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For Examinations to August 2015
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Revision Essentials
ACCA
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Paper F4 | CORPORATE AND BUSINESS LAW
(ENGLISH)
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ACCA
PAPER F4
CORPORATE AND BUSINESS LAW
(English)
REVISION ESSENTIALS
SA
For Examinations to $XJXVW 2015
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
®
(i)
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No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this
publication can be accepted by the author, editor or publisher.
16 Elmtree Road
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United Kingdom.
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This training material has been published and prepared by Becker Professional Development International Limited.
ISBN-13: 978-1-78566-015-3
Copyright ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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All rights reserved. No part of this training material may be translated, reprinted or reproduced or utilised in any form either in
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These are condensed notes focusing on key issues for those of you who lead busy, mobile
lives or for those of you who want to revise in a more focused fashion.
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(ii)
CONTENTS
(v)
(vi)
(viii)
0101
0201
0301
0401
0501
0601
0701
0801
0901
1001
1101
1201
1301
1401
1501
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Syllabus
Core topics
Approach to examining
English legal system
Tort law
Elements of contract law
Contract law – terms
Contract law – breach
Employment law
Agency
Partnership
Incorporation
Formation of a company
Memorandum and articles
Shares
Capital maintenance
Debentures and charges
Directors
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CONTENTS
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(iii)
CONTENTS
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CONTENTS
1601
1701
1801
1901
2001
2101
2201
2301
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Other company officers
Company meetings and resolutions
Insolvency and administration
Fraudulent and criminal behaviour
Additional reading
Examiner’s report – June 2014
Examination technique
Analysis of Specimen Exam
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(iv)
SYLLABUS

On completion of this paper, candidates should be able to:


Describe and explain how companies are managed,
administered and regulated

Recognise the legal implications relating to
insolvency law

Demonstrate an understanding of corporate and
fraudulent behaviour.
M
PL
To develop knowledge and skills in the understanding of the
general legal framework, and of the specific legal areas
relating to business, recognising the need to seek further
specialist legal advice where necessary.
Main capabilities
Recognise and compare types of capital and the
financing of companies
E
Aim
Identify the essential elements of the legal system,
including the main sources of law
Recognise and apply the appropriate legal rules
relating to the law of obligations

Explain and apply the law relating to employment
relationships

Distinguish between forms and constitutions of
business organisations
SA

©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Relational diagram
CR (P2)
CL (F4)
(v)
FR (F7)
AA (F8)
CORE TOPICS
CORE TOPICS
Tick when completed
Capital and financing
Essential elements of the English legal system
Court structure
Sources of law
Human rights
Law of obligations










Contract of employment
Dismissal and redundancy
SA




Share capital
Loan capital
Capital maintenance and dividend law
Agency law
Partnerships
Corporations and legal personality
Company formations
©2014 DeVry/Becker Educational Development Corp. All rights reserved.



Management and administration
 “Privity”
 Formation of contracts
 Contents of contracts
 Breach of contract and remedies
 Law of torts
 Professional negligence
Employment
Agency and partnership






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


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Tick when completed



Company directors
Other company officers
Company meetings and resolutions



Insolvency and administration


Insolvency
Administration


Fraudulent and criminal behaviour





(vi)
Fraudulent and criminal behaviour

APPROACH TO EXAMINING
APPROACH TO EXAMINING
Exam format

2 hour examination:

Candidates are expected to support their answers with
analysis referring to cases or examples.

There is no need to detail the facts of the case. It is
the point of law that the case establishes that is
important.
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 Written (i.e. paper) exams available June and
December;
 Computer-based exam (CBE) available on demand
from 19 November 2014.
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Note on case law (Section B)

However, knowing the facts of cases can be helpful
as questions may include scenarios based on wellknown cases.

It is not necessary to quote section numbers of Acts.
There is NO additional reading and planning time.
Structure of the paper

Objective Test (OT) questions worth 1 mark or 2 marks.

Multi-Task Questions (MTQs) requiring written
answers.
%
50
20
––––
70
30
––––
100
––––
SA
Section A
25 × 2 mark OT questions
20 × 1 mark OT questions
Section B: 5 × 6 mark MTQs
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(vii)
ENGLISH LEGAL SYSTEM
Civil law (the non-criminal law)
BACKGROUND
1.1 A “Common Law” system


Fundamental principles identified by judges.
Jury trial in criminal cases.
Public law
The regulation of public administration, including:


Constitutional and administrative law;
Criminal law.
Private law
The regulation of relationships between individuals,
including:

Contract law;
Tort law;
SA
Company law.
1.3 Branches of English law
Criminal law


SOURCES OF LAW
2.1 Main sources



Presumption of innocence.
Guilt must be proved beyond reasonable doubt.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Case law – judicial decisions.
Statute – enacted by Parliament or under Parliamentary
authority.
European Union law.
2.2 Case law

Judges’ reasons become precedents for future cases.

Case law has created a consistent common law
throughout England:
The “law of obligations”



2
Presumption of innocence.
Liability must be proved on the balance of probabilities.
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1.2 Public and private law


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1
 governs the basic principles of business law;
 the principal common law remedy in civil cases is
damages (money compensation).
Equity provides a “gloss” on the common law, to apply
natural justice.

Decisions reflect fairness and good conscience.

Equity recognises fiduciary duties.
0101
ENGLISH LEGAL SYSTEM
Equity provides alternative remedies, including
injunctions and specific performance.

“Delay defeats Equity”: claimant must act promptly.
Direct legislation
Acts of Parliament must be approved by each House of
Parliament and get Royal Assent.
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
Allcard v Skinner: claimant delayed six years before
seeking remedy. Held: The claim failed because of the
claimant’s delay.
Delegated legislation
If both common law and Equity could apply to case,
Equity will prevail.

Statutory Instruments made by government
departments.
2.3 Statutes and delegated legislation

Orders in Council issued by the Privy Council.
Statutes (“Acts of Parliament”)

By-laws issued by local government, and by authorised
associations (e.g. ACCA) for the regulation of their own
members.
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

Rules and regulations formulated and imposed by
Parliament.

