Week 1
Lecture 1 - Introduction to IBL
The law is a body of rules and regulations that govern the activities of persons within a
juridstriction. This creates rights, obligations and facilitates cooperation and coexistence.
Substantive law = defines the rights and obligations vis a vis other individuals or businesses
Procedural law = tells you what to do when the substantive law is violated
Law has several layers;
- National law; specific country
- EU law; applicable for all member states
- international law; between sovereign states
Legal rules in place influence what businesses can do and how they go about doing it;
- What to build or sell
- How to fund products
- How to protect what they make
- How to behave in relation to others
CASE
Others claimed Zuckerberg had stolen their idea for the social networking site Facebook. They
sued him for theft of intellectual property, fraudulent misrepresentation, and violations of
partnership law. Facebook paid 65 million USD to settle those claims outside of court.
The law should reflect social rules which are morally justifiable. If these overlap, society will
comply with the legal rules as they deem them morally acceptable. However, in this case you
have to decide which moral duties to follow as these differ for everyone.
Public law is a branch of national law which governs the relationship between private
individuals and businesses on one hand and the state on the other hand.
Private law is a branch of national law which governs the relationship between private parties.
A legal system is a body of institutions that make, execute, and resolve disputes on the law of a
jurisdiction, together with the law they deal with. There a two major legal systems;
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Sources of law
Legislation
Primary legislation/ acts of parliament
Acts of parliament are statutes made by the parliament, and the parliament is sovereign.
It has the power to make statutes on any subject matter and British courts are bound to follow
their laws and cannot question their validity.
Delegated legislation is made by bodies other than the parliament. The power to make these
legislations is given by the parliament (enabling act). Delegated legislation going beyond the
power of the enabling act is said to be “ultra vires” and can be invalidated by the courts.
Case Law
When courts make decisions, not only do they resolve disputes but they also establish legal rules
which will be used to resolve disputes with broadly similar facts. In a case, a judge:
1. Give the decision
2. Gives legal reasons for this decision (ratio decidendi)
3. May discuss the law generally and give some hypothetical situations (ober dictum)
Doctrine of precedent
A legal rule decided by higher courts will be binding on lower courts and courts of the same
status in cases of broadly similar facts.
A proposition in one case will be binding in a later case if:
- It is a proposition of law
- Part of the ratio decidendi of the earlier case
- Decided in a court binding in the present court
- There are no relevant factual distinctions between the cases
Primary EU law
Treaties - agreements between countries
Secondary EU law
Have direct force in member states from their creation without member states having to pass
their own implementing legislation; aim to produce uniformity of law throughout the EU
Chapter 1 - Introduction to Law
Montesquieu proposed the trias politica, in which he divides the power in three bodies:
1. Executive power; power to enforce laws
2. Juridical power; power to interpret and decide based on legal principles, and rule
accordingly
3. Legislative power; power to make and alter laws
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Chapter 2 - Legal systems and sources of law
Equity
Equity is a source of law that are legal maxims that serve as a set of general principles or rules
which are said to govern the way in which equity operates. These remedies are given instead of
monetary compensation:
1. An injunction; someone is ordered to perform an action or refrain from an action
2. A degree of specific performance; orders someone to perform an action under contract or
trust
In England, there are two types of case law, common law and equity law, the latter being more
flexible.
International Law
Rules governing the relations between states and the operation of international organizations.
Private international law governs the relationship between private individuals and organizations.
There are two key areas of private international law:
1. Conflict of laws: unclear which laws to apply or which bodies have juridstriction when to
settle disputes
2. Certainty in doing business: rules stipulating contract terms where they have failed to
Classification of law in England & Wales
Public law: administrative law, constitutional law, human rights, and criminal law
Private law: tort law, contract law, land and equity, and company law
Case: Police duties
After Jacqueline Hill was murdered, the police claimed inadequate investigation. Hill’s family
sued the police for damages in the tort of negligence- in private law. No duty of negligence was
owed by the police, as this would impose too heavy a burden on the shoulder of the police, now
known as the ‘Hill principle’. However, police officers do owe a duty to the public to enforce
criminal law - this is enforceable by public law.
Criminal law
Civil law
Nature of proceedings
Prosecution
Claim
Who will initiate proceedings
Started by the state, continued Commenced by the victim
by CPS
Standard of proof
Beyond all reasonable doubt
On the balance of probabilities
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There are several ways of using the phrases ‘common law’ and ‘civil law’. Common law is used:
● To distinguish the English-based legal system that uses doctrine of precedent, as opposed
to civil law
● To distinguish case law (=common law) from statute law within England and Wales
Civil law is used:
● To differentiate the legal systems that use a more codified body of law, as opposed to
common law, which is precedent based
● Civil law vs criminal law
Chapter 4 - Legislation
One of the most important reasons for the parliament to keep passing statutes is that statutes
would otherwise quickly become outdated, as the human race progresses.
Statute= act of parliament (primary source of law) → supreme law-making body and cannot be
overruled (sovereignty)
Legislation = generic term, includes acts, secondary legislation, and EU legislation
Since the parliament can not legislate for every aspect of our lives in intricate detail, there are
several types of domestic legislation in the UK;
- Primary legislation (general laws)
Before a statute is enacted, it is called a ‘bill’ rather than an ‘act’. There are three types of bills:
1. Public bills: introduced to the parliament by members of the parliament and concern
matters affecting the public as a whole
2. Private members’ bills: public bills, but are not introduced on behalf of the government
3. Private bills: submitted by a person that needs parliament approval to get something done
(e.g. infrastructure projects)
A presumption is a law that only applies in certain circumstances. A presumption is rebuttable
when the legal rule concerned
Categories of public act:
- Consolidating acts: one statute re-enacts law which was previously contained in a
different statute
- Codifying acts: all the law on one topic, common law, custom, and even statutes, are
brought together in one statute
- Secondary legislation (not directly made by the parliament or devolved legislature)
Ministers and their departments are given authority (i.e. statutory instruments) to make
regulations and orders in areas for which they are responsible. This is mostly extremely technical
in nature. All statutory instruments are created under the authority of the parliament, and are
subject to approval by the parliament.
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By-laws are made under the authority of the parliament, and are usually made by local
authorities to deal with issues in their area. These also need to be confirmed by the appropriate
minister.
Other legislation
Some rules need to be made by government departments without any formal parliamentary
examination.
EU legislation
EU legislation can be split into primary and secondary legislation. Primary legislation comprises
the founding treaties. Secondary legislation takes form in regulations, directives and decisions.
Non-binding recommendations and opinions are also classified under secondary legislation.
Human rights act 1998
The HRA enables citizens to get remedies for their breach of human rights without having to go
to the European court of human rights. The protection of key rights and freedoms is an important
attribute in the law. The rights are classified into three ways:
1. Absolute rights do not follow any exception at all
2. Limited rights can be suspended in times of war or emergency
3. Qualified rights require a balance between the rights of individuals and the needs of the
state
Chapter 5 - Case law
Case: Donoghue v Stevenson
Vertical stare decisis: courts are bound by superior courts. This is to ensure consistency and
reinforce the case law-making primacy of the supreme courts
Horizontal stare decisis: some courts are bound by the previous decisions of their own court. The
reason for this is to reinforce consistency in their jurisprudence
Week 2
Lecture 2 - Formation of contract
A contract is an agreement between two or more persons, intended by them to be legally binding
and enforceable by law. The vast majority of contracts are entered into without formalities.
Parties are free to make their own bargains, except from standard form contracts.
Privity of contracts = persons who are not party to the agreement cannot be bound by its
contractual terms
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CASE: BBC v. HarperCollins. A 2010 case in English law, in which the BBC applied for an
injunction to prevent HarperCollins publishing a book by Ben Collins, which was to reveal his
identity as the racing driver known as 'The Stig' on the BBC's Top Gear programme. Because the
contract was between HarperCollins (the company) and BBC, Ben Collins was free to publish
the book.
