Business law 

Business and commercial enterprise takes place within a legal context and, in the
final analysis, is governed and regulated by law. One of the problems facing the
person studying business activity, and the one that is specifically addressed in this
book, is the fact that business enterprise takes place within a general and wide
ranging legal environment; but the student is required to have more than a passing
knowledge of the legal rules and procedures which impact on business activity. The
difficulty lies in acquiring an adequate knowledge of the many areas that govern
such business activity. Law students legitimately may be expected to focus their
attention on the minutiae of the law, but those studying law within, and as merely a
component part of, a wider sphere of study cannot be expected to have the same
detailed level of knowledge as law students. Nonetheless, they are expected to have
a more than superficial knowledge of various legal topics.
For the author of a business law textbook, the difficulty lies in pitching the
material considered at the appropriate level so that those studying the subject
acquire a sufficient grasp to understand law as it relates generally to business
enterprise, and of course to equip the student to pass the requisite exams. To
achieve this goal, the text must not be too specialised and focus on too small a part
of what is contained in most business law syllabuses. For example, although
contract law is central to any business law course, to study it on its own, or with a
few ancillary topics, is not sufficient. Nor, however, should the text be so wide
ranging as to provide the student with no more than a superficial general
knowledge of most of the possible interfaces between law and business enterprise.
A selection has to be made and it is hoped that this text has made the correct one.
No attempt has been made to cover all the areas within the potential scope of
business law, but it is hoped that attention has been focused on the most important
of these, without excluding any area of major importance. Additionally, it is hoped
that the material provided deals with the topics selected in as thorough a way as is
necessary.
In this fourth edition we have taken the opportunity to restructure the
contract law section and to expand the treatment of other key areas, notably the
company law and employment law sections. We have also been able to provide a
more considered treatment of the Human Rights Act 1998 in the light of the most
significant cases to have come before the courts since the previous edition. As
usual, we have made every effort to ensure that the text is as up to date as we
can make it. 

Preface v
Table of Cases xxiii
Table of Statutes lv
Table of Statutory Instruments lxv
Conventions, Treaties and EC Legislation lxix
Table of Abbreviations lxxi
1 LAW AND LEGAL SOURCES 1
1.1 The nature of law 1
1.2 Categories of law 2
1.2.1 Common law and civil law 2
1.2.2 Common law and equity 3
1.2.3 Common law and statute law 6
1.2.4 Private law and public law 6
1.2.5 Civil law and criminal law 7
1.3 The Human Rights Act 1998 8
1.3.1 Cases decided under the Human Rights Act 1998 11
1.4 Sources of law 14
1.4.1 European Community 14
1.4.2 Sources of EC law 16
1.4.3 The institutions of the EU 18
1.5 Legislation 22
1.5.1 The legislative process 22
1.5.2 Types of legislation 24
1.5.3 Delegated legislation 25
1.5.4 Advantages of the use of delegated legislation 27
