Corporate and Business Law | Full Exam paper • @financeskul

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This exam develops your knowledge and skills in understanding of the general legal framework of specific legal areas relating to business and your ability to recognize scenarios where it is necessary to seek further specialist legal advice.

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This is a 2-hour exam and is divided into two sections. Section A is worth 70 marks. It contains 21 mark questions and 25 two mark questions. The whole syllabus is open to be examined, so it's important to prepare thoroughly. Section B contains five six mark multitask questions. They concentrate on analysis and application of learning. The questions are presented as problem scenarios and contain a series of tasks.

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Joe's contract of employment states that she is employed in Glasgow. When her employer turns so that she has to work in London, some 500 miles away, Joe immediately resigns.

Let's just be clear on what's happening here. Joe's place of employment, which is Glasgow, is in her contract of employment, and therefore, when her employer tells her that she's having to work in London, London is not nearby, it's 500 miles away. So this constitutes a change in the contractual terms.

Now, Joe immediately resigns. Which of the following may this be considered an example of? What sort of dismissal? Well, the first thing to note is that the employer has not directly actioned the dismissal. As a result of that, we can eliminate two of these options. Unfair dismissal is when an employer dismisses an employee for an unfair reason, and that could include things like dismissal for, uh, pregnancy, maternity, uh, jury service. Those are examples of things that would be automatically unfair reasons for dismissal, but that's obviously not happened here. Summary dismissal is when an employer dismisses an employee without notice for a serious breach of contract. So, for example, gross professional misconduct could result in summary dismissal. The employee is dismissed without notice because what they have done is so serious, so bad, um, that there is no, uh, reasonable grounds to give notice. So again, that hasn't happened here.

That leaves us with constructive dismissal. There are two dimensions to constructive dismissal. Firstly, that the employer commits a serious breach of contract, and secondly, that the employee leaves as a result of the contract. So, did the employer commit a serious breach of contract? Well, moving your place of employment 500 miles would reasonably be described as a serious breach of contract. Um, did the employee leave as a result of the breach? The key word here is immediately. In other words, if Joe had continued to work for a number of weeks and then resigned, that would not be constructive dismissal. Um, the situation here, we can see she has clearly left as a result of the breach. Therefore, we would be looking here at constructive dismissal.

B injured her eye after failing to close a safety gate on a machine as instructed. She was also not wearing mandatory safety goggles as required by her contract of employment. Which of the following is this an example of?

So, B has been injured. When we look at what caused the injury, the injury was caused by B failing to follow her instructions. So she failed to close the safety gate on the machine as she had been instructed. She failed to wear the safety goggles as required by her contract of employment. So, what is this an example of? Well, contributory negligence. This is when the defendant's liability is reduced due to the claimant's behavior. Well, in this situation, the defendant, the employer, um, has no apparent liability. So the employer has provided instructions, they've provided safe goggles, they've included all of this in the contract of employment. So there isn't really a liability to reduce.

On the other hand, volenti non fit injuria translates roughly as, to a willing person, no injury is done. In other words, what's happened here is B has, uh, failed to close the safety gate, she's failed to follow the instructions on the safety gate, she's failed to wear the goggles, and the courts would say, well, that action, those behaviors, effectively you have consented to the risk that you are exposing yourself to, and therefore we would see this as volenti non fit injuria.

Now, just to cover the other two options, just to demonstrate why they are incorrect. Uh, novus actus interveniens, a new action intervenes. So this would be the case if something happened between the defendant's negligence initially and something else happening which fundamentally changes the, uh, the situation that could not have been reasonably foreseen. That's not the case here. And then finally, res ipsa loquitur. The fact speaks for themselves. This is used to reverse the burden of proof. So in some situations, the negligence is so obvious, there is no other logical explanation for how this situation may have arisen other than negligence, and therefore the burden of proof is shifted onto the defendant to show that they are not, um, that they are not liable. So, for example, if you went in for an operation and you woke up and a week later you were really, really ill and it was discovered that various large medical implements had been left in your body after the operation, that would be an example of res ipsa loquitur. It would be very difficult to explain how on earth those medical instruments got into your body other than through the operation, and it would be very difficult to explain how those could have been left in your body without somebody having been negligent. Now, none of that is the case here because the, uh, the defendant in this case, um, has not done anything that is obviously negligent. So therefore, what we've got here is B has effectively consented to an injury, volenti non fit injuria.

In the context of case law, which of the following applies to an obiter dictum?

Well, obiter dictum means a statement made by the way, as an aside. So it is a fact, it is part of the case, but it is not the basis on which the decision has been made. So, for example, in the famous case of Donoghue and Stevenson, the snail was found in a ginger beer bottle. Now, the fact that the bottle contains ginger beer was a fact, but that fact, the ginger beer, is obiter dictum. It's by the way. It could have been any drink, and it would be misleading for any court to interpret that fact that it was ginger beer differently if it was a different drink. And therefore, if a, if a statement or a fact is made by the way, as an aside, it is not binding on any courts. It is not relevant to the decision that has been made. Now, we can differentiate between obiter dictum and ratio decidendi. Ratio decidendi means the facts that are by being the heart of the case, the legal issue that is then binding on other courts.

There are a number of ways in which investors can take an interest in a company, and such different interests have different rights attached to them. So, which of the following normally participate in surplus capital?

Now, the word normally is relevant here because, uh, there can be exceptions, but those exceptions have to be implemented in a very specific way. So, in a normal situation, who participates in surplus capital? But just as a reminder, surplus capital is remaining after all debts have been paid. So, in this situation, a debenture holder is a debt holder. So whether that debenture, whether that loan is secured by a floating or a fixed charge, they would not participate in the surplus capital. They would only reclaim the debt that they have, they are owed, and then everything would stop. So we know it can't be a debenture holder. We're now left with ordinary shares or preference shares. Now, again, the word normally here. Normally, preference shareholders have a fixed, pre-agreed return. So although they are repaid, uh, ahead of ordinary shareholders, the return that they get is limited. They would not normally participate in surplus capital once their fixed rate has been paid. The investor who does get to participate in the surplus capital is the ordinary shareholder. And the ordinary shareholder is the person who invests their money. They are the most exposed to risk, and therefore they have the most opportunity for reward by being able to claim that surplus capital.

and got trapped in a public toilet due to the lock being faulty. Rather than wait for help, she tried to climb out of the window but fell and broke her leg. Which of the following is this an example of?

So, let's look at the situation. Ann got trapped in a public toilet due to the lock being faulty. So that suggests negligence on the part of the main containers, that the people responsible for the public toilet. Um, so at this point, it looks like yes, there has been some negligence. However, rather than wait for help and try to climb out of the window, but fell and broke her leg. So the question is, why did Ann try to climb out of the window? Um, it wasn't that the building was on fire, she wasn't in any immediate at danger. She just simply didn't want to wait for help. In doing so, she fell and broke her leg. Now, um, the action that she's taken, trying to climb out of the window, um, she is not consenting to the injury. In other words, what she's doing is not so extreme as to consent to the injury. So this is not a case of volenti non fit injuria. To a willing person, no injury is done. In addition, the action that she's taken in climbing out of the window is not completely unforeseeable in the circumstances, and therefore this is not a novus actus interveniens. If, for example, Ann had decided to, uh, start setting fire to the toilet paper while she was waiting, I think we would say that is a novus actus interveniens. That's not reasonably foreseeable. But the idea of somebody wanting to get out if they're locked in, that is not, uh, outrageous. Finally, then, uh, res ipsa loquitur. The facts speak for themselves. This is used when the defendant's actions have been blatantly obviously negligent, and we have not got that here. A faulty lock can arise for all sorts of reasons. Um, it's entirely reasonable to give the defendant an opportunity to explain why the faulty lock was not negligent on their part. That leaves us then with contributory negligence. In this case, the defendant's liability, the whoever's responsible for the public toilet, their liability is reduced, but not excused, due to the claimant's behavior. So Ann shouldn't have tried to climb out of the window. Um, that wasn't, uh, a reasonable, sensible thing to do. So the liability is reduced, but that doesn't stop the defendant being liable for the lock being faulty in the first place. So the answer here is contributory negligence.

