Question:

　　(a) In relation to the English legal system, explain the meaning of:

　　(i) criminal law;

　　(ii) civil law.

　　(b) Explain the hierarchy of courts dealing with criminal law.

　　Answer:

　　(a) (i) Criminal law relates to conduct which the State considers with disapproval and which it seeks to control. Criminal law involves the enforcement of particular forms of behaviour, and the State, as the representative of society, acts positively to ensure compliance. Thus, criminal cases are brought by the State in the name of the Crown and cases are reported in the form of Regina v … (Regina is simply Latin for ‘queen’ and case references are usually abbreviated to R v ...). In criminal law the prosecutor prosecutes a defendant (or ‘the accused’) and is required to prove that the defendant is guilty beyond reasonable doubt. The Companies Act (CA) 006 sets out many potential criminal offences, which may be committed by either the company itself, or its officers or other individuals. An example of this which may be cited is s.993, which relates to the criminal offence of fraudulent trading and applies to any person, not just directors or members, who is knowingly a party to the carrying on of a business with the intent to defraud creditors. The potential penalty on conviction is imprisonment for a maximum period of 10 years, or a fine or both.

　　(ii) Civil law, on the other hand, is a form of private law and involves the relationships between individual citizens. It is the legal mechanism through which individuals can assert claims against others and have those rights adjudicated and enforced. The purpose of civil law is to settle disputes between individuals and to provide remedies; it is not concerned with punishment as such. The role of the State in relation to civil law is to establish the general framework of legal rules and to provide the legal institutions to operate those rights, but the activation of the civil law is strictly a matter for the individuals concerned.

　　Contract, tort and property law are generally aspects of civil law.

　　Civil cases are referred to by the names of the parties involved in the dispute, for example, Smith v Jones. In civil law, a claimant sues (or ‘brings a claim against’) a defendant and the degree of proof is on the balance of probabilities. In relation to the CA 006, the duties owed to companies by directors set out in ss.171–177 may be cited as examples of civil liability, and directors in breach are liable to recompense the company for the consequences of their failure to comply with those duties, as is set out in s.178.

　　In distinguishing between criminal and civil actions, it has to be remembered that the same event may give rise to both. For example, where the driver of a car injures someone through their reckless driving, they will be liable to be prosecuted under the Road Traffic legislation, but at the same time, they will also be responsible to the injured party in the civil law relating to the tort of negligence. Similarly, a director may fall foul of both the criminal regulation of fraudulent trading (s.993 CA 006) as well as breaching their duty to the company under one of the provisions of ss.171–177 CA 006.

　　(b) The essential criminal trial courts are the magistrates’ courts and Crown Courts. In serious offences, known as indictable offences, the defendant is tried by a judge and jury in a Crown Court. For less serious offences, known as summary offences, the defendant is tried by magistrates; and for ‘either way’ offences, the defendant can be tried by magistrates if they agree but the defendant may elect for jury trial.

　　Criminal appeals from the magistrates go to the Crown Court or to the Queen’s Bench Division (QBD) Divisional Court ‘by way of case stated’ on a point of law or that the magistrates went beyond their proper powers.

　　Further appeal is to the Court of Appeal (Criminal Division) and then to the Supreme Court on a significant point of law.

　　Question：

　　In relation to the law of contract,explain the rules relating to：

　　(a)acceptance of an offer;

　　(b)revocation of an offer.

　　Answer：

　　This question requires an explanation of the rules relating to the acceptance and revocation of offers in contract law.

　　(a)Acceptance is necessary for the formation of a contract. Once the offeree has accepted the terms offered, a contract comes into effect. Both parties are bound： the offeror can no longer withdraw their offer, nor can the offeree withdraw their acceptance. The rules relating to acceptance are：

　　(i)Acceptance must correspond with the terms of the offer. Thus, the offeree must not seek to introduce new contractual terms into their acceptance (Neale v Merrett (1930)).

　　(ii)A counter-offer does not constitute acceptance (Hyde v Wrench (1840)). Analogously, a conditional acceptance cannot create a contractual relationship (Winn v Bull (1877)).

　　(iii)Acceptance may be in the form of express words, either oral or written. Alternatively, acceptance may be implied from conduct (Brogden v Metropolitan Railway Co (1877)).

　　(iv)Generally, acceptance must be communicated to the offeror. Consequently, silence cannot amount to acceptance (Felthouse v Bindley (1863)).