Parliament is “sovereign”:
 Statute is superior to case law;
 Parliament is not bound by previous parliaments’
actions.
SA
Statutes can:




Rules that have the authority of statutes, made under
parliamentary authority, including:
Controls on delegated legislation

Parliament can revoke or vary the powers it delegates.

Statutory Instruments must be laid before Parliament for
approval.

If a delegated body makes rules that are beyond its
powers, they are void.
introduce new rules;
repeal old rules;
consolidate existing statutes;
codify existing case law.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
0102
ENGLISH LEGAL SYSTEM

2.4 European Union law

EU treaties (“primary” EU legislation binds all member
states);
Regulations (directly apply in each member state);

Directives (once they are adopted into the UK
legislative framework);

Decisions on matters of policy which are addressed to
the UK governments, companies or individuals.
3
INTERPRETING THE LAW
3.1 Judicial precedent

the decision is reversed on appeal to a higher court;

the decision is overruled in another case decided at
a higher level;

the facts of the two cases can be distinguished from
one another;

the decision was made without proper care for
relevant laws or facts.
3.2 Interpreting statute

A statute usually applies throughout the UK.
Judges identify, interpret and apply case law and
statute.

A statute usually does not have retrospective effect.

The specific legal reasoning behind the decision (ratio
decidendi) sets a binding precedent.
A statute may have an introductory preamble to explain
its purpose and content.

Comments that are not part of the ratio (obiter dicta) do
not set a binding precedent.
A statute may contain interpretation provisions,
defining words and phrases.

The Interpretation Act 1978 defines commonly used
words and phrases.
SA


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The UK is bound by:
Precedents set by higher courts bind judges in lower
courts unless:
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
0103
ENGLISH LEGAL SYSTEM
Maxims of interpretation
Literal Rule – words should take their plain, literal,
everyday meaning.

Golden Rule – interpretation must not give an absurd or
repugnant result.
Supreme Court of
the United
Kingdom
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
Re Sigsworth (1935): A murderer cannot be his victim’s
statutory heir.

Contextual Rule – interpret in the context in which they
appear.

Purposive Rule:

Court of
Appeal
High Court of
Justice
interpret according to the purpose of the legislation.
Heydon’s case (1584) – What “mischief” or error in the
law was the statute designed to correct?
Crown Court and
Magistrates Courts
cannot extend a statute beyond its intended
situations.
SA

COURTS AND TRIBUNALS
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©2014 DeVry/Becker Educational Development Corp. All rights reserved.
County
Courts
Appeal
Tribunals
Tribunals
4.1 General hierarchy

0104
Civil and criminal matters are dealt with in separate
streams within the hierarchy.
ENGLISH LEGAL SYSTEM
4.2 Civil courts – non-criminal cases
Civil Division of the Court of Appeal
Magistrates’ Courts

Limited civil jurisdiction,
Supreme Court of the United Kingdom
County Courts

“Small claim” procedure for low level civil claims
(£1-£5,000) – informal and private.

Full hearings for larger civil claims (£5,000-15,000)
that can be resolved in a day (“fast track” cases).

Case-management of high value or complex civil claims
(“multi-track” cases) – full hearing in the High Court.
Hears civil appeals on points of law, from the Court of
Appeal (in exceptional cases, direct from the High
Court).
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
High Court of Justice
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
Hears civil law appeals from the High Court, county
courts and certain tribunals.
4.3 Criminal Courts
Three categories of criminal offences:
(1) Summary offences (low-level crimes) can be tried only
in a magistrates’ court.
(2) Indictable offences, (serious crimes) must be tried by
the Crown Court.
High value/complex civil cases allocated by the County
Courts (‘multi-track’ cases – see above).

Appeals from lower civil and criminal courts.
(3) Offences that can be tried “either-way” (in either
court).

Supervises and regulates the conduct of the lower
courts/tribunals/public bodies (“judicial review”).
Magistrates’ Courts
SA


Three Divisions:
 Queen’s Bench: contracts, torts, judicial review;
 Family: family law;
 Chancery: Equity cases; commercial cases
(companies, partnerships).
©2014 DeVry/Becker Educational Development Corp. All rights reserved.



0105
Decide summary cases.
“Commit” (i.e. refer) indictable cases to higher courts.
Decide the venue for trying “either way” cases.
ENGLISH LEGAL SYSTEM
Crown Court
5


5.1 Human Rights Act 1998

Administrative Court

Part of the Queen’s Bench Division of the High Court.
Hears appeals from the magistrates’ courts.
Judicial review of procedures of the magistrates’ and
crown courts.
Criminal Division of the Court of Appeal

Hears appeals from the Crown Court.

The Supreme Court of the United Kingdom

Hears appeals on issues of general public importance,
from the Court of Appeal and the Administrative Court.

4.4 Tribunals
Allows the European Convention on Human Rights
(ECHR) to be enforced directly in English courts.
UK statute has to be interpreted in line with the
rights under the Convention;
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Trial by jury.
Hears appeals against magistrates’ decision.
HUMAN RIGHTS
Outside the conventional court system.

Authorised by Parliament to deal with specialised
disputes.
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

Include employment tribunals and administrative
tribunals (e.g. the Company Names Tribunal).

Appeals are to the High Court (and from there to the
Court of Appeal).
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
0106

Judicial precedent that conflicts with a decision of
the European Court of Human Rights is not valid;

Decisions of the European Court on Human Rights
are binding precedent.
Various Human Rights can conflict and a balance has to
be struck (e.g. the right to privacy can conflict with
rights of freedom of expression).
TORT LAW
1

NATURE OF TORT
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1.1 Meaning
If the defendant has not committed a legally recognised
wrong, he is not liable to the injured party.
Bradford Corporation v Pickles: No liability for damage
caused by lawful activities (municipal water supply damaged
by landowner draining his own land in accordance with law).
Literal meaning: a “wrong”.

Tort law deals with legally recognised “wrong” conduct
causing harm to other people (e.g. negligence).