1.5.5 Disadvantages in the prevalence of
delegated legislation 27
1.5.6 Control over delegated legislation 28
1.6 Case law 29
1.6.1 The meaning of precedent 29
1.6.2 The hierarchy of the courts and the setting
of precedent 30
1.6.3 The nature of precedent 32
1.6.4 Evaluation 33
1.6.5 Advantages of case law 33
1.6.6 Disadvantages of case law 35
1.7 Statutory interpretation 37
1.7.1 Problems in interpreting legislation 38
1.7.2 Rules of interpretation 38
1.7.3 Aids to construction 39
1.7.4 Presumptions 40
1.8 Custom 41
1.8.1 Books of authority 42
1.9 Law reform 43
Summary of Chapter 1 45
2 THE CRIMINAL AND CIVIL COURTS 49
2.1 Introduction 49
2.2 The criminal court structure 49
Figure 1: The hierarchy of the courts 50
2.3 Magistrates’ courts 51
2.3.1 Powers of magistrates’ courts 51
2.4 The Crown Court 52
2.4.1 Jurisdiction 52
2.5 Criminal appeals 53
2.5.1 Appeals from magistrates’ courts 53
2.5.2 Appeals from the Crown Court 53
2.6 House of Lords 55
2.7 Judicial Committee of the Privy Council 55
2.8 The civil court structure 55
2.9 Magistrates’ courts 55
2.10 The Woolf Reforms to the civil justice system 56
2.10.1 Judicial case management 56
2.10.2 Pre-action protocols 57
2.10.3 Alternatives to going to court 57
2.10.4 Allocation to track (Pt 26 of the CPR1998) 58
2.11 County courts 58
2.12 The High Court of Justice 59
2.12.1 The Queen’s Bench Division 59
2.12.2 The Queen’s Bench Divisional Court 60
2.12.3 The Chancery Division 60
2.12.4 The Chancery Divisional Court 60
2.12.5 The Family Division 60
2.12.6 The Family Divisional Court 61
2.12.7 Specialist courts 61
2.13 The Court of Appeal (Civil Division) 61
2.13.1 The Civil Procedure Rules 62
2.14 House of Lords 62
2.15 Judicial Committee of the Privy Council 62
2.16 The European Court of Justice 63
2.17 The European Court of Human Rights 63
Summary of Chapter 2 67
3 ALTERNATIVE DISPUTE RESOLUTION 69
3.1 Introduction 69
3.2 Arbitration 70
3.2.1 Arbitration procedure 71
3.2.2 Relationship to ordinary courts 74
3.2.3 Advantages 75
3.2.4 The small claims track (Pt 27 of the CPR) 75
3.2.5 Small claims procedure 77
3.2.6 Evaluation 78
3.2.7 Arbitration under codes of conduct 79
3.3 Administrative tribunals 80
3.3.1 Tribunals and courts 81
3.3.2 Composition of tribunals 82
3.3.3 Statutory tribunals 83
3.3.4 Domestic tribunals 85
3.3.5 Advantages of tribunals 85
3.3.6 Disadvantages of tribunals 86
3.3.7 The Leggatt Review of Tribunals 89
3.4 Ombudsman 91
3.4.1 Procedure 92
3.4.2 Evaluation 95
3.5 Mediation and conciliation 96
3.5.1 Mediation 96
3.5.2 Mediation in divorce 97
3.5.3 Conciliation 100
Summary of Chapter 3 101
4 THE NATURE AND FUNCTION OF CONTRACT LAW 103
4.1 Introduction 103
4.2 Definition 104
4.3 Formalities 104
4.4 The legal effect of agreement 105
Summary of Chapter 4 109
5 THE FORMATION OF A CONTRACT 111
5.1 Introduction 111
5.2 Offer 111
5.2.1 Identifying an offer 112
5.2.2 Offers to particular people 114
5.2.3 Knowledge of the offer 115
5.2.4 Rejection of offers 115
5.2.5 Revocation of offers 116
5.2.6 Lapse of offers 117
5.3 Acceptance 118
5.3.1 Form of acceptance 118
5.3.2 Communication of acceptance 119
5.3.3 Tenders 121
5.4 Offer, acceptance and the classical model of contract 121
5.5 Consideration 123
5.5.1 Forbearance 123
5.5.2 Types of consideration 124
5.5.3 Rules relating to consideration 125
5.5.4 Performance of existing duties 126
5.5.5 Consideration in relation to the waiver
of existing rights 129
5.5.6 Promissory estoppel 131