　　(v)Communication of acceptance is not necessary, however, where the offeror has waived the right to receive communication. Thus in unilateral contracts, such as Carlill v Carbolic Smoke Ball Co (1893), acceptance occurred when the offeree performed the required act. Thus, in the Carlill case, Mrs Carlill did not have to inform the Smoke Ball Co that she had used their treatment.

　　(vi)Where acceptance is communicated through the postal service, then it is complete as soon as the letter, properly addressed and stamped, is posted. The contract is concluded even if the letter subsequently fails to reach the offeror(Adams v Lindsell (1818)). However, the postal rule will only apply where it is in the contemplation of the parties that the post will be used as the means of acceptance. If the parties have negotiated either face to face, in a shop, for example, or over the telephone, then it might not be reasonable for the offeree to use the post as a means of communicating their acceptance and they would not gain the benefit of the postal rule.

　　The postal rule applies equally to telegrams (Byrne v Van Tienhoven (1880)). It does not apply, however, when means of instantaneous communication are used (Entores v Miles Far East Corp(1955)).

　　In order to expressly exclude the operation of the postal rule, the offeror can insist that acceptance is only to be effective on receipt (Holwell Securities v Hughes(1974)). The offeror can also require that acceptance be communicated in a particular manner. Where the offeror does not insist that acceptance can only be made in the stated manner, then acceptance is effective if it is communicated in a way no less advantageous to the offeror (Yates Building Co v J Pulleyn& Sons (1975)).

　　(b)Revocation is the technical term for the cancellation of an offer and occurs when the offeror withdraws their offer. The rules relating to revocation are：

　　(i)An offer may be revoked at any time before acceptance. However, once revocation has occurred, it is no longer open to the offeree to accept the original offer (Routledge v Grant (1828)).

　　(ii)Revocation is not effective until it is actually received by the offeree. This means that the offeror must make sure that the offeree is made aware of the withdrawal of the offer, otherwise it might still be open to the offeree to accept the offer(Byrne v Tienhoven (1880)).

　　(iii)Communication of revocation may be made through a reliable third party. Where the offeree finds out about the withdrawal of the offer from a reliable third party, the revocation is effective and the offeree can no longer seek to accept the original offer (Dickinson v Dodds (1876)).

　　(iv)A promise to keep an offer open is only binding where there is a separate contract to that effect. Such an agreement is known as an option contract, and it must be supported by separate consideration for the promise to keep the offer open.

　　(v)In relation to unilateral contracts, i.e. a contract where one party promises something in return for some action on the part of another party, revocation is not permissible once the offeree has started performing the task requested (Errington v Errington & Woods (1952)).

　　Question:

　　In relation to the TORT OF NEGLIGENCE, explain:

　　(a)the standard of care owed by one person to another;

　　(b)remoteness of damage.

　　Answer:

　　(a)The law does not require unreasonable steps to be taken to avoid breaching a duty of care. In legal terms, a breach of duty of care occurs if the defendant fails:

　　'…… to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs, would do; or doing something which a prudent and reasonable man would not do.' (Blyth v BirminghamWaterworks Co (1856))

　　Thus the fact that the defendant has acted less skilfully than the reasonable person would expect will usually result in a breach being established. This is the case even where the defendant is inexperienced in their particular trade or activity. For example, a learner driver must drive in the manner of a driver of skill, experience and care (Nettleship v Weston (1971)). However, the standard of care expected from a child may be lower than that of an adult (Mullin v Richards (1998)).

　　Clearly the degree, or standard, of care to be exercised by such a reasonable person will vary depending on circumstances, but the following factors will be taken into consideration in determining the issue:

　　(i)The seriousness of the risk

　　The degree of care must be balanced against the degree of risk involved if the defendant fails in their duty. It follows, therefore, that the greater the risk of injury or the more likely it is to occur, the more the defendant will have to do to fulfil their duty. The degree of care to be exercised by the defendant may be increased if the claimant is very young, old or less able bodied in some way. The rule is that 'you must take your victim as you find him' (this is known as the egg-shell skull rule).

