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KAPLAN PUBLISHING 1

QUESTIONS

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ACCA F4 (ENG) : CORPORATE AND BUSINESS LAW

2 KAPLAN PUBLISHING

OBJECTIVE TEST QUESTIONS

ESSENTIAL ELEMENTS OF THE LEGAL SYSTEM

1 Which of the following is the prosecutor in a criminal case?

A The State

B The accused

C The victim

2 Which if the following describes the standard of proof in a civil law case?

A Beyond reasonable doubt

B Balance of probability

C Beyond all probability

3 Which of the following is a remedy available under the civil law?

A A fine

B Imprisonment

C Damages

4 Which of the following courts only hear civil cases?

A The County Court

B The Magistrate’s Court

C The Court of Appeal

D The Privy Council

5 Which of the following is a statement by a judge that is the basis for their decision and is what becomes binding on future judges?

A Obiter dicta

B Per incuriam

C Ratio decidendi

6 The court of first instance for criminal cases is:

A Crown Court

B Magistrate’s Court

C High Court

7 Case law is made up of:

A Common law only

B Statute

C Common law and equity



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LECTURER RESOURCE PACK – QUESTIONS

KAPLAN PUBLISHING 3

THE LAW OF OBLIGATIONS

8 Which of the following contracts must be in the form of a deed?

A A sale of land

B A transfer of shares

C A consumer credit contract

9 In relation to contract law, how long will an offer remain open if no time period is set for its expiry?

A 1 day

B 1 month

C For a reasonable time

10 Which of the following is not a valid method of acceptance of an offer?

A The offeree’s express words

B The offeree’s conduct

C Silence of the offeree

11 Which of the following statements regarding implied terms is correct?

A Terms may be implied into a contract by statute

B The courts do not interfere in contracts by implying terms

C Terms implied into contracts by custom may not be overridden by express terms to the contrary

12 In relation to contract law, which of the following describes an offer?

A A statement of possible terms

B Displaying goods for sale in a supermarket

C A verbal promise to be bound on specific terms

13 In the tort of negligence, which type of loss is usually not recoverable?

A Pure economic loss

B Injury

C Damage to property

14 Which of the following is not needed for a legally binding contract to be in force?

A Intention to create legal relations

B Written contract

C Consideration



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4 KAPLAN PUBLISHING

15 Which of the following statements regarding privity of contract is correct?

A Privity of contract means only parties to a contract may sue on it

B Privity of contract is not subject to regulation by statute

C There are no exceptions to the rule of privity of contract

D Privity of contract is only enforceable on commercial contracts

16 In the tort of negligence, what is the effect of volenti non fit injuria?

A The defendant is liable for the claimant’s injury unless proved otherwise

B The claimant accepted the risk of injury and the defendant is not liable for the claimant’s losses

C Neither the claimant nor the defendant is responsible for the claimant’s injury

17 Which of the following statements regarding counter-offers is correct?

A Counter-offers may be accepted by the original offeror

B Counter-offers do not terminate the original offer

C A statement that enquires whether alternative terms would be acceptable is a counter-offer

D A counter-offer is made by the original offeror to the original offeree

18 How are express terms incorporated into a contract?

A By a decision of the courts

B By statute law

C By the parties themselves

D By what is customary in the particular trade

19 In relation to the tort of negligence, what is novus actus interveniens?

A A decision by the court that reverses the burden of proof

B An intervening act that breaks the chain of causality

C An event that makes the damage too remote so that the defendant is not liable

D A defence to a liability in negligence

20 To establish a case of passing off, what must the claimant prove?

A The consumer purchased fake goods

B The defendant is using the same business model as the claimant

C The name of the defendant’s business is similar enough to the claimant’s to mislead the consumer

D There is some similarity between the name of the defendant’s business and that of the claimant



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KAPLAN PUBLISHING 5

EMPLOYMENT LAW

21 Which of the following describes the type of contract that an employee has?

A A contract of service

B A contract for services

C A contract of agency

22 Which of the following remedies are available to an employee in the eveny that they are wrongfully dismissed?

A Damages

B Re-engagement

C Re-instatement

23 Which of the following type of dismissal occurs when no notice is given to the employee?

A Constructive dismissal

B Redundancy

C Summary dismissal

D Unfair dismissal

24 In order to qualify for redundancy pay, how long must an employee be continuously employed for?

A 1 year

B 1.5 years

C 2 years

D 3 years

25 In order to proceed with a claim for unfair dismissal, the employee must show they were dismissed?

Which of the following is not counted as dismissal for unfair dismissal purposes?

A Employee resigning

B Constructive dismissal

C Expiry of a fixed-term contract without renewal

D Summary dismissal

26 What is constructive dismissal?

A An employer sacks an employee because they caused trouble

B An employee resigns because they dislike their line manager

C An employer sacks an employee after a number of disciplinary offences

D An employee resigns due to an employer breaching their contract



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6 KAPLAN PUBLISHING

THE FORMATION AND CONSTITUTION OF BUSINESS ORGANISATIONS

27 When a general partnership is terminated, which of the following is paid off first out of funds realised from the partnership assets?

