LW212: Business Law
Outline solutions – May 2015
Question 1
Candidates should define misrepresentation.
Turnover: For a statement to be a misrepresentation it must be false (Dimmock v Hallett). Is there
any obligation on Jane to reveal the change in situation about the turnover due to the cancellation
of the coach tour contract? Generally, in English law there is no duty to disclose information
(unless the contract is one of the utmost good faith) – Sykes v Taylor-Rose. However, false
statements can include a statement which is true when it is made but before the contract is
completed, it becomes false – change of circumstances. The party who made the original
statement must disclose the new position, and if he does not he will be liable for misrepresentation
(With v O’Flanagan; Spice Girls v Aprilia World Service BV). Applying the law to the facts, Jane’s
failure to tell Walt of the fall in value of the café would amount to a misrepresentation. Once Jane
knew the representation about the turnover had become false (because the coach tour company
had cancelled its contract), there may be a misrepresentation as she failed to correct the
statement.
Field: The statement must also be fact to amount to misrepresentation – more than a mere opinion
of one of the parties (Bisset v Wilkinson). However, if the statement is made by a party who should
know the situation, it may be treated as a statement of fact (Smith v Land & House Property
Corporation; Esso Petroleum v Mardon). In this situation, it is arguable that Jane’s statement
regarding the cinema is simply one of opinion rather than fact, if both parties were aware that the
field had never been used for this purpose (could possibly argue Jane was in a better position to
know the situation).
The statement must have induced the other party to enter into the contract. In this case Walt must
show that he relied on the statement and that it was one of the reasons why he entered into the
contract (Edgington v Fitzmaurice). If an innocent party has sought their own expert advice on the
subject rather than relying on the statement, it is not an actionable misrepresentation (Attwood v
Small). Walt has relied on his own surveyor’s report about the field and not Jane’s statements.
So, even if Jane’s statement was one of fact and not opinion, it would arguably not be an
actionable misrepresentation because it did not induce the contract. The statement re: turnover is
likely to have induced the contract (Walt tells Jane he would not have bought the café if he had
known about the drop in turnover). It would still arguably be a misrepresentation even if he could
have easily discovered the truth (Redgrave v Hurd).
A misrepresentation may be classified as fraudulent, negligent or wholly innocent. Fraudulent
misrepresentation is where a party makes a false statement that they do not believe is true (Derry
v Peek; also seen in the BskyB case). The innocent party must prove that the statement was
made (i) knowingly (ii) without belief in its truth or (iii) recklessly as to whether it is true or false.
Negligent misrepresentation is where the person making the statement believes it is true but has
no reasonable grounds for that belief. A victim of negligent misrepresentation can take court action
under the common law or the Misrepresentation Act 1967. Under the Act, the burden of proving
that the statement was false transfers to the person who made the false statement to establish that
s/he had reasonable grounds for believing the statement was true (Howard Marine & Dredging Co
Ltd v Ogden and Sons Ltd ). Innocent misrepresentation is where a false statement is made by a
person who has an honest and reasonable belief in its truth. It may be because of the burden of
proof, that Walt wishes to pursue a claim for negligent misrepresentation regarding the turnover.
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The two possible remedies for misrepresentation are rescission and damages. Rescission sets the
contract aside, and puts the parties back into the same position they would have been in if the
contract had never been entered into. Damages are a financial payment made to compensate the
innocent party. Damages for fraudulent misrepresentation entitles the innocent party for all losses
he has suffered (Smith New Court Securities v Scrimgeour Vickers). Where there has been a
negligent misrepresentation under the provisions of the Misrepresentation Act 1967, damages are
assessed in the same way as damages for fraudulent (Royscot Trust Ltd v Rogerson).
Question 2
a) Candidates should define restraint of trade clauses e.g. these restraint of trade clauses seek to
restrict Declan’s future freedom to carry on his business, trade/professional. Such clauses are
prima facie void because it is not in the public interest to restrict competition. However the
clause might be valid if reasonable considering, whether the business interest is one which can
be legally protected such as trade secrets; the length of time the restraint lasts; the width of the
geographical area that the restraint covers.
Consideration should be given to whether the clause is reasonable. Business interest being
protected – consider relevant case law such as Forster & Sons Ltd v Suggett (where the restraint
was reasonable to protect a secret manufacturing process); Morris Ltd v Saxelby (where the
restraint was not reasonable as it attempted to restrict the employee from using his own skills);
Home Counties Dairies v Skilton (where the clause was excessive as regards selling of any dairy
product, but valid in relation to working as a milkman); Proactive Sports Management Ltd v Rooney
(P failed to show that the restrictions were reasonable). It seems that part (i) may be reasonable in
terms of the business interest being protected (although it might be that the clause should not refer
to production and sale, only manufacture), but (ii) is excessive in regards selling of any sports
products (as Football Experts Ltd did not sell other sports products therefore it cannot seek to
restrict Declan selling in the future). Length of time: 2 years may be fine. Location – UK may be
fine, but Asia excessive.