CASE: Dunlop Pneumatic vs Selfridge. Claimant supplied tyres, under the agreement that
these would not be resold for less than the price stated. The defendant sold tyres below this price,
the claimant had no right to recover damages as he was not part of the second contract.
In a bilateral contract, each party makes at least one promise - a promise made in return for a
promise. When a contract is formed by the exchange of promises, each party is under duty to the
other. Both parties are promisors and promisees.
In a unilateral contract, a party promises to perform some action in return for a specific act, but
the other party is not promising to take any action. In a unilateral contract, only one of the parties
has made a promise.
A void contract is an agreement that does not meet all of the requirements of a binding contract.
It is no contract at all; it is merely a promise with no legal effect. Neither party can enforce the
agreement. → e.g. illegal activity
An unenforceable contract is a valid contract that cannot be enforced → e.g. minors
Essential features of a valid contract:
- Compliance with formality requirements
- Agreement/ mutual assessment
One party must make an offer, and the other must have accepted the offer. An offer may be
expressed or implied from conduct. In most cases, an offer will be made to a specific person but
offers can also be made to a group of people, or even the general public → CASE: Carlill vs
Carbolic Smoke Ball; Carbolic Smoke Ball claimed in an advertisement that their smoke balls
would prevent the flu. If they still got the flu, they would pay the customer 100$. Carlill still got
the flu and Carbolic stated that their advertisement could not be seen as a contract. However, the
court ruled that it was an offer to the world at large and Carlill accepted when she used the
smoke ball and got the flu.
An offer:
1. Should be clear
2. Is distinguishable from invitation to treat (invitation from one party to the other to make
an offer), request for information, or a mere puff
3. Must be communicated to the offeree
CASE: Guthing vs Lynn (clear)
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Guthing purchased a horse and agreed to pay an extra $5 ‘if the horse was lucky’. He later
refused to pay the extra money. The promise to pay $5 ‘if the horse was lucky’ is too vague to
constitute an offer.
If an offer is incomplete or vague, relevant details may be inferred from previous dealings and
trade customs, to make it an enforceable contract.
CASE: Hillas vs Arcas. H bought wood from A, and allowed H to do the same next year.
However, there was no specification of quantity. Thus, the details of the option could be obtained
from previous dealings.
CASE: Foley vs Classic Coaches. F sold land to CC under the condition that they could petrol
for a price to be agreed on in writing from time to time, disagreement between the parties would
be referred to arbitration. The terms were sufficiently binding, because of the implied term the
petrol should be sold at a reasonable price.
CASE: Jet2.com vs Blackpool Airport. The airport refused to schedule flights outside normal
opening hours to facilitate the low-cost of the airline, even after promising to promote the
airplane company service’s. The airline sued for breach of contract, and the court found the
contract certain enough to ensure legally binding obligation.
Invitation to treat
➔ Items on display in a shop
CASE: Pharmaceutical Society of Great Britain vs Boots Cash Chemist. B ran a shop in
which drugs were on display from the ‘poison list’. However, when these drugs are sold there
needs to be a licensed pharmacist present, who was at the till. The court ruled that the drugs on
display were just an invitation to treat and that when the contract was completed, at the till, there
was a pharmacist available.
➔ Advertisement in newspapers
CASE: Partridge vs Crittenden. P advertised the sale of Bramblefinch cocks and hens, which
are unlawful for sale. However, the court ruled that the advertisement was only an invitation to
treat and not an offer for sale, and therefore not unlawful.
➔ Items displaying a price tag in shop windows
CASE: Fisher vs Bell. F displayed a flick knife, accompanied by a price ticket, in its shop
window. He was charged with offering a flick knife for sale, which was not allowed. However,
the court ruled that the display was merely an invitation to treat.
CASE: Gibson vs Manchester City Council. M stated in a letter that it ‘may be prepared to
sell’ and that G should make a ‘formal application to buy a house’. Later, the council refused to
sell the house. The court ruled that the council letter was not an offer, but merely an invitation to
treat.
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Share prospectus are also invitations to treat. The application of potential shares by an applicant
is an offer to purchase sales, which a company can accept or reject. Items in catalogs and items
for bids at an auction are also invitations to treat; as they are invitations to potential buyers.
CASE: Barry vs Davies. B bid 200$ for a new engine analyzer (there were 2), with the market
value of 14.000$. The auctioneer refused to sell, however, since the bidding took place without a
reserve price, the item should go to the highest bidder. Because the auctioneer had breached the
contract, he had to pay $27.600 in damages.
Request for information
An offer is not the same as a statement that states that a party is going to sell something in the
future.
CASE: Harvey vs Facey. The first of three telegraphs asked if the owners were willing to sell a
piece of land and to send back their lowest cash price. The owners merely sent back a telegraph
with merely a cash price written on it. The offerers accepted that price. However, the second
telegraph was not an offer but merely a statement of their minimum price.
Must be communicated to the other party
The communication of an offer can be in many ways, but a person cannot accept an offer he does
not know about. CASE: Bloom vs American Swiss Watch Co. The claimant gave information
about a jewel thief but he did not know at the time that there was a reward for this information.
When he learnt of the reward, he came to claim it, however, a party cannot accept an offer of
which he has no knowledge, and the defendant was not legally obliged to pay.
Rule: Acceptance must be communicated. Exceptions:
➔ Unilateral contracts - usually accepted by conduct. CASE: Bowerman vs Association of
British Travel Agents. An ABTA tour operator became insolvent, and a customer
claimed his loss at ABTA after seeing a sign that read that there is a scheme of protection
at the ABTA. The offer was to the public at large and accepted when the holiday was
booked.
➔ The postal rule - where the post is a valid means of acceptance, acceptance is effective
upon posting, not when the letter is received. The postal rule only applies to acceptance
of an offer and DOES NOT apply to a posted offer or revocation. CASE: Adams vs
Lindsell. The defendant misdirected a letter, which caused a delay in notification of the
acceptance. Because this was the result of the defendant's mistake, the defendant was in
breach of contract.
CASE: Household Fire and Carriage Insurance Company Ltd vs Grant. The
defendant applied for shares in the company. The company posted a letter allotting him
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the shares, which never arrived. Although the letter never arrived, the defendant was still
obliged to pay for the shares.
An offer may be accepted at any point until it is terminated.Grounds for the termination of an
offer are:
- Lapse of time. When an offer has a time limit, it will expire at the end of that time limit.
When there is no time limit, it will expire at the end of a reasonable time. CASE:
Ramsgate Victoria Hotel vs Montefiore. The defendant tried to buy shares in June, but
the offer was accepted in November. The court ruled that the offer made in June had
expired.
- Revocation or withdrawal of the offer. Revocation terminates the offer when the offeror’s
notice is received by the offeree. CASE: Routledge vs Grant. The defendant offered to
buy the claimants house and gave six weeks to accept the offer, however, the offer was
withdrawn before the end of the six-week period. He was entitled to do this.
In unilateral contracts, an offer may not be revoked once the offeree has commenced
performance.
CASE: Byrne vs van Tienhoven. A withdrawal is only effective when received. The
revocation of an offer was not received until 12 days after the actual revocation, thus, the
parties entered a binding contract in the meantime.
The revocation can also be communicated to a reliable third party. CASE: Dickinson vs
Dodds. Do offered to sell his house to Di, but before he could accept, he heard from
Berry that Do already sold his house. The offer was rightfully withdrawn, and the
revocation was communicated through a reliable third party.
- Rejection of the offer. Rejection becomes effective when the rejection is received by the
offeror. Once rejection is effective, the offeree may no longer accept the offer.
