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ACCA f4 EW study text 2011

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F4 ENG Study Text
Corporate and Business Law

ACCA


ACCA

Paper

F4 (ENG)

Corporate and
business law (English)

Welcome to Emile Woolf‘s study text for
Paper F4 Corporate and business law (English) which
is:
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„

Comprehensive but concise

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In simple English

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Paper F4 (ENG)
Corporate and business law

c
Contents
Page

Syllabus and study guide

1

Chapter 1: The English legal system

9

Chapter 2: The law of contract: offer and acceptance

39

Chapter 3: The law of contract: contract terms and breach of contract

67

Chapter 4: The law of tort

95

Chapter 5: Employment law

123

Chapter 6: Agency law

149

Chapter 7: Partnership law

167

Chapter 8: Companies and legal personality

199

Chapter 9: Company formation and constitution

219

Chapter 10: Capital and financing of companies

243

Chapter 11: Directors and other officers. Company auditors

279

Chapter 12: Company meetings and resolutions

315

Chapter 13: Company insolvency

329

Chapter 14: Corporate governance

345

Chapter 15: Fraudulent behaviour

361

Practice questions

377

Answers to practice questions

401

Table of cases

463

Index

469

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iv

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Paper F4 (ENG)
Corporate and business law

S
Syllabus and study guide

Aim
To develop knowledge and skills in the understanding of the general legal
framework, and of specific legal areas relating to business, recognising the need to
seek further specialist legal advice where necessary.

Main capabilities
On successful completion of this paper candidates should be able to:
A

Identify the essential elements of the legal system, including the main sources
of law

B

Recognise and apply the appropriate legal rules relating to the law of
obligations

C

Explain and apply the law relating to employment relationships

D

Distinguish between alternative forms and constitutions of business
organisations

E

Recognise and compare types of capital and the financing of companies

F

Describe and explain how companies are managed, administered and
regulated

G

Recognise the legal implications relating to companies in difficulty or in crisis

H

Demonstrate an understanding of governance and ethical issues relating to
business.

© Emile Woolf Publishing Limited

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Paper F4: Corporate and business law (English)

Syllabus content
A

Essential elements of the legal system
1
2
3

B

The law of obligations
1
2
3
4
5

C

Company directors
Other company officers
Company meetings and resolutions

Legal implications relating to companies in difficulty or in crisis
1

H

Share capital
Loan capital
Capital maintenance and dividend law

Management, administration and regulation of companies
1
2
3

G

Agency law
Partnerships
Corporations and legal personality
Company formations

Capital and the financing of companies
1
2
3

F

Contract of employment
Dismissal and redundancy

The formation and constitution of business organisations
1
2
3
4

E

Formation of contract
Content of contracts
Breach of contract and remedies
The law of torts
Professional negligence

Employment law
1
2

D

Court structure
Sources of law
Human rights

Insolvency

Governance and ethical issues relating to business
1
2

Corporate governance
Fraudulent behaviour

Approach to examining the syllabus
The syllabus is assessed by a three hour paper-based examination.
The examination consists of seven 10 mark questions assessing knowledge of the
law, and three 10 mark application questions.

2

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Syllabus and study guide

Study Guide
This study guide provides more detailed guidance on the syllabus. You should use 
this as the basis of your studies. 
A

ESSENTIAL ELEMENTS OF THE LEGAL SYSTEM
1

Court structure
(a)
(b)

2

Sources of law
(a)
(b)
(c)

3

Explain what is meant by case law and precedent within the
context of the hierarchy of the courts.
Explain legislation and evaluate delegated legislation.
Illustrate the rules and presumptions used by the courts in
interpreting statutes.

Human rights
(a)
(b)
(c)

B

Define law and distinguish types of law.
Explain the structure and operation of the courts and tribunals
systems.

Identify the concept of human rights as expressed in the Human
Rights Act 1998.
Explain the impact of human rights law on statutory
interpretation.
Explain the impact of human rights law on the common law.

THE LAW OF OBLIGATIONS
1

Formation of contract
(a)
(b)
(c)
(d)
(e)
(f)

2

Content of contracts
(a)
(b)
(c)

3

Analyse the nature of a simple contract.
Explain the meaning of offer and distinguish it from invitations to
treat.
Explain the meaning and consequence of acceptance.
Explain the need for consideration.
Analyse the doctrine of privity.
Distinguish the presumptions relating to intention to create legal
relations.