A person who commits a tort is a “tortfeasor”.
1.3 Remedies in tort

Tort is a matter of civil law.
Common law remedy: Damages

The injured party can seek civil remedies (damages and
injunctions).
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
ACCA F4-ENG syllabus focuses on:

Negligence – the breach of a duty of care not to expose
other people unreasonably to a foreseeable risk of loss;

Passing-off – misappropriating the reputation/goodwill
of another (e.g. by using another’s trade name).
1.2 Tort is fault-based
The claimant must show that:
SA


Money compensation puts the injured party in the
position that he would have been in if the tort had not
been committed.

If loss is nominal, claimant will receive a token award.

If loss is substantive, claim can be for:
General damages for the non-monetary harm (e.g.
physical pain and suffering);

Special damages for monetary losses.
! Damages are not usually available for purely economic
loss (e.g. loss of speculative profit).
 He has suffered loss or harm;
 The loss was caused by the defendant;
 The defendant committed a legally recognised
“wrong” (e.g. negligence).
©2014 DeVry/Becker Educational Development Corp. All rights reserved.

0201
TORT LAW
Equitable remedies: Injunctions and orders for restitution
2.1 Duty of care

A person owes a duty of care to his neighbours (i.e. persons
so closely and directly affected by his action/inaction that he
should reasonably have foreseen the harm caused).
at the discretion of the court, taking account of
factors such as the conduct of the claimant;

if damages would not resolve the problem.
Donoghue v Stevenson (1932) – the snail in the bottle.
Held: A person owes a duty of care to avoid causing
reasonably foreseeable harm to his “neighbours”.
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Are only awarded

Injunction – a court order commanding the defendant to
do/stop doing something.

Order of specific restitution – to return misappropriated
assets.
A duty of care is owed where:

damage is reasonably foreseeable; and
NEGLIGENCE

there is proximity between the parties (i.e. potential
victim is of a reasonably foreseeable class); and

it is fair and just in the circumstances to impose this duty.
2
The omission to do what a reasonable man would do, or
doing something which a prudent and reasonable man would
not do.
Bourhill v Young (1943) – woman suffered shock after
overhearing a road accident. Held: No liability where there
is no proximity between the parties.
Claimant must show:
Professional advice – Auditors, accountants, other experts
SA
A breach of the duty of care not to expose other people
unreasonably to a foreseeable risk of loss.
(1) the tortfeasor owed him a duty of care; and

(2) the tortfeasor breached the duty of care; and
(3) he suffered harm as a direct, foreseeable consequence
of the breach.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
0202
Experts giving advice owe a duty of care in giving
advice in contractual, fiduciary or special relationships.
TORT LAW

Contractual relationship (e.g. accountant and client).
2.2 Breach of duty of care

Fiduciary relationships (e.g. director and company).


Special relationship – adviser “knows or ought
reasonably to know” that advice will be relied on for a
specific purpose.

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Failure to meet this standard breaches this duty of care.
Standard of care is measured by that of a “reasonable
man” of equivalent position.
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
Standard of care is the degree of care necessary to meet
a duty of care.
Hedley Byrne & Co v Heller & Partners Ltd (1963): A
bank has a special relationship with recipients of its credit
reference about a client.
Lack of skill is no defence
ADT v BDO Binder Hamlyn (1995): An auditor has a
special relationship with third parties whom he advises
directly about the affairs of his client.
Special knowledge, training or qualifications
Experts in other situations
Do not owe a duty of care if there is not a contractual,
fiduciary or special relationship.

Are not liable for purely social statements.

Auditors owe no duty of care to a potential investor
seeks to rely on published accounts.
SA

Caparo Industries plc v Dickman (1990): The auditor is
liable to the company’s shareholders as a body (not
individual shareholders).
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Nettleship v Weston (1971) – learner driver liable for his
negligent driving as every driver should be reasonably careful.

A person with (or claiming to have) special knowledge
or skills, must exercise them.
Special knowledge as an expert
Dorchester Finance Co Ltd v Stebbing (1977) [1989]:
Directors with accountancy skills must display higher
standards than non-skilled/qualified directors would.
Special knowledge of risk
Paris v Stepney Borough Council (1951): An employer
knowing his employee is disabled must take account of his
special risks when providing a safe workplace.
0203
TORT LAW
Unforeseeable type of damage: No liability

The Wagon Mound (1961): A tortfeasor was not liable for
damage caused by his oil spill catching fire.
A defendant is only liable for the direct, foreseeable
consequence of his negligence.
The “But for” test

Intervening events – “novus actus interveniens”
If the chain of events between the negligent act and the
eventual damage is broken by another factor (novus actus
interveniens –

If a new intervening factor breaks the chain of events
(between negligent act and eventual damage), the
defendant will not be liable for the loss.
Smith v Leech, Brain & Co Ltd (1962): Employer liable for all
illness caused by an industrial injury to his employee.
Purely economic loss

SA
Type and extent of damage
A defendant is only liable for types of damage that he
could reasonably have foreseen.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Generally damages are not available for purely
economic loss.
Robinson v PE Jones (Contractors) Ltd (2011): House builder
not liable for negligence which reduced the house value but
caused no other damage.
Cobb v Great Western Railway (1894): Thieves were a
“novus actus”. The railway company was not liable for
thefts on overcrowded trains.

A tortfeasor is liable for it all reasonably foreseeable
damage (even if scale is greater than foreseen).
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Barnett v Chelsea & Kensington Hospital Management
Committee: A negligent doctor was not liable for a fatally
ill patient’s death because he did not cause it.
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2.3 Remoteness of damage
0204
TORT LAW
BURDEN OF PROOF
4
4.1 Disclaimers
General rule: The claimant must usually prove that the
defendant is liable.
Liability for negligence can be restricted by issuing a
disclaimer (e.g. as a term of a contract with others), but:
Exceptions


Disclaimer must be “reasonable” (UCTA 77);
Circumstantial facts indicate that the defendant is liable
(res ipsa loquitur – the facts speak for themselves).

