Chapter 1

There are no questions for this chapter.

Chapter 2

On-the-spot question

Newbury Ltd and Duxford Ltd enter into a contract, whereby Newbury Ltd agrees to sell 4,000 sofas to Duxford Ltd in return for £1,200,000. When the sofas are delivered to Duxford Ltd's premise they are found to be water damaged. Duxford Ltd wishes to sue Newbury Ltd for breach of contract.

Sonya works for Bill who is a sole trader. Last Monday Bill summoned Sonya to his office and said that she was no longer needed and that as of that afternoon she no longer worked for him. Sonya was given no notice that was she was going to be dismissed and argues that the dismissal was for an unfair reason.

The Morning Headline is a national newspaper and its website has been shut down as a result of Parliament enacting the Press Regulation Act (fictitious), which was introduced in order to control the press. The Morning Headline is alleging that its right under Article 10 of the ECHR to freedom of expression have been violated. Last week the Supreme Court has ruled that the Press Regulation Act (fictitious) cannot be challenged as it is an Act of Parliament. The Morning Headline wishes to appeal.

Which of the courts which we have discussed above would hear the claims brought by Duxford Ltd, Sonya and The Morning Headline?

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Answer

Duxford Ltd would sue Newbury Ltd for breach of contract. It is likely that the claim would be heard in the High Court.

Sonya would bring a claim for unfair dismissal and wrongful dismissal to the Employment Tribunal. Alternatively, a claim for wrongful dismissal could be brought in either the County Court or High Court.

The Morning Headline could submit an application at the European Court of Human Rights that is based in Strasbourg.

Chapter 3

On-the-spot question

Do you think that the decision in Carlill v Carbolic Smoke Ball Co [1893] is correct? What would have happened if 50,000 customers had accepted the offer by using the product and all caught influenza?

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Answer

You will need to read the Court of Appeal's decision in Carlill v Carbolic Smoke Ball Co [1893]. A good starting point which exploring whether a decision was rightly decided is to look at the arguments presented by counsel. The key issues to explore here would be the issue of whether the advert was capable of amounting to a unilateral offer, rather than just being an invitation to treat. Counsel for the Carbolic Smoke Ball Co argued that the latter. The point about the 50,000 customers is irrelevant, as if it was a legally binding offer that had been accepted by the 50,000 customers then they could each demand contractual performance, i.e. the cash payment.

On-the-spot question

Do you prefer the approach of the Court of Appeal or the House of Lords in Gibson v Manchester City Council?

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Answer

You will need to have read both the Court of Appeal's and the House of Lord's decision in Gibson v Manchester City Council. You would need to outline the different approaches taken by both courts in determining whether or not a valid offer had been made. You would need to consider Lord Denning's approach in not looking for a complete offer to be made before it was capable of being accepted, and then contrast this with the orthodox approach adopted by the House of Lords.

On-the-spot question

Sarah, Snow Ltd's managing director, has the authority to enter contracts on behalf of Snow Ltd. Sarah is at a trade conference and has just delivered a paper on modern business practice, as it went well she decides to drink several large bottles of wine to celebrate. After finishing the wine Sarah bumps into the manager of a timber supplier who has a trade stand at the conference, and she agrees to purchase £189,000 worth of timber on Snow Ltd's behalf.

Discuss whether there is a legally binding contract.

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Answer

The issue here is whether the contract for £189,000 worth of timber is legally enforceable. The starting point is that for an agreement to be legally enforceable the parties to the contract must have the capacity to contract. As Sarah is intoxicated she lacks the capacity to contract. However, you would need to look at the Sale of Goods Act 1979 as it deals with contracts entered into by those who lack the necessary capacity.

On-the-spot question

Snow Ltd requires two tons of roof tiles for use on their 146 current loft extensions. Kennington Ltd has a contract with Snow Ltd to supply the tiles and informs Snow Ltd that unless they agree to enter into a contract to buy another two tons of roof tiles, then Kennington Ltd may be unable to fulfil the current contract. Snow Ltd reluctantly enters into the additional contract as they will be unable to find an alternative supplier to meet their existing customer deadlines.

Discuss.

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Answer

This question concerns duress. The issue is whether Snow Ltd can argue it had entered into the contract as a result of illegitimate economic duress. Kennington Ltd have indicated that they will not perform their contractual obligations if Snow Ltd do not enter into another contract. It is important to note that businesses often try to negotiate from a position of strength and therefore will wish to exploit the other party's weaknesses. Here the lack of an alternative supplier is a clear weakness and one that Kennington Ltd is keen to exploit. Consequently, the court must distinguish between legitimate commercial pressure and economic duress. A clear threat might be seen as economic duress. Snow Ltd would need to establish that there was illegitimate pressure, the implied threat, that they had no choice but to enter into he contract, and this pressure was why they contracted with Kennington Ltd.

