Final Assessment
ACCA FINAL ASSESSMENT
Corporate and Business Law
JUNE 2009
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
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ACCA F4 (ENG) Corporate and Business Law
Kaplan Financial Limited, 2008
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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.
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Final Assessment
Answer ALL questionsQUESTION 1Explain briefly: (a) (b) the
doctrine of judicial precedent; and the circumstances when a
precedent will not be binding. (5 marks) (5 marks) (Total: 10
marks)
QUESTION 2Explain the remedies available for breach of contract.
(10 marks)
QUESTION 3(a) (b) What is a companys share capital? Explain the
meaning of the following: (i) (ii) issued capital; paid up capital.
(3 marks) (3 marks) (Total: 10 marks) (4 marks)
QUESTION 4(a) (b) Distinguish between executory, executed and
past consideration. (5 marks)
Explain the principle that performance of an existing duty is
not sufficient to amount to consideration. (5 marks) (Total: 10
marks)
QUESTION 5(a) Explain the meaning of corporate governance and
what it covers in relation to companies. (4 marks) Explain the
meaning of a principlesbased approach to corporate governance and
the advantages and disadvantages of such an approach as opposed to
a rules-based approach. (6 marks) (Total: 10 marks)
(b)
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ACCA F4 (ENG) Corporate and Business Law
QUESTION 6(a) (b) Describe the circumstances in which a
partnership may be dissolved. (7 marks)
Briefly summarise the differences between a partnership governed
by the Partnership Act 1890 and a Limited Liability Partnership
(LLP). (3 marks) (Total: 10 marks)
QUESTION 7(a) Explain what is meant by the following in company
law: (i) (ii) (b) a promoter; a pre-incorporation contract. (3
marks) (3 marks) (4 marks) (Total: 10 marks)
What is the liability of a promoter on a pre-incorporation
contract?
QUESTION 8Info Ltd is a small company that specialises in
selling computer hardware and software to accountancy firms. It
advertised in a specialist accounting journal as follows: Clearance
sale: Limited number of Super 6686 Computers for only 1,000 each!
Will be sold to the first 20 customers to send an order and cheque
for the full amount. Alan, an accountant, reads the advertisement
on Wednesday, the day of publication of the journal. He immediately
posts an order including his cheque to Info Ltd. By 8 am on
Thursday morning he has changed his mind and he sends a fax to Info
Ltd cancelling his order and requesting the return of his cheque.
His posted letter arrives one hour later. Info Ltd subsequently
cashes Alan's cheque, claiming that it has a binding contract with
him, and refuses to return the money. Required: Advise Info Ltd
whether it has contractual rights against Alan. (12 marks)
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Final Assessment
QUESTION 9Raymond is a director of Atkinson Ltd, a soft drink
company. In January, Raymond paid a visit to Charles who is the
chief executive of Carbon Cans Ltd, a company that manufactures
drinks cans and bottles aimed at the beer market. During a round of
golf, Charles informs Raymond that he has patented an ingenious
design for a beer can which can keep beer at the correct
temperature. Charles asks Raymond whether his company would be
interested in licensing the product. In March, the board of
directors of Atkinson decides that the company will enter into the
beer market. In April, Raymond resigns as director and assumes the
position of director of a rival company, and one of his first
actions as director is to adopt the Carbon Cans license as proposed
by Charles. Raymonds new company is making a roaring trade selling
quality beer which remains fresh and cooler far longer than its
competitors. Required: Explain the nature of the duties that a
director owes to his company and whether Raymond is liable to
account to Atkinson for the profit made. (10 marks)
QUESTION 10Samson is a partner in a firm of solicitors and is
representing his client Timothy in the purchase of an apartment for
250,000. Timothy is financing this purchase with a 180,000 mortgage
loan from a building society and the remaining sum from his own
savings. However, he only has a total of 20,000 in his savings
account and does not own any other assets such as shares. On a
recent visit to see Samson, Timothy seemed very anxious and was
very concerned that he had absolutely no money left to cover the
outstanding balance. Two days later Timothy returned to Samson's
office with 50,000 in cash and told Samson, 'this should settle
it'. Samson is concerned about how quickly Timothy has been able to
obtain the money to cover the transaction and he is uncertain about
how to proceed. Required: Advise Samson what he must and must not
do to avoid liability for Money Laundering under the Proceeds of
Crime Act 2002. (10 marks)
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Final Assessment
ACCA Paper F4 (ENG) Corporate and Business Law June 2009
Final Assessment Answers
To gain maximum benefit, do not refer to these answers until you
have completed the final assessment questions and submitted them
for marking.