- Counteroffer. A counteroffer terminates the original offer and creates a new offer. CASE:
Hyde vs Wrench. The defendant wanted to sell his farm for 1000$, and the claimant
replied with 950$. When this was refused, he tried to buy the farm for 1000$, but this
offer was closed when a counteroffer was made. A request for information does not
amount to a counteroffer, so the original offer remains open. CASE: Stevenson vs
McLean. The defendant offered to sell his iron, who replied with the question for extra
information. He telegraphed accepting the original offer, however, this was already sold
to someone else. The defendant was in breach of contract, as the first telegraph was only
a request for information and not a counter offer.
- Death
Electronic contracts
The customer makes the offer after checking out in an online store. Even if paid, the contract
does not yet exist. CASE: Kodak Case. K placed a digital camera on its website for a lower
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price, which was an error. After there was an automated email sent, the offer was accepted and
Kodak was bound by the contract.
- Intention to create legal relations
The parties must intend for an agreement to establish legal relations to create an enforceable
contract. Social agreements are presumed NOT to intend to create legal relations. In commercial
relations, the presumption is that legal relations exist, unless the parties expressly state an
agreement to the contrary.
Cases in which social agreements were made:
➢ Balfour vs Balfour. Agreement was made to pay the wife 30$ weekly, but after they
separated B sued B for the missing maintenance money. However, since it was a domestic
agreement between husband and wife, it was never intended to be legally enforceable.
➢ Jones vs Padavatton. J offered P a monthly allowance if she moved to England to work
as a barrister. Later, J purchased a house and offered P the rent of the tenants instead of
the allowance. Later, J sought possession of the house and her daughter sued for the lack
of the payment of the allowance. Since this was a domestic situation, there was no
intention that the promises were legally binding, and there was no legally binding
contract.
➢ Hadley vs Kemp. One member of the pop group did not share his publishing income
with the rest, even though he promised to do so, and they sued him. The court ruled that
there was no clear evidence about the statement.
The presumption that parties did not intend to create legal relations, can be rebutted by clear
evidence of contrary intention.
➢ Simpkins vs Pays. Three parties won a prize to be shared, when the claimant was refused
the money she sued. The court ruled that there was a binding contract as they had all
contributed to the competition with the expectation that the prize could be shared equally.
➢ Robertson vs Anderson. R and A entered an agreement to share their bingo prices. One
won a prize, but refused to share. The court ruled that the parties intended the agreement
to be legally enforceable.
- Consideration (Not the case in civil law)
Consideration is the bargain element of a contract and may be referred to as the ‘price paid for a
promise’ → the getting of a benefit or the suffering of a loss. In order for a contract to be legally
enforceable, there must be an exchange of consideration. The consideration of each party must
have some value but need not be of adequate value.
If a promise is made after an act has been performed, it is called past consideration and is
usually not accepted as consideration in the eyes of the law.
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CASE: Re McArdle. The promise of reimbursement of the home improvements of the house of
the homeowner was made after doing the improvements, making it a past consideration and
legally unenforceable.
CASE: Tweddle vs Atkinson. T and A agreed that they would give 300$ to T’s son after this
marriage to A’s daughter. A died before the payment of 200$, but since the claimant did not
provide any consideration for the promise to pay 200 this cannot be legally enforced.
Consideration does not have to be of equal value;
CASE: Thomas vs Thomas. A widow was offered to live in a house for 1 pound a year, in
exchange for keeping the house in good condition. The owner tried to recover the house from the
widower, but he failed as the 1 pound per year and the keeping the house in good shape were
enough consideration.
CASE: Chappel vs Nestle Co Ltd. Nestle offered the public a song record in exchange for three
wrappers of chocolate bars and 7p. The court had to assess if the wrappers were a part of the
consideration and they were.
Important note is that the consideration must be something real, legal, and certain. The same
consideration can be used by a party in more than one contract, provided the contracts are with
different parties. It is also important to note that an obligation owed to a party in an existing
contract could not be used as a consideration for a new contract with the same party.
CASE: White vs Bluett. A promise to stop complaining was not seen as a consideration, as he
did not have a legal right to complain and was therefore not giving up something ‘real’.
- Capacity to contract
Some people do not have the capacity to sign contracts: minors, intoxicated persons, or people
with a mental impairment.
For corporations, some businesses have a corporate personality, meaning that it can enter
contracts on its own.
CISG
The CISG is a multilateral convention with the goal of uniform treatment of contracts in the light
of international commercial usage and practice. It only governs two basic aspects of the contract:
- The formation of the contract
- The obligations of the parties entering the contract
Issues such as validity of the contract, third-party rights, and property rights are not governed by
the CISG.
Contacts for the sale → of goods → when the transaction is international.
Chapter 4 - The nature of agreement: offer and acceptance
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The acceptance of an offer is the unconditional agreement in terms of the offer. Acceptance must
always be a positive act, meaning that the acceptor must actually do something to communicate
acceptance, silence is thus not acceptance.
CASE: Brodgen vs Metropolitan Railway Company. B had altered the document, and
therefore it became a counteroffer which has not been accepted orally or in writing. The court
decided that the alteration had made it a counteroffer.
Acceptance must be unconditional. There can be several exchanges of forms before the contract
is made → ‘battle of the forms’. Each standard form is treated as a counteroffer, which can be
accepted by the other party. CASE: Butler Machine vs Ex-Cell-O Corp Ltd. The claimant sent
a form, which stated that the price of the tools could fluctuate. The defendant sent back an email
with a fixed price, he was entitled to this as this was seen as a counter offer which was accepted.
Acceptance must be communicated to the offeror and received by him at his place of business.
CASE: Entores vs Miles Far East Corp & Brinkbon Ltd vs Staghag Stahl. In both cases,
there was instantaneous communication between the parties which led to the question where the
contract was made. The court ruled that the decision was made in the country where acceptance
was received.
CASE: Mondial Shipping and Chartering BV vs Astarte Shipping Ltd. The owners of a ship
sent a notice of withdrawal of the ship of charters due to non-payment. The text was sent at
23:41, and the payment could be made until 23:59. Therefore, the text could only be valid if it
was received after that time. However, since it was sent after office hours, it was deemed to be
received when the office opened for business, which was at 9am the next day.
The court will usually accept any reasonable method used by the offeree. To be equally effective,
the communication method must not be slower or less advantageous for the offeror. Although the
offeror may specify how acceptance is to be made, he cannot stipulate that no reply from the
offeree will amount to acceptance. CASE: Felthouse vs Bindley. The claimant wrote the
following; “If I hear no more about it, I consider the horse is mine for 30$”. However,
contractual liability cannot be imposed on a party by the offeror stating that silence will be
constructed as acceptance of the contract.
→ exceptions are unilateral contracts and the postal rule.
Chapter 5 - Intention, capacity, consideration, and privity
When a creditor is unable to pay a debtor, they can agree on the debtor paying a lesser amount to
the debtor to pay off the full settlement. However, these agreements are usually not legally
binding and the creditor can often ask for the full amount later.
CASE: Pinnel’s case. The court ruled that the partial payment on the due date is not a good
consideration. If the payment would have been made on an earlier date, it would have been a
good consideration.
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CASE: Foakes vs Beer. B and F did not make any agreements on the interest on a loan. B was
legally entitled to the interest because F did not provide any consideration for her promise to
accept less than what was due to her.
If a creditor has promised not to pursue a debtor after part-payment, and does this anyways, the
debtor can ask the court to use its equitable powers to prevent the creditor to get back on its
promise, the principle of promissory estoppel.
CASE: London Property Trust vs High Tress House. After lowering the rent, the landlord
changed the rent back and wanted a 6-month recovery of the lowered rent. He was found entitled
to the money.
Week 3
Lecture 3 - Contractual terms, discharge of contracts, and remedial breach
During the discussion of a contract, there are a lot of statements made:
- Trader’s hype → no remedy is claim is false (‘Whiter than white’)
- Representation → remedy for misrepresentation if claim is false (Not important)
- Term → remedy for breach of contract if term is broken
Terms of contract can either be:
- Expressed
➔ Oral
➔ written
- Implied
➔ Statute
➔ Courts
➔ Trade custom
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When there is a dispute, the court will decide on the type of term.
