English Law and Legal Contract - Essay Example

Running Head: English Law and Legal Contract English Law and Legal Contract of the of the EnglishLaw and Legal Contract Tasks: 1. Explain the main sources of English law and how they are created. Choose an example from each source relating to business activity and indicate what legal areas or principles are involved with your chosen examples The EU makes laws which must be respected by all member states. Since the aim behind the creation of new European laws is often to standardise laws between the different member states, it is inevitable that EU laws are passed which some member states do not like. Even if they do not like them, however, all member states have to obey EU laws. For member states of the EU, it is no longer the case that only national government can make laws within their territories. Britain joined the EU in 1973 when it was still European Economic Community (EEC). So until 1972 UK had complete parliamentary sovereignty" but as the UK's application to join the EU was accepted, Parliament passed the European Communities Act. This Act transferred some control over creation of laws to EU institutions. When talking about where exactly the law comes from, lawyers talk about "sources of law". There are two sources of European Union law. There is primary and secondary. Primary sources of EU law are treaties. Treaties are agreements signed by the Heads of State of all the member states of the EU. They set out all the main principles and goals of the EU. So far as our law is concerned all treaties signed by our head of government become part of English law automatically. This is a result of the European Communities Act 1972. There are four main treaties of the European Union. The Treaty of Rome 1957 was when the EEC was created and trade barriers and custom duties were abolished. The Maastricht Treaty 1993 was when the EC became the EU and everybody holding a passport from one of the member states of the EU became a citizen of the EU. It also meant that that the European Parliament gained more powers. The Amsterdam Treaty 197 which meant there were more powers for the European Parliament and immigration laws were to be common between states, human rights provisions were also established. The Treaty of Nice 2001 meant that changes in the qualified majority voting system were agreed, a necessary preparation for a big increase in the number of member states. The idea that groups of countries will develop at different paces within the EU was agreed also. Citizens of the UK are entitled to rely on the rights in the Treaty of Rome and other treaties, even though those rights may not have been specifically enacted in English law. This is shown by the case of Macarthy's Ltd v Smith (1980). In this case Wendy Smith's employers paid her less than her male colleagues for exactly the same job. As the two people were not employed at the same time by the employer there was no breach of English domestic law. However, Wendy Smith was able to claim that the company which employed her was in breach of Article 119 of the Treaty of Rome over equal pay for men and women and this claim was confirmed by the European Court of Justice. Secondary sources of EU law are regulations, directives and decisions. What these different types of law have in common is that they are all laws aimed at putting the general principles set out in the treaties into practice. Unlike treaties, however, they do not require the signature of Heads of State. They are proposed by the Council of Ministers and the European Parliament. Directives are the main way in which harmonisation of laws within member states is reached. They are statements outlining the kind of national laws that member states are required to pass in order to meet the requirements of treaties. Directives are issued under Article 249 of the Treaty of Rome. Directives are more specific than treaties, which contain general principles. They direct member states to pass laws which meet certain criteria, though they lever it to the member states themselves to decide which form the laws will take. An example of a major Act of Parliament, which was passed to comply with a directive, is the Consumer Protection Act 1987. This legislation gave to consumers powerful new rights of action against the manufacturers of defective products. Regulations are detailed laws that apply to everyone in the member states. They are issued under Article 249 of the Treaty of Rome. Regulations are "directly applicable". This mean that they become law automatically without member states having to pass their own laws to put them into effect. This "direct applicability" was tested in Re Tachographs: Commission v United Kingdom (1979), where regulation requiring mechanical recording equipment to be installed in lorries was issued. The United Kingdom government of the day decided not to implement the regulation, but to leave it up to owners to decide whether or not to put in such equipment. When the matter was referred to the European Court of Justice it was held that member states had no discretion in the case of regulations. The wording of Article 189 was explicit and meant that regulations were automatically law in all member states. In this way, regulations make sure that laws are uniform across all the member states. Decisions are EU laws that have to obeyed b a particular member state, individual person or organisation rather than by all member states or EU citizens. Decisions are issued under Article 249 of the Treaty of Rome and they are legally binding. Following Commission proposals, the Council, in consultation with the European Parliament, passes decisions in much the same way as it passes directives and regulations. Article 189 also allows for recommendations and opinions to be issued, but these have no binding force. 