BUSINESS LAW Fifth Edition This book is supported by a Companion Website, created to keep Business Law up to date and to provide enhanced resources for both students and lecturers. Key features include: ◆ termly updates ◆ links to useful websites ◆ links to ‘ebooks’ for introductory and further reading ◆ ‘ask the author’ – your questions answered www.cavendishpublishing.com/businesslaw BUSINESS LAW Fifth Edition David Kelly, PhD Principal Lecturer in Law Staffordshire University Ann Holmes, M Phil, PGD Dean of the Law School Staffordshire University Ruth Hayward, LLB, LLM Senior Lecturer in Law Staffordshire University Fifth edition first published in Great Britain 2005 by Cavendish Publishing Limited, The Glass House, Wharton Street, London WC1X 9PX, United Kingdom Telephone: + 44 (0)20 7278 8000 Facsimile: + 44 (0)20 7278 8080 Email: [email protected] Website: www.cavendishpublishing.com Published in the United States by Cavendish Publishing c/o International Specialized Book Services, 5804 NE Hassalo Street, Portland, Oregon 97213-3644, USA Published in Australia by Cavendish Publishing (Australia) Pty Ltd 3/303 Barrenjoey Road, Newport, NSW 2106, Australia Email: [email protected] Website: www.cavendishpublishing.com.au © Kelly, D, Holmes, A and Hayward, R 2005 First edition 1995 Second edition 1997 Third edition 2000 Fourth edition 2002 Fifth edition 2005 All rights reserved. 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British Library Cataloguing in Publication Data Kelly, David, 1950– Business law – 5th ed 1 Business law – England 2 Business law – Wales I Title II Holmes, Ann E III Hayward, Ruth, LLB 346.4'207 Library of Congress Cataloguing in Publication Data Data available ISBN 1-85941-962-3 ISBN 978-1-859-41962-5 1 3 5 7 9 10 8 6 4 2 Printed and bound in Great Britain PREFACE Business and commercial enterprise takes place within a legal context and, in the final analysis, is governed and regulated by law. One of the problems facing the person studying business activity, and the one that is specifically addressed in this book, is the fact that business enterprise takes place within a general and wide-ranging legal environment, but the student is required to have more than a passing knowledge of the legal rules and procedures which impact on business activity. The difficulty lies in acquiring an adequate knowledge of the many areas that govern such business activity. Law students legitimately may be expected to focus their attention on the minutiae of the law, but those studying law within, and as merely a component part of, a wider sphere of study cannot be expected to have the same detailed level of knowledge as law students. Nonetheless, they are expected to have a more than superficial knowledge of various legal topics. For the author of a business law textbook, the difficulty lies in pitching the material considered at the appropriate level so that those studying the subject acquire a sufficient grasp to understand law as it relates generally to business enterprise, and of course to equip the student to pass the requisite exams. To achieve this goal, the text must not be too specialised and focus on too small a part of what is contained in most business law syllabuses. For example, although contract law is central to any business law course, to study it on its own, or with a few ancillary topics, is not sufficient. Nor, however, should the text be so wide-ranging as to provide the student with no more than a superficial general knowledge of most of the possible interfaces between law and business enterprise. A selection has to be made and it is hoped that this text has made the correct one. No attempt has been made to cover all the areas within the potential scope of business law, but it is hoped that attention has been focused on the most important of these, without excluding any area of major importance. Additionally, it is hoped that the material provided deals with the topics selected in as thorough a way as is necessary. In this fifth edition we have taken the opportunity to expand the treatment of the company law and employment law sections. We have also been able to provide a more considered treatment of the Human Rights Act 1998 in the light of the most significant cases to have come before the courts since the previous edition. As usual, we have made every effort to ensure that the text is as up to date as we can make it. David Kelly Ann Holmes Ruth Hayward February 2005 