Distinguish terms from mere representations.
Define the various contractual terms.
Explain the effect of exclusion clauses and evaluate their control.

Breach of contract and remedies
(a)
(b)
(c)

© Emile Woolf Publishing Limited

Explain the meaning and effect of breach of contract.
Explain the rules relating to the award of damages.
Analyse the equitable remedies for breach of contract.

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Paper F4: Corporate and business law (English)

4

The law of torts
(a)
(b)
(c)
(d)
(e)

5

Professional negligence
(a)

C

Contract of employment
(a)
(b)

2

Distinguish between employees and the self-employed.
Explain the nature of the contract of employment and give
examples of the main duties placed on the parties to such a
contract.

Dismissal and redundancy
(a)
(b)
(c)

Distinguish between wrongful and unfair dismissal including
constructive dismissal.
Explain what is meant by redundancy.
Discuss the remedies available to those who have been subject to
unfair dismissal or redundancy.

THE FORMATION AND CONSTITUTION OF BUSINESS ORGANISATIONS
1

Agency law
(a)
(b)
(c)
(d)

2

(b)
(c)
(d)
(e)
3

Define the role of the agent and give examples of such
relationships paying particular regard to partners and company
directors.
Explain how the agency relationship is established.
Define the authority of the agent.
Explain the potential liability of both principal and agent.

Partnerships
(a)

Demonstrate a knowledge of the legislation governing the
partnership, both unlimited and limited.
Discuss how partnerships are established.
Explain the authority of partners in relation to partnership activity.
Analyse the liability of various partners for partnership debts.
Explain the way in which partnerships can be brought to an end.

Corporations and legal personality
(a)
(b)
(c)
(d)

4

Explain and analyse the duty of care of accountants and auditors.

EMPLOYMENT LAW
1

D

Explain the meaning of tort.
Identify examples of torts including ‘passing off’ and negligence.
Explain the duty of care and its breach.
Explain the meaning of causality and remoteness of damage.
Discuss defences to actions in negligence.

Distinguish between sole traders, partnerships and companies.
Explain the meaning and effect of limited liability.
Analyse different types of companies, especially private and
public companies.
Illustrate the effect of separate personality.

© Emile Woolf Publishing Limited


Syllabus and study guide

(e)
4

Company formations
(a)
(b)
(c)
(d)
(e)
(f)
(g)

E

Explain the role and duties of company promoters.
Describe the procedure for registering companies, both public and
private.
Describe the statutory books, records and returns that companies
must keep or make.
Describe the contents of model articles of association.
Analyse the effect of a company’s constitutional documents.
Explain how articles of association can be changed.
Explain the controls over names that companies may or may not
use.

CAPITAL AND THE FINANCING OF COMPANIES
1

Share capital
(a)
(b)
(c)

2

(e)
3

Examine the different meanings of capital.
Illustrate the difference between various classes of shares.
Explain the procedure for altering class rights.

Loan capital
(a)
(b)
(c)
(d)

Define companies’ borrowing powers.
Explain the meaning of debenture.
Distinguish loan capital from share capital.
Explain the concept of a company charge and distinguish between
fixed and floating charges.
Describe the need and the procedure for registering company
charges.

Capital maintenance and dividend law
(a)
(b)
(c)

F

Recognise instances where separate personality will be ignored.

Explain the doctrine of capital maintenance and capital reduction.
Examine the effect of issuing shares at either a discount, or at a
premium.
Explain the rules governing the distribution of dividends in both
private and public companies.

MANAGEMENT, ADMINISTRATION AND REGULATION OF COMPANIES
1

Company directors
(a)
(b)
(c)
(d)
(e)

© Emile Woolf Publishing Limited

Explain the role of directors in the operation of a company.
Discuss the ways in which directors are appointed, can lose their
office or be subject to a disqualification order.
Distinguish between the powers of the board of directors, the
managing director and individual directors to bind their company.
Explain the duties that directors owe to their companies.
Demonstrate an understanding of the way in which statute law
has attempted to control directors.

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Paper F4: Corporate and business law (English)

2

Other company officers
(a)
(b)

3

Company meetings and resolutions
(a)
(b)
(c)
(d)

G

Distinguish between types of meetings: ordinary and
extraordinary general meetings and class meetings.
Explain the procedure for calling such meetings.
Detail the procedure for conducting company meetings.
Distinguish between types of resolutions: ordinary, special and
written.