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ACCA F4 (ENG) Corporate and Business Law
Kaplan Financial Limited, 2008
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.
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Final Assessment
ANSWER 1Tutorial help and key points: The key word here is
'briefly', so detail can be limited. In (a), the main points are
the three factors: hierarchy, material facts, 'ratio' not 'obiter'
statements. In (b), there are five exceptions to the doctrine of
precedent. Marks (a) The UK courts are generally bound by their
earlier decisions, based on the following three principles: (i) The
hierarchy of the courts. As a general rule, higher courts bind
lower courts in this (descending) order: ECJ, House of Lords, Court
of Appeal, High Court. Decisions are binding where the important or
'material' facts are the same. Only the 'ratio decidendi' aspect of
a ruling (literally the 'reason for the decision') forms the
binding part of a decision. This is the principle of LAW (not
facts) on which the decision was based. (An example would be the
principle of the duty of care owed by a manufacturer to a consumer
established in Donoghue v Stevenson (1932), not the fact that the
consumer ate the partially decomposing remains of a snail.) Other
statements made 'obita dicta' (literally 'other things that were
said') are merely persuasive, not binding. A judge in a later case
can choose to follow it but is not bound to do so. The purpose of
the doctrine of judicial precedent is to provide clarity and
consistency in the law, yet retaining flexibility should the law
need to be changed. (b) A precedent is not considered binding in
circumstances where: (i) (ii) (iii) (iv) (v) it has been overruled
by a higher court; the material facts differ from those of the
earlier case, so it may be 'distinguished on the facts'; it has
been overruled by statute; it was made per incuriam ('through lack
of care'); or where the ratio was obscure or ambiguous, such as
where judges sitting on appeal (between three and five in each
case) reach the same conclusion but for different reasons, so that
in effect there are several 'ratios'. [1 mark per point] [Total
max: 10 marks]
[12]
(ii)
[1]
(iii)
[12]
[12]
[1]
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ACCA F4 (ENG) Corporate and Business Law
ANSWER 2Tutorial help and key points: This question is a
difficult one. As there is potentially so much information that you
could give, you can easily be tempted into overrunning your time. A
very important point of exam technique is that, once you've earned
the marks allocated, you must stop writing and go on to the next
question. Remember, the marker cannot give you more than the
maximum marks allocated. Perhaps the best approach to this question
is to plan to write out the key matters concerning the three major
remedies (damages, specific performance and injunction) and only to
mention others such as action for the price and quantum meruit. Key
points for damages: Common law remedy. Remoteness rule in Hadley v
Baxendale. Quantum compensatory, i.e. to put the innocent party in
the same position that he would have been in had the contract been
properly performed.
Key points for specific performance: Court order requiring
performance of a positive contractual obligation. An equitable
remedy, therefore given at the discretion of the court. Just three
examples of the guidelines (you must include the 'only where
damages would be inadequate' one because it is the most
important).
Key points for injunction: Court order requiring performance of
a negative obligation. An equitable remedy, therefore given at the
discretion of the court in much the same way as specific
performance. Marks Remedies for breach of contract include the
following. Damages Damages is the major common law remedy for
breach of contract and is therefore available as of right. The aim
of awarding damages is to compensate the injured party, not to
punish the contract-breaker. When the courts are assessing
unliquidated damages there are two issues: remoteness and measure.