CASE: Poussard vs Spiers. P fell ill and could not attend the opera in which she was supposed
to take part. The court ruled that by missing the premier, P had breached a condition, and the
producer could terminate the contract. p
CASE: Bettini vs Gye. B arrived 3 days late for rehearsals, and G refused to accept B’s services.
The court ruled that showing up 6 days before the rehearsals was a warranty and G had breached
the contract by refusing the services.
An exemption clause seeks to limit or exclude a liability that would otherwise exist. It should be
incorporated into the contract, clearly expressed to cover the situation and comply with the
Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015. The exemption clause must
be:
Incorporated into the contract:
- Signed documents
➔ CASE: L’Estrange vs Gracoub. Claimant purchased a machine and signed a
contract without reading it, she was still bound by the exemption clause.
➔ CASE: Curtis vs Chemical Cleaning. The claimant took her wedding dress to
be cleaned, and she signed an exemption clause. But because the assistant
explained the clause incorrectly, the company could not rely on the clause.
- Unsigned notice
➔ CASE: Chappelton vs Barry. C hired two chairs and received two tickets, which
he put in his pocket unread. C was injured when the chair collapsed, but the ticket
contained a clause exempting B from liability. The court ruled that a reasonable
man would assume the ticket was a mere receipt and not a contractual document
which might contain conditions.
➔ CASE: Olley vs Malborough Court Ltd. The contract for renting a hotel room
was made at the reception before O had seen the hotel room. In the room there
was a notice stating that the hotel was not liable for any lost or stolen articles
unless handed to the manager. A stranger went into the room and stole O’s furs. O
was not bound by the exemption clause - it came after the contract was made.
➔ CASE: Thompson vs LMS Railway. The illiterate claimant suffered an injury on
her journey. The company stated on the timetable that they were not liable, even
though she could not read the company was not liable, as they gave reasonable
notice.
➔ CASE: Impala vs Wanxiang. Terms and conditions listed on the website applied
➔ CASE: Interfoto Picture Library vs Stiletto Visual Programmes. Failed to
bring under attention the unusual term of a penalty with late return of
transparencies. The court ruled damages of 3.50 per week on a quantum meruit
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basis, instead of the 5 per day per transparency → if a party wishes to rely on an
unusual term, this requires a higher degree of notice.
➔ CASE: Thornton vs Shoe Lane Parking. A man became injured when he
collected his car from the parking lot. On the ticket, the company had stated that
they were excluded from liability. However, the court ruled that the contract was
made when the customer pays, and therefore the contract was made before the
ticket was issued and the terms on the contract were not part of the contract.
➔ CASE: Spurling vs Bradshaw. After years of delivering OJ, the claimant
received an exemption clause after which the OJ barrels were empty. The court
ruled that the defendant was bound by exemption as there had been regular
dealings for years.
If there is any doubt about the meaning or extent of the clause, the court will construe against the
party seeking to rely on it, the contra proferentem rule.
CASE: Andrews Bros Ltd vs Singer & Co. S undertook an obligation to deliver new cars to A.
The exemption clause stated “all co“all conditions, warranties and liabilities implied by statute,
common law or otherwise.” One of the cars delivered by Singer was a second hand, and
Andrews refused to take delivery. Decision: the exemption clause excluded liability only for
implied terms. The clause relating to the car being new was an express term. Hence, the
exemption clause did not cover this term.
For each case, it became the question of whether the clause covers the breach in question. If the
clause is drafted widely, it will cover very serious breaches of contract.
CASE: Photo Production vs Securior Transport. In the contract there was a wide exemption
clause, stating that Securior was exempted from liability even if one of their employees damaged
the factory. One of the employees deliberately set fire to the factory, and it was ruled that the
clause had covered the events and was a valid term of the contract.
In a standard B2B contract, a business cannot exclude liability for their own breach of contract
unless the exemption is reasonable. A term excluding liability for misrepresentation is not
effective unless fair and reasonable.
In a consumer contract, all unfair terms are not binding on the customer.
CASE: George Mitchell vs Finnley Lock Seeds. The defective seeds sold to the farmer, led to a
loss for the farmer of 60.000$. The defendant sought to rely on the limitation clause, however,
the court ruled that this was not reasonable and was a result of the seller’s negligence.
CASE: Albans City Council vs International Computers. Due to an error in the software, the
city made a loss of 1.3 million. The defendant sought to rely on a limitation clause of 100.000,
which was ruled to be unreasonable as the sum was too low.
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Where a contract is negotiated between businesses of equal bargaining power, the court will not
usually interfere with an exemption clause.
CASE: Watford vs Sanderson. The goods supplied by the defendant did not perform as
required and the claimant lost 5.5 million, while there was a limited liability clause for 104.569.
The court ruled that both businessmen had equal bargaining power, thus only if the clause was
unreasonable it should not interfere. The clause was deemed reasonable, and thus valid.
Some contracts contain clauses which restrict the future freedom of one of the parties:
- Employment contracts → obliged to keep trade secrets. This will only be valid when it is
no wider than needed to protect the employer. In contract of employment, an employer is
not allowed to restrain an employee's personal skills.
CASE: Morris vs Saxelby. S was a skilled draftsman prevented from working for a competing
company. Not reasonable as the engineering skills were his own knowledge and not of the
company
CASE: Home Counties vs Skilton. S was a milkman not allowed to sell to customers of his
former employer → reasonable as it prevents loss
CASE: Strange vs Mann. Business via phone, and after he quit he could not do the same in a 12
mile radius. Unreasonable as there was no face-to-face contact.
- Contracts for the sale of businesses → no competition with the purchaser. To be valid, the
restriction must protect the business and must not be excessive.
CASE: Vancouver Malt vs Vancouver Breweries. The sellers were licensed to sell beer, but
did not. Only started doing this after the sale, even when this was prohibited in the contract.
Allowed as there was no goodwill to sell beer as they just started doing it.
- Solus agreement: A seller agrees that he will obtain the product only from him
CASE: Esso vs Harper’s Garage. Harper said to buy petrol from Esso for 4.5 years and in the
second there was an agreement to buy E for 21 years. The second was not reasonable as it was
deemed too long.
Discharge of contracts:
- Agreement
One party has completed obligations under the contract → Unilateral discharge: the party
wishing to be released must provide accord and satisfaction.
Neither party has completed obligations under the contract → Bilateral discharge: both parties
release each other from obligations under the contract.
- Performance
The performance must be exactly and precisely what is promised under the contract. There are a
few exceptions to this:
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1. Substantial performance. A party may be entitled to payment for the work they carried
out if they have almost completed the contractual obligations.
- CASE: Hoenig vs Isaacs. The defendant contracted the defendant to redo his
house, but refused to pay the last part of the sum due to a defect closet. The court
ruled that he was still entitled to this last payment due to substantial performance.
- CASE: Bolton vs Mahadeva. The reparation costs for a freshly installed heating
system was too great a part to accept substantial performance so the claimant
could not recover any payment for the work done.
2. Divisible contracts. Contracts are divided into matching pairs of duties. This is done so
that the failure for the performance of one object will not necessarily result in breach of
contract.
- CASE: Ritchie vs Atkinson. An owner was eligible for the part of the ship that
was transported.
3. Prevention of completion by the other party. Party 2 is actually in breach of contract by
preventing completion and party 1 can sue damages for this breach.
- CASE: Sumpter vs Hedges. The work on a house had not been substantially
performed and the defendant had not accepted partial performance so was given
no choice but to finish himself.
4. Acceptance of partial performance by the other party → pay an appropriate price for the
work performed.
- CASE: Plance vs Colburn. After starting to write a book, the publisher said it
was no longer necessary. The author was entitled to part-payment on quantum
meruit.
