F4 - Interim

Interim Assessment

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ACCA Interim Assessment

Corporate and Business Law

QUESTION PAPER Time allowed Reading time: 15 minutes Writing time: 3 hours Answer ALL questions Do not open this paper until instructed by the supervisor This question paper must not be removed from the examination hall

JUNE 2009

Kaplan Publishing/Kaplan Financial

ACCA F4 (ENG) Corporate and Business Law

Page 2 of 5 KAPLAN PUBLISHING

© Kaplan Financial Limited, 2009 All rights reserved. No part of this examination may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without prior permission from Kaplan Publishing.

Interim Assessment


Answer ALL questions QUESTION 1 (a) Describe the forms of delegated legislation which can be made under English law. (5 marks) (b) Explain the advantages and disadvantages of delegated legislation compared with

Acts of Parliament. (5 marks) (Total: 10 marks) QUESTION 2 Explain the rules applied by the courts in their interpretation of statutes, giving brief examples where appropriate. (10 marks) QUESTION 3 In relation to the formation of a contract, discuss the importance of intention to create legal relations. (10 marks) QUESTION 4 (a) Explain what is meant by liquidated damages and penalty clauses in the context of

English contract law. (5 marks) (b) Explain what is meant by the remoteness of loss principle. (5 marks) (Total: 10 marks) QUESTION 5 Explain and briefly illustrate the three requirements needed to establish an action for the tort of negligence. (10 marks) QUESTION 6 Explain in the context of employment law: (a) the common law duties imposed on employees; (6 marks) (b) constructive dismissal. (4 marks) (Total: 10 marks) QUESTION 7 Explain the different ways in which an agency relationship can arise. (10 marks)



QUESTION 8 Adam is sitting with a group of his friends outside a public house in a harbour. He says that he will give £100 to anyone who can swim across the harbour. Adam puts that amount of money on the table to show the seriousness of his challenge. Ben is not with Adam's group but is sitting at the table next to Adam. He hears the promise but does not say anything. Suddenly a child falls into the water from the other side of the harbour. Ben dives into the water and begins to swim to her rescue. As Ben is approaching the child, Adam shouts out 'Don't think you are going to get my £100, because I am withdrawing my offer'. Ben nonetheless rescues the child and climbs out on to the other side of the harbour. Required: Explain, with reasons, whether Ben can claim the £100 from Adam under the law of contract. (10 marks) QUESTION 9 In March 2007, Glimpse Ltd won a contract to install floor-to-ceiling window units in the frontage of a prestigious development of city offices and flats for a price of £55,000. The contract specified that the windows were to be installed by 30 June 2007 at the latest, one week before the official opening ceremony. A penalty of £2,000 was payable for each day's delay. Glimpse Ltd ordered the glass from a specialist glazing company, G-Force Ltd, and handles and fittings from another company, HandlesRUs Ltd, with all supplies to be delivered by 1 June 2007. The glazier was to receive £24,000 and the handle company £4,000. At the end of April, G-Force Ltd contacted Glimpse Ltd and said the glass would not be delivered on time unless an additional £3,000 were paid, Glimpse Ltd reluctantly agreed, not wishing to risk delay of the whole installation. Glimpse Ltd then contacted HandlesRUs Ltd and asked if the fittings and handles could be delivered a week earlier to allow them to be fitted to the frames at the company's workshops rather than on site, in return for an extra fee of £500. In the event, both the handles and the glass were delivered on 14 May and Glimpse Ltd finished the work ahead of schedule, a week before the end of June deadline. Glimpse Ltd then refused the pay the additional sums agreed. Required: Advise G-Force Ltd and HandlesRUs Ltd if they have any rights to enforce the promise by Glimpse Ltd to pay them the additional amounts. (10 marks)

Interim Assessment


QUESTION 10 Tom had in the past been employed as a technician by a television production company. He decided to work for himself and offered his services to a number of production companies. The contracts he obtained never lasted for more than 10 days and on one or two occasions he sent a substitute when he was unable to attend personally. Tom submitted invoices, which were paid in full without deduction of tax. He was registered for VAT and had the responsibility of dealing with his own accounts and chasing slow payers. Tom provided no tools of his own, contributed no money to the cost of productions and the companies which employed him determined the time, place and duration of any assignment. Required: Explain whether Tom is an employee or an independent contractor. (10 marks)

Interim Assessment


ACCA

Paper F4 (ENG)

Corporate and Business Law June 2009

Interim Assessment – Answers

To gain maximum benefit, do not refer to these answers until you have completed the progress test questions and submitted them for marking.