On-the-spot question

Snow Ltd has purchased a brand new lorry from Auto Lorry Ltd. The parties have verbally agreed that:

• The lorry is three years old.
• The lorry has only done 25,000 miles.
• The terms implied by the Sale of Goods Act 1979 do not apply to this contract.

How would you describe these terms?

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Answer

• The lorry is three years old – is an express term of the contract.
• The lorry has only done 25,000 miles – is an express term of the contract.
• The terms implied by the Sale of Goods Act 1979 do not apply to this contract – this is an exclusion clause which seeks to exclude liability in the event that the implied terms (i.e. s.14(2) which states that the goods must be of satisfactory quality) are breached.

You should also consider whether the terms should have been written down as it is difficult to prove the contents of a particular term in the event that there is a contractual dispute.

On-the-spot question

London has won the bid to host a big sporting competition which will take place next July. Amanda lives opposite the main venue and wishes to have a loft extension so that she can invite her friends and family to watch some of the events from her house. Based on the plans for the venue she should be able to have a good view of many of the sporting events. Amanda contacts Snow Ltd and arranges for a sales representative to visit her house.  Amanda informs the sale representative that she wishes to have a loft extension built in time for next January. Work will commence in two months time. Seven weeks later Amanda finds out that London will no longer be hosting the big sport competition and contacts Snow Ltd to inform them that based on her knowledge of contract law the contract is now frustrated.

Is Amanda correct? Has the contract been discharged due to frustration?

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Answer

This question concerns the discharge of the contract between Amanda and Snow Ltd. The issue is whether the contract has been discharged by way of frustration. If the contract has not been discharged then the parties remain liable to perform their contractual duties.  A contract will only be frustrated where it is no longer possible to legal to perform the contract, or the contract has become something radically different. Amanda will argue that the subject matter of the contract, the big sporting competition, has been frustrated because the purpose of the contract no longer exists. Amanda would need to establish that the contract was frustrated due to the fact that purpose of the contract no longer existed. You would need to consider the decisions in Krell v Henry [1903] 2 K.B. 740 and Co v Hutton [1903] 2 K.B. 683 to determine whether the cancellation of the sporting competition would frustrate the contract. At no point has Amanda informed Snow Ltd that the loft extension was connected to the sporting competition, therefore the contract has not been frustrated.

Chapter 4

On-the-spot question

KAE and GML’s contract states that the choice of law and choice of jurisdiction will be the United Kingdom. The price of the grinding machine is omitted and instead the parties have inserted a clause, which states that ‘the price of each unit will be determined by the parties at a future date’. GML agree to purchase a number of grinding machines on a monthly basis, over a period of time to be determined at a later date.

Advise KAE as to whether there are any issues with the above contract.

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Answer

There are a number of issues in this question:

• The choice of law and choice of jurisdiction clause is incorrect. There is no such jurisdiction as the United Kingdom. It should be England and Wales. The courts will interpret this clause as referring to England and Wales.
• The price of goods is uncertain, as it has not been agreed in the contract, as the parties will agree the price at a later date. Therefore the contract could be void for uncertainty.
• Equally the obligation to purchase grinding machines is uncertain and is likely to be void.

On-the-spot question

Lucy manufactures hand made ceramic plates and contracts to sell 100 blue plates to Stuart on 1st June in return for an upfront payment of £1,300. The parties agree that the property in the goods will pass at the time of contract. As Stuart is away on holiday he agrees to collect the goods in two weeks time on 14th June. Between 3rd -9th June Lucy makes 300 blue plates and places 100 of the plates in a box marked ‘Stuart’. Lucy seals the box and places it in her shed. On 13th June Lucy is declared bankrupt.

Advise Stuart as to whether he owns the 100 plates?

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Answer

The issue here relates to the passing of property and risk in the ceramic plates:

• At the time that Stuart and Lucy enter into the contract the goods (the ceramic plates) are unascertained.  This means that the title to the goods remains with Lucy until the goods become ascertained.  Therefore the provision in the contract that property in the goods will pass at the time of contract is ineffective, as the goods are unascertained. This is the case because Stuart does not know exactly which ceramic plates will be delivered by Lucy, as Lucy could give any 100 blue plates which match the contractual description.
• This means that Lucy still owns the plates and she still has risk in the goods. So if anything happens to the 100 plates whilst in Lucy’s possession it will be Lucy who will be responsible, and Stuart will not have to pay for the plates.
• Property, i.e. ownership, in the goods will only pass to Stuart once the goods become ascertained. This will occur when the good are unconditionally appropriated to the contract and Stuart knows exactly what 100 plates he will receive from Lucy.
• The question to determine is whether Lucy by placing the 100 plates in a box marked ‘Stuart’ in her shed will amount to an unconditional appropriation of the goods to the contract. This will not amount to an unconditional appropriation and the goods still belong to Lucy.
• When Lucy is declared bankrupt her trustee in bankruptcy will use all the goods that belong to Lucy to discharge her debts. Stuart has already paid for the goods and therefore he will not be able to recover the actual goods, rather he will be an unsecured creditor and will only be able to try and recover his purchase price. It is doubtful that he will recover the money which he has paid to Lucy.