- Frustration
- Frustration discharges a contract where events occur that make the performance of the
contract (I) impossible, (II) illegal, (III) something radically different from that originally
envisioned by the parties. → not the fault of either party
CASE: Taylor vs Caldwell: There was a contract for the hire for a series of concerts. But the
hall was destroyed by a fire and the contract was frustrated.
CASE: Gamerco vs Fair Warning. Stadium for promotion was declared unsafe and contract
was discharge
- Breach
Where a party prior to performance states that he will not fulfill his contractual obligations, a
party fails to meet obligations, or the obligations are completed in a defective manner.
Actual breach of contract → performance time has passed → contract has been breached → the
innocent party can sue for breach and, if the term broken is a condition, can also terminate the
contract.
Anticipatory breach of contract → performance time has not passed → one party has indicated
that they do not intend to perform → the innocent party can sue immediately or wait for the
performance time to pass.
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CASE: Cutter vs Powell. Cutter agreed he would sail with Powell to Liverpool, England in 10
weeks. Cutter died after seven weeks Mrs Cutter sued to recover the wages for the part of the
journey that the husband had survived. Because the voyage was not completed she was not
entitled to the wages.
CASE: Hochster vs De La Tour. The defendant employed the claimant but before the start date,
the defendant said that he was no longer needed. Argued for breach of contract.
CASE: Avery vs Bowden. After agreeing on a cargo, D informed C that there was no cargo
available. After that, the war broke out and the contract could be broken out of frustration instead
of breach.
If a contract is breached, the innocent party will be entitled to take court action and claim one or
more of the following remedies:
1. Damages. Most sought after remedy and compensation for the innocent party. Can be
pre-estimated or decided in court.
2. Measure of damages. The amount recovered should not put the innocent party in a better
financial position than it would have if the obligations had been carried out.
3. Duty to mitigate. The claimant must take steps to reduce his losses, he cannot claim
losses he could have reasonably avoided.
4. Injunction. Injunction is the court ordering not to take an action that will breach the
contract.
5. Repudiation. Treating the contract as ended so that further performance by the innocent
party is not required.
6. Restitution. Giving back a benefit that has been obtained
7. Quantum Meruit. Awarded a sum representing ‘as much as he has earned’.
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Week 4
Lecture 4 - Tort Law
Tortious liability arises from the breach of a duty → primarily fixed by law → the duty is
towards persons → the breach is redressible by an action for unliquidated damages.
Tort law puts the injured person back in the position he or she was in before the wrong happened.
Tort law is part of private law, meaning that the main claim under tort law is compensation.
In contract law, the contract is voluntarily entered into by the parties, tort is imposed by the
operation of law.
A strict liability tort is a tort that imposes liability on a person even though they have not been
at fault in any way. In this case, the claimant needs to prove that the tort occurred, and that the
defendant was responsible.
In some situations, a person can be held liable for the actions imposed by another, this is called
vicarious liability.
Tort of negligence deals with a breach of legal duty to take care that causes damage to a
claimant. Negligence protects against three different types of harm:
- Personal injury
- Damage to property
- Economic loss
Elements of tort of negligence, these should be proved when there is an accusation of negligence:
1. The defendant owed duty of care
2. The defendant broke that duty of care
3. The claimant suffered damage or loss as a result of breach of duty
Donoghue vs Stevenson
Duty of care: The Neighbor principle → every person owes a duty of care to its neighbor, the
defendant broke the duty of care by selling a defective product (beer). Your neighbor is anyone
who can be foreseeably hurt by your actions.
The Supreme court made it clear that in deciding whether a duty of care exists courts should
examine precedent, past cases. Only if this cannot be determined using precedence, the Caparo
test applies.
CASE: Darnley vs Health Services NHS Trust. D went to NHS after sustaining a head injury
and was told to wait 4 to 5 hours. He felt ill and left after 19 minutes, after which he collapsed
and suffered brain damage. The information provided was incorrect and he should have seen a
nurse in 30 min. It was established that NHS owed duty of care to its patients, which included
providing accurate information.
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CASE: Caparo Industries vs Dickman
Caparo owned shares in Fidelity and wanted to buy more and become the main shareholder.
They relied on the audited accounts of Fidelity, prepared by Dickman. These , however, were
inaccurate and showed a profit of 1.3 million instead of a loss of 465.000. Caparo sued Dickman
for negligent misstatement. Court ruled that Dickman did not owe duty of care to the large
public, and therefore not to Caparo. → caparo test appeared.
If duty of care has not been clearly established in previous case law, a three-stage Caparo test
applies.
Stage 1: Was the damage caused reasonably foreseeable? No duty of care exists unless the
loss/harm was reasonably foreseeable at the time the defendant was negligent.
CASE: Margereson vs JW Roberts Ltd. M developed an illness as the result of exposure to
asbestos from the defendant's premises during her childhood when she played in the factory. The
knowledge about the harm that could be caused by asbestos was known at the time of exposure.
The defendant was liable as the risk was reasonably foreseeable.
Stage 2: Was there a relationship of proximity between the claimant and defendant? About legal
proximity, not physical. Relevant factors: relationship between parties, length of time between
events, whether goods have been tampered with.
CASE: Evans vs Triplex Safety Glass Co. E bought a car which had been fitted by
manufacturer T, E was injured by the shattering of the glass while driving. T was not liable
because too much time had passed between the manufacturing of the windshield and the
incident. In addition, the windscreen might have shattered for other reasons.
CASE: West Bromwich Albion vs El-Safty. W claimed damages against a surgeon who
negligently advised one of their players to undergo surgery for a knee injury. E was not liable as
the surgeon owed no duty of care to the club, as there was not enough proximity. No evidence
suggests that the surgeon knew he was taking on this additional duty.
Sometimes, a defendant can be liable for the actions of a third party. Especially when there is a
relationship between the third party and the defendant.
CASE: Home Office vs Dorset Yacht. A youth custody center was taken on a yacht by the
officers of Home Office and damaged the yacht. In this case, Home Office owed a duty of care
because there was a relationship between the boys and the office and the damage was
foreseeable.
CASE: Topp vs Londen Country Bus. A bus was stolen by a third party and a woman was
injured by the cause of the third party. The bus company did not owe duty of care.
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Stage 3: Is it fair, just and reasonable to impose a duty of care on the defendant?
CASE: Ashton vs Turner. Three drunken men committed burglary and sought to escape by a
car owned by one of them. The car crashed and the claimant who was injured sought
compensation from the driver. However, no one should benefit from their criminal activities and
a duty of care was not imposed.
CASE: Hill vs Chief Constable of West Yorkshire. H, mother of the last victim of a serial
killer, sued the police for negligence in earlier murders and stated that her daughter’s death could
have been prevented. The court ruled that the police does not owe a duty of care to individual
members of the public (proximity argument). Imposing a duty of care would lead to the police
acting in a defensive manner and divert their attention from their primary function of suppressing
crime.
CASE: Michael vs Chief Constable of South Wales. M called the police and said her
boyfriend was aggressive. The call was initially graded as requiring immediate response but was
accidentally downgraded in urgency. The delayed response resulted in the death of the caller. The
poliv owed no duty of care as there was insufficient proximity between the police and the victim.
Sometimes, duties of care do not apply if parties could be expected to protect their own interests
by taking precautions. Courts can also be reluctant to expand the duty of care as this might result
in a large number of similar cases, known as the floodgates argument.
Courts have developed more detailed, and more restrictive, rules that apply in certain types of
cases:
➢ The damage caused is purely economic loss. It covers cases where a claimant has
suffered financial loss that does not directly result from personal injury or damage to
property. The recovery of pure economic loss is very limited in tort law.
CASE: Weller vs Foot and Mouth Research Institute. A cattle virus escaped from the
defendant’s lab, causing a foot and mouth disease which led to the restriction of
movement of cattle. The claimants were auctioneers and lost a considerable amount of
money as they could not hold auctions during the outbreak. The court ruled that the loss
was purely economic and therefore
not recoverable.
