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ACCA

PAPER F4
CORPORATE AND BUSINESS
LAW
SCOTTISH VARIANT
SUPPLEMENT

FOR EXAMS UP TO JUNE 2014

First edition January 2011


Third edition February 2013
British Library Cataloguing-in-Publication Data
A catalogue record for this book
is available from the British Library
Published by
BPP Learning Media Ltd
BPP House, Aldine Place
London W12 8AA
www.bpp.com/learningmedia

All our rights reserved. No part of this publication may be


reproduced, stored in a retrieval system or transmitted, in
any form or by any means, electronic, mechanical,
photocopying, recording or otherwise, without the prior
written permission of BPP Learning Media Ltd.

We are grateful to the Association of Chartered Certified


Accountants for permission to reproduce past
examination questions.

BPP Learning Media Ltd


2013

Contents
Page

Introduction
1
2
3
4
5
6
7
8-9
10-11
12
13-15
16-18
19-20
21
22
23

The English legal system (Scottish variant)


Sources of English law (Scottish variant)
Human Rights
Formation of contracts I
Formation of contracts II
Terms of contract
Breach of contract
The law of torts and professional negligence
Employment law
Agency law
Company law
Capital and financing
Directors, other company officers and meetings
Insolvency and administration
Corporate governance
Fraudulent behaviour

4
5
17
33
35
39
41
43
45
45
45
47
49
49
49
49
49

Exam question and answer bank

51

Mock exam (December 2012 Paper)

93

Contents

Introduction
This is a supplement to the BPP Learning Media Study Text and Practice and Revision Kit for ACCA
Paper F4 Corporate and Business Law (English Variant) for exams up to June 2014. It should be read in
conjunction with those materials only, as directed in this supplement.
This supplement should not be used in conjunction with any other edition of the BPP Learning Media
Study Text or Practice and Revision Kit for Paper F4.
The purpose of this supplement is to identify the main features of Scottish law that are different from
English law described in the Study Text.
Each chapter in this supplement contains a Chapter approach, setting out the key differences between
English and Scottish law relevant to that chapter and, in the light of those differences, how you should
approach that chapter in the Study Text.

Question practice and mock exam


At the end of each chapter is a Question Practice guide which explains which questions you should
attempt from the exam bank in this supplement, or the Study Text, as well as which questions should be
attempted from the Practice and Revision Kit during your revision phase.
You should attempt the mock exam (which is the actual December 2012 paper) on completion of your
studies as part of your revision.
Note. The answers to this supplements exam bank and mock exam are the examiners actual answers
provided by the ACCA. These answers are usually far fuller than what you would be expected to produce
under examination conditions as the examiner has indicated that they are also intended for use as a study
aid. Also, as this supplement is designed to cover just the key differences between English and Scottish
law it is possible that some details in the examiners answers may not appear in the main body of this
supplement.

The exam paper


The examination is a three hour paper divided into ten questions of ten marks each.
Seven will contain short knowledge-based questions.
Three will be problem-based and will test communication skills and the ability to appraise and analyse
information.

Introduction

The English legal


system
(Scottish variant)
Chapter approach
As you are studying for the Scottish variant of this paper, Chapter 1 of the text,
The English Legal System, is not going to be very relevant to you.
Do not read Chapter 1 in your Study Text at all.
Work through the following Introduction to Scottish law.
Topic list

Syllabus reference

1 What is law?

A1(a)

2 Types of law

A1(a)

3 The system of courts

A1(b)

4 The civil court system

A1(b)

5 The criminal court system

A1(b)

6 Tribunals

A1(b)

Introduction
Welcome to your study of Corporate and Business law. In this chapter we set
the scene and framework of the Scottish law.
We start by defining what law is and why it is important to society. Our study
continues by considering the different types of law that we have and how they
have developed over time.
The chapter concludes with an analysis of the Criminal and Civil court
systems. Tribunals are also discussed as an alternative method of dispute
resolution.
The Scottish legal system consists of practical sets of procedures and rules
designed to provide resolutions to ordinary problems. Publicity tends to focus
on the higher courts and the Court of Session. However the vast majority of
cases are heard in the Sheriff courts.
Many people, when they think of the law, have an image in their minds of judge
and jury, or 'cops and robbers'. These are manifestations of criminal law.
Business conduct is generally regulated by civil law. The distinction between
criminal and civil law is fundamental to the Scottish legal system. In order to
understand the Scottish legal system, it is necessary to understand the
differences between criminal and civil cases.
However we begin by considering what law is and the types of law which exist.

1 What is law?
FAST FORWARD

'Law is a formal mechanism of social control', Business Law 5th Edition, David Kelly, Ann Holmes and
Ruth Hayward
Human society has developed over thousands of years from a primitive culture where the very survival of
the species was at stake to the complex, diverse and dominating species that humans are today.
Much of the success of this development can be attributable to rules and regulations laid down by
society. With a little further study the need for such rules becomes clear. In the early days of human
existence, survival was achieved by working as a group. There was a fine line between life and death, for
example the stealing of food from another group member could eventually result in starvation or death of
the victim.
Social order, created by rules is at the foundation of the society that we see today. The framework that
was created influences how individuals interact and how businesses operate. In other words, it provides
social control.
The framework of social control can be viewed as having two aspects:

Formal control mechanisms


Informal control mechanisms

Law is a formal control mechanism. It provides a structure for dealing with and resolving disputes that
may arise, as well as providing some deterrent to those wishing to disrupt social order.
Informal mechanisms include ethical and moral guidance. These are 'norms' or behavioural expectations
that society has developed over time through its culture. Such mechanisms have little formal structure to
organise, control or to punish such matters are dealt with informally by pressure from other individuals
or groups.

2 Types of law
The Scottish legal system distinguishes several different types of law.

Common law
Statute law
Private law and public law
Criminal law and civil law
Historical law such as, Feudal law, Canon law, Institutional law and Customs

2.1 Common law


This is known as judicial precedent or judge-made law. Where cases are brought before a court, the
judge follows the decision of a previous case if the facts are similar. If the point of law is new, then the
judges decision becomes law and future similar cases should follow the same decision.

2.2 Statute law


Whilst the judiciary is responsible for the creation of common law, Parliament is responsible for statute
law. Statute law is usually made in areas so complicated or unique that suitable common law alternatives
are unlikely, or would take an unacceptable length of time, to develop Company law is one example of
this. We shall be studying statute law as a source of law in the next chapter.

1: The English legal system (Scottish variant)

2.3 Private law and public law


Most of the law that you will be studying for in this exam is private law. That is law which deals with
relationships and interactions between businesses, customers, employees and other private individuals,
groups or organisations.
The state provides a framework for dealing with disputes and for enforcing decisions, but it is for
individuals themselves to handle matters between them. For example, the Sale of Goods Act 1979
regulates the sale of goods. It provides rules that must be adhered to when making a sale. Should any
dispute arise that is covered by the act, it is up to the parties to decide the matter themselves using rules
laid down by the legislation, the state does not get involved.
Public law is mainly concerned with government and the operation and functions of public organisations
such as councils and local authorities. It will not be of great interest to you in your studies of corporate
law, however examples of public law can be found in planning rules that must be adhered to when
building or expanding offices.
A key distinction between public and private law is who takes up the case when a wrong is committed.
The state prosecutes the alleged perpetrator under public law, whereas we have already seen, under
private law it is for the individual concerned to take action.
Criminal law is a part of public law. We shall see in the next section that it is concerned with behaviour
that the state considers unwelcome and wishes to prevent . Criminal law also deals with how those guilty
of committing unlawful behaviour should be punished.

2.4 Criminal and civil liability


FAST FORWARD

The distinction between criminal liability and civil liability is central to the Scottish legal system.
It is often the criminal law about which the general public has a clearer perception and keener interest.
Some of the high profile criminal cases are deemed extremely newsworthy. Civil law, on the other hand,
receives less overt media coverage. However, every time you buy or sell goods, or start or finish an
employment contract, your actions, and those of the other party, are governed by civil law.
The distinction between criminal and civil liability is central to the legal system and to the way the court
system is structured.

2.4.1 Criminal law


FAST FORWARD

Crime is conduct prohibited by law.

Key term

The State is the prosecutor, the accused is punished and fines are payable to the State.
There is an accused and a prosecution, and the case must be proved beyond reasonable doubt.
The courts must be used to settle the matter.

A crime is conduct prohibited by the law.


In a criminal case the State is the prosecutor (in rare cases it may be a private person) because it is the
community as a whole which suffers as a result of the law being broken. Persons guilty of crime are
punished by fines payable to the State or imprisonment.
The Procurator Fiscal Service has responsibility for the investigation and prosecution of crime, although
the police will often be involved in the initial investigation.
In a criminal trial, the burden of proof to convict the accused rests with the prosecution, which must
prove its case beyond reasonable doubt.
A criminal case might be referred to as R v Smith. The prosecution is brought in the name of the Crown (R
signifying Regina, the Queen).
1: The English legal system (Scottish variant)

2.5 Civil law


FAST FORWARD

Civil law regulates disputes over the rights and obligations of persons dealing with each other.

Key term

The State has no role, there is no concept of punishment and compensation is owed to the
wronged person.
There is a pursuer and a defender, and the case must be proved on the balance of probabilities.

The parties are free to settle the dispute outside the court system.

Civil law exists to regulate disputes over the rights and obligations of persons dealing with each other.
In civil proceedings, the case must be proven on the balance of probability, to convince the court that it
is more probable than not that the assertions are true.
Terminology in civil cases is different from that in criminal cases. The pursuer sues the defender. A civil
case would therefore be referred to as, for example, Smith v Megacorp plc.
One of the most important areas of civil liability for business, and accountants in particular, is the law of
contract. The law of contract is looked at in detail in Chapters 4 to 7.

2.6 Distinction between criminal and civil cases


FAST FORWARD

It is not an act or event which creates the distinction between criminal and civil cases, but the legal
consequences.
A single event might give rise to criminal and civil proceedings.

Illustration
A broken leg caused to a pedestrian by a drunken driver is a single event which may give rise to:

A criminal case (prosecution by the State for the offence of driving with excess alcohol), and
A civil case (the pedestrian sues for compensation for pain and suffering).

The two sorts of proceedings are usually easily distinguished because three vital factors are different:

The courts where the case is heard


The procedures
The terminology

Illustration
In criminal cases the rules of evidence are very strict. For example, a confession will be carefully examined
to see if any pressure was brought to bear upon the accused, but an admission in a civil case will not be
subjected to such scrutiny.

Question

Legal proceedings

While on a sales trip, one of your employees is involved in a car accident. The other vehicle involved is
damaged and it is alleged that your employee is to blame. What legal proceedings may arise as a result of
this incident?

1: The English legal system (Scottish variant)

Answer
Your employee may be guilty of a driving offence such as careless driving. The police, to whom the
incident should be reported, will investigate, and if the facts indicate a driving offence, the Procurator
Fiscal Service will prosecute him, probably in a Justice of the Peace Court. The owner of the damaged
vehicle (or his insurers) may sue the driver at fault in civil proceedings to recover damages. A claim would
probably be brought in the Sheriff Court.

3 The system of courts


FAST FORWARD

The court system is split into civil and criminal courts.


The courts have to be organised to accommodate the working of the legal system. There are four main
functional aspects of the court system which underlie its structure.
(a)
(b)
(c)
(d)

Civil and criminal law differ so much in substance and procedure that they are best administered
in separate courts.
Local courts allow the vast bulk of small legal proceedings to be decentralised.
Although the courts form a single system, there is some specialisation both within the Court of
Session and in other courts with separate functions.
There is a system of review by appeals to higher courts.

4 The civil court system


FAST FORWARD

The civil court structure comprises the following.

Sheriff courts hear claims in contract, family and debt amongst other things.
The Court of Session hears more complex cases and appeals from the Sheriff Court.
The Supreme Court hears appeals from the Court of Session.

The diagram below sets out the Scottish civil law system.
EUROPEAN COURT
OF HUMAN RIGHTS

EUROPEAN COURT
OF JUSTICE

THE SUPREME COURT

COURT OF SESSION

Outer House

Inner House

SHERIFF
PRINCIPAL
SHERIFF COURT

Summary
Court

Ordinary
Court

Appeals

1: The English legal system (Scottish variant)

4.1 Procedure of the Civil System


There are three types of procedure for civil matters in the Civil Court System:

Small claims procedure


Summary cause procedure
Ordinary action procedure

The small claims procedure deals with claims up to the value of 3,000. The procedure is intended to be
faster, cheaper and more informal than the summary procedure.
The summary cause procedure is for claims between 3,000 and 5,000.
The ordinary action procedure is for claims over 5,000.
The pursuer serves a summons on the defender, which has been registered by the court. It states that the
defender should attend court, or a decree in absence may be granted against him. It will also contain a
summary of the alleged facts. Both parties have an opportunity to adjust their cases in response to
statements, allegations and arguments put forward by the other party. Then the matter goes forward for
decision by the court.

4.2 Sheriff Court


The majority of civil cases in Scotland commence in the Sheriff Court.
Scotland is divided into six sheriffdoms. Each sheriffdom is divided into Sheriff Court Districts, each of
which has a Sheriff Court.
Each Sheriff Court will have one or more Sheriffs attached to it who act as judges in the Sheriff Court. The
senior judge in the Sheriffdom is known as the Sheriff Principal.

4.2.1 Jurisdiction of the Sheriff Court


The jurisdiction of the Sheriff Court is determined by subject matter and geography relating to the
defender in the case.
In civil matters, the Sheriff Court will have jurisdiction over the defender where:

The defender is resident within the geographical jurisdiction of the court, or

The action is against the defender's business, which has a place of business within the
geographical jurisdiction of the court
The action is concerned with a contract to be performed within the geographical jurisdiction of the
court
The action concerns land or buildings in the sheriffdom of which the defender is the tenant.

The defender is being sued for a delict (wrongful act) which took place in the sheriffdom.

The Sheriff Court has a wide jurisdiction over subject matter. This includes actions relating to debt,
family life, contract and property. Sherriff Courts can hear cases of debt and damage without financial limit
and have exclusive jurisdiction of cases of 5,000 and below.

4.2.2 Appeals from the Sheriff Court


For small claims, appeal on a point of law may be made to the Sheriff Principal only. There is no further
appeal.
Under the summary procedure, an appeal may be made to the Sheriff Principal on a point of law. The
Sheriff Principal will require that the Sheriff prepares a Stated Case setting out his findings in fact and law.
It is possible to make a further appeal to the Inner House of the Court of Session.
Under the ordinary procedure, an appeal can be made to the Sheriff Principal and then on to the Inner
House of the Court of Session as in a summary case. However, it is also possible under the ordinary
procedure to appeal directly to the Inner House of the Court of Session. There is a further appeal on a
point of law to the Supreme Court.

10

1: The English legal system (Scottish variant)

4.3 Court of Session


The Court of Session in Edinburgh is divided into the Outer House and the Inner House. The Outer House
is a court of first instance for civil claims not initiated in the Sheriff Court. The Inner House is mainly a
court of appeal, as has been seen above.

4.3.1 Jurisdiction of the Court of Session


The jurisdiction of the Court of Session is similar to the Sheriff Court, except that the Court of Session has
jurisdiction over the whole of Scotland. It cannot hear cases which belong in the Sheriff Courts.

4.3.2 Outer House of the Court of Session


The Outer House consists of 22 Lords ordinary sitting alone or, occasionally, with a civil jury.
There are two types of case which may be brought in the Outer House of the Court of Session. These are
actions (such as those brought at Sheriff Courts) and petitions.

Key terms

An action is a case brought to enforce a legal right against a defender who resists it or to protect a legal
right that the defender is infringing.
A petition is a case brought to obtain the power of the Crown to do something or to require something to
be done which the petitioner has no existing legal right to.

4.3.3 Procedure in the Outer House


The procedure for an action is similar to the ordinary procedure in the Sheriff Court. If the dispute
concerns questions of law and the parties agree the facts, the matter will be debated by lawyers and the
court will give a decision. Where there is a dispute over facts, evidence will be presented to the judge.
A petition is an application by one side to the court, which may be contentious or not. The court decides
whether parties should be made aware of a petition, once it has been made to the court. Parties may lodge
answers to matters in a similar way as a defender to an action may lodge defences.

4.3.4 Appeals from the Outer House


Appeals from the Outer House of the Court of Session go straight to the Inner House.

4.3.5 Inner House of the Court of Sessions


The Inner House has two divisions which are equal in authority. Generally an appeal may be heard by
either division. In some difficult cases, the divisions may sit together.

4.3.6 Personnel in the Inner House


Judges attached to the Court of Session are known as Senators of the College of Justice or Lords of
Council and Session. Each Division in the Inner House is made up of six judges, with a quorum (in all but
exceptional cases) of three. An extra Division of three judges now often sits due to pressure of business.

4.3.7 Appeals from the Inner House


Appeals may be made from the Outer House to the Inner House. Appeals on decisions in the Inner House
may be made to the Supreme Court.

4.4 Supreme Court


The Supreme Court consists of 12 judges known as 'Justices of the Supreme Court' and its members
include a President and a Deputy President.
Its role is to hear appeals on the most important legal issues, and also hears devolution issues relating to
Scotland. It has no jurisdiction in Scottish criminal cases.

1: The English legal system (Scottish variant)

11

The Supreme Court's role was inherited from the judicial function that the House of Lords held until
October 2009. You may therefore come across decisions of the House of Lords when reading cases.

5 The criminal court system


FAST FORWARD

The criminal court structure comprises the following.

Justice of the Peace Courts hear minor offences.


The Sheriff Court tries more serious criminal offences.
The High Court of Justiciary hears serious cases and appeals from Justice of the Peace (JP) courts
and Sheriff Court.

The diagram below sets out the Scottish criminal court structure
EUROPEAN COURT
OF HUMAN RIGHTS

EUROPEAN COURT
OF JUSTICE

HIGH COURT OF JUSTICIARY

Scottish Court of
Criminal Appeal

First instance

JUSTICE OF THE
PEACE COURT

SHERIFF
COURT

Appeals

5.1 Justice of the Peace (JP) Courts


The Justice of the Peace Courts are the lowest criminal court in Scotland. There is a court in every District
or Islands Council. These Courts were previously known as District Courts.

5.1.1 Jurisdiction
Two things affect a criminal court's jurisdiction: geography and subject matter. To be dealt with in the
court a crime must come within its jurisdiction and have been committed in the relevant district.
The court deals with minor offences such as breaches of the peace, traffic offences, or theft or fraud of
small amounts.

5.1.2 Personnel
The prosecutor on behalf of the State is the Procurator Fiscal. The case is heard in front of a judge who
will either be a Justice of the Peace (JP) or a Stipendiary Magistrate. A JP is not legally qualified but sits
with a legally qualified clerk. Procedure is summary ie there is no jury.

5.1.3 Sentencing
A Justice of the Peace may impose fines of up to 2,500 and imprisonment of up to 60 days. A
Stipendiary Magistrate may impose fines of up to 10,000 and imprisonment of up to 12 months
(depending on the nature of the crime).

5.1.4 Appeals
Appeals from the JP Court go straight to the High Court of Justiciary sitting as the Scottish Court of
Criminal Appeal.

12

1: The English legal system (Scottish variant)

5.2 Sheriff Court


The Sheriff Court (discussed above in relation to civil matters) deals with the vast majority of criminal
cases. Again, the prosecutor on behalf of the state is the Procurator Fiscal.

5.2.1 Jurisdiction of the Sheriff Court


The Sheriff Court can deal with all crime committed in its geographical jurisdiction except crimes of
murder, rape and treason.

5.2.2 Procedure of the Sheriff Court


In relation to criminal cases, there are two types of procedure in the Sheriff Court, summary and solemn.
The summary procedure is used for less serious cases. The Sheriff sits alone, without a jury, and decides
both guilt and penalty. A document known as the Summary of Complaint is served on the accused. The
Sheriff is allowed to fine up to 10,000 or imprison convicted persons for up to 12 months.
The solemn procedure is used for more serious cases. The Sheriff sits with a jury of 15 persons. The jury
decides whether the accused is guilty on the facts. The Sheriff advises the jury as to the law and also
carries out the sentencing. A document known as the Indictment is served on the accused. The Sheriff is
allowed to sentence with an unlimited fine and/or imprisonment up to 5 years.
If the Sheriff feels that he does not have the capacity to sentence sufficiently severely, he may remit the
case to the High Court of Justiciary for sentencing.

5.2.3 Appeals from the Sheriff Court


Appeals may be made to the High Court of Justiciary sitting as the Scottish Court of Criminal Appeal.

5.3 High Court of Justiciary


The High Court of Justiciary is both a court of first instance (for major crimes such as murder, rape and
treason) and also a court of appeal.

5.3.1 Jurisdiction of High Court of Justiciary as a Court of first instance


The High Court of Justiciary has jurisdiction over all crimes committed in Scotland, unless they are
crimes that are specifically limited to the lower courts. Procedure in the High Court is always solemn ie in
front of a jury of 15 people. There is no limit to the sentencing power of the High Court of Justiciary.
Appeals may be made to the High Court sitting as the Scottish Court of Criminal Appeal.

5.3.2 Jurisdiction of High Court of Justiciary as Scottish Court of Criminal Appeal


The High Court of Justiciary may hear appeals from the District courts, the Sheriff Courts or the High
Court of Justiciary (first instance cases). There is no jury in appeal cases. The judges may quash the
conviction, refuse the appeal or modify the sentence.

6 Tribunals
FAST FORWARD

The court system is not the only way to settle disputes. There is also the alternative system of tribunals.
Tribunals deal with large numbers of cases which are usually too small to be considered as needing court
action. They give individuals the chance to exercise their rights, in particular against government
decisions and between employee and employer.

1: The English legal system (Scottish variant)

13

6.1 The tribunal system


The Tribunals, Courts and Enforcement Act 2007 introduced changes which created a unified tribunals
structure. A two-tier system now exists. The First-tier hears tribunals and makes decisions. The Upper
Tribunal reviews cases and hears appeals. Both tiers are split into chambers which deal with particular
types of case for example, land and taxation and are staffed by experts in that field. Decisions of the
Upper-tier Tribunal are made by judges or experts supervised by a judge. Their decisions are binding
on tribunals and public authorities. Appeals from the Upper Tribunal are to the Courts. Tribunals also have
powers of enforcement of unpaid awards.

6.2 Employment tribunals


Employment tribunals are governed by a number of regulations (including the Employment Tribunals
(Constitution and Rules of Procedure) Regulations 2004) and the Employment Act 2008.

6.2.1 Composition
Each tribunal is staffed by a legally qualified chairman and two other persons selected from a panel. One
person represents the interests of employers and one represents the interests of employees. However, in
some circumstances, and with the consent of the parties, a tribunal may be convened with a chairman and
one other person.

6.2.2 Jurisdiction
Tribunals have a wide jurisdiction over most disputes between UK employees and employers such as:

Disputes about redundancy pay


Complaints of unfair dismissal
Questions as to terms of contracts of employment
Equal pay claims or disputes over issues such as maternity pay
Appeals against health and safety notices
Complaints about sex, race and disability discrimination
Disputes over trade union membership

6.3 Advantages and disadvantages of tribunals


Advantages include: speed of proceedings, cheaper costs, informality in comparison to courts, flexibility
(not bound by rules of precedent) accessibility to individuals and lack of publicity.
Disadvantages include: lack of legal aid for most parties and presentation of arguments by people who are
not qualified lawyers.

6.4 Arbitration
A dispute may be referred to arbitration either by agreement out of court, or compulsorily.

6.4.1 Voluntary agreements


It is common practice to include in commercial contracts a clause providing that any dispute is to be
settled by arbitration under the relevant legislation.

14

1: The English legal system (Scottish variant)

ADVANTAGES OF ARBITRATION
Binding decisions

The decision given in an arbitration is usually final. This helps to ensure both
cost and time are left to a minimum. However, no right of appeal may seem to
be a disadvantage to some.

Arbiter

In arbitration it is possible to use a specialist as arbiter. Particularly in complex


commercial disputes, this can be a significant advantage over litigation.

Speed and
economy

In theory, arbitration is quicker and cheaper than litigation.

Confidentiality

This is often perceived as the key advantage of arbitration. The public and the
press have no right of entry to arbitration proceedings.

Unless otherwise agreed, a hearing before an arbitrator follows the same essential procedure as in a court
of law.

Chapter Roundup

'Law is a formal mechanism of social control', Business Law 5th Edition, David Kelly, Ann Holmes and
Ruth Hayward

The distinction between criminal liability and civil liability is central to the Scottish legal system.

Crime is conduct prohibited by law.

The State is the prosecutor, the accused is punished and fines are payable to the State.
There is an accused and a prosecution, and the case must be proved beyond reasonable doubt.
The courts must be used to settle the matter.

Civil law regulates disputes over the rights and obligations of persons dealing with each other.

The State has no role, there is no concept of punishment and compensation is owed to the
wronged person.

There is a pursuer and a defender, and the case must be proved on the balance of probabilities.

The parties are free to settle the dispute outside the court system.

It is not an act or event which creates the distinction between criminal and civil cases, but the legal
consequences.

The court system is split into civil and criminal courts.

The civil court structure comprises the following.

The criminal court structure comprises the following.

Sheriff courts hear claims in contract, family and debt amongst other things.
The Court of Session hears more complex cases and appeals from the Sheriff Court.
The Supreme Court hears appeals from the Court of Session.
Justice of the Peace Courts hear minor offences.
The Sheriff Court tries more serious criminal offences.
The Court of Justiciary hears serious cases and appeals from Justice of the Peace (JP) courts and
Sheriff Court.

The court system is not the only way to settle disputes. There is also the alternative system of tribunals.

1: The English legal system (Scottish variant)

15

Quick Quiz
1

Fill in the blanks in the statements below, using the words in the box.

The distinction between (1) .. and (2) .. liability is central to the


Scottish legal system.

(3) .. allows parties to bring their dispute before a non-legal independent expert so
that he may decide the case.

criminal

arbitration

civil

What is the standard of proof in civil proceedings?

What kind of judge sits in the Supreme Court?

All the following statements relate to criminal and civil law. Which one of the statements is correct?
A

A criminal case may subsequently give rise to a civil case, but a civil case cannot subsequently give
rise to a criminal case

The main purpose of civil law is to compensate the injured party and to punish the injuring party

A custodial sentence can be passed on the defendant in a civil case, providing the defendant is a
natural person and not an incorporated body

Trial by jury is never possible in a civil court

Answers to Quick Quiz


1

(1) criminal (2) civil (3) arbitration

The case must be proved on the balance of probability

Justices of the Supreme Court

D. Juries are only used in criminal cases.

Question Practice
The following questions in the exam bank at the back of this supplement should be attempted:
Scottish legal system I
Scottish legal system II
The following question in the Practice and Revision Kit can be attempted by Scottish variant students:
Types of law

16

1: The English legal system (Scottish variant)

Sources of
English law
(Scottish variant)
Chapter approach
While the sources of law in England and Scotland are very similar, they are
sufficiently different that you should not read Chapter 2 in the Study Text.
Instead, work through the notes given below on Sources of Scottish Law.

