Corporate & Business Law:
Mock Exam 3:
Question#1:
A
One week
Employees who have been continuously employed for at least one month but for less than two years are
entitled to a statutory minimum notice period of one week.
Question#2:
The £5,000 incentive - No
The job - Yes
There is a presumption that agreements between family members do not usually give rise to contractual
obligations - Balfour v Balfour (1919) and Jones v Padavatton (1969). The incentive for the exam falls
into this category. This presumption is rebuttable by the facts. In the case of the job, although Jayson's
mother is a partner in the firm, this is clearly a context where a contractual relationship would occur.
Question#3:
C
Fast track
The fast track is used to allocate a day in court for cases typically between £10,000 and £25,000 in value.
Question#4:
D
2, 3, 1
Of the liabilities listed, unpaid wages will be paid first, followed by debts secured by validly registered
floating charges, followed by unsecured debts to ordinary creditors. Therefore the correct order of
payment is:
(2) £800 unpaid wages to Pat
(3) £250,000 loan secured via a floating charge registered to Sarah
(1) £50,000 for good delivered last month to Terry
Question#5:
Improvements made to a property which the owner later agrees to pay for - Not valid
A promise to undertake decorating work in return for one month's accommodation - Valid
In the case of work undertaken before any discussions are had, any future statement made about
payment will be unenforceable as a contractual term, because past consideration is no consideration and
therefore improvements made to a property which the owner later agrees to pay for will not be valid
consideration. Usually consideration will be given either at the time the bargain is struck or later, but not
before. A promise to undertake decorating work in return for one month's accommodation is valid
consideration.
Question#6:
A
To call a formal general meeting for members
In a members' voluntary liquidation, the liquidator is responsible for calling a formal general meeting for
members.
Question#7:
A poster for an auction sale of a house next week at Henly's Ltd - Invitation to treat
A bid at Henly's Ltd auction sale for a house - Offer
A letter from Grunty Ltd to Henly's Ltd stating the price for printing posters for the house auction
- Offer
A catalogue and price list circulated by Grunty Ltd for printing various posters - Invitation to treat
The poster is an advertisement, which are generally considered to be invitations to treat, ie in order to
induce offers. A bid at an auction is an offer (Payne v Cave (1789)). Provided that an offer is a definite
promise to be bound on specific terms, the letter constitutes an offer. The price list could be considered
to be an invitation to treat in the context of Grainger v Gough (1896).
Question#8:
C
A debt owed to a trade creditor
When a partnership is terminated, the assets are realised and the proceeds are used to repay liabilities.
The proceeds are used first to repay amounts due to external creditors before anything is repaid to the
partners.
Question#9:
B
Damages
Damages are always available for breach of contract and are a common law remedy intended to restore
the person who has suffered the loss to the same position they would have been in if the contract had
been performed.
Question#10:
C
Orders in Council
Orders in Council are a form of legislation, and are therefore not created by judges.
Question#11:
A
It is concerned with the infringement of the rights of another
A tort is a civil wrong which unfairly causes loss or harm to someone else.
Question#12:
B
2 and 3
The 100 shares are partly paid. This is lawful. The acquisition of the 500 and 1,000 shares offend the
doctrine of capital maintenance.
Question#13:
A
Ratio decidendi
Ratio decidendi translates as 'the reason' or 'the rationale for the decision'. As such it is a necessary step
towards the judge's conclusion.
Question#14:
A
To allow employees time off to look for alternative work
Employers have no duty to allow employees time off to look for alternative work, however where an
employee has been given notice of redundancy, they are allowed time off to look for alternative work or
to arrange training for other work.
Question#15:
B
Promoting the success of the company through effective day-to-day engagement with company
decision-making
Non-executive directors will not be involved in the day-to-day running of the company. Their function is
to provide an important governance function - testing the effectiveness of the executive directors and
bringing outside expertise to bear in a more independent manner.
Question#16:
A and D
It constitutes trading with the intention to defraud creditors
It can result in both a civil and a criminal action
Fraudulent trading is defined as trading with the intention to defraud creditors and can result in both a
civil and a criminal action.
Question#17:
B and D
The administration will end after 12 months or when it has been successful
The administrator may state that the company cannot be rescued
The administration will end either when it has been successful, or after 12 months. An application can
be made to the courts to extend this period if required.