(i) Remoteness assesses what losses may be claimed for. In
principle, damages can be claimed for financial loss, property
damage, and personal injury but not for mental distress or loss of
enjoyment unless the contract is selling enjoyment Jarvis v Swan
Tours.
[12]
[12]
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Final Assessment Marks Not every loss is recoverable though:
some losses are too remote. The basic rule, stated in Hadley v
Baxendale, is that the defendant is liable for losses: (1) arising
naturally, i.e. according to the usual course of things, from the
breach; or such as may reasonably be supposed to be within the
contemplation of the parties, at the time they made the contract,
as the probable result of the breach.
(2)
[13]
(ii)
Measure (or quantum) deals with assessing the monetary amount of
the loss. This is the amount required to put the innocent party
into the same financial position he would have been in had the
contract been performed properly. The most common basis of this is
the 'bargain loss' basis of assessment as in, for example, Victoria
Laundry v Newman Industries, where the claim was for loss of
profit. Sometimes a claimant may instead prefer to base his claim
on the 'reliance loss' basis and thereby recover expenses incurred
in anticipation of performance and wasted as a result of the breach
Anglia Television v Reed.
[12]
If a contract includes a provision that, on a breach of
contract, damages of a certain amount or calculable at a certain
rate will be payable, the courts will accept the relevant figure as
the measure of damages, provided it was a genuine pre-estimate of
the expected loss. Such clauses are called liquidated damages
clauses. Action for the price This is the remedy sought where the
breach of contract is failure to pay the price. In general such an
action may only be brought once the claimant has completely and
precisely performed his part of the contract.
[12]
[12]
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ACCA F4 (ENG) Corporate and Business Law Marks Specific
performance This is an order of the court requiring performance of
a positive contractual obligation. Being an equitable remedy, it is
given at the discretion of the court. The following are the main
guidelines: It is only given where damages would be inadequate.
This will often be the case in contracts for the sale of land and
other unique items. It is not given where the order would cause
undue hardship. It is not given where an order of specific
performance would be possible against one party to the contract,
but not the other. It is not given where the contract is of such a
nature that constant supervision by the court would be required. It
is not given where the party seeking the order has acted unfairly
or unconscionably. He is barred by the maxim He who comes to Equity
must come with clean hands. Where the order is not sought promptly
the claimant will be barred by the maxim Delay defeats the
Equities. [13]
[1]
Injunction An injunction is an order of the court requiring a
person to perform a negative obligation. Like specific performance
it is an equitable remedy and the court exercises its discretion
according to the same principles as with specific performance.
Unlike specific performance, however, an injunction will be given
of a contract of personal service unless this is tantamount to
specific performance. Quantum meruit This is normally a
'quasi-contractual' claim in that it arises when a contract either
ceases to exist or perhaps never existed but the situation is 'as
if' a contract existed, in which case the court will order the
payment of a quantum meruit a merited amount.
[1]
[12]
[12]
[Total max: 10 marks]
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Final Assessment
ANSWER 3Marks (a) Share capital A share has been defined as the
interest of the shareholder in the company measured by a sum of
money, for the purposes of liability in the first place and of
interest in the second, but also consisting of a series of mutual
covenants entered into by all the shareholders (Borlands Trustees v
Steel (1901)). On the basis of this definition it may be taken
that: (i) the nominal value of the share normally fixes the amount
which the shareholder is required to contribute to the assets of
the company; the share represents a proportionate interest in the
business. This right is, however, no more than the contingent
rights to receive a dividend payment and attend and vote at general
meetings of the company.
[1]
[1]
(ii)
[1]
As has been seen above in considering separate personality, the
concrete capital assets of the business are the property of the
company and there is no direct link between the shareholder and
those assets. Shareholders merely have the right to participate in
the profit generated by concrete assets while the company continues
to operate and only has a claim against the assets when the company
is wound up.