5.5.7 Promissory estoppel after Williams v Roffey 132
5.6 Privity of contract 132
5.6.1 Contracts (Rights of Third Parties) Act 1999 135
5.7 Capacity 136
5.7.1 Minors 136
5.7.2 Mental incapacity and intoxication 139
5.8 Intention to create legal relations 139
5.8.1 Domestic and social agreements 139
5.8.2 Commercial agreements 140
5.8.3 Collective agreements 141
5.8.4 Letters of comfort 141
Summary of Chapter 5 143
6 CONTENTS OF A CONTRACT 145
6.1 Contract terms and mere representations 145
6.2 Conditions, warranties and innominate terms 146
6.2.1 Conditions 146
6.2.2 Warranties 146
6.2.3 Innominate terms 147
6.3 Implied terms 148
6.3.1 Terms implied by statute 148
6.3.2 Terms implied by custom 148
6.3.3 Terms implied by the courts 148
6.4 The parol evidence rule 149
6.5 Exemption or exclusion clauses 150
6.5.1 Has the exclusion clause been incorporated
into the contract? 150
6.5.2 Does the exclusion clause effectively
cover the breach? 152
6.5.3 What effect does UCTA1977 have
on the exclusion clause? 153
6.5.4 The Unfair Terms in Consumer Contracts
Regulations 156
Summary of Chapter 6 159
7 VITIATING FACTORS 161
7.1 Introduction 161
7.2 Mistake 161
7.2.1 Common mistake 162
7.2.2 Mutual mistake 163
7.2.3 Unilateral mistake 165
7.2.4 Mistake in respect of documents 166
7.3 Misrepresentation 167
7.3.1 There must be a false statement of fact 168
7.3.2 The statement must actually induce the contract 169
7.3.3 Types of misrepresentation 170
7.3.4 Remedies for misrepresentation 171
7.4 Duress 173
Figure 2: Forms of misrepresentation 174
7.5 Undue influence 175
7.5.1 Special relationships 175
7.5.2 No special relationship 176
7.5.3 Inequality of bargaining power 177
7.6 Contracts and public policy 177
7.6.1 Illegal contracts 178
7.6.2 Void contracts 178
7.6.3 Contracts in restraint of trade 179
Summary of Chapter 7 183
8 DISCHARGE OF A CONTRACT 185
8.1 Introduction 185
8.2 Discharge by agreement 185
8.3 Discharge by performance 185
8.3.1 Tender of performance 187
8.4 Discharge by frustration 187
8.4.1 Situations in which the doctrine of frustration
does not apply 189
8.4.2 The effect of frustration 190
8.4.3 Law Reform (Frustrated Contracts) Act 1943 190
8.5 Discharge by breach 191
8.5.1 Effect of breach 191
8.5.2 Anticipatory breach 191
8.6 Remedies for breach of contract 193
8.7 Damages 194
8.7.1 Remoteness of damage 194
8.7.2 Measure of damages 195
8.7.3 Liquidated damages and penalties 198
8.7.4 Quantum meruit 199
8.8 Specific performance 200
8.9 Injunction 201
8.10 Action for the agreed contract price 202
8.11 Repudiation 202
8.12 Quasi-contractual remedies 202
Summary of Chapter 8 203
9 SALE AND SUPPLY OF GOODS 205
9.1 Introduction 205
9.2 The Sale of Goods Act 1979 206
9.2.1 Definition 206
9.2.2 Form of the agreement 207
9.2.3 The price of the goods 207
9.2.4 Seller’s implied obligations 208
9.2.5 Delivery and payment obligations 218
9.2.6 Seller’s personal remedies 218
9.2.7 Seller’s real remedies 219
9.2.8 Buyer’s remedies 221
9.2.9 Acceptance 224
9.2.10 Exclusion and limitation of liability 225
9.2.11 Guarantees 227
9.2.12 Transfer of property and risk 228
9.2.13 Sale by a person who is not the owner 232
9.3 The Supply of Goods and Services Act 1982 236
9.3.1 Implied terms 236
9.3.2 Exclusion clauses 237
9.4 The Consumer Protection (Distance Selling)
Regulations 2000 238
9.4.1 Application 238
9.4.2 Main provisions 238
9.5 The Consumer Protection Act 1987 239
9.5.1 Introduction 239
9.5.2 Meaning of ‘producer’ 239
9.5.3 ‘Defective’ product 240