The administrator will propose a rescue plan, or state that the company cannot be rescued. This must be
done within eight weeks of appointment.
Question#18:
D
Billy can sue Ade
The contract was made between Ade and Billy. In theory Billy can sue Ade because there is privity
between them, but there will be a question as to what loss has been suffered by Billy.
Question#19:
A, B and D is True
C is false
Criminal law is part of public law - True
Equity introduced fairness to the legal system - True
Statute law is made by the judiciary - False
Common law developed before equity - True
Parliament is responsible for statute law, not the judiciary. Criminal law is part of public law. Equity
introduced fairness into the legal system. The earliest element of the English legal system is common
law, and this therefore developed before equity.
Question#20:
B
A term can be implied into a contract by custom
There are a number of ways in which a term can be implied into a contract, including by custom, by
statute and by the courts.
Question#21:
B
Each partner is personally liable for all the debts of the partnership
One of the main characteristics of an ordinary partnership is that each partner is fully liable for all of the
partnership's debts.
Question#22:
B and C
At common law, a person who signs a document which contains an exclusion clause is bound by its
terms even if they have not read the document
An exclusion clause can be incorporated into a contract by way of sufficient notice
A person who signs a document which contains an exclusion clause is bound by its terms even if they
have not read the document. This is illustrated in the case of L'Estrange v Graucob (1934).
A notice is sufficient to incorporate a term in a contract in common law, provided that the other party to
the contract is aware of the notice before entering into the contract.
Question#23:
B
The usual remedy is damages based on loss of notice period
Since the action taken for wrongful dismissal is breach of contract, courts will award damages - but only
for the lost notice period.
Question#24:
Limited liability - Limited company
Profits accrue directly to the owner - Sole trader
Regulated internally by legislation in terms of procedures and administration - Limited company
Can continue to exist even after death of the owner - Limited company
Limited companies enjoy limited liability and perpetual succession, and can therefore continue to exist
after the death of the owner. The internal regulation of a company, including the procedures and
administration, is governed by legislation. This is not true of a sole trader, whose profits accrue directly
to the owner.
Question#25:
A
One excluding liability for negligence which has resulted in personal injury to another party
Any clause which seeks to exclude liability for personal injury (or death) due to negligence is
automatically void under the Unfair Contract Terms Act 1977.
Question#26:
C
A reduction in the need for the work done by the employee
According to s.139 Employment Rights Act 1996, a dismissal is treated as a redundancy if the
requirement for the work done by an employee has ceased or diminished, or is expected to.
Question#27:
A and D
Where it is possible to distinguish the facts
Where the previous case had been made per incuriam
In the doctrine of judicial precedent decisions of higher courts will bind lower courts where the material
facts are the same. The court does not have to follow a precedent if it can be declared per incuriam, ie
that it has missed some important legal point.
Question#28:
B and C
Notice must be sent to all members
The notice must contain a proxy notice, indicating that a member may appoint someone to vote on
their behalf
It is clear that the meeting will not be able to be held at short notice because too many shareholders are
already indicating that they will vote against the resolution and so they are hardly likely to consent to
the meeting going ahead early (this would require 95% of them to agree). The content of the notice
convening the meeting is prescribed by the Companies Act 2006. All members must receive a copy of
the notice and each one of is entitled to appoint a proxy to vote in their place if they cannot attend the
meeting. Special resolutions require the text of the resolution to be included in the notice.
Question#29:
C
Chancery Division
The Chancery Division hears cases on bankruptcy, insolvency and matters concerning company law.
Question#30:
A and D
Any clause excluding liability for breach relating to the quality of the goods is subject to the
reasonableness test
The reasonableness test takes into consideration the relative bargaining strength of the parties to the
contract
Under the Unfair Contract Terms Act 1977, the reasonableness test applies to any clause excluding
liability for breach. The relative bargaining strength of the parties is one of the considerations in
determining reasonableness.
Question#31:
B
The date on which the partners agree to go into business together
A partnership begins on the date the partners agree to go into business together, even if this is before the
partnership actually starts to trade. From the point of agreement onwards, the partnership and the
partners become jointly and severally liable for partnership debts.
Question#32:
C and D
Sue can accept this as a breach of contract and sue for damages now
Sue can wait a further four weeks and then sue for damages
This is a question of anticipatory breach of contract. Sue has the right to treat the contract as discharged
here because Tim has repudiated it before he has completed performance of his obligations. She can
therefore sue for damages now, or wait a further four weeks and then sue for damages.