A Partners’ share of partnership profits

B Partners’ capital contribution

C Partnership loans

D External debts

28 The purpose of an agency relationship is to form a business contract between which of the following parties?

A Agent and principal

B Agent and third party

C Principal and third party

29 In order to form an agency relationship by express agreement, what form should the agreement take?

A Oral agreement only

B Written agreement only

C Either oral or written agreement

30 Which of the following is created under the Partnership Act 1890?

A A general partnership

B A limited partnership

C A limited liability partnership

31 Which of the following is not a feature of a limited company?

A The company’s separate legal personality

B The perpetual succession of the company

C The limited liability of the members

D The directors’ immunity from any criminal sanctions

32 The Memorandum of Association of a company must be signed by:

A The subscribers and all the directors

B The subscribers and at least one of the directors

C The subscribers and the company secretary

D The subscribers only



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KAPLAN PUBLISHING 7

33 Persons who take procedural steps to set up a company and who make business preparations for the company are known as:

A Directors

B Shareholders

C Registrars

D Promoters

34 Which of the following is not a type of authority?

A Actual authority

B Apparent authority

C Implied authority

D Unauthorised authority

35 Which of the following is not an example of how an agency relationship can come into existence?

A By express appointment

B Through an act of a third party

C Through an act of necessity

D By ratification

36 Which document establishes the constitution of the company and how it may run its affairs?

A The articles of association

B The certificate of incorporation

C The memorandum

D A director’s contract of employment



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8 KAPLAN PUBLISHING

CAPITAL AND THE FINANCING OF COMPANIES

37 A floating charge is a charge:

A On a class of current assets which can be identified

B On the undertaking of a company

C On a class of assets which will not change in the ordinary coure of business

D On a class of assets, present or future, which may change in the ordinary course of business

38 Which of the following is not a legitimate use of the share premium account?

A Writing off a discount on the issue of shares

B Writing off underwriting commission

C Writing off preliminary expenses

D Issuing bonus shares

39 If a company makes an unlawful dividend, who may be involved in making good the distribution?

A The company only

B The directors only

C The shareholders only

D The company, the directors and the shareholders

40 Which of the following statements relating to class rights is incorrect?

A Class rights are rights that are attached to different classes of shares

B Class rights can be altered by the passing of a special resolution

C Class rights can include voting rights, dividends and return of capital

D Class rights can never be altered

41 Which of the following statements is correct?

A company is allowed to issue shares:

(i) at a premium

(ii) at a discount

A (i) only

B (ii) only

C Neither (i) or (ii)

D Both (i) and (ii)



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KAPLAN PUBLISHING 9

42 In a public company any shares allotted must be paid:

A Immediately in full

B At least one-quarter of the nominal value

C At least one-half of the nominal value

D At least one-quarter of the nominal value together with all of the share premium



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10 KAPLAN PUBLISHING

MANAGEMENT, ADMINISTRATION AND REGULATION OF COMPANIES

43 What is the quorum for a general meeting of a registered company?

A Two persons being members or proxies for members

B Three persons being members or proxies for members

C Two persons being members

44 Which of the following statements is incorrect in relation to directors?

A Private companies are required to have at least one director

B Public companies are required to have at least two directors

C All directors must be over the age of 21

45 Which of the following is not a type of resolution?

A Written resolution

B Selective resolution

C Orindary resolution

46 What is the minimum number of directors that a plc must have?

A One

B Two

C Three

47 How long does a company have to file amended articles of association with the Registrar if they have been altered?

A 14 days

B 15 days

C 21 days

48 What is a shadow director?

A A director who has management responsibilities in the company

B A person whose directions or instructions the directors of a company follow

C A person appointed to attend board meetings and vote in place of a director

49 Which of the following ways describes how a company can remove a director?

A By the passing of a special resolution of the general meeting

B By the passing of an ordinary resolution of the general meeting

C By the passing of a special resolution of the board of directors



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KAPLAN PUBLISHING 11

INSOLVENCY LAW

50 Which of the following statements is correct?

A The person appointed as liquidator need not have any formal qualifications

B The person appointed as liquidator must be a qualified accountant

C The person appointed as liquidator must be a qualified insolvency practitioner

D The person appointed as liquidator must be a solicitor

51 Which of the following persons or bodies cannot petition the court for compulsory winding up of a company?

A The Official Receiver

B The company itself

C Any creditor

D Any director

52 Who do ‘ring-fencing’ provisions apply in favour of?

A Fixed charge holders

B Floating charge holders

C Unsecured creditors

D Members

53 What are the ring fencing limits?

A 25% of the first £10,000 plus 20% of the rest up to a maximum of £500,000

B 50% of the first £10,000 plus 20% of the rest up to a maximum of £500,000

C 25% of the first £10,000 plus 20% of the rest up to a maximum of £600,000

D 50% of the first £10,000 plus 20% of the rest up to a maximum of £600,000

54 Frazer has a 60% shareholding in Wombles Ltd. He believes the company should be put into administration but the other two shareholders disagree. Does Frazer have sufficient voting power to be able to pass a resolution that an application to court should be made for the appointment of an administrator?

