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Nuances of Business Law

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Introduction

Law is a system which contains rules that will govern a society. The rules govern the country, the business contracts and agreements, and social relationships. There are three legal systems in the United Kingdom viz. English law, Scots Law, and Northern Ireland law. There is no single legal system in the United Kingdom. The Supreme Court of the UK is the apex court that has the highest authority in all criminal and civil cases in England and Wales and Northern Ireland and for all civil cases in Scots law. The Parliament of the UK consists of two houses viz. House of Lords and the House of Commons (McKendrick, 2014). This report covers, the meaning of representation and how it is different from contract, unfair dismissal grounds, duties of the boards of directors, and principles governing the award of damages in the Law of Tort.

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Question 1:

Explain the meaning of a 'representation' and how a mere representation can be distinguished from a term of a contract.

In the given case, Monica is a Human Research Manager at Young and Ernst LLP. She is planning to buy a new car for which she visits a local second-hand car dealership called Cars R Us. The car salesman, Chandler convinced Monica to buy a 2006 Ford Mondeo by quoting the words “This is the best car in the world, if you do not buy it you will be missing out”. Monica relied on Chandler's expertise and bought the car which broke down after two weeks of purchasing. She now wishes to sue the car dealership (Lumineau and Henderson, 2012).

From the above case, it is clear that Monica relied on the representation made by Chandler before entering into the contract to buy the car. “Representation” is a statement that presents a fact or an intention, that is made during contractual negotiations. The other meaning is an action that can be transformed into a statement of fact. It is made before entering into a contract. If a false representation has been made and the buyer entered into a contract by relying on the representation then such buyer may cancel and claim damages in limited cases, he has suffered from such false representation. It is necessary to know the difference between a representation and a contractual term for the remedies available in both cases. On the other hand, a contractual term is a term that governs the rights or obligations of another. A contractual term is legally binding. If a representation is a term of the contract, then a party may claim the damages and also have a right to terminate the performance of the contract. The difference between these two is judged on the basis of various factors such as expertise or knowledge of the parties, language used, etc. The ultimate criteria to decide whether a statement is a term or a representation lies in the context in which it was made.

In the case of Oscar Chess Ltd v Williams [1957], a second-hand Morris car was purchased by Mrs. Williams on the basis that it was a 1948 model as mentioned in the registration certificate of the car. The following year, her son used the car as a trade-in for a brand new Hillman Minx which he was purchasing from Oscar Chess. The son mentioned the Morris a 1948 model and on that Oscar Chess offered £290 off on the purchase price of Hillman Minx. The Williams could not have made this purchase without the discount. After 8 months, Oscar Chess found out that the car was a 1939 model and worth much less than thought. Oscar Chess filed for breach of contract arguing that the date of the vehicle was a fundamental term of contract. Hence, giving the grounds to revoke the contract and claim damages.

Held: The statement regarding the age of the car was not a term but a mere representation. Oscar Chess Ltd. A car dealer has greater knowledge and expertise and is in a better position to know the age of the manufacturing date than Williams (defendant) (Idowu, Capaldi, and Gupta, 2013).

By applying the above case in the case of Monica and Chandler, the following facts can be determined by applying the Oscar Chess Ltd v Williams, Monica bought the car by relying on the expertise of Chandler. In this case, after meeting Chandler, the first thing Monica mentioned is that she has very little knowledge about the car and she wanted a reliable car that can get her to work and back each day. Chandler suggested and convinced her to buy a 2006 Ford Mondeo. By relying on Chandler's expertise Monica got convinced and bought the car.

It can be held that Chandler being the car salesman had more knowledge about the 2006 Ford Mondeo as compared to Monica but he provided false representation to Monica. She bought the car on relying the false representation of Chandler. Hence, she has the right to cancel the contract, claim the damages, and sue Cars R Us.

Question 2:

What are the grounds on which dismissal from employment would be unfair at law, which Monica should explain to the boards of directors?