2. Describe the principal features of offer, acceptance and consideration as they operate in a legal contract. Examine an actual legal contract with which you are familiar and analyse it in terms of offer, acceptance and consideration. State generally what the consequences may be for a party who commits a breach of contract. The law concerning separate legal personality is largely governed by the 19th century case Foss v Harbottle, this case translates the doctrine of separate legal personality, the statutory contract and the principle of the majority rule. In Foss v Harbottle two members of the Victoria park Co brought an action against five directors and promoters alleging that they had misapplied the company's assets and had improperly mortgaged it property. The plaintiffs wanted to claim any losses that were suffered by the company. However the court held that loss in question was not suffered by the plaintiff's alone but the company it self. Also the fact that it was open to the majority in a general meeting for consent showed that the plaintiff claim had to fail. The rationale behind is that a company is a separate legal entity with an identity of its own bound by the articles and the memorandum of association. This contract lays down the basis of the legal relationship between the company and its members. As a result the member agrees to be bound by the decisions of the majority. Once a resolution is passed by the majority of the share holders any dissenting members will nevertheless be bound by it. It may seem that minority shareholders are in a weak position in a company. That they would not be able to exercise any influence on the company and are effectively suppressed by majority shareholders. However, English law acknowledges the concerns of minority share holders and is trying to strike an optimum balance between the majority rule on one hand and the rights of share holders on the other. Minority shareholders are those members holding 50% or less of the company's share have little power within the company as they cannot be certain of passing any resolution at a general meeting without the backing of other shareholders. Thus minority shareholders may appear to be powerless in the hands of the directors and of the other members. To redress the balance, English company law gives rights to shareholders that are particularly useful to protect the position of a minority shareholder within the company. There are exceptions to the rule in Foss v Harbottle. The rules for minority share holders were restated in Edwardes v Halliwell(1950). This case highlighted four principal situations where shareholders can take legal action against the company. a) Where the act complained of is illegal or is wholly ultra vires the company. b) Where the matter in issue requires the sanction of a special majority, or there has been non-compliance with a special procedure. c) Where a members personal rights have been infringed d) Where fraud has been perpetrated on the minority and the wrongdoers and in control. Illegality When a company enters into a transaction or operates in a way that is illegal minority shareholders can bring action against the company. In Smith v Croft, financial assistance was given to facilitate the acquisition of shares in the company. This was contrary to the requirements of the Companies Act of 1981 and was illegal therefore ultra vires the company. It was held that an individual shareholder could bring personal action against the company to restrain it from entering into such a transaction as it is not in accordance with articles and memorandum of association. Company law addresses the concern of 'pure' ultra vires and differentiates it from illegality. When a transaction is illegal then any shareholder can bring personal action against the company. However, a shareholder may not be able to take legal action against the company based only on ultra vires. It has been highlighted in section 35(2) of the Companies Act, which says that a shareholder cannot bring personal action against a company if the ultra vires act is in respect to a prior legal obligation. Non Compliance with a special procedure An individual share holder can sue the company if the act complained of is one which requires the approval of a special majority of members and such a resolution has not been obtained. In Edward v Halliwell two members of a trade union complained that a resolution increasing members' subscription was invalid because the required two-thirds majority for such a resolution had not been obtained. Infringement of personal rights A shareholder has the right to vote, the right to a dividend, the right to attend the AGM, the right to a share certificate. Mellish LJ in Macgougall v Gardiner (1875) made it clear that where the right of a shareholder has been infringed upon by the majority he can sue. It is important to note that the injury suffered is suffered by the plaintiff alone and not by the company. Hence the rule of Foss v Harbottle does not apply, as in that case the company also suffered a loss because of the wrong doing. However, while seeking a claim under