　　In Haley v London Electricity Board (1965) the defendants, in order to carry out repairs, had made a hole in the pavement. The precautions taken by the Electricity Board were sufficient to safeguard a sighted person, but Haley, who was blind, fell into the hole, striking his head on the pavement, and became deaf as a consequence. It was held that the Electricity Board was in breach of its duty of care to pedestrians. It had failed to ensure that the excavation was safe for all pedestrians, not just sighted persons. It was clearly not reasonably safe for blind persons, yet it was foreseeable that they might use the pavement.

　　The degree of risk has to be balanced against the social utility and importance of the defendant's activity. For example, in Watt v Hertfordshire CC (1954), the injury sustained by the plaintiff, a fireman, whilst getting to an emergency situation, was not accepted as being the result of a breach of duty of care as, in the circumstances, time was not available to take the measures which would have removed the risk.

　　(ii)Cost and practicability

　　Any foreseeable risk has to be balanced against the measures necessary to eliminate it. If the cost of these measures far outweighs the risk, the defendant will probably not be in breach of duty for failing to carry out those measures (Latimer v AEC Ltd (1952)).

　　(iii)Skilled persons

　　Individuals who hold themselves out as having particular skills are not judged against the standard of the reasonable person, but the reasonable person possessing the same professional skill as they purport to have (Roe v Minister of Health (1954)).

　　(b)The position in negligence is that the person ultimately liable in damages is only responsible to the extent that the loss sustained was considered not to be too remote. The test for remoteness was established inThe Wagon Mound (No 1) (1961).

　　The defendants negligently allowed furnace oil to spill from a ship into Sydney harbour, which subsequently caused a fire, which spread to, and damaged, the plaintiff's wharf. Although the defendants were held to be in breach of their duty of care, they were only liable for the damage caused to the wharf and slipway through the fouling of the oil. They were not liable for the damage caused by fire because damage by fire was at that time unforeseeable (the oil had a high ignition point and it could not be foreseen that it would ignite on water).

　　The test of reasonable foresight arising out of The Wagon Mound clearly takes into account such things as scientific knowledge at the time of the negligent act. The question to be asked in determining the extent of liability is, 'is the damage of such a kind as the reasonable [person] should have foreseen?' This does not mean that the defendant should have foreseen precisely the sequence or nature of the events.

　　This is illustrated in the case of Hughes v Lord Advocate (1963), where employees of the Post Office, who were working down a manhole, left it without a cover but with a tent over it and lamps around it. A child picked up a lamp and went into the tent. He tripped over the lamp, knocking it into the hole. An explosion occurred and the child was burned. The risk of the child being burned by the lamp was foreseeable. However, the vaporisation of the paraffin in the lamp and its ignition were not foreseeable. It was held that the defendants were liable for the injury to the plaintiff. It was foreseeable that the child might be burned and it was immaterial that neither the extent of his injury nor the precise chain of events leading to it was foreseeable.

　　Question:

　　In the context of payment for shares issued by a company, explain the meaning and legal effect of the following:

　　(a)capital maintenance;

　　(b)issuing shares at a premium;

　　(c)issuing shares at a discount.

　　Answer:

　　(a)Shareholders in limited liability companies enjoy the benefit of limited liability and usually cannot be required to pay more than the value of the shares they take in their company. However, that privilege is only extended to them on the basis that they fully subscribe to the company‘s capital. In turn, that capital is seen as a fund against which creditors can claim in the event of a dispute. Capital maintenance refers to the way in which the capital fund of limited liability companies can be used and, most essentially, reduced. The fundamental rule is that payments may not be improperly made out of capital to the detriment of the company‘s creditors. To that end, company law lays out rules as to what may be considered proper payment from capital and, in particular, establishes clear rules relating to the payment of dividends and the ways in which capital can be reduced.

　　(b)It is possible, and not at all uncommon, for a company to require prospective subscribers to pay more than the nominal value of the shares they subscribe for. This is especially the case when the market value of the existing shares are trading at above the nominal value. In such circumstances the shares are said to be issued at a premium, the premium being the value received over and above the nominal value of the shares. Section 610 CA 2006 provides that any such premium received must be placed in a share premium account. The premium obtained is regarded as equivalent to capital and, as such, there are limitations on how the fund can be used. Section 610 provides that the share premium account can be used for the following limited purposes:

　　(i)to write off the expenses, commission or discount incurred in any issue of the shares in question;

　　(ii)to pay up bonus shares to be allotted as fully paid to members.

　　Section 687 also allows for the share premium account to be used to finance the payment due for any premium due on the redemption of redeemable shares.