CASE: Spartan Steel vs Martin & Co. Accidentally cut power cables led to a factory to
be without electricity. They could recover the number of damages, but could not recover
the profit that would have been if new melts were created during these times. They were
liable for the damage but not for the missing profits as this was pure economic loss.
CASE: Study Clay vs Crump. An architect said a wall was safe, which later collapsed
and led to injury to the claimant. The architect was liable for his negligent statement.
Generally, there is no duty of care stemming from ownership of a building or product that turns
out to be defective.
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CASE: Murphy vs Brentwood Council. After buying a house, the claimant found out the house
was defective which caused him to sell the house for 35.000 less. The council was not liable
because the claimant had not suffered personal injury nor had their property been damaged.
There can be a duty of care for pure economic loss if there was particular close proximity. The
defendant would contemplate the claimant as being directly affected by his actions.
CASE: White vs Jones. A father disowned his daughters after a dispute. After reconciliation,
the father instructed his lawyers to draw up a new will benefiting his daughter. The father died
before the will was constructed due to negligence of the lawyers. The solicitors owe a duty of
care to the person making the will and intended beneficiaries under the will. The financial losses
to the claimants were reasonably foreseeable. → a duty of care not to cause pure economic loss
only arises when there is ‘special relationship of proximity’ between the claimant and defendant.
CASE: Ross vs Caunters. A solicitor sent his client the will, but forgot to tell him that the will
should not be witnessed by the spouse of an intended beneficiary. Now the intended beneficiary
was unable to claim and the solicitor owed duty of care to the claimant.
CASE: Spring vs Guardian Assurance. The reference for a new job was so unfavorable that it
cost the claimant a new job. The ex-employer owed a duty of care in providing references in
respect for his former employee and owed duty of care.
A special relationship of proximity exists if:
➔ The defendant knew that the statement he made would be communicated to the
claimant
➔ The advice the defendant gave is done in relation to the specific transaction
➔ The defendant knew the claimant would rely on this statement
When a statement is made in a purely social setting or as a quick response, it may not be
reasonable to rely on even though someone is an expert. When it is clear that careful, considered
advice is being sought, a statement made by a friend mau give rise to duty of care.
CASE: Chaudry vs Prabhaker. The claimant asked a knowledgeable friend to find her a
second-hand car. She said she did not want one involved in an accident, but the car was involved
in an accident and her friend owed duty of care.
➢ The damage caused is psychiatric injury
In cases of pure psychiatric injury, there is a distinction to be made between primary victims,
involved, and secondary victims, witnesses.
CASE: Dulieu vs White. Due to an accident, the pregnant claimant feared for her and her
unborn child’s safety. The claimant could recover costs for nervous shock as it was caused by
real fear for her life.
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CASE: Grieves vs Everard & Sons Ltd. After being exposed to asbestos, the claimant
developed a psychiatric illness as a result of the worrying of becoming sick. However, no duty of
care was owed, as there was no evidence that a person of reasonable fortitude would become
mentally ill as the result of worrying about the possibility of a future illness.
Secondary victims suffer psychiatric illness as a result of witnessing an accident or its immediate
aftermath → no direct danger.
CASE: Hinz vs Berry. Claimant suffered psychiatric illness from suffering a terrible accident
and was entitled to the damages from witnessing the accident.
CASE: Alock vs Chief Constable of South Yorkshire. Police allowed too many people on the
football field, causing many injuries and killings. The claimants with not close enough ties could
not claim damages, neither could claimants who saw it on TV. Others did succeed in claiming
damages.
Criteria → close tie of love or affection; close geographical proximity; a medically recognized
psychiatric illness is suffered as a result of the accident.
➢ The damage was caused by a failure to act (liability for omissions)
Liability for negligent misstatements can be avoided by a disclaimer of responsibility. NOTE:
liability for personal injury or death can never be avoided. Liability for other damages may be
excluded when it is reasonable to do so.
No duty = no liability → this means that tort law generally holds people liable for acts (things
they do), not omissions (things they fail to do). There is no liability for ‘pure’ omissions.
After establishing duty of care, there also needs to be established that there was a breach of duty.
The defendant did something that a reasonable person in the circumstances would not have done,
or the defendant failed to do something that a reasonable person in the circumstances would have
done.
CASE: Nettleship vs Weston. The claimant agreed to teach the defendant to drive. In the third
lesson, the defendant hit an amp post and was injured. The duty of care owed to other passengers
and the public was the same as that for any other drivers. The defendant was liable regardless of
the fact that she was an experienced driver.
CASE: Orchard vs Lee. A 13-year old boy had seriously injured the lunchtime supervisor while
running into him while playing tag. He was not found liable as no 13-y/o would have foreseen
the risk of injury through playing, and he had not fallen below the standard of care.
Special skill → higher standard of care. A duty of care is breached if the defendant did
something that a reasonably competent person in that profession would not have done. The duty
of care is measured by the level of qualification, not the amount of experience.
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CASE: Philips vs Whitely. The claimant contracted a disease after having her ears pierced by
the defendant. However, he was not found liable as the standard of care that was required was
that of a piercer, not a medical practitioner.
When there is a high probability that injury had been caused by the defendant’s action, it is very
likely that the defendant will have breached its duty of care. In cases where the risk of the injury
is small, but the gravity of the injury if it occurs is great, then it is likely that the duty of care will
be broken if precautions are not taken, provided that the injury, although unlikely, is foreseeable.
However, if spending a large amount of money would only reduce the risk a little, it might not be
worth it.
CASE: Miller vs Jackson. The claimant’s house was close to the local cricket club and it was
damaged by balls, which occurred more often. The defendant was liable as the risk was
sufficiently large to have expected more precautions by the club.
CASE: Haley vs London. The bind claimant fell into a hole dug into the pavement, even though
there was a sign. The precaution was insufficient and therefore the defendant breached duty of
care.
CASE: Latimer vs AEC. After the rain, the claimant slipped and fell. Since the defendant had
already covered the floor in sand dust, the only other precaution he could have taken was to close
the factory, which was not justified because of the size of the risk.
A defendant will not breach his duty of care if he takes reasonable risks because of an emergency
situation.
CASE: Watt vs Hertfordshire. Fire department used the wrong lorry due to the other one being
unavailable. The jack slipped and injured one of the firmen, who sued his employer. However,
due to the emergency situation, the risk was reasonable and the employer was not liable.
The last element of duty of care is that the defendant must have caused the claimant’s loss or
damage. A claimant can rely on the res ipsa loquitur doctrine (= the thing speaks for itself). This
can be used if the claimant cannot prove how the injury was caused. The burden of proof is then
reversed, and the defendant has to prove he has not breached the duty of care.
The ‘but for’ test, the claimant would not have suffered loss or damages but for the breach of
duty by the defendant.
CASE: Barnett vs Chelsea & Kensington Hospital. B went to the hospital for vomiting but
was sent home by the doctor. Later that night B died, someone had put arsenic in his tea. The
hospital was not found liable. The hospital had a duty of care and breached the duty of care, BUT
the death was not the result of breach as B would have died anyway.
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CASE: Ward vs Tesco Stores. The claimant slipped on yogurt in the store. The defendant
would have breached if they had failed to clean this within a reasonable time, but the claimant
could not prove how long the yogurt had already been on the floor. However, tesco was
considered liable as they could not positively establish that they had not been negligent.
The claimant must prove that the defendant’s actions were the material cause of the harm. The
loss or damage must be reasonably foreseeable. CASE: Wagon Mound Case. The defendant’s
ship spilled oil into the water, no effort was made to clean it up and the oil quickly spread to the
claimant’s wharf. Because of the actions happening on the wharf, there was significant damage
by largely destroying the wharf and the equipment on it. The defendant was not liable as the
damage could not have been reasonably foreseeable.
