintiff certain rights of pre-emption and also the right to appoint a director, so long as it held at least 10% of the defendants ordinary shares. Scott J held that these rights were in the nature of class rights and could not be altered without going through the procedure for altering such rights. As the Cumbrian Newspapers case demonstrates, class rights become an issue when the company looks to alter them. When it is realised that class rights usually provide their holders with some distinct advantage or benefit not enjoyed by the holders of ordinary shares, and that the class members are usually in a minority within the company, it can be appreciated that the procedure for varying such rights requires some sensitivity towards the class members. The procedure for altering class rights is set out in ss.12527 of the CA 1985. Where the rights are attached to a class of shares otherwise than by the memorandum, that is, by the articles or an external contract, and there is no pre-established procedure for altering them, then the consent of a three-quarters majority of nominal value of the shares in that class is necessary. The majority may be acquired in writing or by passing a special resolution at a separate meeting of the holders of the shares in question. This is the most common way of attaching and varying class rights (s.125(2)). Any alteration of class rights under s.125 is subject to challenge in the courts. To raise such a challenge, any objectors must: hold no less than 15% of the issued shares in the class in question (s.127(2)); not have voted in favour of the alteration (s.127(2)); and apply to the court within 21 days of the consent being given to the alteration (s.127(3)).

The court has the power to either confirm the alteration or cancel it as unfairly prejudicial. Applying the law set above, to the facts of the problem scenario leads to the following conclusions: (a) with regard to the proposal to remove Mat from his position as editor of Kudos, the articles cannot constitute a contract with Mat as his employment is not a membership right (Ely v Positive Government Life Assurance). Even if the courts were to imply an external contract and use the articles to establish the terms of that contract (Re New British Iron Co (1898)), Mat could not prevent the company from altering its articles and removing him from his post. Mat would of course be entitled to claim damages for the breach of his contract of employment (Southern Foundries v Shirlaw (1940)). with regards to the proposal to remove Kudos Ltds rights of pre-emption in respect of the shares, Cumbrian Newspapers Group Ltd v Cumberland and Westmorland Herald Newspaper and Printing Co Ltd would suggest that the right was a class right, although not attached to particular shares. Consequently, Lux Ltd would have to make use of the s.125 CA procedure. However, as Kudos Ltd is the only holder of this particular class of shares, the right could not be altered or taken away without its express approval. with regards to the proposal to reduce the dividend on the preference shares to 5%, this is also a clear alteration of a class right, so once again the s.125 procedure would have to be followed. However, on this occasion Kudos Ltd only holds 20% of the total issued preference shares, so it would be possible for the majority to approve the reduction in payment, even if Kudos Ltd did not approve. Kudos Ltd could apply to have the vote reviewed by the court under the s.127 procedure, as they have more than 15% of the total of shares in the class. The court would determine whether or not the alteration was fair and as it appears not to impact unduly on Kudos Ltd, it is likely that the alteration would be approved.

(b)

(c)

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12 (a)

The common law did not place a great burden on directors in relation to the duty they owed to their companies. The classic statement is to be found in Re City Equitable Fire Assurance Co (1925), which established three points: Firstly, in determining the degree of skill to be expected, the common law applied a subjective test and established no minimum standard. A director was expected to show the degree of skill which might reasonably be expected of a person of their knowledge and experience. As a result, if they were particularly experienced and skilled in the affairs of their business, then they would be expected to exercise such skill in the performance of their functions, but alternatively if they were not particularly qualified the expected level of performance would be reduced. Secondly, the duties of directors were held to be of an intermittent nature and, consequently, directors were not required to give continuous attention to the affairs of their company. Thirdly, in the absence of any grounds for suspicion, directors were entitled to leave the day to day operation of the companys business in the hands of managers and to trust them to perform their tasks honestly.

(b)

There has long been civil liability for any activity amounting to fraudulent trading. Thus, s.213 of the Insolvency Act (IA) 1986 governs situations where, in the course of a winding up, it appears that the business of a company has been carried on with intent to defraud creditors, or for any fraudulent purpose. In such cases, the court, on the application of the liquidator, may declare that any persons who were knowingly parties to such carrying on of the business are liable to make such contributions (if any) to the companys assets as the court thinks proper. There is a major problem in making use of s.213, however, and that lies in meeting the very high burden of proof involved in proving dishonesty on the part of the person against whom it is alleged. It should be noted that there is also a criminal offence of fraudulent trading under s.458 of the CA 1985, which applies to anyone who has been party to the carrying on of the business of a company with intent to defraud creditors or any other person, or for any other fraudulent purpose. Given the fact that Owen deliberately hid the fact that Push Ltd was insolvent it is possible that he might be liable under the fraudulent trading provisions both civil and criminal. There is no evidence to support either action against Norm.