A Yes

B No



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CORPORATE FRAUDULENT AND CRIMINAL BEHAVIOUR

55 What are the maximum penalties under the Bribery Act 2010?

A 10 years for an individual and an unlimited fine for a commercial organisation

B 7 years for an individual and an unlimited fine for a commercial organisation

C 5 years for an individual and a public reprimand for a commercial organisation

D 10 years for an individual and 10 years for a director in a commercial organisation

56 What is it necessary to establish to convict someone of fraudulent trading?

A That the directors had dishonest intent

B That the directors were not shadow directors

C That the directors were not shareholders

57 Who should suspicion of money laundering activity be reported to?

A The National Crime Agency

B The Money Laundering Detection Officer

C The Suspicions of Crime Authority

58 Which of the following constitutes fraud as stated by the Fraud Act 2006?

A Fraud by false representation

B Obtaining property by deception

C Obtaining services by deception

D Intent to mislead causing loss to another

59 If a director is found liable for wrongful trading:

A They could be imprisoned for up to 15 years

B They will face a fine of up to £15,000

C They could be disqualified for up to 15 years

D They will be publicly reprimanded

60 Which of the following is not a UK offence relating to money laundering?

A Concealing the proceeds of criminal activity

B Tipping off

C Dealing in price affected securities

D Failure to report suspicion of money laundering



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MULTI-TASK QUESTIONS


1 A AND B

A agrees with B, an accountant, to refurbish and redecorate the interior of B’s premises. A’s initial estimate for the job is £20,000 and when the work is completed he presents a bill for that amount to B. B claims that he has recently lost an important client and that he cannot afford to pay the full amount. A reluctantly accepts £15,000 in full settlement of the debt.

Required:

(a) Briefly explain the part payment problem. (2 marks)

(b) Explain whether A can recover any of the money from B. (4 marks)

(Total: 6 marks)



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2 RIGHTS IN CONTRACT LAW

Anne is a keen birdwatcher whose house is near a lake on which rare birds have taken up residence. Unfortunately her neighbour's wall and large tree prevented her from getting a good view of the lake.

She entered into a contract with Bob to build a special 35 feet high observation tower that would enable her to see the lake.

When the tower was finished it was only 32 feet high and, although Anne could see over the wall, the tree still partially obscured her view.

As it stands the tower cost £25,000. Had Bob built it to the specified height it would have only cost a further £1,000. However, because of its special construction its height cannot now be increased. The cost of replacing the existing structure with one which would meet the original specification is £35,000.

Required:

(a) Explain how the measure of damages is used for a breach of contract. (2 marks)

(b) Explain the level of damages which Anne can claim for breach of contract. (4 marks)

(Total: 6 marks)



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3 FAULTY INSTALLATION

Mina is a self-employed accountant who works from her home. Because she deals with some sensitive accounts, she decided that she should install a security alarm system and entered into a contract with Nemo Security Ltd to install security equipment in her house. The brochure from which Mina selected her system contained a statement that ‘Nemo Security Ltd accepts no liability whatsoever for any injury or loss sustained as consequence of the wrongful installation or operation of any equipment supplied or fitted by it’.

The installation of Mina’s security system was carried out incorrectly. During the first night it short-circuited and caused a fire which destroyed Mina’s house. As a consequence of the fire, Mina was badly burned and will not be able to work for six months. Nemo Security Ltd admits negligence, but is refusing to compensate Mina for any of the losses she has sustained, relying on the exclusion clause.

It should be assumed that the exemption clause has been incorporated into the contract with Nemo Security Ltd.advise Mina whether the clause exempts Nemo Security Ltd from any or all of the losses she has suffered.

Required:

(a) Identify whether the exclusion clause has been incorporated into the contract. (4 marks)

(b) State the impact of the Unfair Contract Terms Act 1977 on any claim Mina mightmake against Nemo Security Ltd. (2 marks)

(Total: 6 marks)



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4 ADAM, A SECOND HAND CAR DEALER

Adam is a second hand car dealer. He places an advertisement in the Saturday edition on his local paper stating:

‘Once in a lifetime opportunity; a one year old, low mileage, Mota special: £5,000 cash. This is a serious offer – the car will go to the first person who accepts it – valid for one day only.’

Dave asks Adam if he will keep the offer open until he can get to his bank to arrange a loan. Adam agrees but later in the day when Eric says he will pay £6,000 in cash for the car he agrees to sell the car to Eric.

On Monday morning Dave returns to complete his purchase of the car. In the afternoon Eric phones Adam to say that he has had second thoughts and no longer wishes to buy the car.

Required:

(a) Explain the legal effect of Adam’s advertisement. (3 marks)

(b) Explain whether Dave has any right of action against Adam. (2 marks)

(c) State whether Adam has any right of action against Eric. (1 marks)

(Total: 6 marks)



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5 SOURCE AND BID

Bee plc owned 5% of the shares in Cee plc and was considering making a take-over bid for the shares in Cee plc. In December 20X4, Bee plc wrote to Cee plc's auditors, A & Co, asking if their audit report could be relied upon as representing an accurate review of the financial position of Cee plc. Tom, the senior partner of A & Co, replied in writing that Bee plc could indeed rely on the accuracy of their report. As a result, Bee plc submitted a take-over bid and gained control of the entire share capital of Cee plc. Bee plc has now discovered that Cee plc's assets are worth far less than stated by A & Co in their audit report. Bee plc considers this to have been caused by A & Co carelessly overvaluing Cee plc's assets. This resulted in Bee plc paying more for the shares than it would have done had the truth been known.