Problems arise when there are a number of possible causes for particular harm, the defendant
will not be liable if the claimant fails to prove that it was the action of the defendant that caused
the injury.
CASE: Fairchild bvs Glenhaven Funeral Services. The claimant had negligently been exposed
to asbestos by multiple employers and as a result became ill. He could not prove which of the
employers caused the illness and was able to sue them all.
CASE: Sienkiewicz vs Greif. C was exposed to asbestos, which caused the chance of her
becoming ill by 18%. She contracted the disease and died. The increase in the risk was not
significant and the employer was not liable.
The damages suffered must not be too remote, which means that it should be reasonably
foreseeable. The precise nature of the injury does not need to be foreseeable, if the injury was a
kind that was foreseeable, even if the damage is more severe than anticipated.
CASE: Jolley vs London Borough of Sutton. The council knew about an abandoned boat that
children were playing in. The claimant and a friend were injured when they tried to repair the
boat. The council was liable as the harm was foreseeable, even if the precise way the harm
occurred could not have been foreseen.
The eggshell skull principle states that: ‘One must take his victim as one finds it’.
CASE: Smith vs Leech Brain & Co. The claimant’s husband was splashed on the lip with
molten metal, but due to an underlying condition this led to cancer. Although the only
foreseeable injury was the burn, the defendant was still liable.
The situation of the intervening act usually applies in circumstances where the negligence of the
defendant triggered a sequence of events leading to the harm suffered by the claimant. The court
has to decide if the new act is serious enough to be the cause rather than the original act. Where
an intervention breaks the chain of causation, the defendant will only be liable for injuries that
occured to the claimant prior to the event.
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CASE: McKew vs Holland. After the negligent injury of the defendant’s leg, the defendant fell
and suffered additional injuries. The defendant was not liable for these injuries as the claimant
had acted unreasonably, and this constituted a break of the chain of causation.
If a claimant suffers loss as a result of a defective product, they will have the following legal
avenues to seek redress:
➢ Product liability in contract → put the innocent party in the position he would have been
in, had the contract been correctly performed.
➢ Product liability in negligence → if there is no contract. At the core, there is an element
of faultiness. The producer of the product owes a duty of care to the ultimate consumer. A
manufacturer can escape liability if there has been interference by a third party or if
warnings have not been heard.
CASE: Holmes vs Ashford. The claimant suffered dermatitis when hair dye was applied
to their hair by a hairdresser. The manufacturer was not liable because the hairdresser had
failed to test the dye, contrary to the instructions.
➢ The Consumer Protection Act 1987
The Consumer Protection Act imposed a strict liability on defendants.
Potential claimants: any person who is injured or whose property is damaged by a defective
product
Potential defendants: producer, own brander, importer, supplier.
Time limit: three years from discovering the defect, incurring the damage, or ascertaining the
identity of the producer.
To succeed the claimant must prove:
1. The product contained a defect
2. The claimant suffered damage
3. The damage was caused by the defect
4. The defendant was either a producer; a marketer; an importer; or a supplier into the EU of
a product.
CASE: Richardson vs LRC products. A condom failed during use and as a result the claimant
became pregnant. The defendant was not liable because the product did not have a defect,
consumers are not entitled to expect that a condom would be 100% effective.
CASE: Abouzaid vs Mothercare. A 12 y/o claimant was struck in the eye by a metal buckle
when he was trying to attach a plastic strap. The product was found defective as there was a risk
in using the product and no warning had been given.
There are four defenses available to the defendant:
1. Compliance with the law → compliance with a law leads to a defect
2. Product not supplied/ not supplied commercially
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3. Defects arising later → not defective at time of manufacture
4. The development of risk defense → showing that with the state of science at the time of
production there is nothing they could have done. Nobody knew better at the time.
Week 5
Lecture 5 - Company law
Companies are ruled by:
- The provisions in National Companies Act mandatory and non-mandatory default rules
- Case-law explaining some legal provisions
- The provisions in articles of association
Article 49 TFEU: A freedom of establishment, enjoyed by natural persons, but also companies
and firms; ban on discrimination.
Article 54 (I) TFEU: Companies enjoy the right of establishment if they are formed in
accordance with the law of a member state; and have a connection with a member state.
Article 54 (II) TFEU: Broad definition of companies and firms: “Companies or firms
constituted under civil or commercial law, including co-operative societies, and other legal
persons governed by public or private law, save for those which are non-profit making”.
Article 50 (2)(g) TFEU: Task of the Commission and Council to realize freedom of
establishment through harmonization of company law.
Harmonization is necessary because companies are creatures of national law and cross-border
situations cannot be regulated through domestic legislation. Harmonization aims to:
- Provide equivalent safeguards to shareholders and others
- Facilitate and promote the crossing of borders by companies within the EU
CASE: Centros and Inspire Act. A company which is validly incorporated in a member state
and having a registered office there, is entitled to exercise its freedom of establishment in another
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member state by establishing a branch. The host member state must recognize that a company as
a legal person may not apply provisions of company law to such a foreign company.
CASE: Sevic and Vale.
Sevic → restrictions on juridical mergers between companies in different member states are
contrary to article 49
Vale → if the national law of a host state allows for the conversion of national companies,
meaning it has provisions for an international conversion of companies, then it should also allow
the cross-border conversion of a foreign company into a national company.
Unincorporated: legal personality of the business and the owners is one and the same.
- Sole trader
Main feature: an individual carrying out on business as an individual.
Advantages:
➔ Simplicity: trading can begin immediately
➔ Independence and autonomy: responsibility for themselves and their customers
➔ Privacy: no legal requirements to register any information with a public body
Disadvantages:
➔ Unlimited liability
➔ When the sole trader dies, the business may also die
➔ Complete responsibility for the business
- Partnership
Main features: business set up between at least two partners; not a separate legal entity; no
limited liability; governed by the Partnership Act of 1890.
Advantages:
➔ Privacy
➔ Pooling of talent and resources/ capital
➔ Share the network and liabilities
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Disadvantages:
➔ Unlimited liability and personal assets may be at risk
➔ May create liabilities for other partners
➔ Share profits and therefore a reduced individual share
- Limited partnership (Part of partnership)
Main features: A partnership with limited partners alongside general partners. The general
partners assume an unlimited liability and the partners’ liability is limited to the capital they have
contributed. Governed by the Limited Partnership Act 1907; must be registered at the Companies
House.
Incorporated: are considered to be legal personalities in their own right. They have a legal
personality that is separate and distinct from their members.
- Capital company
Main features: Separate legal personality, limited liability of shareholders. The company gets its
capital by issuing shares.
Advantages:
➔ Limited liability for the members
➔ It has perpetual succession and dies when formally wound up
➔ Generally easier to raise capital
➔ Make contracts in its own right
➔ Tax benefits available for corporations
Disadvantages:
➔ Greater administrative requirements
➔ Subject to external and internal regulations
➔ There is no automatic right to participate in the management of the company
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- Limited Liability Partnership
Main features: A hybrid form between a partnership and a capital company. LLP is formed by
two or more individuals carrying on a lawful business with a view of profit. An LLP is a body
corporate. The limited liability is to such an amount as they have agreed to internally contribute.
The Salomon Principle: Companies, if correctly formed, enjoy separate legal personality and
limited liability.
CASE: Salomon vs Salomon & Co. Mr. Salomon sold his business to a company which he had
set up for the purpose under the companies act of 1982. This meant that Mr Salomon were
creditors to the business with first claim to the assets should the company go into liquidation, as
indeed happened. The liquidator attempted to hold Mr Salomon liable on grounds that the
transaction was fraudulent and that he should not be allowed to benefit and that the company was
simply his agent.
In the first instance, the court ruled that he was a sole trader screening himself from liabilities
and such as it was a device to defraud creditors. The house of Lords, however, concluded that
there was nothing untoward with the formation and operation of the company. There was no
sharm or fraud and Mr Salomon was not liable to indemnify against the creditor's claims.