Topic list
1 Judicial precedent

Syllabus reference
A2(a)

2 Institutional writings

A2(a)

3 Custom

A2(a)

4 Equity

A2(a)

5 Statute law (primary legislation)

A2(b)

6 Delegated legislation (secondary legislation)

A2(b)

7 Statutory interpretation

A2(c)

Introduction
Sources of law are the means by which the law is brought into existence. Law in
Scotland will either have a common law source or have a statutory source. The
historical sources of law come from the common law. These are judicial
precedent (sometimes called case law), institutional writings, custom and equity.
The system of precedent, whereby judges apply legal decisions decided in
previous cases to facts presenting in current cases, was inherited by Scotland
from England. This is largely because certain decisions of the Supreme Court in
civil matters are binding on Scotland. This doctrine of judicial precedent has a
number of associated rules to make it work, which are considered in Section 1 of
this Chapter.
In the absence of a judicial precedent on a matter, institutional writings may be
taken to give an authoritative statement of law on the matter.

17

Introduction continued
Custom is a historic source of law which incorporates the responses of the community practised over generations.
The Court of Session in Scotland may practice an equitable right of nobile officium to promote fairness in the law.
The law is not static but changes and develops, reflecting the values and institutions of each era. There has been an
increasing flow of new laws designed, for example, to deal with social problems and to develop the national economy.
Legislation is brought through Parliament. Scottish legislation may be brought at Westminster in the form of law that
applies to the whole of the UK or in the form of a statute that applies only to Scotland, or through the Scottish Parliament.
As there is a need for detail which Parliament does not have time to determine, detail is often left for civil servants or
local authorities to provide in delegated legislation. There are a number of situations which might lead to a need for
laws to be interpreted. There are several different sources of assistance for a judge in this task of statutory
interpretation.
This chapter provides the basis for much of the law you will learn in the rest of the text, particularly contract and
employment which are heavily case law based.

1 Judicial precedent
FAST FORWARD

Decisions made in the courts are case law, which is judge-made law based on the underlying principle of
consistency. Once a legal or equitable principle is decided by an appropriate court it is a judicial precedent.
The decisions of a few courts in the Scottish legal system are binding on future judges under the system
of judicial precedent. This is as a result of the influence of English law in Scottish law. Precedent is
historically an English concept.

Key term

A precedent is a previous court decision which another court is bound to follow by deciding a subsequent
case in the same way.
In any later case to which that principle is relevant the same principle should (subject to certain
exceptions) be applied. This doctrine of consistency, following precedent, is expressed in the maxim stare
decisis which means 'to stand by a decision'.
The doctrine of judicial precedent means that a judge is bound to apply a decision from an earlier case to
the facts of the case before him, provided, among other conditions, that there is no material difference
between the cases.
Judicial precedent is based on three elements.
Reports

There must be adequate and reliable reports of earlier decisions.

Rules

There must be rules for extracting a legal principle from a previous set of
facts and applying it to current facts.

Classification

Precedents must be classified into those that are binding and those which
are merely persuasive.

1.1 Law reports


FAST FORWARD

There are major series of law reports on general law bound as annual volumes.
Every case has a title, usually (in a civil case) in the form Carlill v Carbolic Smoke Ball Co. Some cases are
cited by reference to the subject matter. Thus case names have included Re Barrow Haematite Steel Co (a
company case), Re Adams and Kensington Vestry (a trust case) and in shipping cases the name of the
ship, for example, The Wagon Mound.

18

2: Sources of English law (Scottish variant)

As regards content a full law report includes details of the following.

Exam focus
point

Names of the parties


Court in which the case was decided
Judge or judges
Date of the hearing
Points of law established
Earlier cases cited
Previous history of the litigation

Facts
Names of counsel and their arguments
Verbatim text of the judgement
Order of the court
Whether leave to appeal was granted
Solicitors
Reporting barrister

Students are often perplexed as to how much they are expected to memorise of cases referred to in
textbooks. By far the most important aspect of a case for examination purposes is what it was about; that is,
the point of law which it illustrates or establishes. This is the knowledge that you must apply when
answering exam questions. It is not generally necessary to recite the exact details of the events behind a case.
Never make up case names! This may seem like absurd advice, but examiners sometimes comment that
markers sometimes come across references in scripts to cases which they are not familiar with, but
which, upon investigation, are found to be fictitious. So, if you forget a case name, don't make a guess at
it. Start your answer by saying: 'In a decided case'.

1.2 Applying a precedent to a case


FAST FORWARD

In order that judicial precedent provides consistency in law, the ratio decidendi must be identified. The
material facts must be the same. The status of the court which set the precedent must be such as to bind
the present court. Rationes decidendi are the reasons for the decision being made - they alone are binding.
Obiter dicta are comments made by the deciding judge in passing and are persuasive only.
The doctrine of judicial precedent is designed to provide consistency in the law. Four things must be
considered when examining a precedent before it can be applied to a case.

A decision must be based on a proposition of law before it can be considered as a precedent. It


may not be a decision on a question of fact.

It must form part of the ratio decidendi of the case.

The material facts of each case must be the same.

The preceding court must have had a superior (or in some cases, equal) status to the later court,
such that its decisions are binding on the later court.

1.2.1 Ratio decidendi


A judgement will start with a description of the facts of the case and probably a review of earlier
precedents. The judge will then make statements of law applicable to the legal problems raised by the
material facts which, if the basis for the decision, are known as the ratio decidendi of the case, which is
the vital element which binds future judges.

Key term

'The ratio decidendi of a case is any rule of law expressly or impliedly treated by the judge as a necessary
step in reaching his conclusion, having regard to the line of reasoning adopted by him, or a necessary part
of his direction to the jury.'
(Cross: Precedent in English Law.)
Statements made by a judge are either classed as ratio decidendi or obiter dicta. There are two types of
obiter dicta (which means something said 'by the way').

A judge's statements of legal principle might not form the basis of the decision.
A judge's statements might not be based on the existing material facts but on hypothetical facts.

2: Sources of English law (Scottish variant)

19

Key term

Obiter dicta are words in a judgement which are said 'by the way'.
They do not form part of the ratio decidendi; they are not binding on future cases but are merely
persuasive.
It is not always easy to identify the ratio decidendi. In decisions of appeal courts, where there are three or
even five separate judgements, the members of the court may reach the same conclusion but give
different reasons. Many judges indicate in their speeches which comments are ratio and which are obiter.

1.2.2 Distinguishing the facts


Although there may arguably be a finite number of legal principles to consider when deciding a case, there
is an infinite variety of facts which may be presented.
It is necessary to consider how far the facts of the previous and the latest case are similar. If the
differences appear significant the court may distinguish the earlier case on the facts and thereby avoid
following it as a precedent.

1.2.3 Status of the court


Not every decision made in every court is binding as a judicial precedent. The court's status has a
significant effect on whether its decisions are binding, persuasive or disregarded.
Some decisions of the Supreme Court may be binding on all the Scottish civil courts. Examples would
include decisions on legislation relevant to the whole of the UK or to Scotland.
The Inner House of the Court of Session binds the Outer House and the Sheriff court. It also binds itself,
but if the judges of both divisions of the Inner House sit together as seven judges, they can overturn a
decision of a division of the Inner House.
COURT

BOUND BY

DECISIONS BINDING ON

Sheriff Court

The Court of Session

No one

Supreme Court

Not even itself

European Court of Justice


Court of Session
(Outer House)

Court of Session (Inner House)

No one

Supreme Court

Not even itself

European Court of Justice


Court of Session
(Inner House)

Own decisions (in any division)

Sheriff Court

Supreme Court

Court of Session

European Court of Justice

(Outer House)

Itself (subject to an exception


discussed above)

The Supreme Court

Itself (except in exceptional cases)


European Court of Justice

All Scottish Civil Courts on


points of law relevant to
Scotland

Itself (except in exceptional


cases)

The European Court


of Justice

No-one

All UK Courts

Not even itself

All Scottish criminal courts will follow precedents set by the High Court of the Justiciary. No other Scottish
Criminal Court makes binding precedents.

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2: Sources of English law (Scottish variant)

1.3 Persuasive precedents


FAST FORWARD

Persuasive precedents are not necessarily followed in later cases.


Apart from binding precedents, reported decisions of any court may be treated as persuasive precedents.
Persuasive precedents may be, but need not be, followed in a later case.
A court of higher status is not only free to disregard the decision of a court of lower status, it may also
deprive it of authority and expressly overrule it. Remember that this does not reverse the previous
decision. Overruling a decision does not affect its outcome.

Key terms

Where an earlier decision was made by a lower court, the judges can overrule that earlier decision if they
disagree with the lower court's statement of the law. The outcome of the earlier decision remains the
same, but will not be followed.
If the decision of a lower court is appealed to a higher one, the higher court may reverse the decision if
they feel the lower court has wrongly interpreted the law. When a decision is reversed, the higher court
is usually also overruling the lower court's statement of the law.
If, in a case before the Supreme Court, there is a dispute about a point of European Union law it must be
referred to the European Court for a ruling. The European Court does not create or follow precedents as
such, and the provisions of EU directives should not be used to interpret UK legislation.

1.4 Avoidance of a binding precedent


FAST FORWARD

A precedent which should be binding can be avoided on the grounds of different facts, obscure ratio
decidendi, faulty process, being in conflict with fundamental legal principles, and being too wide.
Even if a precedent appears to be binding, there are a number of grounds on which a court may decline
to follow it.
(a)

It may be able to distinguish the facts.

(b)

It may declare the ratio decidendi obscure, particularly when a decision by three or five judges
gives as many rationes.
It may declare the previous decision made per incuriam: without taking account of some essential
point of law, such as an important precedent.
It may declare it to be in conflict with a fundamental principle of law; for example where a court
has failed to apply the doctrine of privity of contract: Beswick v Beswick 1968.
It may declare an earlier precedent to be too wide. For example, the duty of care to third parties, first
propounded in Donoghue v Stevenson 1932, has since been considerably refined.

(c)
(d)
(e)

Question

Precedents

Match each of the following definitions to the correct term.


(a)
(b)
(c)

A court higher up in the hierarchy overturns the decision of a lower court on appeal in the same case.
A principle laid down by a lower court is overturned by a higher court in a different, later case.
A judge states that the material facts of the case before him are sufficiently different from those of
an earlier case as to enable the application of a different rule of law.

(1)
(2)
(3)

Distinguishing
Overruling
Reversing

2: Sources of English law (Scottish variant)

21

Answer
(a)
(b)
(c)

(3)
(2)
(1)

Question

Binding precedent

Fill in the following table, then check your answer.


Name of court

Binds

Is bound by

Sheriff court
Court of Session (Outer House)
Court of Session (Inner House)
Supreme Court
European Court of Justice

2 Institutional writings
FAST FORWARD

Institutional writings may be consulted as a last resort.


Institutional writings are the legal writings of certain legal scholars which may have legal status in the
absence of other provisions.
The works of the following people have the status of institutional writing:

Sir Thomas Craig (1655)


Viscount Stair (1681)
Lord Bankton (1751)
Professor John Erskine (1772)
Baron Hume (1786 through to 1822)
Professor George Bell (1810 and 1829)

Institutional writings should only be consulted where there is no statutory provision or precedent on a point.

3 Custom
FAST FORWARD

Custom underlies many old laws but is unlikely to create new laws.
Customs are the traditional law of communities that have existed for a long time. They are a subsidiary
source of common law. Custom is extremely unlikely to create new law.

4 Equity
FAST FORWARD

A remedy on the basis of fairness may be given when the law as it stands does not.
Scottish law is based on principles of fairness. As well as applying the strict rules of law to cases set
before them, judges in the Court of Session and High Court of Justiciary may exercise the right of 'nobile
officium'.

22

2: Sources of English law (Scottish variant)

The nobile officium is a right which allows them to grant an equitable remedy although the law does not
provide for it.

5 Statute law (primary legislation)


FAST FORWARD

UK statute law takes the form of Acts of Parliament.


Statute law is made by Parliament (or in exercise of law-making powers delegated by Parliament). Until
the United Kingdom entered the European Community (now the European Union) in 1973 the UK
Parliament was completely sovereign.
In recent years however, UK membership of the European Union has restricted the previously unfettered
power of Parliament. There is an obligation, imposed by the Treaty of Rome, to bring UK law into line
with the Treaty itself and with directives. Regulations, having the force of law in every member state,
may be made under provisions of the Treaty of Rome.

Exam focus
point

EU law is not listed on your syllabus.

5.1 Parliamentary sovereignty


Parliamentary sovereignty gives rise to a number of consequences. Parliament may:

Repeal earlier statutes


Overrule case law developed in the courts, or
Make new law on subjects which have not been regulated by law before.

No Parliament can legislate so as to prevent a future Parliament changing the law:

Case Study
Vauxhall Estates v Liverpool Corporation 1932
The facts: If compensation for compulsory purchase were assessed under an Act of 1919 the claimants
would receive 2,370, whereas if it were assessed under an Act of 1925 they would only receive 1,132.
The Act of 1919 provided that any Act inconsistent with it would have no effect.
Decision: This provision in the 1919 Act did not apply to subsequent Acts because Parliament cannot bind
its successors.

The judges have to interpret statute law and they may find a meaning in a statutory rule which those
Members of Parliament who promoted the statute did not intend.
The validity of an Act of Parliament cannot be questioned.

Case Study
Cheney v Conn 1968
The facts: The claimant objected to his tax assessment under the Finance Act 1964 because some of the
tax collected was used to fund the manufacture of nuclear weapons. He alleged that this was contrary to
the General Conventions Act 1957 and in conflict with international law.
Decision: The 1964 Act gave clear authority to collect the taxes.

In practice, Parliament usually follows certain conventions which limit its freedom.

2: Sources of English law (Scottish variant)

23

In addition to making new law and altering existing law, Parliament may make the law clearer by passing a
codifying statute (such as the Sale of Goods Act 1979) to put case law on a statutory basis, or a
consolidating statute to incorporate an original statute and its successive amendments into a single
statute (such as the Companies Act 2006).

5.2 UK Parliamentary procedure


A proposal for legislation in Westminster is originally aired in public in a Government Green Paper. After
comments are received a White Paper is produced, which sets out the intended aim of the legislation. It is
then put forward in draft form as a Bill, and may be introduced into either the House of Commons or the
House of Lords. When the Bill has passed through one House it must then go through the same stages in
the other House.
In each House the successive stages of dealing with the Bill are as follows.

Stage 1
Stage 2
Stage 3

First reading. Publication and introduction into the agenda. No debate.

Stage 4
Stage 5

Report stage. The Bill as amended in committee is reported to the full House for approval.

Second reading. Debate on the general merits of the Bill. No amendments at this stage.
Committee stage. The Bill is examined by a Standing Committee of about 20 members,
representing the main parties and including some members at least who specialise in the
relevant subject. If the Bill is very important all or part of the Committee Stage may be taken
by the House as a whole sitting as a committee.

Third reading. This is the final approval stage.

When it has passed through both Houses it is submitted for the Royal Assent which is given on the
Queen's behalf by a committee of the Lord Chancellor and two other peers. It then becomes an Act of
Parliament (or statute) but it does not come into operation until a commencement date is notified by
statutory instrument.

5.3 Scottish Parliament


The Scottish Parliament in Edinburgh has powers to make law pertaining to certain matters, such as
education and health. Unlike the UK Parliament, the Scottish Parliament is forbidden to enact legislation
which is contrary to the European Convention for the Protection of Human Rights and Fundamental
Freedoms.
The UK Parliament still retains its full legislative power over constitutional issues, defence, economic
and fiscal policy, foreign affairs, employment and social security. It allows the Scottish Parliament to
legislate on other matters including a limited right to raise taxes.

5.3.1 Scottish Parliamentary procedure


A Bill is presented to the Scottish Parliament together with a statement from the Presiding Officer that it
falls within the Parliament's power, plus an indication from the Minister of the Scottish Executive as to its
objectives.
The stages for the Bill in the Scottish Parliament, once presented, are as follows:

24

Stage 1
Stage 2

Lead Committee considers the general principles and reports to Parliament

Stage 3

Parliament then decides if it should be passed.

If Parliament accepts the general principles, it goes back to the Lead Committee, or to a
committee of the whole Parliament, for detailed consideration and suggested amendments.

2: Sources of English law (Scottish variant)

Royal Assent is required, as with Acts of the UK Parliament. If there is any doubt as to whether the new
Act does indeed fall within the scope of the Scottish Parliament's jurisdiction, it is referred to the Judicial
Committee of the Privy Council.

5.4 Advantages and disadvantages of legislation


Advantages

The House of Commons is elected at intervals of not more than five years. Hence the law making
process is theoretically responsive to public opinion.
Statute law can in theory deal with any problem.
Statutes are carefully constructed codes of law.
A new problem in society or some unwelcome development in case law can be dealt with by
passing an Act of Parliament.

Disadvantages

Statutes are bulky (about 70 public statutes are passed each year and the complete set of statutes
runs to more than 40 volumes of several hundred pages each).
Parliament often lacks time to consider draft legislation in sufficient detail.
A substantial statute can take up a lot of Parliamentary time.
Statute law is a statement of general rules. Those who draft it cannot anticipate every individual
case which may arise.

6 Delegated legislation (secondary legislation)


FAST FORWARD

UK statute law may also take the form of delegated legislation, such as statutory instruments and bye-laws.
To save time in Parliament, Acts usually contain a section by which power is given to a minister, or public
body such as a local authority, to make subordinate or delegated legislation.

Key term

Delegated legislation means rules of law, often of a detailed nature, made by subordinate bodies to
whom the power to do so has been given by statute.

6.1 Forms of delegated legislation


Delegated legislation appears in various forms.

Orders in Council allow the government to make law through the Privy Council, bypassing the full
parliamentary procedure.
Ministerial powers are exercised by statutory instruments. Statutory instruments are the most
common form of delegated legislation.
Local authorities are given statutory powers to make bye-laws.
Parliament gives power to certain professional bodies to regulate their members' conduct.
Acts of Sederunt and Acts of Adjournal may be made by the judiciary to control court procedure.
All acts passed by the Scottish Parliament are effectively delegated legislation since the power to
legislate has been delegated to it from the UK Parliament under the Scotland Act 1998.

6.2 Control over delegated legislation


Parliament does exercise some control over delegated legislation by keeping the making of new delegated
legislation under review.

2: Sources of English law (Scottish variant)

25

This includes:

Some statutory instruments do not take effect until approved by affirmative resolution of
Parliament.
Most other statutory instruments must be laid before Parliament for 40 days before they take
effect.

There are standing Scrutiny Committees of both Houses whose duty it is to examine statutory
instruments with a view to raising objections if necessary.
A statutory instrument may be challenged in the courts on the grounds that it exceeds the prescribed
limits or has been made without due compliance with the correct procedure.
Both statutes and delegated legislation under it are expressed in general terms. It is not possible to
provide in the Act for each eventuality which falls within its remit. It therefore often falls to judges to
interpret Acts.

6.2.1 Striking out delegated legislation under the Human Rights Act 1998
This is considered in detail in Chapter 3, but it has implications here. One of the consequences of the Act
is that higher courts can strike out secondary legislation which does not comply with the Convention on
Human Rights. This acts as another control over delegated legislation.

6.3 Advantages and disadvantages of delegated legislation


Delegated legislation has the following advantages:

Parliament does not have time to examine matters of detail.


Much of the content of delegated legislation is technical and is better worked out in consultation
with professional, commercial or industrial groups outside Parliament.
If new or altered regulations are required later, they can be issued without referring back to
Parliament.
The system allows the law to be enacted quickly.

The disadvantages of the system are as follows.

Exam focus
point

Because delegated legislation can be produced in large amounts, the volume of such law-making
becomes unmanageable.
The system is unrepresentative in that power is given to civil servants who are not democratically
elected.
The different sorts of delegated legislation which may be produced by virtue of one statute can
greatly confuse users.

Delegated legislation is easily tested in a knowledge-based question. Ensure you can explain it, some
advantages and disadvantages and how it is controlled.

7 Statutory interpretation
FAST FORWARD

It is important that courts are equipped to interpret statutes in order to apply them in the real world.
There are a number of situations which might lead to a need for statutory interpretation.
(a)

Ambiguity might be caused by an error in drafting.

(b)

Uncertainty may arise where the words of a statute are intended to apply to a range of factual
situations and the courts must decide whether the case before them falls into any of these
situations.
There may be unforeseeable developments.

(c)
(d)

26

The draft may use a broad term. Thus, the word vehicle may need to be considered in relation to
the use of skateboards or bicycles.

2: Sources of English law (Scottish variant)

There are a number of different sources of assistance for a judge in his task of statutory interpretation.
These are the principles of statutory interpretation and consist of:

Rules
Presumptions
Other aids (intrinsic or extrinsic)

7.1 Rules of statutory interpretation


In interpreting the words of a statute the courts have developed a number of well-established general
principles.

7.1.1 The literal and golden rules


Key term

The literal and golden rules means that words should be given their plain, ordinary, literal or grammatical
meaning (rather than what the judge thinks they mean) unless this would give rise to manifest absurdity or
inconsistency with the rest of the statute.
Normally a word should be construed in the same literal sense wherever it appears throughout the statute.

Illustration
In Whitely v Chapell 1868 a statute aimed at preventing electoral malpractice made it an offence to
impersonate 'any person entitled to vote' at an election. The accused was acquitted because he
impersonated a dead person, who was clearly not entitled to vote.

7.1.2 The mischief rule


Key term

Under the mischief rule a judge considers what mischief the Act was intended to prevent. Where a statute
is designed to remedy a weakness in the law, the correct interpretation is the one that which achieves it.
These rules were used until relatively recently. The Law Commissioners recommended that judges
interpret statute using the general purposes behind it and the intentions of Parliament. This is known as
Purposive interpretation.

7.1.3 The purposive rule


Key term

Under this approach to statutory interpretation, the words of a statute are interpreted not only in their
ordinary, literal and grammatical sense, but also with reference to the context and purpose of the
legislation, ie what is the legislation trying to achieve?

Illustration
This shows how the court took account of the mischief or weakness which the statute was explicitly
intended to remedy.
Gardiner v Sevenoaks RDC 1950
The facts: The purpose of an Act was to provide for the safe storage of film wherever it might be stored on
'premises'. The claimant argued that 'premises' did not include a cave and so the Act had no application to
his case.
Decision: The purpose of the Act was to protect the safety of persons working in all places where film was
stored. If film was stored in a cave, the word 'premises' included the cave.
The key to the purposive approach is that the judge construes the statute in such a way as to be
consistent with the purpose of the statute as he understands it, even if the wording of the statute could
be applied literally without leading to manifest absurdity.
2: Sources of English law (Scottish variant)

27

Human Rights Act 1998


UK courts are now required to interpret UK legislation in a way compatible with the convention so far as it
is possible to do so. This is an example of purposive interpretation.

7.1.4 The contextual rule


Key term

The contextual rule means that a word should be construed in its context: it is permissible to look at the
statute as a whole to discover the meaning of a word in it.
The courts have been paying more attention to what Parliament intended in recent times. This is in order that
the courts apply the law for the purpose for which it is enacted by Parliament. A more purposive approach is
also being taken because so many international and EU regulations come to be interpreted by the courts.

7.2 General rules of interpretation


7.2.1 The eiusdem generis rule
Statutes often list a number of specific things and end the list with more general words. In that case the
general words are to be limited in their meaning to other things of the same kind as the specific items
which precede them.

Illustration
Evans v Cross 1938
The facts: E was charged with driving his car in such a way as to 'ignore a traffic sign', having crossed to
the wrong side of a white line. 'Traffic sign' was defined in the Act as 'all signals, warning signposts,
direction posts, signs or other devices'.
Decision: 'Other device' must be limited in its meaning to a category of such signs. A painted line was
quite different from that category.

7.2.2 Expressio unius est exclusio alterius


To express one thing is by implication to exclude anything else.

7.2.3 Words must be understood in their context


A word draws meaning from the other words around it. If a statute mentioned 'children's books, children's
toys and clothes' it would be reasonable to assume that 'clothes' meant children's clothes.

7.2.4 In pari materia


If the statute forms part of a series which deals with similar subject matter, the court may look to the
interpretation of previous statutes on the assumption that Parliament intended the same thing.

28

2: Sources of English law (Scottish variant)

7.3 Presumptions of statutory interpretation


Unless the statute contains express words to the contrary it is assumed that the following presumptions of
statutory interpretation apply, each of which may be rebutted by contrary evidence.

A statute does not alter the existing common law. If a statute is capable of two interpretations,
one involving alteration of the common law and the other one not, the latter interpretation is to be
preferred.
If a statute deprives a person of his property, say by nationalisation, he is to be compensated for
its value.
A statute is not intended to deprive a person of his liberty. If it does so, clear words must be
used. This is relevant in legislation covering, for example, mental health and immigration.
A statute does not have retrospective effect to a date earlier than its becoming law.

A statute does not bind the Crown. In certain areas, the Crown's potential liability is great and this
is therefore an extremely important presumption.
A statute has effect only in the UK. However a statute does not run counter to international law
and should be interpreted so as to give effect to international obligations.
A statute cannot impose criminal liability without proof of guilty intention. Many statutes rebut
this presumption by imposing strict liability, say for dangerous driving under the Road Traffic Act.
A statute does not repeal other statutes.

Any point on which the statute leaves a gap or omission is outside the scope of the statute.

7.4 Other assistance in interpretation


The Interpretation Act 1987 defines certain terms frequently found in legislation. The Act also states that,
unless a specific intention to the contrary exists, the use in a statute of masculine gender terminology also
includes the feminine, and vice versa. Similarly, words in the singular include plurals, and vice versa.
Intrinsic aids to statutory interpretation consist of the following.
(a)

The long title of an Act, which may give guidance as to the Act's general objective.

(b)

The preamble of an Act often directs the judge as to its intentions and objects.

(c)

Interpretation sections to Acts. Particularly long, complicated and wide-ranging Acts often contain
self-explanations; for instance, s 207 of the Financial Services Act 1986 defines 'authorised
persons' and 'recognised investment exchanges' for its purposes.
Sidenotes. Statutes often have summary notes in the margin.

(d)

Key terms

Intrinsic aids are those words contained in the Queen's Printer's copy of the statute. Extrinsic aids are
those found elsewhere.
Extrinsic aids include the following.
(a)
(b)

Reports of official committees such as the Law Commission or the Law Reform Committee,
Hansard, the official journal of UK Parliamentary debates. This follows a decision of the House of
Lords in Pepper v Hart 1992 where the House of Lords decided that it is acceptable to look at the
original speech which first introduced a bill to ascertain its meaning.

2: Sources of English law (Scottish variant)

29

Chapter Roundup

Decisions made in the courts are case law, which is judge-made law based on the underlying principle of
consistency. Once a legal or equitable principle is decided by an appropriate court it is a judicial
precedent.

There are major series of law reports on general law bound as annual volumes.

In order that judicial precedent provides consistency in law, the ratio decidendi must be identified. The
material facts must be the same. The status of the court which set the precedent must be such as to bind
the present court. Rationes decidendi are the reasons for the decision being made - they alone are binding.
Obiter dicta are comments made by the deciding judge in passing and are persuasive only.

Persuasive precedents are not necessarily followed in later cases.

A precedent which should be binding can be avoided on the grounds of different facts, obscure ratio
decidendi, faulty process, being in conflict with fundamental legal principles, and being too wide.