Ward v Tesco (1976): Retailer liable to customer
who slipped on an in-store spillage.
Disclaimer cannot restrict liability for death or personal
injury caused (UCTA 77);

A company cannot give directors or auditor a blanket
release from liability (Companies Act 2006).
The law imposes strict liability on the defendant. For
example:
4.2 Volenti non fit injuria – the defence of consent

A person is strictly liable in common law for
keeping something dangerous if it escapes
(Rylands v Fletcher (1868)).
A manufacturer, importer or supplier of defective
goods is strictly liable to consumers for damage
caused (Consumer Protection Act 1987).
SA

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
DEFENCES IN NEGLIGENCE
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©2014 DeVry/Becker Educational Development Corp. All rights reserved.

A defendant is not liable if a claimant freely
“volunteered” to take the risk of injury.
Morris v Murray: A passenger who chose to fly with a
drunken pilot was not allowed to claim about the crash.
4.3 Contributory negligence – a partial defence

Compensation can be reduced pro rata for partial blame
(Law Reform (Contributory Negligence) Act 1945).
Sayers v Harlow UDC: A woman got trapped in a public
toilet was injured trying to climb out. She contributed
25% to her own injury. Compensation was cut by 25%.
0205
TORT LAW
5.1 Tests in the Reckitt & Colman case

At common law the claimant must start his claim within
a “reasonable time”.
This case established the three-fold test. A passing-off
claimant must prove:

Under the Limitation Act 1980 claimant must start:

 within six years for negligence claims;
 within two years in personal injury claims.

PASSING OFF

Goodwill or reputation attached to his goods/services;
Misrepresentation led the public to believe that the
goods/services offered were those of the claimant;
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4.4 Limitation of actions
Loss or damage was caused by the misrepresentation.
Arises where a business cloaks itself with the identity of
another, established business (e.g. by misusing the other
business’s name, brand image, etc).
Reckitt & Colman Ltd v Borden Inc: The defendants were
liable for passing-off lemon juice as Jif brand.
Can arise through:
Ewing v Buttercup Margarine Co: The defendants were
liable in passing-off The Buttercup Margarine Company
as The Buttercup Dairy Company.
presenting goods/ services as being those of another
business;

“holding out” a business or its goods/services as having
some association with another business.
SA

©2014 DeVry/Becker Educational Development Corp. All rights reserved.
5.2 Remedies

Injunction to stop the defendant using the claimant’s
name, branding, etc.

Damages for the claimant’s general and special losses.
0206
ELEMENTS OF CONTRACT LAW
1
2
NATURE OF A CONTRACT
INVITATION, OFFER AND ACCEPTANCE
2.1 Parties to negotiations
E
A legally enforceable agreement.
1.1 Essential elements
Agreement between two (or more) parties based on:
Invitor
A person who invites another to make an offer.
Invitee
A person who is invited to make an offer.
Offer – a proposal by one party, on clear terms;

Acceptance – the other party’s clear assent to the offer;
Offeror
A person who makes an offer.

Consideration – a commercial element – a “price” for
the agreement;
Offeree
A person to whom an offer is made.

Intention – to be legally bound by the agreement;
Acceptor
An offeree who accepts an offer.

Capacity – parties must be legally competent to make a
contract;

Formalities – in special cases only (e.g. sales of land
and shares).
SA
M
PL

©2014 DeVry/Becker Educational Development Corp. All rights reserved.
2.2 Invitations and offers

An invitation is not an offer but a proposal to make an
offer. It may lead to an offer being made (e.g. “I want
to sell my car. Would you like to make me an offer?”)

An offer contains all the information needed to make an
agreement and shows that the offeror intends to be
bound by those terms if the offeree accepts (e.g. “I want
to buy your car. Will you accept £5,000?”)

If the offeree accepts the offer, unequivocally, the
parties have made an agreement.
0301
ELEMENTS OF CONTRACT LAW

Offer
Prospectus for the sale of
company shares
Investor’s application to buy
the shares
Putting up items for sale in
an auction
Making a bid
Advertising items as “for
sale” *



the offer runs out of time; or
the offeror becomes incapable of completing the
deal.
Withdrawal (revocation): the offeror gives notice to
the offeree that he is cancelling the offer.
M
PL
Invitation
Lapse
E
Distinctions in case law
Displaying items for sale in
shops or catalogues
Buyer’s offer to buy the
item
Customer’s request to buy
the goods
Counter offer
Hyde v Wrench: A seller offered land at one price. The
offeree proposed a lower price, but then decided to accept
the original price. Held: There was no contract as the
counter-offer terminated the original offer.
*Not all advertisements are invitations: the wording can
create an offer (e.g. Carlill v Carbolic Smoke Ball Co).

Cessation of an offer
Revocation – offeree must have notice
If an offer is rejected, lapses or is withdrawn (“revoked”)
the offeree loses the right to accept.
Rejection
SA



explicit refusal by the offeree (e.g. “No”); or
a counter-offer by the offeree;
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
A simple request for more information is not a counteroffer (Stevenson v McLean).
Byrne v Van Tienhoven (1880): An offeree accepted an
offer, but later received a letter of revocation from the
offeror. Held: Acceptance was effective (i.e. a binding
contract created) as the offeree was not on notice of the
revocation.
0302
ELEMENTS OF CONTRACT LAW

The offeree can accept the offer at any time while the
offer is in force.

Acceptance must be:




a “true response” to the offer;
in complete agreement with the offer;
motivated, at least in part, by the offer;
“communicated” (i.e. expressed by words or
actions).
A “true response”
If method not specified, the offeree should
communicate acceptance by as speedy a method as was
used to send the offer, or as the offer might suggest.
Yates v Pulleyn (1975): Acceptance by ordinary post (not
signed-for) was valid because it was delivered just as
quickly as under the recommended “signed for” service.
M
PL

If specified in the offer communication must be in a
particular form (e.g. in writing).
E

2.3 Acceptance
R v Clarke (1927): A bank robber was not entitled to a
reward for information because he did not give it “in
response” to the offer.
2.4 Communication not needed in “unilateral”
contracts, or if “postal rule” applies
Unilateral contract

Communicating acceptance
Generally, the offeror must be put on notice of the
acceptance, by spoken word, gesture, or in writing.