infringement of personal rights one would have to prove to the court that it was not a mere 'internal irregularity' of procedure by the company. The rationale behind this was clarified in Macdougall v Gardiner (1875), the court of appeal held that if every irregularity would be litigated it would lead to a loop hole by which cantankerous members of the company would seek legal actions to derive personal benefit. Having laid down this point it is important to note that individual members have certain fixed rights. In Pender v Lushington(1877) it was held that the right to vote is a members personal right and s/he could sue in the company's name or his name to claim that right. Similarly a member has a right on declared dividend. Legal action can be sought by that member to claim that right. Mere irregularities which can be waived by a simple majority vote are not a solid basis for bringing action against the company. For e.g. in Devlin v Slough Estates Ltd (1983) the court held that a member cannot sue for breach of statutory duty relating to the form and distribution of the company's accounts. Fraud Where a fraud has been perpetrated by the majority share holders of a company a minority share holder can institute a derivative action to enforce the company's right. Fraud would be when majority shareholders 'abuse or miss-use there powers' for example may not pass a resolution which would be for the overall betterment of the company. However, for a fraud claim to be successful it requires proof that the alleged wrongdoers exercised sufficient control for the fraud to be perpetrated. It is also important that the remaining shareholders that are independent of the wrongdoers desire that legal action be taken. Without their consent an individual person cannot bring action against the company. In addition to these four situations there are other exceptions as well where minority can seek action against the company. A minority share holder can sue when his/her actions fall into the interests of justice. A minority shareholder can also sue when s/he has been unfairly prejudiced. They may petition the court under section 461. It goes on to grant the court the power to authorize civil proceedings to be brought in the name and on behalf of the company by the prejudiced minority. However, this power is seldom exercised by the courts. To protect the shareholders these are the actions that the court allows minority shareholders to bring against the company. Representative action (group litigation) In a representative action a claimant is suing on behalf of himself and other members who have the same right, which has been allegedly abused or infringed upon. There have to be a group of members for a representative action. However, it is held that unless the court otherwise directs, any judgment or order given in a claim in which a party is acting as a representative is binding on all persons represented in a claim; but may only be enforced by or against a person who is not party to the claim with the permission of the court. Derivative actions Is where a shareholder initiates an action in order to enforce the company's rights, this is called a derivative action. The action is brought by the shareholder on behalf of all the company's shareholders other than the wrongdoers who are in control and who are preventing the company itself from suing. In derivative action because the wrongdoers who are in control are preventing the company from suing, the company is obviously not the claimant. It is effectively joined as a defendant together with the actual wrongdoers, so that the company will be bound by the judgment and receives any money recovered in the action. One hurdle that confronts shareholder-litigant is the cost of the proceeding. A shareholder may find it difficult to bear the costs of the litigation. In order to safe guard their interests the court holds that if the shareholder acted reasonably in bringing the action and had reasonable grounds for bringing the action then in that case even if s/he looses the case they won't be liable to pay the legal costs for the company, the company it self would be liable to pay their legal costs. The rationale behind is that the shareholder by bringing in a derivative action he was acting for the company and not for itself. There are however limitations to the derivative actions. A derivative action can not be sought when a company is in liquidation because the liquidator then has the statutory power to litigate in the company's name. Personal action As mentioned earlier personal action can be sought by an individual share holder if he feels his rights has been suppressed or infringed upon. A share holder can claim personal action to make good any loss he suffered as a consequence of a wrong doing. Even though the company's are protected by the judgment made in Foss v Harbottle there are certain exceptions which protect the interests if minority shareholders. Bibliography Birmingham, Nutshells - Tort, 7th ed (2005) Darbyshire, Nutshells - the English Legal System, 6th ed (2004) Duxbury, Nutshells - Contract Law, 7th ed (2006) Eddey and Darbyshire on the English Legal System, 8th ed (2005) Elliot and Quinn, English Legal System, 6th ed (2005) James, Introduction to English Law, 13th ed (1996) Jewell, An Introduction to English Contract Law, 2nd ed (2002) Koffman/Macdonald, The Law of Contract, 5th ed (2004) Wrlen, Introduction to English Civil Law, vol. I + II (Alpmann-Skript), 3nd ed (2005) Read More