This question gets to the heart of the difference between an employee and a self-employed person, and this has a number of, uh, quite important implications, both for legal and tax purposes. And so, what the courts do is they use a multiple test, and there's a handy mnemonic that you can remind yourself, uh, about these multiple tests, and that's MICE. So, is there mutuality of intention? In other words, the intention of the employer to provide the work and the employee to do the work? To what extent is the individual work integrated into the company as a whole? To what extent can the employer control how the worker performs their duties? And what is the economic reality? So, does the individual doing the work have a number of different people they work for? Can they delegate the work to other people? So, on that basis, we know that the control test, the integration test, and the economic reality test, those are all parts of the multiple test for establishing an employment relationship. The only one that isn't, and therefore the one that we need to select, is the subordinate test. Uh, the subordinate test looking at the extent to which the individual has to subordinate themselves to the person giving the instructions. And the courts would say, well, whether you are self-employed or employed, that subordination is likely to exist in the relationship.

So, Mark is receiving an agenda for the AGM of this company he has shares in. Now, there are a number of resolutions to be proposed at the meeting, but Mark is not certain as to what exactly is involved. In the context of company meetings, which of the following must be passed by a 75% majority to be effective?

Well, uh, our first option here is a special resolution. A special resolution needs 75% or more majority to be passed, so that is the correct answer. Just to, uh, eliminate the other ones. An ordinary resolution with special notice. An ordinary resolution requires a greater than 50% majority, so 50% is not enough to pass an ordinary resolution, you need more than 50%. Uh, when there is special notice, it is the notice that is special and not the resolution, so it doesn't change the fact that you still only need over 50%. Now, a written resolution could have either a over 50% or a 75%, depending on the nature of the resolution. However, the key to this is it is a written resolution, in other words, um, it's done in lieu of a meeting. The question specifically refers to the context of company meetings and it says which must be passed by a 75% majority. So because a written resolution does not take place in a company meeting and does not always have to be passed by 75%, that can't be the answer. The answer here is definitely a special resolution.

Section 122 of the Insolvency Act 1986 provides a number of distinct grounds for applying to have a company wound up on a compulsory basis. Which of the following is not a ground for the pro for the compulsory winding up of a company under that provision?

So, we're talking here about an application to the courts to force the company to be wound up. So this is a compulsory winding up. Now, this is in statute, it's in law. So, um, um, in terms of the, the answer to this, um, if a company alters its primary business within the first 12 months, that is not grounds for applying for a compulsory winding up. Because what the company has done, it has altered rather than ceased trading. Now, it might be that parties, shareholders, stakeholders don't like that. While there are other avenues that they can take to take action, but cannot take action, um, in terms of forcing a compulsory winding up. The other ones, though, these are valid grounds. They have not received a trading certificate, so they are basically trading without a trading certificate. Um, you can apply for compulsory winding up, for, for that. And if you have either suspended or not started trading for 12, 12 months, again, that is grounds to apply to have the company wound up on the basis that you're saying, well, look, basically we haven't been doing anything for the whole 12 months. There's no point in keeping the business going, we need to wind it up. So, uh, those three are all covered under the Insolvency Act 86. It's only the first one, altering the primary business, that is not.

Abe has issued an invitation to tender for a contract, and B has submitted her terms. Which of the following statements is correct?

Well, Abe has issued an invitation to tender. The key word here is, is an invitation. In other words, this is not an offer. Now, once we've established that this is not an offer, we can eliminate two of the options. So it can't be option one, and it can't be option four. So the only question now is, what is B's action when she submits her terms? Is that an offer or an invitation to treat? Well, the key question when B submits her terms is, can they be accepted without further discussion? So, B submits her terms, can Abe then say, I accept, and everybody's clear where they stand? If they can, then that is an offer. If there's still discussions to be had, then it's only an invitation to treat. The fact that these are terms in response to a tender means that this is going to be seen as an offer. So the answer is the third option: Abe made an invitation to treat, and B made an offer.

This question looks at statutory interpretation and gives us three of the tools of statutory interpretation. So, the first of these is the literal rule, where we simply give the words their ordinary dictionary meaning. So we read the statute, we interpret it, uh, each word as you would in any other context. Now, that does create, made a bit of a problem, and the problem is illustrated by the Golden Rule. And the intention here is to avoid absurdity when giving words their ordinary meaning. And the case of Crown and Allan is a great example of this. Now, in this case, Mr. Allan was accused of bigamy, and the statute said that whoever is already married and marries another commits bigamy. And Mr. Allan's defense was, well, actually, um, yes, I was already married, so yes, that was true. But because I was already married when I went with this second person and went to church and did all that, I didn't actually marry them. The marriage wasn't valid, and therefore the was, well, I haven't breached the law because I didn't marry somebody else. I would have been married if I wasn't married already. And, and of course, the courts then said, well, that's absurd, because if you interpreted the words on that definition, nobody would ever be able to commit bigamy. Um, what the court said was the word marries in that context means goes through a marriage ceremony rather than being legally married. So that's the Golden Rule, that allows us to avoid any absurdity here. Now, the third area here, the Mischief Rule. It asks, what is the mischief? What is the intention that the statute is intended to address? And therefore, in the context of this question, which of the following requires judges to consider the wrong which the legislation was intended to prevent? It is the mischief, the underlying intention. Now, that gives judges quite a lot of scope because it allows them to go certainly beyond the literal, even beyond the Golden Rule, to ask what is it they're trying to do, uh, and therefore, um, allows them to apply legislation in a much wider context.

This question looks at consideration, which is one of the criteria that we need for a valid contract to exist. So, remember, for a contract to exist, you need offer and acceptance, you need consideration, and you need intention to create legal relations. And in this context, then, consideration is something of value that each party brings to the contract. So person A has to hand something over to person B, and vice versa. Now, in terms of the legal definition, this is one of those classic, uh, legal definitions that that you need to be aware of. Uh, the answer here is, it must be sufficient, but it need not be adequate. And so, what the courts mean by this is, when we talk about it being sufficient, there must be some value in what is being transferred. However, it does not have to be adequate. It doesn't have to be a reasonable value. So, for example, there was a case with the Nestle, uh, Chocolate Company, where it was deemed that handing over chocolate wrappers in return for, uh, uh, gift or, well, it wasn't a gift, it was a, um, a product that was being handed over, uh, the court said that was, uh, sufficient. It wasn't adequate. In other words, the value of the chocolate wrappers was minimal, you know, it's a fraction of a penny's worth, um, but there was some value recognized in it. So, there we go, for consideration, it must be sufficient, it need not be adequate.

Dan has been accused of a criminal offense and is due to be tried soon. Now, he denies responsibility, claiming that the prosecution has no evidence that he committed the offense in question. Which of the following describes the standard of proof in a criminal case?

Well, let's just remind ourselves. A criminal offense is a case where the individual is prosecuted by the state, and the intention behind it is to punish a wrongdoer. So, Dan has been accused of a criminal act. The question is, has he done this? Should he be punished? Now, uh, the standard of proof in a criminal case is higher than in a civil case. So, a civil case, the defendant is sued by the claimant, the person injured, and the objective is to provide compensation. Now, in terms of the burden of proof in a criminal case, because the individual is being punished, the burden of proof is very high. It is beyond reasonable doubt. So, obviously, we can never be 100% convinced of somebody's guilt. You know, they could be standing there with a knife, covered in blood, screaming that I killed the person, you know, with DNA evidence all over the place, but, you know, maybe it was that person's long-lost twin brother who's got the same DNA. You know, there's always some really obscure possibility they might be wrong. So, beyond reasonable doubt, in as far as anyone can ever be certain about anything, are we certain that this person committed the crime? Um, so the answer here is beyond reasonable doubt. And just for the record, if this was a civil case, the burden of proof is lower. It's only the balance of probability. In other words, it's more likely that I've caused damage to the claimant than that I didn't. But for criminal cases, a very high burden of proof that's placed on the prosecution. Remember, of course, that you are innocent until proven guilty.

