STRICTLY CONFIDENTIAL
THE PUBLIC ACCOUNTANTS EXAMINATION
COUNCIL OF MALAWI
2012 EXAMINATIONS
FOUNDATION STAGE
PAPER 2: LEGAL FRAMEWORK
(JUNE 2012 MAIN)
TIME ALLOWED: 3 HOURS
SUGGESTED SOLUTIONS
1
1.
2.
(a)
(ii)
(b)
(iii)
(c)
(iii)
(d)
(i)
(e)
(iv)
(f)
(ii)
(g)
(i)
(h)
(iv)
(i)
(ii)
(j)
(iii)
(a)
The development of equity stems from the fact that citizens in England
who failed to obtain redress for grievances in the common law courts
petitioned the King to obtain redress or relief by direct royal intervention.
These petitions came before the King in the Council and by custom, the
petitions were referred to the principal civil minister, the Chancellor. In
dealing with each petition, the Chancellor’s concern was to establish the truth
of the matter and then to impose a just solution without undue regard to
technicalities or procedural points.
Because the principles upon which the Chancellor decided points were based
on fair dealing between the two individuals as equals, these principles
became known as equity. The system of equity, developed and administered
by the Court of Chancery, was not an alternative to the common law, but a
method of adding to and improving on the common law.
(b)
The three major changes which were developed by equity law are:
(i)
New rights – equity recognized crude protection rights for which the
common law gave no safeguards. If, for example, Sam transferred
property to the legal ownership of Thom to pay the income of the
property to Ben (in a modern law Thom is a trustee for Ben) the
common law simply recognized that Thom was the owner of the
property and ignored Thom’s obligation to Ben. Equity recognized
that Thom was the owner of the property at common law but insisted,
as a matter of justice and good conscience, that Thom must comply
with the terms of the trust imposed by Sam (the settler) and pay the
income to Ben (the beneficiary).
(ii)
Better procedure – equity could be more effective than common law in
bringing a disputed matter to a conclusion.
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(iii)
3.
Better remedies: The standard remedy in common law for a successful
claimant was the award of monetary compensation called “damages”
for a loss. Equity was able to order the defendant to do what he had
agreed to do (i.e. specific performance) to abstain from wrong doing
injunction, to alter a document so that it reflected the parties’ true
intentions (rectification) or to restore the pre-contract status quo
(rescission).
(a)
The Malawi Supreme Court of Appeal is the highest Court in Malawi. Its
decisions are binding on all other courts below. The Malawi Supreme Court
of Appeal is bound by its own earlier decisions. This court is not bound by
decisions of the High Court. Alison v Benard was decided by the High Court
and remained a relevant principle for fifteen years. When Charles v David
reached the Malawi Supreme Court of Appeal, Alison v Benard cannot be
used as a precedent in Charles v David because Alison case was decided by
the High Court which is inferior to the Malawi Supreme Court of Appeal.
Therefore in conclusion, Alison v Benard cannot be a binding precedent much
as it may be treated as a persuasive precedent.
(b)
(i)
Delegated legislation refers to laws/by- laws which are made by
professional, commercial or industrial bodies outside Parliament.
(ii)
The three advantages of delegated legislation are:
(c)
(1)
Parliament, which is the supreme law maker, does not have
enough time to make all the laws for all public institutions in
detail. Delegated legislation, therefore, saves parliamentary
time.
(2)
Much of the content of delegated legislation is technical and is
better worked out in consultation with professional,
commercial or industrial groups outside Parliament.
(3)
If new or altered regulations are required later, they can be
issued in a much shorter time than is needed to pass an
amendment Act.
Three disadvantages of delegated legislation are:
(i)
Parliament loses control of the law making process in that it cannot
control this legislation which is very bulky.
(ii)
A huge mass of detailed law is made every year and this makes it
difficult for a person to know all the law.
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(iii)
4.
(a)
It is difficult for persons who may be affected by it to keep abreast of
all the changes even though ignorance of the law is not accepted for
infringing it.
My advice to John is that the given facts show that John intended to sell his
goods to Isaac with whom he intended to be legally bound. By mistake he
sold the goods to Henry for K50,000. John therefore made a mistake as to the
identity of the person he wanted to contract with.
This mistake renders the contract void. This means that the contract between
the parties had no legal force whatsoever. In simple terms, there was no
contract created between the parties in the eyes of the law.
In law, a void contract is not a contract at all. The parties are not bound by it.
If they transfer property under it, they can recover their goods eve n from a
third party unless it is also an illegal contract. In this case, John is able to
demonstrate that he was genuinely mistaken as to the identity of Henry and
would not have dealt with him had he known who Henry really was. On the
basis of this principle, John can recover the goods from Patrick. This is
because the law takes the view, in such a situation, that the original contract
between John and Henry was not a contract at all and was of no legal effect –
see Byrne v Van Tienhoven case. Therefore, Patrick, the innocent third party
buyer, acting in good faith, must return the goods to John and either bear the
loss or find and sue Henry.