9.5.4 Extent of liability 240
9.5.5 Exclusion of liability 241
9.5.6 Defences 241
9.5.7 Limitations on action 241
9.6 Criminal liability 242
9.6.1 Introduction 242
9.6.2 Part II of the CPA1987 242
9.6.3 The General Product Safety Regulations 1994 242
9.6.4 Misleading price indications 243
9.6.5 The Trade Descriptions Act 1968 244
Summary of Chapter 9 247
10 NEGLIGENCE 251
10.1 Introduction 251
10.2 Elements of the tort 252
10.3 Duty of care 252
10.4 Nervous shock 256
10.5 Economic loss 261
10.6 Negligent misstatements 262
10.7 Professional negligence 263
10.7.1 Accountants and auditors 263
10.7.2 Lawyers 265
10.7.3 Surveyors 266
10.8 Breach of the duty of care 267
10.9 Res ipsa loquitur 270
10.10 Causation 271
10.10.1 The ‘but for’ test 271
10.10.2 Novus actus interveniens 273
10.11 Remoteness of damage 275
10.12 Defences 276
10.12.1 Contributory negligence 276
10.12.2 Volenti non fit injuria 277
Summary of Chapter 10 279
11 AGENCY 283
11.1 Introduction 283
11.2 Definition of‘agency’ 283
11.3 Creation of agency 285
11.3.1 Express appointment 285
11.3.2 Ratification 286
11.3.3 Implication 286
11.3.4 Necessity 287
11.3.5 Estoppel 288
11.4 The authority of an agent 288
11.4.1 Actual authority 288
11.4.2 Apparent authority 289
11.4.3 Warrant of authority 289
11.5 The relationship of principal and agent 290
11.5.1 The duties of agent to principal 290
11.5.2 The rights of an agent 292
11.5.3 Commercial Agents (Council Directive)
Regulations 1993 293
11.6 Relations with third parties 295
11.6.1 Where the principal’s existence is disclosed 295
11.6.2 Where the principal’s existence is not disclosed 296
11.6.3 Payment by means of an agent 297
11.6.4 Breach of warrant of authority 297
11.6.5 Liability in tort 297
11.7 Termination of agency 297
11.7.1 Termination by the parties 298
11.7.2 Termination by operation of law 298
Summary of Chapter 11 301
12 PARTNERSHIP LAW 305
12.1 Introduction 305
12.2 The Partnership Acts 305
12.2.1 Standard partnerships 305
12.2.2 Limited partnerships 306
12.2.3 Limited liability partnerships 306
12.3 Definition of ‘partnership’ 307
12.3.1 Types of partners 308
12.4 The legal status of a partnership 309
12.4.1 Legal personality 309
12.4.2 Illegal partnerships 310
12.4.3 Capacity 310
12.5 Formation of a partnership 311
12.5.1 The partnership agreement 311
12.5.2 Alteration of the partnership agreement 312
12.5.3 The firm’s name 313
12.5.4 The Business Names Act 1985 313
12.5.5 Passing off 313
12.5.6 Arbitration clauses 314
12.6 The relationship between partners 314
12.6.1 Duties of partners 315
12.6.2 Rights of partners 316
12.6.3 Partnership property 317
12.6.4 Assignment of a share in a partnership 319
12.7 The relationship between partners and outsiders 319
12.7.1 The authority of partners to bind the firm 320
12.7.2 The nature of partners’ liability 321
12.7.3 The liability of incoming and outgoing partners 322
12.7.4 Partnership by estoppel 323
12.8 Dissolution and winding up of the partnership 323
12.8.1 Grounds for dissolution 323
12.8.2 Winding up 325
12.8.3 Treatment of assets on dissolution 325
12.8.4 Bankruptcy of partners 327
12.9 Limited liability partnerships 328
12.9.1 Legal personality and limited liability 328
12.9.2 Creation 329
12.9.3 Membership 329
12.9.4 Disclosure requirements 330
12.9.5 Relationship between members and the LLP 331
12.9.6 Relationship between members 331
12.9.7 Relationship between members and third parties 331
12.9.8 Creditor protection 331
