Module 2, Chapter 3 - Purposes And Classification Of The Law

Question 1

Arguably, what is the main purpose of business law?

Answer 1

Perhaps the key purpose of business law is to ensure that businesses are held to account for their unlawful acts and omissions.

Question 2

Linked to the notion of accountability is the need for transparency in companies. What are two notable benefits of businesses having to disclose certain information?

Answer 2

1. It enables regulators and stakeholders to hold businesses to account. A business cannot be held to account if it fully conducts its business in secret.
2. Businesses, knowing that they will be required to disclose certain information, will take steps to ensure that they are conducting themselves in a lawful and proper manner.

Question 3

Why is it appropriate that business law imposes criminal liability on those who fail to disclose required information or disclose inaccurate or misleading information?

Answer 3

To ensure businesses are not disclosing fake or misleading information to avoid scrutiny. It encourages companies to be transparent in their business and information.

Question 4

Transparency also helps stakeholders make decisions relating to the company. What statutory documents may be used by stakeholders when making decisions to invest?

Answer 4

Annual accounts and reports, which will be used by numerous stakeholders (e.g. investors, when deciding to purchase shares; creditors when deciding to lend to the company; employees).

Question 5

Being overly transparent can become burdensome to companies. Explain why.

Answer 5

It is important that disclosure does not become overly burdensome and onerous as it can impose unnecessary costs on the business and discourage stakeholders from engaging with the information.

Question 6

The quest for accountability should not unduly prevent businesses from engaging in risk-taking activity that can benefit society. Laws must therefore exhibit a flexibility that allows businesses to react to new opportunities without undue restriction. Business law provides flexibility in two different ways. Name these two ways.

Answer 6

1. The first way is by providing businesses with a significant amount of autonomy. This allows businesses to effectively draft the rules by which business transactions will be conducted.
2. The second way in which the law provides flexibility is by allowing businesses to draft certain rules by which their business is to be run. Many internal rules by which a company is run (e.g. rules relating to appointment of directors, rules relating to the conduct of board and general meetings) are a matter for the company’s articles of association. Upon incorporation, companies are free to draft their own articles and so can determine their own internal rules. These articles can be amended at any time in order to respond to the needs of the company.

Question 7

When devising laws, Parliament and the courts should consider what impact the law will have upon businesses. Provide an example.

Answer 7

Laws that impose excessive costs or which unduly impede a company’s ability to conduct business will be extremely unpopular and companies will try to avoid them. A law that is suitable for one type of business might detrimentally affect the efficiency of another.

Question 8

What does the ‘comply or explain’ approach adopted by the UK Corporate Governance Code assist large companies with?

Answer 8

This approach enhances efficiency as companies can justify non-compliance with the Code’s Provisions if
compliance would adversely and unduly affect their efficiency.

Question 9

Striking a balance between certainty and flexibility remains one of the great challenges of business law. It is important that business law is certain and predictable for several reasons. List three reasons.

Answer 9

1. Businesses must be able to rely on the law and they cannot do this with confidence if it is unclear or uncertain.
2. Laws must adapt and evolve, but they should not be amended excessively frequently nor changed without good cause. If the law is amended too frequently, there is a danger that businesses will struggle to stay up-to-date with the changes or that ensuring compliance with the ever-changing new laws will impose unacceptable costs upon the business.
3. The application of business law should be predictable. This allows businesses to conduct themselves in a manner that does not breach the law, and so reduces the need to engage in costly litigation. If litigation does arise, clear and predictable law should allow for the dispute to be resolved more quickly and cheaply.

Question 10

Companies Act 2006 s. 172(1) requires directors to ‘promote the success of the company for the benefit
of its members as a whole’. Explain the meaning behind this law and why it was created.

Answer 10

Those who run business may be tempted to run it in a way that is of benefit to themselves, not the business itself. This can be especially problematic in companies as these intermediaries (notably the directors) may seek to use the company to benefit themselves at the company’s expense. Section 172 requires directors to act only in the best interests of the company.

Question 11

Business law should try and minimise the need for costly litigation. When disputes arise, parties need access to a dispute resolution system that is quick and inexpensive. There are three systems. List them.

Answer 11

1. The traditional dispute resolution mechanism is to commence legal proceedings in a court. This is the principal form of dispute resolution and is extremely important. However, cases involving businesses (especially complex commercial and corporate cases) can be extremely costly and lengthy.
2. A case could be taken to a tribunal.
3. The expense of legal proceedings has contributed, in part, to the increased importance of Alternative Dispute Resolution in the business world. ADR mechanisms are seen as being more cost effective forms of dispute resolution, especially if the disputing parties wish to continue to engage in business in the
   future.

Question 12

Business failure can have significant adverse impacts upon those who work for, and transact with, the business. If the business is large enough, it can even have local or national consequences. Accordingly, business law does try to prevent business failure in several ways. List two of these ways.

Answer 12

1. Business law seeks to prevent or minimise such occurrences by prohibiting certain conduct and
   by promoting good governance.
2. In some cases, the law seeks to help failing businesses. For example, the Insolvency Act 1986 (IA1986) provides a number of rescue mechanisms (e.g. the moratorium, administration, company voluntary arrangements) that are designed to try and help financially struggling companies survive and return to profitability.

Question 13

Identify the eight purposes of business law.

Answer 13

1. Accountability
2. Transparency
3. Flexibility and autonomy
4. Efficiency
5. Certainty and predictability
6. Acting in the business’s interests
7. Dispute resolution
8. Preventing disaster and failure

Question 14

What is the distinction between civil law and criminal law?