Required:

(a) Briefly explain the meaning of special relationship within the tort of negligence. (2 marks)

(b) Identify what factors will be considered in determining whether Bee plc can make a claim against A & Co (4 marks)

(Total: 6 marks)



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EMPLOYMENT LAW

6 A, THE TYPIST

A, who is aged 39, has worked for a firm of accountants, BCD, as a typist on a full-time basis for eight years. Following the introduction of sophisticated word-processing equipment at BCD, it was decided that several typists, including A, would be made redundant from their jobs. However, A was offered alternative employment as a telephonist at one of BCD’s offices 100 miles from the original place of work. The job duties were different from those of a typist and the salary of £350 per week was £150 per week less than that enjoyed by A while working as a typist. A decided not to accept the job of telephonist. BCD gives A eight weeks’ pay in lieu of notice and A is dismissed.

Required:

(a) Explain the meaning of redundancy. (3 marks)

(b) Explain whether A has been made redundant. (3 marks)

(Total: 6 marks)



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7 ACCOUNTANCY FOR ALL

Accountancy for All Ltd is a large commercial training organisation. It is engaged in a lucrative contract with an accountancy college in Eastern Europe, under which it provides specialist tuition at the college. Accountancy for All Ltd engages Isobel, who is aged 30, on a fixed term contract for four years at a salary of £300 per week to write teaching materials for the college. After Isobel had been employed for 36 months, she was dismissed without notice and without being given any reason for her dismissal.

Isobel now wishes to bring an unfair dismissal claim against Accountancy for All Ltd and she seeks your advice as to whether she may be able to claim compensation.

Required:

(a) State TWO categories of a fair reason for dismissal. (2 marks)

(b) Explain how Isobel’s compensation will be calculated assuming she has been unfairly dismissed. (4 marks)

(Total: 6 marks)



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8 PARTNERS' RIGHTS AND LIABILITIES

Rob, Sam and Tom formed a partnership to run a petrol station. The partnership agreement expressly stated that the partnership business was to be limited exclusively to the sale of petrol.

In January 20X0, Sam received £10,000 from the partnership’s bank drawn on its overdraft facility. He told the bank that the money was to finance a short-term partnership debt, but in fact he used the money to pay for a round the world cruise. In February, Tom entered into a £15,000 contract on behalf of the partnership to buy some used cars which he hoped to sell from the garage forecourt.

Required:

(a) Explain whether Sam has acted within his authority. (3 marks)

(b) Explain whether Tom has acted within this authority. (3 marks)

(Total: 6 marks)



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9 SUPERSPEED LTD

Albert was the promoter of a company that was registered on 1 June 2010 under the name of Superspeed Ltd. Prior to incorporation, Albert had contracted with Typo Ltd on 28 May 2010 for the supply of stationery by Typo Ltd, which the board of directors do not wish to honour.

Required:

(a) State the legal effect of a pre-incorporation contract (2 marks)

(b) Explain whether Eden plc is liable for the contract. (4 marks)

(Total: 6 marks)



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11 SHARE CLASSIFICATIONS

Alfred has recently inherited a number of preference shares in the company for which you are the company secretary. At the last annual general meeting it was decided by special resolution to increase the voting power of ordinary shareholders by giving each ordinary share an extra vote.

Required:

(a) Explain what the procedure for the alteration of class rights when there is no reference to variation in the articles of association. (3 marks)

(b) Explain whether Alfred can take steps to reverse the decision to increase the powers of the ordinary shareholders. (3 marks)

(Total: 6 marks)



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11 DIRECTORS’ DUTIES

R is the sole director of V Ltd and controls all the shares in the company. In addition, he is a non-executive director of A plc. R has recently agreed to sell all his shares in V Ltd to A plc for £250,000 and also to accept a new contract to act as executive director of A plc for six years at a salary of £80,000 per annum.

Required:

(a) Explain to whom the above transactions need to be disclosed. (3 marks)

(b) Explain whether the approval of the shareholders is necessary for the transactions to be effective. (3 marks)

(Total: 6 marks)



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12 HYDRANGEA LTD

You have been approached by Diana, who holds 60% of the shares in Hydrangea Ltd, a company regulated by the Model Articles, which manufactures greenhouses. She wishes to propose a resolution at the next general meeting of the company to remove four directors, who between them hold 40% of the shares.

Required:

(a) advise Diana as to her right to have this resolution on the agenda of a general meeting (4 marks)

(b) explain how the votes of members and proxies should be taken and counted at the meeting. (2 marks)

(Total: 6 marks)



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13 GOODYBAGS LTD

Graham and Tim are directors of Goodybags Ltd, a company specialising in party accessories. Tim has always left the day-to-day management to Graham and comes into the office on rare occasions to sign cheques and meet important clients. Tim is becoming worried that he hasn’t seen the company accounts for a while and Graham hasn’t been available to meet with Tim at the last three scheduled meetings.

Required:

(a) Explain the meaning of wrongful trading. (3 marks)

(b) Explain the potential effect on Tim of being found liable for wrongful trading. (3 marks)

(Total: 6 marks)



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14 TELEVISION SHARES

Jeffrey lives with Kim. Kim is on the Board of Directors of Large Television plc which has been considering a take-over bid from Megacorps TV plc. One Friday Kim tells Jeffrey that she has to attend a very important board meeting of Large Television plc, the outcome of which could have a crucial impact on the future of the company. At the Board meeting it is agreed that, subject to some final negotiations to be carried out by the Managing Director of Large TV, the take-over bid should be accepted. That evening the Managing Director phones Kim and leaves a message on the answering machine confirming that the negotiations have been successful and that the take-over bid will therefore be accepted. When Jeffery comes home, before Kim, he hears the message.