　　Applying the rules relating to capital maintenance, it follows that what the share premium account cannot be used for is to pay dividends to the shareholders. The rules relating to share premiums apply whether the issue is for cash or otherwise and so a share premium account can arise where shares are issued in exchange for property which is worth more than the par value of the shares (Shearer v Bercain Ltd (1980)). In the light of that case, relief from the strict application of the rules relating to premium was introduced in the case of certain company group reconstructions (s.611 CA 2006) and company mergers (s.612 CA 2006).

　　(c)It is a long-established rule that companies are not permitted to issue shares for a consideration which is less than the nominal value of the shares together with any premium due. The strictness of this rule may be seen in Ooregum Gold Mining Co of India v Roper (1892). In that case the shares in the company, although nominally ￡1, were trading at 12·5p. In an honest attempt to refinance the company, new ￡1 preference shares were issued and credited with 75p already paid (note the purchasers of the shares were actually paying twice the market value of the ordinary shares). When, however, the company subsequently went into insolvent liquidation, the holders of the new shares were required to pay a further 75p. This common law rule is now given statutory effect in s.580 CA 2006. If a company does enter into a contract to issue shares at a discount, it will not be able to enforce this against the proposed allottee. However, anyone who takes shares without paying the full value, plus any premium due, is liable to pay the amount of the discount as unpaid share capital, together with interest at 5% (s.580(2)/CA 2006). Also any subsequent holder of such a share who was aware of the original underpayment will be liable to make good the shortfall (s.588 CA 2006).

　　Question:

　　In the context of partnership law, focusing particularly on the liability of the members, explain each of the following:

　　(a)an ordinary partnership;

　　(b)a limited partnership;

　　(c)a limited liability partnership.

　　Answer:

　　This question requires candidates to explain the operation and potential liability of members of three distinct types of partnerships.

　　(a)The ordinary partnership

　　This is the most common form of partnership. Ordinary partnerships involve potential unlimited liability for their members, should the business run into financial difficulties. It is possible to attempt to limit individual liability within the partnership by setting specific limits on the liability of the individual partners. This, however, has no effect on the external liability of the various members of the partnership who will remain liable for the full extent of the partnership debts. As a result, any partner who has to pay more than the amount agreed internally will be in the position to raise an action to recover any amount paid out in addition to their agreed limit from the other members of the partnership.

　　(b)The limited partnership

　　The Limited Partnerships Act (LPA) 1907 allows for the formation of limited partnerships. For members of a partnership to gain the benefit of limited liability under this legislation, the following rules apply:

　　—limited partners are not liable for partnership debts beyond the extent of their capital contribution, but in the ordinary course of events they are not permitted to remove their capital;

　　—at least one of the partners must retain full, that is unlimited, liability for the debts of the partnership;

　　—a partner with limited liability is not permitted to take part in the management of the business enterprise and cannot usually bind the partnership in any transaction. If a partner acts in contravention of this rule, they will lose the right to limited liability;

　　—the partnership must be registered with the Companies Registry.

　　Very few limited partnerships were ever registered as partnerships could access the advantages available under the LPA 1907, and more, by simply registering their business as a private limited company.

　　(c)The limited liability partnership

　　As has already been seen, the main shortcoming with regard to the standard partnership is the lack of limited liability for its members. The Limited Liability Partnerships Act 2000 provided for a new form of business entity, the limited liability partnership (LLP). Although stated to be a partnership, the new form is a corporation, with a distinct legal existence apart from its members. As such it has the ability:

　　—to hold property in its own right;

　　—to sue and be sued in its own name.

　　It has perpetual succession and consequently an alteration in its membership does not have any effect on its existence. Most importantly, however, the new legal entity allows its members to benefit from limited liability as they will not be liable for more than the amount they have agreed to contribute to its capital.

　　To form a limited liability partnership:

　　—two or more persons must subscribe to an incorporation document;

　　—the incorporation document must be delivered to the Companies Registry;

　　—a statement of compliance must be completed by a solicitor or subscriber to the incorporation document.

　　The incorporation document must include:

　　-the address of the registered office;

　　—the name of the LLP (subject to restrictions);

　　—the names and addresses of those who will be members on incorporation of the LLP;

　　—the names of at least two designated members, whose duty it is to ensure that the administrative and filing duties of the

　　LLP are complied with. If no such members are designated, then all members will be assumed to be designated members.