Question#33:
Weave Ltd will be liable under the contract from the date of incorporation - False
The contract between Sarah and the supplier can be subsequently ratified by Weave Ltd - False
Section 51 Companies Act 2006 reflects the common law position that because the company is a
separate legal entity from the date of incorporation, it follows that it can never be a party to a contract
until such date. Any contract entered into before the date of incorporation will be one entered into
personally by Sarah as promoter.
Question#34:
B
A tender
An offer is a promise to be bound on particular terms. A tender would amount to such a promise which
is capable of acceptance. A tender document sets out the terms on which the offeror is willing to carry
out the work.
Question#35:
Bruce - Employee
Sheila - Employee
For Bruce, there appears to be a mutuality of obligation, as per O'Kelly v Trusthouse Forte (1983), which
is a much stronger indication of employment status than either the provision of tools or a uniform.
In Sheila's case, although she works alone, and hence could argue she controls herself, it is likely that her
reliance on co-workers would result in the integration test applying, deeming her also to be an
employee as per Cassidy v Ministry of Health (1951).
Question#36:
C
The appointment of a director
There are only two reasons which cannot be passed as written resolutions: those proposed to remove a
director and those proposed to remove an auditor.
Question#37:
A
Any unlawful dividend may be reclaimed from the shareholders or the directors
The directors or shareholders may be liable for the amount of any unlawful dividence.
Question#38:
D
Volenti non fit injuria
The defence of volenti non fit injuria applies when a claimant both knew of the risk of harm and fully
and freely consented to it.
Question#39:
B
One which is the same as the name of a company already on the register
Sections 53 and 54 of the Companies Act 2006 deal with names whose use suggests a link with the
government. According to the Act, the Secretary of State has the power to oversee this and grant
approval.
Question#40:
B
Noscitur a sociis
Noscitur a sociis translates as 'a word is known by the company it keeps', meaning that an unclear word
or phrase should have meaning based on the words or phrases around it.
Question#41:
C
They would receive their pay gross of all taxable contributions
An employee should receive their pay net of tax under the PAYE system.
Question#42:
C
No, because X & Co does not owe a duty of care to existing shareholders who rely on the accounts
when deciding whether to vary their shareholding in Mayton plc
X & Co owes a duty of care to Mayton plc but not to its individual shareholders, even if they rely on the
accounts to increase their shareholding.
Question#43:
B and D
The employee takes on a new role within the company on comparable terms to the old job
It should not be made where there has been a breakdown in confidence between the parties
The remedy of re-engagement means that the employee takes on a new role for the same employer
under comparable conditions to their old job. It is only appropriate where there has not been a
breakdown of confidence between the parties.
Question#44:
B
There must be some form of positive action by the offeree either spoken, written or by conduct in
order to accept the offer
A valid acceptance can be achieved orally, in written form or through the actions of the offeree.
Question#45:
C
John may face charges of fraudulent trading and the other directors may be liable for wrongful trading
Through their tacit acceptance of John's actions, all directors may be liable. However, only John has
demonstrated fraudulent intent, so while he may face prosecution for fraudulent trading, the other
directors may be liable for wrongful trading for failure to minimise the losses to creditors.
Question#46:
TASK No 1:
The initial advertisement placed by Haulage Ltd is an invitation to treat - True
Garry's agreement to produce such quantities of the containers as Haulage Ltd may order from time
to time is an offer - True
Garry's email amounts to an acceptance - False
Hugh's phone call amounts to a counter-offer - False
An invitation to tender is an invitation to treat and not an offer and therefore the initial advertisement
placed by Haulage Ltd is an invitation to treat.
Garry's email to Haulage Ltd was an offer as it contained specific terms and was not an acceptance.
Hugh's telephone call was a rejection of Garry's offer and a request for Garry to make a new offer, which
Garry then made.
TASK No 2:
C and D
Each order placed by Hugh over the first six months amounts to a separate acceptance and therefore
a separate contract
Garry can withdraw from the arrangement at any time but must fulfil orders already placed
Garry made an offer the effect of which is to create a standing arrangement whereby Haulage Ltd can
order as many containers as it likes, whenever it chooses. When each order is placed, that creates a
separate and distinct contractual arrangement every time, however Garry can withdraw from the
arrangement at any time but must fulfil orders already placed.