The parent company and the subsidiary are separate legal entities and each company is entitled to
expect that the court will apply the salomon principle and respect the identity in the group.
Consequences of Salomon:
- The legal personality of a company exists irrespective of the members or directors who
carry out its functions
- The company enters contracts, sues, incurs debt, and owns property in its own name
- SLP shield the company’s assets from shareholders’ creditors
- Entity shielding: because of limited liability, shareholders’ assets are not available to
meet the company’s debt.
The legal personality of a company separates the company from those who own it - it creates a
‘veil’ between the company and its members. The veil may be lifted if the corporate structure
was merely a facade to defraud creditors and when a group of companies is in fact conducted as
a single economic unit.
The court, however, is very reluctant to lift this veil because:
- LL facilitates the diversification of risks, reducing the equity cost of capital
- Also reduces the transaction costs
- With unlimited liability, shareholders would be limited to a few wealthy investors who
can monitor their shareholdings.
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CASE: Gilford Motor vs Horne. The director of H resigned and had a contractual clause
stating that he could not start a company in the same branch. Thus, he set up a company that was
incorporated with his wife and an employee as director and shareholder. The court ruled that the
company was formed as a device to mask the carrying on of the business and was in breach of
his pre-existing legal duty.
CASE: Jones vs Lipman. The defendant set up a separate company and transferred a property
to it. The court held that the company was merely a mask to evade his pre-existing duties.
CASE: Gencor ACP vs Dalby. A director in breach of fiscal duty sent his personal profits to an
offshore company. The claimant sought to recover these profits, and the court ruled that the
company was merely set up to receive profits.
CASE: Trustor vs Smallbone. The defendant hid 20 million from the claimant, his director, in
the company. The court ruled that the company was merely a facade used for the receipt of the
claimant’s money and he had committed authorized and inexcusable breaches of his duty.
CASE: Adams vs Cape Industries. Cape’s subsidiaries mined asbestos in South Africa and
shipped it to Texas. The employees of the subsidiary became ill with asbestos. Cape argued there
was no jurisdiction to hear the case. The claimant had to show in the UK that the veil could be
lifted, and the two companies could be treated as one.
CASE: Prest vs Petrodel Resources. After going through divorce, the husband had transferred
assets into a company. The supreme court ruled that the husband was entitled to possession or
reversion. → The court can only pierce the corporate veil when a person deliberately frustrates
by interposing a company under his control.
Courts are reluctant to pierce the veil because the limited liability facilitates diversification of the
risks. It also reduces the transaction costs of evaluating and monitoring for creditors, again
reducing the cost of capital. Lastly, with unlimited liability, shareholders would be limited to a
few wealthy investors.
The evasion must be some pre-existing obligation from one party to another, which exists
independently of the company’s involvement. The question is: whose obligation is being evaded,
that of the person or the company?
CASE: Yukong Line vs Rendsburg Investments. R wrongly repudiated a character party, and
the director (X) immediately moved the content of the company’s bank account to another entity,
to put the funds beyond the reach of any wrongful repudiation of the ship-owner. The judge
refused to pierce the corporate veil, as there was no pre-existing obligation from X to Y.
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Two essential features of shares:
- Entitlement to membership of the company
- Represents a percentage of the legal capital of the company.
On the arrival of the company at a crisis point, where directors foresee that the company cannot
continue to pay its debts, these directors must decide either to rescue the company and ensure
future payments of its creditors; or to put the company into liquidation.
Schemes can be used by solvent or insolvent companies to reach a compromise or arrangement
with shareholders or creditors. The protection for the shareholders and creditors is that all
schemes require the sanction of court.
Week 6
Lecture 6 - EU Competition Law and IP Law
Competition is a process or the result of a process of rivalry between entities that operate in
relation with one another. Competition is, however, irritating for the entities involved and they’ll
want to restrict it but are unable to do so individually. Competition law prohibits firms from
engaging in conduct that will distort the competitive process and harm competition.
EU competition law claims to:
- Enhance consumer welfare and ensuring efficient allocation of resources
- Protect competition
- Establish a single market
Primary competition law:
- Arts. 101-108 TFEU
Article 101 TFEU: The legal text
1. The following shall be prohibited as incompatible with the internal market: all
agreements between undertakings and concerted parties which may affect trade between
member states which have as their object or effect the distortion of competition
2. Any agreements or decisions prohibited pursuant to this article shall be automatically
void.
3. The provisions of paragraph I may, however, be declared inapplicable in the case of
[agreements, concerted practice or decisions] which contributes to improving the
production or distribution of good to promote technical or economic progress, while
allowing customers a fair share of the resulting benefit, and which does not:
a) Impose on the undertakings concerned restrictions which are not indispensable to
the attainment of these objectives
b) Afford such undertakings the possibility of eliminating competition in respect of a
substantial part of the products in question.
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An undertaking is every entity engaged in an economic activity. An economic activity is any
activity consisting in offering goods and services on a given market. If there is no market, the
activity is non-economic. The exercising of public powers is not economic activity.
➢ Agreements between parties with only an insignificant effect on the market fall outside of
the scope of Art 101
➢ No safe harbor hor object restrictions, only effect
Article 102 TFEU: The legal text
Any abuse by one or more undertakings of a dominant position within the internal market or in a
substantial part of it shall be prohibited as incompatible with the internal market in so far as it
may affect any member states.
Dominance is a position of economic strength which enables it to prevent effective competition
being maintained by affording it the power to behave to an appreciable extent independently of
its competitors and customers. → complete independence is not necessary
Establishing dominance:
- Very large market share >50%
- Relative market shares of competitors
- Absence of potential competitors
- Countervailing buyer power
- Deep pockets
Types of abuses:
1. Exploitative: directed at customers
- Unfair prices
- Limiting production
- Discrimination
2. Exclusionary (structural): directed at competitors
- Excluding competition from the market → directly through customers: exclusive
purchasing; indirectly: predatory pricing, margin squeezing
- EU Merger Regulation
Secondary competition law:
- Decisions applying primary law
Tertiary competition law:
- Self-binding guidelines by the commission and NCAs
Enforcement of competition law
Public enforcement;
- Government body vs undertaking; repair the illegal situation; punishment; prevention
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-
Investigation can be started
The undertaking has an obligation to cooperate
Private enforcement:
- Private undertaking vs infringement
- Annulment of agreements
- Damage claim
Intellectual property refers to useful artistics and industrial information and knowledge. IP law
provides ownership rights to the creators of workers and inventors.
Copyright
Protects ownership of original work recorded in any tangible form.
Original → not copied rather than unique
permanent/ tangible form → e.g. writing
The owner of the relevant work is usually also the owner of the copyright. However, the
copyright in any work created by an employee in the course of employment belongs to the
employer.
Patent
A patent is an exclusive right given to an owner of an invention to make use of and exploit their
invention for a limited period. A patentable invention can be a product or a process that gives a
new technical solution to a problem. Patents have a territorial scope and there is no ‘world
patent’.
A patentable invention must be: new, involve an inventive step, and be capable of industrial
application.
Trademark
A trademark is any sign capable of being represented graphically which is capable of
distinguishing goods and services from one undertaking from another. A mark must be
distinctive. It may be in verbal (names of people or products) or non-verbal (emblems, symbols,
combinations of letters and numbers).
A common law action exists where a business / individual attempts to pass themself or a product
off as that of another business. To establish the tort of passing off, a claimant must prove:
● Goodwill or reputation attached to the goods or services
● A misrepresentation has been made by the defendant
● The claimant suffered or is likely to suffer damage
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Week 7
Lecture 7 - WTO Law and International Dispute Settlement
The WTO ensures that trade flows as smoothly, predictably and freely as possible.
- Multilateral Trade Agreements (annexes 1-3): binding on all contracting parties
- Plurilateral Trade Agreements (annex 4): binding only on members that have accepted
them
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