This question looks at the liability of shareholders in the case where a company is being liquidated. So, the scenario here, Ho subscribed for some partly paid up shares in IO Limited. So, if they are partly paid up, what that means is Ho has contracted for the shares, so the contract has gone through, but the full payment for the shares has not yet gone through. So Ho owns the shares, still owes some money. Now, the company has not been successful, and Ho has been told that when IO is liquidated, he will have to pay the amount remaining unpaid on his shares. He's not sure who the payment should be made to. So, we've got here a limited liability company. Who is the shareholder liable to?

Now, we need to be very clear about whose relationships are with whom. Now, with a limited company, the contractual relationship is between the company and its creditors. So, we talk about the veil of incorporation that protects the shareholder. So, in the event of the company being wound up, the creditors cannot go directly to the shareholders in order to get the debts paid. That route is blocked off to them, with some, some exceptions, but generally speaking, that's, uh, what limited liability is. It limits the liability of the shareholders. Now, this is a slightly different situation because we have here Ho, who is the shareholder. Now, Ho owes money to the company, and he owes money for the shares that he has been handed, that have been handed over to him, that he now owns, that he hasn't fully paid for. So, when the company is liquidated, that transaction needs to take place. Ho needs to hand over the money that he owes to the company, and then, of course, what the company can then do, or in this case, the liquidator of the company, can then distribute that money to creditors. Therefore, shareholders are liable to the company for any unpaid capital. That's who their contract is with. The fact that that money might then be transferred to somebody else is not the point. The contract is with the company. So that is whom they are liable to.

This question asks about the recognized phases in money laundering. Now, in the syllabus, there are three recognized phases. Phase one is the placement, where the proceeds from some criminal, some illegal activity is deposited into an apparently legal business or or property. Stage two is layering, and what happens at this point is the money is transferred, uh, from account to account, from business to business, and the objective here is to try and hide that initial placement, that initial, uh, deposit. And stage three is integration, and the idea is that having transferred the money through so many different accounts in stage two, it now appears as if that money has come from a valid, authorized, legal source. So the true, true source from stage one is no longer visible because of all the layering, it has been integrated into the, uh, the financial system. So therefore, in terms of the recognized phases, the recognized phases are layering and integration. Those are the specific pieces of terminology that you'll be expected to use in the exam.

This question is all about insider dealing, which is regulated by the Criminal Justice Act 1993, and in that, there are a number of, uh, specific offenses. Now, these are offenses specifically in relation to insider dealing. Um, so the first is passing on inside information. Um, so inside information is any price-sensitive information. So passing on that information, um, even though there's not a demonstrable link to using that information or the other person using that information, the fact that you are passing on that inside information is a crime. The other crime, uh, in the, Criminal Justice Act, is encouraging someone to engage in insider dealing. Um, interestingly, the offense here is the encouragement, regardless of whether the person actually follows through. So the offense is me trying to persuade somebody to engage in insider dealing, even if that person doesn't go on to do it, I have still committed an offense. So those two are specific criminal offenses relating to insider dealing. With regards to concealing insider dealing or failing to report it, uh, those are not specific to the Criminal Justice Act 1993. There may be issues of liability, as you would get with any criminal offense, you know, sort of obstructing the police in their inquiries, failing to report an offense, that sort of thing, but it's not specific to insider dealing in the way that passing on inside information and encouraging someone else to engage in insider dealing would be. The third crime, which we haven't listed explicitly, but just for the sake of completeness, the third crime under the Criminal Justice Act is to deal in listed securities if I am in possession of price-sensitive inside information. So those are your three criteria, your three offenses under the Criminal Justice Act for insider dealing.

This question looks at contract law and specifically offer and acceptance. So, remember, when we talk about acceptance, we're talking about an unequivocal assent to all of the terms in the offer. In other words, if somebody can say, I accept, and both parties are completely clear and completely happy, that's fine. If the person's saying, I accept, but could you just explain or could you just clarify, or I'm not sure about this, that and the other, that's not an acceptance. So, with that in mind, which of the following can be accepted?

Well, uh, the quotation of a price can be accepted. So, if somebody says, I'm selling my car, you know, you've asked me for a quote, I'll sell it to you for £100, you can say, yes, I agree, and the transaction takes place. Um, a statement of intent is about a possible future intention. It's not specific enough to accept. It's what I would like to do. Yeah, I've got an intention, but just because I intend to do something doesn't mean it's automatically going to follow through. Now, interestingly, an agreement to enter into a future contract, whilst that might be binding, the key here is that it is in the future and not current or present. So, if somebody says, listen, I undertake to enter into a contract with you in one year's time, I can't turn around to that person and say, I accept the contract now exists, because it doesn't. It won't exist for another year. And the supply of information is not specific enough to be accepted. All I'm doing is simply giving somebody information. For example, I might send them, you know, information about my product, the range that I offer, you know, where I make them, all of that sort of thing. Well, that's giving them information, but that's not an offer that can be accepted. So the only one of these that can be accepted as an unequivocal assent is the quotation of a price.

This section B question is all about breach of contract and remedies. So, we've got here, uh, Azid Limited operates a shipbuilding business which specializes in constructing and modifying ships to order. So, these are bespoke pieces of work. In 2011, they entered into an agreement with Bob to completely rebuild, uh, a ship for a price of £7 million. Now, the problem is, once the work was done, Bob informs Azid that he no longer needed the ship. So Bob doesn't want to pay, doesn't want the ship anymore. Azid had already spent £5 million on altering the ship. So that's its costs, and so they're now starting an action against Bob for breach of contract. Now, just before the case was due to be decided, Azid sold the ship for the same amount of money that they would have received from Bob. So we've now got three questions to consider here.

Task one asks you, which two of the following statements explain the purposes of awarding damages for breach of contract?

Well, let's be clear on this. Um, the action that is being taken for breach of contract is a civil case, and the role of a civil case is to compensate somebody who has suffered loss. And we contrast that with the criminal case, which is there to punish the wrongdoer. So, which two of the following statements, um, are relevant here in terms of damages for breach of contract? Um, so the first thing that these damages do is they compensate the injured party for their financial loss. So it's recognizing financial loss. Of course, financial loss, the reason that that's focused on is because it can be quantified. And you may remember from some of your other studies or research that actually, when it starts, you start trying to compensate people for things like loss of enjoyment, it very quickly becomes very messy. So, as a general rule, damages are there to, uh, compensate specifically for financial loss. And the key to this, as well, is that they are designed to put the parties in the position they would have been in had the contract been performed. Now, that is very different to putting people back in the position they were in before the contract was formed. So, here's a, a practical piece of advice for you. Um, if you ever buy something from a shop and it causes you problems, you know, it's, uh, it's not working or whatever, and you go back and the person behind the counter says, well, I'll give you a refund. Well, you have the right to accept that refund, but you also have the right to be put in the position you would have been in had the contract been performed. In other words, to get a replacement product, a reasonable replacement. Um, we've established that because this is a civil and not a criminal case, we are not looking to punish the party. Now, there are some legislative areas, uh, for example, um, in the United States, uh, there is this concept of punitive damages, where the wrongdoer, the person who has, uh, breached, uh, is punished, uh, in order to, you know, deter other people from committing a similar breach. Now, that is not consistent with the English legal system. Um, it happens in very, very rare exceptions, um, but generally, the objective with any civil case, and specifically here with contract law, is we put the parties in the position they would have been in had the contract been performed, and we make up for any financial loss that they've incurred that hasn't got them to that position.