LEGAL IMPLICATIONS RELATING TO COMPANIES IN DIFFICULTY OR IN
CRISIS
1

Insolvency
(a)
(b)
(c)

H

Discuss the appointment procedure relating to, and the duties and
powers of, a company secretary.
Discuss the appointment procedure relating to, and the duties and
powers of company auditors.

Explain the meaning of and procedure involved in voluntary
liquidation.
Explain the meaning of and procedure involved in compulsory
liquidation.
Explain administration as an alternative to winding up.

GOVERNANCE AND ETHICAL ISSUES RELATING TO BUSINESS
1

Corporate governance
(a)
(b)
(c)

2

Explain the idea of corporate governance.
Recognise the extra-legal codes of corporate governance.
Identify and explain the legal regulation of corporate governance.

Fraudulent behaviour
(a)
(b)
(c)
(d)

Recognise the nature and legal control over insider dealing.
Recognise the nature and legal control over money laundering.
Discuss potential criminal activity in the operation, management
and winding up of companies.
Distinguish between fraudulent and wrongful trading.

EXAMINABLE DOCUMENTS
Knowledge of new examinable regulations and legislation issued by 30 September
will be examinable in examination sessions being held in the following calendar
year.
Documents may be examinable even if the effective date is in the future. This means
that all regulations and legislation issued by 30 September 2008 will be examinable
in the June and December 2009 examinations.

6

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Syllabus and study guide

The study guide offers more detailed guidance on the depth and level at which the
examinable documents will be examined. The study guide should be read in
conjunction with the examinable documents list.
Note on case law
Candidates should support their answers with analysis referring to cases or
examples. There is no need to detail the facts of the case. Remember, it is the point
of law that the case establishes that is important, although knowing the facts of
cases can be helpful as sometimes questions include scenarios based on well-known
cases.
English legal system
Knowledge of the Human Rights Act 1998 and the Constitutional Reform Act 2005
is required.
The law of obligations
Knowledge of the Unfair Contract Terms Act 1977, the Unfair Terms in Consumer
Contracts Regulations 1999, and the Contracts (Rights of Third Parties) Act 1999 is
required.
Employment law
Knowledge of the Employment Rights Act 1996 and the Employment Tribunals
(Constitution and Rules of Procedure) Regulations 2004 is required.
Partnership law
Knowledge will be required of the Partnership Act 1890, the Limited Partnerships
Act 1907, the Limited Liability Partnerships Act 2000, and the Civil Liability Act
1978.
Company law
Knowledge of the Companies Act 2006 is required. Knowledge is also required of
the Business Names Act 1985, the Company Directors Disqualification Act 1986, the
Insolvency Act 1986, and the Financial Services and Markets Act 2000.
Governance and ethical issues
Knowledge of the Combined Code on Corporate Governance is required.
Knowledge of the Criminal Justice Act 1993 in relation to insider dealing, and the
Proceeds of Crime Act 2002, the Prevention of Terrorism Act 2005 and the Money
Laundering Regulations 2007 in relation to money laundering, is required.

© Emile Woolf Publishing Limited

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Paper F4: Corporate and business law (English)

8

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Paper F4 (ENG)

CHAPTER

Corporate and business law

1

The English legal system

Contents

© Emile Woolf Publishing Limited

1

Sources of English law

2

The court structure

3

Case law and precedent

4

Statute law

5

The European Convention on Human Rights and
the Human Rights Act 1998

6

The European Union as a source of English law

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Paper F4: Corporate and business law (English)

Sources of English law
„

Introduction to business and corporate law

„

Where does the law come from?

„

Introduction to case law (common law)

„

When is case law applied?

„

Introduction to legislation (statute law)

„

Criminal law and civil law

„

Identification of cases

1

Sources of English law

1.1

Introduction to business and corporate law
The law is the formal system of rules and regulations about how individuals and
other legal persons should behave. As accountants, you need to be aware of the law
relating to business. You do not need to be an expert in the law, but you need a
knowledge and understanding of the main aspects of business and corporate law.
These include:

1.2

„

the law relating to contracts

„

the law of agency

„

the law relating to companies (corporate law) and business partnerships

„

employment law.