If a restraint is too wide, the whole clause is usually void. However, severance may be possible,
allowing the rest of the clause to continue (Goldsoll v Goldman). It may be possible to sever
“production or sale” and “any sports products” and “Asia”.
Contracts can be illegal under the common law because the parties agree to do something which
is against the law, or for public policy reasons. Examples include contracts to commit a crime or a
tort (Evert v Williams); contracts damaging the country’s safety and in this case contracts to
promote corruption in public life (Parkinson v College Ambulance Ltd and Harrison (1925)). Declan
would not be able to recover the money.
b) Definition of frustration. Situations leading to frustration include destruction of the subject
matter (Taylor v Caldwell); personal incapacity of one of the parties (Condor v Barron Knights);
Non-occurrence of event central to the purpose of a contract (Krell v Henry; Herne Bay Steam
Boat Co v Hutton); subsequent illegality (Fibrosa Spolka; Gamerco SA); government
intervention (Re Shipton). Candidates should identify when a contract is not frustrated –
merely more difficult or expensive (Tsakiroglou v Noblee Thorl GmbH (1962)).
c) Specific performance – equitable remedy not granted where damages are adequate; court
cannot supervise the performance of the contract; not available for contracts of employment.
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Question 3
a)
Duties of an Agent include performance – agent who agrees to act for P for reward must act
according this instructions; skill – paid agent must maintain the standard of skill and care to
be expected of a person in his profession; duty to account; no conflict of interest (Armstrong
v Jones (1917)); not to make a secret profit (Boardman v Phipps (1967)); not to take a bribe
(Boston Deep Sea Fishing and Ice Co Ltd v Ansell (1888)) and confidentiality. Holly may of
breached the duty not to make a secret profit.
b)
Sale by description – Jenny relied on the description on the price tag that the coat’s filling
was a 100% duck feather. A ‘sale by description’ is a sale where there is reliance on a
description. Under s.13 of SOGA 1979, there is an implied term in every sale of goods
contract that the goods will correspond to the description. This also covers goods which have
been examined or selected by the buyer but the buyer relied on a description given of the
goods. Description may be given on a label and the seller will be liable even if the label was
put there by the manufacturer. Here, the coat was described as having 100% duck feather
filling while in fact it only had 50% duck feather. HT Maxx has breached SOGA s.13 and this
constitutes a breach of a condition, which gives Jenny the right to repudiate the contract and
claim damages. Additional remedies are available under SOGA ss. 48A-48F for consumers.
Under s.48B the buyer has the right to require the seller to repair or replace the goods within
a reasonable time (usually 6 months). If the buyer cannot claim repair or replacement, or the
seller fails to repair or replace the product within a reasonable time, the buyer can rescind
the contract, or get a reduction in the price.
Satisfactory Quality – s.14(2) of the SOGA implies into every sale made in the course of a
business that the goods are of satisfactory quality. The law imposes strict liability on the
seller. As HT Maxx is a business, it must comply with s.14(2). The stain and the damage on
the lining of the coat indicate that the coat was not of satisfactory quality. The satisfactory
quality of a product will be assessed by reference to a reasonable buyer. S.14(2)(a) states
that the goods must meet the standard that a reasonable person would consider satisfactory,
taking into consideration all relevant circumstances including price, age and description of
the goods. The answer can be supported by reference to Clegg v Anderson (2003),
Kingsway Hall Hotel Ltd v Red Sky IT (Hounslow) Ltd (2010) and Ward v MGM Marine Ltd
(2012). Under s.14(2)(c) if the defects are brought to the attention of the buyer before the
contract was made or if the buyer examined the goods (though there is no obligation to
examine), the implied term does not apply. The remedies available are same as above.
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Question 4
a)
ACF have acted carelessly but they don’t automatically owe a duty of care to James, Michael
and Keith.
The question is - have the requirements of Hedley Byrne v Heller and Caparo Industries v
Dickman, amongst others been satisfied? There must be a “special relationship” between the
parties, such that the claimant relied on the information and that the defendant knew of the
reliance in order to engage in a specific transaction and it was reasonable to rely on the
information provided.
James – He may have relied on the information but ACF were unaware of his reliance, of the
transaction he had in mind as a consequence of the information received. No duty owed.
Michael – Same problem occurs here plus he received the information in a social situation
making it even less likely he could claim (Howard Marine v Ogden, dicta in Hedley Byrne v
Heller). No duty owed.
Keith – He has the strongest case as he engaged in conversation with ACF. Therefore a
proximate relationship may have come about if he made it clear he wanted to invest after
reading the information from ACF. Candidates need to engage with the facts to ascertain
this. Duty of care owed, breach established, therefore remedy of damages likely.
b)
David, a customer, is a visitor for purposes of occupiers’ liability as he is on the premises
with permission.
Under the Occupiers’ Liability Act 1957 – a common duty of care is owed to David. The
occupier (Kevin) must take such care as is reasonable, in all the circumstances of the case,
to see that the visitor will be reasonably safe in using the premises for the purpose for which
invited by occupier to be there. As duty is to ensure that David is reasonably safe whilst
waiting for his pizza – likely there is a breach of duty. Pizza mix should have been cleared
up immediately it was spilt (Ward v Tesco Stores). David can claim for personal injury under
OLA 1957, the broken ankle, & any property (the cost of the designer jeans) which has been
damaged in the fall.