“Doing nothing” cannot be construed as acceptance
(even if the offeror says it can).
SA

Felthouse v Bindley (1862): No response to “If you do not
tell me ‘no’, I will assume that you accept” was not a
“response”. There was no contract.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
The offeror specifies that the offer can be accepted by
performing some identifiable act (e.g. taking up a
challenge set), instead of expressly communicating
acceptance.
Carlill v Carbolic Smoke Ball Co (1893): A customer was
entitled to £100 for a product that did not work because
acceptance of the offer of £100 was clearly made buying
and using the product.

0303
Offer can only be revoked before the other party has
started to perform the “challenge”.
ELEMENTS OF CONTRACT LAW
The “Postal rule”
3.2 Rules of consideration





The postal rule only applies to acceptance of offers
(not to offers, rejections, revocations or counter-offers).
It need not be adequate (of equal worth) but must be
sufficient (of some value to the contract).

In commercial dealings the postal rule is usually
explicitly excluded from the terms of the offer.
3
CONSIDERATION
3.1 Need for mutual loss and gain
SA
It must be lawful.

It must “move from the promise”.
Timing of consideration

English contract law only enforces bargains, not onesided promises.
Consideration must be performed:

at the same time the contract is made – executed
consideration is simultaneous; or

promised for the future – executory consideration
is after making the agreement.
Past consideration (i.e. from before the contract arose)
is not reciprocal and is not good consideration.
Re McArdle (1951): A promise to pay for house repairs
already done was unenforceable as the work
(consideration) was done before any offer to pay.

“Consideration” describes the reciprocal nature of
contracts.

A person making a contract must do (or promise to do)
something “in consideration” of (i.e. exchange for) the
other party’s obligations.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.


Exam tip! “AccePtance” has a “p” for postal.

Past consideration is no consideration.
M
PL
Household Fire Insurance v Grant (1879): Acceptance of
an offer to buy shares was complete even though the letter
was lost in the postal system.
It can be “executed” (current) or “executor” (future).
E
If the offer allows acceptance by letter sent through
ordinary UK post, acceptance is regarded as complete
as soon as the letter is properly posted.
0304
ELEMENTS OF CONTRACT LAW
Value of consideration
Williams v Roffey Bros & Nelson Ltd (1989): A
carpenter’s prompt completion of the job was good
consideration for a bonus to relieve the contractor of
liability under a penalty agreement.
The two parties’ need not have equal value (i.e.
“adequate”) consideration.
Chappell & Co Ltd v Nestlé Co Ltd (1959): Product
wrappers were good consideration even though their
value bore no relation to the market price of the records.
Legality of consideration
Each party’s consideration must have some economic
value and go beyond existing obligations.

Stilk v Myrick (1809): A promise of a bonus for
completion of a voyage was not enforceable as the crew
were doing nothing more than what they signed up for.

An existing contractual duty to one person can be good
consideration for a contract with another person.
M
PL


E

“Privity of contract”

An existing obligation is good consideration for a later,
extra promise if:
 the later promise is freely given; and
 performance of the contract gives some extra
benefit.
SA
Third parties. who do not give consideration for a
contract, cannot enforce it.
Dunlop v Selfridge (1915): A wholesaler had not given
consideration for Selfridge’s promise not to resell at less
than the manufacturer’s price and therefore could not
enforce it.
Hartley v Ponsonby (1857): Sailing a ship that became
unseaworthy mid-voyage went beyond the sailors’
original contractual duty and was good consideration for
the bonus offered to complete the voyage.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
An illegal act (or the promise to perform one) is never
good consideration.
0305
ELEMENTS OF CONTRACT LAW
Collateral contracts
Contracts (Rights of Third Parties) Act 1999
One which depends on a separate contract between the
parties, or between one of them and another party.

This allows a third party to enforce the benefit of a
contract if:
Exceptions:

Parties to the main and collateral contracts can enforce
them both, between themselves.
M
PL
 the contract terms clearly allow him to do so; or
 the contract was made for the third party’s benefit
and the defendant knew this.
E
3.3 Exceptions to the rules of privity
Shanklin Pier v Detel Products (1951) S hired
contractors, X, having been advised by D about suitable
materials. S insisted that X bought and used D’s
products. They were defective. Held: D’s sale of
materials to X was collateral to S’s contract with X. S
could sue D for damages for the defective product.
Contracts which cannot be enforced by the parties
themselves (e.g. illegal or void contracts);

Contracts which exclude the effect of the 1999 Act;

Employment contracts (only enforceable between
employer and employee);
3.4 Consideration and part-payment

Section 33 Companies Act 2006 contracts (only
enforceable between the company and its members);

Each party must perform all his obligations under the
contract.

Cheques or other negotiable instruments (only the
parties may sue one another);

Part payment of a debt does not discharge it (Pinnel’s
Case, 1602)
SA


General rule
Contracts for carriage of goods by sea or internationally
(by road, air or rail) to which separate legislation and
international conventions apply.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Foakes v Beer (1884): A debtor agreed to pay off a debt
by instalments, with no reference to interest. Held:
Statutory interest was legally part of the debt and the
debtor was liable to pay it.
0306
ELEMENTS OF CONTRACT LAW


Mutual release (“novation”): A new agreement that
releases parties from their old contractual obligations.

Unilateral release (one party releases the other):
Composition with creditors: creditors mutually
agree to each take only a fixed proportion of their
due. None can then sue the debtor for the balance.
E
Exceptions to the rule in Pinnel’s Case

Promissory estoppel: equity does not allow a
creditor to break a freely given promise if the
debtor relies on that promise.
Release by deed: creditor signs a formal,
witnessed release document (“deed”);

Accord and satisfaction: a modified form of
novation. A new agreement (“accord”) replaces
the original debt with a different consideration
(e.g. to repay the debt early).
Central London Property Trust Ltd v High Trees House
Ltd (1947): A lessor freely offered to take reduced rentals
during a difficult period and the lessee relied on that
promise. On grounds of justice and fairness the lessor
was not entitled to claim the balance.
Performance of the new obligation discharges
(“satisfies”) both the original contract and the
accord.
4

M
PL

Third-party payment: if a part-payment is
accepted in full settlement the debtor cannot be
sued for the balance.
SA
Hirachand Punamchand v Temple (1911): A father
cleared his son’s debt with a lump sum part payment.
Held: The creditor could not sue the son for the balance.
(To do so would breach the arrangement with the father.)
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INTENTION TO CREATE LEGAL RELATIONS
4.1 Dealings

An agreement is only binding between parties if they
intend it to be binding.
Common law presumptions

0307
In social or domestic dealings:

parties do not intend legal relations unless they
clearly agree otherwise (Balfour v Balfour);

parties can expressly make their arrangements
binding (e.g. in a formal agreement).
ELEMENTS OF CONTRACT LAW
5.1 Restrictions
In commercial dealings:
Any legal person – human or corporate – can usually make a
contract.