Institutional writings may be consulted as a last resort.


Institutional writings are the legal writings of certain legal scholars which may have legal status in the
absence of other provisions.

30

Custom underlies many old laws but is unlikely to create new laws.

A remedy on the basis of fairness may be given when the law as it stands does not.

UK statute law takes the form of Acts of Parliament.

UK statute law may also take the form of delegated legislation, such as statutory instruments and byelaws.

It is important that courts are equipped to interpret statutes in order to apply them in the real world.

2: Sources of English law (Scottish variant)

Quick Quiz
1

Fill in the blanks in the statements below, using the words in the box.

In order that (1) .. provides (2) .. in the law, a precedent must be


carefully examined before it can be applied to a particular (3) .. It must be a
proposition of (4) .. . The (5) .. must be identified. The (6)
.. must be the same.

The (7) .. of the court which set the precedent must be such as to (8)
.. the present court.
bind

judicial precedent

case

status

ratio decidendi

law

material facts

consistency

What is the final step before Royal Assent in the life of a Bill in the UK Parliament in Westminster?

Obiter dicta form part of the ratio decidendi.


True
False

Which of these decisions binds the Sheriff Court?


Decisions of the Sheriff Court
Decisions of the Court Session (Outer House)
Decisions of the Court of Session (Inner House)
Decisions of the Supreme Court

In 20X5, Mr Justice Jeffries, a Court of Session (Outer House) judge, is deciding a case which has similar
material facts to one decided by the Court of Session (Inner House) in 18X5. He can decline to be bound
by this decision by showing that
A
B
C
D

The status of the previous court is not such as can bind him
The decision was taken too long ago to be of any relevance
The decision does not accord with the rules of a statute passed in 19X0
The obiter dicta are obscure

Overruling a decision of a lower court affects the outcome of that earlier decision.
True
False

The rule that a statute should be interpreted with reference to its context and aims is known as the
........................................ rule.

2: Sources of English law (Scottish variant)

31

Answers to Quick Quiz


1

(1) judicial precedent (2) consistency (3) case (4) law (5) ratio decidendi (6) material facts (7) status
(8) bind

The third reading (final approval stage)

False

Decisions of the Court of Session (Inner House) and Supreme Court

C. Statute takes priority over case law.

False

Purposive rule

Question Practice
The following questions in the exam bank at the back of this supplement should be attempted:
Scottish contemporary law
Scottish legislation
Doctrine of precedent
Case law and legislation
Statutory interpretation
The following questions in the Practice and Revision Kit can be attempted by Scottish variant students:
Precedent; terms
Legal terms
Delegated legislation

32

2: Sources of English law (Scottish variant)

Human rights

Chapter approach
The Human Rights Act 1998 applies to the whole of the UK, so it
applies equally in Scotland and England.
Chapter 3 is therefore relevant to your studies for Corporate and
Business Law (Scotland) subject to the points made below. You should
read through the chapter in the Study Text bearing those points in
mind.
The European Courts (the European Court of Justice (ECJ) and the
European Court of Human Rights (ECHR)) are the final courts of appeal
for Scottish law cases. For civil cases, parties may appeal to a
European Court against a decision of the Supreme Court. For criminal
cases, parties may appeal to a European Court against a decision of the
High Court of the Justiciary (Scottish Court of Criminal Appeal).
The Study Text refers to the need for a Minister presenting a bill in
Parliament to make a statement of compatibility with convention
rights. You should be aware that the Scotland Act 1998 forbids the
Scottish Parliament enacting legislation which is contrary to
Convention Rights, as we saw in Chapter 2.
The following two cases are also important:
Starrs v Ruxton 2000 The use of temporary sheriffs was found to
breach article 6 of the Convention regarding fair trials. Temporary
sheriffs are appointed by the Lord Advocate (a politician), judges
appointed by a politician could not be guaranteed to be independent.
Clark v Kelly 2003 The practice of a Clerk of a court advising a lay
Judge was not held to be a breach of article 6 of the convention. Clarks
are qualified lawyers on hand to provide impartial advice and are
independent.

33

Question Practice
You should attempt the question from the Study Text Exam Bank as indicated at the end of the Study Text
chapter, but bear in mind that your answer should reflect the differences in English and Scottish law identified in
this supplement.
The following question in the Practice and Revision Kit can be attempted by Scottish variant students, but bear in
mind that your answer should reflect the differences in English and Scottish law identified in this supplement.
Sources of law and the Human Rights Act 1998

34

3: Human rights

Formation of contracts I

Chapter approach
There are two key differences between the law of contract in England
and Scotland. The first is that the law of contract in Scotland does not
recognise the English concept of consideration. You should therefore
disregard any mention of consideration in your Study Text. The second
is that the laws relating to form of a contract are different in Scotland
to England. In Scotland, there is a Requirements of Writing (Scotland)
Act 1995, which you must be aware of.
Chapter 4 is therefore relevant to your studies for Corporate and
Business Law (Scotland) subject to the points made below. You should
read through the Chapter in the Study Text bearing these points in mind.
In Section 2.4, please read Scottish Law for English Law. In Section 3,
you should disregard the element of consideration in a contract. In
Scotland, a contract has two essential elements, agreement and
intention.
You should disregard Section 4 in the Chapter, and work through the
following notes instead.
Scottish law recognises unilateral obligations, sometimes referred to
as gratuitous promises. This means that Scottish law will enforce
someone's promise, even if it is unilateral, that is, there is no mutual
obligation from the person that he has made a promise to.
EXAMPLES
An employment contract is an example of a bilateral contract. The
employee promises to do work for the employer, who promises to pay
him for it.
A gift to a charity is an example of a unilateral contract. The donor
promises to give a gift to a charity, which does not have to do anything
in return for that gift.

35

1 Form of a contract
As a general rule, a contract may be made in any form. It may be written, oral, or inferred from the
conduct of the parties.

Example
A customer in a self-service shop may take his selected goods to the cash desk, pay for them and walk out
without a word.
However, the Requirements of Writing (Scotland) Act 1995 provides that some contracts have to be in
writing to be enforceable.

1.1 Types of contract requiring writing


The following types of contract must be in writing to be enforceable:

Contract for the creation, transfer, variation or extinction of an interest in land


A gratuitous unilateral contract (excluding those undertaken in the course of business)
A trust whereby a person declares himself to be the sole trustee of his own property

1.1.1 Validity
In order to be valid, such documents must be signed by the granter.
However, in order to be valid without extra evidence being produced, the document must not only be
signed by the granter, but by a witness to attest to the fact that the signature is genuine.
An alternative procedure to obtaining the signature of a witness is to obtain a certificate from a court that
the document was validly executed.
If the written contract or gratuitous unilateral agreement contains a clause stating that it contains the full terms
of the agreement , then this is conclusive and no other evidence is considered. If it does not contain such a
clause, the court may consider other extrinsic sources of evidence as to the contract terms:
Contract (Scotland) Act 1997.

1.2 Rei interventus


The provisions of rei interventus mean that a contract or unilateral promise which should have been signed
can be enforced even where there is no signature, if there have been what are termed significant actings.
The person who made the informal contract or promise will be unable to withdraw, in spite of the
informality, if:

36

The other party has acted in reliance on the promise and will be prejudiced if it is not enforced.
The person making the promise knows of these actings and agreed to them.
The actions involved were material, so that prejudice would result to the second party if the first
party were allowed to withdraw.

4: Formation of contracts I

Question Practice
The following questions in the exam bank at the back of this supplement should be attempted:
Offer and invitation to treat
Invitation to treat and tender
Offer, counter offer and unilateral obligations
The following questions in the Practice and Revision Kit can be attempted by Scottish variant students, but bear
in mind that your answers should reflect the differences in English and Scottish law identified in this supplement:
Anns art
Acceptance and revocation of offer
Ace Ltd
Al

4: Formation of contracts I

37

38

4: Formation of contracts I

Formation of contracts II

Chapter approach
Chapter 5 in the Study Text deals with the English concept of
consideration. Scottish law does not have any such concept it
enforces gratuitous promises. The syllabus and study guide for
Corporate and Business Law (Scotland) therefore make no mention of
consideration.
The only parts of Chapter 5 that are relevant to your exam are Section 4
on intention to create legal relations (which completes the third
element of a Scottish contract), and Section 5 on privity of contract
and third party rights.

39

Question Practice
The following questions in the exam bank at the back of this supplement should be attempted:
Gratuitous promises, offers and invitations to treat
Third party rights and intention
Postal rule and third party rights
The following questions in the Practice and Revision Kit can be attempted by Scottish variant students, but bear
in mind that your answers should reflect the differences in English and Scottish law identified in this supplement:
Presumption and rebuttal

40

5: Formation of contracts II

Terms of contract

Chapter approach
The matters discussed in this Chapter apply equally to English and
Scottish law with some minor terminological differences only.
You should therefore work through this Chapter in the Study Text, bearing
in mind the points below.
English law makes a distinction between terms of a contract that are
conditions and terms of a contract that are warranties.
Scottish law makes a similar distinction between terms of a contract which
go to its heart (conditions) and those which are subsidiary to the purpose
of the contract (warranties) but it does not use the terms conditions and
warranties. Rather, it uses the terms material (for terms which go to the
heart of the contract) and non-material (for subsidiary terms).
When reading through this chapter of the Study Text, please substitute the
word material for condition and non-material for warranty.

41

Question Practice
Please attempt the questions suggested at the end of the Study Text chapter but bear in mind that your answers
should reflect the differences between English and Scottish law identified in this supplement.
The following questions in the Practice and Revision Kit can be attempted by Scottish variant students, but bear
in mind that your answers should reflect the differences in English and Scottish law identified in this supplement:
Types of term I
Types of term II
Exclusion clauses
Bash Ltd

42

6: Terms of contract

Breach of contract

Chapter approach
The provisions relating to discharge of contract are the same in
English and Scottish law, so this chapter in the Study Text is relevant to
your studies.
You should therefore read through the chapter, bearing in mind the
following points.
Remember that Scottish law refers to material and non-material
terms in contracts rather than conditions and warranties.
There are also some differences in terminology in relation to the
remedies for breach of contract:

'Specific performance' is referred to as 'specific implement'


'Injunction' is referred to as 'interdict'.

43

Question Practice
Please attempt the following exam bank question on breach of contract at the back of this supplement.
Remedies for breach
Terms of a contract
Now you have completed your study of contract law it is a good idea to apply your knowledge. Attempt the
following scenario questions found in the exam bank at the back of this supplement:
Ali
Astride
Alvin
Ami, Bry and Cis
Ari
Ade
Az Ltd
The following questions in the Practice and Revision Kit can be attempted by Scottish variant students, but bear
in mind that your answers should reflect the differences in English and Scottish law identified in this supplement:
Arti
Remoteness and measure of damages
Liquidated damages, penalty clauses and mitigation

44

7: Breach of contract

Chapter
8-9

The Law of torts


and professional
negligence

Chapter approach
The Scottish law of Delict is almost identical to the English law of Torts
and therefore you should work through all of Chapters 8 and 9 in your
Study Text.
Delict is a word which comes from the same word family as delinquent
and therefore, like tort, is concerned with wrongs.
As with tort, delict requires the establishment of fault (or culpa). The
pursuer must prove on the balance of probabilities the defenders
actions caused him to suffer loss, injury or damage. A duty of care, the
standard of care, reasonable foreseeability of harm, causation,
remoteness of damage and the defences of contributory negligence and
volenti are identical to the English law and share the same cases. You
should read delict where the Study Text mentions tort.
Professional negligence is also directly linked to English law Caparo
being the leading case.
One difference that should be noted is due to the Prescription and
Limitation (Scotland) Act 1973. Under this statute most claims under
delict must be brought within five years of the event which causes the
damage. Personal injury claims must be brought inside three years.

10-11 Employment law

Employment law is the same in England and Scotland. This is because


it is largely based on statute law passed as a result of EU directives
which are therefore equally applicable in England and Scotland.
You should read through all these Chapters as they appear in the Study
Text.

12

Agency law

The law of agency is the same in Scotland and England, so this chapter
is relevant to your studies.
You should therefore work through the Chapter as it appears in the
Study Text, but note the following.
Agents normally receive payment or other rewards for acting on behalf
of a principle. However, as we saw in contract, it is possible under
Scottish law to make agreements that are unsupported by
consideration gratuitous agreements.
Gratuitous agency is an arrangement under Scottish law where the
agent (or more properly known as mandatory) acts on an unpaid basis.
A mandatory still owes a duty of care to the principle and cannot claim
the fact that he was not paid as a defence to negligence.
In Copland v Brogan (1916) the Inner Court of Session held that a taxi
driver who did a favour for a school teacher and lost some of the
teachers cash was liable for the loss. He should have looked after the
money as if it were his own.

Chapters 8 to 23

45

Question Practice
For Chapters 8 to 12 you should attempt the questions from the Study Text exam bank as indicated at the end of
each Study Text Chapter. Your answers may differ slightly where the Scottish terminology differs from the
English terminology.
From this point onwards, all questions in the Practice and Revision Kit can be attempted by Scottish variant
students.

46

Chapters 8 to 23

Chapter
13-15 Company law

Chapter approach
The law applying to partnerships in Scotland is slightly different from
that in England, although it is governed by the same Act, the
Partnership Act 1890.
Most of this Chapter is equally applicable in England and Scotland,
however, so you should read through the chapter, bearing in mind the
points made about Scottish partnerships below.
Chapter 13 in the Study Text refers to a partnership as being an entity
that does not have a legal existence separate to its members.
However, s 4 of the Partnership Act 1890 makes a distinction between
English and Scottish partnerships by stating that a Scottish
partnership is a legal person distinct from the partners of whom it is
composed. This means Scottish partnerships are able to enter into
contracts in the name of the firm, own property and take legal action
separately from the individual partners.
In practical terms, a Scottish partnership is in the same position as an
English partnership because despite the separate legal personality of
the firm, the partners are still jointly and severally liable for the debts of
the partnership, in the same way as an English partnership and as
outlined in the Study Text.
Regarding retirement of partners, it should be noted that retiring
partners should place a notice of their retirement in the Edinburgh
Gazette to ensure they have no liability to outsiders and third parties
after their retirement.
The Limited Liability Partnership Act 2000 applies in Scotland.
Company law is largely the same in England and Scotland. This is
because it is governed by the provisions of the Companies Act 2006
which apply to the UK as a whole.
You should read through all these Chapters as they appear in the Study
Text.

Chapters 8 to 23

47

Question Practice
For Chapters 13 to 15 you should attempt the questions from the Study Text exam bank as indicated at the end
of each Study Text Chapter. Your answers may differ slightly where the Scottish terminology differs from the
English terminology.
From this point onwards, all questions in the Practice and Revision Kit can be attempted by Scottish variant
students.

48

Chapters 8 to 23

Chapter

Chapter approach

16-18 Capital and


financing

English law is very similar to Scottish law, however there is some


difference in terminology regarding property and legal charges, so you
should note the following but read through the three chapters in the
Study Text.
In Scotland, it is possible to obtain a fixed charge over land and
buildings (known as heritable property in Scotland) or over moveable
property. Moveable property falls into two categories; corporeal (for
example, goods) or incorporeal (for example shares or insurance
policies). The charge over corporeal moveable property is created by
pledge, and the charge over incorporeal moveable property is created
by assignation in security. The lender would be entered on the register
of members, with rights over the assets, but the borrower remains the
true beneficial owner.
In England, when a bank obtains a floating charge, it would be referred
to as an equitable debenture with a floating charge. In Scotland, it is
likely that this would be referred to as a bond and a floating charge.

19-20 Directors, other


company officers
and meetings
21

Insolvency and
administration

22

Corporate
governance

23

Fraudulent
behaviour

Company law is largely the same in England and Scotland. This is


because it is governed by the provisions of the Companies Act 2006
which apply to the UK as a whole.
You should read through all these Chapters as they appear in the Study
Text.

This chapter refers to the Insolvency and Enterprise Acts, which apply
in both England and Scotland. There are some differences in
terminology between English and Scottish insolvency law. The main
difference being in England, the court will appoint the Official Receiver
in a compulsory liquidation, in Scotland, the official is known as an
Interim Liquidator.

This chapter applies to all UK companies, Scottish and English. You


should therefore study it in full.

English statutes covered in this chapter also have effect in Scotland.


You should therefore study this chapter in full.

Chapters 8 to 23

49

Question Practice
For Chapters 16 to 23 you should attempt the questions from the Study Text exam bank as indicated at the end
of each Study Text Chapter. Your answers may differ slightly where the Scottish terminology differs from the
English terminology.
From this point onwards, all questions in the Practice and Revision Kit can be attempted by Scottish variant
students.

50

Chapters 8 to 23

Exam question and answer


bank

51

52

1 Scottish legal system I (6/11)

18 mins

In relation to the Scottish legal system:


(a)

Explain and distinguish between civil and criminal law, providing a statutory example of each category;
(7 marks)

(b)

Identify the courts, below the level of the Inner House of the Court of Session and High Court of Justiciary
sitting as a court of criminal appeal, that deal with civil law and criminal law.
(3 marks)
(Total = 10 marks)

2 Scottish legal system II (6/10)

18 mins

Describe the structure and functions of the main civil courts in the Scottish legal system, including the Supreme
Court.
(10 marks)

3 Scottish contemporary law (12/08)

18 mins

In relation to the Scottish legal system, explain the main sources of contemporary law.

(10 marks)

4 Scottish legislation (12/10)

18 mins

In relation to the Scottish legal system:


(a)

Explain and distinguish between:


(i)
(ii)

(b)

primary legislation; and


secondary/delegated legislation.

(6 marks)

Explain the powers of the courts in relation to challenging the validity of primary and secondary/delegated
legislation.
(4 marks)
(Total = 10 marks)

5 Doctrine of precedent (6/12)

18 mins

In relation to the DOCTRINE OF PRECEDENT in the Scottish legal system:


(a)

Explain the importance of the hierarchical court structure;

(7 marks)

(b)

Explain and distinguish between binding precedent and persuasive precedent.

(3 marks)
(Total = 10 marks)

6 Case law and legislation (6/08 amended, 12/11)

18 mins

In relation to the Scottish legal system explain the following sources of law:
(a)
(b)

Case law;
Legislation, including delegated legislation.

(6 marks)
(4 marks)
(Total = 10 marks)

Questions

53

7 Statutory interpretation (12/09)

18 mins

In relation to the courts' powers to interpret legislation, explain and differentiate between:
(a)
(b)

The literal approach, including the golden rule; and


The purposive approach, including the mischief rule.

(5 marks)
(5 marks)
(Total = 10 marks)

8 Offer and invitation to treat (6/08)

18 mins

In relation to contract law explain the meaning and effect of:


(a)
(b)

An offer; and
An invitation to treat.

(4 marks)
(6 marks)
(Total = 10 marks)

9 Invitation to treat and tender (6/12)

18 mins

In relation to the formation of a contract explain the meaning and effect of:
(a)

An invitation to treat;

(7 marks)

(b)

A tender.

(3 marks)
(Total = 10 marks)

10 Offer, counter offer and unilateral obligations (6/10)18 mins


In relation to the law of contract:
(a)
(b)

Define an offer;
Explain the specific meaning and effect of
(i) a counter-offer;
(ii) a unilateral obligation.

(5 marks)
(3 marks)
(2 marks)
(Total = 10 marks)

11 Gratuitous promises, offers and invitations to treat (6/09)


18 mins
(5 marks)

(a)

Explain the circumstances in which a gratuitous promise may be binding in Scots law.

(b)

In relation to the law of contract, explain what is meant by an offer and distinguish it from an invitation to
treat.
(5 marks)
(Total = 10 marks)

12 Third party rights and intention (12/07)

18 mins

In relation to the law of contract explain the meaning and effect of:
(a)
(b)

Third party rights;


The intention to create legal relations.

(6 marks)
(4 marks)
(Total = 10 marks)

54

Questions

13 Postal rule and third party rights (12/09)

18 mins

In relation to the law of contract, explain:


(a)
(b)

(5 marks)
(5 marks)

The postal rule;


Third party rights.

(Total = 10 marks)

14 Remedies for breach (12/10)

18 mins

State and explain the remedies available for breach of contract.

(10 marks)

15 Terms of a contract (12/11)

18 mins

In relation to the contents of a contract explain the following:


(a)
(b)
(c)

(3 marks)
(3 marks)
(4 marks)

Express terms;
Implied terms;
Terms incorporated by reference.

(Total = 10 marks)

16 Ali (12/07)

18 mins

Ali is an antique dealer and one Saturday in November 2007 he put a vase in the window of his shop with a sign
which stated exceptional piece of 19th century pottery on offer for 500.
Ben happened to notice the vase as he walked past the shop and thought he would like to have it. Unfortunately, as
he was late for an important meeting, he could not go into the shop to buy it, but as soon as his meeting was
finished he wrote to Ali agreeing to buy the vase for the stated price of 500. The letter was posted at 11:30 am.
Later on the same day, Chet visited Alis shop and said he would like the vase but was only willing to pay 400 for
it. Ali replied that he would accept 450 for the vase, but Chet insisted that he was only willing to pay 400 and left
the shop. However, on his journey home Chet realised that 450 was actually a very good price for the vase and he
immediately wrote to Ali agreeing to buy it for that price. His letter was posted at 12:30 pm.
Just before closing time at 5 pm. Di came into Alis shop and she also offered 400 for the vase. This time Ali
agreed to sell the vase at that price and Di promised to return the following Monday with the money.
On the Monday morning Ali received both of the letters from Ben and Chet before Di could arrive to pay and collect
the vase.
Required
From the point of view of the law of contract advise Ali as to his legal relations with Ben, Chet and Di.

(10 marks)

Questions

55

17 Astride (6/08)

18 mins

Astride entered into a contract with Bild Ltd to construct a wall around the garden of a house she had just
purchased. The wall was to be three metres high to block out a view of a rubbish tip. The wall was due to be
finished in May and Astride entered into another contract with Chris to landscape the garden starting on 1 June.
Bild Ltd finished the wall on 25 May. However when Astride came to examine it for the first time she found that it
was only 250 metres high and that the rubbish tip was still visible from the top of her garden.
On 1 June, Chris informed Astride that he was too busy to landscape her garden and that she would have to get
someone else to do it. The only person available, however, will charge Astride 500 more than Chris had agreed for
doing the work.
Required
Analyse the scenario from the perspective of the law of contract, advising Astride:
(a)

Whether she can require Bild Ltd to reconstruct the garden wall in order to make it the agreed height, and if
not, what alternative action is available to her.
(5 marks)

(b)

Whether she can require Chris to undertake the work on the garden, and if not, what alternative action is
available to her.
(5 marks)
(Total = 10 marks)

18 Alvin (12/08)

18 mins

Alvin runs a business selling expensive cars. Last Monday he mistakenly placed a notice on one car indicating that
it was for sale for 5,000 when in fact its real price was 25,000. Bert later noticed the sign and recognising what a
bargain it was immediately indicated to Alvin that he accepted the offer and would take the car for the indicated
amount. Alvin, however, told Bert that there had been a mistake and that the true price of the car was 25,000. Bert
insisted that he was entitled to get the car at the lower price, and when Alvin would not give it to him at that price
Bert said that he would sue Alvin.
After Bert had left, Alvin changed the price on the car to 25,000 and subsequently Cat came in and said she would
like to buy the car, but that she would have to arrange finance.
On Tuesday Del came by and offered Alvin the full 25,000 cash there and then and Alvin sold it to him.
Required
Advise Alvin, Bert, Cat and Del as to their rights and liabilities in the law of contract.

(10 marks)

19 Ami, Bry and Cis (6/10)

18 mins

In January 2010 Ami took over an old warehouse with the intention of opening an art gallery. As the warehouse has
to be converted, Ami entered into two contracts, one with Bry to do all the necessary plastering and one with Cis,
who was to do all the necessary painting. Both Bry and Cis were to be paid 5,000. Both received initial payments
of 1,000 and agreed to have the work completed on 31 March, as the art gallery had to be ready for its first
exhibition on 1 May.
At the end of February, Bry told Ami that he would not complete the plastering in time unless she agreed to increase
his payment by a further 1,000. Ami agreed to pay the increased sum in order to ensure that the job was done on
time. She then thought it was only fair that she should increase the amount of money promised to Cis by the same
amount.
However, on completion of the work on time Ami refused to make either of the additional payments to Bry or Cis,
beyond the original contractual price.

56

Questions

Required
Advise Bry and Cis whether they have any rights in law to enforce Ami's promise to pay them an extra 1,000.
(10 marks)

20 Ari (6/11)

18 mins

Ari operates a business as a designer of internet web pages for a variety of business clients. Unfortunately he has
had some difficulty in recovering his full fees from a number of clients as follows:
(a)

Bi, a newly qualified accountant, told Ari that although she could only raise the cash to pay half of the
outstanding fees she would, as an alternative to paying the other half, do all of Aris accountancy work for
the coming year. Ari reluctantly agreed to this proposal.

(b)

Cas, a self-employed musician, told Ari that she could not pay any of the money she owed him. However,
her father offered to pay Ari, but could only manage half of the total amount owed. Once again Ari reluctantly
agreed to accept the fathers payment of the reduced sum.

(c)

Dex, a self-employed car mechanic, without contacting Ari, simply sent him a cheque for half of his fees
stating that he, Dex, could not pay any more and that the cheque was in full settlement of his outstanding debt.

Ari himself is now in financial difficulty and needs additional cash to maintain his business operation.
Required
Advise Ari whether, in the context of contract law, he can recover any of the outstanding money from Bi, Cas and
Dex.
(10 marks)

21 Ade (12/11)

18 mins

Ade, a keen pottery collector, saw a notice for an auction of Bede pottery in the January edition of Antiques News.
He travelled 300 kilometres to attend the auction in order to bid for a particularly rare example of Bede pottery,
specifically mentioned in the lists of items to be auctioned. However, when he got to the auction site he found a
notice outside, stating that the auction had been cancelled. Ade went into a nearby antique shop and saw an
example of the type of pottery he had come to bid for. The price ticket stated that it was 500, but Ade said he was
only willing to pay 350 for it. The shopkeeper, Chip, said he would sell it for 400 and as Ade said he would like
time to think about it over lunch, Chip agreed not to sell it before Ade returned.
However, when Ade returned to buy the pottery, he found that Chip had already sold it to someone else, who had
paid 450 for it.
Required
In the context of contract law, advise Ade whether he can take action against:
(a)

The auctioneers, for the expense of his travel to the auction; and

(b)

Chip, for not selling the pottery to him.


(10 marks)

Questions

57

22 Az Ltd (6/12)

18 mins

Az Ltd operates a shipbuilding business, which specialises in constructing and modifying ships to order. In 2011,
the company entered into two contracts.
(a)

Az Ltd entered into an agreement with Blud to completely rebuild a ship to Bluds specification for a total
contract price of 7 million. However, just before completion, Blud informed Az Ltd that, due to the
downturn in the world economy, he no longer needed the ship. Az Ltd immediately started an action against
Blud for breach of contract. However, in the week before the case was to be decided in the court, Az Ltd sold
the ship for the same amount of money that they would have received from Blud.
Required
Advise Az Ltd whether it can claim damages from Blud, and the extent of those damages.