Chapter 5

On-the-spot question

TSH Ltd holds an open day at its Bristol showroom to attract new clients. Damian owns House of Greeting Cards in Bath and asks one of TSH Ltd's directors why he should choose TSH Ltd to renovate his shop.

Damian is informed that TSH Ltd has a 100 percent customer satisfaction rate.  Based on the information that Damian has told him about his shop, the director informs Damian that the work should take no more than two weeks to complete.

Damian is very impressed and enters into a contract with TSH Ltd. Later on he is annoyed to discover that the work took two months to complete and cost him an additional six weeks in lost sales. He has also discovered that TSH Ltd only has a fifty percent customer satisfaction rate.

Advise Damian as to whether he can recover his loss of profits?

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Answer

This questions concerns liability for negligent misstatement. Students would be expected to:

• Explain that as a general rule there is no liability for causing pure economic loss, as opposed to consequential economic loss.
• Outline who Damian could sue, which would be TSH Ltd as the director as acting as an agent of the company. The director could also be personally liable.
• Outline that there could be potential liability under the tort of deceit, however the burden of proof would be on Damian to establish that there was deceit. There are advantages in suing under the tort of deceit, namely the damages awarded.
• Outline the ability to recover for pure economic loss under the tort of negligent misstatement and criteria needed to be satisfied in order for Damian to be successful. The burden of proof would be on Damian.

On-the-spot question

TSH Ltd is fitting out a shop in central London. One of TSH Ltd's labourers is carrying back coffees for his colleagues from a local café. As he is too busy concentrating on not spilling the coffee, he walks into TSH Ltd's scaffolding tower. The scaffolding tower collapses and blocks the road. Unfortunately, it damages three cars and shatters the windows of an upmarket tailoring shop, which causes shards of glass to fly everywhere and causes minor cuts to two employees.  The police arrive five minutes later and decide to close the road for five hours. Upon being informed TSH Ltd's managing director is grateful that the company took out insurance to cover this type of event. He immediately telephones the insurers and is shocked to be informed that the insurance policy he took out contains a number of exemptions and may prove insufficient. He is furious as he read an article in Shop Fitters Weekly that listed the best comprehensive insurance policies available.

Discuss the above scenario in light of the liability that may arise in the tort of negligence

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Answer

This question concerns liability for negligence and recovering for economic loss. Students would be expected to:

• Discuss the vicarious liability of TSH Ltd as a result of its employee's negligence.
• Anyone who has had property damaged can recover their losses, including any economic losses that are consequential to the property damage and personal injury, i.e. repairing the broken window, the loss of profit on any damaged stock and loss of earnings for those injured as a result of the employee's negligence.
• Discuss that as a general rule pure economic losses cannot be recovered. Therefore, the shops cannot recover their lost profits for the period in which the ship is closed.
• The issue regarding the advice in Shop Fitters Weekly is concerned with the ability to recover for pure economic loss. Students would be expected to discuss the tort of negligent misstatement and by applying the requirements for liability to establish, to determine why the TSH Ltd would not be able to recover damages from Shop Fitters Weekly.

On-the-spot question

TSH Ltd use special clamps to attach its scaffold to the buildings it is working on. The clamps are over fifteen years old and Fatima the area manager is warned that there could be a risk that as the clamps are old that they might damage the building to which they are attached exterior. Fatima does not think that the possible risk justifies the cost of replacing the clamps. Unfortunately, one afternoon Fatima is contacted by a colleague, who informs her that the clamps have caused the entire façade of a building to collapse.

Discuss TSH Ltd's possibility liability in the tort of negligence

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Answer

This question concerns TSH Ltd's liability, via its agent Fatima, in negligence. You would be expected to discuss whether TSH Ltd owed a duty of care to the buildings owner (Donoghue v Stevenson and Caparo v Dickman) and whether the damage was foreseeable and not too remote to be within the contemplation of Fatima when she is warned about the clamps.