Task two asks, which two of the following statements in relation to the duty to mitigate losses are correct?

Well, the person who has suffered the loss is the claimant, and in terms of mitigating that loss, reducing that loss, therefore, it is the claimant, the party who suffers the breach, that would look to mitigate their losses. Um, what does that do? It will therefore reduce the damages that are payable. So, this whole idea of mitigated losses is to get away from a situation where, uh, a claimant has a valid case, but then deliberately manufactures a situation where the losses pile up. So, claimants have a duty to reasonably mitigate their losses.

The third and final task for this question: What level of damages can Azid claim for breach of contract?

Well, remember from task one, we said that they can claim for their actual financial loss. So, if the contract had been properly performed, they would have received £7 million from Bob. Now, Bob didn't pay them £7 million. They took legal action. Um, however, what's now happened, just before the case is due to be decided, then, uh, they've sold the ship for the same amount of money that they would have received from Bob. In other words, they've received £7 million, but from someone else. Therefore, Azid has actually made no loss. The only difference here is that they sold the, uh, the ship to somebody other than Bob, but in terms of the cash flows, they've received exactly the same cash flows. Therefore, their financial losses are nil. And so, if this case did go to court, chances are that Bob would be found liable for breach of contract, and the damages, uh, would probably be nominal damages of a pound. In other words, recognition that yes, you're in breach of contract, um, but in terms of the, the, the loss suffered, it is non-existent.

This question is all about partnerships, and the golden rule with partners in a partnership is that they are jointly and severally liable. So, as partners, they all share the responsibilities. So, let's look at this. Claire, Dan, and Eve, C, D, and E, formed a partnership 10 years ago. Now, Claire was a sleeping partner, never had anything to do with running the business. Last year, Dan retired from the partnership, and Eve has subsequently entered into two large contracts. The first one with A was with a long-standing customer, Greg, who had dealt with the partnership for five years. The the second was with a new customer, Hugh. Now, both believed that Dan was still a partner in the business. Both contracts have gone wrong, leaving the partnership owing £50,000 to both Greg and Hugh. Unfortunately, the business assets will only cover the first £50,000 of the debt, so there is a shortfall to cover. And that shortfall, the question then arises, who is liable? Uh, we've got Claire and Dan and Eve.

Well, for task one, Claire, as a sleeping partner, still has full liability for the partnership debts. Um, so she is a partner. Partners are normally jointly and severally liable. Um, the fact that she is a sleeping partner is irrelevant. The law does not differentiate between a partner who is actively involved and a partner who isn't. So, if you are a partner in an organization, you have a certain duty to be aware, engaged, and and understanding the nature of the business that's going on. And so Claire cannot escape liability by the, by merit of the fact she's a sleeping partner.

The second task looks at Dan. So, Dan has retired. So, what does that mean? Well, the situation here is that both Greg and Hugh, so the two customers, both believed that Dan was still a partner in the business. So it's important that if somebody is retiring from a partnership, they need to make sure that people are aware that they have retired. Um, so you can remove your liability, but you have to notify people. Um, so it is not true that he, there's any time limit on this. So the fact that it was more than six months is irrelevant. Um, he is liable for any debts or obligations incurred prior to retirement. The word here, though, only, that makes that statement incorrect. So, the act of retiring does not relinquish Dan of responsibility. So his liability does not cease on retirement. That leaves us by process of elimination, it must be the fourth option: He remains liable to new customers who knew he was a member of the partnership unless he declared his withdrawal. So, the key factor to consider here, does the customer, does the party to the contract reasonably believe Dan to be a partner? Well, Dan was a partner, and no attempt appears to have been made to correct that understanding in the light of his retirement. So, yes, he would remain liable to new customers unless he declared his withdrawal. So, if you are retiring from a partnership, then you would expect there to be a notification that goes out to customers and suppliers to say, I am retiring, I am no longer a partner, I know that I have been in the past, but from this date onwards, you should not treat me as a partner. And if you don't make that communication, then you can find yourself still liable.

Therefore, for task three, from whom can Greg claim the outstanding? Well, we've got a choice of Claire, Dan, and Eve. Well, Eve is the person who entered into the contract, so she must be liable. Claire is a sleeping partner, but we've said the fact that she was a sleeping partner, um, doesn't remove her liability. That was in task one. So it must be, uh, Claire and Eve. And then with regards to Dan, what? Well, Greg is an existing, long-standing customer. He still believes that Dan was a partner. So obviously, nobody's notified him that they're not. Therefore, all three of them remain liable: Eve, Dan, and Claire.

This question looks at the role of company directors, and the scenario we have here is J was disqualified from acting as a director, uh, because he was engaging in fraudulent trading. So he's been barred for a period of 10 years. The problem is, he wants to continue to pursue his fraudulent business, he wants to try and get round the disqualification order. So what does he do? He arranges for his accountant, Kim, to run the business, but specifically on his instructions. Now, although Kim took no shares in the company and was never officially appointed as a director, he nonetheless assumed the title of managing director.

So, the first task asks us to categorize J and Kim. What sort of director are they? So let's just go through the definitions first, then we can differentiate between a de facto director and a de jure director. So, a de facto director is one that is not formally appointed, whereas a de jure director is one that is formally appointed. Well, we can see from the scenario that neither director has been formally appointed. So de jure is trying to avoid the consequences of his disqualification order. So we know that he wasn't formally appointed, and it says Kim was never officially appointed. So that option is not going to be relevant for either. Now, the other definitions we've got: a non-executive director has no day-to-day role. So we contrast an executive director, who is involved in specific roles on the day-to-day management of the business, with the non-executive, who contribute towards things like corporate governance and independent views and things like that. Uh, now, again, looking at this, uh, J, while Kim is, uh, running the business, J is giving instructions on running the business. Neither of those can be said to fall under the category of a non-executive director. The fourth definition here, then, the shadow director. The shadow director is somebody whose instructions are followed, even though they are not a formal director. So, in this situation, Kim is the managing director. Uh, the instruction is that Kim is expected to follow J's instructions. Therefore, J is a shadow director. J is acting from the shadows, trying to hide away, but is still a director by virtue of the fact that he is influencing, instructing the other directors. Now, that leaves us with Kim. Kim is following the instructions, not giving them. So Kim is not a shadow director. That means that we categorize Kim as a de facto director. Although not formally appointed, Kim is still acting as a director and is still recognized as a director.

The final task here refers to the role of non-executive directors. So, what we said about non-executive directors is that they attend board meetings but do not have a day-to-day role in the running of the business. So, going through these options one by one. Um, they attend but do not vote at meetings. No, a non-executive director has the same voting rights as an executive director. Um, so that bit makes it wrong. They owe fiduciary duties. Fiduciary duty, uh, a duty of good intentions, that is absolutely true. As with all directors, they owe a fiduciary duty to the company. They are expected to act in the company's best interests. Um, they have contracts of employment with the company. Um, they may or may not, um, they may have contracts. The key to this is in terms of employment, uh, they aren't technically employees of the company. So there may be a contract appointing them as non-executive directors, uh, but they are not technically employees. And as we've established, they are not involved in the day-to-day running of the company. So therefore, um, the answer is the second one: they owe fiduciary duties to the company.

Which of the following is indicated by the abbreviation LTD at the end of a company name?