Where does the law come from?
Before going into the detail of different aspects of business and corporate law, it is
important to understand where the law comes from and how it is established.
Some countries have a comprehensive set of formal laws which are contained in a
number of legal codes. England, however, does not have a codified legal system.
There are three main sources of English law:
„

case law, also called common law

„

legislation, also called statute law

„

the European Union.

The effect of the European Union on English law will be explained in more detail
later.

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Chapter 1: The English legal system

It is possible that local custom and practice may provide a source of law, so that the
law is based on the rules that have been practised for very many years. However,
although custom may occasionally be the source of an existing law, it is most
unlikely to provide a source of new law (‘contemporary law’). New laws originate
from legislation, the European Union or case law.

1.3

Introduction to case law (common law)
Case law, or common law, is law that is established by judicial decisions in the
English courts. Some decisions made by a court are binding and similar subsequent
legal cases should be decided on the basis of the law established in the earlier case.
This is the doctrine of precedence: subsequent legal cases are decided by a similar
case that has preceded it.
This doctrine is explained in more detail later.
Common law in England has its origins in the Middle Ages, after the Norman
Conquest. A unified system of law for the whole country was established by judges
who travelled the country. A decision made by a judge in one part of the country
was applied across the entire country, which is how the doctrine of precedence
began. Legal decisions became more predictable, because they were based on the
common law. (Common law replaced differing local customs and practices.)
Decisions made in accordance with common law could sometimes be unfair.
Another system of law was therefore established, called ‘equity’. When a person
believes that he would suffer an injustice if the common law is applied in his case,
he might apply to a court for the case to be decided what is fair and reasonable
(equitable).
Cases might therefore be decided on the basis of equity rather than the common
law.
However, for the purpose of your examination, it is sufficient to understand that
case law is one way in which the law is established.

1.4

When is case law applied?
Case law cannot be applied until there has been a legal case in the courts that
establishes a precedent for subsequent cases. Once a precedent has been established,
it can be applied to all subsequent legal disputes, even if these do not come to court.
The parties to a dispute may be advised by their solicitors what the outcome would
be if the matter did go to court, and to save time and money the case might
therefore be settled out of court.
Case law might establish a precedent in two types of situation:
„

when there is no legislation relating to the matter in dispute: in business law, for
example, many aspects of contract law are not covered by legislation

„

when the courts interpret legislation, when there is disagreement about how the
legislation should be applied in the case. Decisions by a court can interpret the
legislation, but cannot overrule it or overturn it.

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Paper F4: Corporate and business law (English)

1.5

Introduction to legislation (statute law)
Legislation in England, also known as statute law, consists of:
„

primary legislation, which takes the form of Acts of Parliament, and

„

secondary legislation, which is usually called delegated legislation.

New legislation may replace the common law that existed before, or may replace
earlier legislation.

1.6

Criminal law and civil law
There is an important difference between criminal law and civil law. However,
criminal law and civil law are both established by case law and legislation.
The criminal law establishes crimes against the state. A crime is behaviour that is
prohibited by law, and the state takes legal action against offenders. There are
thousands of criminal offences in England, from relatively minor offences such as
using a mobile phone whilst driving a car to more serious offences such as murder
and theft. Typically, a criminal case is brought to court after an investigation by the
police. The police make a report to the Crown Prosecution Service (CPS) which then
makes a decision about whether or not to prosecute.
„ For criminal cases, there is trial by jury. (However, there may be an appeal and
the appeal will be heard by one or more judges without a jury.)
„

The courts have a range of different punishments that they might apply to any
person found guilty of a crime. For business crime, punishments might be
imprisonment, a fine (payable to the state) or both a fine and imprisonment.

„

The ‘burden of proof’ is greater in a criminal case than in a civil case. In a
criminal case, the accused must be found guilty ‘beyond reasonable doubt’. In
civil cases, decisions are reached ‘on the balance of probabilities’. This means
that it is more difficult to find a person guilty in a criminal court than it is to find
the same person liable in a civil court for a similar or related offence.

The civil law applies to legal disputes between individuals who have dealings with
each other. Contract law and company law are mainly civil law. In a civil dispute,
one person brings a case against another person, and asks the court for a remedy or
for compensation. The person bringing the case is called the plaintiff, and the person
accused of wrongdoing is called the defendant.