On-the-spot question

Do you prefer the approach of Lord Denning or the majority in Miller v Jackson as to whether the defendant was liable for nuisance?

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Answer

You would need to make sure that you read the Court of Appeal's judgment in Miller v Jackson [1977] EWCA Civ 6. The judgment is available on the British and Irish Legal Information Institute's website (BAILII): http://www.bailii.org/ew/cases/EWCA/Civ/1977/6.html.

The judges will give reasons for why they reached the decision that they did. You will be expected to have understood these and to be able to say whether you agree or disagree, and why.

Lord Denning MR's approach was based on the importance of cricket to the community and its social utility, which should not be harmed just because the defendant had decided to move next door and regarded the matches that were held on the pitch to be a nuisance. The majority disagreed with Lord Denning MR.

In your notes you might find it useful to create a table to capture all the key information:

1. What was the case about?
2. What decision did the court reach?
3. Did all the judges agree and if not, why not?
4. Which judge do I agree with, and why?
5. What has been the subsequent judicial and academic treatment of this decision?

On-the-spot question

TSH Ltd is looking to recruit a new managing director and its board of directors decides to approach Ike Smith, the managing director of a rival company and ask him if he would join TSH Ltd as its new managing director. Ike informs the board of directors that contractually he must give his employer at least six month's notice and therefore will not be able to join TSH Ltd before the six months have expired. The board asks him to join TSH Ltd with immediate effect and to avoid giving any notice. Ike agrees and picks up his work laptop and leaves to join TSH Ltd. Once at TSH Ltd's premises he opens the laptop and sends an email to his employer saying that he is resigning with immediate effect. Ike then starts working for TSH Ltd.

Discuss whether either TSH Ltd or Ike Smith is liable in tort?

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Answer

This question concerns a number of potential torts. Potentially, TSH Ltd could be liable for inducing a breach of contract, if they ask Ike Smith to breach his contract with his old employer. Ike Smith would be liable for conversion, if he is using his old employer's property and does not return it. The contract of employment would contain a provision relating to the obligation to return the employer's property.

Chapter 6

On-the-spot question

Marcus works as the manager of Auto Trends, a car dealership, in London. He has recently been appointed as ‘regional sales director’ in recognition of his many years of service. Marcus has been informed by Auto Trends that his title is purely honorary and that he should still refer any issues such as discounts and credit facilities to head office.

On Monday, Roshan visits Auto Trends and wishes to purchase a car. He enquires about a discount and Marcus agrees to give him a 20% discount. Roshan thinks that this is a very large discount, but having seen Marcus’s name badge he proceeds to purchase the car.

On Tuesday, Amel visits Auto Trends and Marcus offers her a 10% discount, he is wearing his name badge. Marcus heads back into his office and when he returns Amel agrees to purchase the car. On her way out Amel hears Marcus’ colleagues discussing how he needs to have every decision approved by head office. Amel goes back into the showroom and Marcus informs her that he has contacted head office and they have approved the discount.

Discuss whether Marcus has authority

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Answer

In order to answer this question you would need to consider the following issues:

1. Does Marcus have express actual authority? Clearly, Auto Trends has not given Marcus the express actual authority to offer any discount. This is event by the express prohibition.
2. Does Marcus have implied actual authority? If there has been an express prohibition on the authority that an agent can have, then the agent will not be held to have the implied actual authority to offer the discount.
3. Does Marcus have apparent authority? This will be the type of authority that both Amel and Roshan will attempt to argue that is present on the facts.
4. You would need to consider whether the following requirements are satisfied:
5. has there been a representation,
6. that Marcus has the authority to offer the discount, and
7. has Amel and Rhonson relied on the representation.
8. Is Auto Trends bound to offer the discount? The answer will depend on whether the three requirements are satisfied. It could be argued that the fact that Rhonson is potentially suspicious about the seize of the discount should have put on constructive notice to the fact that Marcus lacked authority. Arguably, Amel would try and rely on the Court of Appeal's decision in First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] Lloyd's Rep. 194.

On-the-spot question

Considering the comments made by Bingham J in Rhodian River Shipping Co SA could it be said with some certainty, that a third party will be unlikely to rely on Watteau v Fenwick today?

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Answer

You would be expected to outline the differences between the types of authority that exist and how usual authority is used to give rise to implied actual authority and apparent authority. However, usual authority, as a stand-alone type of authority was established in Watteau v Fenwick.  You would need to discuss why apparent authority could not be relied upon, namely due to the fact the principal was undisclosed. You would need to outline the judicial and academic criticisms of usual authority.  You would need to discuss this and other common law jurisdictions. However, it is important to note that it is still good law.  Therefore you would need to argue why a modern court might be willing to overrule the decision.