Maureen is a visitor. As above, OLA 1957 will apply and a common duty of care applies.
Relevant premises include all the area of the restaurant except places where she is implicitly
or explicitly banned from entering. She wandered off into the area of the toilets – still a lawful
visitor.
OLA 1957 s.2(3)(a) states that occupier must expect children to be less careful than adults. A
higher standard of care is owed to the child visitor. Although adults may know berries may be
poisonous a child will probably not. (Taylor v Glasgow Corporation).
Kevin may argue that it is expected that Mary would have been supervised by her parents
(Phipps v Rochester Corporation). But this argument only applies where the child is either
very young or it is a place where it is expected that children will be supervised because of
specific hidden dangers of the premises. Neither apply here (Jolley v Sutton LBC)
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Josh is initially a visitor but once he enters a room clearly off limits he does not have
permission and therefore is a trespasser. Occupiers’ Liability Act 1984 applies. Duty of care
under OLA 1984 is not automatic and by s.1(3) a duty will be owed by an occupier to a
trespasser if:
i.
ii.
iii.
The occupier was aware of the danger on the premises or had reasonable grounds to
believe it existed (Kevin may be aware of the rotten floorboards in the room marked
“Private, no Entry”); and
The occupier knew or had reasonable grounds to believe that the trespasser was in the
vicinity of the danger (very unlikely here, as Josh was clearly acting in secret); and
The risk was one against which, in all the circumstances of the case, the occupier
could reasonably be expected to offer the trespasser some protection (here unlikely, as
the room was clearly marked “No Entry”. No duty of care owed.
Question 5
a)
Jacques – The written statement is not the contract per se. It is the employer’s evidence of
what has been agreed (System Floors v Daniel). Therefore John can bring contrary evidence
in play to demonstrate that he is entitled to the bonus payment (British Gas v Robertson).
The question is – what has been agreed? Jacques will argue that the contractual agreement
was made on appointment and the statutory statement was an attempt to vary the
contractual terms on this issue. But for a variation to be valid you need to demonstrate
consent. Jacques has not consented.
The work he is doing (even as a part time role in his own time) is in breach of the implied
term not to compete with your employer (Hivac Ltd v Park Royal). The copying out of lists
and handing them over to his potential new employer is breach of the implied term not to
disclose confidential information (Faccenda Chicken v Fowler; Bullivant v Ellis). This would
justify dismissal at common law.
Ralph’s refusal to re-train on a new computer system will be in breach of the implied term to
‘obey reasonable orders’ (Creswell v Inland Revenue).
b)
Wrongful dismissal – dismissal in breach of contract, such as where the employee has been
dismissed with inadequate or no notice. Remedy is an action for damages in the civil courts –
the amount of wages that should have been paid during the notice period. This is because
the objective of damages is to put the aggrieved party into the position as if the contract had
been performed lawfully. As the contract could have been terminated lawfully by notice the
amount of damages is limited.
Unfair dismissal – dismissal in breach of statute (s.98 ERA 1996). Employer must show
employee was dismissed for one of five reasons (conduct, incapability, to continue to employ
the employee would be illegal, redundancy or some other reason connected to the
employment relationship) and that the decision to dismiss was reasonable taking into
account the merits of the case. The ‘merits’ test requires the tribunal to ask – was the
decision of the employer to dismiss a reasonable response of the reasonable employer in all
these circumstances (Iceland Frozen Foods v Jones). The severity of, for example, the
misconduct or incompetence will be a relevant factor, including the record of the employee.
Procedural requirements must also be considered. Did the employer investigate the alleged
misconduct or incompetence? Have warnings been given where this had happened before?
Was the employee given the opportunity to respond to the allegations and the right to
appeal? (Burchell v BHS; ACAS code).
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Question 6
Formalities – candidates should state definition of partnership, note little formal process required,
but normally a partnership agreement will be drafted. If no partnership agreement the provisions of
the Partnership Act 1890 will govern the responsibilities between partners. For a company –
candidates should list and explain the registration requirements necessary. An explanation of the
relevant documents and their significance; particularly the Articles of association.
Liability - in a general partnership – no legal identity of its own. The risks and liabilities involved in
running the business belong to the individuals involved in owning and managing it. In a company
separate legal personality. Candidates should explain the operation of this concept and essence of
limited liability.
Responsibilities of partners/directors – Candidates should note that apart from personal liability for
all the debts of the business partners also have responsibilities to each other e.g. s.9/10
Partnership Act 1890 on joint and several liability, s.5 on agency/express/apparent authority, duty
to account (s.29) not to compete with partnership (s.30) etc. Directors are controlled through the
numerous directors’ duties enshrined in the Companies Act 2006. Candidates should examine
some of these duties and associated case law – for example, duty to act within powers (s.171);
duty to promote success of the company (s.172); to exercise independent judgment (s.173); to
exercise reasonable care and skill (s.174); to avoid a conflict of interest (s.175) etc.
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