1.7

„

Civil cases are heard by a judge (there is no jury).

„

If the court rules in favour of the plaintiff, it will specify a remedy that is
appropriate in the circumstances. The remedy may include or consist of the
payment of compensation (or ‘damages’) by the defendant to the plaintiff.

Identification of cases
Individual cases will be referred to in this text in three ways.
„

12

In a criminal case, the case concerns a prosecution brought by the Crown
(Regina or Rex) against the accused person. Criminal cases are therefore
identified as ‘Regina or Rex versus the accused person’ – for example R v Smith.

© Emile Woolf Publishing Limited


Chapter 1: The English legal system

„

A civil case is identified as the plaintiff versus the defendant, possibly with the
year in which the case is heard in the court. For example, Wilkins v Peabody
[2009].

„

Sometimes a civil case might be identified using the word ‘Re’ which means
‘concerning the affairs of’ or ‘relating to’. For example: Re Brown [2009].

© Emile Woolf Publishing Limited

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Paper F4: Corporate and business law (English)

The court structure
„

Hierarchy of courts: courts of first instance and courts of appeal

„

The hierarchy of civil courts

„

The hierarchy of criminal courts

„

The Supreme Court of the United Kingdom (and the House of Lords)

„

Tribunals: employment tribunals

2

The court structure

2.1

Hierarchy of courts: courts of first instance and courts of appeal
The system of courts for criminal law is different from the court system for civil law.
However, both the criminal law and civil law court systems are hierarchical
systems, with lower courts and higher courts.

2.2

„

Court cases are heard initially (‘in the first instance’) in a lower court.

„

A person may be able to appeal against a decision in a particular case. Appeals
are made to a higher court.

„

Similarly, a person may be able to appeal against a decision in an appeal court.
This appeal will be heard in an even higher court.

„

The highest court of appeal, for both criminal and civil cases, used to be the
Appeal Court of the House of Lords. The judicial authority of the House of
Lords was transferred to a new Supreme Court of the United Kingdom by the
Constitutional Reform Act 2005.

„

However, appeals in matters concerning European Union legislation may be
referred to the European Court of Justice or the European Court of Human
Rights.

„

Some civil cases are dealt with in the first instance, not in a court of law, but by a
tribunal. Tribunals may be used to deal with matters relating to specific areas of
the law. The most significant tribunals are Employment Tribunals, which deal
with many disputes relating to employment law. There is a system for appealing
against decisions of a tribunal.

The hierarchy of civil courts
The hierarchy of civil courts is summarised in the following diagram. (The role of
the European Court of Justice and the European Court of Human Rights will be
explained in a later section.)

14

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Chapter 1: The English legal system

Supreme Court of the United
Kingdom
(but previously, the House of
Lords)

Court of Appeal
(Civil Division)

High Court
(Queens Bench Division, Family,
Chancery)

County Court

Crown Court

Employment
Appeals Tribunal

Employment
tribunal

Most civil cases in the first instance are heard in a County Court, although
magistrates’ courts have some civil jurisdiction, especially for dealing with familyrelated matters under the Children Act 1989. County courts have a District Judge
and deal mainly with small claims and ‘fast track’ cases
The High Court consists of three divisions, and each division deals with different
types of civil case. They deal in the first instance with major cases, and they also
hear appeals from County Courts and Crown Courts.
„

Disputes relating to contract law and tort are dealt with by the Queens Bench
Division.

„

Disputes relating to company law and partnership law, and cases relating to
land, mortgages, probate (wills) and bankruptcy are dealt with by Chancery.

„

The Family Division hears cases relating to family- and children-related matters,
including appeals against decisions by magistrates courts and County Courts

The Employment Appeals Tribunal hears appeals against decisions by an
Employment Tribunal.
The Court of Appeal (Civil Division) hears appeals from the lower courts, including
the Employment Appeals Tribunal. The court sually has three judges, whose
decision is by majority.
There is a final court of appeal which hears appeals against decisions in the Court of
Appeals and (in some cases) the High Court. The final court of appeal used to be the
Appeal Court of the House of Lords, but it is now the Supreme Court of the United
Kingdom, following the introduction of the Constitutional Reform Act 2005.