On-the-spot question

Alison owns two coffee shops in the centre of Leeds. She wishes to sell one of the coffee shops and is approached by Henry who is a potential purchaser. After the sale is completed Alison discovers that Henry was acting for her former husband, William, who had previously offered to purchase the coffee shop and she had refused to sell it to him.

Advise Alison as to whether she can exclude William from the contract.

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Answer

This question concerns the undisclosed principal. William is undisclosed and has appointed Henry as his agent. Alison will try and argue that William should be excluded from the contract, as she has only intended to contract with Henry. The case law is inconsistent here, and there are a number of cases that could be used to support both sides of the argument. Alison would rely on the decision in Said v Butt [1920] 3 K.B. 497, however, this is a controversial case and has been criticised by academics. William would rely on the decision in Dyster v Randall & Sons [1926] Ch. 932.

On-the-spot question

Given the importance of knowing that a prospective purchaser wishes to purchase the neighbouring property, in order to secure a higher purchase price, could it be argued that the decision in Kelly v Cooper undermines the duties which an agent owes his principal?

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Answer

This question relates to the agent's fiduciaries duties and the importance of the principal having an honest agent. The decision in Kelly v Cooper [1993] AC 205 is controversial as it was held that not all types of agents would owe the same fiduciary duties, and that estate agents, because of the number of different and competing principals who they would work for, were not expected to disclose all relevant important to each principal. The decision has been criticised by some academics as undermining the duties that an agent owes to his principal.

Chapter 7

On-the-spot question

Horace works for Delby Ltd's private tuition department. He works 35 hours a week. His contract states that he is self-employed and responsible for paying his own income tax and national insurance. Horace is required to work Monday to Friday from 9.00am to 5.00pm. His contract permits him to swap his teaching with colleagues and lecturers from other institutions, so long as they are on the list of Delby Ltd's approved tutors.

Would Horace be considered to be an employee?

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Answer

This question is concerned with whether Horace is an employee of Delby Ltd. The contract states that he is self-employed. However, the courts will look beyond the wording of the contract and look at the reality of the relationship between the parties. You would need to consider the multiple test that was developed in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 Q.B. 497 and explore whether the requirements are met. You would also need to consider the guidance given in Market Investigations Ltd v Minister of Social Security [1969] 2 Q.B. 173 to help determine whether Horace is an employee. It might appear that Horace that is not an employee as he is permitted to not preform his services personally. The question would be whether in reality Horace does this. In any event the more control the employee has over who Horace can substitute to means that he could be regarded as an employee. 

On-the-spot question

Mark works for Delby Ltd as a software developer and wishes to move jobs so that he can work for a competitor. In his contract there is a restrictive covenant which states that he ‘cannot work for a competitor within the first three years of leaving Delby Ltd’s employment anywhere within the United Kingdom’.

Could Delby Ltd rely on the restrictive covenant to prevent Mark from working for its competitor?

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Answer

The issue to determine is whether Delby Ltd could rely on the restrictive covenant to prevent Mark from working for its competitor. A restrictive covenant is prima facie void. In order to be enforceable it must be reasonable. Therefore when drafting such a clause it must be reasonable in terms of duration, geographical scope, nature. A restrictive covenant will only protect a legitimate business interest that requires protection. Delby Ltd would need to establish that there is a legitimate business interest that requires protection. It would also need to show that the duration and geographic scope of the restrictive covenant is also reasonable. It is very likely that three years would be found to be excessive as would the geographic scope of the restrictive covenant.

On-the-spot question

Mick works for Delby Ltd's engineering department and has been working on a design for a new type of door springs. His team has spent two years building and testing the new door springs. During this time Mick has met with Delby Ltd's customers and has discussed their requirements for door springs and how much they would be willing to pay. Mick retires from Delby Ltd and sets up a company manufacturing door springs. He procures a contract to supply one of Delby Ltd's largest customers.

Discuss.

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Answer

This question concerns the duties that an employee owes his employer. Mick is a former employee of Delby Ltd and the issue is what he owes a duty of confidentiality that would prevent him from revealing information and know how that he obtained from Delby Ltd, or from using this information for his own purposes. There is no restrictive covenant here and therefore we would need to look at the implied duty of confidentiality. Looking at the decision in Faccenda Chicken Ltd v Fowler [1986] 3 W.L.R. 288 we can see that there is no genuine trade secret here, rather Mick is just using his general skill and knowhow, as well as contracting with Delby Ltd's customers. It is important to note that the implied duty of confidentiality and fidelity is far more rigorous in protecting the employer's interests during duration of the actual contract of employment.