CONTENTS Preface v Table of Cases xix Table of Statutes xlv Table of Statutory Instruments lv Conventions, Treaties and EC Legislation lix Table of Abbreviations lxi 1 LAW AND LEGAL SOURCES 1 1.1 The nature of law 1 1.2 Categories of law 2 1.2.1 Common law and civil law 2 1.2.2 Common law and equity 2 1.2.3 Common law and statute law 6 1.2.4 Private law and public law 6 1.2.5 Civil law and criminal law 7 1.3 The Human Rights Act 1998 8 1.3.1 The structure of the Human Rights Act 1998 10 1.3.2 Cases decided under the Human Rights Act 1998 12 1.4 Sources of law 15 1.4.1 European Community 15 1.4.2 Sources of EC law 17 1.4.3 The institutions of the EU 19 1.5 Legislation 23 1.5.1 The legislative process 23 1.5.2 Types of legislation 25 1.5.3 Delegated legislation 26 1.5.4 Advantages of the use of delegated legislation 27 1.5.5 Disadvantages in the prevalence of delegated legislation 28 1.5.6 Control over delegated legislation 28 1.6 Case law 29 1.6.1 The meaning of precedent 29 1.6.2 The hierarchy of the courts and the setting of precedent 31 1.6.3 The nature of precedent 33 1.6.4 Evaluation 34 1.6.5 Advantages of case law 34 1.6.6 Disadvantages of case law 35 1.6.7 Case study 36 1.7 Statutory interpretation 37 1.7.1 Problems in interpreting legislation 37 1.7.2 Rules of interpretation 38 1.7.3 Aids to construction 39 1.7.4 Presumptions 40 1.8 Custom 41 1.8.1 Books of authority 42 1.9 Law reform 42 Summary of Chapter 1 45 viii Business Law 2 THE CRIMINAL AND CIVIL COURTS 49 2.1 Introduction 49 2.2 The criminal court structure 49 2.3 Magistrates’ courts 51 2.3.1 Powers of magistrates’ courts 51 2.4 The Crown Court 52 2.4.1 Jurisdiction 52 2.5 Criminal appeals 52 2.5.1 Appeals from magistrates’ courts 53 2.5.2 Appeals from the Crown Court 53 2.5.3 The Criminal Justice Act 2003 54 2.6 House of Lords 55 2.7 Judicial Committee of the Privy Council 56 2.8 The civil court structure 56 2.9 Magistrates’ courts 56 2.10 The Woolf Reforms to the civil justice system 56 2.10.1 Judicial case management 57 2.10.2 Pre-action protocols 57 2.10.3 Alternatives to going to court 58 2.10.4 Allocation to track (Pt 26 of the CPR 1998) 58 2.11 County courts 59 2.12 The High Court of Justice 59 2.12.1 The Queen’s Bench Division 60 2.12.2 The Queen’s Bench Divisional Court 60 2.12.3 The Chancery Division 60 2.12.4 The Chancery Divisional Court 60 2.12.5 The Family Division 60 2.12.6 The Family Divisional Court 61 2.12.7 Specialist courts 61 2.13 The Court of Appeal (Civil Division) 61 2.13.1 The Civil Procedure Rules 61 2.14 House of Lords 62 2.15 Judicial Committee of the Privy Council 62 2.16 The European Court of Justice 62 2.17 The European Court of Human Rights 63 Summary of Chapter 2 67 3 ALTERNATIVE DISPUTE RESOLUTION 69 3.1 Introduction 69 3.2 Arbitration 71 3.2.1 Arbitration procedure 71 3.2.2 Relationship to ordinary courts 75 3.2.3 Advantages 75 3.2.4 The small claims track (Pt 27 of the CPR 1998) 76 3.2.5 Small claims procedure 77 3.2.6 Evaluation 78 3.2.7 Arbitration under codes of conduct 79 Contents ix 3.3 Administrative tribunals 80 3.3.1 Tribunals and courts 81 3.3.2 Composition of tribunals 82 3.3.3 Statutory tribunals 82 3.3.4 Domestic tribunals 84 3.3.5 Advantages of tribunals 84 3.3.6 Disadvantages of tribunals 85 3.3.7 The Leggatt Review of Tribunals 87 3.4 Ombudsman 89 3.4.1 Procedure 90 3.4.2 Evaluation 94 3.5 Mediation and conciliation 95 3.5.1 Mediation 95 3.5.2 Mediation in divorce 96 3.5.3 Conciliation 98 Summary of Chapter 3 101 4 THE NATURE AND FUNCTION OF CONTRACT LAW 103 4.1 Introduction 103 4.2 Definition 104 4.3 Formalities 104 4.4 The legal effect of agreement 105 Summary of Chapter 4 107 5 THE FORMATION OF A CONTRACT 109 5.1 Introduction 109 5.2 Offer 109 5.2.1 Identifying an offer 109 5.2.2 Offers to particular people 112 5.2.3 Knowledge of the offer 112 5.2.4 Rejection of offers 112 5.2.5 Revocation of offers 113 5.2.6 Lapse of offers 114 5.3 Acceptance 115 5.3.1 Form of acceptance 115 5.3.2 Communication of acceptance 116 5.3.3 Tenders 117 5.4 Offer, acceptance and the classical model of contract 118 5.5 Consideration 119 5.5.1 Forbearance 119 5.5.2 Types of consideration 120 5.5.3 Rules relating to consideration 121 5.5.4 Performance of existing duties 122 5.5.5 Consideration in relation to the waiver of existing rights 124 5.5.6 Promissory estoppel 125 5.5.7 Promissory estoppel after Williams v Roffey Bros (1990) 127 5.6 Privity of contract 127 5.6.1 Contracts (Rights of Third Parties) Act