The following events subsequently take place:

Jeffrey buys shares in Large Television plc.

At a dinner party, Jeffrey, without actually telling him about the take-over proposals, advises his brother Pete to buy shares in Large Television plc, and Pete does so.

Required:

(a) Explain the insider dealing offences. (3 marks)

(b) Explain whether Jeffrey and Peter have committed any insider dealing offences. (3 marks)

(Total: 6 marks)



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ANSWERS



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ANSWERS TO OBJECTIVE TEST QUESTIONS

ESSENTIAL ELEMENTS OF THE LEGAL SYSTEM

1 A

2 B

3 C

4 A

5 C

6 B

7 C



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LECTURER RESOURCE PACK – ANSWERS



8 A

9 C

10 C

11 A

12 C

13 A

14 B

15 A

16 B

17 A

18 C

19 B

20 C



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EMPLOYMENT LAW

21 A

22 A

23 C

24 C

25 A

26 D



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27 D

28 C

29 C

30 A

31 D

32 D

33 D

34 D

35 B

36 A



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37 D

38 A

39 D

40 D

41 A

42 D



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43 A

44 C

45 B

46 B

47 B

48 B

49 B



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INSOLVENCY LAW

50 C

51 D

52 C

53 D

54 A



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55 A

56 A

57 A

58 A

59 C

60 C



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ANSWERS TO MULTI-TASK QUESTIONS


1 A AND B

(a) The basic rule is, where a creditor is paid only part of the amount contracted, is that the contract is not discharged and the outstanding amount remains payable even if the creditor accepts part-payment in full settlement of the debt. As was stated in Pinnel’s case (1602), ‘by no possibility can a lesser sum be a satisfaction to the plaintiff for a greater sum’. In other words, the creditor is within his rights to change his mind and insist on payment of the full amount.

(b) A has accepted £15,000 in full settlement, but he is not bound by this, at least not in common law, because B has not given him any fresh consideration for this acceptance of a smaller sum. The doctrine of ‘accord and satisfaction’ is sometimes used as an exception to the common law rule, but it is not really so since ‘satisfaction’ implies consideration of some kind. Examples of satisfaction from case law have included:

(a) payment of a smaller sum at an earlier date

(b) payment in kind rather than currency

(c) payment of a smaller sum by a third party (here a separate contract is made with the third party which subsequent insistence on the full amount would breach

In this case there is even doubt about the element of ‘accord’, which means full agreement between the parties.

A defence involves the equitable doctrine of promissory estoppel. The doctrine states that a promise to accept a smaller sum to discharge a debt for a larger amount is binding if acted upon, notwithstanding the absence of consideration. This relies on the principle of not going back on one’s word, which equity upholds as far as possible.

Thus A at common law is entitled to pursue B for the original full amount, despite his apparent agreement not to do so. If this is shown for any reason not to be fair to B, the equitable doctrine of promissory estoppel may be helpful in ensuring that justice is done.

Under this doctrine, equity may uphold an original promise if otherwise it would lead to hardship. In cases such as this, A can be said to have promised B that he would not ask for the remaining £5,000. Equity could well hold that he must keep his promise, on which B has relied. The only conflicting point is the possibility of duress (i.e. A made threats to B in order to get the money from him). Evidence should be sought as to whether this were the case.



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2 RIGHTS IN CONTRACT LAW

(a) Measure of damages relates to the actual amount of loss sustained by the injured party.

Damages in contract are intended to compensate the injured party for any financial loss sustained as a consequence of another party's breach. As the object is to compensate rather than to punish, the amount of damages awarded can never be greater than the actual loss suffered. The aim is to put the injured party in the same position he would have been in had the contract been properly performed. At one time, damages could not be recovered where the loss sustained through breach of contract was of a non-financial nature, but now it is recognised that such damages can be recovered.

(b) Particular difficulties may arise in relation to estimating the damages liable in construction contracts. Where builders either have not carried out the work required, or have carried it out inadequately, they will be in breach of contract and liable for damages. The usual measure of such damages is the cost of carrying out the work or repairing the faulty work. However, this may not be the case where the costs of remedying the defects are disproportionate to the difference in value between what was supplied and what was ordered. Thus in Ruxley Electronics and Construction Ltd v Forsyth (1995) the parties had entered into a contract for the construction of a swimming pool. Although the contract stated that the pool was to be 7ft 6in deep at one end, the actual depth of the pool was only 6ft 9in. The total contract price was £70,000. Fixing the error would have required a full reconstruction and would have cost another £20,000. The House of Lords considered that, as the costs of reinstatement would have been out of all proportion to the benefit gained, the difference in value only should be awarded.

It would appear at first sight that Anne's case is similar to Ruxley Electronics and Construction Ltd v Forsyth. On this basis it is possible that Ann would only be entitled to the difference between the value of the tower provided and the value of the tower she had contracted for; i.e. £1,000. However, Ann's tower was of no practical use to her in its finished state and it would therefore be more likely that Anne could claim damages for the complete reconstruction of the tower, i.e. the £35,000.