12.9.9 Taxation 332
12.9.10 Insolvency and winding up 332
12.9.11 The future of the LLP 333
Summary of Chapter 12 335
13 COMPANY LAW 341
13.1 Introduction 341
13.2 Corporations and their legal characteristics 341
13.2.1 Types of corporation 341
13.2.2 The doctrine of separate personality 342
13.2.3 The effects of incorporation 343
13.2.4 Lifting the veil of incorporation 345
13.3 Types of companies 346
13.3.1 Limited and unlimited companies 347
13.3.2 Public and private companies 347
13.3.3 Parent and subsidiary companies 350
13.3.4 Small, medium and large companies 350
13.4 Formation of companies 351
13.4.1 Registration 351
13.4.2 Commencement of business 352
13.5 The constitution of the company 352
13.5.1 The memorandum of association 352
13.5.2 The articles of association 355
13.5.3 Effect of memorandum and articles 356
13.5.4 Class rights 357
13.6 Capital 359
13.6.1 Share capital 359
13.6.2 Types of share capital 360
13.6.3 Types of shares 361
13.6.4 Issue of shares 362
13.6.5 Payment for shares 362
13.6.6 Capital maintenance 363
13.6.7 Loan capital 367
13.7 Directors 371
13.7.1 The position of directors 372
13.7.2 Appointment of directors 373
13.7.3 Removal of directors 373
13.7.4 Company Directors Disqualification Act 1986 374
13.7.5 Directors’ powers 377
13.7.6 Directors’ duties 379
13.8 Company secretary 382
13.8.1 Duties of company secretaries 382
13.8.2 Powers of company secretaries 383
13.9 Company auditor 383
13.10 Company meetings 385
13.10.1 Types of meetings 386
13.10.2 Calling meetings 387
13.10.3 Notice of meetings 387
13.10.4 Agenda 388
13.10.5 Types of resolutions 388
13.10.6 Quorum 391
13.10.7 Votes 391
13.10.8 Proxies 391
13.10.9 Chairman 391
13.10.10 Minutes 392
13.11 Majority rule and minority protection 392
13.11.1 Common law—fraud on the minority 393
13.11.2 Statutory protection 395
13.11.3 Investigations 399
13.12 Winding up and administration orders 404
13.12.1 Winding up 404
13.12.2 Order of payment of company debts 406
13.12.3 Administration orders 407
13.13 Insider dealing 408
13.13.1 The CJA 1993 409
13.13.2 The reality of insider dealing 411
13.14 Electronic communications 412
Summary of Chapter 13 415
14 INDIVIDUAL EMPLOYMENT RIGHTS (1):
THE CONTRACT OF EMPLOYMENT 421
14.1 Introduction 421
14.2 Contract of Employment 422
14.2.1 Control test 423
14.2.2 Integration test 424
14.2.3 Multiple test 425
14.3 Loaning or hiring out employees 432
14.4 Continuity: periods away from work 432
14.5 Industrial disputes 434
14.6 Formation of the contract of employment 434
14.6.1 Written statement of terms 434
Figure 3: Specimen of terms of employer 436
14.6.2 Terms 438
14.6.3 National minimum wage 439
14.6.4 Implied terms 442
14.6.5 Duties imposed on the employer 443
Figure 4: Itemised pay statement 446
14.6.6 Duties imposed on the employee 448
Summary of Chapter 14 453
15 INDIVIDUAL EMPLOYMENT RIGHTS (2):
EQUAL PAY AND DISCRIMINATION 457
15.1 Introduction 457
15.2 European Community law 457
15.3 Equality clause 459
15.3.1 Claiming equality 459
15.3.2 Comparator 461
15.3.3 Grounds of claim 461
15.3.4 Equal value procedure 464
15.3.5 Remedies 466
15.4 Sex and race discrimination 467
15.4.1 EC law 467
15.4.2 Who is protected? 470
15.5 Types of unlawful discrimination 470
15.5.1 Direct discrimination 472
15.5.2 Sexual and racial harassment 474
15.5.3 Discrimination and pregnancy 476
15.5.4 Sexual orientation 478
15.5.5 Indirect discrimination 479
15.5.6 Victimisation 482
15.6 Scope of protection 483