© Kaplan Financial Limited, 2009 All rights reserved. No part of this examination may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without prior permission from Kaplan Publishing.

Interim Assessment


ANSWER 1

Tutorial help and key points: Part (a) Candidates are required to explain the three different types of delegated legislation which are: • Statutory Instruments • Bye – Laws • Orders in Council Part (b) Advantages • Saves Parliamentary time • Allows technical expertise to be used • Flexible Disadvantages • Excessive legislation and lack of publicity • Undemocratic

Marks allocated

Part (a) Delegated legislation is made under the authority of Parliament and can be passed by various parties as follows: Ministers of the Crown: can pass Statutory Instruments under the terms granted by an Act of Parliament. Statutory Instruments are often used to 'fill in the blanks' left by an outdated or incomplete Act of Parliament, or to amend as necessary the provisions of an Act of Parliament or previous Statutory Instrument. For example, the Misuse of Drugs Act 1971 defines the various categories of controlled substances, which have been amended since the Act received Royal Assent by Statutory Instrument. Local Authorities: are authorised to make bye-laws which apply within their local area. For example, various town and district councils have used bye-laws to prohibit the drinking of alcohol in public places. Privy Council: constitutionally, Orders-in-Council are made by the Privy Council in the name of the Monarch, but effectively are made on the advice of the Prime Minister. Orders-in-Council often relate to administrative matters, such as the transfer of responsibilities between government departments, or the regulation of professional bodies.

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Marks allocated

Part (b) Advantages Delegated legislation is much quicker to enact than primary legislation – which must proceed through various readings in both Houses and committee stages – and so relieves pressure on Parliamentary time. Those responsible for enacting delegated legislation can often quickly access relevant technical expertise – leaving Parliament to consider the broader principles at stake. Delegated legislation is more flexible – it is quick and simple to introduce and to subsequently amend. Disadvantages The volume of delegated legislation introduced far exceeds primary legislation. Coupled with its lack of publicity, it is difficult for the public to keep up with the changes delegated legislation introduces. Delegated legislation could be considered undemocratic as it is made without the consideration of the elected House of Commons.

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ANSWER 2

Tutorial help and key points: Give an introductory sentence, explaining the need for interpreting ambiguous or badly written words in statutes. There are three main rules: • Literal • Golden • Mischief Explain and give one case – law example. Explain 'eiusdem generis' for a complete answer.

Marks allocated

Judges use the following rules to interpret or assign meaning to ambiguous or unclear words or phrases in legislation:

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Interim Assessment


(i) The literal rule

This rule is applied by giving the words of a statute their ordinary and grammatical meaning. This strict and narrow interpretation can lead to unintended results, as in Fisher v Bell, where a shop assistant could not be prosecuted under the Offensive Weapons Act 1959 as a flick knife displayed in the shop window was technically an 'invitation to treat' rather than an 'offer for sale' as specified by the legislation.

(ii) The golden rule

This rule is used where the literal rule gives more than one meaning or leads to an absurd result. The interpretation used is that which leads to the least absurd result as in the case of Re Sigsworth. Here, a man had murdered his mother, and the word 'heir' was interpreted to mean 'rightful heir' so he could not profit from his crime.

(iii) The mischief rule

The court will take the meaning most likely to give effect to the intention of Parliament, in other words to remedy the 'mischief' or the wrongful act the statute was enacted to prevent. In Gorris v Scott where sheep were washed overboard from a ship, the claimant's case failed on the basis that the requirement to pen the animals under an 1869 statute was to prevent the spread of disease, not to prevent animals being lost at sea.

(iv) The eiusdem generis rule

This rule is that, where legislation uses a list of specific words followed by general words, the general words must be interpreted in the same way as the preceding specific words. In Powell v Kempton Park Racecourse Co, 'house, office, room or other place' was interpreted by the House of Lords to be indoor places, such that a racecourse was not included within the Betting Act 1953 and gambling was not prohibited there.