On-the-spot question

Jasmin works in one of Delby Ltd's showrooms. On Friday whilst Jasmin is talking to customers, her manager, Rita, walks over and berates her for being incompetent. Jasmin is distraught as the customers and her colleagues have all heard what has been said.

Could Jasmin claim that she has been constructively dismiss? Would it matter that Jasmin has recently been looking to move jobs? Could Jasmin wait until she has found another job before accepting the breach?

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Answer

This question concerns whether Jasmin can claim that she has been constructively dismissed by Delby Ltd and potentially sue for wrongful dismissal and unfair dismissal. Jasmin could argue that she has been constructively dismissed, as Rita's behavior would amount to a repudiatory breach of the contract, on the basis on the implied duty of mutual trust and confidence. Jasmin would need to treat this as a repudiatory breach and not wait until she has found another job. Otherwise, Jasmin could be taken as having waived the breach.

On-the-spot question

Sonya has worked at Delby Ltd for 13 years. Sonya is 28 years old and earns £297 per week. Sonya has been unfairly dismissed and she would like to know how much her basic award would be.

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Answer

In order to claim that she is entitled to can unfair dismissal Sonya would need to prove that she is an employee and that she has worked for Delby Ltd for at least two years. The basic award for unfair dismissal is based on the length of time that Sonya has worked for Delby Ltd, her weekly pay and her age. Sonya's weekly pay is £297 and so it would not need to be capped. 

• For every year that the employee worked aged 41 or above she will receive a weeks pay x 1.5. Clearly, she is under 41 and therefore this will not apply.
• For every year that the employee worked aged 22-40 she will receive one weeks pay x 1. Sonya is 28 years old and there has worked for seven years for Delby Ltd when she aged 22 or above. Therefore, the calculation would be £297 x 7 = £2,079.
• For every year that the employee has worked aged 21 or under he will receive her weeks pay x 0.5. Therefore the remaining six years of her employment with Delby Ltd would be calculated at £297 x 6 x 0.5 = £891.

The total basic award would be £2,970.

It is important to note that the total number of years that can be claimed for is 20.

On-the-spot question

Karl works for Delby Ltd as a manager in its showroom. His job requires Karl to work Monday-Friday and be on his feet for much of the day. Unfortunately, Karl is involved in a car accident and his legs are badly injured. The doctors estimate that Karl will be needs to use crutches for the rest of his life. He finds it difficult to stand up for more than fifteen minutes and uses medication to relieve the pain, which helps him to be on his feet for more than thirty minutes at one time. Karl has requested that he is permitted to move departments to work in the telesales team, so that he can work at a desk. Karl has also requested that he can work at home on two days a week as he finds commuting to work to be too tiring. Delby Ltd refuse to permit Karl to move departments as he does not have telesales experience, and refuse his request to work from home due to the costs in providing a laptop. In any event, the company policy prohibits all employees from working at home.

Advise Karl as to whether he can claim that he has been discriminated against.

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Answer

The issue here is whether Delby Ltd has discrimination against Karl on the basis that he is disabled. The Equality Act 2010 protects people from being discriminated against because of a protected characteristic. Disability is a protected characteristic. Karl would be regarded as having a disability and therefore Delby Ltd could be liable if it discriminates against him. Karl could potentially argue that Delby Ltd have indirectly discriminated against him because of the rule that no employee can work. The refusal to agree to his request to work at home, to move departments and to provide a laptop could also amount to discrimination if it is seen as a failure to make reasonable adjustments.

Chapter 8

On-the-spot question

Philippe, Joshua, Sandra and Noor decide to set up a partnership. They decide that the written partnership agreement will be signed on 1st August and on this date they will officially become partners of the firm. In the meantime they all meet up at Joshua's flat and think of ways to make money. Sandra will not receive any share of the profits, but will instead receive a salary of £17,000 a year. On 18th July, Philippe is sent by the others to purchase £40,000 worth of stock from ABC Ltd and plans to use this for the partnership.

Consider the following points:

• On 18th July was the partnership in existence? Or did the partnership only come into existence on 1st August?
• Would Sandra be regarded as a partner if she did not receive a share of the profits?
• What could the partnership be called and what information would need to be disclosed and how would this disclosure be achieved?

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Answer

• On 18th July was the partnership in existence? Or did the partnership only come into existence on 1st August?

As long as they meet the statutory definition of a partnership then they are in a partnership on 18th July. The undertaking of preparatory steps in order to launch a business venture will create a partnership. There is no need for a formal written document.

• Would Sandra be regarded as a partner if she did not receive a share of the profits?

Sandra would still be regarded as a partner, albeit one who is salaried partner.

• What could the partnership be called and what information would need to be disclosed and how would this disclosure be achieved?