15.6.1 Genuine occupational qualifications 483
15.7 Bringing a claim 484
15.8 Remedies 484
15.9 The EOC and the Commission for Racial Equality 485
15.10 Disability discrimination 485
Summary of Chapter 15 491
16 INDIVIDUAL EMPLOYMENT RIGHTS (3):
TERMINATION 495
16.1 Introduction 495
16.2 Dismissal for fundamental breach or wrongful dismissal 496
16.2.1 Notice 496
16.2.2 Summary dismissal for fundamental breach 496
16.3 Wrongful dismissal 497
16.4 Unfair dismissal 499
16.4.1 Who qualifies under the ERA 1996? 500
16.5 Claims 501
16.6 Effective date of termination 501
16.7 What is meant by dismissal? 502
16.7.1 Constructive dismissal 504
16.8 Reasons for the dismissal 506
16.9 Fair dismissals 507
16.9.1 Capability or qualifications 509
16.9.2 Conduct 510
16.9.3 Redundancy 511
16.9.4 Statutory restrictions (s98(2)(d) of the ERA 1996) 512
16.9.5 Some other substantial reason 513
16.10 Special situations 514
16.11 Remedies 516
16.11.1 Reinstatement 516
16.11.2 Re-engagement 516
16.11.3 Compensation 517
16.12 Redundancy 519
16.12.1 Qualifications 519
16.12.2 Dismissal 520
16.12.3 Dismissals for reasons of redundancy 521
16.12.4 Lay-off and short time (ss 147–49 of the ERA 1996) 525
16.12.5 Change in ownership and transfer of undertakings 526
16.12.6 Offer of alternative employment 528
16.12.7 Calculation of redundancy payment 530
16.12.8 Procedure for handling redundancies 531
16.12.9 Notification of redundancies to the Secretary of State 532
Summary of Chapter 16 533
17 EMPLOYERS’ LIABILITY 537
17.1 Introduction 537
17.2 Duty of care 538
17.2.1 Scope of the employer’s duty 538
17.2.2 Competent fellow employees 539
17.2.3 Safe plant and appliances 541
17.2.4 Safe place of work 541
17.2.5 Safe system of work 543
17.3 Breach of duty 545
17.4 Causation and resultant damage 546
17.5 Remedies and defences 547
17.6 Vicarious liability 548
17.6.1 Meaning of vicarious liability 548
17.6.2 Employer/employee relationship 548
17.6.3 Scope of vicarious liability 549
17.6.4 Course of employment 549
17.6.5 Outside the course of employment 553
17.7 Principal and agent 555
17.8 Employer and independent contractor 555
Summary of Chapter 17 557
18 CONSUMER CREDIT 561
18.1 Introduction 561
18.1.1 Examples of credit agreements 561
18.1.2 The terminology of the CCA1974 562
18.1.3 Agreements within the scope of the CCA 1974 562
18.1.4 Types of regulated consumer credit agreements 565
18.1.5 Exempt and partially exempt agreements 568
18.2 Licensing 569
18.3 Promotion of credit agreements 570
18.3.1 Introduction 570
18.3.2 Canvassing offences 570
18.3.3 Advertising of credit 571
18.3.4 Adequacy of protection 572
18.4 Pre-contract protection of the consumer 572
18.4.1 Introduction 572
18.4.2 The Consumer Credit (Agreements)
Regulations 1983 573
18.4.3 Copies of regulated agreements (ss 62 and 63
of the CCA 1974) 574
18.5 Protecting the debtor after the contract is made 575
18.5.1 Extortionate credit bargains (ss 137–40
of the CCA 1974) 575
18.5.2 Disclosure of information 576
18.5.3 The debtor’s right to cancel the agreement 576
18.5.4 The debtor’s right to terminate the agreement 578
18.5.5 Creditor’s right of termination 579
18.5.6 Protected goods 580
18.5.7 Action to recover possession of protected goods 581
18.5.8 Early settlement of debts 582
18.6 Defective goods acquired on credit terms 582
18.7 The dealer/supplier as agent of the creditor—a summary 583
Summary of Chapter 18 585

Further Reading 587
Index 593 

Note: Includes references and index.