(b)

(5 marks)

Az Ltd also entered into a contract to build a new ship for Cam for a total cost of 25 million. The contract
terms provided that the total price was to be paid in 12 instalments and, in the event of Cam failing to make
a payment, gave Az Ltd the right to terminate the agreement and claim an amount equal to 20% of the total
contract price as damages. Any amount paid over the 20% was required to be returned to Cam.
Cam failed to make the first instalment payment, but refused to pay the damages as set out in the agreement
on the grounds that they were excessive.
Required
Advise Az Ltd whether it can claim damages from Cam, and the extent of those damages.

(5 marks)
(Total = 10 marks)

58

Questions

1 Scottish legal system I


Marking scheme
Marks

The first part of this question requires candidates to explain the difference between criminal and civil
law and to demonstrate their understanding by providing examples of each category. As there are
so many potential examples the model answer has only focused on one aspect, but any suitable
alternative example will be credited.
(a)
A detailed answer explaining the types of law and citing appropriate examples.
A less detailed answer; perhaps too general and lacking clear examples to support the
understanding.
Little, if any, understanding of the concept.

57
24
01

(b)

Full explanation of the lower civil and criminal courts.


Good explanation, but perhaps lacking in some detail or missing out some important court.
Very weak, if any, understanding of the courts concerned.

(a)

Criminal law relates to conduct which the State considers with disapproval and which it seeks to control.
Criminal law involves the enforcement of particular forms of behaviour, and the State, as the representative
of society, acts positively to ensure compliance. Thus, criminal cases are brought by the State in the name of
the Crown and cases are reported in the form of HM Advocate v . In criminal law the prosecutor
prosecutes the accused and is required to prove that the accused is guilty beyond reasonable doubt. The
Companies Act (CA) 2006 sets out many potential criminal offences, which may be committed by either the
company itself, or its officers or other individuals. An example of this which may be cited is CA s.993, which
relates to the criminal offence of fraudulent trading and applies to any person, not just directors or
members, who is knowingly a party to the carrying on of a business with the intent to defraud creditors. The
potential penalty on conviction is imprisonment for a maximum period of 10 years, or a fine or both.

3
12
0

Civil law on the other hand, is a form of private law and involves the relationships between individual
citizens. It is the legal mechanism through which individuals can assert claims against others and have those
rights adjudicated and enforced. The purpose of civil law is to settle disputes between individuals and to
provide remedies; it is not concerned with punishment as such. The role of the State in relation to civil law is
to establish the general framework of legal rules and to provide the legal institutions to operate those rights,
but the activation of the civil law is strictly a matter for the individuals concerned. Contract, delict and
property law are generally aspects of civil law.
Civil cases are referred to by the names of the parties involved in the dispute, for example, Smith v Jones. In
civil law, a pursuer sues (or brings a claim against) a defender and the degree of proof is on the balance of
probabilities. In relation to the CA 2006, the duties owed to companies by directors set out in ss. 171177
may be cited as examples of civil liability, and directors in breach are liable to recompense the company for
the consequences of their failure to comply with those duties, as is set out in s.178.
In distinguishing between criminal and civil proceedings, it has to be remembered that the same event may
give rise to both. For example, where the driver of a car injures someone through their reckless driving, they
will be liable to be prosecuted under the Road Traffic legislation, but at the same time, they will also be
responsible to the injured party in the civil law relating to the delict of negligence. Similarly, a director may
fall foul of both the criminal regulation of fraudulent trading (CA s.993) as well as breaching their duty to the
company under one of the provisions of CA ss.171177.
(b)

The essential criminal trial courts in Scotland are the Justice of the Peace Courts, Sheriff Courts and the
High Court of Justiciary. In serious offences, known as indictable offences, the accused is tried by a judge
and jury in a Sheriff Court or the High Court of Justiciary. The Justice of the Peace Court can only try
accused persons for summary offences which are less serious offences and where a jury is not involved.
The Sheriff Court can try accused persons for both summary and indictable offences (the more serious
offences, which are tried by jury).

Answers

59

There are about 49 Sheriff Courts in Scotland. They are presided over by Sheriffs sitting alone. Sheriff
Courts hear claims under three types of procedure: ordinary actions are used for divorce, cases involving
children, property, debt and damages claims above 5,000. Summary causes are used for claims between
3,0005,000. Small claims are used for claims up to 3,000, which can often be dealt with without legal
representation.
The Court of Session is divided into the Outer House and the Inner House. The Outer House deals with cases
at first instance. It has jurisdiction to hear cases of debt, damages, divorce and children, and there are no
upper financial limits on debt or damages cases. In some instances it has private jurisdiction, which means
that the Sheriff Court cannot hear cases for judicial review of certain administrative decisions and cases
where there is no other remedy and the nobile officium of the Court of Session is invoked. Appeal from the
Sheriff Court in small claims is to the Sheriff Principal on a point of law only and no further. In summary
causes appeal is to the Sheriff Principal on a point of law only, and thence with leave to the Inner House of
the Court of Session and thereafter to the Supreme Court. Appeal in ordinary actions is to the Sheriff
Principal and then as of right to the Inner House, or direct to the Inner House and then on a point of law to
the Supreme Court. Appeal from the Outer House of the Court of Session is as of right to the Inner House by
reclaiming motion, and thence to the Supreme Court on a point of law.

2 Scottish legal system II


Marking scheme
Marks

A thorough to complete description of the various civil courts with an explanation of their
relationships and function. At this level it is required that answers make reference to the Supreme
Court.
A less detailed treatment of the court structure but still covering the main courts. This represents
the maximum mark that can be achieved without reference to the Supreme Court.
Weak answer, perhaps just providing a sketch of the court structure with no explanation of that
structure.
Little or no understanding of the topic.

810

57
34
02

The civil court structure in ascending order of authority is as follows:


Sheriff Court
Most of the civil business in Scotland takes place in the Sheriff Court. Scotland is divided geographically into six
Sheriffdoms and Sheriffs hear cases where the defender is resident or domiciled in the Sheriffdom or the case
concerns property in the Sheriffdom, or a delict occurred in the Sheriffdom. The Sheriff Court is a court of first
instance and Sheriffs normally hear cases sitting alone. Sheriffs can hear cases for debt or damages without
financial limit and have privative (exclusive) jurisdiction, where the value does not exceed 5,000.
There is a simplified procedure called the summary cause that is used in civil actions relating to sums of money not
exceeding 5,000, and a small claims procedure for sums not exceeding 3,000. The Sheriff Court ordinary action
is used in civil actions for sums of money of 5,000 and over. It can also be used in actions for delict and for
divorce and other issues involving family law.
An appeal may normally be made either to the Sheriff Principal or to the Inner House of the Court of Session. An
appeal may also be made from the Sheriff Principal to the Inner House of the Court of Session.

60

Answers

The Court of Session


The Court of Session has jurisdiction over the whole of Scotland. It sits in Edinburgh. The Court of Session is both a
court of first instance and a court of appeal. It is divided into the Outer House and the Inner House. The Outer
House is a court of first instance in which cases are normally heard by a judge (Lord Ordinary) sitting alone. Apart
from cases where the value does not exceed 5,000, where the Sheriff Court has privative jurisdiction, the Outer
House of the Court of Session can hear all civil cases in Scotland. It has privative jurisdiction over applications for
judicial review, actions for reduction of contracts, and petitions for the winding up of companies where the paid up
capital exceeds 120,000. Appeals are made to the Inner House of the Court of Session.
The Inner House is normally an appeal court. It is divided into the First and Second Division and appeals are
normally heard by a bench of three judges, although a larger court may be convened.
The Inner House of the Court of Session can also exercise the nobile officium which is the extraordinary equitable
jurisdiction of the Court of Session to provide a remedy where there is a gap in the law and no other remedy is
available.
The Supreme Court
The Supreme Court, which came into operation in the autumn of 2009, is the highest court within the Scottish civil
system. It replaces the House of Lords as the highest judicial forum and exercises all of that court's functions. It
was felt that the previous location of the highest court in the land in the legislature was contrary to the separation of
powers and consequently the members of the Supreme Court no longer sit in the House of Lords. It consists of 12
justices and hears appeals on the most important legal issues. The Supreme Court has taken over the hearing of
devolution issues relating to Scotland from the Judicial Committee of the Privy Council.
The Supreme Court has no jurisdiction in Scottish criminal appeals.

3 Scottish contemporary law


Marking scheme
Marks

Thorough treatment of the three major sources with perhaps reference to other sources such as
custom or perhaps the role of the Law Commission, although the latter is certainly not necessary.

810

Thorough treatment of two of the sources, or a less complete treatment of the three.

57

Some understanding but lacking in detail. Perhaps unbalanced answer, focusing on only one aspect
of the question and ignoring the others.

24

Shows little understanding of the subject matter of the question.

01

Legislation
This is law produced through the Parliamentary system. This is the most important source of law today for two
reasons. Firstly, in terms of quantity, Parliament produces far more legal rules than any other source. Secondly, and
perhaps even more importantly, the doctrine of parliamentary sovereignty within the United Kingdom means that
Parliament is the ultimate source of law and, at least in theory, it can make whatever laws it wishes. It is an effect of
this doctrine that the courts cannot challenge, either the authority of Parliament, or the laws it makes in the exercise
of that authority. Although the Human Rights Act 1998, which introduces the European Convention on Human
Rights into the United Kingdom, does not directly challenge parliamentary sovereignty, it remains to be seen what
effect it has on the long-term relationship between judges and Parliament.

Answers

61

Parliament consists of three distinct elements: the House of Commons, the House of Lords and the Monarch, but
the real source of power is the House of Commons which has the authority of being the democratically elected
institution. Before any legislative proposal, known at that stage as a bill, can become an Act of Parliament it must
proceed through, and be approved by, both Houses of Parliament and must receive the Royal Assent.
Since the Parliament Acts of 1911 and 1949, the blocking power of the House of Lords has been restricted to a
maximum of one year. However, as bills must complete their process within the life of a particular parliamentary
session, a failure to reach agreement in both Houses within that period can lead to the total loss of the bill. It is for
that reason that the current government removed a clause on lowering the age of homosexual consent to 16 from
the general Act in which it was contained.
Legislation can be categorised in a number of ways. Public Acts relate to matters affecting the general public,
whereas Private Acts relate to particular individuals or institutions. Alternatively, Acts of Parliament can be
distinguished on the basis of their function.
Some create new laws, but others are aimed at rationalising or amending existing legislative provisions.
Consolidating legislation is designed to bring together provisions previously contained in a number of different
Acts, without actually altering them. The Companies Act 2006 was an example of a consolidation Act. Codifying
legislation, on the other hand, seeks not just to bring existing statutory provisions under one Act but also looks to
give statutory expression to common law rules. The Partnership Act 1890 and the Sale of Goods Act 1893, now
1979, are good examples of this.
In Scotland, the Scotland Act 1998 empowers the Scottish Parliament to enact laws in all matters except those
which are reserved as the exclusive preserve of the UK Parliament. These reserved matters include constitutional
and foreign affairs, defence, economic and fiscal policy (although the Scottish Parliament does have limited taxraising powers), social security and employment.
Delegated legislation is a particularly important aspect of the legislative process. It is law made by some person or
body, usually a government minister or local authority, to whom Parliament has delegated its general law-making
power. A validly enacted piece of delegated legislation has the same legal force and effect as the Act of Parliament
under which it is enacted. Delegated legislation can take the form of: Orders in Council; Statutory Instruments; ByeLaws; or Professional regulations. In numerical terms the production of individual pieces of delegated legislation
greatly outnumbers the production of general public Acts of Parliament.
Case Law
This is law created by judges in the course of deciding cases. The doctrine of stare decisis or binding precedent
refers to the fact that courts are bound by previous decisions of courts equal or above them in the court hierarchy.
It is the reason for a decision, the ratio decidendi, that binds. Everything else is obiter dictum and need not be
followed.
The House of Lords can now overrule its own previous rules. In the Court of Session, decisions of the Inner House
bind itself and the lower courts. Decisions of the Outer House and of Sheriffs are merely persuasive. Judges,
however, do have the ability to avoid precedents they do not wish to follow through the procedure of distinguishing
the cases on their facts, and, of course, they have a very large number of cases and precedents to choose from.
One of the major advantages of the system of precedent is that it provides for certainty and the saving of the time
and money of all the parties concerned. This is achieved by the fact that it should be possible to predict how a case
will be decided if it falls within a clear precedent without actually having to take the case to court. The system of
judges making law through their decisions also allows them scope for introducing flexibility into the legal system as
they extend or distinguish existing precedents. This flexibility, however, by necessity undermines the very certainty
that is supposed to be one of the main benefits of the system of precedent. Finally, the role of the judges within the
UK constitution is to interpret, and not to create, law, and perhaps this latter point explains why most judges are
very wary of openly admitting that they actually do make law.
The European Union
Since joining the European Community, now the European Union, the United Kingdom and its citizens have become
subject to European Community (EC) law. In areas where it is applicable, European law supersedes any existing
United Kingdom law to the contrary (see Factortame Ltd v Secretary of State for Transport (1989)).

62

Answers

The sources of EC law are: internal treaties and protocols; international agreements; secondary legislation; and
decisions of the European Court of Justice.
Custom
Although there is always the possibility of a specific local custom, which has been in existence since time
immemorial', acting as a source of law, in practice the limitations which operate in relation to custom render it an
extremely unlikely source of contemporary law.
With regard to the operation of the Law Commission it should be noted that its role is to make recommendations
relating to changes in legal provision, but it has no power itself to make such alterations.

4 Scottish legislation
Marking scheme
Marks

(a)

(b)

(a)

A thorough answer, which explains the meaning of primary and secondary/delegated


legislation. The perceived advantages and disadvantages may be considered but are not
necessary for full marks to be awarded.

5-6

A less complete answer, perhaps lacking in detail or unbalanced in that it does not deal
with some aspects of the question.

2-4

Little, if any, awareness of the topic.

0-1

A thorough answer dealing with the powers of the courts in relation to legislation. For full
marks reference should be made to the Human Rights Act 1998 and judicial review.

3-4

Some, but limited knowledge.

1-2

No knowledge whatsoever.

(i)

Primary legislation
Legislation refers to law that has been created by the legislative body within a constitution. In the
United Kingdom that body is Parliament, constituted by both the House of Commons and the House
of Lords and Bills have to be considered in, and approved by, both houses before they become law,
subsequent to the formality of its receiving royal approval.
Under UK constitutional law, it is recognised that Parliament has the power to enact, revoke or alter
such, and any, law as it sees fit. Even the Human Rights Act (HRA) 1998 reaffirms this fact in its
recognition of the power of Parliament to make primary legislation that is incompatible with the rights
provided under the European Convention on Human Rights (ECHR). Such primary legislation takes
the form of Acts of Parliament; however, the role of delegated or secondary legislation, as a source of
law, should not be underestimated.
Contemporary practice has seen the reduction of general and definitive Acts of Parliament that
attempt to lay down detailed provisions covering every perceived possibility. Instead, the modern
form of legislation tends to be of the enabling type, which simply states the general purpose and
aims of the Act. Such Acts merely lay down a broad framework, whilst delegating to ministers of
state the power to produce detailed provisions designed to achieve those general aims through
secondary, delegated legislation.
The Scotland Act 1998 set up the Scottish Parliament which has power to enact primary and
secondary legislation for Scotland except where matters are reserved to the Westminster Parliament.
The Scottish Parliament is not a sovereign Parliament, unlike the Westminster Parliament. Primary
legislation from the Scottish Parliament is in the form of Acts of the Scottish Parliament.

Answers

63

(ii)

Delegated (secondary) legislation


Generally speaking, delegated legislation is law made by some person or body to whom Parliament
has delegated its general law-making power. A validly enacted piece of delegated legislation has the
same legal force and effect as the Act of Parliament under which it is enacted.
Thus delegated legislation is law made by some person, or body, to whom Parliament has delegated
its general law-making power. The output of delegated legislation in any year greatly exceeds the
output of Acts of Parliament and, therefore, at least statistically it could be argued that delegated
legislation is actually more significant than primary Acts of Parliament.
There are various types of delegated legislation including:
(i)

Orders in Council permit the government, through the Privy Council, to make law without the
need to go through the full parliamentary process.

(ii)

Statutory Instruments are the means through which government ministers introduce
particular regulations under powers delegated to them by parliament in enabling legislation.

(iii)

Bye-laws are the means through which local authorities and other public bodies can make
legally binding rules and may be made under such enabling legislation as the Local
Government (Scotland) Act (1973).

The Scottish Parliament also has power to pass delegated legislation.


The use of delegated legislation has advantages over primary legislation:
(i)

Time-saving. Delegated legislation can be introduced quickly, where necessary, in particular


cases and permits rules to be changed in response to emergencies or unforeseen problems.

(ii)

Flexibility. The use of delegated legislation permits ministers to respond on an ad hoc basis to
particular problems as and when they arise.

(iii)

Access to particular expertise. Given the highly specialised and extremely technical nature of
many of the regulations that are introduced through delegated legislation it is necessary,
therefore, that those authorised to introduce delegated legislation should have access to the
external expertise required to make appropriate regulations. In regard to bye-laws, local
knowledge should give rise to more appropriate rules than general Acts of Parliament.

There are, however, some disadvantages in the prevalence of delegated legislation:

(b)

(i)

Accountability. Parliament is presumed to be the source of statute law, but with respect to
delegated legislation government ministers, and the civil servants who work under them to
produce the detailed provisions, are the real source of the legislation. As a consequence, it is
sometimes suggested that the delegated legislation procedure gives more power than might
be thought appropriate to such unelected individuals.

(ii)

Bulk. Given the sheer mass of such legislation, both Members of Parliament, and the general
public, face difficulty in keeping abreast of delegated legislation.

Judicial control of legislation


Section 4 of the HRA expressly retains the principle of parliamentary sovereignty in stating that the courts
cannot declare primary legislation passed by the Parliament at Westminster invalid as being contrary to the
rights protected by the Act. The only way the courts can challenge such legislation is by issuing a declaration
of incompatibility in such circumstances (Bellinger v Bellinger (2003)). It is then for Parliament to act on
such a declaration to remedy any shortcoming in the law if it so wishes (the Bellinger case led to the
enactment of the Gender Recognition Act 2004). However, such limitation does not apply to secondary
legislation, which the courts can now declare invalid on the grounds of not being compatible with the HRA.
As the Scottish Parliament is not a sovereign Parliament, under the Scotland Act 1998 it has to ensure that
its legislation is compatible with the Human Rights Act (HRA).

64

Answers

Bills must be checked for compatibility before they are enacted, and unlike legislation from the Westminster
Parliament, there is provision for legislation to be challenged by certain Law Officers in the court for
incompatibility prior to its receiving the Royal Assent, and devolution issues' relating to alleged
incompatibility of Scottish legislation with the HRA can be raised in court.
Furthermore, a validly enacted piece of delegated legislation has the same legal force and effect as the Act of
Parliament under which it is enacted; but equally it only has effect to the extent that its enabling Act
authorises it. Consequently, it is possible for delegated legislation to be challenged, through the procedure
of judicial review, on the basis that the person or body to whom Parliament has delegated its authority has
acted in a way that exceeds the limited powers delegated to them or has failed to follow the appropriate
procedure set down in the enabling legislation. Any provision in this way is said to be ultra vires and is void.
It should also be recalled that the primacy of European Union law over domestic law, means that any
domestic law made in contravention of European Union law is subject to challenge and overturning in the
courts.

5 Doctrine of precedent
Marking scheme
Marks

This question requires candidates to consider the doctrine of precedent and in particular to explain
two particular aspects of that doctrine.
(a)

(b)

A thorough to complete answer, describing and explaining the effect of the court hierarchy.

67

A less than complete answer, probably unbalanced, focusing only on one aspect of the
question, or lacking in explanation.

45

Some knowledge, although perhaps not clearly expressed, or very limited in its knowledge
and understanding of the topic.

23

Little, or no knowledge of the topic.

0-1

Thorough treatment of the topic. Clearly explaining the meaning of the two types of
precedent.
Less thorough answer, but showing a reasonable understanding of the topic of precedent.
Weak answer, perhaps showing some knowledge but little understanding of the topic
generally.

(a)

3
2
01

The doctrine of binding precedent is one of the central principles of the Scottish legal system. The doctrine
refers to the fact that, within the hierarchical structure of the Scottish courts, a decision of a higher court will
be binding on a court lower than it in that hierarchy. In general terms, this means that when judges try
cases, they will check to see if a similar situation has come before a court previously. If the precedent was
set by a court of equal or higher status to the court deciding the new case, then the judge in the present case
should follow the rule of law established in the earlier case. Where the precedent is from a lower court in the
hierarchy, the judge in the new case may not follow but will certainly consider it.
The Hierarchy of the courts
The Supreme Court (previously the House of Lords) stands at the summit of the Scottish civil court
structure and its decisions are binding on all civil courts below it in the hierarchy. As regards its own
previous decisions, up until 1966 the House of Lords regarded itself as bound by its previous decisions.

Answers

65

In a Practice Statement ([1966] 3 All ER 77) of that year, however, Lord Gardiner indicated that the House of
Lords would in future regard itself as free to depart from its previous decisions where it appeared right to do
so. There have been a number of cases in which the House of Lords has overruled or amended its own
earlier decisions (e.g. Conway v Rimmer (1968); Herrington v British Rail Board (1972); Miliangos v George
Frank (Textiles) Ltd (1976); R v Shivpuri (1986)) but this is not a discretion that the Supreme Court will
exercise lightly. It has to be recognised that in the wider context the Supreme Court is subject to decisions
of the European Court of Justice in terms of European Community law, and, with the implementation of the
Human Rights Act 1998, the decisions of the European Court of Justice in matters relating to human rights.
In civil cases the Inner House of the Court of Session is generally bound by previous decisions of the
Supreme Court and its own previous decisions, particularly by a decision of five or more judges. There are,
however, a number of exceptions to this general rule. These exceptions arise where:
(i) there is a conflict between two previous decisions of the Inner House of the Court of Session.
(ii) a previous decision of the Inner House of the Court of Session has been overruled by the Supreme Court.
The Inner House of the Court of Session can ignore a previous decision of its own which is inconsistent with
European Community law or with a later decision of the European Court.
(iii) the previous decision was given per incuriam, i.e. in ignorance of some authority that would have led to
a different conclusion (Young v Bristol Aeroplane Co Ltd (1944) and the Scottish case Mitchell v Mackersy
(1905)).
The Outer House of the Court of Session is bound by the doctrine of stare decisis in the normal way and
must follow decisions of the Supreme Court and the Inner House of the Court of Session. It is not bound by
its own previous decisions.
The Sheriff Court is bound by the decisions of the Supreme Court and the Inner House of the Court of
Session, but not by the judges in the Outer House of the Court of Session. Decisions by individual Sheriffs
are not binding on other Sheriffs. Sheriffs are bound by the decisions of Sheriff Principals in their own
sheriffdom.
In the criminal courts, precedent is applied more flexibly than in the civil courts. As the the Supreme Court
has no jurisdiction in criminal matters in Scotland apart from in relation to devolution issues and human
rights, the scope for the creation of precedent by the Supreme Court in criminal matters is limited. The High
Court of Justiciary as a court of criminal appeal is bound by its own decisions but can convene a larger court
to overrule its earlier decisions, as it did in the case of Webster v Dominick (2005). The High Court of
Justiciary as a court of trial is bound by decisions of the High Court of Justiciary as an appeal court. The
Sheriff Court is bound by the High Court of Justiciary as an appeal court and it has been held in some cases
to be bound by decisions of the High Court of Justiciary as a court of trial, but a sheriff is not bound by
decisions of other sheriffs. The Justice of the Peace Court is the lowest criminal court in Scotland. It is
bound by decisions of the High Court of Justiciary as a court of criminal appeal and probably also by the
High Court of Justiciary as a court of trial and possibly also by decisions of Sheriff Courts.
(b)

Binding precedent
If a precedent was set by a court of equal or higher status to the court deciding the new case, then the judge
in the present case should normally follow the rule of law established in the earlier case.
Persuasive precedent
From the foregoing it can be seen that courts higher in the hierarchy are not bound to follow the reasoning
of courts at a lower level in that hierarchy. However, the higher courts will consider, and indeed may adopt,
the reasoning of the lower court. As a consequence of the fact that the higher court is at liberty not to follow
the reasoning in the lower court such decisions are said to be of persuasive rather than binding authority. It
should also be borne in mind that Scottish courts are in no way bound to follow the reasoning of courts in
different jurisdictions. However, where a court from another jurisdiction has considered a point of law that
subsequently arises in a Scottish case, the Scottish courts will review the reasoning of the foreign courts
and may follow their reasoning if they find it sufficiently persuasive.

66

Answers

6 Case law and legislation


Marking scheme
Marks

This question requires candidates to explain the two main sources of law in the Scottish legal
system: case law and legislation.
(a)

(b)

(a)

Good explanation of case law. Examples used to highlight answers.

46

Sound understanding but perhaps no examples.

23

Limited knowledge only about the topic.

01

Good awareness of the meaning and effect of legislation, including legislation of the
Scottish Parliament.

34

Limited knowledge only about the topic.

02

Case Law
This term refers to the substantive law and procedural rules that have been created by the judiciary through
the decisions in the cases they have heard. It is also referred to as the common law.
Central to the concept of the common law/case law is the doctrine of precedent, which means that when a
court has to decide an issue, it looks to the previous decisions contained in earlier cases for guidance on
how to deal with the present case. Case law operates within the hierarchical structure of the courts system;
with the decisions of higher courts binding those courts lower than them in the structure. Courts at the same
level are also usually bound, although since 1966 that is no longer the case with the Supreme Court
(formerly the House of Lords), which, following the practice statement of that year, can overrule its previous
rulings.
The actual part of the previous decision that is binding is the ratio decidendi of the case; that is the legal rule,
which led to the decision in the earlier case. The ratio is an abstraction from the facts of the case. Everything
else is termed obiter dictum and, although of persuasive authority, does not have to be followed by the later
court. As the ratio decidendi of any case is an abstraction from, and is based upon, the material facts of the
case, this opens up the possibility that a later court may regard the facts of the case before it as significantly
different from the facts of a cited precedent and thus, consequentially, it will not find itself bound to follow
that precedent. Judges use this device of distinguishing cases on their facts where, for some reason, they
are unwilling to follow a particular precedent.
Various law reports contain details of cases and decisions and it is to those books and cases that lawyers go
to find out what the case law is on any particular issue.
There are numerous perceived advantages of the doctrine of precedent, amongst which are:

Consistency.
Certainty.
Efficiency.
Flexibility.

It is sometimes claimed that judges exceed their constitutional role by making such laws, but others would
counter that it is both legitimate and necessary that judges should take an active part in developing the law.
(b)

Legislation
Legislation refers to law that has been created by the legislative body within a constitution.

Answers

67

In the United Kingdom that body is Parliament, constituted by both the House of Commons and the House of
Lords and Bills have to be considered in, and approved by, both houses before they become law subsequent
to the formality of their receiving royal approval. Since the Parliament Acts of 1911 and 1949, the blocking
power of the House of Lords has been restricted as follows:

a Money Bill, that is, one containing only financial provisions, can be enacted without the approval
of the House of Lords after a delay of one month;

any other Bill can be delayed by one year by the House of Lords.