© Emile Woolf Publishing Limited

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Paper F4: Corporate and business law (English)

2.3

The hierarchy of criminal courts
The hierarchy of criminal courts is summarised in the following diagram.
Supreme Court of the
United Kingdom
(but previously, the
House of Lords)

Court of Appeal
(Criminal Division)

Crown Court

Magistrates Court

Magistrates Courts try minor criminal offences, known as ‘summary offences’.
Most serious criminal cases (‘indictable offences’) are tried in the first instance in a
Crown Court with trial by jury. (For example, the Old Bailey is a Crown Court.).
There are some ‘either way’ offences, where the defendant has the choice of having
the case dealt with in a magistrate’s court or trial by jury in a Crown Court.
Appeals are to the Criminal Division of the Court of Appeal, and a further appeal
may be allowed to the Supreme Court.

2.4

The Supreme Court of the United Kingdom (and the House of Lords)
The Supreme Court can be seen as a supreme court for the civil and criminal court
systems in England, because it is the highest court of appeal.
However, decisions by the Supreme Court are subject to:
„

decisions by the European Court of Justice, with regard to matters relating to
European Union law, and

„

decisions of the European Court of Human Rights, with regard to matters
relating to human rights (following the introduction of the Human Rights Act
1998).

As stated earlier, the final court of appeal used to be the Appeal Court of the House
of Lords, consisting in total of 12 ‘Lords of Appeal in Ordinary’. These were both
judges and also members of the House of Lords. The judges appointed to deal with
an appeal case would be drawn from these 12 Lords of Appeal.

16

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Chapter 1: The English legal system

Constitutional Reform Act 2005
The system was changed by the Constitutional Reform Act 2005. This transferred
the ‘appellate jurisdiction’ of the House of Lords to a new Supreme Court of the
United Kingdom, consisting of 12 Supreme Court Justices and led by a President
and Deputy President. The Supreme Court is now the final court of appeal.
The main reason for this constitutional change were:

2.5

„

to make a clear division between the legislative authority (the Houses of
Parliament) and the judicial authority in the UK constitution. Previously the
Lords of Appeal were both members of the House of Lords and senior members
of the judiciary in England and Wales

„

to change the method of appointing judges to the final court of appeal. The 2005
Act introduced a new system for the appointment of judges to the Supreme
Court, although the first 12 judges appointed to the Supreme Court were the 12
existing Lords of Appeal in Ordinary. Appointments of new Supreme Court
Justices are now the responsibility of a Judicial Appointments Commission.

Tribunals: employment tribunals
Because of the specialist nature of some areas of English law, and to speed up the
administration of the law, a number of specialist tribunals are used to deal with
specific types of legal dispute.
A tribunal is a body that is appointed to adjudicate on a matter. In England,
tribunals usually consist of three individuals. One is a legally-qualified person and
the other two do not have a legal background.
Tribunals deal with matters such as social security, race relations, immigration and
employment. Typically, tribunals deal with disputes involving individuals and the
State bureaucracy or machinery of government. However, some tribunals consider
disputes between private parties – for example, employment tribunals consider
disputes between employees (or former employees) and employers.
Employment tribunals
The most important type of tribunal for the purpose of your examination is the
employment tribunal, which deals with disputes relating to employment law such
as:
„

complaints about unfair dismissal

„

equal pay disputes

„

claims relating to discrimination at work on the grounds of sex, race, disability
and age

„

health and safety issues

„

disputes over trade union membership.

It can be argued that employment tribunals are a form of court, and are a part of the
court system. In the UK for example:

© Emile Woolf Publishing Limited

17


Paper F4: Corporate and business law (English)

„

cases involving certain employment disputes, such as claims for unfair or
wrongful dismissal, are heard by an Employment Tribunal

„

appeals against a decision of an Employment Tribunal are referred to an
Employment Appeal Tribunal

„

appeals against a decision of the Employment Appeal Tribunal are referred to a
Court of Appeal (Civil Division) which considers appeals that are referred from
the lower civil courts (and which is the highest court of appeal in the civil court
system below the House of Lords).

Although tribunals might be considered a part of the court system, they deal with
cases differently from the normal civil courts:

18

„

Speed. Cases brought before a tribunal are dealt with much more quickly than
civil cases dealt with by the court system.

„

Cost. Tribunals are much less expensive. Individuals do not require legal
representation and tribunals do not need a court building to hear cases.