Marks allocated

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ANSWER 3

Tutorial help and key points: Give an opening sentence on the requirements for a valid contract to exist, namely: • Offer and acceptance • Consideration • Intention to create legal relations Then deal separately with: • Domestic/social arrangements • Commercial arrangements There is useful case law here to which you should refer in order to support the key points.

Marks allocated

For any agreement to be legally enforceable, there must be an offer and acceptance, consideration and intention to create legal relations. The latter point is often not specifically contemplated by the parties at the time of an agreement, so there is an objective test where the court will apply different presumptions depending on the context of the agreement. These presumptions are, broadly, that in domestic or social agreements there is a presumption that the arrangements are not intended to be legally binding, whereas in commercial agreement it is (strongly) presumed that they are. In both cases these presumptions can be rebutted – a court may decide against a presumption after considering the words used and surrounding facts. Domestic arrangements The basic presumption is illustrated in Balfour v Balfour, where a promise by the defendant to pay his wife a certain sum while he was abroad was not legally binding; as a domestic agreement it was presumed the parties did not intend to be legally bound. However, in Simpkins v Pays, the presumption was rebutted where Pays, her granddaughter and a paying lodger entered a competition jointly in Pays' name but intending to share prize money and, when they won, the court held it was a legally enforceable joint enterprise.

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Interim Assessment


Marks allocated

Commercial agreements The courts here are reluctant to rebut the presumption of an intention to enter into binding legal relations. So-called 'honour' agreements can rebut the presumption. In Jones v Vernon’s Pools it was stated in the football coupon signed by the claimant that the agreement was to be ‘binding in honour only’. The court held that this was sufficient to rebut the presumption that the agreement was legally binding. The case of Carhill v Carbolic Smoke Ball Co (1893) may have been decided differently had the defendant company not deposited £1,000 in a deposit account to back up their claims.

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Max 10

ANSWER 4

Tutorial help and key points: Part (a) This question requires candidates to explain the difference between liquidated damage clauses and penalty clauses. Part (b) This question requires candidates to explain the two parts to the remoteness of loss principle which is used to decide for what losses damages are payable.

Marks allocated

Part (a) Damages are a common law remedy available as of right for breach of contract under English law. This means that where there is a breach of contract, the innocent party is entitled to damages. They are intended to be compensatory – i.e. the level of damages should be the amount which will put the claimant in the position he would have been had the contract been properly performed. A liquidated damage clause is inserted into the contract by the parties themselves. The amount specified is a genuine attempt to pre-estimate the loss that will be suffered in the event of a breach of contract. This clause is valid and enforceable even if the actual loss suffered is greater or less than the amount specified.

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Marks allocated

A penalty clause is inserted into the contract by the parties. The amount specified is an amount of damages at such an excessive level which is intended to punish the defendant for the breach. An attempt to set a level of punitive damages for breach under a term of a contract will thus be unenforceable. A clause will be considered a penalty clause if: • the stipulated sum is extravagant in comparison with the maximum

loss that could be incurred; • the same sum is payable in respect of one or more breaches, both

trifling and serious; or • the sum stipulated is larger than the amount which would actually have

been payable had the contract been performed. Part (b) Damages cannot be recovered for all losses suffered – some losses are considered to remote. A loss is not too remote if: • it arises naturally from the breach; or • it may reasonably be supposed to be within the contemplation of the

parties, at the time they made the contract, as a probable result of the breach.

Two cases illustrate the law: In Hadley v Baxendale, the defendant delayed transporting a mill shaft for repair. The claimant suffered a loss through inactivity. The court held that the defendant was not liable for damages, as the loss did not flow naturally from the breach and was not contemplated by both parties when the contract was made. In Victoria Laundry (Windsor) v Newman Industries, a delay in the delivery of a boiler caused the loss of a normal trading profit, plus an extra profit on the loss of a government contract. The court held that the plaintiff could recover damages for the first loss, but not the second, as it was unknown to the defendant – it was too remote.