Exceptions
parties* intend to be legally bound, unless they
otherwise agree (* include friends and family);

Simpkins v Pays (1955): Friends were bound by
their agreement to share competition winnings
because it had a commercial element.
A person under the age of 16 cannot be a company
director.

Minors (under 18s) can cancel contracts that are not
necessary for their education or wellbeing.


Mental incapacity, intoxication, etc can reduce a
person’s capacity.

A company must be properly incorporated before it can
make a contract.
6
FORMALITIES

There is no general requirement that contracts be made
in any special form.

However, some contracts (e.g. to transfer land) only
come into effect when they are made formally:
parties can expressly exclude liability.
Jones v Vernon’s Pools Ltd (1938): A competition
clause that it was “binding in honour only” was a
declaration that it was not a binding contract.

CAPACITY
M
PL

5
E
Balfour v Balfour (1919): A wife’s household arrangements did not create a binding contract with a husband
because they were purely domestic not commercial.
Wording of an exclusion of liability must be clear and
unambiguous (courts will normally ignore if vague).
SA
Edwards v Skyways (1964): The words “ex gratia” in the
promise of a redundancy settlement were not clear enough
to stop the agreement being legally binding.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
 in writing; or
 by signed, witnessed “deed”.
0308
CONTRACT LAW – TERMS
1
TERMS OF A CONTRACT
1.2 Identifying the terms
Written contracts
Verbal contracts
Written terms
(“Express” terms)
Verbally agreed
commitments (“Express”
terms) (e.g. price, time of
delivery).
E
1.1 Terms and representations
Principal
source of
terms
Representations
Definition
Parties’ contractual
obligations
Pre-contract statements
made to encourage one
another to enter the deal
Examples
Description of goods
Price to be paid
Creditworthiness
Origin/history of goods
Creation
Included in written or
verbal contract
(standard terms often
used in commercial
dealings);
By operation of law
(e.g. Sale of Goods Act
1979)
Stated in pre-contract
dealings
Status
Part of the contract
Not part of the contract,
unless included as a term
Significance
to contract
A party who breaks a
term is liable for breach
of contract
A false representation is
not a breach of contract
SA
M
PL
Terms
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Secondary
source of
terms
(“Express”
and “implied”
terms)
Documents adopted
by reference in the
written contract, or
implied by
operation of law.
Documents adopted by
reference in the verbal
contract, or implied by
operation of law.
Things said or promised
when making the
agreement that satisfy tests
of:
Time: was the statement/
promise made soon
before the deal was
struck?
Importance: is it so
important that without it
there would have been no
deal?
Special skills or
knowledge: was it made
by a party with special
knowledge?
0401
CONTRACT LAW – TERMS
1.3 Core and subsidiary terms (“conditions” and “warranties”)
E
The law distinguishes between “conditions” (core terms) and “warranties” (collateral terms):
Warranty
Innominate term
Nature
A core term
A secondary term
A term which is not definitively
described in the contract as a
“condition” or “warranty”.
Status
Central to the contract
Collateral to the main
purpose of the contract
Consequence of breach
Injured party can treat the breach
as a termination of the contract
Does not terminate the
contract
Damages
Damages
Remedies for breach
M
PL
Condition
SA
Repudiation of contract (i.e.
injured party can refuse to
continue with the contract)
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0402
Determined after the event, by
reference to the consequences.
If consequences are serious, it will
be treated as a condition.
If consequences are not serious, it
will be treated as a warranty.
Depends on whether it is treated as
a condition or as a warranty.
CONTRACT LAW – TERMS
2
EXCLUSION TERMS


Parties can include terms relieving themselves of
liability if they breach the contract.
Terms can be implied by:
 custom; or
 operation of law.
! The exclusion clause must be part of the contract.
Terms on which the parties have consistently done
business in the past will apply by implication.

Usual trade customs will apply.

The courts will imply terms to impose reasonable terms
which would be expected to have been included.
M
PL

The Moorcock (1889): There was an implied term
in the contract that the contractor would take
reasonable care of their client’s asset (a ship).
Failure to take proper care was a breach of contract.

E
Implied terms
Thornton v Shoe Lane Parking Ltd (1971): The contract was
made at the ticket barrier. Terms and exclusions at the
entrance were part of the contract. Further exclusions inside
the car park were not and could not be relied on as a defence.
2.1 Unfair Contract Terms Act 1977

Clauses excluding liability for negligence resulting in
death or personal injury are void.

If a party is in business, his exclusion clauses for breach
of contract are void unless they are “reasonable”

“Reasonableness” depends on factors such as the
bargaining power, expertise and resources of the parties.
Certain types of contract are regulated by statute:
SA
Sale of Goods Act 1979 and Sale and Supply of
Goods to Consumers Regulations 2002 imply
minimum conditions about quality in contracts for
the sale of goods.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
St Albans City Council v ICL Ltd (1994): The exclusion
clause capping ICL’s liability for any defects in the software
supplied to £100,000 did not satisfy the reasonableness tests
of UCTA 77.
0403
CONTRACT LAW – BREACH
BREACH OF CONTRACT
1.3 Anticipatory breach

A contract is breached (“broken”) if one party fails to
perform the contract properly, or at all.
Occurs where a party breaks off the contract before the
contract is due to be performed.
1.1 Breach of condition – “repudiatory” breach

The innocent party can:

treat the contract as at an end, without liability to
the other party;
Poussard v Spiers & Pond (1876): The opera singer’s
illness was a failure of a condition, terminating her
contract to perform.