(b)
On the facts, the contract between Albert and Bello was properly entered into
on 1 June 2011, and was binding between the parties. When Bello
subsequently sold the goods to Christopher on 8 June, Christopher got good
title. When it was discovered on 10 June that Bello had made a
misrepresentation to Albert, the problem now arises as to whether Albert can
recover the goods.
Under the law of contract, any misrepresentation of facts renders a contract
voidable. A voidable contract is one which is treated as valid unless and until
one party chooses to void it. In such cases, property transferred before
voidance is usually irrevocable from a third party. In the present case, Albert
cannot recover the goods from Christopher because the goods were sold to
Christopher before Albert tried to void the original contract between him and
Bello and at the time of the sale of the goods by Bello to Christopher, Bello
still had good title.
However, if Bello had not sold the goods to Christopher until 12 June 2011,
which is after Albert had sought to void the original contract with Bello, Bello
would not be entitled to pass good title to Christopher. In conclusion, Albert
cannot recover the goods from Christopher.
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SECTION B
5.
(a)
The facts and the principle in Errington v Errington (1953)
Facts: A father bought a house for his son and daughter-in- law to live in. He
paid the deposit, and the son and daughter- in- law were to make the
mortgage payments. The father told them that the house would be
theirs when the mortgage was paid in full. The son subsequently left
his wife, who continued to live in the house.
The Court of Appeal held that the father could not eject the daughter in
law from the property. Lord Denning said, “The father’s promise was
a unilateral contract – i.e. a promise of the house in return for their act
of paying the instalments. It could not be revoked by him once the
couple entered on the performance of the act.”
The principle in this case is that where an offer is meant to be accepted by
conduct (a unilateral contract), it cannot be revoked once the offeree has
begun to try and perform whatever act is necessary.
(b)
It is true that the offeror’s death terminates the offer unless the offeree accepts
it in ignorance of the offeror’s death and the offer is not of a personal nature.
In Bradbury v Morgan (1862), X offered to guarantee payment by Y in
respect of goods to be supplied by the claimant on credit to Y. X died and the
claimant, in ignorance of his death, continued to supply goods to Y. The
claimant then sued X’s executors on the guarantee. The Court held that X’s
offer was a continuing commercial offer which the claimant had accepted by
supply of goods after X’s death. The guarantee therefore stood.
(c)
The principle of estoppel operates when a person, by his words or conduct,
leads another to believe that a certain state of affairs exists. If the other person,
relying on that belief, alters his position to his detriment, the first person is
estopped (prevented) from claiming later that a different state of affairs
existed.
(d)
The principle of estoppel is “a shield not a sword”. This statement means that
the principle provides a defence to the defendant for the promise he may have
made earlier, but it does not create new rights which the promisee, the
claimant can enforce. Thus, promissory estoppel applies only to a voluntary
waiver of existing rights. In Combe v Combe (1951) a wife obtained a
divorce. Her ex-husband promised that he would make maintenance payments
of £100 per annum. The wife did not apply to the Court for an order of
maintenance, but this forbearance was not at the husband’s request. No
maintenance was paid and the wife sued the ex-husband on the promise. In
the High Court, the wife obtained judgement on the basis of the principle of
promissory estoppel. The ex- husband appealed.
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The Court of Appeal held that promissory estoppel “does not create new
causes of action where none existed before. It only prevents a party from
insisting on his strict legal rights when it would be unjust to allow him to
enforce them”. The wife’s claim failed.
6.
(a)
A contract for the sale of goods involves the transfer of ownership in the
goods from the seller to the buyer after the buyer has paid money
consideration called the price. In the present case there is no contract for the
sale of goods because there is no agreement to transfer ownership of the car
until Boyd exercises the option to buy.
(b)
The remedy which the supplier may seek is that he may bring an action for the
price. The retention of title clause does not mention incorporation into Ian &
Sons Ltd’s products. The retention of title clause cannot be relied upon in this
case.
(c)
A buyer is deemed to have accepted the goods offered to him by the seller in
the following circumstances:
(d)
(i)
when he intimates to the seller that he has accepted them, provided
that he has had a reasonable opportunity of examining or ascertaining
whether they are in conformity with the contract.
(ii)
when the goods have been delivered to the buyer and he does any act
in relation to them which is inconsistent with the ownership of the
seller, such as using or reselling them.
(iii)
when after the lapse of a reasonable time, he retains the goods without
intimating to the seller that he has rejected them. In order to determine
whether a reasonable time has elapsed, one factor is whether a buyer
has been afforded reasonable opportunity of examining the goods.
A buyer loses his right to reject the goods if:
(i)
he waives a breached condition.
(ii)
he elects to treat the breach of a condition as a breach of warranty.
(iii)
he has accepted the goods.
(iv)
if he is unable to return the goods because, for example, he has sold
them to a buyer who keeps them.