Question#47:
TASK No 1:
B
He is jointly and severally liable with the other partners for the soft toy contract because it was signed
after he joined the firm
Harry is jointly and severally liable with the other partners for the debt owed to the supplier, which
means that he could be asked by the supplier to pay the full amount. It would be then up to Harry to
seek to recover from the other partners their share.
TASK No 2:
He is not liable for any monies due to the soft toy supplier because he retired from the partnership
before the contract was signed - False
If his former partners fail to pay the monies owed he will be liable to the soft toy supplier - True
Jack failed to inform anyone outside the partnership that he was retiring. In such a situation, a partner is
'held out' as still being a partner and remains liable for debts incurred even after they have retired. In
order to avoid such liability for post-retirement debt, Jack should have directly notified existing
customers and should have placed a notice in the London Gazette in respect of the world at large
notifying his retirement. Since he failed to do so, he remains potentially liable for the monies owed to
the supplier.
Jack remains jointly and severally liable for post-retirement debts as he has not notified the creditors of
his retirement. His liability is not restricted so that it may arise in the event that his fellow partners fail
to pay the monies owed.
TASK No 3:
A retiring partner is liable for partnership debts incurred prior to their retirement, unless released
from liability by the creditors - True
A retiring partner is liable for partnership debts incurred by the firm for six months after they retire False
In a general partnership, a partner remains liable for the debts of the firm incurred prior to their
retirement. When a partner retires, they may agree a release from the creditors of the firm at that time,
but unless that agreement is made, the retiring partner remains jointly and severally liable with their
fellow partners in respect of pre-retirement debt.
A partner who retires can protect themselves from all post-retirement debt by placing a notification of
their retirement in the London Gazette (as far as the world at large is concerned) and notifies existing
customers and creditors directly of their retirement. This is the only way their liability expires, not by a
specific time restriction.
Question#48:
TASK No 1:
A
One quarter of the nominal value plus share premium (£2.25)
A company allotting shares must receive at least one quarter of the nominal value of the shares at the
time of the allotment, in addition to the whole of any premium.
TASK No 2:
B and C
It attaches to specific assets upon creation
The charge will be effective from the date of creation if registered within 21 days
Fixed charges attach to specific assets. All charges must be registered within 21 days of creation in order
to be effective.
TASK No 3:
B
Accumulated realised profits less accumulated realised losses
In a private company the distributable profits, which govern the distribution of dividends, are
accumulated realised profits less accumulated realised losses.
Question#49:
TASK No 1:
A and D
The allotment of shares for the purpose of preventing a takeover bid is an improper use of the
directors' powers
The directors have a duty to exercise their powers for the purposes for which they were conferred
Directors have a duty to exercise their powers for the proper purpose; this does not include the
allotment of shares for the purpose of preventing a takeover bid.
TASK No 2:
C
The directors of DTS Ltd may be accountable to XYX plc for the profit made on the contract secured
from PRK Ltd
Since the directors established DTS Ltd as a sham company in order to evade their directors' duties, they
may be held accountable to XYX plc for the profit made on the contract.
TASK No 3:
A and D
The duties are owed by anyone classed as being a director
One director is not liable for a fellow director's breach of duty
Directors' duties are owed by anyone classed as a director, even if not formally appointed, but one
director cannot be liable for another director's breach of duty.
Question#50:
TASK No 1:
Frank - Money laundering only
Arya - Money laundering and failure to report
If the funds are the proceeds of crime, Frank has committed money laundering and Arya has committed
both money laundering and failure to report.
TASK No 2:
Because the cash sum to be transferred is immaterial, Arya is not obliged to report her suspicions in
relation to it - False
Transferring funds from the UK to a bank in Farland is an example of integration by Frank - False
There is no de minimis limit in relation to money laundering, and therefore Arya is still obliged to report
her suspicions in relation to the cash sum. Frank's transfer of the funds is an example of placement, not
integration.
TASK No 3:
A and C
Disclosure is made by a person to the authorities before laundering takes place
A person involved in money laundering has a reasonable excuse for non-disclosure
Making a disclosure to the authorities before the transaction takes place or as soon as possible
afterwards is a defence to a charge of money laundering. Having a reasonable excuse for non-disclosure
is also a defence.