There are restrictions on what a partnership could be called. It must not mislead the public into thinking that the partnership his limited liability and is a company. The partners' names would need to be disclosed on all documents. This would be achieved when doing business with new clients.

On-the-spot question

Philippe, Joshua, Sandra and Noor's are in a partnership which provides catering for events. They have agreed that all the partners must approve any contract over £1,000. On Monday, Joshua walks past Mega Kitchen Ltd's showroom and sees an industrial oven on sale for £13,000. This oven runs on solar power and can be used anywhere.  The show room manager explains to Joshua that the oven usually costs £18,000 and if you buy four ovens you get a further discount of 10 per cent. Joshua thinks that the deal is too good to be true and enters into a contract to purchase four ovens at £46,800. The money is due in 14 days time. On Wednesday the invoice arrives at the firm's offices and the other partners are shocked to see what Joshua has done. Sandra telephones Mega Kitchens Ltd to explain, however she is informed that a contract is a contract and that the money is owed. Philippe logs into the business bank online account and sees that the firms has only £3,500 in addition to its assets which are worth £4,000. A quick look on an online auction site reveals that the ovens are worth £2,000 each second-hand.

Philippe, Sandra and Noor are concerned that the firm may have to pay for the ovens and that there are not enough assets to cover the money due. They are aware that Joshua lives with his parents and has £500 in savings.

Advise Philippe, Sandra and Noor about their potential liabilities with respect to the money owed to Mega Kitchen Ltd.

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Answer

Here Joshua does not have the express authority to contract with Mega Kitchen's Ltd. The issue is whether the partnership is bound to honour the contract and therefore whether the other partners are liable on the contract. It is likely that of Mega Kitchen Ltd's had reason to believe that Joshua was contract on behalf of the partnership and was acting inside the apparent scope of his authority, then he will have the apparent authority to bind the firm. The other partners will be personally liable as the partnership does not have enough funds to pay for the ovens. The other partners can sue Joshua, however he does not have enough assets to make this worthwhile. This question demonstrates the problem with entering into a business as a partnership as there is the potential for unlimited personal liability.

On-the-spot question

Philippe, Joshua, Sandra and Noor decide to dissolve the partnership. They each subscribed £3,000 capital to the partnership and subsequently Sandra lent the partnership £5,000. The partnership has the following assets, £5,000 in the bank account and stock in Noor's garage that could be resold for around £6,000. There is also £5,700 which is owed to various creditors.

How would s.44 PA 1890 apply here?

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Answer

This question concerns what will happen to the partnership' assets upon the termination of the partnership. Section 44 of the Partnership Act 1890 sets the order in which the assets will be paid out and to whom. This will be:

• The creditors;
• The partners' initial subscription;
• Any money that the partners have lent to the partnership;
• The remaining assets will be distributed in accordance to the partnership agreement, or if this is silent, then in accordance to the PA 1890.

Chapter 9

On-the-spot question

Jennifer and Noor wish to establish a business selling tablet cases and accessories. They would like to know how they would establish a private company limited by shares and what documents would be required. Last week a supplier approached Jennifer and Noor and offered to sell them 4,000 tablet cases.

Would you advise Jennifer and Noor to enter into the contract either before or after the company was incorporated?

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Answer

Jennifer and Noor should be advised that they would be personally liable on any contract that they enter into until the company is incorporated. They will remain personally liable on these contracts, not withstanding the fact that the company has ben incorporated at a later date. This is because Jennifer and Noor would be held to be the promoters of the company. You would advise them that in order to avoid personal liability, that any contracts should only be entered into once the company has been incorporated.

It is relatively straightforward to establish a private company limited by shares. Completing the required documentation at Companies House will is all that is required to set up a company and this can be done online. The documents that are required are the INO1 form, the Memorandum of association and the Articles of association. In addition, they would need to be a registration fee.

On-the-spot question

Donald Smith, a director of a new company, has approached Lucy and asked her to supply his company with £13,000 worth of stock. Donald stated that the company would pay Lucy 60 days after the contract was entered into. Lucy wants the business, but she is concerned about the company's financial health. She is sure that she has met Donald previously when he worked for another company and she is suspicious as to why he is working for this new company.

Advise Lucy on how she can use the register at Companies House to her advantage.

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Answer

Lucy would use the register at Companies House to search against Donald Smith's name to see what other companies in which he has previously acted as a director. Lucy would need to pay a fee to carry out such a search.

On-the-spot question

Karl and Tom are the only shareholders in Restore Ur Car Ltd. They both own 50 shares at £2 each and have full paid up the full amount. Karl is a multi-millionaire and Tom owns a castle in Kent. Restore Ur Car Ltd's assets are worth £23,000 and it has liabilities of £560,000.