(c)

Wrongful trading does not involve dishonesty but, nonetheless, it still makes particular individuals potentially liable for the debts of their companies. Section 214 applies where a company is being wound up and it appears that, at some time before the start of the winding up, a director knew, or ought to have known, that there was no reasonable chance of the company avoiding insolvent liquidation. In such circumstances, then, unless the directors took every reasonable step to minimise the potential loss to the companys creditors, they may be liable to contribute such money to the assets of the company as the court thinks proper. In deciding what directors ought to have known, the court will apply an objective test, as well as a subjective one. As in common law, if the director is particularly well qualified, they will be expected to perform in line with those standards. Additionally, however, s.214 of the IA 1986 establishes a minimum standard by applying an objective test which requires directors to have the general knowledge, skill and experience, which may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company. The manner in which incompetent directors will become liable to contribute the assets of their companies was shown in Re Produce Marketing Consortium Ltd (1989), in which two directors were held liable to pay compensation from the time that they ought to have known that their company could not avoid insolvent liquidation, rather than the later time when they actually realised that fact. Interestingly, the common law approach to directors duty of care has been extended to accommodate the requirements of s.214 (Re DJan of London Ltd (1993)). It is clearly apparent that Owen will be personally liable under s.214 for the increase in Push Ltds debts from 50,000 to 300,000. However, as a director of the company Norm will also be liable to contribute to the assets of the company under s.214.

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Part 2 Examination Paper 2.2(ENG) Corporate and Business Law (English) 1

June 2007 Marking Scheme

This question requires candidates to explain the importance of the hierarchical structure of the English court system for the operation of the doctrine of precedent. It is essential that both aspects of the question be dealt with. 610 A good to full explanation of the doctrine of precedent together with a description of the position and relationship of the various courts within the hierarchy will result in full marks. The more full the explanation and the more detailed the description, the higher will be the marks awarded. Unbalanced answer, perhaps lacking in detail in relation to the court structure or the operation of precedent. A mere diagram of the court structure will gain no more than 2 marks at most.

05

This question requires candidate to examine the law relating to consideration in contract law. (a) This part, worth 3 marks, requires an explanation of consideration generally. Marks will be allocated in line with the completeness of the answer. The better marks will be allocated where either definitions or examples are provided, perhaps with examples or case citations. The best marks will be awarded where all these aspects are dealt with. Marks will be allocated for answers as indicated in the exam paper. Marks will not be vired between subsections, so more detail is expected in relation to past consideration. Examples or cases will be expected and rewarded where appropriate.

(b)

This question requires candidates to consider the various remedies for breach of contract. 810 47 03 A very good answer revealing a thorough to complete understanding of all of the remedies available for breach of contract, although a concentration on damages is to be expected. A good answer but perhaps unfocussed or lacking in detail as to the specific nature of the remedies. Perhaps simply a list of remedies with no consideration might warrant the lowest mark in this category. Weak answer, unfocussed or lacking in knowledge or detail.

This question requires candidates to consider the meaning of implied authority in relation to the law of agency before going on to consider the extent of the implied authority of a company secretary. 810 A very good answer revealing a thorough to complete understanding of both implied authority generally together with a clear explanation of such authority as it applies to company secretaries. It is expected that references will be made to case authorities to support the explanation. A good answer but perhaps unfocussed or lacking in detail as to the specific nature of the authority. Weak answer, unfocussed or lacking in knowledge or detail.

47 03

This question requires candidates to explain the various conditions under which partnerships may be dissolved. 810 47 03 A very thorough to complete answer, dealing with most or all of the conditions and dealing in some detail with the s.35 provisions. A good answer aware of some to most of the conditions, but perhaps lacking with detail especially with regard to s.35. Some but little, or undetailed, knowledge of the grounds for dissolving a partnership.