In the given case, Young and Ernst have scheduled a meeting with Monica to discuss two unrelated issues. Other than this, the board is unhappy with the performance of an employee. When an employer terminates the employment contract of his employee and the employer does not have a fair reason to terminate the contract, then such a situation is called unfair dismissal. An employee is protected by law from unfair dismissal. Employer may dismiss an employee for any one or combination of the following reasons, capability- when an employee lied about his health or qualification, conduct- includes theft of the company property, incidents of abusive or racist behaviors, persistent unpunctuality, etc., breaking the law- if an employee breach civil or criminal law after his working hours or for any other reason (Campbell, 2014).

Unfair dismissals are regulated by the Employment Rights Act, of 1996 and the Equality Act, of 2010. According to the Employment Rights Act, of 1996, a dismissal will be termed unfair if an employee has been dismissed for any of the following grounds:

  • Due to all reasons relating to pregnancy.
  • Reasons relating to family reasons, including parental leave, adoption leave, or time off for dependents.
  • Acting as employee representative.
  • If an employee is a member of a trade union and participates in trade union activities.  
  • Employees working part-time and fixed-time.
  • If an employee asked for rights of pay and flexible working hours including annual leaves.
  • If an employee took action for health and safety issues.
  • If an employee reported his employer for wrongdoing.
  • If an employee is forced to retire from the office.

Employers must follow proper dismissal procedures. The procedures may in verbal warnings, by serving a notice, written final warnings, etc. An employer must try to resolve the problems before dismissing the employee. However, an employer has the right to dismiss the employee immediately without giving any warnings in case of “gross misconduct”. An employee, who has been unfairly dismissed from his work may go to the Employment Tribunal and must prove his arguments which are against the employer (Davidov, Freedland, and Countouris, 2013).

In the case of CF Capital Plc v Willoughby:

Willoughby (claimant) was an employee of CF Capital Plc for 18 years when the banking crisis caused the business to suffer. The claimant was offered to go self-employed and will be paid monthly along with a percentage of the sales she made. A meeting on 1st December 2008 was held by her manager, in which she expressed her interest in such a move, and asked her manager to provide her with more information so that she could make her decision. This information was not made available to her and after 3 weeks, she received a letter from her manager confirming her to move to self-employed status from 1st January 2009. The letter contained the words “The termination of your existing employment contract will be effective from 31st December 2008”. The claimant sought legal advice, which confirmed that the letter amounted to the termination of her contract. After communication between the claimant, respondent, and their legal advisors, the claimant's manager sought to retrieve the position by saying that he had misunderstood the outcome of the meeting and tried to reassure the claimant that she could continue in employment as before. The claimant resumed her work and position and claimed unfair and wrongful dismissal. The ET found that the claimant had resigned but that was overturned by the EAT (CF Capital Plc v Willoughby, 2011).

EAT held that the Tribunal was wrong, hence declared that the claimant was dismissed by the respondent and forwarded the matter to a fresh Employment Tribunal.

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Question 3. 

What are the main duties governing company directors that Monica should explain to the new members of the board?

Monica works as a human resource manager at Young and Ernst LLP where two new board of directors have been appointed to the board and needs to be briefed about their role in the organization. For this duties must be explained by Monica to these new board members. For appointing a board director there are some rules and regulations as per company law and also articles of LLP contain provisions that need to be followed for appointment (Prassl, 2014).

Directors in a company are appointed by its shareholders in general meetings but a board of directors can also appoint directors if that is permitted by articles of the company. There are two types of directors working in a company executive and executive directors. A non-executive director in a company is appointed by using a Letter of Appointment(LOA). LOA consists of the terms and conditions on which a director is appointed in Young and Ernst. Executive directors are appointed through an employment contract, as the executive director is termed as an employee of the organization. A director is appointed for a particular term that is decided by the company as per law.