Statutes take the form of Acts of Parliament or delegated legislation. Delegated legislation is of particular
importance. Generally speaking, delegated legislation is law made by some person or body to whom
Parliament has delegated its general law-making power.
Delegated legislation may come in the form of:

Orders in Council permit the Government, through the Privy Council, to make law.

Statutory Instruments are the means through which government ministers introduce particular
regulations under powers delegated to them by Parliament in enabling legislation.

Bye-laws are the means through which local authorities and other public bodies can make legally
binding rules.

Court rule committees are empowered to make the rules which govern procedure in the particular
courts over which they have delegated authority.

Professional regulations governing particular occupations may be given the force of law under
provisions delegating legislative authority to certain professional bodies which are empowered to
regulate the conduct of their members.

A validly enacted piece of delegated legislation has the same legal force and effect as the Act of Parliament
under which it is enacted but, equally, it only has effect to the extent that its enabling Act authorises it and
anything done in excess of, or contrary to, that authority may be challenged in the courts as ultra vires
through an action for judicial review.
Within countries with written constitutions there is usually a limitation placed on the power of the legislature
to make law, in that it cannot make laws which are contrary to, or in conflict with, the fundamental
provisions of the constitution. In the United Kingdom, due to the doctrine of Parliamentary Sovereignty,
legislation is superior to the common law, and the courts cannot strike down primary legislation, although,
under the Human Rights Act 1998, they can declare that such law is incompatible with the rights contained
in the European Convention on Human Rights. Legislation is published in the form of individual Acts and
collectively in annual volumes.
The Scottish Parliament has legislative competence over those areas of law with respect to Scotland that
have not been reserved to the UK Parliament. Unlike the UK Parliament, the Scottish Parliament is not
sovereign, and its legislation is challengeable if it goes beyond its competence as well as for incompatibility
with the European Convention on Human Rights and European Community law.
The Scottish Parliament can also delegate powers to Ministers and others to legislate (delegated legislation).
The courts exercise the essential task of interpreting statutes in such a way as to give them effect. In so
doing the courts make use of the three main rules of interpretation:

68

Answers

the literal rule (see R v Maginnis (1987) and AGs Reference (No 1 of 1988) (1989) and the Scottish
case Ayrshire Employers Mutual Insurance v IRC (1946))

the golden rule (see Re Sigsworth (1935) and the Scottish case of K v Craig (1997))

the mischief rule (see Heydons case (1584) and Corkery v Carpenter (1950) and the Scottish case of
Leadbetter v Hutcheson (1934)).

7 Statutory interpretation
Marking scheme
Marks

(a)

Requires a consideration of the literal approach, including the golden rule.


Full detailed explanation with supporting cases or examples.
Limited knowledge of the topic; perhaps lacking detail or cases/examples.
No knowledge on the topic under consideration.

(b)

35
1-2

Requires a consideration of the purposive approach, including the mischief rule.


Full detailed explanation with supporting cases or examples.
Limited knowledge of the topic; perhaps lacking detail or cases/examples.
No knowledge on the topic under consideration.

35
12

Candidates may simply produce a global answer considering the traditional rules and will be
marked according to the content provided.

(a)

The literal approach


The literal approach is dominant in the Scottish legal system, although it is not without critics, and devices
do exist for circumventing it when it is seen as too restrictive. This view of judicial interpretation holds that
the judge should look primarily to the words of the legislation in order to construe its meaning and, except in
the very limited circumstances considered below, should not look outside of, or behind, the legislation in an
attempt to find its meaning. Within the context of the literal approach there are two distinct rules:
(i)

The literal rule


Under this rule, the judge is required to consider what the legislation actually says rather than
considering what it might mean. In order to achieve this end, the judge should give words in
legislation their literal meaning, that is, their plain, ordinary, everyday meaning, even if the effect of
this is to produce what might be considered an otherwise unjust or undesirable outcome. See for
example Fisher v Bell (1961) in which the court chose to follow the contract law literal interpretation
of the meaning of offer in the Act in question and declined to consider the usual non-legal literal
interpretation of the word (offer).

(ii)

The golden rule


This rule is applied in circumstances where the application of the literal rule is likely to result in what
appears to the court to be an obviously absurd result. It should be emphasised, however, that the
court is not at liberty to ignore, or replace, legislative provisions simply on the basis that it considers
them absurd; it must find genuine difficulties before it declines to use the literal rule in favour of the
golden one. As examples, there may be two apparently contradictory meanings to a particular word
used in the statute, or the provision may simply be ambiguous in its effect. In such situations, the
golden rule operates to ensure that preference is given to the meaning that does not result in the
provision being an absurdity. Thus in Adler v George (1964) the defendant was found guilty, under
the Official Secrets Act 1920, with obstruction in the vicinity' of a prohibited area, although she had
actually carried out the obstruction inside' the area. In the Scottish case Strathern v Padden (1926)
the court had to interpret the Prevention of Crime Act 1871 which made a distinction between
crimes' and less serious offences.' Under s.7 it was a crime for a person within seven days of
conviction for an earlier crime to be found in circumstances which indicated he was going to commit
an offence' but did not specifically refer to those going on to commit crimes.' The court interpreted
the words of the statute also to apply to those who appeared to be going on to commit crimes,'
because not to apply that interpretation would be an absurdity.

Answers

69

(b)

The purposive approach


The purposive approach rejects the limitation of the judges' search for meaning to a literal construction of
the words of legislation itself. It suggests that the interpretative role of the judge should include, where
necessary, the power to look beyond the words of statute in pursuit of the reason for its enactment, and that
meaning should be construed in the light of that purpose and so as to give it effect. This purposive approach
is typical of civil law systems. In these jurisdictions, legislation tends to set out general principles and leaves
the fine details to be filled in later by the judges who are expected to make decisions in the furtherance of
those general principles.
European Community (EC) legislation tends to be drafted in the continental manner. Its detailed effect,
therefore, can only be determined on the basis of a purposive approach to its interpretation. This
requirement, however, runs counter to the literal approach that is the dominant approach in the English and
Scottish legal systems. The need to interpret such legislation, however, has forced a change in that approach
in relation to Community legislation and even with respect to domestic legislation designed to implement
Community legislation. Thus, in Pickstone v Freemans plc (1988), the House of Lords held that it was
permissible, and indeed necessary, for the court to read words into inadequate domestic legislation in order
to give effect to Community law in relation to provisions relating to equal pay for work of equal value. (For a
similar approach, see also the House of Lords' decision in Litster v Forth Dry Dock (1989) and the decision
in Three Rivers DC v Bank of England (No 2) (1996).) However, it has to recognise that the purposive rule is
not particularly modern and has its precursor in a long established rule of statutory interpretation, namely
the mischief rule.
The mischief rule
This rule permits the court to go behind the actual wording of a statute in order to consider the problem that
the statute is supposed to remedy. In its traditional expression it is limited by being restricted to using
previous common law rules in order to decide the operation of contemporary legislation. Thus in Heydon's
case (1584) it was stated that in making use of the mischief rule the court should consider what the mischief
in the law was which the common law did not adequately deal with and which statute law had intervened to
remedy. Use of the mischief rule may be seen in Corkery v Carpenter (1950), in which a man was found
guilty of being drunk in charge of a carriage although he was in fact only in charge of a bicycle. In the
Scottish case Leadbetter v Hutcheson (1934) the word cart' in a statute concerned with poaching salmon
was interpreted to include a motor bike and sidecar, to address the mischief to which the statute was
addressed.

8 Offer and invitation to treat


M arking scheme
M arks

(a)

Carries 4 marks as follows:


Thorough to complete explanation of the meaning of offer. It is expected that cases will be

34

cited in support, although examples will be acceptable.


Some but limited knowledge of the topic. Perhaps uncertain as to meaning or lacking in

12

detailed explanation or authority.


No understanding whatsoever.
(b)

70

Answers

Carries 6 marks as follows:


Thorough to complete explanation of invitation to threat. It is expected that cases will be
cited in support, although examples will be acceptable.

46

Some but limited knowledge of the topic. Perhaps uncertain as to meaning or lacking in
detailed explanation or authority.

23

Very little or no understanding whatsoever.

01

(a)

Offer
An offer sets out the terms upon which an individual is willing to enter into a binding contractual relationship
with another person. It is a promise to be bound on particular terms, which is capable of acceptance. The
essential factor to emphasise about an offer is that it may, through acceptance by the offeree, result in a
legally enforceable contract. The person who makes the offer is the offeror; the person who receives the
offer is the offeree.
Offers, once accepted, may be legally enforced but not all statements will amount to an offer. It is important,
therefore, to be able to distinguish what the law will treat as an offer from other statements which will not
form the basis of an enforceable contract. An offer must be capable of acceptance. It must therefore not be
too vague (Scammel v Ouston (1941)). In Carlill v Carbolic Smoke Ball Co (1893) it was held that an offer
could be made to the whole world and could be accepted and made binding through the conduct of the
offeree.
In addition an offer should be distinguished, from the following:

(b)

(i)

A mere statement of intention Such a statement cannot form the basis of a contract even although
the party to whom it was made acts on it (Re Fickus (1900)).

(ii)

A mere supply of information As in Harvey v Facey (1893) where it was held that the defendant's
telegram, in which he stated a minimum price he would accept for property, was simply a statement
of information, and was not an offer capable of being accepted by the plaintiff.

Invitation to treat
Invitations to treat are distinct from offers in that rather than being offers to others, they are in fact
invitations to others to make offers. The person to whom the invitation to treat is made becomes the actual
offeror, and the maker of the invitation becomes the offeree. An essential consequence of this distinction is
that, in line with the ordinary rules of offer and acceptance, the person extending the invitation to treat is not
bound to accept any offers subsequently made to them.
The following are examples of common situations involving invitations to treat:
(i)

the display of goods in a shop window The classic case in this area is Fisher v Bell (1961) in which
a shopkeeper was prosecuted for offering offensive weapons for sale, by having flick-knives on
display in his window. It was held that the shopkeeper was not guilty as the display in the shop
window was not an offer for sale but only an invitation to treat.

(ii)

the display of goods on the shelf of a self-service shop In this instance the exemplary case is
Pharmaceutical Society of Great Britain v Boots Cash Chemists (1953). The defendants were charged
with breaking a law which provided that certain drugs could only be sold under the supervision of a
qualified pharmacist. They had placed the drugs on open display in their self-service store and,
although a qualified person was stationed at the cash desk, it was alleged that the contract of sale
had been formed when the customer removed the goods from the shelf. It was held that Boots were
not guilty. The display of goods on the shelf was only an invitation to treat. In law, the customer
offered to buy the goods at the cash desk where the pharmacist was stationed.

(iii)

a public advertisement Once again this does not amount to an offer. This can be seen from
Partridge v Crittenden (1968) in which a person was charged with offering' a wild bird for sale
contrary to the Protection of Birds Act 1954, after he had placed an advert relating to the sale of such
birds in a magazine. It was held that he could not be guilty of offering the bird for sale as the advert
amounted to no more than an invitation to treat.

(iv)

a share prospectus Contrary to common understanding such a document is not an offer. It is


merely an invitation to treat, inviting people to make offers to subscribe for shares in a company.

Answers

71

9 Invitation to treat and tender


Marking scheme
Marks

This question requires candidates to explain the concept of invitation to treat. Part (a) raises the
concept generally while part (b) deals with the related concept of an invitation for tenders.
(a)

(b)

A thorough answer explaining the meaning of invitation to treat together with either
examples or cases to highlight the explanation.

57

Some general knowledge of the topic, but perhaps lacking in detail or cases/examples in
support of the explanation.

24

Little, if any, knowledge of the concept or rules relating to an invitation to treat.

01

Good to complete account of tenders, distinguishing between the possible types.

23

Little, if any, knowledge of the topic.

01

(a)

Invitation to treat
Invitations to treat are distinct from offers in that rather than being offers to others, they are in fact
invitations to others to make offers. The person to whom the invitation to treat is made becomes the actual
offeror, and the maker of the invitation becomes the offeree. An essential consequence of this distinction is
that, in line with the ordinary rules of offer and acceptance, the person extending the invitation to treat is not
bound to accept any offers subsequently made to them. The following are examples of common situations
involving invitations to treat:
(i) the display of goods in a shop window The classic case in this area is Fisher v Bell (1961) in which a
shopkeeper was prosecuted for offering offensive weapons for sale, by having flick-knives on display in his
window. It was held that the shopkeeper was not guilty as the display in the shop window was not an offer
for sale but only an invitation to treat.
(ii) the display of goods on the shelf of a self-service shop In this instance the exemplary case is
Pharmaceutical Society of Great Britain v Boots Cash Chemists (1953). The defendants were charged with
breaking a law which provided that certain drugs could only be sold under the supervision of a qualified
pharmacist. They had placed the drugs on open display in their self-service store and, although a qualified
person was stationed at the cash desk, it was alleged that the contract of sale had been formed when the
customer removed the goods from the shelf. It was held that Boots were not guilty. The display of goods on
the shelf was only an invitation to treat. In law, the customer offered to buy the goods at the cash desk
where the pharmacist was stationed.
(iii) a public advertisement Once again this does not amount to an offer. This can be seen from Partridge
v Crittenden (1968) in which a person was charged with offering a wild bird for sale contrary to Protection
of Birds Act 1954, after he had placed an advert relating to the sale of such birds in a magazine. It was held
that he could not be guilty of offering the bird for sale as the advert amounted to no more than an invitation
to treat.
(iv) a share prospectus Contrary to common understanding such a document is not an offer. It is merely
an invitation to treat, inviting people to make offers to subscribe for shares in a company.

(b)

A tender
This form of invitation to treat arises where one party wishes particular work to be done and issues a
statement asking interested parties to submit the terms on which they are willing to carry out the work. In
the case of tenders, the person who invites the tender is simply making an invitation to treat.

72

Answers

The person who submits a tender is the offeror and the other party is at liberty to accept or reject the offer
as they please.
The effect of acceptance depends upon the wording of the invitation to tender. If the invitation states that the
potential purchaser will require to be supplied with a certain quantity of goods, then acceptance of a tender
will form a contract and they will be in breach if they fail to order the stated quantity of goods from the
person submitting the tender. If, on the other hand, the invitation states only that the potential purchaser
may require goods, acceptance gives rise only to a standing offer. In this situation there is no compulsion on
the purchaser to take any goods, but they must not deal with any other supplier. Each order given forms a
separate contract and the supplier must deliver any goods required within the time stated in the tender. The
supplier can revoke the standing offer but they must supply any goods already ordered (Great Northern
Railway v Witham (1873)).

10 Offer, counter offer and unilateral obligations


Marking scheme
Marks

(a)

A good to complete answer explaining the meaning of an offer.


For some indication as to the meaning of offer.

3-5
1-2

(b)

(i)

Awarded for explanation of the meaning and effect of counter-offer depending on


clarity of explanation.
For some knowledge..

2-3

For a good to complete explanation of the meaning and effect of a unilateral offer.
Some idea about unilateral offers but lacking in detail.

2
1

(ii)

(a)

Offer
An offer sets out the terms upon which an individual is willing to enter into a binding contractual relationship
with another person. It is a promise to be bound on particular terms, which is capable of acceptance. The
essential factor to emphasise about an offer is that it may, through acceptance by the offeree, result in a
legally enforceable contract. The person who makes the offer is the offeror; the person who receives the
offer is the offeree.
Offers, once accepted, may be legally enforced but not all statements will amount to an offer. It is important,
therefore, to be able to distinguish what the law will treat as an offer from other statements, which will not
form the basis of an enforceable contract. An offer must be capable of acceptance. It must therefore not be
too vague (Scammel v Ouston (1941)). In Carlill v Carbolic Smoke Ball Co (1893) it was held that an offer
could be made to the whole world and could be accepted and made binding through the conduct of the
offeree. In addition an offer should be distinguished from the following:

(b)

(i)

a mere statement of intention, which cannot form the basis of a contract even although the party to
whom it was made acts on it (Re Fickus (1900)).

(ii)

a mere supply of information, as in Harvey v Facey (1893) where it was held that the defendant's
telegram, in which he stated a minimum price he would accept for property, was simply a statement
of information, and was not an offer capable of being accepted by the claimant.

(i)

Counter-offer
A counter-offer arises where the offeree tries to change the terms of the original offer that has been
made rather than directly accepting it. The consequence of making a counter-offer is to bring the
original offer to an end so it is no longer possible for that original offer to be accepted at a later time.
See Wolf & Wolf v Forfar Potato Co (1984) in which because the acceptance of the offer to sell
potatoes had varied some of the terms, it was held to be a counter-offer and to have caused the
original offer to lapse. As the parties never did reach consensus, there was no contract.

Answers

73

A counter-offer must not be confused with a request for information. Such a request does not end
the offer, which can still be accepted after the new information has been elicited. See Stevenson v
McLean (1880), where it was held that a request by the offeree as to the length of time the offeror
would give for payment did not terminate the original offer, which he was entitled to accept prior to
revocation.
(ii)

Unilateral obligation
A unilateral obligation is one where one party promises something in return for some action on the
part of another party. In relation to unilateral obligations, revocation is not permissible once the
offeree has started performing the task requested. Reward cases are examples of such unilateral
promises. There is no compulsion placed on the party undertaking the action but it would seem to be
unfair if the promisor were entitled to revoke their offer just before the offeree was about to complete
their part of the contract. An example of unilateral obligations may be seen in Carlill v Carbolic Smoke
Ball Co (1993), where the company promised to pay 100 to anyone who caught influenza after using
their product. No one was forced to buy the product but once they did and started using it, the
company was bound by its promise. In Errington v Errington (1952), a father promised his son and
daughter-in-law that he would convey a house to them when they had paid off the outstanding
mortgage. After the father's death, his widow sought to revoke the promise. It was held that the
promise could not be withdrawn as long as the mortgage payments continued to be met. In Scotland,
unilateral obligations would normally need to be in writing if they are gratuitous, according to the
Requirements of Writing (Scotland) Act 1995. The exception is if they are business contracts, or
where the other party has acted in reliance on the offer to the knowledge of the offeror to his
detriment.

11 Gratuitous promises, offers and invitations to treat


Marking scheme
Marks

(a)

(b)

A thorough to complete answer, defining the term and explaining the circumstances in which
a gratuitous promise may be binding, generally supported with authority.

3-5

A limited understanding, or incomplete answer, not supported by authority.

02

A thorough treatment of the subject, defining and distinguishing the terms, and generally
giving examples backed by authority where appropriate.

35

Weak answer which may show some knowledge of the distinction between the two, but
lacking in examples and with little or no authority.

(a)

02

Scots law does not recognise the doctrine of consideration, and a unilateral gratuitous promise may be
binding in Scots law as was seen in Morton's Trustee v Aged Christian Friend Society of Scotland (1899).
This means that one-sided obligations may in some circumstances be enforceable. It is important first to be
clear that a potentially binding obligation is intended, and there is a presumption that it is not intended,
which has to be rebutted by contrary evidence. If A invited B to dinner and says I will be paying' A is
probably not bound if he then fails to host the dinner, and the presumption in a social context would be
against an enforceable obligation.
However, if a promise is made by a commercial context (eg to put a financial stake into someone's business
without seeking anything in return), there is a presumption that the person did intend it to be binding,
although it would be rebuttable by contrary evidence

74

Answers

A unilateral gratuitous promise is also binding if it is reduced to formal writing in terms of s.1(2)(a)(ii) of the
Requirements of Writing (Scotland) Act 1995. This also applies to the making of a will under s.1(2)(c).
Section 7 states that normally a simple signature is sufficient, although if the written document is witnessed
by one witness that would create a presumption that it was signed by the granter. Section 1(3) and (4) go on
to state that if a unilateral gratuitous obligation is not constituted in a written document but the other party
has acted or refrained from acting in reliance on the obligation, with the knowledge and acquiescence of the
party who made the unilateral gratuitous obligation, the other party may be barred from with drawing from
the obligation and the obligation may be treated as valid, if the other party has been affected to a material
extent and would be affected to a material extend if the party who made the unilateral gratuitous obligation
were to withdraw. The granting of an option to allow the other party a right to do something eg to acquire
property at a later date might be an example of a unilateral gratuitous promise, as was suggested in
Miller Homes Ltd v Frame (2002).
(b)

It is very important to be clear as to the difference between an offer and an invitation to treat, because when
a person makes an offer he/she does so on the understanding that if it is accepted and consensus in idemis
reached, he is bound in a contract which is enforceable against him. An invitation to treat, on the other hand,
merely indicated that a person is in principle willing to contract, but an offer has not yet been made. An
invitation to treat cannot be accepted so as to create a binding contract. An invitation to tender inviting
contractors to give quotations for supply of goods or services is not normally an offer, but a form of
invitation to treat, as the person inviting tenders has no obligation to contract with any of the contractors
who submit tenders. Most advertisements are invitations to treat rather than offers, but in Carlill v Carbolic
Smoke Ball Co (1893) the court held on the wording of the advertisement that it was an offer to all the world,
which Miss Carlill accepted by buying the Smoke Ball, using it according to instructions and catching flu.
A similar Scottish case is Hunter v General Accident (1909). In these cases the advertisement stated what a
person had to do and made it plain that if they did these things, they would receive something in return.
Goods in a shop window have been held to be an invitation to treat, with the offer coming from the
customer: Fisher v Bell (1961). The goods in an auction sale have been held to be an invitation to treat, the
public making an offer when they raise their hand, and the contract being concluded when the hammer falls.
A response to an enquiry about terms for contracting would not normally itself be an offer capable of
acceptance: Harvey v Facey (1893).
An offer has to be communicated to the other party.

12 Third party rights and intention


Marking scheme
Marks

This question is divided into two parts, part (a) carries 6 marks and part (b) carries 4 marks.
A thorough understanding of both topics demonstrated by references to cases or examples.

810

A clear understanding of both topics but perhaps lacking in detail.

57

Alternatively, an unbalanced answer showing good understanding of one part but less in the other.
Some, but limited, understanding of both topics, or clear understanding of only one of the topics.

24

Little or no knowledge of either of the topics.

01

(a)

Third party rights


As a general rule only those persons who are party to a contract will have the right to sue to enforce the
contract. However, there are some circumstances where Scots law recognises the rights of third parties to
sue on a contract.

Answers

75

The best example is in contracts where a benefit is created in favour of a third party, as in certain types of
insurance contract.
A contract between a parent and an insurance company may create benefits in favour of a child. For
instance, in Carmichael v Carmichael's Executrix (1920), a father took out a policy in favour of his nine-yearold son, who was to receive the benefits of the policy when he reached adulthood. The son died shortly after
coming of age, but had willed his property to his aunt who claimed the benefits due under the policy. The
court held that she was entitled to these benefits as they formed part of the son's estate.
Third party rights may also arise if a contract has been assigned, or if they are transmitted on death or
bankruptcy.
A third party may enforce a contract in the following circumstances:
(i)

the beneficiary sues in some other capacity. Although not a party to the original agreement,
individuals may, nonetheless, acquire the power to enforce the contract where they are legally
appointed to administer the affairs of one of the original parties (Beswick v Beswick (1967)) where a
widow, appointed administratrix of her late husband's estate, was able to successfully sue her
nephew for specific performance of a beneficial agreement in that capacity.

(ii)

the situation involves a collateral contract. This situation arises where one party promises something
to another party if that other party enters into a contract with a third party: eg A promises to give B
something if B enters into a contract with C. In such a situation B can insist on A complying with the
original promise (Shanklin Pier v Detel Products Ltd (1951)).

(iii)

it is foreseeable that damage caused by any breach of contract will cause a loss to a third party
(Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd (1994)).
The other main common law exception to the rule is agency, where the whole point is for the agent to
bring about contractual relations between their principal and a third party.
In the area of motoring insurance Statute law has intervened to permit third parties to claim directly
against insurers, but much wider statutory intervention has been introduced by the Contracts (Rights
of Third Parties) Act 1999.

(b)

Intention to create legal relations


A contract is defined as a binding agreement. However, in order to limit the number of cases that might
otherwise be brought, the courts will only enforce those agreements which the parties intended to have legal
effect. Although expressed in terms of the parties' intentions, the test for the presence of such intention is an
objective, rather than a subjective, one. Agreements can be divided into two categories, in which different
presumptions apply.
(i)

Domestic and social agreements


In these agreements, there is a presumption that the parties do not intend to create legal relations
(Balfour v Balfour (1919)). However, any such presumption against the intention to create legal
relations in such relationships may be rebutted by the actual facts and circumstances of a particular
case as may be seen in Merritt v Merritt (1970).

(ii)

Commercial agreements
In these situations, the strong presumption is that the parties intend to enter into a legally binding
relationship in consequence of their dealings (Edwards v Skyways (1964)). However, as with other
presumptions, this one is also open to rebuttal. In commercial situations, however, the presumption
is so strong that it will usually take express wording to the contrary to avoid its operation as may be
seen in Rose and Frank Co v Crompton Bros (1925).

76

Answers

13 Postal rule and third party rights


Marking scheme
Marks

This question is divided into two parts relating to distinct aspects of the law of contract.
(a)

(b)

A good to excellent understanding of the postal rule demonstrated by references to


cases or examples.

45

Some, but limited, understanding of the topic, or clear understanding of only one
aspect

23

Little or no knowledge of the topic.

01

A good to excellent understanding of third party rights demonstrated by references


to cases or examples.

45

Some, but limited, understanding of the topic, or clear understanding of only one
aspect.

23

Little or no knowledge of the topic.

(a)

01

The effect of the postal rule is such that where acceptance of a contractual offer is through the postal
service, acceptance is complete as soon as the letter, properly addressed and stamped, is posted. The
contract is concluded, even if the letter subsequently fails to reach the offeror. Thus in Adams v Lindsell
(1818), the defendant made an offer to the plaintiff on 2 September. Due to misdirection, the letter was
delayed. It arrived on 5 September and Adams immediately posted an acceptance. On 8 September, Lindsell
sold the merchandise to a third party. On 9 September, the letter of acceptance from Adams arrived. It was
held that a valid acceptance took place when Adams posted the letter. Lindsell was, therefore, liable for
breach of contract. However, if an acceptance letter is lost in the post, it has been held in Scotland obiter
that the acceptance is not binding (Mason v Liquidators of the Benhar Coal Co Ltd (1882)). If an acceptance
has been posted, a withdrawal of the offer, to be effective, must already have reached the other party before
the acceptance is posted (Thomson v James (1855)).
The postal rule applies equally to telegrams (Byrne v Van Tienhoven (1880)), but it does not apply when
means of instantaneous communication are used (Entores v Miles Far East Corp (1955)). Also the postal
rule will apply only where it is in the contemplation of the parties that post will be used as the means of
acceptance. If the parties have negotiated either face-to-face, for example in a shop, or over the telephone,
then it might not be reasonable for the offeree to use the post as a means of communicating their
acceptance and they would not gain the benefit of the postal rule.
Where acceptance is by email, it has been argued that this situation should be treated as a face-to-face'
situation where receipt only occurs when the recipient reads the email (Brinkibon Ltd v Stahag Stahl und
Stahlwarenhandelsgesellshaft mbH (1983)). Where the agreement is conducted on the Internet, regulation
11 of the Electronic Commerce (EC Directive) Regulations 2002 indicates that the contract is concluded
when the service provider's acknowledgment of receipt of acceptance is received by electronic means.