[1] [Max 4]
(b)
Types of share capital The word capital is used in several
different ways in relation to shares: (i) Issued capital. This
represents the nominal value of the shares actually issued by the
company. It is more important than authorised capital as a true
measure of the substance of the company. If a company is willing to
pay the registration fee, it can register with an authorised
capital of 1 million, yet only actually issue two 1 shares. Public
companies must have a minimum issued capital of 50,000 (s118 CA
1985). Paid-up capital. This is the proportion of the nominal value
of the issued capital actually paid by the shareholder. It may be
the full nominal value, in which case it fulfils the shareholders
responsibility to outsiders; or it can be a mere part payment, in
which case the company has an outstanding claim against the
shareholder. Shares in public companies must be paid up to the
extent of at least a quarter of their nominal value (s101 CA
1985).
[3]
(ii)
[3] [Max 6]
[Total max: 10 marks]
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ACCA F4 (ENG) Corporate and Business Law
ANSWER 4Tutorial help and key points: Key points for part (a):
Definition of consideration. The answer guide gives the one from
Dunlop v Selfridge. The one from Currie v Misa would have been just
as good. In this question it would not have been worth giving both
because the mark allocation doesn't justify both. Executory = in
the form of a promise. Illustrative example. Executed = in the form
of an act. Illustrative example. Past consideration is no
consideration. Past = an act that has been wholly performed before
the other makes his promise. Illustrative example (i.e. facts of Re
McArdle).
Key points for part (b): Explanation of existing duty (under the
law/contract). The leading case of Stilk v Myrick is a must here.
The 3 modifications/exceptions. Even if you were not able to
remember all 3 you could be have gained a further mark for
explaining the relevant illustrative case for the one(s) you did
remember.
Marks (a) Consideration (i.e. payment) was defined in Dunlop v
Selfridge: 'one party's act or forbearance (promised or actual) is
the price of the other party's act or forbearance (promised or
actual)'. Consideration in the form of a promise, also called
executory consideration, is an undertaking to do something in the
future. For example, if today X and Y exchange promises that next
week X will deliver a car to Y and Y will then pay 50, their
promises today to do something next week constitute consideration
with the effect that the consideration exists from today.
Consideration which is actual, also called executed consideration,
arises where a promise is made in return for the performance of an
act. Until the act is done by the promisee he has not provided
consideration and therefore the other is not bound by his promise
until then. In Carlill v Carbolic Smoke Ball, for example, the
respondent promised a reward of 100 to any person who, having used
their smoke ball in the prescribed manner, caught influenza. Mrs
Carlill made no reciprocal promise so she was not bound to use the
smoke ball but as soon as she did use it she had provided
consideration for the respondents promise and both became bound. In
contrast to executed and executory consideration, past
consideration is no consideration.
[1]
[1 2]
[1 2]
[1]
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Final Assessment Marks Past consideration is an act that has
been wholly performed before the other party makes his promise.
Thus in Re McArdle a person who carried out repairs to a house was
unable to enforce the owners' subsequent promise of reimbursement.
There are exceptions to the rule that consideration must not be
past. For example, where the claimant performed the action at the
request of the defendant and payment was expected, then any
subsequent promise to pay will be enforceable Re Casey's
Patents.
[1 2]
[1 2] [Max 5]
(b)
As a general rule, performance of an existing duty, whether
imposed by the general law or by contract, is insufficient. Thus in
Stilk v Myrick some sailors who were under a contractual duty to
exert themselves to the utmost were unable to enforce the captain's
promise of extra wages if they worked the ship back home since they
had done no more than that which they were already contractually
obliged to do. Exceptionally: If a person does more than his
existing duty, the more will amount to sufficient consideration
Glasbrook Bros v Glamorgan. Recent case law, Williams v Roffey
Bros, has indicated that performance of an existing contractual
duty may be sufficient if this confers a practical benefit on the
other party. Performance of an existing contractual duty will be
sufficient to support a promise from a person to whom that existing
contractual duty was not owed Shadwell v Shadwell.