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Interim Assessment


ANSWER 5

Tutorial help and key points: With any legal 'jargon' it is helpful to start with a definition of terms, so explain what is meant by negligence. It arises under the law of tort. The three factors are: (1) duty of care; (2) breach of that duty; and (3) resultant loss. Each of these points needs to be illustrated with relevant case law. (Note: Case names are not essential. The key point is to relate a brief summary of the facts to the point of law decided. Avoid too much detail because of time pressure; only enough is needed to demonstrate a grasp of the principles. More detail is given here for the sake of completeness.)

Marks allocated

Negligence arises under the law of tort, where a breach of duty or right under civil law gives rise to a claim for damages. Tort is distinct from the law of contract; no contractual relationship is needed between the parties, although there may also be a contract. Negligence is the breach of a duty of care, resulting in damage to another party. The three requirements needed to establish an action for negligence are that: (1) there is a duty of care; (2) duty is breached; and (3) the breach results in a loss. Each aspect will be considered in turn. Duty of care The duty of care owed to others who could reasonably be seen to be harmed by an act or omission (the 'neighbour' principle) was established in the landmark case of Donoghue v Stevenson. Here, a manufacturer was held to be liable to take reasonable care in the manufacture of its products to prevent injury, in this case by the remains of a snail in a bottle of ginger beer. This was despite no contractual relationship existing and when the identity of the consumer was not known to the defendant.

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Marks allocated

For a duty of care to arise, a claimant must be 'sufficiently proximate', i.e. close enough for a reasonable man to be affected by a lack of care on the part of the defendant. In the case of Anns v London Borough of Merton the duty of care was established by a two-stage test. (i) Is there sufficient proximity, such that carelessness might be likely to

cause damage to the claimant? (ii) If so, are there any factors which could negate or reduce that duty, or

the damages to which the breach may lead? Breach of the duty of care Once a duty of care is established, it must be shown that the defendant failed to take 'reasonable care', i.e. the care that a reasonable 'man in the street' would have taken in the circumstances. Case law shows that, whilst no particular skill level is required, if the defendant purports to act in an expert or skilled way, he must show the care and skill of an ordinary person doing that job (Greaves and Co (Contractors) Ltd v Beynham Meikle and Partners). So, a learner driver in a collision was expected to have the level of skill of a reasonable driver, not of a reasonable learner driver (Nettleship v Western). In the case of JEB Fastners Ltd v Marks Bloom and Co (A Firm), a firm of accountants was found to be negligent regarding a number of accounting errors, including understated expenses, sales omitted and overvalued stock. The firm was held to be in breach of the required standard of care as they had failed to follow normal accountancy practices. Resulting damage A causal link between the defendant's lack of care and the loss must exist. If a claimant would have suffered loss irrespective of the defendant's negligence, then he is not liable for that loss. In the case of JEB Fastners discussed above, the claimants failed in their action for negligence because, whilst it was likely that a company interested in taking over XCo were more than likely to rely on audited accounts, in fact it was shown that the primary motive for the takeover was not as a result of the accounts but to engage the services of two of XCo's directors.

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Interim Assessment


ANSWER 6

Tutorial help and key points: Part (a) The overall general point to make is that these are contractual duties and this means that an employee in breach may be sued for damages and/or if the breach is serious he may be summarily dismissed. You should then go on to state and, at least briefly, explain the duties. Part (b) (1) General principle

An employee who has resigned cannot claim wrongful dismissal, unfair dismissal or redundancy. But he can if the resignation amounts to constructive dismissal.

(2) Definition of constructive dismissal

Your definition here must be accurate in legal terms to merit marks. An answer in layman's terms (e.g. ‘the employer forced the employee to resign’, or ‘the employer made the employee's life impossible’) will not do.

(3) Example

One example, fully and properly explained, will suffice. Candidates commonly waste time by producing many examples – each succeeding one being more imaginatively lurid than the previous. Resist the temptation!

Marks allocated

Part (a) Common law duties of employees If an employee is in breach of an implied term (or indeed express term) the employer may sue him for damages to recover any loss. If the breach is serious the employer may terminate the contract without notice (i.e. dismiss the employee summarily). (1) Personal service

This means that the employee must not delegate the performance of his job (unless the employer expressly or impliedly gives permission).