Well, LTD stands for a private limited company, and we distinguish between LTD and PLC, which of course is a public limited company. So, in terms of the options open to us. Shares are freely really transferable on a stock exchange. To transfer your shares to on a stock exchange, you must be a public limited company. So, uh, the letters LTD do not qualify you to freely transfer your shares on the stock exchange. It's the, uh, shares may not be offered to the public. That is the case with a private limited company. However, those shares in the private limited company are transferable. So that final statement is not correct. In other words, with a private limited company, the shares can be bought and sold, they can be transferred, but unlike a PLC, I cannot offer them for sale to the public at large, for example, through a stock exchange. So the answer to this is the shares may not be offered to the public.

In the context of the English legal system, which of the following defines the ratio decidendi of a judgment?

Well, ratio decidendi is Latin. Uh, it translates as the reason for the decision that was made. In other words, it's the justification that the courts use in applying the law. So it is the first answer here: the legal reason for deciding the case. So the judge says, well, on this basis, the ruling is X. Uh, we base the ruling, uh, on the law, and the heart of that ruling is the ratio decidendi. Now, that ratio decidendi may be, and may well be, applied in the future, but that's not in the minds of the judges when they're making this decision. So the focus is very much on the current case. The decision in a previous case, we refer to as judicial precedent, and the facts of the case, uh, some of those facts may inform the decision, but many of the facts are obiter dicta, in other words, said by the way. So you might think about a situation where a ruling has been made on contract law, there may be all sorts of facts about the contract, and you know, what paper it was written on, and whether they were buying or selling, uh, light bulbs or books or something else. Um, those are all facts, but they're not relevant to the heart of the legal decision. They're not relevant to ratio decidendi. They are obiter dicta, they are facts made by the way.

It is not unusual for some company investments to carry cumulative dividend rights. Which of the statements about cumulative dividend rights is correct?

Well, a cumulative dividend is one that is, uh, fixed, that builds up over time, and we often see that relating to preference shares. So those cumulative dividends are paid when there are profits available for that purpose. So if the profits are generated, the dividend is paid. If the profits are not generated, then the dividend effectively accrues, it builds up over time. Dividends are not paid out of capital. They're very strict rules about how, uh, dividends can be paid. They're normally paid out of retained earnings. You would not expect them to pay out of capital. You would not pay them in the form of a bonus issue. Uh, a bonus issue is an issue of additional shares in line with existing holding. That's not what a cumulative dividend share provides. Remember, the right is to a dividend rather than more shares. And the statement they are not paid until profits.

Reach a certain percentage. Um, again, that's not the case. Uh, the criteria that has to be adhered to is that the profits are available. So, once the profits are available, then they can be, uh, they can be used. You don't have to reach a certain percentage, um, of of profit in order to pay it out.

This question looks at acceptance within the law of contract, specifically on the UN Convention on Contracts for the International Sale of Goods. So, the scenario that we've got here is we've got a buyer and a seller who enter into a contract. Now, the question arises, well, when does acceptance take take place? Because what happens, one party will make the offer, the other party accepts the offer, and assuming that there is consideration, assuming that there is, uh, intention to create legal relations, the contract becomes binding on acceptance. So, it's very important that we know when was the contract accepted.

Now, that becomes more of a problem on an international basis because the distance between the buyer and the seller may be quite significant. So, the UN Convention is designed to standardize, to clarify the law in this, uh, context. Uh, and in terms of your textbook answer, the textbook answer is acceptance takes place when it reaches the offeror. Um, however, that has to be within a reasonable time. So, classic example, um, I've received an offer through the post. I want to accept that offer. So, I accept the offer and I send it back, maybe via a courier or something like that. Um, the acceptance does not take place until it reaches the offeror, the person who made the offer, assuming that that's within a reasonable time.

Um, the second option here, when the offeror, the person making the offer, acknowledges receipt of the written acceptance. There is no obligation to acknowledge receipt, so that is not required for acceptance to exist.

Uh, when it is properly posted. This refers to the postal rules that apply within some jurisdictions in the UK, uh, and to some extent within the US. Uh, that is not the case under the UN Convention. Uh, what the postal rules say is that acceptance takes place when the, the item is posted, not when it's received. That is not applicable here. So, under the UN Convention on Contracts for the International Sale of Goods, acceptance takes place when it reaches the offeror within a reasonable time.

Which of the following is the primary source of law in a civil law system? So, a civil law system, by definition, is one that is based on codes or rules or a legislative framework. In other words, a written set of rules. And we can contrast that with common law, which uses a body of case law, in other words, coming from the courts. So, on that basis, the primary source of law in a civil law system is the set of codes. The common law system is more likely to be based on the courts and judicial precedent. Customary law is based on patterns of behavior that are accepted within that social setting. So, for example, you might have, uh, a society that says theft or killing is wrong. Um, it might not be written formally in a legislative framework. It might not have been applied, uh, through judicial precedent, but it's an accepted custom.

In the context of Sharia law, which of the following is a fundamental source of law? So, uh, Sharia law, a very specific type of Islamic law, um, which is examinable across this paper. So, it's important that you are comfortable with the definitions here. So, in terms of the academic answer to this, uh, to this question, um, the fundamental source of law for Sharia law is the Quran. So, the Quran is Islam's central religious text. That is the fundamental source. Sharia law, uh, tends not to place, uh, as much emphasis on, um, court judgments. So, this idea of precedent. Um, in terms of your definitions, Fiqh is a, a development, uh, and interpretation of the Quran. Now, this interpretation is done by experts in their field, um, but it's recognized that, uh, Fiqh is changeable. So, whereas the Quran is constant and unchangeable, Fiqh, the interpretation of, of the Quran, uh, may change. And then, uh, the, uh, fourth area here, the Hadith. These are traditions around the Prophet Muhammad, which is a source of guidance. But again, the key question in this here is the fundamental source. The fundamental source for Sharia law, we keep coming back to the Quran.

Ari was successful in an international arbitration against Bo. Now, this international action was held in Bo's country, but Ari is concerned that he will not be able to enforce the award in his domestic court. So, we've got an issue here of international, in here, and international arbitration.

Which of the following does not provide a ground for a court to refuse to enforce an arbitration agreement under Article 36 of the United Nations Commission on International Trade Law Model Law on Arbitration? Well, the United Nations Commission on International Trade Law is a subsidiary body of the UN General Assembly, and it's all there to facilitate, to support international trade and investment. As a result of which, um, there are very limited grounds for a court to use this article to refuse to enforce an arbitration. In other words, the whole reason this commission exists is to facilitate, not obstruct, international arbitration. So, the only grounds that a court could use using this article would be if, for some reason, the arbitration agreement expressly provided that no appeal could be made to a court. So, for example, there could be a situation where the arbitrators hear the case, they make a ruling, but there are certain factors that mean that, um, the ruling would not be, uh, appropriate to apply in certain countries or certain situations or whatever. Um, in which case, there would need to be an express provision to that effect. All of the other factors to do with it would be contrary to public policy, um, there's an issue with the law of the country, um, the agreement isn't valid under the law of the country. So, any local legal issues are not relevant here. Yeah, the UN Commission is not going to, you know, allow that to be used as has a, a defense to, to avoid that. So, it must be that the arbitration agreement expressly provided that no appeal could be made to a court.

ICC Incoterms establish risk and responsibilities in relation to international contracts. Which of the following is the buyer responsible for in a CIF contract? Now, there's quite a lot of terminology here, so let's unpack the terminology first. ICC Incoterms are global standards for the delivery of goods, and these standards have been brought together by the International Chamber of Commerce. So, it's our point of reference there around risk and responsibilities. Now, uh, within these terms, there are two types of contract. We have, uh, CIF, which stands for Cost, Insurance, Freight, and we have FOB, which stands for Free on Board. So, which of the following is the buyer responsible for in a CIF, Cost, Insurance, Freight contract? Well, the principle of a CIF agreement is that it's the seller who pays the costs, who assumes liability until the goods reach the port of destination chosen by the buyer. So, with CIF, it's the seller's responsibility to get those goods to the port that the buyer wants. As a result of that, the seller has to make sure that they have arranged an export license and that they have to, that they have sufficient insurance. The only thing that the buyer has to do that's on this list is to arrange for an import license, if required. So, if they have to get permission for these goods to come in, that's the buyer's responsibility under CIF. The rest is for the seller.