[1 2]
[1]
[1]
[1] [Max 5]
[Total max: 10 marks]
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ACCA F4 (ENG) Corporate and Business Law
ANSWER 5Answer guide and important points: Part (a) Candidates
are required to explain the meaning of corporate governance and
then state when it affects companies. Part (b) Pay attention to the
separate requirements of the question. Meaning Advantages
Disadvantages
Marks will be allocated to each part of the question.
Marks (a) Corporate governance is the system by which companies
are directed and controlled. It deals which such matters as how
power is divided between the board and the members, the
accountability of the board to its members and the rules and
procedures for making decisions. The Combined code on corporate
governance is a set of principles rather than rules. This means
that directors can describe in their own words the way in which
they have applied the principles of corporate governance to their
company. Advantages As the directors report on the actual situation
in their own company, the report should be more meaningful than one
based on specific rules which may have no relevance to that
company. A code of practice can be changed more easily than
legislation. This enables the combined code to be updated more
easily to respond to changing conditions and changing expectations
of members and others. A principles-based approach encourages the
directors to follow the spirit of the Code, whereas a rules-based
approach may result in a tick box mentality. This means that the
directors may follow the letter rather than the spirit of the
rules. [12] [13] [Max 4] (b) [12]
[12]
[12]
[12]
[Max 6] Disadvantages A principles-based approach may result in
general meaningless statements. It may be difficult for directors
to make sure that they have met the requirements of the Code. [12]
[12] [Max 6]
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Final Assessment
ANSWER 6Answer guide and important points: Part (a) Candidates
are required to give examples when partnership can be dissolved
automatically and by court order. Part (b) Candidates are required
to briefly summarise the most important differences between
partnerships and LLPs. Marks (a) Partnerships will automatically
come to an end in the following situations: the expiry of a fixed
term or the completion of a specific enterprise (as defined in a
Partnership Agreement); one of the partners give notice of his
intention to leave the partnership (unless that right is excluded
by the Partnership Agreement); the death of a partner; the
bankruptcy of a partner; or where continuation of the partnership
would be illegal. [1 mark allocated for each example given, up to a
max of 7 marks]
Under S35 of the Partnership Act 1890 a partnership can be
brought to an end by court order in the following situations: a
partner has a mental disorder or permanent incapacity; a partner
engages in activity prejudicial to the business; a partner wilfully
or persistently breaches the Partnership Agreement; a partner
conducts himself in such a way that it is no longer reasonably
practical for the other partners to carry on business with him; the
business can only be carried on at a loss; or in the opinion of the
court it is just and equitable to wind up the partnership.
(b)
The differences between a standard partnership and a Limited
Liability Partnership arise from the general principle that in
English law an LLP is treated in a similar way to a limited
company: The liability of members of an LLP is limited to the
capital they have agreed to contribute; whereas the liability of
partners in a standard partnership is unlimited. The LLP must file
annual accounts and an annual report with Companies House, unlike a
standard partnership. The LLP is an artificial legal entity in its
own right, much like a limited company: it can own property, enter
into contracts, sue and be sued, and create floating charges.
[1]
[12] [1] [13] [Max 3]
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ACCA F4 (ENG) Corporate and Business Law
ANSWER 7Answer guide and important points: Part (a) Candidates
are expected to explain the meaning of promoter and
pre-incorporation contracts. Part (b) Candidates are expected to
explain the legal effect of a pre-incorporation contract under S51
Companies Act 2006.