(2) Reasonable care and skill The employee must act with reasonable care in performing his duties. The standard of care will depend on the circumstances. An isolated act of negligence will not justify summary dismissal unless it amounts to gross negligence – Lister v Romford Ice.

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(3) Obedience The employee has a duty to obey orders – Pepper v Webb – provided the order is both lawful and reasonable. An order is unlawful not only where the carrying out of it would result in a criminal offence but also if it is outside the terms of the contract. What is a reasonable order will depend on the circumstances.

(4) Fidelity This is a duty of good faith and encompasses:

• a duty not to profit or benefit from the employment – Sinclair v Neighbour;

• a duty not to compete with the employer; • a duty not to disclose confidential information or to use it for

personal benefit. (5) Mutual co-operation

This means that the employee must perform the work in a reasonable manner. This is a wide and flexible duty and can encompass matters such as appropriate dress at work, use of appropriate language at work and 'go-slows' (the latter as in Secretary of State for Employment v ASLEF).

Part (b) Constructive dismissal In general an employee cannot bring an action for wrongful dismissal or for unfair dismissal or for a redundancy payment when he has resigned: only when he has been dismissed by his employer. The concept of constructive dismissal is a modification of this general position. Constructive dismissal occurs when the employer, without terminating the contract as such, commits a serious breach of contract such that the employee is entitled to treat the contract as at an end – Western Excavating v Sharp. 'Serious' breach encompasses not only a single gross breach but also a number of minor breaches which added together amount, in effect, to repudiation of the contract by the employer. If the employee does resign because of the serious breach, he has been constructively dismissed. An example of constructive dismissal arose in Donovan v Invicta Airways. The employer put pressure on the employee, a test pilot, to take abnormal risks on a flight. The employer did this three times in rapid succession. Each time the employee refused. Relations with management deteriorated and he left. It was held that the employer had committed a serious breach of contract in unlawfully and unreasonably ordering the employee to do tasks which were not only highly dangerous but were also outside the scope of his contract of employment. These serious breaches justified the employee in resigning. He was therefore successful in his action for damages against his employer for wrongful dismissal.

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Interim Assessment


ANSWER 7

Tutorial help and key points: As always, define terms at the outset, i.e. explain 'agency'. There are five ways in which an agency relationship can be created, as follows: • By express agreement • By implied agreement • By ratification • By necessity • By 'estoppel' Explain each point briefly and illustrate with case law for full marks.

Marks allocated

Introduction An ‘agent’ is a person authorised to act for another (the 'principal') in the making of legal relations with third parties. In this way, a director acts as agent for his company, and a partner acts as agent for his partnership. If they act within the scope of their agency authority, agents may enter into valid contracts that are binding on the principal. An agency relationship may arise in one of five ways: By express agreement This is where the principal actually appoints another as his agent, orally or in writing, usually to perform a specific task or general duties and usually in return for payment. By implied agreement This arises from a relationship existing between the principal and agent, where it is assumed that the principal has given the agent authority to enter into binding contracts on their behalf. This might be in an employee/employer relationship, where the extent of the implied agency will depend on the position that the employee holds. By ratification If an agent exceeds his actual or apparent authority, the principal may ratify or confirm the contract, whereupon the principal will be bound retrospectively from the date the contract was originally made.

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The conditions for ratification are that the principal: (i) had contractual capacity; (ii) was in existence both at the date the contract was entered into and at

the date of ratification (Kelner v Baxter); (iii) was identified at the time of the contract; (iv) was aware of the material facts; and (v) stated his intention to ratify within a reasonable time. By necessity Agency by necessity arises where: (i) there is a pre-existing relationship between the parties; (ii) an emergency arises; (iii) it is impossible for the agent to contact the principal; and (iv) the agent is acting in the principal's best interests. The classic case here is that of Great Northern Railway v Swaffield (1874). Here, GNR was entitled to the costs of stabling a horse overnight where the defendant had failed to pick up the horse that GNR had contracted to transport, as GNR had become an agent by necessity. By estoppel This arises where the principal holds out, by words or by conduct, another as having the authority to enter into contracts on his behalf. He is then prevented or 'estopped' from denying that the person is so authorised. This is also known as 'apparent' or 'ostensible' authority. An example is Freeman and Lockyer v Buckhurst Park Properties Ltd, where a director acted as managing director and then the company tried to deny his authority after a number of contracts with the claimant company, but were prevented from doing so as the claimants had relied on the director continuing to have authority to bind the company.