6
7.
(a)
The decision in Foss v Harbottle (1853) can certainly be described as not
protecting the rights of minority shareholders in a company. The facts are that
Foss, a minority shareholder sued the directors of the company alleging that
the directors had defrauded the company by selling land to it at an inflated
price. The company was at the time in a state of disorganization and efforts
by directors to account at a general meeting had failed. The court dismissed the
claim on the following two grounds:
(i)
the company, as a person separate from its members, is the only proper
claimant in an action to protect its rights or property, or
(ii)
the company, in general meeting, must decide whether or not to bring
such legal proceedings.
Strictly speaking it is not true to say that the decision in Foss v
Harbottle does not protect the rights of minority shareholders. The case
was decided on the principle in Salomon v Salomon in which a
company, having been formed, acquires a separate legal personality
from the members who have formed it. The result is that the company,
if it has been wronged, can sue in its own name. Shareholders have no
locus standi because they are separate persons from the company. In
this case, Foss was entitled to act as a claimant if the company so
wished.
There are the following exceptions to the rule in Foss v Harbottle
which, in effect, allow a minority to sue e.g.
(1) Common law exception: the rule does not apply where the wrong
amounts to a non-compliance with company procedure – Baille vs
Oriental Telephone & Electrical Co.Ltd (1915).
(2) Statutory exceptions
-
(b)
Companies Act (1984)
Court injunction under section 22(2)
Court order under section 203
Compulsory winding up section 213(1)
A creditor who wants a company to be wound up on the ground of the
company’s insolvency has a responsibility to prove that the company is unable
to pay its debts. On this ground, the petitioner must do the following:
(i)
He/she must serve on the company at its registered office, a written
demand for payment of the money being owed by the company and the
company neglects, within 21 days, to pay the debt or to offer a
reasonable security for it.
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(ii)
A creditor obtained judgement against the company for the debt and
attempts to enforce the judgement but is unable to obtain payment
because no assets of the company have been found and seized.
(iii)
A creditor satisfies the court that, taking into account contingent and
protective liabilities of the company, it is unable to pay its debts. He
may show:
-
8.
(a)
(b)
by proof that the company is not able to pay its debts as they fall
due.
by proof that the company’s assets are less than its liabilities.
The seven factors which the statute does not consider as valid reasons for
dismissing or taking disciplinary action against an employee are provided for
in Section 57(3) of the Employment Act as follows:
(i)
an employee’s race, colour, sex, language, religion, political or other
opinion, nationality, ethnic or social origin, disability, property, birth,
marital or other status or family responsibilities.
(ii)
an employee’s exercise of any of the rights specified in Part (ii) of the
Labour Relations Act relating to freedom of association as specified in
Sections 4, 5, 6, 7 and 8 of the Act.
(iii)
an employee’s temporary absence from work because of sickness or
injury.
(iv)
an employee’s exercise or proposed exercise of the rights to remove
himself from a work situation which he reasonably believes presents an
imminent or serious danger to life or health.
(v)
an employee’s participation or proposed participation in industrial
action which takes place in conformity with the provisions of Part (v)
of the Labour Relations Act.
(vi)
an employee’s refusal to do any work normally done by an employee
who is engaged in industrial action or
(vii)
the filing or complaint or the participation in proceedings against an
employer involving alleged violations of laws, regulations or collective
agreements.
The five grounds which an employer may use to prove in a court a defense of a
claim of summary dismissal lodged by his employee are:
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(c)
(i)
that the employee is guilty of misconduct not consistent with the
fulfillment of the expressed or implied conditions of his contract of
employment such that it would be unreasonable to require the
employee to continue the employment relationship.
(ii)
that he habitually or substantially neglected his duties.
(iii)
that he lacks the skills that the employee expressly or by implication
holds himself to possess.
(iv)
that he has willfully disobeyed lawful orders given to him by the
employer.
(v)
that he was absent from work without permission of the employer and
without reasonable excuse.
The circumstances in which Section 52(1) prohibits an employer from paying
remuneration to an employee are:
(i)
the employer should not pay wages to his employee in the form of
promissory notes, vouchers or coupons.
(ii)
the employer should not require or permit an employee to pay or repay
to him any remuneration payable or paid to an employee in accordance
with the Employment Act.
(iii)
the employer should not require or permit a direct or indirect payment
from the employee or deduction from the employee’s wages for the
purpose of detaining or retaining employment.
(iv)
the employer should not do any act or permit an employee to give a
receipt for or otherwise to represent that he received more than he
actually received by way of remuneration.
(v)
the employer should not do any act or permit any act to be done as a
direct or indirect result of which an employee is deprived of the benefit
or any portion of the benefit of any remuneration so payable or paid.
(vi)
the employer should not pay an employee by requiring the employee to
make use of any store which is established in connection with the
undertaking of the employer.
(vii)
He should not limit any freedom of the employee to dispose of his
wages.
END