(b)

Third party rights


The rule of privity of contract applies, by which contracts generally create enforceable rights only between
the parties to them and third parties are not entitled to enforce these contractual obligations. Its operation
may be seen in Dunlop v Selfridge (1915); Dunlop sold tyres to a distributor, Dew and Co, on terms that the
distributor would not sell them at less than the manufacturers list price, and that they would extract a similar
undertaking from anyone they supplied with tyres. Dew and Co resold the tyres to Selfridge who agreed to
abide by the restrictions and to pay Dunlop 5 for each tyre they sold in breach of them.

Answers

77

When Selfridge sold tyres at below Dunlop's list price, Dunlop sought to recover the promised 5 per tyre
sold. It was held that Dunlop could not recover damages on the basis of the contract between Dew and
Selfridge to which they were not a party.
There are a number of ways in which consequences of the application of strict rule of privity may be avoided
to allow a third party to enforce a contract. These occur at both common law and under statute.
(i)

Common law:
The beneficiary sues in some other capacity. A person who was not originally a party to a particular
contract may, nonetheless, acquire the power to enforce the contract where they are legally
appointed to administer the affairs of one of the original parties. An example of this can be seen in
Beswick v Beswick (1967) where a coal merchant sold his business to his nephew in return for a
consultancy fee of 610 shillings (in pre-decimal currency) during his lifetime, and thereafter an
annuity of 5 per week payable to his widow. After the uncle died, the nephew stopped paying the
widow. When she became administratrix of her husband's estate, she sued the nephew for specific
performance of the agreement in that capacity as well as in her personal capacity. It was held that,
although she was not a party to the contract and therefore could not be granted specific performance
in her personal capacity, such an order could be awarded to her as the administratrix of the deceased
person's estate.
A party to a contract may be required under it to undertake obligations to a third party.
An example might be the construction of a commercial building, where there is likely to be an
employer who has a contract with a main contractor, who in turn has contracts with specialised subcontractors. In such a case, the sub-contractors may be required to give guarantees of their work to
the employer. Also, the contract between the employer and the main contractor may provide for
some of the payment for the contract to be retained for the benefit of the sub-contractors to cover the
contingency of the insolvency of the main contractor.
There is a valid assignation of the benefit of the contract.
A party to a contract can transfer the benefit of that contract to a third party through the formal
process of assignation. The assignation must be in writing, and the assignee receives no better rights
under the contract than the assignor possessed. The burden of a contract cannot be assigned without
the consent of the other party to the contract. An assignation has to be intimated in writing to the
debtor under the contract.
Where it is foreseeable that damage caused by any breach of contract will cause a loss to a third
party. In Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd (1994), the original parties had
entered into a contract for work to be carried out on property with the likelihood that it would
subsequently be transferred to a third party. The defendant's poor work, amounting to a breach of
contract, only became apparent after the property had been transferred. There had been no
assignation of the original contract and, normally, under the doctrine of privity, the new owners
would have no contractual rights against the defendants and the original owners of the property
would have suffered only a nominal breach as they had sold it at no loss to themselves. Nonetheless,
the House of Lords held that, under such circumstances, and within a commercial context, the
original promisee should be able to claim full damages on behalf of the third party for the breach of
contract.
A third party has a jus quaesitum tertio (right acquired by a third person).
At common law in Scotland a third party to a contract may be able to sue on a contract to which he is
not a party if certain conditions are met:
Firstly, the third party must be identified in the contract either by name or by belonging to a specified
class of beneficiaries. Secondly, it must be clear from the terms of the contract that the parties
intended to benefit that third party. An example of this is a life insurance policy taken out by one
person on his own life under which another person will benefit from payment under the policy in the
event of his death. Thirdly, it must be clear from the terms of the contract that the intention to create
the third party right is irrevocable. On this element, see Carmichael v Carmichael's Executrix (1920).

78

Answers

The other main exception to the privity rule at common law is agency, where the agent brings about
contractual relations between two other parties even where the existence of the agency has not been
disclosed.
(ii)

Statute
Statute has intervened in relation to the doctrine of privity to provide third party rights in the field of
motor insurance where third parties claim directly against the insurers of the party against whom
they have a claim.

14 Remedies for breach


Marking scheme
Marks

A very good answer revealing a thorough to complete understanding of all of the remedies
available for breach of contract, although a concentration on damages is to be expected.

8-10

A good answer but perhaps unfocused or lacking in detail as to the specific nature of the
remedies. Perhaps simply a list of remedies with no consideration might warrant the lowest mark
in this category.

5-7

Weak answer, unfocused or lacking in knowledge or detail.

2-4

Very little, if any, knowledge of the topic.

0-1

Breach of a contract occurs where one of the parties to the agreement fails to comply, either completely or
satisfactorily, with their obligations under it. A breach of contract may occur in three ways:
(i)
(ii)
(iii)

where a party, prior to the time of performance, states that they will not fulfil their contractual obligation;
where a party fails to perform their contractual obligation;
where a party performs their obligation in a defective manner.

Any breach will result in the innocent party being able to sue for an appropriate remedy. In addition, however, some
breaches will permit the innocent party to treat the contract as discharged. In this situation they can refuse either to
perform their part of the contract, or to accept further performance from the party in breach.
The principal remedies for breach of contract are:

damages;
quantum meruit;
specific implement;
interdict;
defensive measures.

Damages
Every failure to perform a primary obligation is a breach of contract. The secondary obligation on the part of the
contract-breaker, by implication of the common law, is to pay monetary compensation to the other party for the
loss sustained by him in consequence of the breach (Photo Productions Ltd v Securicor Transport Ltd (1980)).
Such monetary compensation for breach of contract is damages. There are two issues to consider: remoteness and
measure.

Answers

79

(i)

Remoteness of damage
This involves deciding how far down a chain of events a defender is liable. The rule in Hadley v Baxendale
(1854) states that damages will only be awarded in respect of losses which arise naturally, ie in the natural
course of things; or which both parties may reasonably be supposed to have contemplated, when the
contract was made, as a probable result of its breach.
The effect of the first part of the rule in Hadley v Baxendale is that the party in breach is deemed to expect
the normal consequences of the breach, whether they actually expected them or not.
Under the second part of the rule, however, the party in breach can only be held liable for abnormal
consequences where they have actual knowledge that the abnormal consequences might follow. Thus in
Victoria Laundry Ltd v Newham Industries Ltd (1949) the plaintiff was able to claim for damages with
respect to the normal profits, but could not claim abnormal profits which would have resulted from an
especially lucrative contract, which the defendant knew nothing about.

(ii)

Measure of damages
Damages in contract are intended to compensate an injured party for any financial loss sustained as a
consequence of another party's breach. The object is not to punish the party in breach, so the amount of
damages awarded can never be greater than the actual loss suffered. The aim is to put the injured party in
the same position they would have been in had the contract been properly performed.
Even damages of a non-financial nature can be recovered (Jarvis v Swan Tours Ltd (1973)).

It is possible, and common in business contracts, for the parties to an agreement to make provisions for possible
breach by stating in advance the amount of damages that will have to be paid in the event of any breach occurring.
Damages under such a provision are known as liquidated damages. They will only be recognised by the court if they
represent a genuine pre-estimate of loss, and are not intended to operate as a penalty against the party in breach
(Dunlop v New Garage & Motor Co (1915)).
Quantum meruit
Quantum meruit means that a party should be awarded as much as he had earned', and such an award can be
either contractual or quasi-contractual in nature. If the parties enter into a contractual agreement without
determining the reward that is to be provided for performance, then in the event of any dispute, the court will award
a reasonable sum.
Payment may also be claimed on the basis of quantum meruit, where a party has carried out work in respect of a
void contract (Craven-Ellis v Canons Ltd (1936)).
Specific implement
An order for specific implement requires the party in breach to complete their part of the contract. The following
rules govern the award of such a remedy.
(i)

specific implement will only be granted in cases where the common law remedy of damages is inadequate. It
is most commonly granted in cases involving the sale of land, where the subject matter of the contract is
unique.

(ii)

specific implement will not be granted where the court cannot supervise its enforcement. For this reason it
will not be available in respect of contracts of employment or personal service (Ryan v Mutual Tontine
Westminster Chambers Association (1893)).

Interdict
This is an order of the court, which directs a person not to break their contract. An interdict will only be granted to
enforce negative covenants within the agreement, and cannot be used to enforce positive obligations (Church
Commissioners for England v Abbey National plc (1994)). However, it can have the effect of indirectly enforcing
contracts for personal service (Bluebell Apparel Ltd v Dickinson (1978)).

80

Answers

Defensive measures
The party who is not in breach may be able to use the self-help remedies of retention and lien. Retention allows the
party not in breach to retain money owed under the contract until the other party has performed his part of the
bargain. Lien allows the party not in breach to retain possession of property belonging to the other party that is in
his legitimate possession until the other party has fulfilled his part of the bargain.
Quasi-contractual remedies (generally called unjustified enrichment in Scotland) are based on the assumption that a
person should not receive any undue advantage from the fact that there is no contractual remedy to force them to
account. An important quasi-contractual remedy is an action for repetition. If no contract comes into existence but
money has been paid over, then, using the remedy of repetition, any money received will have to be returned to the
party who supplied them. Similarly, restitution can be used in respect of goods to which a person has no legal right,
and recompense where one person has benefited at the expense of another.

15 Terms of a contract
Marking scheme
Marks

This question requires candidates to demonstrate their knowledge of the contents of contracts.
The question is clearly divided in order to provide candidates with a prompt and as an indication
of what is expected of them in terms of detail of treatment.
(a)

(b)
(c)

(a)

Thorough explanation of the meaning of express terms, with reference to relevant issues
such as oral and written contracts, interpretation and correction of errors.

23

Limited knowledge only about the topic.

01

Thorough explanation of the meaning of implied terms, with relevant examples.

23

Limited knowledge only about the topic.

01

Very good knowledge of how terms can be incorporated by reference and the legal issues,
with reference to appropriate case law.

34

Limited knowledge only about the topic.

02

Contractual terms are statements which form part of the contract. Parties to a contract will normally be
bound to perform any promise that they have agreed to and failure to perform will lead to an action for
breach of contract, although the precise nature of the remedy will depend upon the nature of the promise
broken. Additionally, some terms will be automatically included in contracts by operation of statute and may
not be excluded.
Some statements do not form part of a contract, even though they might have induced the other party to
enter into the contract. These pre-contractual statements are called representations and the event of their
being broken leads to different remedies than operate in regard to breaches of terms. It is important,
therefore, to decide precisely what promises are included in the contract.
Express terms are terms that appear in a written contract or have been agreed orally. The major legal issue
that arises with them is if they are ambiguous and need to be interpreted by the courts. Errors in the
expression of express terms can be corrected by applying to the court under ss.8 and 9 Law Reform
(Miscellaneous Provisions) (Scotland) Act 1985.

(b)

Implied terms are terms that do not appear in the contract, but in certain contexts they are treated as if they
did, and parties can rely on them in court. Some statutes such as the Sale of Goods Act 1979 contain terms
that are implied into contracts for the sale of goods, particularly to consumers. In employment law, certain
terms are implied into contracts of employment, such as the duty that both employer and employee have of
mutual trust and confidence. Some terms may be implied into contracts from the custom of a particular
trade, though the custom has to be certain, uniform, reasonable and well known. A relevant case is The
Moorcock (1889).

Answers

81

(c)

Terms may be incorporated into a contract by reference. Reference may be made to terms and conditions
on a companys website, or contained in some other documents. For example, a railway ticket may contain a
statement that it is issued subject to conditions. In order for terms to be validly incorporated into a contract
by reference, the following points are relevant:
The document containing the reference must be a contractual document and not just a receipt or an invoice,
as the contracting party must have the means of knowing about the terms before the contract has been
concluded (Taylor v Glasgow Corporation (1952); Thornton v Shoe Lane Parking (1971)). The back of a
hotel bedroom door was held not to be a suitable place for a notice referring to conditions, as the contract
had already been made at the reception desk in Olley v Marlborough Court (1949).
The reference must be adequate to draw the contracting partys attention to them. This means that very
small blurred print is not appropriate (Williamson v North of Scotland and Orkney Steam Navigation Co
(1916)).
When contracting online, the system of not allowing the person to proceed to the contract until they have
clicked to say they have read the terms and agreed to them is a very good way of drawing them to the
persons attention.

16 Ali
Marking scheme
Marks

A thorough analysis of the scenario focusing on the appropriate rules of law and applying them
accurately. It is extremely likely that cases will be cited in support of the analysis and/or application.
A clear understanding of the general law but perhaps lacking in detail or unbalanced in only dealing
with some issues.
Some, but limited, understanding of the law or completely lacking in application.
Little or no knowledge of the relevant law.

810
57
24
01

In spite of its wording the sign in the window does not constitute a legal offer, it is merely an invitation to treat. As
such it is not an offer to sell but merely an invitation to others to make offers. The point of this is that the person
extending the invitation is not bound to accept any offers made to them as may be seen in Fisher v Bell (1961) in
which it was held that having switch-blade knives in the window of a shop was not the same as offering them for sale.
A counter-offer arises where the offeree tries to change the terms of an original offer. The counter-offer has the
same effect as an express rejection of an offer (Hyde v Wrench (1840)) and as a result the offeree cannot
subsequently accept the original offer. Where acceptance is made through the postal service, it is complete as soon
as the letter, properly addressed and stamped, is posted. The contract is concluded even if the letter subsequently
fails to reach the offeror (Adams v Lindsell (1818)).
Ali and Ben
As stated above, the sign in the window was merely an invitation to treat and the postal rule only applies to offers
and does not apply to invitations to treat. Consequently as Ben was in fact making an offer to Ali when he sent his
letter, it was for Ali to accept or reject the offer on receipt of the letter, providing he had not already bound himself
to any alternative contractual agreement.
Ali and Chet
The first real offer is made by Chet when he says that he would give Ali 400 for the vase. Ali responded by making
a counteroffer to sell the vase for 450 to which Chet restated his original offer, this time in the form of a counteroffer to Ali's new offer. As a result Chet, by insisting on his offer of 400, cannot at a later time attempt to accept
Ali's offer of 450.

82

Answers

At first look it might appear that Chet may have taken advantage of the postal rule; however, when it is realised that
it was not open to him to make any acceptance as he had rejected Ali's offer, it is apparent that the postal rule is of
no avail to Chet, so he has no contract with Ali. Once again Ali might have accepted the offer on receipt of the letter,
providing he had not already bound himself to any alternative contractual agreement.
Ali and Di
In line with the preceding analysis Di made an offer to Ali, which he readily accepted. The parties entered into a
binding contract by their mutual exchange of promises: Di to bring the 400 on the following Monday and Ali to
give her the vase. As a result although Ali might prefer to accept Ben's offer, he is nonetheless contractually bound
to deliver the vase to Di if and when she brings the agreed sum of 400 to him on Monday. Of course if Di does not
provide the money by the agreed time Ali would be at liberty to sell the vase to either Ben or Chet, as he chose.

17 Astride
Marking scheme
Marks

Full and thorough explanation of the law relating to remedies for breach of contract, with case
authorities or examples.
Good and accurate application of the law to the particular issues raised in the problem.

810

Good treatment of the topic but perhaps not dealing with all the issues raised or lacking in some
knowledge or application.
Perhaps lacking balance.

57

Lacking in detail in some or all aspects or lacking in application.

34

Some but little knowledge of the topic with little appropriate application.

02

In relation to the first contract with Bild Ltd, the wall was not built to the agreed height and in relation to the second
contract Chris has refused to carry out his contractual agreement.
Remedies for breach of contract
By implication of the common law, any breach of contract gives rise to the requirement that the contract-breaker
should pay monetary compensation to the other party for the loss sustained in consequence of the breach. Such
monetary compensation for breach of contract is damages. The estimation of what damages are to be paid by a
party in breach of contract can be divided into two parts: remoteness and measure.
Remoteness of damage involves a consideration of causation, and the remoteness of cause from effect, but is not a
relevant issue in either of these instances. What is at the heart of the matter is the measure of damages, which
relates to the actual amount of loss sustained by the injured party. Damages in contract are intended to compensate
the injured party for any financial loss sustained as a consequence of another party's breach. As the object is to
compensate rather than to punish, the amount of damages awarded can never be greater than the actual loss
suffered. The aim is to put the injured party in the same position they would have been in had the contract been
properly performed.
Particular difficulties arise in relation to estimating the damages liable in construction contracts. Where builders
either have not carried out work required, or have carried it out inadequately, they will be in breach of contract and
liable for damages. The usual measure of such damages is the cost of carrying out the work or repairing the faulty
work. However, this may not be the case where the costs of remedying the defects are disproportionate to the
difference in value between what was supplied and what was ordered. Thus in Ruxley Electronics and Construction
Ltd v Forsyth (1995) the parties had entered into a contract for the construction of a swimming pool. Although the
contract stated that the pool was to be 7ft 6in deep at one end, the actual depth of the pool was only 6ft 9in. The
total contract price was 70,000. Fixing the error would have required a full reconstruction and would have cost
around 20,000. The House of Lords considered that, as the costs of reinstatement would have been out of all
proportion to the benefit gained, the difference in value only should be awarded.
Answers

83

In certain circumstances, rather than merely award damages, the court can make an order for specific implement to
require the party in breach to complete their part of the contract. However, an order for specific implement is not
available in respect of contracts of employment or personal service (Ryan v Mutual Tontine Westminster Chambers
Association (1893)). It remains to apply the general statements of law to the facts of the problem as follows:
(a)

An order of specific implement will only be granted in cases where the common law remedy of damages is
inadequate and it will not be granted where the court cannot supervise its enforcement as in cases of
contracts of employment or personal service (Ryan v Mutual Tontine Westminster Chambers Association
(1893)). It is therefore clear that Astride will not be able to force Bild Ltd to carry out the remedial work, and
that her only remedy will be in relation to damages. As regards the extent of those damages it appears that
Astride's case is different from Ruxley Electronics and Construction Ltd v Forsyth, and that, as a result, she
will be awarded damages to the extent of the cost of raising the wall to the contractual height.

(b)

When as in this situation anticipatory breach takes place, the innocent party can sue for damages
immediately on receipt of the notification of the other party's intention to repudiate the contract, without
waiting for the actual contractual date of performance as in Hochster v De La Tour (1853). Alternatively, they
can wait until the actual time for performance before taking action. In the latter instance, they are entitled to
make preparations for performance, and claim the agreed contract price (White and Carter (Councils) v
McGregor (1961)). It would appear that Chris's action is a clear instance of express anticipatory breach and
that Astride has the right either to accept the repudiation immediately or affirm the contract and take action
against him at the time for performance (Vitol SA v Norelf Ltd (1996)). In any event Chris is bound to
complete his contractual promise or suffer the consequences of his breach of contract. Although Astride will
not be able to get an order for specific implement against Chris, as the contract is one of personal service,
she will be entitled to claim damages from Chris to the extent of the difference in his contractual price as
against the price that Astride will have to pay someone else to get the work done: ie 500.

18 Alvin
Marking scheme
Marks

A thorough treatment of all of the rules relating to the formation of contracts together with a clear
and correct application of those rules to the problem scenario. Cases will be expected to be
provided at this level.
Good analysis and case support, although perhaps limited in appreciation.

810

Recognition of the areas covered by the question, but lacking in detail.

34

Very weak answers which might recognise what the question is about but show no ability to analyse
or answer the problem as set out.

02

57

This question requires candidates to analyse the problem scenario from the perspective of contract law paying
particular regard to the rules relating to: invitation to treat, offers, and option contracts. The scenario involves three
distinct cases which should be dealt with in turn in applying the following rules of contract law.
Alvin and Bert
The price notice on the car did not constitute a legal offer, it was merely an invitation to treat. As such it is not an
offer to sell but merely an invitation to others to make offers. The point of this is that the person extending the
invitation is not bound to accept any offers made to them as may be seen in Fisher v Bell (1961) in which it was
held that having switch-blade knives in the window of a shop was not the same as offering them for sale.
Consequently Bert is not in a position to sue Alvin.
Alvin and Cat
An offer can be withdrawn at any time before acceptance. During this period the offeror is said to have locus
poenitentiae (room for repentance). The rule will apply unless the offeror has promised to hold the offer open for a

84

Answers

specified period of time. Such an undertaking would be binding in Scotland, but since no such promise has been
made Alvin can withdraw the offer leaving Cat without a remedy.
Alvin and Del
This is a perfectly ordinary contract. The fact that Alvin had previously contracted not to sell it, does not affect Del
and he is entitled to take good title to the car.

19 Ami, Bry and Cis


Marking scheme
Marks

Accurate analysis of the situation together with a detailed knowledge of the general legal principles
involved linked to a sound application of those principles.
Sound knowledge of the law but perhaps lacking in application or alternatively not showing a
sufficiently clear understanding of the legal principles involved.
Weak or unbalanced answer. Perhaps aware of the nature of the problem but lacking in clear
knowledge of the principles or deficient in relation to how those principles should be applied.
Very weak answer. Perhaps mentioning some of the issues involved in the question but failing to
consider them in any detail or merely recounting the facts of some of the cases with no attempt to
derive principles or apply them.

810
57
34

02

Bry and Cis entered into a contract with Ami to carry out the work for an agreed price. However, before the
completion of the contracts Ami promised each of them a further payment, although she is now refusing to pay
more than the original agreed sum of 5,000. The question is whether Bry and Cis can enforce Ami's promise to
pay them the additional sums.
In Scotland it is competent to enter into gratuitous obligations, and the doctrine of consideration does not apply in
Scotland. Thus, Ami has made a unilateral promise to pay a further 1,000 to both Bry and Cis. However, under the
Requirements of Writing (Scotland) Act 1995 a gratuitous unilateral obligation must be in writing and signed by the
promisor if it is to be binding, except if the promise is made in the course of a business (as in this case), where
writing is not necessary. Thus, if it can be proved, Bry and Cis will be able to demand payment of the additional
1,000, even if there is no written promise to pay by Ami. Also, under the same Act, in a case of a promise made
without writing, if a party acts in reliance on the promise to the knowledge of the promisor, the other party cannot
deny the existence of the obligation even where there are no formalities if it would be detrimental to the promisee.
This would be another reason for holding this promise binding, in the case of Bry, as he completes the job on time
relying on the promise.

20 Ari
Marking scheme
Marks

This question asks candidates to analyse the problem scenario in terms of the rules relating to the
waiver of existing contractual rights. Personal bar may be mentioned, but there is no need to go into
any great detail.
A thorough to complete understanding of the legal issues in the question together with a clear
analysis of the problem scenario and a correct application of the law to it.
Good understanding of the law and supporting analysis and application.
Some, if limited, knowledge of the law. Perhaps lacking in analysis and application.
Little understanding of the legal issues arising from the question.

810
57
24
01

Answers

85

This question concerns the variation and extinction of contractual obligations. Parties to a contract may vary its
terms if both parties are agreed, and the terms of the contract do not preclude it or restrict it. Similarly, if one of the
contractual parties (A) allows the other (B) to make performance that is different from that provided for in the
contract, that party may be personally barred from asserting that the contract has been breached (Gatty v MacLaine
(1921), and may have to accept performance in that manner. For this to happen, there must be (1) words or
conduct on the part of A (2) giving rise to a justifiable belief by B that the amended performance is acceptable to A
and (3) actions by B to Bs prejudice (William Grant & Sons Ltd v Glen Catrine Bonded Warehouse Ltd (2001)).
Note that B has to be induced by A to believe he has the right to make altered performance, on the basis that A is
not entitled to deny in court what he has earlier affirmed to B. If A accepts a reduced payment and grants a receipt
in full and final settlement, that may be a bar to seeking full settlement (Davies v City of Glasgow Friendly Society
(1935)).
A contracting party may waive a right, which involves making a voluntary informed and unequivocal election not to
claim a right (Millar v Dickson (2001)). The other party to the contract must have conducted his affairs on the basis
of the waiver having been granted (Armia Ltd v Daejan Developments Ltd (1979)).
A contract can be novated, which means that a new obligation or a new contract is substituted for the previous
obligation or contract, whereupon the previous contract comes to an end. Novation needs the consent of both
parties to the contract, although consent can be inferred from conduct (Mclntosh & Son v Ainslie (1872)). The
original contract would be expressly discharged, or evidence would be provided that the prior obligation had been
satisfied, or a deed expressing the obligation would be returned to the obligant. There is a presumption against
novation.
A change in the identity of the debtor is a form of novation called delegation, and again, needs the consent of all
contracting parties. The obligation to perform is transferred by assignation, which should be done in writing, with
the assignation intimated to the debtor. See Cole v Handasyde & Co (1910).
Bi
The acceptance by Ari of Bis offer to do his accounts as part payment of his outstanding debt is an example of
novation, provided that both parties consent, as appears to be the case here. Ari therefore is not able to claim for
the unpaid balance.
Cas
Ari appears to have agreed to have accepted lesser payment from a third party, i.e. Cass father. This is a case of
novation of contract and also of assignation of the obligation, and provided there is consent, Ari can take no further
action against Cas.
Dex
In contrast to the previous cases, Dex acted unilaterally and did nothing additional to compensate Ari for his part
payment. However, the question does not state whether Ari agreed to accept the part payment in full and final
settlement, nor how long the period of time has been between these events and now. If Ari did not accept the
payment as being in full settlement and immediately informed Cas of this, he can still sue Cas for breach of
contract. If he agreed to accept the money in full settlement, or he has allowed too much time to elapse, he may
find the court would regard him as being personally barred from seeking full settlement, if the requirements for
personal bar are met (see above).

86

Answers

21 Ade
Marking scheme
Marks

This question requires candidates to demonstrate their understanding of the way in which
contractual agreements can be entered into, and the consequences of entering into such
agreements. In addition to a general understanding of the law relating to offer and acceptance, it
requires specific analysis of the two distinct situations set out in the problem.
Answers will demonstrate a thorough knowledge of the law generally, together with a clear
analysis of the problem situations and a deployment of the appropriate legal principles. Cases or
examples will be used to support the analysis and conclusions.

810

Answers will be generally sound in relation to the law but may be lacking in analysis or
application. Once again cases or examples will be used.

57

Answers will demonstrate some knowledge of the law relating to the question but not to the
degree expected of the very best answers. They may be weak in analysis and/or application.

24

Little or no understanding of the law relating to the question. Extremely weak in terms of analysis
and application.