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Interim Assessment


ANSWER 8

Tutorial help and key points: This scenario is examining the essential elements of a contract which are: • Offer and acceptance • Consideration and • Intention to create legal relations This situation is concerned with a unilateral contract and candidates are required to explain whether there is a legally binding contract between the parties or whether Adam’s attempt to revoke the offer is successful.

Marks allocated

Offer An offer is an unequivocal statement of a willingness to bound on specified terms without further negotiations. An offer may, through acceptance by the offeree, result in a legally enforceable contract. It is important, therefore, to distinguish what the law will treat as an offer from other statements which will not form the basis of an enforceable contract. It is also essential to distinguish genuine offers from the following: a mere supply of information (Harvey v Facey); and an invitation to treat (Partridge v Crittenden). An offer may be made to the world at large, in which circumstances it can be accepted by anyone (Carlill v Carbolic Smoke Ball Co). Acceptance of offers Acceptance is the unconditional and unqualified assent to all the terms of the contract. It is necessary for the formation of a contract. Once the offeree has assented to the terms offered, a contract comes into effect. Acceptance does not have to be in the form of express words, as it may be implied from conduct Although a person cannot accept an offer that he does not know about, his motive for accepting is not important as long as he knows about the offer. Generally acceptance must be communicated to the offeror. However, acceptance need not be communicated in relation to unilateral contracts where performance is the nature of the acceptance, and where the offeror is assumed to have waived the right to receive communication (Carlill v Carbolic Smoke Ball Co). Revocation An offer may be revoked at any time before acceptance and once revoked it is no longer open to the offeree to accept the original offer (Routledge v Grant). In relation to unilateral contracts, however, revocation is not possible once the offeree has started performing the task requested (Errington v Errington).

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Marks allocated

Consideration A simple contract must be supported by consideration. Consideration can be understood as the price paid for a promise (Dunlop v Selfridge). If, however, the promisee acts to his detriment, it is immaterial that the promisee's action does not directly benefit the promisor. In the case of unilateral contracts, where the offeror promises something in return for the offeree doing something, the promise only becomes enforceable when the offeree has actually performed the required act. Intention to create legal relations 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 test, rather than a subjective, one. In domestic and social agreements there is a rebuttable presumption that the parties do not intend to create legal relations. Conclusion Applying the foregoing to the facts of the scenario it would appear that Adam made a unilateral offer to the world at large. Although Ben was not with Adam's group, the offer was made to 'anyone' and therefore open to Ben to accept it by performing the required act. He did not have to inform Adam that he was accepting the offer; he simply had to perform the act. Any doubt about Adam's intention to create legal relations may be rebutted by the fact that he placed the money on the table, thus indicating the seriousness of his offer. The fact that Ben only swam across the harbour in order to rescue the child is immaterial. As for Adam's attempt to revoke his offer, it would be ineffective once Ben had started to perform the required task (Errington v Errington). His attempt to revoke the offer would actually indicate the seriousness of the original offer. It would therefore appear that Ben could claim the £100 from Adam.

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Interim Assessment


ANSWER 9

Tutorial help and key points: Always define 'consideration' at the outset (Currie v Misa). This question is about whether consideration is 'sufficient'. In general, performance of an existing duty will not suffice but there are three key cases to discuss: • Stilk v Myrick; • Hartley v Ponsonby; • Williams v Roffey Bros. For the rule in Williams to apply there must be a benefit to the promisor, over and above what is in the contract originally, and no pressure must be applied.