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3 FAULTY INSTALLATION

(a) Assuming the clause is part of the contract, the question is to the extent of its effectiveness. As a consequence of the disfavour with which the judiciary have looked on exclusion clauses, they have tended to interpret uncertainties or ambiguities in the exclusion clause against the meaning claimed for it by the person seeking to rely on it. Thus in Hollier v Rambler Motors (1972) it was held that an exclusion clause which could be interpreted as applying only to non-negligent accidental damage, or alternatively to include negligent damage, should be restricted to the narrower interpretation.

(b) In the particular situation of the question, however, it would appear that the wording of the exclusion clause is sufficiently clear and specific to cover Nemo Ltd’s negligence.

The Unfair Contract Terms Act 1977 (UCTA) is the original statutory attempt to control exclusion clauses. Section 2(1) of UCTA provides an absolute prohibition on exemption clauses in relation to liability in negligence resulting in death or injury. It is therefore apparent that Nemo Ltd cannot avoid responsibility for the injury sustained by Mina and will be liable for the injuries she suffered.

Section 2 also provides that any exemption clauses relating to liability for other damage caused by negligence will only be enforced to the extent that they satisfy the ‘requirement of reasonableness’, and s11 provides that the requirement of reasonableness means ‘fair and reasonable . . . having regard to the circumstances . . .’. In looking at the circumstances of the case, the court will take into account matters relating to relative strength of bargaining power; inducements to accept the restrictions; whether the customer knew or ought to have known of the exclusion; whether the goods involved were specially made or adapted. The final outcome, therefore, is dependent on judicial interpretation. The onus of showing reasonableness rests with the party relying on the clause (St Alban’s CDC v International Computers Ltd (1994)). If one were to ask the question: ‘Was it reasonable for Nemo Ltd to deny responsibility for the consequence of their negligence in this case?’, the answer is likely to be no. Consequently Nemo Ltd is likely to be liable and the exclusion clause to have no effect.



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4 ADAM, A SECOND HAND CAR DEALER

(a) Adam.

Usually newspaper or other public advertisements only amount to an invitation to treat and cannot be accepted to form a binding contract (Partridge v Crittenden (1968)).

There are occasions, however, when an advert can amount to a genuine offer capable of acceptance by anyone to whom the offer is addressed. Thus for example in Carlill v Carbolic Smoke Ball Co (1893), the court held that in the particular circumstances of the case, the defendant’s advertisement was an offer to all the world, capable of acceptance, and accepted by the plaintiff.

It might appear at first sight that Adam’s advertisement in the paper was no more than an invitation to treat and therefore not capable of being accepted by any of the other parties. However, the wording of the advert was in such categorical terms that it might be seen as an offer to the whole world stating his unreserved commitment to enter into a contract with the first person who accepted it.

(b) Dave

In Dave’s case, at first sight it would appear that he did not provide any consideration for Adam’s keeping the offer open and, therefore, he could not complain when Adam withdrew the offer as he did by agreeing to sell the car to Eric. There is the possibility/likelihood, however, that Dave did provide consideration in the form of a collateral contract, in that his entering into a loan transaction with his bank provided consideration for Adam’s keeping the offer to sell the car to him open. In such circumstances, Adam would be in breach of contract if he did not complete the sale of the car to Dave.

(c) Eric

In this instance, Eric offered to buy the car for £6,000 and Adam accepted his offer. There is a binding contract, therefore, and if Eric refuses to complete the deal, Adam can sue him for damages for breach of contract.



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5 SOURCE AND BID

(a) A special relationship exists where a professional person advises a known person who relies on the statement for a known purpose.

It is clear that liability will only arise where the defendant is in the business of giving professional advice and the statement is given in that context i.e. not on a social or informal occasion.

(b) The tort of negligence could be applied in this situation. There have, in the past, been several cases in which auditors have been sued in negligence by third parties who, as a result of relying on careless audit reports, have suffered financial loss.

In Caparo Industries plc v Dickman and others (1990), a shareholder relied on audited accounts (that were allegedly careless) in order to purchase more shares and as a result suffered a financial loss. It was held that the auditors of a public company owe no duty of care to the public at large, who rely on the accounts when purchasing shares in the company. Nor was any duty owed to existing individual shareholders who purchased additional shares as they are in no better position than a member of the public. The court went on to say that to establish a duty of care the claimant must show there is a 'relationship of proximity' between himself and the auditors. This is established where the auditors:

(1) gave advice knowing that it would be passed on to a particular person

(2) had complete knowledge and awareness of the transaction that the claimant had in mind

(3) knew it was highly likely that the claimant would rely on the advice or information provided by the auditors.

Since A & Co wrote directly to Bee plc, it seems that condition (1) is satisfied. However, additional information is needed to comment on whether conditions (2) and (3) are satisfied.



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EMPLOYMENT LAW

6 A, THE TYPIST

(a) Redundancy takes place when the dismissal was wholly or mainly due to the fact that:

(a) the employer has ceased or intends to cease to carry on business for the purposes of which or in the place where the employee was employed, permanently or temporarily, or

(b) the requirements of that business for employees to carry out work of a particular kind or in a place where they were employed, have ceased or diminished or are expected to cease or diminish permanently or temporarily (Employment Rights Act 1996).