Answer 14

The distinction between a civil wrong and a criminal act lies not in the act itself, but in the legal consequences that flow from the act. For example, if a person commits an unlawful act and the consequence of that act is that the person is sued and required to pay compensation, then the act will likely be a civil wrong. If the act results in its perpetrator being prosecuted and imprisoned, the act will be a criminal act.

Question 15

Which parties are involved in a Civil law case?

Answer 15

The person who sustained the loss (the claimant) sues the person who caused the claimant’s loss (the defendant).

Question 16

Which parties are involved in a Criminal law case?

Answer 16

The State (denoted by the letter ‘R’, which is short for Regina (Queen) or Rex (King)) prosecutes the defendant for the alleged criminal act.

Question 17

In a Civil law case, which courts see the case in the first-instance?

Answer 17

County Court or High Court.

Question 18

In a Criminal law case, which courts see the case in the first-instance?

Answer 18

Magistrates’ court or Crown Court.

Question 19

In a Civil law case, who must provide the burden of proof?

Answer 19

The burden of proof is usually placed upon the claimant.

Question 20

In a Criminal law case, who must provide the burden of proof?

Answer 20

The burden of proof is usually placed upon the prosecution.

Question 21

What is the standard of proof in a Civil law case?

Answer 21

The claimant must prove his case on the ‘balance of probabilities’.

Question 22

What is the standard of proof in a Criminal law case?

Answer 22

The prosecution must prove the case ‘beyond reasonable doubt’.

Question 23

What are the outcomes in a Civil law case?

Answer 23

If the claimant’s case succeeds, he will be awarded a remedy (e.g. compensation, injunction). If his case does not succeed, no remedy will be awarded.

Question 24

What are the outcomes in a Criminal law case?

Answer 24

The defendant is either guilty or not guilty. If guilty, the defendant will be punished (e.g. imprisoned and/or fined).

Question 25

The phrase ‘common law’ has three different meanings. Here, it is referring to those legal systems that have historically based their legal system on that of England (e.g. Australia, Canada and the USA). Common law legal systems tend to have a number of features. List four features.

Answer 25

1. The bulk of the law is found in case law;
2. The judiciary’s principal role is to interpret law, but common-law judges also create law;
3. Common-law systems have a well-established system of precedent in place;
4. Members of the judiciary are normally recruited from the ranks of legal practitioners.

Question 26

The phrase ‘civil law’ is used in relation to laws that do not impose criminal liability. List four features of civil law.

Answer 26

1. The bulk of the law is found in a series of written documents known as ‘codes’;
2. The judiciary’s role is to interpret law in line with the relevant code, not to create law;
3. Civil law systems often place great weight on the decisions of senior judges, but tend not to have a system of binding precedent; and
4. Civil law systems tend to have a career judiciary where judges are trained straight from university.

Question 27

What is the second meaning of common law?

Answer 27

The second meaning of ‘common law’ refers to the body of laws and decisions created by judges in decided cases and subsequently applied via the doctrine of precedent. The phrase ‘statute law’ refers to laws created by Parliament, with such laws also being known as ‘legislation’.

Question 28

What are the three meanings of common law?

Answer 28

1. The first meaning is referring to those legal systems that have historically based their legal system on that of England (eg. US, Canada).
2. The second meaning of ‘common law’ refers to the body of laws and decisions created by judges in decided cases and subsequently applied via the doctrine of precedent.
3. The third meaning of ‘common law’ refers to the system of law that emerged following the Norman Conquest and still exists today.

Question 29

When did the people of England become subjected to common law

Answer 29

Prior to the Norman Conquest in 1066, each area of England had its own set of laws. In the 150 years following the Norman Conquest, the legal system in England underwent a process of unification with judges following a body of laws derived from Westminster (Common Law).

Question 30

How was ‘equity’ created and for what reason?

Answer 30

At first, the law’s response was to allow persons to petition the King directly for a remedy, but soon this function was delegated to the Lord Chancellor. These petitions to the Lord Chancellor were, unlike common
law cases, not based upon following precedent and strict procedures, but were based upon fairness and justice in the individual case. Accordingly, this supplementary system of law became known as ‘equity’.

Question 31

Name two equitable remedies.

Answer 31

In order to achieve fairness, equity developed new remedies, notably injunctions and specific performance.
The two systems generally co-exist harmoniously, but tensions can arise and, in the event of a conflict between the common law and equity, equity prevails (Senior Courts Act 1981, s. 49(1)).

Question 32

Define ‘public law’.

Answer 32

Public law refers to laws that regulate the relationship between the state and persons within the state. Obvious examples of public law subjects would be human rights law (persons who have had their human rights breached may sue the state) and criminal law (the state prosecutes those who have committed crimes).

Question 33

Define ‘private law’.

Answer 33

Private law refers to laws that regulate the relationships between people (i.e. the state is usually not a party to the legal proceedings).

The majority of laws applicable to businesses are private laws and include company law (which regulates the relationship between companies, directors, shareholders etc.), contract law (which regulates the rights and obligations of contracting parties) and employment law (which regulates the relationship between employers, employees and workers).

Question 34

Explain the two meanings of the phrase ‘civil law’.

Answer 34

The phrase ‘civil law’ can refer to (i) legal wrongs that result in the imposition of civil remedies (e.g. compensation); and (ii) those legal systems based on Roman law.

Question 35

Explain the difference between public law and private law and provide examples of each type
of law.

Answer 35

Public law refers to laws that regulate the relationship between the state and persons within that state, whereas private law refers to laws that regulate the relationship between persons.

Question 36

Explain the differences between civil law and criminal law.

Answer 36

Civil law refers to acts that amount to civil wrongs and have civil consequences (e.g. the payment of compensation).

Criminal law refers to acts that are crimes and result in a sentence being imposed (e.g. imprisonment).