“Accept” the breach (i.e. treat the contract as
discharged by it); or

ignore the repudiation (i.e. continue with the
contract) if he has a legitimate reason to keep the
contract alive.
White & Carter (Councils) Ltd v McGregor (1962):
A customer whose order cancellation was not accepted by
the service provider was liable to pay the full contract price.
also claim damages for loss caused by the breach.
1.2 Breach of warranty – non-repudiatory breach

The innocent party can:
M
PL

E
1
The innocent party can claim damages for loss, but has
no right to repudiate.
SA
Bettini v Gye (1876): The opera singer’s failure to attend
rehearsals was breach of warranty. It did not terminate his
contract with the theatre producers.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.

The innocent party does not need to communicate his
decision: his acceptance or refusal of the breach can be
inferred from what he does.
Vitol SA v Norelf Ltd (1996): A seller who accepted a
buyer’s cancellation of an order (anticipatory breach) and
resold the consignment had no obligation to the buyer when
he changed his mind.

0501
An innocent party who accepts a repudiation can claim
damages from the guilty party.
CONTRACT LAW – BREACH
2
“Unliquidated” damages – assessment by basic principles
REMEDIES FOR BREACH
These “normal” damages arise where:


The principal remedy is damages.
Liquidated damages


A contract can specify the amount to be paid
(“liquidated damages”).

The courts will respect them, provided that they are a
genuine estimate of the loss that the parties could have
foreseen when they made the contract.
SA
Cellulose Acetate Silk Co Ltd v Widnes Foundry Ltd (1933):
The contractor was liable to pay damages for late completion
only at the contract rate (a genuine estimate at the time of the
contract) and not the actual loss of a 30-week delay.

there is no liquidated damages clause; or
a liquidated damages clause is not valid (e.g. because it
does not represent a genuine estimate of loss).
M
PL
“Damages” means money compensation, designed to restore
the injured party to the position he would have enjoyed had
there been no breach of contract.
E
2.1 Financial remedies
Damages provisions will not be followed if they are not
a genuine estimate.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
0502
CONTRACT LAW – BREACH
2.2 Basic principles for calculating normal damages:
Illustration (case law)

Hadley v Baxendale (1854): The claim failed. The loss was too remote: the
transport company would have expected the client to carry on some
business even without the machinery that was delivered late.
M
PL
Damages must not be too “remote” (i.e.
can only claim for reasonably foreseeable
losses when the contract was made.
E
Principle
Victoria Laundry v Newman Industries Ltd (1949): The contractor
(installing machinery) was liable for the loss of regular profits (reasonably
foreseeable) but not liable for the loss of unexpected new business.
The innocent party must take reasonable
steps to mitigate (i.e. reduce or offset) his
loss (e.g. a seller should find another
buyer).
Brace v Calder (1895): An employee who had been wrongly dismissed
was only entitled to nominal damages, because by refusing reinstatement
he had failed to mitigate his loss.

If the loss can be put right by repairing
defective work or assets, the measure of
damages will be the cost of repair or, if
lower, the innocent party’s actual loss.
Ruxley Electronics Ltd v Forsyth (1995): The cost of a rebuild of a pool
claimed by the customer was disproportionate to the “loss” he suffered.
The proper measure of damages was a token sum for the minor difference
between the depth of the pool and the specification.

Damages should compensate the innocent
party, not reward him.
SA


Damages are not available for purely economic
loss, for mental distress, or for inconvenience –
unless the purpose of the contract related to those things.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
0503
CONTRACT LAW – BREACH
Quantum meruit – “as much as he deserved
Lumley v Wagner (1852): An opera singer could not be
compelled to work only for a theatre with which she had an
exclusive contract.
If damages are not available in law but the innocent
party deserves some payment, the court has discretion
to order quantum meruit.
Injunction
Planché v Cloburn (1831): A writer was entitled to £50
payment quantum meruit for half completion of a series of
articles before the publisher cancelled the project.

Warner Bros v Nelson (1937): An injunction was granted to
prevent an actress making films for a second company as her
exclusive contract with the first prohibited this.

The court has discretion to award further, equitable
remedies if a money remedy is insufficient redress.

These are based on fairness and good conscience. Will
not be awarded if claimant acted unfairly or unethically.

Two important remedies are specific performance and
injunctions.
Specific performance
An order forbidding breach of a contract (e.g. to enforce
a non-compete contract).
M
PL
2.3 Equitable remedies
E

An order to perform the contract.

Appropriate where subject matter of the contract is
unique.

Not available for contracts for personal services.
SA

©2014 DeVry/Becker Educational Development Corp. All rights reserved.
2.4 Limitation of actions

If a claimant delays in making a claim, the courts will
not hear the case.

Under the Limitation Act 1980 limits are:
 Simple contract and tort – six years;
 Specialty contract (deeds) – 12 years.

0504
Equitable claims must be brought within
a “reasonable time” based on the circumstances:
“delay defeats equity”.
ADDITIONAL READING
ARTICLES
Article
Author
SPECIAL FEATURE
Published/Last updated
See summary in next section
M
PL
Examiner’s report June 2014
Key aspects of the law of contract and
the tort of negligence
Companies Act 2006 Parts I and II
Bribery Act 2010
The Supreme Court
Company Directors Disqualification Act 1986
E
The following currently useful articles can be found on the ACCA website at:
http://www.accaglobal.com/en/student/acca-qual-student-journey/qual-resource/acca-qualification/f4/technical-articles.html
F4 Examining Team
F4 Examining Team
Sally McQueen
F4 Examining Team
David Kelly
Examiner’s approach article
October 2013
October 2013
September 2013
June 2013
February 2005
(i)
SA
(i) see http://www.accaglobal.com/gb/en/student/acca-qual-student-journey/qual-resource/acca-qualification/f4/technicalarticles/examiner-s-approach-to-paper-f4--eng-.html
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
2001
EXAMINER’S REPORT – JUNE 2014
General Comments
Bad news 