Marks allocated

The issue here is one of consideration, defined as 'some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other' (Currie v Misa). The general rule is that performance of an existing duty is not enough to amount to consideration. In Stilk v Myrick, two sailors deserted from a ship and the captain promised the remaining crew members that he would divide their wages among the remaining crew when they landed. When they arrived home the captain refused to pay them and it was held that, as the sailors had done no more than they were obliged to do under the terms of their contracts, they could not enforce the captain's promise. Stilk v Myrick needs to be contrasted, though, with the similar facts in Hartley v Ponsonby. Here, sailors were also promised additional pay after some members of the crew had deserted, but they were held to be entitled to enforce the payment as the work was considered unduly hazardous with so few left on board to work the ship and they had exceeded their existing contractual duty. More recent case law, that of Williams v Roffey Bros, suggests that even performance of an existing duty may suffice if this confers some practical benefit on the promisor. Here, Roffey Bros had contracted to renovate a block of flats, subcontracting carpentry work to Williams for a fixed fee. It transpired that Williams had under-estimated the work and would not finish in time. Roffey Bros approached Williams and offered more money to complete as agreed. Williams did complete the work, but then Roffey Bros refused to pay the extra monies. The Court of Appeal held that Williams was entitled to be paid the additional sum as Roffey Bros had enjoyed the practical benefit of avoiding a late completion penalty and would not require other carpenters to complete the work. This case seems to significantly undermine the whole basis of the harsh decision in Stilk v Myrick, but it should be noted that of crucial importance was the fact that Williams had put no pressure on Roffey Bros to offer the extra sum.

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Marks allocated

G-Force Ltd Applying these cases to the facts given, it is clear that G-Force Ltd has merely performed an existing contractual obligation by supplying the glass on time. Whilst there is arguably a benefit to Glimpse Ltd in that it avoided a possible penalty payment of £2,000 per day, G-Force Ltd has applied pressure by refusing to supply the glass on time without more money. Here, the case of Stilk v Myrick will still apply and G-Force Ltd cannot sue Glimpse Ltd to enforce payment of the extra £3,000. HandlesRUs Ltd It seems that HandlesRUs Ltd will be able to enforce the promise of the extra payment, as Glimpse Ltd approached the company to produce the fittings and handles before the contractual deadline, and this is clearly over and above what was specified in the original contract. This would amount to sufficient consideration to support a new promise. HandlesRUs Ltd would therefore come within Hartley v Ponsonby and so can claim the additional £500.

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ANSWER 10

Tutorial help and key points: Candidates must explain the three tests that are used to decide whether a worker is an employee or an independent contractor which are:

• Control • Integration • Economic reality

The economic reality test should be applied and it is likely that Tom will be an independent contractor.

Marks allocated

The courts have developed a number of tests that can be used to decide whether a person is an employee or an independent contractor. The control test This was the first developed by the courts. It states that if an employer controls not only where and when the work is to be done but also how it is to be done, the person doing the work is an employee. This test works well where a person is doing very basic and routine tasks in the company, for example, working on a production line in a factory. However it is not helpful where the person doing the work is a skilled professional, where the person is using his skill and expertise in deciding how to carry out his work.

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Interim Assessment


Marks allocated

The integration test This test shifts the emphasis from the degree of control exercised to the extent to which the individual is integrated into the business. In Cassidy v Minister of Health, the work of a surgeon was held to be integrated into the running of the hospital because he was involved in all aspects of patient care and not merely an accessory it and therefore he was an employee and not an independent contractor. This test is not without its difficulties and so the courts developed the next test. The economic reality test Rather rely on one single factor, this test lays down a number of factors that can be used to make an assessment of each particular circumstance. The courts are not bound by how the parties describe the relationship. It is immaterial whether a person is described as self-employed. This test is also called the multiple test and was set out in the case of Ready Mixed Concrete v Minister of Pensions. The factors are as follows: (1) Control. (2) Provision of his own equipment.

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(3) Whether he hires his own helpers. (4) Degree of financial risk he undertakes. (5) Degree of responsibility he bears for investment and management. (6) How far he has an opportunity of profiting from sound management in

the performance of his task. (7) Whether there is a regular method of payment. (8) Whether the person works regular hours. (9) Whether there is mutuality of obligations. It would appear that although employers determine the time, place and duration of appointment and that Tom did not provide any tools or bear any financial risk, it is likely that he is an independent contractor. This is because he works for a number of different employers for varying amounts of time, he can send a substitute and he is responsible for managing the business.

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Documents

F4 - Interim