Marks (a) (i) There is no statutory definition of the term
promoter. However, in the case of Twycross v Grant, a promoter was
defined as a person who undertakes to form a company with reference
to a given project and to see it going and who takes the necessary
steps to accomplish that purpose. This means that the person who is
a promoter is a question of fact not of law. He is a person who
draws up the memorandum and the articles, including deciding on the
name of the company and the objects. He will invite persons to be
the companys directors and the company secretary. It is quite
common for a promoter to become one of the first directors of the
company. The promoter will file the necessary documents with the
registrar of companies to incorporate the company.
[13]
[1]
[1] [Max 3]
(ii)
A pre-incorporation is a contract which promoters enter into
naming the company as a party, prior to the date of incorporation
of the company. The difficulty in law is that a company cannot
enter into a binding contract until it has been incorporated, and
it is not generally bound by any contract made on its behalf before
the incorporation of the company. After incorporation it is not
possible for a company to ratify a pre-incorporation contract. In
Kelner v Baxter the promoters of a company bought goods from the
claimant on behalf of the company before it was incorporated. The
court held that the company could not ratify the contract after its
incorporation because it did not exist at the time the contract was
made.
[12]
[12]
[12]
[Max 3]
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Final Assessment
Marks (b) S51 CA 2006 states that a contract which purports to
be made by or on behalf of the company, has effect, at a time when
the company has not been incorporated, subject to any agreement to
the contrary, as one made by the person acting as the companys
agent and he is personally liable on the contract. In Phonogram v
Lane, the promoters proposed to set up a company called FM Ltd to
manage a pop group and L made a contract with P for and on behalf
of FM Ltd. FM was never incorporated but court held that L was
personally liable on the contract with L. The fact that L had
signed for and on behalf of LM made no difference to his personal
liability. A promoter can avoid liability in a number of ways. He
may wait until the company is incorporated before he enters into
the contract. Alternatively, he could make any agreement with a
third party subject to contract. This means that there is no
contract and therefore the promoter is not personally liable. The
company will then enter into a contract with the third party after
its incorporation.
[12]
[12]
[13]
[Max 4]
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ACCA F4 (ENG) Corporate and Business Law
ANSWER 8Tutorial help and key points: First, this part of the
question is examining your understanding of the difference between
invitations to treat and offers, and the general rule that
advertisements are invitations to treat but that so-called
'take-it-or-leave-it' adverts like in Carlill can exceptionally be
offers. Thus, your answer should have included: definition of
offer; definition of invitation to treat; usual position re adverts
and the exceptional position; application of the above to the
advert in the journal.
Secondly, this part of the question is examining your
understanding of acceptance. Thus, your answer should have
included: definition of acceptance; postal rule; contract comes
into being at the moment of acceptance; application to Alan's
posted letter and subsequent fax. Marks Info Ltd v Alan Info Ltd
will have contractual rights against Alan only if there is a
contract between them. The relevant essential element for the
existence of contract in this question is that of offer and
acceptance. The first issue is whether the advertisement for the
6686 machines is an offer, which is capable of acceptance, or
whether it is merely an invitation to treat, which is not capable
of acceptance. An offer is defined as a definite and unequivocal
statement of willingness to be bound by contract on specified terms
without further negotiations. An invitation to treat is often
described as the starting point in negotiations in that it is an
invitation to the other party to make an offer. The general rule is
that advertisements are regarded as invitations to treat and not
offers Partridge v Crittenden. This is because: further
negotiations are normally intended or expected; and where items are
for sale, an advertiser sometimes needs the ability to reject
offers to buy by customers. This can be important if he receives
offers in excess of the number of items that he has to sell and if
he receives offers from persons to whom he does not wish to supply
goods.
[1]
[1]
[1]
[1]
If neither of these two conditions is present, then an
advertisement can be an offer, for example in the 'reward' cases
such as Carlill v Carbolic Smoke Ball where no further negotiations
were either intended or expected.