Mo has a significant holding in the shares of Novaco. Now, he wishes to use this shareholding to remove Owen from the board of directors, but he's not sure how to do so. So, which of the following must be used to remove a director from office? Well, we can do this by process of elimination. Written resolutions are available to private companies, and they remove the need for people to meet face-to-face. However, a written resolution is not permissible in circumstances where there is the removal of a director or auditor. So, that one is not acceptable here. To remove Owen, we need an ordinary resolution, so more than 50% of votes in favor. So, we don't need a special resolution. A special resolution is 75% or more. However, because this is specifically around the removal of a director, we give special notice. And special notice, normally 21 days' notice, which is there to allow the director to prepare a response. So, we raise this motion, we want to pass this resolution, we give special notice to the members, to the director, the director has a right of response. We get together in the general meeting, and then we need a more than 50% to pass the ordinary resolution. So, therefore, to remove a director, you need an ordinary resolution with special notice.

Under the UN Convention on Contracts for the International Sale of Goods, some offers are held to be irrevocable. So, which two of the following statements apply to an irrevocable offer? And the technical area here is about the difference between withdrawing and revoking an offer. So, we need to select two of these, and what we can see is that two relate to withdrawal and two relate to revocation. So, um, we've got to choose one of each of those. We can't have both of them. So, for example, we can't say that an offer can never be withdrawn and can also be withdrawn as long as they're done at the same time. So, it's either or in the case of these two. So, we need to be understand, we need to be clear about the difference between withdrawing an offer and revoking an offer. So, withdrawing an offer happens either before or at the same time as the offer arrives with the offeror. Revocation, on the other hand, is when the offer is withdrawn, take come back, but it's done after the offer has arrived with the offeror. So, uh, remember, we're talking here about an irrevocable offer. Now, the clue should be in the question. If something is irrevocable, then that means it can never be revoked. So, it's irrevocable. We can never revoke the offer. Which means now we need to choose, well, can you withdraw an irrevocable offer? Uh, and the answer is yes, you can, as long as it's done at the same time or before the offer reaches the offeror. So, there are restrictions on how to withdraw, uh, an irrevocable offer, um, but those are your two criteria. They can never be revoked, so after the offer has arrived, that's it. But you can withdraw the offer as long as you're doing it before or as the offer arrives with the offeror.

Which of the following functions is not performed by the World Trade Organization? So, just to remind you, the World Trade Organization is, uh, an intergovernmental organization. So, it's made up of governments, uh, around the world, and its role is to enable, to facilitate international trade, and therefore its objective is to try to regulate this in so far as is possible. So, um, what does it do? Well, it does settle disputes between member states. It does review national trade policies, and it does administer trade agreements. So, all of these are integral to regulating and facilitating international trade. The thing it doesn't do, it does not get involved with individual cases. That's for the countries involved, the states involved, to settle. Um, so individuals with a problem would never go to the World Trade Organization, although countries with a problem would. So, if I'm really not happy with the way that the United States or China or Australia or whichever other country is, uh, is dealing with my country, that's when I go to the WTO, the World Trade Organization.

Which of the following is not an actual type of letter of credit? So, we've got four types of letters of credit listed here. Let's go through them one by one. So, we start with the revocable letter of credit. This is when one party can unilaterally alter or withdraw from this agreement. Um, now, these are not very common for the obvious reason that, uh, the person that the beneficiary of the letter of credit is not going to be very happy if they sign an agreement and then the person who's offered the letter says, "Actually, I can change my mind at any point." Um, but technically, those do exist. So, that is not one of the answers. Now, the endorsed letter of credit. Um, you can get endorsements on a letter of credit, so undertakings from the bank or, or something like that, but that's not an actual type of letter of credit in itself. So, in terms of the exam, it's the endorsed letter of credit that is not an actual type. Just for the sake of completeness, though, let's carry on and just give the definitions of the other ones. So, the revolving letter of credit is designed for when parties are in a long-term relationship with each other. So, the revolving letter of credit means instead of having to sign a new letter of credit every time you enter into an agreement, they, so roll forward for multiple uses on an ongoing basis, and there's normally an expiration date. So, we might say, "Okay, this is the revolving letter of credit for the next 12 months," or, or something like that. The standby letter of credit is effectively an insurance policy. And what this means is that if something goes wrong and the injured party, the party that suffered the loss, has not been able to get compensation in any other way, then you can make this claim from a standby letter of credit. So, it's, it's an insurance, it's a sort of security blanket to give the party encouragement to enter into the agreement. It is a recognized type of letter of credit. So, in terms of the exam, then, the endorsed letter of credit, that is not the actual type.

Under Article 35 of the UN Convention on Contracts for the International Sale of Goods, the seller must supply goods of a quality that is fit for purpose. So, that's the legal term, must be fit for purpose. Now, which of the following is not included in terms of quality being fit for purpose? So, the first thing to emphasize is when we talk about quality, quality does not mean expensive, exclusive, as it might mean if we talked about, you know, um, sort of quality in a traditional marketing context. We're talking here about, does it meet the purpose that it's set out to do? Um, so which of the following is not included as this part of quality? Uh, the answer is the first one, fit for an unusual use not known by the seller. So, it is not reasonable for the seller to be held accountable for a use of its product which they simply never expected and never realized. There's a nice practical example of this. Uh, there's a cosmetics company called Avon that produced a body lotion. Now, it was discovered, informally, that, uh, this body lotion was especially effective at repelling mosquitoes and insects. As a result of which, a lot of people in Scotland who are going out fishing would buy the Avon body lotion and use it as an insect repellent. Now, Avon never developed the product on that basis. That's not what it was intended to do. There was no scientific research to back it up, and crucially, Avon was not promoting it on that basis. So, therefore, if somebody chose to buy the Avon body lotion and then went back to Avon and said, "Well, hang on a minute, it doesn't repel insects," Avon's response would quite reasonably be, "Well, no, we never said it would. It was never intended to. The fact that people might have talked about this happening, that's not our doing. It's not reasonable for us to expect and, and, um, allow that to happen." However, what you would expect in terms of being fit for for purpose is that it's packaged adequately. So, if it's being delivered, if I'm having a crystal vase delivered, it's entirely reasonable to expect that it's properly packaged so that it doesn't get damaged. That it's allowed to be used for an unusual use if it's suggested by a sample of the product. So, let's return to the Avon perspective. Imagine now that Avon has recognized that, uh, lots of people are buying this as an insect repellent when they're going out fishing, and so they adopt a marketing campaign and promote this lotion in fishing shops. So, you know, angling shops for everyone's going there buying their, uh, rods, their lines, all of their fishing equipment, and there is this big Avon promotion with body lotion, um, linked to fishing. And maybe it's something like, you know, "Feel your best when you're out fishing," you know, all of those sorts of things. Now, Avon does not explicitly sell this as, uh, an, as an insect repellent, but the way that the product has been promoted, um, it might be unusual, but it's suggested. In other words, it seems to be known by the seller, and the seller is trying to play off it. In which case, if the seller knows and is trying to play off it, then actually that would be then deemed as being part of what's required, fit for purpose. And obviously, it's, if the goods are being used as you would normally use them as a body lotion, you would absolutely expect that it works as a body lotion. So, the only one of these that, uh, is not required in terms of quality that's fit for purpose is the unusual use not known by the seller.