The company possesses the status of a separate legal entity and performs its activities through a board of directors. As the company is an artificial person all the decisions regarding various issues in a company are taken through a board of directors in meetings. Directors of the company are responsible for strategic and operational decisions of the company. When a new director is appointed in the company in the first meeting after the appointment roles and duties are explained to them. In this case, Monica will explain to both the new directors their duties which are as follows-

  • Care and diligence- This duty of the director requires to act with a degree of care and diligence as per common law. Financial statements prepared by the company are approved by the board of directors and it is directors' duty to analyze these statements carefully before approval. Any breach of duty by a director leads to putting a company in a risky situation (Marshall and Ramsay, 2012).
  • Good faith- A director of  Young and Ernst is required to act in good faith in the best interest of the company. For this purpose situations that create a conflict of interest should be CF Capital Plc v Willoughby and proper process should be followed to solve and manage conflicts that arise. This is the duty of 'fiduciary and trust' that makes the director work in a certain manner that is beneficial to a company.
  • Act within power- Directors appointed by Young and Ernst must work within the powers assigned to them on the basis of their position. A director should act with the companies constitution and powers that are provided by the company law and articles of association. The director's duties and powers are mentioned in articles of association of the company and every director needs to follow that.
  • Working for the success of the company means a long-term increase in the value of the company but fundamentally it is up to the director to decide what actions need to be taken that are appropriate for Young and Ernst. To promote the success of the company a director must concentrate on the interests of employees of the company, and business relations with its suppliers, consumers, and creditors. To make a business successfully impact the operations of the business, the company must also take care to improve the image of  Young and Ernst (Schoenbaum, 2012).
  • Use reasonable skills Directors have different skills and areas of expertise. General knowledge, skills, and experience are used by a director reasonably so that functions in a company can be performed effectively. The director must use actual understanding and abilities with a set of organizational rules to make use of skills to be productive (Gerner-Beuerle and Schuster, 2014).
  • Not to misuse information and position- The director of a company possesses various information regarding the company which can affect business in a negative manner. Information possessed by the director is very sensitive and the director should not disclose this information to other persons for personal benefit. The decision in a company is taken by directors only and no director should miss-utilise position to gain personal benefit.

These all duties will be explained by Monica to recently appointed directors in Young and Ernst as managers of human resources. Together with this while performing duties director should also take care that when any decision is taken corporate responsibility is followed. When a decision in a meeting of directors is taken then it should not be biased and all the records must be maintained by directors. A director should also find weaknesses in the organizational system and relevant steps should be taken to solve these issues.


Question 4

Explain the principles governing the award of damages in the Law of Tort. In what ways may damages be limited?

The word 'Tort' in law means a wrong or injury. A tort is the violation of a right of a person or a breach of duty of another towards him/her. In the current situation, Monica's brother Ross was driving his car while talking on his mobile phone and looking down at the radio list. As a result of this Ros's car crashed into a pedestrian, Joey who suffered from a broken leg. Joey admitted that at the time of the collision, he was walking on the road as repairing was going on the pavement. He could have crossed the road through pavement but feeling lazy decided to walk through the road (Lewis and Morris, 2012).

In tort law, a remedy is paid in the form of monetary compensation given to the aggrieved party. Damages, in the legal sense, are the sum of money, the low imposed for breach of a duty or violation of some rights. Damages are money claimed by or ordered to be paid to a person as compensation for loss and injury. Damages are divided into two categories:

  1. Compensatory
  2. Punitive

compensatory damages are intended to relieve the injured party for his loss or injury. Actual damage is synonymous with compensatory damages but does not include punitive damages. Punitive damages are assessed in order to punish the defendant for wrong conduct to reform or deter the defendant and others who are engaged in similar conduct. The aim of tort damages is to put the injured back into the position in which he/she was before damage incurred. Damages are awarded based on the nature of the injury, the relation between parties and the type of risk, the liability of individuals, and liability rules. Damages are the most important remedy which is plaintiff and can be availed by tort. Various types of damages are:

Nominal damages- Nominal damages are awarded to an individual in an action where the person has not suffered any substantial injury or loss for which he or she must be compensated. Nominal damages may be recovered by a plaintiff who is successful in establishing that he or she has suffered a loss or injury as a result of the defendant's wrongful conduct.