01

Amongst the essential elements of a binding agreement are offer, acceptance, and an intention to create legal
relations. This question requires candidates to demonstrate their understanding of the way in which contractual
agreements can be entered into, and the consequences of entering into such agreements. In particular it asks
candidates to distinguish between offers and invitations to treat, and offers and counter offers. It also requires
some consideration of the consequences of entering into a binding contract.
An offer is a promise to be bound on particular terms which is capable of acceptance. The offer sets out the terms
upon which the offeror is willing to enter into contractual relations with the offeree, and if the latter party accepts
those terms then the result is a legally enforceable contract which can be enforced through legal action.
It is important, however, to distinguish offers from other statements which do not provide the basis of an
enforceable contract. For example, a mere statement of intention cannot form the basis of a contract even though
the party to whom it was made acts on it (Re Fickus (1900)).
Nor can a mere supply of information amount to an offer (Harvey v Facey (1893)). The most important non-offer,
however, is the invitation to treat. This is an invitation to others to make offers. The person extending the invitation
is not bound to accept any offers made to them. Common examples involving invitations to treat are:

the display of goods in a shop window. The classic case in this area is Fisher v Bell (1961), in which a
shopkeeper was prosecuted for offering offensive weapons for sale, by having flick-knives on display in his
window. It was held that the shopkeeper was not guilty as the display in the shop window was not an offer
for sale but only an invitation to treat.

the display of goods on the shelf of a self-service shop. In this instance the exemplary case is
Pharmaceutical Society of Great Britain v Boots Cash Chemists (1953). The defendants were charged with
breaking a law which provided that certain drugs could only be sold under the supervision of a qualified
pharmacist. It was held that Boots were not guilty as the display of goods on their shelves was only an
invitation to treat. In law, the customer offered to buy the goods at the cash desk where the pharmacist was
stationed.

a public advertisement. Thus in Partridge v Crittenden (1968) a person was charged with offering a wild
bird for sale contrary to Protection of Birds Act 1954, after he had placed an advert relating to the sale of
such birds in a magazine. It was held that he could not be guilty of offering the bird for sale as the advert
amounted to no more than an invitation to treat.

Answers

87

Acceptance is necessary for the formation of a contract. Once the offeree has agreed to the terms offered, a
contract comes into effect. Both parties are bound, and can enforce the terms of the agreement through the courts.
However, if an offeree expressly rejects an offer made to them, then such rejection has the effect of bringing the
offer to an end. The effect of this is that they cannot subsequently retract their rejection and purport to accept the
original offer. A similar consequence follows from a counter-offer, which is treated as an implicit rejection of the
original offer. In order to form a binding agreement acceptance must correspond with the terms of the offer, so it is
not open to the offeree to unilaterally alter the terms of the offer. The effect of any such alteration is to bring the
original offer to an end, and once again the offeree cannot accept the original offer. The classic case is Hyde v
Wrench (1840) in which Wrench offered to sell his farm for 1,000. Hyde counter-offered 950, which Wrench
rejected. Hyde then informed Wrench that he accepted the original offer. It was held that there was no contract.
Hydes counter-offer had effectively ended the original offer and it was no longer open to him to accept it. A
counter-offer must not be confused with a request for information. This does not end the offer, which can still be
accepted after the new information has been elicited (Stevenson v McLean (1880)). A Scottish case on the counteroffer is Wolf & Wolf v Forfar Potato Co Ltd (1984).
Where a promisor agrees to keep an offer open for a period, such a promise may be binding in Scots law, if there is
evidence that the promisor intended to be bound. If the promise is made in the course of business, as in this case,
the normal rule under s.1 Requirements of Writing (Scotland) Act 1995 that writing is needed to constitute a
unilateral obligation does not apply. If there is sufficient evidence of this promise, Chip may lay himself open to an
action for damages for breach of the unilateral obligation.
Applying the foregoing general statement of law to the situation in the problem:

88

(a)

it is immediately apparent that Ade has no cause of action against the auctioneers, as their advert did not
amount to an offer capable of acceptance. His situation is similar to that of the pursuer in Harris v Nickerson
(1873) who failed in his attempt to recover damages for his costs in attending a cancelled auction. In
deciding against him the court held that he was attempting to make a mere declaration of intention a
binding contact.

(b)

as regards his dealings with the shopkeeper, Chip, it may be that Ade has a stronger case. The original price
on the ticket in the window was no more than an invitation to treat. Ade made an offer of 350, which Chip
declined to accept. Chip in turn made a counter-offer of 400, which Ade could have accepted, to form a
contract. Ade, however, did not accept the offer at the time it was made, and when he subsequently tried to
accept it, he found out that the pottery had already been sold. As Chip made a promise to keep the offer
open, this may be a binding promise in Scots law, following Littlejohn v Hadwen (1882), and Chip should
have waited until the expiry of the time limit. Ade may therefore be able to take proceedings for damages
against Chip for breach of the unilateral obligation, although this does not affect the validity of the contract
made with the subsequent customer.

Answers

22 Az Ltd
Marking scheme
Marks

(a)

(b)

The first element to be considered relates to the quantum of damages that can be claimed
by the party who suffered as a result of the breach of contract.
Full treatment of the issue of measure of damages together with supporting examples or
cases. The actual outcome is not required to be as in the answer, as long as the answer
considers all the points.

45

Fair analysis and treatment of the legal implications of the scenario, but perhaps lacking in
detail or application.

23

Little, if any, knowledge or application of the appropriate legal principles.

01

The second aspect of the problem scenario relates to the issue of liquidated damages and
the validity of such procedures to predetermine the extent of any damages following from
a breach of the underlying agreement.
Full treatment of the issue of liquidated damages together with supporting examples or
cases. The actual outcome is certainly not required to be as in the answer, as long as the
answer considers all the points.

45

Fair analysis and treatment of the legal implications of the scenario, but perhaps lacking in
detail or application.

23

Little, if any, knowledge or application of the appropriate legal principles.

01

This problem, in relation to the consequences following from breach of contract, can clearly be divided into two
distinct elements, each of which requires a consideration of a specific aspect of the law relating to the payment of
damages for breach of contract.
(a)

Az Ltd, Blud and the measure of damages


The first element to be considered relates to the quantum or measure (i.e. the amount) of damages that can
be claimed by the party who suffered as a result of the breach of contract, and, of course, collaterally, the
amount to be paid by the party actually in breach of the contract. Damages in contract are intended to
compensate an injured party for any financial loss sustained as a consequence of another partys breach.
The object is not to punish the party in breach, so the amount of damages awarded can never be greater
than the actual loss suffered. The usual aim of the award of damages is to put the injured party in the same
position they would have been in had the contract been properly performed (expectation loss). To this end
the duty to mitigate losses ensures that the injured party is under a duty to take all reasonable steps to
minimise their loss. As a result, the seller of goods which are not accepted has not only to try to sell the
goods to someone else, but is also required to get as good a price as they can when they sell them (Payzu v
Saunders (1919)). A subset of this rule, referred to as the market rule, requires that if goods are not
delivered under a contract, the buyer is entitled to go into the market and buy similar goods, paying the
market price prevailing at the time. They can then claim the difference in price between what they paid and
the original contract price as damages. Conversely, if a buyer refuses to accept goods under a contract, the
seller can sell the goods in the market and accept the prevailing market price. Any difference between the
price they receive and the contract price, and only any such difference, can be claimed in damages.
In Omak Maritime Ltd v Mamola Challenger Shipping Co (2010) it was held that any money recovered by
way of mitigation, following a breach of contract, must be taken into account when assessing the claimants
loss.

Answers

89

The fundamental principle is that the claimants actual position after mitigation must be compared to what it
would have been had the contract been performed. In making such a comparison, any benefits received
must be set off against the loss incurred from the original breach.
Applying the foregoing to the contract between Az Ltd and Blud, it can be seen that Az Ltd managed to
recoup all of the costs and potential profit it would have made on the contract with Blud, so is not in a
position to claim any further damages from Blud.
(b)

Az Ltd, Cam and liquidated damages


The second aspect of the problem scenario relates to the issue of liquidated damages and the validity of
such procedures to predetermine the extent of any damages following from a breach of the underlying
agreement.
It is common in business contracts for the parties to make provisions for possible breach by stating in
advance the amount of damages that will have to be paid in the event of any breach of contract. This
procedure is known as liquidated damages. However, such provisions will only be recognised by the court if
they represent a genuine pre-estimate of loss and are not intended to operate as a penalty against the party
in breach. If the court considers the provision to be a penalty, it will not give it effect but will assess and
award damages in the normal way (Dunlop v New Garage & Motor Co (1915)).
In Azimut-Benetti SpA v Darrell Marcus Healey (2010) the court upheld a very onerous liquidated damages
clause which, as in this scenario, was triggered by termination of a ship building contract. In that case the
liquidated damages clause provided that, in the event of lawful termination, Azimut would be entitled to
retain and/or recover an amount equal to 20% of the contract price. When Shoreacres, a company wholly
owned by the defendant, failed to pay the first instalment, Azimut terminated the contract, and sought
summary judgement for 71 million, 20% of the contract price. The court held that, on the facts of the case,
the provision was not even arguably a penalty clause: and read as a whole, it represented a commercially
justifiable balance between the parties interests. Consequently the 71 million had to be paid.
Applying Azimut-Benetti SpA v Darrell Marcus Healey to the facts of the scenario it can be concluded that,
although the damages claimed appear extremely high, especially in relation to the early date of the breach,
nonetheless they are not punitive per se and are likely to be treated as a genuine contractual pre-estimate
rather than a penalty clause and so will be recognised as such and awarded by a court in any resultant court
action.

90

Answers

Mock Exam

91

92

ACCA Fundamentals Level


Paper F4
Corporate and Business Law
(Scottish)
Mock Examination
(December 2012)
Question Paper
Time allowed
Reading and Planning
Writing

15 minutes
3 hours

ALL TEN questions are compulsory and MUST be attempted


During reading and planning time only the question paper may be annotated

DO NOT OPEN THIS PAPER UNTIL YOU ARE READY TO START UNDER
EXAMINATION CONDITIONS

Mock Exam (December 2012): Questions

93

All TEN questions are compulsory and MUST be attempted


Question 1
In relation to the Scottish legal system explain the main sources of law.

(10 marks)

Question 2
In the context of the award of damages for breach of contract describe the rules relating to:
(a)

Remoteness of damage;

(5 marks)

(b)

The measure of damages.

(5 marks)
(Total = 10 marks)

Question 3
In the context of the law of delict explain:
(a)

The general meaning of delict;

(b)

The specific meaning of the delicts of:

(2 marks)

(i)

negligence;

(4 marks)

(ii)

passing off.

(4 marks)
(Total = 10 marks)

Question 4
In the context of a companys formation and constitution, explain the nature and purpose of the following
documents:
(a)

The memorandum of association;

(2 marks)

(b)

The application for registration;

(4 marks)

(c)

The articles of association.

(4 marks)
(Total = 10 marks)

Question 5
In relation to company law explain:
(a)

The doctrine of capital maintenance;

(4 marks)

(b)

The circumstances under which both a private and a public limited company can reduce its capital, and the
procedures through which this can be done.
(6 marks)
(Total = 10 marks)

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Mock Exam (December 2012): Questions

Question 6
In the context of companies in financial difficulty, explain the meaning, effect and rules relating to the operation of
administration as an alternative to winding up.
(10 marks)

Question 7
In relation to employment law and the dismissal of employees explain:
(a)

The grounds upon which dismissal may be fair;

(5 marks)

(b)

The grounds upon which dismissal will be automatically unfair.

(5 marks)
(Total = 10 marks)

Question 8
Ali is a dealer in Persian rugs. As his business has been rather slow, he placed an advertisement in the Saturday
edition of his local paper stating:
Once in a lifetime opportunity to own a handmade Persian antique rug for only 1,500 cash only. This is a
serious offer the rug will go to the first person who accepts it offer valid for one day only today Saturday.
When Bud saw the advert he immediately posted a letter of acceptance of Alis offer in order to make sure he got
the rug.
Cil also saw the advert and after inspecting the rug offered Ali a cheque for 1,500, but he refused to accept the
cheque and told her she could not have the rug.
Later in the day, Das asked Ali if he would keep the offer open until he could get to his bank to arrange a loan. Ali
agreed, but subsequently, when Ed offered to pay 2,000 in cash for the rug, Ali sold the rug to him.
On Monday morning Buds letter arrived, and Das returned to complete his purchase of the rug.
Required
In the context of the rules governing the creation of contracts, advise:
(a)

As to the precise legal nature of Alis advertisement;

(4 marks)

(b)

Whether Bud has entered into a binding contract with Ali;

(2 marks)

(c)

Whether Cil has any right of action against Ali;

(2 marks)

(d)

Whether Das has any right of action against Ali.

(2 marks)
(Total = 10 marks)

Mock Exam (December 2012): Questions

95

Question 9
In 2010 Fay, Gus and Het formed a private limited company, FGH Ltd, to carry out technological research. They
each took 100 shares in the company and each of them became a director in the company.
In January 2012 Fay admitted that she had been working with a much larger rival company, Ix plc, and that she had
passed on some of FGH Ltds research results to Ix plc in return for substantial payment.
Fay maintains that she has done no harm, as FGH Ltd was not capable of using the information. Nonetheless, Gus
and Het are extremely angered by Fays actions.
Required
Advise Gus and Het as to any grounds, and the procedure, for taking action against Fay and the nature of any
remedies that may be available in the light of her conduct.
Note: any possible action against Ix plc under the Bribery Act 2010 may be ignored for the purposes of this
question.
(10 marks)

Question 10
Jaz plc is listed on the London Stock Exchange. Kip works for Jaz plc as an accountant. Whilst drawing up the
annual accounts, Kip noticed that Jaz plcs profits were better than anyone could have expected. As a consequence
of this knowledge, he bought shares in Jaz plc before its good results were announced. He made a substantial profit
on the share dealing. Kip also told his friend Lu about the results before they were announced. Lu also bought
shares in Jaz plc.
Required
In the context of the criminal law relating to insider dealing, analyse the actions and potential liability of Kip and Lu.
(10 marks)

96

Mock Exam (December 2012): Questions

Answers

DO NOT TURN THIS PAGE UNTIL YOU HAVE


COMPLETED THE MOCK EXAM

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98

Question 1
Marking scheme
Marks

This question requires candidates to explain the main sources of law. Candidates may achieve full
marks for very good answers relating to the two main sources, but marks are available for
consideration of other sources.
Thorough treatment of the two major sources.

810

Fair treatment of the two main sources, but perhaps lacking in detail.

57

Some understanding but lacking in detail. Perhaps an unbalanced answer, focusing on only one
aspect of the question and ignoring the others.

24

Shows little understanding of the subject matter of the question.

01

This question requires the candidate to consider the various sources of law in the Scottish legal system.
Legislation
This is law produced through the Parliamentary system. This is the most important source of law today for two
reasons. First, in terms of quantity, Parliament produces far more legal rules than any other source. Second, and
perhaps even more importantly, the doctrine of parliamentary sovereignty within the United Kingdom means that
the UK Parliament is the ultimate source of law and, at least in theory, it can make whatever laws it wishes. It is an
effect of this doctrine that the courts cannot challenge either the authority of the UK Parliament, or the laws it
makes in the exercise of that authority. Although the Human Rights Act 1998, which introduces the European
Convention on Human Rights into the United Kingdom, does not directly challenge parliamentary sovereignty, it
remains to be seen what effect it has on the long-term relationship between judges and Parliament.
The UK Parliament consists of three distinct elements: the House of Commons, the House of Lords and the
Monarch, but the real source of power is the House of Commons, which has the authority of being the
democratically elected institution. Before any legislative proposal, known at that stage as a bill, can become an Act
of Parliament, it must proceed through, and be approved by, both Houses of Parliament and must receive the Royal
Assent. Since the Parliament Acts of 1911 and 1949, the blocking power of the House of Lords has been restricted
to a maximum of one year.
Legislation can be categorised in a number of ways. Public Acts relate to matters affecting the general public,
whereas Private Acts relate to particular individuals or institutions. Alternatively, Acts of Parliament can be
distinguished on the basis of their function. Some create new laws, but others are aimed at rationalising or
amending existing legislative provisions. Consolidating legislation is designed to bring together provisions
previously contained in a number of different Acts, without actually altering them. The Companies Act 2006 was an
example of a consolidation Act. Codifying legislation, on the other hand, seeks not just to bring existing statutory
provisions under one Act but also looks to give statutory expression to common law rules. The Partnership Act
1890 is a good example of this.
Acts are also passed by the Scottish Parliament following the passage of the Scotland Act 1998, which created the
system of devolution of certain powers of legislation to Scotland. These include legislation on family law, property
law and criminal law. Unlike the UK Parliament, the Scottish Parliament is not a sovereign Parliament and Acts of
the Scottish Parliament can be challenged on the grounds of being beyond the legislative competence of the
Parliament, or contrary to European law or to the European Convention on Human Rights.
Delegated legislation is a particularly important aspect of the legislative process. It is law made by some person or
body, usually a government minister or local authority, to whom Parliament has delegated its general law making
power.

Mock Exam (December 2012): Answers

99

A validly enacted piece of delegated legislation has the same legal force and effect as the Act of Parliament under
which it is enacted. Delegated legislation can take the form of: orders in council; statutory instruments; bye-laws; or
professional regulations. The Scottish Parliament also has power to enact delegated legislation.
Case Law
This is law created by judges in the course of deciding cases. The doctrine of stare decisis or binding precedent
refers to the fact that courts are bound by previous decisions of courts equal or above them in the court hierarchy.
It is the reason for a decision, the ratio decidendi, which binds. Everything else is obiter dictum and need not to be
followed.
The Supreme Court can now overrule its own previous rules, but the Inner House of the Court of Session cannot,
although a larger court can be convened which can overrule a previous decision. Judges, however, do have the
ability to avoid precedents they do not wish to follow through the procedure of distinguishing the cases on their
facts, and, of course, they have a very large number of cases and precedents to choose from.
One of the major advantages of the system of precedent is that it provides for certainty and the saving of time and
money of all the parties concerned. This is achieved by the fact that it should be possible to predict how a case will
be decided if it falls within a clear precedent, without actually having to take the case to court. The system of judges
making law through their decisions also allows them scope for introducing flexibility into the legal system as they
extend or distinguish existing precedents. This flexibility, however, by necessity undermines the very certainty that
is supposed to be one of the main benefits of the system of precedent. Finally, the role of the judges within the UK
constitution is to interpret, and not to create, law, and perhaps this latter point explains why most judges are very
wary of openly admitting that they actually do make law.
Custom
Although there is always the possibility of a specific local custom, which has been in existence for a long time,
acting as a source of law, in practice the limitations which operate in relation to custom render it an extremely
unlikely source of modern law.
The European Union
Since joining the European Community, now the European Union, the United Kingdom and its citizens have become
subject to European Union (EU) law. In areas where it is applicable, European law supersedes any existing United
Kingdom law to the contrary (see Factortame Ltd v Secretary of State for Transport (1989)).
The sources of EU law are: internal treaties and protocols; international agreements; secondary legislation; and
decisions of the Court of Justice of the European Union.
Tutorial note: Full marks can be obtained without mention of custom and the European Union. These are not
specifically examinable but are important sources of law and therefore have been added to the answer.

100

Mock Exam (December 2012): Answers

Question 2
Marking scheme
Marks

This question is divided into two parts, each worth 5 marks. Each part should be marked
independently on its own merits, although candidates may well run the two parts together.
(a)

(b)

The best answers will provide a clear explanation of the test for deciding remoteness of
damage and cite case authority or examples to support the explanation.

45

A fair coverage but lacking detail or authority.

23

Little, if any, knowledge or explanation.

01

Good analysis and explanation of the rules for determining the measure of damages.
Cases may be cited in support but are not necessary to achieve full marks.

45

Weaker answers may show some understanding of the rules. Alternatively, they may be
unbalanced or deal only with one aspect of the question.

23

Little, if any, knowledge or explanation.

01

This question asks candidates to consider the rules relating to the award of damages for breach of contract.
Damages are the common law remedy for breach of contract and, unlike discretionary equitable awards, are
available as a right where a pecuniary loss has been sustained by the innocent party. In deciding what damages are
to be paid, the courts deploy a number of rules and principles to determine their decision. These various rules may
be considered under two headings: the rules relating to remoteness of damage and rules relating to the measure of
damages.
(a)

Remoteness of damage
It would be unfair if the party in breach of contract were held to be liable for every consequence of their
action, no matter how far down the chain of causation it appeared. In order to limit potential liabilities, the
courts have established clear rules about consequential liability in such a way as to deny the award of
damages for consequences that are deemed to be too remote from the original breach. The rule relating to
remoteness of damages was clearly stated for the first time in Hadley v Baxendale (1854), to the effect that
damages will only be awarded in respect of losses which:
(i)

arise naturally, i.e. in the usual course of events; or which

(ii)

both parties may reasonably be supposed to have contemplated as a probable result of its breach
when the contract was made.

As a consequence of the first part of the rule in Hadley v Baxendale, the party in breach is deemed to expect
the normal consequences of the breach, whether they actually expected them or not. It does not matter that
they did not actually think of the consequences, if those consequences were the natural outcome of their
breach.
Under the second part of the rule, however, the party in breach can only be held liable for abnormal
consequences where they have actual knowledge that the abnormal consequences might follow. In Victoria
Laundry Ltd v Newman Industries Ltd (1949) it was decided that the plaintiff could claim damages in
relation to the loss of normal profits due to the defendants delay, as that loss was a natural consequence of
the delay. A second claim for damages in relation to an especially lucrative contract failed, however, on the
grounds that the loss was not a normal one, but was a consequence of an abnormal contract, about which
the defendant knew nothing. The decision in the Victoria Laundry case was confirmed by the House of Lords
in The Heron II (1969), although the actual test for remoteness was reformulated in terms of whether the
consequence should have been within the reasonable contemplation of the parties at the time of the
contract.

Mock Exam (December 2012): Answers

101

A Scottish decision that took a similar approach to that in Hadley v Baxendale is SS Den of Ogil Co Ltd v
Caledonian Railway Co (1902) 5F 99.
(b)

The measure of damages


The courts use a number of rules and principles to determine the actual extent of monetary damages owed.
The general rule is that damages in contract are intended to be compensatory rather than punitive. The aim
is to put the injured party in the same position they would have been in had the contract been properly
performed. As the object is not to punish the party in breach but to compensate the injured party for any
financial loss sustained as a consequence of the other partys breach, so the amount of damages awarded
can never be greater than the actual loss suffered. It should be noted that the exact amount of the loss may
differ, depending on whether the innocent partys reliance interest or expectation interest is used as the
criterion against which damages are measured. In practice, it is usually the expectation loss that is
compensated except where this permits the innocent party to escape responsibility for any loss they would
have made in the contract in the absence of breach (see CCC Films (London) Ltd v Imperial Quadrant Films
Ltd (1985)).
Where the breach relates to a contract for the sale of goods, damages are usually assessed in line with the
market rule. This means that if goods are not delivered under a contract, the buyer is entitled to go into the
market and buy similar goods, and pay the market price prevailing at the time. They can then claim the
difference in price between what they paid and the original contract price as damages. Conversely, if a buyer
refuses to accept goods under a contract, the seller can sell the goods in the market, and accept the
prevailing market price. Any difference between the price they receive and the contract price can be claimed
in damages.
The injured party is under a duty to take all reasonable steps to mitigate their loss. So in the above
examples, the buyer of goods which are not delivered has to buy the replacements as cheaply as possible;
and the seller of goods which are not accepted has to try to get as good a price as they can when they sell
them. In such a way they are expected to minimise the actual loss they sustain, as may be seen in Payzu v
Saunders (1919).
At one time, damages could not be recovered where the loss sustained through breach of contract was of a
non-financial nature. The modern position is that such non-pecuniary damages can be recovered (Jarvis v
Swan Tours Ltd (1973)).
The job of estimating damages may be made much simpler where the parties to an agreement make
provisions for possible breach by stating in advance the amount of damages that will have to be paid in the
event of any breach occurring. Damages under such a provision are known as liquidated damages. They will
be recognised by the court as long as they represent a genuine pre-estimate of loss, and are not intended to
operate as a penalty against the party in breach (Dunlop v New Garage & Motor Co (1915)).

102

Mock Exam (December 2012): Answers

Question 3
Marking scheme
Marks

This question is divided into three separate parts. The first part requires an explanation of the
meaning of delict generally and the two later parts require explanations of specific delicts:
namely negligence and passing off.
(a)

(b)

Explaining the meaning and operation of the law of delict.

Some reasonable attempt at explaining the law of delict.

A total absence of knowledge.

Good explanation of the meaning of negligence with the main requirement of the delict
mentioned.

34

Some knowledge but lacking in detail.

12

No knowledge whatsoever.
(c)

Good explanation of the delict of passing off with case authority to support the
explanation.

34

Some, but limited, knowledge of passing off or control over company names.

12

No knowledge of the topic whatsoever.

(a)

A delict is a civil wrong inflicted on one party by another. The right to seek a remedy is independent of
contractual relations and indeed there is no need for there to have been any previous relationship between
the parties.
The basis of a claim in delict is that the pursuer suffered a loss as a result of the defenders actions and,
consequently, the pursuer should be entitled to compensation in the form of damages. The loss suffered
may be physical, mental or economic and the action giving rise to the action in delict may be intentional or
unintentional.
There are numerous instances of delictual actions, for example, occupiers liability, nuisance or defamation,
but the most important is probably the delict of negligence.

(b)

(i)

The term negligence is used to describe carelessly carrying out an act and breaking a legal duty of
care. In other words, liability under the law of negligence arises where someone causes loss to
someone else, through their failure to take reasonable care when there is a duty to do so.
In order to justify an action in the law of negligence, the pursuer has to demonstrate the following
requirements:

that the defender owed them a duty of care. In Donoghue v Stevenson (1932), which
effectively established the law of negligence, the House of Lords established a general duty of
care that all individuals are understood to owe to their neighbours.

that the defender breached that duty of care. The standard of care is that expected of the
reasonable man, although it is dependent on particular circumstances and competencies
expected of the actual person involved in the negligent action.

that they suffered loss or damage as a direct consequence of the breach of duty of care.
However, even where causation is proved, a negligence claim may still fail if the damage
caused is held to be too remote. The test for remoteness is reasonable foresight as stated in
The Wagon Mound (1961).

Mock Exam (December 2012): Answers

103

Even if negligence is proved, the defender may have a defence that protects them from liability, such
as volenti non fit injuria, or reduces the amount of damages they are liable for, such as contributory
negligence.
(ii)

The delict of passing off was developed to prevent one person from using any name which is likely to
divert business their way by suggesting that the business is actually that of some other person, or is
connected in any way with that other business. An action for passing off thus enables people to
protect the goodwill they have built up in relation to their business activity. To this end, the pursuer
may be granted a court interdict to prevent the use of a particular name. Thus in Ewing v Buttercup
Margarine Co Ltd (1917), the plaintiff successfully prevented the defendants from using a name that
suggested a link with his existing dairy company. It cannot be used, however, if there is no likelihood
of the public being confused, where for example the companies are conducting different businesses
(Dunlop Pneumatic Tyre Co Ltd v Dunlop Motor Co Ltd (1907) and Stringfellow v McCain Foods GB
Ltd (1984)). Nor can it be used where the name consists of a word in general use (Aerators Ltd v
Tollitt (1902)).
Part 41 of the Companies Act 2006 does not prevent one business from using a name that is very
similar to that of another business, so the delict of passing off will still have an application in the
wider business sector.

Question 4
Marking scheme
Marks

The question requires candidates to explain three constitutional documents relating to registered
companies.
(a)

(b)

This part relating to the memorandum of association only carries two marks.
A good general understanding of the topic.

Some knowledge.

No knowledge whatsoever of the topic.

This part relates to the application for registration.


Good explanation of the contents of the application required by statute. Reference to
sections need not be made.