(b) It would seem that A is redundant under (ii) above as fewer typists are required following the introduction of word processing equipment. However, an employee will be disqualified from receiving redundancy payment if he/she unreasonably refuses an offer of alternative suitable employment made by his/her employer before the end of the previous contract to re-engage him/her on terms which differ from the previous contract. Whether the alternative offer is suitable is a question of fact to be determined with reference to such matters as the employee’s skill, working conditions, the requirements of his/her family, change of earnings, age, health, sex, etc. In Taylor v Kent County Council (1969) Lord Parker CJ said that suitable alternative employment in this context meant the employee should be employed under ‘conditions reasonably equivalent’ to those of the previous employment. Even if on the facts the alternative employment were considered suitable, which is unlikely, given the substantial drop in salary, and the different skills required of a telephonist, the refusal of A to move 100 miles may nevertheless in the circumstances be regarded as reasonable.

Thus it would seem A has been made redundant even though she was offered alternative employment.



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7 ACCOUNTANCY FOR ALL

(a) Any of the following two categories:

(i) lack of capability or qualifications

(ii) misconduct

(iii) redundancy

(iv) where the employee could not continue working in their job without contravention of a statute

(v) some other substantial reason such as to justify dismissal not appearing within any of the other heads.

(b) The facts of the problem disclose that Isobel is seeking compensation. In the usual case of unfair dismissal the compensation which will be awarded comprises two elements:

(i) the basic award

(ii) the compensatory award.

Isobel will be entitled, if unfairly dismissed, to a basic award calculated by a formula related to the age of the applicant, her weekly wage and her length of service. The maximum allowable wage is £464 per week, and the age weighting of Isobel, who is aged 30, is 1. Accordingly, the basic award to which she will be entitled is 1 × 3 (number of years’ service) × £464 = £1,392.

The compensatory award is such amount as the tribunal considers just and equitable in all the circumstances, having regard to the loss sustained by the complainant in consequence of the dismissal (subject to a maximum of £76,574). The award takes into account such matters as the loss of wages up to the hearing, estimated loss of future earnings, loss of fringe benefits and expenses incurred in seeking alternative work. It should be noted that the dismissed employee is expected to mitigate his or her loss, and this will be taken into account in assessing the compensatory award.

The facts of the problem do not give sufficient information to assess the level of the compensatory award, but obvious items of loss for Isobel will be the loss of earnings to the date of the hearing and future losses during any period of unemployment until she finds another job.



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8 PARTNERS' RIGHTS AND LIABILITIES

(a) Sam has clearly used his powers for an unauthorised purpose. Unfortunately for the other partners they cannot repudiate his transaction with the bank, even though it was outside his actual authority. The reason is that it is within his implied authority as a partner to enter into such a transaction. As a trading partnership, all the members have the implied authority to borrow money on the credit of the firm and the bank would be under no duty to investigate the purpose to which the loan was to be put. As a result, the partnership cannot repudiate the debt to the bank and each of the partners will be liable for its payment. However, Sam will be personally liable to the other partners for the £10,000 and, as a further consequence of his breach of his duty not to act in any way prejudicial to the partnership business, the partnership could be wound up.

(b) Tom’s purchase of the used cars was also clearly outside the express provision of the partnership agreement. However, the partnership would be liable, because the transaction would be held to be within the implied authority of a partner in a garage business (Mercantile Credit v Garrod (1962)). Once again Tom, the partner in default of the agreement, would be liable to the other members for any loss sustained in the transaction.



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9 SUPERSPEED LTD

(a) A pre-incorporation contract is a contract which promoters enter into, naming the company as a party, prior to the date of the certificate of incorporation and hence prior to its existence as a separate legal person. The company cannot enter into a binding contract until it has become incorporated, and it is not bound by any contract made on its behalf prior to incorporation.

(b) Albert has contracted with Typo Ltd before Superspeed Ltd received its certificate of incorporation. This therefore is a pre-incorporation contract. S51 CA06 provides that a contract which purports to be made on behalf of a company not yet formed has effect as one made with the person purporting to act on behalf of the company and he is personally liable on it ‘subject to any agreement to the contrary’. In short, the person acting on behalf of the future company must contract out of personal liability. Albert is therefore personally liable on the contract. Superspeed Ltd is not liable and can contract with a cheaper source because it was not bound by the contract anyway.



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10 SHARE CLASSIFICATIONS

(a) The procedure for altering class rights is set out in s.630 CA 2006. The precise procedure depends upon whether there is a pre-established procedure for altering the rights.

(i) Where the articles set out a procedure for varying class rights, then that procedure should be followed.

(ii) If there is no specified procedure within the Articles of Association then, under s.630 CA 2006, variation needs a special resolution or written consent from the holders of 75% in nominal value of the shares of that class.

(b) Any alteration of class rights is subject to challenge in the courts. To raise such a challenge any objectors must:

• hold no less than 15% of the issued shares in the class in question (s.633(2)); • not have voted in favour of the alteration; and • apply to the court within 21 days of the consent being given to the alteration

(s. 633(4)). The court has the power to either confirm the alteration or to cancel it as unfairly prejudicial.

Alfred’s problem in this situation is that the variation has been to the ordinary shares and not preference shares. So Alfred has not participated in the shareholder’s meeting to alter the voting rights. Unless there were provisions in the articles for alteration to be approved by general meeting, Alfred will have no recourse to the company’s internal organisation.



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11 DIRECTORS’ DUTIES

(a) Sale of shares in V Ltd to A plc

Under s.177 CA06 every director with an interest in a contract with his company must formally disclose this before the company enters into the contract.