Contemptuous damages- Contemptuous damages are awarded when the level of harm caused to the claimant is low and the court feels that the claimant was wrong to bring a claim. These damages are awarded when the plaintiff has suffered some loss but does not deserve to be fully compensated (Gerner-Beuerle, Paech, and Schuster, 2013).

Compensatory damages- These damages are recovered in payment of actual injury. It is the sum awarded in a civil action by a court to indemnify a person for a particular loss or injury. This damage provides an amount to the injured person which is necessary to replace loss.

Aggravated damages- Damages awarded by a court to reflect the exceptional harm done to a plaintiff of the tort action. When damages are caused due to insult and feelings of the plaintiff who got injured then compensation is increased for this. Aggravated damages are an award and this is paid for intangible elements such as pain, humiliation, anguish, damage to self-confidence, and loss of faith.

Punitive damages- Damages that are awarded by the court when the court feels that compensatory damages are not sufficient and the injured person needs more funds to compensate for the damage. This damage has no relevance with what is the amount of compensatory damages.

In the given case Joey is injured by Ross and compensatory damages in the Law of Tort will be allowed to him. The amount of compensation will be decided by the court as both Joey and Ross were wrong on their part.

Damage may be limited by court up to the amount of loss incurred by the injured person. When loss is intangible then the limit of damage is not certain and the amount that is considered by the court reasonable will be allowed as damage (Oliphant, 2012).


Conclusion

From the above report, it is concluded that when a consumer relies on the expertise of a seller to buy a product and a misrepresentation is made then the buyer can sue the seller for misrepresentations made by the seller. When employees are dismissed from an organization because of poor performance or for any other reason then proper notice must be provided to them before dismissal. Directors are working bodies in an organization and proper duties must be assigned to them at the time of appointment to manage the organization effectively. An injured person needs to be compensated up to damage incurred and damage can be limited by a court on the basis of injury.

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References

  • McKendrick, E., 2014. Contract law: text, cases, and materials. Oxford University Press (UK).
  • Lumineau, F. and Henderson, J. E., 2012. The influence of relational experience and contractual governance on the negotiation strategy in buyer-supplier disputes. Journal of Operations Management. 30(5). pp.382-395.
  • Campbell, D., 2014. Good Faith and the Ubiquity of the ‘Relational ' Contract. The Modern Law Review. 77(3). pp.475-492.
  • Davidov, G., Freedland, M. and Countouris, N., 2013. The Subjects of Labor Law:'Employees' and Other Workers.
  • Idowu, S. O., Capaldi, N., Zu, L. and Gupta, A. D., 2013. Encyclopedia of corporate social responsibility (Vol. 21). New York: Springer.
  • Prassl, J., 2014. Members, Partners, Employees, Workers? Partnership Law and Employment Status revisited. Clyde & Co LLP v Bates van Winkelhof. Industrial Law Journal. 43(4). pp.495-505.
  • Marshall, S. and Ramsay, I., 2012. Stakeholders and directors' duties: Law, theory, and evidence. UNSWLJ. 35. p.291.
  • Gerner-Beuerle, C. and Schuster, E. P., 2014. The evolving structure of directors' duties in Europe. European Business Organization Law Review (EBOR). 15(2). pp.191-233.
  • Gerner-Beuerle, C., Paech, P. and Schuster, E.P., 2013. Study on directors' duties and liability.
  • Lewis, R. and Morris, A., 2012. Tort law culture in the United Kingdom: image and reality in personal injury compensation.
  • Oliphant, K., 2012. Cultures of tort law in Europe.
  • Schoenbaum, T. J., 2012. Liability for damages in oil spill accidents: evaluating the USA and international law regimes in the light of Deepwater Horizon. Journal of environmental law. 24(3). pp.395-416.
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