The level of performance is still inadequate.
Many candidates appeared not to have prepared.
Rote learning resulted in “knowledge dumping”.
Sub-division of Qs into parts (that is designed to help
candidates structure their answers) revealed gaps in
their knowledge.
Very little good news 
E
Tutorial note: Questions 1-7 were 10-mark knowledgebased. In the new format knowledge will be tested in Section
A OTs and 2 marks maximum in parts of each Section B
MTQ (see Specimen Exam Analysis). Only the topics of these
Qs are listed here to indicate the range of syllabus coverage
with specific points that identify a lack of knowledge.
Q1: (a) Meaning of criminal law and civil law
(b) Hierarchy of the courts
Q2: (a) Acceptance of an offer
(b) Revocation of an offer
Q3: (a) Standard of care
(b) Remoteness of damage
Q4: (a) Capital maintenance
(b) Issuing shares at a premium
(c) Issuing shares at a discount
 Lack of knowledge of capital maintenance.
 Some candidates mixed up premium and discount.
There were some extremely well-prepared candidates.
SA

Specific Comments
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Although the exam format has changed significantly since
June 2014 many of the examiner’s comments are still
relevant and provide insights into the examiner’s
expectations. This summary has therefore been adapted to
take account of the changes. For the full report see
http://www.accaglobal.com/en/student/acca-qual-studentjourney/qual-resource/acca-qualification/f4/examinersreports.html
Advice
! Law cannot be answered intuitively – LEARN IT!
! Do not rote learn.
! Do not pre-prepare answers.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Q5: (a) Ordinary partnership
(b) Limited partnership
(c) Limited liability partnership
 Confusion between (b) and (c).
2101
EXAMINER’S REPORT – JUNE 2014
 Lack of knowledge of the distinction between (b)
Q9: Advice on breach of directors’ duties and action that
may be taken

Q7: Meaning and rules of redundancy
 Confusion with unfair and wrongful dismissal.
Scenario Questions
Tutorial note: Questions 8-10 were 10-mark application
questions. These are designed to test a candidate’s skill to
apply knowledge and select the appropriate area of law. In
the new format these will be 6-mark questions.Exam tip!
The most effective way to answer any scenario Q is to state
the applicable law and then apply it. A correct conclusion
without explanation of rationale earns few marks.
SA
Q8: Advice on anticipatory breach and possible remedies
Exam tip! A substantiated incorrect conclusion earns more
marks than an unsubstantiated correct conclusion.


Others discussed every possible remedy including those
that were not relevant to the scenario (e.g. specific
performance and quantum meruit).
Some thought that it was about insider dealing and
money laundering (inappropriate question spotting).
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
and (c).
(c) confused with compulsory liquidation.

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Q6: (a) Voluntary liquidation
(b) Members’ voluntary liquidation
(c) Creditor’s voluntary liquidation
! Do not “question spot”!
! Candidates must attempt to answer the Q set.

There were many generic answers. Many detailed each
of the seven statutory duties before correctly identifying
the two relevant duties.

Some however identified the correct duties, applied
them to the facts and gave an accurate description of the
remedies.
Q10: Identification of potential liability for fraudulent or
wrongful trading under Insolvency Act 1986

This was answered inadequately.

Many regarded the two wrongs as one and so gave
wholly incorrect answers.
Some candidates produced sound answers. But …
Some did not grasp what the question was about.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
2102
EXAMINATION TECHNIQUE

Give justification
Define terms
Use illustrations or examples.
Time allocation

If a question starts “Explain …”
Divide your time between each section in proportion to
the marks on offer on basis that 1 mark ≡ 1.2 minutes.
E
EXAMINATION TECHNIQUE
Presentation (Section B in paper-based exams)
 Section A – 1 hour 14 minutes;
 Section B – 36 minutes (7 minutes per Q).
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

Stick to this time allocation.

The first marks on each Section B question (or part
thereof) are the easiest to gain, so never overrun on one
question; start the next question (or part) instead.



Use headings, indentation and bullet points to structure
your answer and make it easier for the marker to follow.
Use a sentence for each point that you are making.
Use “bullet points” where this seems appropriate but do
not write in “note form”.
Separate paragraphs by leaving at least one line of space
between each one.
Case Study/Scenario based questions
 Read the requirements carefully to identify the
instruction (e.g. state, identify, explain).
Written style

Recall your knowledge of the law relating to the content
requirement and a skim read of the scenario.

Long philosophical debate does not impress markers.
Concise, easily understood language scores marks.

Read the scenario again slowly and actively:



Clear, concise points tend to score higher marks than
attempts at detailed explanations.

Imagine that you are a marker; you would like to see a
short, concise answer which clearly addresses the
requirement.
SA
highlight key points; or
note implications in the margin of the question
paper.

Draw together your technical knowledge and the points
from the scenario. Think before you write your
answer.
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
2201
ANALYSIS OF SPECIMEN EXAM
Section A
OTs
English legal system
3, 17, 18,
19, 31, 32
Tort law
15, 16, 20,
21, 28, 44
Elements of contract law
Contract law – Terms
Contract law – Breach
Employment law
Agency
Partnership
Section B
MTQs
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Topic
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ANALYSIS OF SPECIMEN EXAM
1
23
Formation of a company
Q1
4, 6, 11, 12,
22, 37, 39
38
33, 40
Q2
7
SA
Corporations and legal personality
13, 14, 24,
27, 30, 42,
43, 45
5
Memorandum and articles
Shares
Capital maintenance and dividends
2, 34
Q3(c)
29
Q3(b)
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
2301
Section A
OTs
Topic
Loan capital
Section B
MTQs
Q3(a)
Directors
9
Q4
Other company officers
10, 25
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PL
Meetings and resolutions
E
ANALYSIS OF SPECIMEN EXAM
Insolvency and administration
36, 41
SA
Fraudulent and criminal behaviour
8, 26, 35
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Q5
2302
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For Examinations to August 2015
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ACCA syllabus aim and main capabilities
Core topics checklist
Summary of essential facts and theory
Further reading
Relevant articles
Comprehensive analysis of past examinations
Examiners' feedback for the last exam session
Exam technique
SA
•
•
•
•
•
•
•
•
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Revision Essentials includes:
www.becker.com/ACCA | acca@becker.com
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