„

Informality and flexibility. Proceedings in tribunal cases are much more
informal than cases heard in court, and can be much more flexible.

„

Expertise. The tribunal members together have extensive expertise in dealing
with cases and knowledge of their specialist area.

„

Privacy. Cases are heard in private, and unwelcome publicity is avoided.

„

Accessibility. It is usually easier for individuals to obtain a hearing before a
tribunal than it is to bring a case to court.

© Emile Woolf Publishing Limited


Chapter 1: The English legal system

Case law and precedent
„

Precedent and the doctrine of binding precedent

„

How is a binding precedent established?

„

Persuasive precedent

„

How can binding precedents be altered or avoided?

„

Situations when a court is not bound by its own previous decisions

„

Advantages and disadvantages of binding precedent

3

Case law and precedent

3.1

Precedent and the doctrine of binding precedent
Case law (or common law) is the law that is created by decisions in cases that have
been heard in court. Common law is applied:
„

when there is no statute law dealing with this part of the law, or

„

when statute law exists, but there is disagreement about what the statute law
means: a court may be required to interpret the statute law.

The doctrine of binding precedent is essential to common law. The doctrine of
binding precedent means that when a court has to make a decision in a case, it
should base the decision on what has been decided in earlier cases. If courts follow
the decisions in previous cases, the law will be applied consistently throughout the
country.
Case law and precedent operate within the hierarchical structure of the court
system.
„

The decision of a higher court is binding on courts that are lower in the
hierarchical structure.

„

A precedent established in one court can be overturned at a future date, but only by
a higher court.

Example
A judicial precedent might be established by the Court of Appeal. In similar cases in
the future, the High Court and Crown Courts will be bound to follow this precedent
and make similar decisions. However, the precedent set by the Court of Appeal
might be overturned by a decision by the Supreme Court (or, previously, by the
House of Lords).

© Emile Woolf Publishing Limited

19


Paper F4: Corporate and business law (English)

Definitions: precedent and the doctrine of binding precedent
Precedent and the doctrine of binding precedent can therefore be defined as follows.
„

A precedent is a legal principle established by one court’s decision that other
courts must follow in deciding on similar cases in the future. A precedent must
be established by a court of sufficient seniority in the hierarchy: courts of first
instance (at the lowest level in the hierarchy) are not allowed to issue binding
precedents.

„

The doctrine of judicial precedent or doctrine of binding precedent is that a
judge presiding over a court case must apply the principles established by
precedent to the facts of the case, provided that the circumstances of the case are
the same. The decision in the subsequent case should therefore be the same as in
the case in which the precedent was set. However, where the circumstances of a
subsequent case are different, the judge in the subsequent case may reach a
different decision that creates yet another precedent.

As the world changes, new legal disputes arise where the law has not yet been
established by judicial precedent. In the absence of statute law, any such new
dispute may require a new judicial opinion and a new precedent. In this way, case
law can keep pace with progress in human affairs and social change.

3.2

How is a binding precedent established?
A precedent is established in the following circumstances.
„

The judicial decision that creates a precedent must be based on a proposition of
law or principle of law. A precedent cannot be based simply on a question of
fact. It is not the actual decision in a particular case that creates the precedent:
the precedent is established by a principle of law or proposition of law

„

This proposition or principle of law must have been used by the judge in
reaching his decision in the particular case. The reason for reaching a decision in
a particular way is called the ‘ratio decidendi’. This is Latin for: ‘the reasoning
behind the decision’.

„

A judicial decision may also include a statement of law that was not a part of the
ratio decidendi in the case. Any such statement of the law is irrelevant to the
decision and such statements are sometimes called ‘obiter dicta’, which means
‘said by the way’. Statements of the law that are obiter dicta do not form part of
the binding precedent. However, they may be treated as a persuasive authority
and taken into consideration by judges in later cases.

Applying the doctrine of precedent in practice
There are comprehensive law reports on decisions in earlier cases, and judges
should refer to these and look for a similar case that sets a precedent.

20

„

If a precedent is discovered that was set by a court of equal or higher status, the
judge dealing with the current case should normally follow this precedent.

„

There are rules for establishing the legal principle from the details of an earlier
case, and applying the principle to the facts of the current case. The legal
principle must form part of the judge’s ratio decidendi.

© Emile Woolf Publishing Limited


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