Discuss Karl and Tom's liability as shareholders.

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Answer

Shareholders are only liable to the extent of their shareholding in a private company limited by shares. Karl and Tom beyond their shareholding will have no personal liability should the company be unable to meet its liabilities.

On-the-spot question

After reading this section of the chapter please consider the following questions:

• If RM Ltd was to become insolvent what would Raja, Mary and Lucas liabilities be?
• If SC Ltd was to become insolvent would the court hold that as the parent company RM Ltd would be liable for SC Ltd's debts?

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Answer

• If RM Ltd was to become insolvent what would Raja, Mary and Lucas liabilities be?

Raja and Mary are shareholders and apart from their shareholding they would have no personal liability. Raja, Mary and Lucas are directors of RM Ltd and will only be liable to the company if they are in breach of the duties which they owe to the company as directors. Directors will not be personally liable for the debts of the company.

• If SC Ltd was to become insolvent would the court hold that as the parent company RM Ltd would be liable for SC Ltd's debts?

SC Ltd has a separate legal personality and therefore the courts would not hold RM Ltd to be liable for SC Ltd's debts. In certain circumstances the courts may be willing to piece the veil of incorporation.

On-the-spot question

Do you think that the decisions in Jones v Lipman and Gilford Motor Co Ltd v Horne were correctly decided?

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Answer

This question concerns whether the courts were right in Jones v Lipman and Gilford Motor Co Ltd v Horne to treat the companies are being essentially shams and making the companies liable for the actions of the shareholder/director. Although the phrase was not used on both decisions, these are examples of the courts lifting the veil of incorporation. To see the current state of the law and recent judicial consideration of these decisions, you should refer to the Supreme Court's decision in Petrodel Resources Ltd v Prest [2013] UKSC 34; [2013] 2 A.C. 415.

On-the-spot question

Granny Mavis' two grandsons own New Company Ltd. Every evening Granny Mavis listens to her grandsons discussing business matters and she frequently offers her advice on what they should do. The grandsons feel obliged to follow their grandmother's advice as they do not want to upset her.

Is Granny Mavis a director?

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Answer

This question is concerned with whether Granny Mavis is a director of New Company Ltd.  While Granny Mavis has been appointed as a director, it might be argued that she is a shadow director. A shadow director is someone who has not been appointed to the board but who seeks to control the management of the company from behind the scenes. Section 251 of the Companies Act 2006 defines a shadow director as ‘a person with whose directions or instructions the directors of the company are accustomed to act’. The issue is whether she is seeking to control the company. It is doubtful that offering advice would amount to seeking to control the company.

On-the-spot question

Harvey is a director in software development company and has worked in the industry for fifteen years and is highly experienced. Mike has recently joined the company's board after spending three years working in the company's human resources department. Harvey and Mike are responsible for overseeing the development and sale of a software product. Unfortunately, things do not go well and the company is now suing both Harvey and Mike for failing to carry out their duties with reasonable care, skill and diligence.

Would Mike necessarily owe a lower duty of care than Harvey?

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Answer

This question is concern with s.174 of the Companies Act 2006 which states that:

‘(1) A director of a company must exercise reasonable care, skill and diligence.
(2) This means the care, skill and diligence that would be exercised by a reasonably diligent person with—
(a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company, and
(b) the general knowledge, skill and experience that the director has’.

Harvey clearly has more experience that Mike here. Subsection 2(a) establishes an objective standard and this would apply to both directors and would apply to the reasonable director in this type of company. However, ss.2(b) establishes a subject standard which in determining whether there has been a breach would take into account ‘the general knowledge, skill and experience that the director has’. This provision would be highly relevant when distinguishing between the different level of culpability here.

On-the-spot question

Do you think that it is right that a director should be liable under s.175 CA 2006 where she takes advantage of an opportunity which the company would never have chosen to exploit? Would it make a difference if the opportunity was in a area unrelated to the area that the company did not operate in?

When answering this question you should consider who in a company decides whether to exploit an opportunity.

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Answer

This question is concerned with the ability of directors to exploit corporate opportunities. Firstly, the question asks you to determine who makes decisions in a company, and the answer is that it is the directors. Secondly, you are asked to consider s.175 CA 2006 and you should contrast this section with the old law and state that s.175 actually offers a defence, based on whether it is reasonably likely to give to a conflict. This is an improvement on the old case law. You would need to discuss why the law is strict and the important policy reasons for preventing a director from taking advantage of their position. Finally, it would make a difference, as an unrelated area would not create a conflict of interest. However, it is important to note that it might depend on the type of company that the director works for, as it is not unknown for companies to expand into different areas.