Which of the following parties normally issues a letter of comfort? Well, let's just remind ourselves what a letter of comfort is. An assurance that a third party's contract with a certain party will be met. So, the scenario here is we've got two parties, A and B, and let's say that A is worried about B's ability to pay. So, in that situation, we would get a letter of comfort provided to A to give them confidence to address their concerns. So, who would issue such a letter? Well, would the bank of a company in financial difficulty issue such a letter? Um, probably not, because the company is in financial difficulty. So, as a bank, I'm not sure I can provide that, uh, level of comfort. Um, as a bank, I'm going to be concerned. I'm going to be thinking about what happens, um, if this com, if this organization, this party, can't pay. So, we know it's not that one. Uh, the third one, a company in financial difficulty will be, in this case, the, the, the party that A is worried about. A letter of comfort from them is not really going to be very meaningful. All that's saying is B is making a promise that you, that they can be relied upon, they can be trusted. But of course, B has an obvious vested interest in that. So, a letter of comfort from B is really not very meaningful. On the other hand, if B is in financial difficulty and the parent company provides a letter of comfort, now actually that is a little bit more meaningful because the parent company is not the organization in difficulty. They're providing an assurance which is more likely to be meaningful. So, in this situation, the answer is the parent company of a company in financial difficulties.

Which of the following statements relating to limited liability partnerships is correct? So, remember, remember, a limited liability partnership is halfway between a partnership and a limited company. So, with a limited liability partnership, there is no obligation to have at least one unlimited member. So, a partnership does have unlimited liability, but by definition, a limited liability partnership, uh, you do not have to have at least one unlimited member. There is no maximum on the number of members for, uh, any sort of partnership or, uh, company. However, to be a partnership, by definition, you must have a minimum of two members. So, there must be somebody, and then somebody else who is a partner. You cannot be a sole partner. So, uh, that's the answer. They must have a minimum of two members. If there is only one member, then you can either be a sole trader, which of course has unlimited liability, or if you've got one member, you would look to set up a limited company if you wanted to limit your liability.

Which of the following business forms does the use of the abbreviation LTD after the name of a business indicate? So, uh, you need to be very familiar with the different abbreviations that are used for different types of businesses. So, LTD is a private limited company. So, the company's li, the liability of the members of the company is limited. It is a private company in the sense that it is not selling its shares to the public, for example, on an exchange. Um, a limited partnership and a limited liability partnership would have the, uh, abbreviations LP for a limited partnership and LLP for a limited liability partnership.

Which of the following describes the result for any agreement subject to a fundamental breach of contract under the UN Convention on Contract for the International Sale of Goods? When we talk about a fundamental breach, we're talking about something severe. We're talking about that this fundamentally undermines the contract. So, it's not something minor where there's a minor substitution. For example, let's say I'm building a house for you, and I end up substituting the type of concrete which is not exactly the same as the part specified, but it's very similar. Um, that would not be a fundamental breach. If, on the other hand, I built my, the house out of wood instead of brick, then that's a pretty severe situation. So, if there has been a fundamental breach of contract, then what does that mean? It means that the injured party has the right, but not the obligation, to avoid the contract. So, with this building example, I'm expecting my house to be built out of bricks. I turn up at the building site and I see this whole thing built out of wood. If I'm really upset, if this is not what I want at all, then I have the right to avoid the contract and say, "That's it. You've not built what I've asked for. I don't want it. Forget about it." But it's not an obligation. So, maybe I turn up and I look and think, "My goodness, that wooden house is amazing. It's so much better than I thought it would be. I love it. I love it even more than I'd love the brick house." Well, if I still like it, I can retain the contract. Crucially, this is my decision as the wronged party, not the builder's decision as the person who breached the contract. So, on that basis, uh, the agreement is enforceable. So, it's not unenforceable. The agreement is avoidable. It's the, uh, bit that's really important. It's not void, but it can be voided by the injured party.

Section 122 of the UK Insolvency Act 1986 specifically provides a distinct ground for applying to have a company wound up on the grounds that it is just and equitable to do so. So, in the context of this, equitable means fair. So, it is just and fair to do so. Now, which of the following parties may petition to have a company compulsorily wound up on the basis that it is just and equitable to do so? Well, um, there are a number of ways in which, uh, stakeholders, parties, can apply to the courts for a company to be liquidated. But just and equitable is a very specific one. It applies uniquely to the shareholders of the company. It's quite a broad, um, term, and it's there in order to protect shareholders, to give them that safety net that says, "Look, something really bad has happened here. Something really problematic has happened, and for whatever reason, there's a determination to keep the company going, and we don't think that's right." So, you have seen case law, maybe there is a total breakdown in the, uh, members or directors of, of the company. Maybe the main object, the whole reason the organization was set up, has failed or become impossible. So, for example, let's say that I, um, I'm a company that organizes fox hunting in the United Kingdom, uh, fox hunting with hounds. Well, if that becomes illegal, as it did in the United Kingdom, then any organization arranging fox hunts becomes illegal. Um, if the company does not wind itself up, then a member may apply to the courts and say, "Look, the whole reason this company exists is now non-existent. The other shareholders, for whatever reason, are not following this. We ask the courts to intervene." Now, of course, creditors, other stakeholders, they do have the right to apply to the courts for a company to be wound up, um, but that would normally be liquidation. So, for example, the creditors of the company could apply to the courts for the company to be liquidated on the grounds that it can't pay its debts. But that would not be under the just and equitable winding up principle.

In this section B question, we've got a contract law issue. So, Axel Co, a German company, operates a business making specialist machinery for the international car manufacturing industry. In 2011, Axel entered into an agreement with Bold Co, a Danish manufacturer, to build a specific piece of machinery to Bold's specification. So, we have a contract between A and B. The contract price was $7 million in return for this specific piece of machinery. However, just before the completion of the machinery, B told A that due to the downturn in the world economy, it no longer needed the machinery. Now, A has already spent $5 million in producing the machinery. So, A starts a legal action against Bold for breach of contract. However, in the week before the case was due to be decided in court, A sold the machine to a new client for exactly the same amount of money that it would have received from Bold. So, they sold that for $7 million. It may be assumed that the UN Convention on Contracts for the International Sale of Goods applies.

In Task 1, then, which two of the following statements explain the purposes of awarding damages for breach of contract? So, remember that a, uh, case for breach of contract is a civil, as opposed to a criminal, case. And the objective, therefore, of this is to compensate the innocent party for any financial loss. So, in this case, Axel, a, um, has entered into the contract, they've done the work, they've incurred the costs. Um, if they suffer a financial loss, then they have a right to compensation. In terms of the overall objective, it is about putting the parties in the position they would have been in had the contract been performed. It is not the intention of damages to put parties back in the position they would have been in before the contract was formed. Now, that might be relevant to you if you are ever in a, a retail situation where you've bought something. Obviously, purchasing something in a shop is a, a contract, and you're not happy with the product. Often, what the retailer says is, "Well, I'll give you a refund." Now, you have the right to accept that, but you also, um, often have the right to say, "Actually, no, I don't want a refund. I want you to supply the product that you undertook to supply me with." And because this is civil, as opposed to criminal law, there is no, uh, punishment involved here. There are some, uh, situations where we see punitive damages, um, but that's not in the UN Convention on Contracts for the International Sale of Goods. So, punitive damages, a very much a niche area. You see a little bit more in the United States, um, but generally speaking, that is not the intention of awarding damages for breach of contract.

Task 2: Which two of the following statements in relation to the duty to mitigate losses are correct? When we talk about mitigating losses, this is the action taken by the injured party. So, if in this situation, uh, um, A is, uh, suffering a loss as a result of B's breach of contract, um, A still has a duty to mitigate their losses. Uh, what that means is the duty lies with the party who suffers the breach, in this case, Axel or A. It does not lie with the party who is in breach, in this case, party B. It does not increase damages, it reduces damages. The word mitigation, to reduce your losses. So, as the injured party, the party that suffered the breach, um, they have a duty to minimize their losses through their actions, and that will therefore reduce the damages that are incurred.