34

Some, but limited, knowledge of the contents of the application.

12

No knowledge of the topic whatsoever.


(c)

This part relates to a companys articles of association.


Good explanation of the contents of the articles of association.

34

Some, but limited, knowledge of the contents of the articles of association.

12

No knowledge of the topic whatsoever.

Section 7 Companies Act (CA) 2006 sets out the method for forming a company, which is that one or more persons
must subscribe their name to a memorandum of association and comply with the requirements of the provisions of
the Act as to registration. Under s.9, two documents must be delivered to the registrar: the memorandum of
association and the application for registration.

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Mock Exam (December 2012): Answers

(a)

Memorandum of Association
Although the CA 2006 retains the previous requirement for individuals wishing to form a company to
subscribe their names to a memorandum of association, it nonetheless significantly reduces the importance
of the memorandum and as a consequence, it will not be possible to amend or update the memorandum of a
company formed under the CA 2006. Nonetheless the memorandum of association, which must be in the
prescribed form, remains an important document to the extent that, as required by s.8, it evidences the
intention of the subscribers to the memorandum to form a company and become members of that company
on formation. In relation to a company limited by shares, the memorandum also provides evidence of the
members agreement to take at least one share each in the company. Under s.28, provisions in the
memorandums of existing companies will be treated as provisions in the articles if they are of a type that will
not be in them memorandums of companies formed under the CA 2006.

(b)

Application for registration


Under CA s.9, the application for registration must contain:

the companys proposed name;

whether the companys registered office is to be situated in England and Wales (or Wales), in
Scotland or in Northern Ireland;

a statement of the intended address of the companys registered office;

whether the liability of the companys members is to be limited and if so, whether it is to be limited
by shares or by guarantee;

whether the company is to be a private or a public company;

a copy of any proposed articles to the extent that the company does not intend to use the model
articles (this issue will be dealt with in more detail below);

memorandum of association.

The application must also contain the following additional documents:

a statement of capital and initial shareholdings or a statement of guarantee under ss.10 and 11;
a statement of the companys proposed officers under s.12;
a statement of compliance under s.13;
registration fee.

Section 13 requires a statement of compliance. Such a statement does not need to be witnessed and may be
made in either paper or electronic form. Under s.1068, the registrar is authorised to specify the rules relating
to, and who may make, such a statement. Section 1112 makes it a criminal offence to make a false
statement of compliance, as is the case in relation to all documents delivered to, or statements made to, the
registrar.
(c)

Articles of Association
The articles of association are the main element of a companys constitution and in effect they are the rules
which govern a companys internal affairs. All the companys key internal rules on matters such as the
appointment and dismissal of directors, the allocation of powers between the members of a company and its
directors will be set out in the articles. Companies are free to make such rules about their internal affairs as
they think appropriate, subject to the proviso than any such rules must not contain anything that is either
contrary to:

the general law, or


the specific provisions of the Companies Act.

As previously, the articles of association form a statutory contract between the company and its members
and between each of the members in their capacity as members (s.33 CA 2006), and the previous common
law will continue to be applied as appropriate.

Mock Exam (December 2012): Answers

105

Section 18 requires all registered companies to have articles of association, and they have to be contained in
a single document and must be divided into consecutively numbered paragraphs (s.18(3)).
Section 19 gives the Secretary of State the power to prescribe default model articles for the different types
of company. Such model articles apply to companies where they have not registered any articles of their
own, or have not specifically excluded the operation of the model article in question. Model articles were
provided for in the Companies (Model Articles) Regulations 2008 (SI No 3229).

Question 5
Marking scheme
Marks

This question requires candidates to explain the doctrine of capital maintenance in company law
and the way in which companies can legally reduce their capital.
(a)

Thorough explanation of the doctrine of capital maintenance, perhaps with some examples
of its application.

34

Little knowledge of the topic.

12

No knowledge of the topic whatsoever.


(b)

(a)

Good to full consideration of the procedure for reducing capital. Reference must be made
to the Companies Act 2006 procedure and the difference between public and private
companies should be mentioned specifically.

56

Some general knowledge but lacking in detail as regards to the process or not mentioning
the difference between the two company forms.

24

Little or no understanding of the process.

01

As shareholders in limited companies, by definition, have the significant protection of limited liability, the
courts have always seen it as the duty of the law to ensure that this privilege is not abused at the expense of
the companys creditors. To that end, they developed the doctrine of capital maintenance, the specific rules
of which are now given expression in the Companies Act (CA) 2006. The rules, such as that stated in CA
2006 s.580 against shares being issued at a discount, ensure that companies receive at least the full nominal
value of their share capital. The rules relating to the doctrine of capital maintenance operate in conjunction to
those rules to ensure that the capital can only be used in limited ways. Whilst this may be seen essentially as
a means of protecting the companys creditors, it also protects the shareholders themselves from the
depredation of the companys capital.
There are two key aspects of the doctrine of capital maintenance: first that creditors have a right to see that
the capital is not dissipated unlawfully; and second that the members must not have the capital returned to
them surreptitiously. There are a number of specific controls over how companies can use their capital, but
perhaps the two most important are the rules relating to capital reduction and company distributions.

(b)

The procedures through which a company can reduce its capital are laid down by ss.641653 Companies
Act 2006.
Section 641 states that, subject to any provision in the articles to the contrary, a company may reduce its
capital in any way by passing a special resolution to that effect. In the case of a public company, any such
resolution must be confirmed by the court. In the case of a private company, however, it is possible to
reduce capital without court approval, as long as the directors issue a statement as to the companys
present and continued solvency for the following 12 months (ss.642 and 643).

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Mock Exam (December 2012): Answers

The special resolution, a copy of the solvency statement, a statement of compliance by the directors
confirming that the solvency statement was made not more than 15 days before the date on which the
resolution was passed, and a statement of capital must be delivered to the registrar within 15 days of the
date of passing the special resolution.
Section 641 sets out three particular ways in which the capital can be reduced by:
(i)

removing, or reducing, liability for any capital remaining as yet unpaid. In effect, the company is
deciding that it will not need to call on that unpaid capital in the future.

(ii)

cancelling any paid-up capital which has been lost through trading or is unrepresented in the current
assets. This effectively brings the statement of financial position into balance at a lower level by
reducing the capital liabilities in recognition of a loss of assets.

(iii)

repayment to members of some part of the paid value of their shares in excess of the companys
requirements. This means that the company actually returns some of its capital to its members on
the basis that it does not actually need that level of capitalisation to carry on its business.

It can be seen that procedure (i) reduces the potential creditor fund since the company gives up the right to
make future calls against its shares and procedure (iii) reduces the actual creditor fund by returning some of
its capital to the members. In recognition of this fact, creditors are given the right to object to any such
reduction. However, procedure (ii) does not actually reduce the creditor fund, it merely recognises the fact
that capital has been lost. Consequently, creditors are not given the right to object to this type of alteration
(ss.645 and 646).
Under s.648, the court may make an order confirming the reduction of capital on such terms as it thinks fit.
In reaching its decision, the court is required to consider the position of creditors of the company in cases
(i) and (iii) above and may do so in any other case. The court also takes into account the interests of the
general public. In any case the court has a general discretion as to what should be done. If the company has
more than one class of shares, the court will also consider whether the reduction is fair between classes. In
this it will have regard to the rights of the different classes in a liquidation of the company since a reduction
of capital is, by its nature, similar to a partial liquidation.
When a copy of the court order together with a statement of capital is delivered to the Registrar of
Companies, a certificate of registration is issued (s.649).

Question 6
Marking scheme
Marks

This question requires candidates to explain the meaning of administration.


A good explanation of the meaning and effect of administration generally and contrasting its
purpose with that of compulsory winding up and explaining its rules.

810

Fair explanation of the process of administration, perhaps lacking in detail or focusing on only
certain aspects of the procedure.

57

Some, if little, explanation of administration, but perhaps too general or lacking in any detail, or
alternatively very unbalanced.

24

Little or no knowledge of the topic.

01

Mock Exam (December 2012): Answers

107

Winding up, or liquidation, is the process whereby the life of the company is terminated. It is the formal and strictly
regulated procedure whereby the business is brought to an end and the companys assets are realised and
distributed to its creditors and members. The procedure is governed by the Insolvency Act (IA) 1986 and may be
divided into three distinct categories:

members voluntary winding up,


creditors voluntary winding up,
compulsory winding up.

Administration, on the other hand, is a means of safeguarding the continued existence of business enterprises in
financial difficulties, rather than merely ensuring the payment of creditors. Administration was first introduced in
the IA 1986. The aim of the administration order is to save the company, or at least the business, as a going
concern, by taking control of the company out of the hands of its directors and placing it in the hands of an
administrator. Alternatively, the procedure is aimed at maximising the realised value of the business assets.
Once an administration order has been issued, it is no longer possible to commence winding up proceedings
against the company or enforce charges, retention of title clauses, or even hire-purchase agreements against the
company. This major advantage was in no small way undermined by the fact that, under previous provisions, an
administration order could not be made after a company had begun the liquidation process. Since companies are
required to inform any person who is entitled to appoint a receiver of the fact that the company is applying for an
administration order, it was open to any secured creditor to enforce their rights and to forestall the administration
procedure. This would cause the secured creditor no harm, since their debt would more than likely be covered by
the security, but it could well lead to the end of the company as a going concern.
The Enterprise Act 2002 introduced a new scheme, which limited the powers of floating charge holders to appoint
administrative receivers, whose function had been essentially to secure the interest of the floating charge holder
who had appointed them, rather than the interests of the general creditors. By virtue of the Enterprise Act 2002,
which amends the previous provisions of the IA 1986, floating charge holders no longer have the right to appoint
administrative receivers, but must now make use of the administration procedure as provided in that Act. As
compensation for this loss of power, the holders of floating charges are given the right to appoint the administrator
of their choice.
The function of the administrator is to:

rescue the company as a going concern, or

achieve a better result for the companys creditors as a whole than would be likely if the company were to be
wound up, or

realise the value of the property in order to make a distribution to the secured or preferential creditors.

The administrator is only permitted to pursue the third option where:

he thinks it is not reasonably practicable to rescue the company as a going concern, and

he thinks that he cannot achieve a better result for the creditors as a whole than would be likely if the
company were to be wound up, and

if he does not unnecessarily harm the interests of the creditors of the company as a whole.

An application to the court for an administration order may be made by a company, the directors of a company, or
any of its creditors, but in addition the Enterprise Act allows the appointment of an administrator without the need
to apply to the court for approval. Such out of court applications can be made by the company or its directors, but
may also be made by any floating charge holder.
During the administration process the administrator has the powers to:

108

do anything necessary for the management of the company

remove or appoint directors

pay out monies to secured or preferential creditors without the need to seek the approval of the court

Mock Exam (December 2012): Answers

pay out monies to unsecured creditors with the approval of the court

take custody of all property belonging to the company

dispose of company property. This power includes property which is subject to both fixed and floating
charges, which may be disposed of without the consent of the charge holder, although they retain first call
against any money realised by such a sale.

The administration period is usually 12 months, although this may be extended by six months with the approval of
the creditors, or longer with the approval of the court. When the administrator concludes that the purpose of their
appointment has been achieved, a notice to this effect is sent to the creditors, the court and the companies registry.
Such a notice terminates the administrators appointment. If the administrator forms the opinion that none of the
purposes of the administration can be achieved, the court should be informed and it will consider ending the
appointment. Creditors can always challenge the actions of the administrator through the courts.

Question 7
Marking scheme
Marks

This question requires candidates to explain the provisions of the Employment Rights Act 1996
relating to the statutory grounds covering both fair and unfair dismissal. It is divided into two
parts and the marks will be allocated equally.
(a)
(b)

A good explanation of the grounds upon which dismissal may be fair.

35

Some awareness of the area, but lacking in detailed knowledge.

02

A thorough explanation of the grounds upon which dismissal will be automatically unfair.

35

Some awareness of the area, but lacking detailed knowledge.

02

This question requires candidates to explain the provisions of the Employment Rights Act (ERA) 1996 relating to
the statutory grounds covering both fair and unfair dismissal.
(a)

The grounds on which dismissal is capable of being fair are set out in s.98 (ERA) 1996. The Act places the
burden of proof on the employer to show that the grounds for dismissal are fair. There are five categories as
follows:
(i)

Lack of capability or qualifications


Capability is defined in s.98 in terms of skill, aptitude, health or any other physical or mental quality,
and qualifications relate to any degree, diploma, or other academic, technical or professional
qualification relevant to the position which the employee held. However, even in this situation, the
employer must show that not only was the employee incompetent but that it was reasonable to
dismiss them.

(ii)

Misconduct
To warrant instant dismissal, the employees conduct must be more than merely trivial and must be
of sufficient seriousness to merit the description gross misconduct. Examples of such conduct
might involve assault, drunkenness, dishonesty or a failure to follow instructions, or safety
procedures, or persistent lateness.

(iii)

Redundancy
This is, prima facie, a fair reason for dismissal as long as the employer has acted reasonably in
introducing the redundancy programme.

Mock Exam (December 2012): Answers

109

(iv)

In situations where continued employment would constitute a breach of a statutory provision


If the continued employment of the person dismissed would be a breach of some statutory provision
then the dismissal of the employee is again, prima facie, fair. For example, if a person is employed as
a driver and is banned from driving then they may be fairly dismissed.

(v)

Some other substantial reason


The above particular situations are not conclusive and are supported by this general provision which
allows the employer to dismiss the employee for some other substantial reason. As a consequence,
it is not possible to provide an exhaustive list of all grounds for fair dismissal. Examples that have
been held to be substantial reasons have included: conflicts of personalities, failure to disclose
material facts, refusal to accept necessary changes in terms of employment, and legitimate
commercial reasons.

It has to be emphasised that the above reasons are not sufficient in themselves to justify dismissal unless
the employer acts as would be expected of a reasonable employer.
(b)

The following are situations where dismissal is automatically unfair:


(i)

Dismissal for trade union reasons


This applies where an employee has been dismissed for actual, or proposed, membership of a trade
union, or is dismissed for taking part in trade union activities. It applies equally where an individual
has refused to join a trade union.
Dismissal of individuals involved in a strike, lock out, or other industrial action is not unfair as long
as all of those engaged in the action are dismissed. The employer cannot select which individuals to
dismiss from the general body of strikers.

(ii)

Dismissal on grounds of pregnancy or childbirth


Section 99 ERA 1996 provides that dismissal is automatically unfair where the principal reason for
the dismissal is related to the employees pregnancy or other reason connected to her pregnancy; or
following her maternity leave period, for childbirth or any reason connected with childbirth.

(iii)

Dismissal in relation to health and safety issues


Section 100 ERA 1996 provides that employees have a right not to be dismissed for carrying out any
health and safety related activities for which they have been appointed by their employer; or for
bringing to the employers attention any reasonable concern related to health and safety matters. Nor
can they be dismissed for leaving their place of work in the face of a reasonably held belief that they
faced serious danger.

(iv)

Dismissal for making a protected disclosure


This is covered by s.103A ERA and protects whistle blowing employees who have reported their
employer for engaging in certain reprehensible activity. Such protected activity is set out in s.43 ERA
and covers criminal activity, breach of legal obligations, breach of health and safety provisions, and
activity damaging to the environment.

(v)

Dismissal for asserting a statutory right


Section 104 ERA provides that a dismissal is automatically unfair where the principal reason for it is
victimisation of the employee for having taken action against the employer to enforce their statutory
rights. Rights under the Working Time Regulations 1998 and the National Minimum Wage Act 1998
are specifically covered in ss.101(A) and 104(A) ERA.

(vi)

Dismissal on transfer of an undertaking


The Transfer of Undertakings (Protection of Employment) Regulations (TUPE) protect employees
under such circumstances, unless there are economic, technical or organisational reasons justifying
the dismissal.

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Mock Exam (December 2012): Answers

(vii)

Dismissal for a spent criminal conviction


The Rehabilitation of Offenders Act 1974 covers this aspect and prevents any such dismissal.

(viii)

Finally, dismissal is automatically unfair if exercised in relation to employees for refusing to work on
Sundays in the retail sector.

Question 8
Marking scheme
Marks

This question requires candidates to analyse a problem scenario on the topic of contract law. In
particular, it requires an explanation of the rules relating to the formation of contracts, especially
the distinction between offers and invitations to treat and the rules of acceptance of offers.
(a)

Full analysis and explanation of the nature of Alis advertisement

34

Some analysis and explanation, but lacking in detail.

12

No knowledge whatsoever of the topic.


(b)

(c)

(d)

A full explanation of Buds situation in law.

Some, but limited, explanation.

No knowledge or explanation.

A full explanation of Cils situation in law.

Some, but limited, explanation.

No knowledge or explanation.

A full explanation of Das situation in law.

Some, but limited, explanation.

No knowledge or explanation.

This question asks candidates to analyse the scenario provided in the light of the rules relating to the formation of a
contract. In particular, it requires an examination of the distinction between offer and invitation to treat, and the
various ways in which an offer can be accepted.
(a)

The first issue to determine is whether Alis advertisement was an offer or whether it was merely an
invitation to treat. An offer is a promise to be bound on particular terms. The offer may, through acceptance
by the offeree, result in a legally enforceable contract. It is important to distinguish an offer from other
statements, which will not form the basis of an enforceable contract. In particular, an offer must be
distinguished from an invitation to treat, which is an invitation to others to make offers. The person
extending the invitation is not bound to accept any offers made to them. Examples of invitations to treat are:
displays of goods in a shop window (Fisher v Bell (1961)); displays of goods on the shelves of a self-service
shop (Pharmaceutical Society of Great Britain v Boots Cash Chemists (1953)).
Usually, newspaper or other public advertisements only amount to an invitation to treat and cannot be
accepted to form a binding contract (Partridge v Crittenden (1968)). There are occasions, however, when an
advert can amount to a genuine offer capable of acceptance by anyone to whom the offer is addressed.
Thus, for example, in Carlill v Carbolic Smoke Ball Co (1893), the court held that in the particular
circumstances of the case, the defendants advertisement was an offer to all the world, capable of
acceptance, and accepted by the plaintiff. Applying the foregoing to the situation in the question, it might
appear at first sight that Alis advertisement in the paper was no more than an invitation to treat and
therefore not capable of being accepted by any of the other parties.

Mock Exam (December 2012): Answers

111

However, the wording of the advert was in such categorical terms that it might be seen to have been an offer
to the whole world, stating his unreserved commitment to enter into a contract with the first person who
accepted it.
(b)

Bud
Acceptance is necessary for the formation of a contract. Once the offeree accepts the terms offered, a
contract comes into effect and both parties are bound. Acceptance may be in the form of express words,
either spoken or written; or it may be implied from conduct. The general rule requires that acceptance must
be communicated to the offeror, although there are exceptions. These arise either where the offeror has
waived the right to receive communication, as in unilateral contracts such as that in the Carlill case, or
alternatively where acceptance is through the postal service. In the latter circumstances acceptance is
complete as soon as the letter, properly addressed and stamped, is posted (Thomson v James (1855);
Jacobsen Sons & Co v Underwood & Son Ltd (1894)). The postal rule will only apply, however, where it is in
the contemplation of the parties that the post will be used as the means of acceptance.
Bud has clearly tried to accept the offer and would rely upon the postal rule of acceptance to press his case
for getting either the rug or damages from Ali. His reliance on the postal rule would be to no avail, however,
as the use of the post was clearly an inappropriate mode of acceptance. There was only one rug on offer: it
was implicit in the advert that to get it, you had to turn up at Alis showroom. Therefore Bud has not entered
into a binding contract with Ali.

(c)

Cil
In order to form a binding agreement, acceptance must correspond with the terms of the offer. Thus the
offeree must not seek to introduce new contractual terms into their acceptance (Neale v Merritt (1830); Wolf
& Wolf v Forfar Potato Co (1984)). Any attempt to do so amounts to a counter-offer and leaves the original
offeror at liberty to accept or reject the new offer as they choose.
Alis advertisement clearly stated that he wanted cash for the rug and, therefore, Cils attempt to pay with a
cheque did not comply with the original offer and leaves her with no grounds for complaint. The decision in
D & C Builders Ltd v Rees (1966) as to cheques being equivalent to money is not to the point in this
situation, as Ali wanted immediate payment for the rug. Therefore Cil has no right of action against Ali.

(d)

Das
An offeror may withdraw their offer at any time before it has been accepted and once revoked, it is no longer
open to the offeree to accept the original offer. In Scots law a promise can be binding if there is evidence
that the promisor intended to be bound (Smith v Oliver (1911)). This kind of obligation is a unilateral
gratuitous obligation and normally under the Requirements of Writing (Scotland) Act 1995, this kind of
obligation would need to be in writing, except where it is in the course of a business, which is the case here.
It may, therefore, be that Ali is in breach of his unilateral obligation to Das to keep the offer open and may be
liable in damages to him, although the sale to Ed will be binding.

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Mock Exam (December 2012): Answers

Question 9
Marking scheme
Marks

This question requires a consideration of the statutory duties placed on company directors under
the Companies Act 2006.
Thorough to complete answers, showing a detailed understanding of the rules relating to conflict
of interest.

810

A clear understanding of the topic but perhaps lacking in detail or application.

57

Some knowledge, although perhaps not clearly expressed, or very limited in its application.

24

Little or no knowledge of the topic.

01

This question requires candidates to consider the breach of directors duties and the consequences of such breach.
The Companies Act (CA) 2006 places directors duties on a statutory basis. However, although s.170 provides that
the new statement of duties replaces the old common law rules and equitable principles, it nonetheless expressly
provides that the duties now stated in the Act are to be interpreted and applied in the same way as those rules and
principles were.
Section 172 establishes a general duty on directors to promote the success of their company, however, more
specific duties are provided for in subsequent sections.
Under s.175, a director of a company must avoid a situation in which they have, or can have, a direct or indirect
interest that conflicts, or possibly may conflict, with the interests of the company. Section 175(2) specifically
provides that it applies in particular to the exploitation of any property, information or opportunity (and it is
immaterial whether the company could take advantage of the property, information or opportunity).
The duty, however, does not apply to a conflict of interest arising in relation to a transaction or arrangement
between the director and the company. Nor does it apply where the situation cannot reasonably be regarded as
likely to give rise to a conflict of interest, or where it has been authorised by the directors.
Further, s.176 places directors under a duty not to accept benefits from third parties. Specifically a director must
not accept a benefit from a third party, which is conferred by reason of
(a)
(b)

his being a director, or


his doing (or not doing) anything as director.

This duty is an aspect of the general duty to avoid conflicts of interest, but it has been stated separately in order to
ensure that the obtaining of a benefit from a third party by a director can only be authorised by members of the
company rather than by the board. However, s.176(4) provides that no breach of duty takes place if the acceptance
of the benefit by the director cannot reasonably be regarded as likely to give rise to a conflict of interest. As a
result, it is likely that inconsequential benefits or those totally unrelated to the affairs of the company will be
permissible.
Section 178 specifically preserves the previous common law civil consequences of breach of any of the general
duties and consequently remedies available may include:
(i)
(ii)
(iii)
(iv)

damages or compensation where the company has suffered loss;


restoration of the companys property;
an account of profits made by the director; and
rescission of a contract where the director failed to disclose an interest.

Mock Exam (December 2012): Answers

113

Applying the preceding rules to the facts of the problem scenario, it can be seen that Fay has breached her statutory
duties under CA 2006 ss.175 and 176 by passing on the research results to Ix plc in return for the substantial
payment.
It is also clear that the rules against allowing a conflict of interest to arise apply, even if the company cannot itself
take advantage of the opportunity wrongly misappropriated. This continues the previous very strict application of
principle (Regal (Hastings) v Gulliver (1942)). Applying this to the facts of the problem, it would appear that Fay will
be held liable to account to FGH Ltd for any profits she made on the transaction.
In addition, as directors can be removed at any time by a simple majority vote of the members under s.168 CA, Gus
and Het can use their majority voting power to remove Fay from her role as company director. This is the case, even
if the removal leads to a breach of their contract of service (Southern Foundries Ltd v Shirlaw (1940)). Those
proposing to remove the director must give the company 28 days notice of the resolution and the director in
question must receive a copy of the resolution and is entitled to speak to the resolution at the meeting at which it is
considered (CA s.169).

Question 10
Marking scheme
Marks

This question requires candidates to analyse a problem scenario and apply the law specifically
relating to insider dealing.
Thorough to complete answers, showing a detailed understanding of the rules relating to insider
dealing.

810

A clear understanding of the topic but perhaps lacking in detail or application.

57

Some knowledge, although perhaps not clearly expressed, or very limited in its application.

24

Little or no knowledge of the topic.

01

This question invites candidates to consider the criminal offence of insider dealing and requires a detailed account
of the law relating to that area.
The value of shares in a company on the stock market fluctuates in relation to the underlying performance of the
company. Amongst other things, good company results will lead to an increase in the value of the shares. It is, of
course, the fact that share prices fluctuate in this way that provides the possibility of individuals making large
profits, or losses, in speculating in shares. It also, however, provides other people with the opportunity to take
advantage of their close relationship with particular companies in order to make profits from illegal share dealing.
Such illegal trading in shares, known as insider dealing, occurs when someone trades on the basis of price
sensitive information before the general public has access to that information. Insider dealing is governed by the
Criminal Justice Act (CJA) 1993.
Section 52 CJA 1993 states that an individual who has information as an insider is guilty of insider dealing if they
deal in securities that are price-affected securities in relation to the information. They are also guilty of an offence if
they encourage others to deal in securities that are linked with this information, or if they disclose the information
other than in the proper performance of their employment, office or profession.
Section 56 makes it clear that securities are price affected in relation to inside information if the information, made
public, would be likely to have a significant effect on the price of those securities.
Section 57 defines an insider as a person who knows that they have inside information and knows that they have
the information from an inside source. This section also states that inside source refers to information acquired
through being a director, employee or shareholder of an issuer of securities, or having access to information by
virtue of their employment, office or profession.
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Mock Exam (December 2012): Answers

Additionally, and importantly, it also treats as insiders those who acquire their information from those primary
insiders previously mentioned.
There are a number of defences to a charge of insider dealing. For example, s.53 makes it clear that no person can
be so charged if they did not expect the dealing to result in any profit or the avoidance of any loss.3
On summary conviction, an individual found guilty of insider dealing is liable to a fine not exceeding the statutory
maximum and/or a maximum of six months imprisonment. On indictment, the penalty is an unlimited fine and/or a
maximum of seven years imprisonment. There is also the possibility that the person who benefits from the
information, which belongs to the company, will be required to account to it for any profit made. This would
certainly be the case with regard to directors who engaged in insider dealing, as they would have breached their
fiduciary duties.
Applying the law to the situation in the problem, it can be seen that, as an employee of Jaz plc, Kip is an insider
under s.57, and the information he has is certain to affect the price of the companys shares. It follows, therefore,
that when he buys the shares in Jaz plc, Kip is liable to a charge of insider dealing under s.52 CJA 1993. Kip is also
liable for the separate offence, under s.57, of disclosing the information to Lu other than in the proper performance
of their employment.
As he received the information from an insider, Lu is treated as an insider under s.57 and is liable for trading on the
basis of the information under s.52.

Mock Exam (December 2012): Answers

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Mock Exam (December 2012): Answers