This question focuses on the elements in a companys memorandum of association. Part (a) looks for general knowledge of the various clauses to be found in a companys memorandum of association and part (b) looks for more specific knowledge relating to company names. 610 Thorough answers which show a knowledge of the usual clauses and a clear understanding of the various rules that apply in relation to the adoption of names of limited companies. Reference will most likely be made to limited liability and passing off. Some basic knowledge relating to clauses in memorandums or to company names, but no real depth of understanding. Perhaps an unbalanced answer that only deals with one part of the question.

05

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This question invites candidates to explain the meaning of the two rules relating to the payment for shares. Part (b) carries more marks as it has more aspects to it and marks will be awarded accordingly. An answer that simply deals with part (a) will not get more than 4 marks. 610 05 A clear understanding of what is meant by the two terms together with a knowledge of the rules applying to each. An unbalanced answer showing knowledge of one or other of the elements of the question but not in sufficient detail.

This question requires candidates to explain what is meant by the two specific forms of voluntary winding up. (a) 4 marks are available for explaining what is meant by a members voluntary winding up. To gain full marks, a clear explanation of the meaning and procedures relating to a members voluntary liquidation must be provided. Both aspects must be considered to get all 4 marks. 24 Good knowledge clearly explained with reference to the companies legislation. 01 Little if any knowledge. (b) 6 marks are available for explaining what is meant by a creditors voluntary winding up. To gain full marks, a clear explanation of the meaning and procedures relating to a creditors voluntary liquidation must be provided. Both aspects must be considered to get all 6 marks. 46 Good knowledge clearly explained with reference to the companies legislation . 23 Some understanding, but perhaps lacking in detail. 01 Little if any knowledge.

This question requires candidates to explain and apply the rules relating to offer, acceptance, and the revocation of offers within the specific context of unilateral offers. 1620 1115 610 05 Accurate knowledge of the legal principles involved linked to a sound application of those principles. It is highly unlikely that marks at this level could be achieved without reference to the cases, although it is possible nonetheless. Sound knowledge of the law but perhaps lacking in application or alternatively not showing a sufficiently clear understanding of the legal principles involved. Weak or unbalanced answer. Perhaps aware of the nature of the problem but lacking in clear knowledge of the law or deficient in relation to how those principles should be applied. Very weak answer. Perhaps mentioning some of the issues involved in the question but failing to consider them in any detail.

10 This question requires candidates to explain and apply the law relating to redundancy and unfair dismissal and the appropriate remedies. 1620 1115 610 05 Accurate knowledge of the legal principles involved linked to a sound application of those principles. It is highly unlikely that marks at this level could be achieved without reference to the cases, although it is possible nonetheless. Sound knowledge of the law but perhaps lacking in application or alternatively not showing a sufficiently clear understanding of the legal principles involved. Weak or unbalanced answer. Perhaps aware of the nature of the problem but lacking in clear knowledge of the law or deficient in relation to how those principles should be applied. Very weak answer. Perhaps mentioning some of the issues involved in the question but failing to consider them in any detail.

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11 This question requires candidates to explain and apply the law relating to the effect and procedure for changing articles of association, with particular regard to class rights. 1620 1115 610 05 Accurate knowledge of the legal principles involved linked to a sound application of those principles. It is highly unlikely that marks at this level could be achieved without reference to the cases, although it is possible nonetheless. Sound knowledge of the law but perhaps lacking in application or alternatively not showing a sufficiently clear understanding of the legal principles involved. Weak or unbalanced answer. Perhaps aware of the nature of the problem but lacking in clear knowledge of the law or deficient in relation to how those principles should be applied. Very weak answer. Perhaps mentioning some of the issues involved in the question but failing to consider them in any detail.

12 This question requires candidates to consider three distinct aspects of the rules relating to company directors duty of care: at common law, under s.213 of the Insolvency Act 1986, and under s.214 of the Insolvency Act 1986. (a) 56 Clear explanation of the common law duties, probably, but not necessarily referring to case law. 34 Some to good understanding but lacking detail. 01 Little or no knowledge. (b) 56 Clear explanation of operation of the law relating to fraudulent trading. 34 Some to good understanding but lacking detail. 01 Little or no knowledge. (c) 68 Clear explanation of the law relating to wrongful trading, probably, but not necessarily referring to case law. 35 Some to good understanding but lacking detail. 02 Little or no knowledge.

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