The third and final task, then: What level of damages can Axel claim for breach of contract? Well, we've established already that Axel has a duty to mitigate their losses, and we've established that Axel has sold the machine for the price they would have received from B. In other words, the fact that the money that they've got in hasn't come from Bold doesn't matter. A has not suffered any financial loss. They expected to sell the machine for $7 million. They did sell the machine for $7 million. Therefore, there is no loss. The answer is zero.

This question looks at fraudulent and wrongful trading. So, the scenario here, we've got two directors, Fran and Graham, F and G. They registered a private limited company, and each of them is a director. Now, the company made a small profit in the first year. Second year of trading, it made a loss. At this point, Fran said he wanted the company to cease trading. Graham was insistent that they should continue. So, what happens? Graham continues, and Fran takes less of a part in the day-to-day management of the company. However, he does remain as a company director. What then happens? Well, Graham then falsifies the accounts for a period of three years to disguise the continued losses. Eventually, it becomes obvious there's no alternative, we're going to go into liquidation, and there are debts.

The first task is about wrongful and fraudulent trading. What type of action is taken? Is this civil, criminal, or both? So, just as a reminder, uh, civil action, the objective is to compensate the injured party, whereas criminal action, the objective is to punish the wrongdoer. Now, in terms of our definitions of fraudulent and wrongful trading, so both of these fall under the Insolvency Act 1986, um, and fraudulent trading is when a director or anybody else carries on trade with the intention of defrauding creditors. Wrongful trading, on the other hand, takes place when a director or a shadow director should reasonably have known that there was a problem with the company's liquidity. Now, note, therefore, the difference. Fraudulent trading, there is intention. Wrongful trading, there doesn't have to show intention, just reasonableness. Now, in terms of what does this mean in terms of civil and criminal liability? So, uh, fraudulent trading can be a civil case, but it can also be criminal. So, it's both civil and criminal. So, somebody, an injured party, a creditor, can take action against the directors, but the state can also take criminal action against the directors to punish them. Whereas wrongful trading is a civil offense only, and you would not normally expect to be prosecuted and punished for, for wrongful trading.

So, for Task 2, we've already talked about the definitions of fraudulent and wrongful trading, uh, under the Insolvency Act. So, what is the situation here? Well, which applies in the case of Fran? Well, Fran was not actively involved in running the company. Fran was taking less of a part of the day-to-day management. There's no evidence that Fran was deliberately committing fraud. However, as a company director, he should reasonably have been aware of this. Stepping back and being ignorant is not a valid defense. Um, the fact that the company had been struggling, the fact that Fran thought the company should be wound up and allowed it to continue, um, means that, uh, you could look at a charge of wrongful trading for Fran. Graham, on the other hand, uh, is different. Graham, there is a clear intention because he's falsified the accounts. That falsification makes this fraudulent trading.

A written ordinary resolution requires the approval of which of the following? So, just as a reminder, a written resolution is limited to private companies, and it allows the members to pass a resolution without actually having to meet in the same place. Um, having said that, the fact that it's a written resolution does not change the level of voting required. So, I'm going to put that bit in brackets. So, we basically, we're talking about an ordinary resolution that happens to be passed in writing. So, an ordinary resolution requires more than 50% of those actually voting. So, it's no different to an ordinary resolution in a meeting. Now, just be aware of a couple of tricks that you might see in the exam. The first is that it's more than 50% of those actually voting, not those entitled to vote. So, if you have a hundred shareholders and only 10 of them turn up, you can pass a resolution with six votes. Um, just be aware as well that it is more than 50%. In other words, 50% cannot pass an ordinary resolution. So, if you have two shareholders, you need both shareholders to vote in favor of a resolution in order to pass it, assuming they're equal shareholders. One by themselves is 50%. 50% is not enough to pass an ordinary resolution.

Which of the following is not a form of alternative dispute resolution? Well, an alternative dispute resolution is when we have two parties in a state of disagreement, and they make a decision not to go down the formal legal approach. And the reason for that is often to do with the cost, the time, and the complexity of a legal case. So, the alternative dispute resolution seeks to find a resolution between this disagreement without recourse to the full legal system. And generally speaking, there are three types of alternative dispute resolution. Uh, one of them is mediation. Um, so when two parties go to mediation, an independent party suggests a solution. So, there's a specific dispute, the two parties go to the mediator, the mediator tries to find common ground, and they will suggest a solution. Uh, there is no obligation under mediation to adopt that solution. Under arbitration, however, uh, the two parties agree before the start of the ADR, the alternative dispute resolution, that they will be bound by the recommendation. But in the case of mediation, the independent party suggests a solution. No obligation for either party to follow it. I'm going to go on to conciliation next. This is when the independent party helps the two sides to find their own solution. So, conciliation, sometimes described a bit like marriage guidance. Yeah, you, you bring the two parties into the room, you try to get them to see things from the other person's point of view, you try to encourage them to find their own solution. The difference, therefore, between mediation and conciliation is that the mediator will actively suggest a solution that they think is fair. Under, with the conciliator will not suggest a solution. That leaves us with harmonization. Harmonization is not a form of alternative dispute resolution. Harmonization, in a legal context, is when, uh, countries, states, uh, have to bring their own legislation into harmony with, uh, wider standards. So, a classic example of this would be the European Union has, uh, EU-wide legally binding standards, and it's important that those rules are harmonized, standardized across all the states. Um, but that is not a form of ADR. So, the answer is harmonization.

Which two of the following are recognized mechanisms for international payment? We start with a letter of comfort, which is an assurance about a debt, so normally given to a bank by a third party. The important thing about a letter of comfort is it is not a legal guarantee. Yeah, so an assurance is providing some, um, comfort, as the Les, as the term suggests, but it's not a guarantee. Um, so that is not a recognized mechanism for an international payment. A letter of credit, on the other hand, is a guarantee for a payment. So, uh, normally this is issued by one bank to another bank, and it's basically guaranteeing that, uh, the bank account holder, um, is able to pay, will pay, uh, under sort of specified conditions. So, that is a recognized mechanism. It provides that guarantee that the seller is looking for. A bill of exchange is a promissory note. It is a promise. It's similar to a letter of credit, um, the difference here, though, uh, it's normally from an individual rather than, uh, a bank, but it's an order which requires the person to make a specified payment. So, uh, that is also a recognized mechanism for international payment. Um, a bill of lading, our fourth option here, is simply a receipt. It's a receipt given by the transporter, so for example, the captain of a ship. Uh, it's a receipt that's handed over in return for the goods that are being handed over. So, two recognized mechanisms for international payment: the letter of credit and the bill of exchange.

This question looks at Section 122 of the Insolvency Act 1986, and the question here is, which of the following cannot petition for the compulsory winding up of a company on the grounds of insolvency under the Insolvency Act? Uh, well, under Section 122, the board of directors, uh, they can petition for, uh, the winding up of the company on the grounds that it's insolvent, as can the company's creditors, as can the Secretary of State. So, the Secretary of State acts as sort of a, an overall monitor, an overall, uh, reviewer to make sure that things are are happening as they should. The Secretary of State can take, take, uh, submit a petition. Of course, submitting a petition does not mean that the company has automatically wound up. Um, this is only a petition, and then the courts will decide whether or not to wind the company up. Now, that means, therefore, that the members of the company cannot petition for the compulsory winding up of a company on the grounds of insolvency. There are options that the members of the company have. They can petition the courts for the winding up of the company. They can petition to on the ground that it is just and equitable to do so. In other words, the members of the company don't have to show insolvency. Uh, they have to show that actually it's just and equitable, it's fair to do so. So, because this question is specifically around insolvency, the members of the company cannot petition on the grounds of insolvency. So, therefore, that is the answer.