Whilst the circumstances of the case suggest that the board of A plc is aware of R’s interest, he would be advised to ensure that if there is no board minute to that effect, he makes formal disclosure in writing. R must ensure that the nature and extent of his interest is disclosed in order to comply with s.177 CA06.

It is likely that A plc’s articles disqualify R from voting in board meetings on contracts, such as this one, in which he has an interest.

Proposed executive directorship

Whilst directors usually need to be appointed, or have their appointment by the board confirmed, by the members in general meeting, it is then usually up to the board to determine the terms of appointment.

(b) Sale of shares in V Ltd to A plc

Under s.190 CA06 members’ approval is required if a director is involved in a contract with his company for the sale or purchase of property by the company.

S.190 does not apply to transactions worth less than £5,000; but higher-value transactions must be approved if they are worth more than £100,000 or more than 10% of the company’s net assets.

A plc’s purchase of R’s V Ltd shares for £250,000 clearly requires s.190 approval. The contract must be approved by the members (by ordinary resolution) before it proceeds or within a reasonable time thereafter. If not, it is voidable by the company.

Proposed executive directorship

Under s.188 CA06 the members must approve any director’s service contract which is to run for more than 2 years, unless it provides for the company freely to terminate it before it expires. Assuming the proposed 6-year contract will contain restrictions on the company’s right to terminate it early, it must be put to the members.

Under s.188 the members must pass an ordinary resolution, approving the contract, in general meeting.



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12 HYDRANGEA LTD

(a) In order to get this resolution on to the agenda of the meeting, Diana can make use of s.303 CA 2006. This enables members representing at least 10% of the paid up capital of the company that carries voting rights or (where there is no share capital) at least 10% of the voting rights to require the directors to call a general meeting. The requisite percentage is reduced to 5% in the case of a private company, if more than 12 months has elapsed since the last general meeting. The request must state the general nature of the business to be dealt with at the meeting and must include the text of any resolutions that it is proposed to move.

Within 21 days of any such requirement, the directors must call a meeting to take place within 28 days from the date of the notice: s.304. If they fail to do so, the members who requested the meeting (or any members representing over 50% of the total voting rights) may call a meeting to take place within three months of the initial request to the directors: s.305.

Members representing at least 5% of the total voting rights, or at least 100 members holding an average of £100 in paid-up share capital, may require the company to circulate a statement of up to 1,000 words in respect of any resolution or other business to be dealt with at the meeting: s.314

(b) Normally at a company meeting, voting on the resolutions which have been proposed is by a show of hands. The decision of the chair of a meeting on a show of hands is conclusive unless a poll is asked for. This may happen where it is clear that the show of hands does not fairly reflect the actual number of votes that the members of the company can command. Where there is a poll, the number of votes a member may hold by virtue of his shareholding is counted.

In relation to proxies, every notice calling a meeting must include a statement that every member who is entitled to attend and vote at a company meeting is entitled to appoint a proxy to attend, speak and vote in their place: s.325.



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13 GOODYBAGS LTD

(a) S.214 IA 1986 empowers the court to declare a director or shadow director of a company liable to contribute to the assets of the company if the director knew, or ought to have known, that the company had no reasonable prospect of not going into insolvent liquidation and did not take every step that ought to have been taken to minimise the potential loss to the company’s creditors.

Directors will only risk an action of wrongful trading if the company goes into liquidation at a time when its assets are insufficient for the payment of company debts and other liabilities and the liquidator applies to the court for a declaration.

It is possible for a director or shadow director to defend the case by showing that he took every step he ought to have taken to minimise creditors’ losses.

(b) The effects of s.214 IA 1986 lead to a civil claim against directors to recover damages, which are then added to company assets to help towards the payment of creditors. If a director is found guilty of wrongful trading the court can at the same time make a disqualification order for up to 15 years against the director by virtue of s.10 of the Company Directors Disqualification Act 1986.

In the light of recent events, Tim must insist on seeing the company accounts and taking a more inquisitional role in respect of the directorship. If the company is insolvent and Graham is still trading on behalf of the company, Tim may face an action by the liquidator based on his ‘inaction’.



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14 TELEVISION SHARES

(a) ‘Insider dealing’ is governed by part V of the Criminal Justice Act 1993 (CJA).

Section 52 CJA sets out the three distinct offences of insider dealing.

(i) An individual is guilty of insider dealing if they have information as an insider and deal in price-affected securities on the basis of that information.

(ii) An individual who has information as an insider will also be guilty of insider dealing if they encourage another person to deal in price-affected securities in relation to that information.

(iii) An individual who has information as an insider will also be guilty of insider dealing if they disclose it to anyone other than in the proper performance of their employment, office or profession.

(b) Jeffrey is an 'insider' as he receives inside information from an insider, i.e. the MD of Large Television plc. The information fulfils the requirements for 'inside information'. It relates to: particular securities, the shares in Large Television, it is specific, in that it relates to the takeover. It has not been made public and is likely to have a significant effect on the price of the securities. On that basis, Jeffrey is clearly guilty of an offence under s.52 when he buys shares in Large Television plc.

When Jeffrey advises his brother Pete to buy shares in Large Television plc, he commits the third offence under s.52 of encouraging another person to deal in price-affected securities in relation to inside information. Pete on the other hand has committed no offence for the reason that, although he has bought shares in Large Television plc, he has not received any specific information and therefore cannot be guilty of dealing on the basis of such information.



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