[24]
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Final Assessment Marks There are a number of indications in the
6686 advertisement that could lead to a finding that it amounted to
an offer, not an invitation to treat: the words will be sold
indicate a definite willingness to be bound without further
negotiations; and the advertisement contains very specific terms;
and the words of the advertisement confine the total number of
possible acceptances to 20. [13]
On the assumption that the advertisement is an offer, the second
issue is whether Alan has accepted the offer. Acceptance is the
unconditional assent to all the terms of the offer. It may be oral,
in writing or by conduct. Alan, in posting an order together with
his cheque, has clearly accepted the offer. The general rule is
that acceptance is effective only when it has been communicated to
the offeror, in the sense of being received by the offeror Entores
v Miles Far Eastern. Exceptionally, if the postal rule applies,
acceptance by post is effective as soon as the letter, properly
stamped and addressed, is posted Adams v Lindsell. The postal rule
will apply only if it is reasonable to use the post as a means of
communication, i.e. the post is within the contemplation of the
parties. The terms of the advertisement appear to envisage the use
of the postal services and it therefore follows that Alan's
acceptance was complete when he posted his order and cheque on the
Wednesday. Since the contract came into being at that moment, his
later fax cancelling his order is a breach of contract.
[1] [1]
[23]
[12]
[1]
In conclusion, Info Ltd is advised that it has contractual
rights against Alan. [Total max: 12 marks]
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ACCA F4 (ENG) Corporate and Business Law
ANSWER 9Answer guide and important points: Candidates are
expected to explain the general nature of directors duties as set
out in CA 2006. The situation is similar to the case of IDC v
Cooley and applying the case, Raymond is liable to account to the
company for the profit made.
Marks CA 2006 sets out the duties that directors owe to the
company which are as follows: S171 states that directors must act
in accordance with the companys constitution and only exercise
powers for the purposes for which they are conferred. S172 stats
that directors must act in the way that they consider, in good
faith would be most likely to promote the success of the company
for the benefit of the members as a whole. In doing so they must
have regard to the interests of stakeholders and the community.
S173 states that directors must exercise independent judgment when
making decisions. S174 states that directors must exercise
reasonable care, skill and diligence when making decisions. S175
states that directors must avoid a situation in which he has or can
have a direct or indirect interest which conflicts with the
interests of the company. This applies to any exploitation of any
property, information or opportunity. Where a director makes such a
profit he is liable to account to the company for the profit made.
This comes from his position as a director. It is not a question of
whether the company has been damaged or suffered loss as a result
of the actions of a director. This can be illustrated by a number
of cases. In IDC v Cooley, C was the managing director of IDC and
in that capacity went to negotiate with the Gas Board about certain
work the Gas Board was putting out to tender. During the course of
the discussions it was made clear to C by the Gas Board that the
work would not be awarded to IDC itself. The Gas Board made it
clear that, if C set up his own operation and tendered for the
work, he was likely to be successful. He resigned from IDC for
health reasons and was then awarded the work personally. The court
held that he was liable to account to IDC for the profit made
because he had made the contact with the Gas Board as a director of
IDC. He was using corporate opportunity to make a personal profit
in breach of his fiduciary duty. S176 states that directors are
under a duty not to accept bribes from third parties.
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Final Assessment
Marks S177 states that directors are under a duty to disclose
any interest in any proposed transaction or arrangement between the
company and a third party. He must declare the nature and extent of
his interest to the other directors. It must be declared before the
company enters into the transaction. This situation is very similar
to the case of IDC v Cooley as explained above. Raymond has been
given this opportunity in his capacity as a director of Atkinson.
Therefore this corporate property belonging to Atkinson. This
profit has been made in breach of S175 above. Raymond will be
liable to account to the company for the profit made. [13]
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ACCA F4 (ENG) Corporate and Business Law
ANSWER 10Answer guide and important points: Money laundering is
governed by the Proceeds of Crime Act 2002. Three criminal
offences: Laundering. Failing to report. Tipping off.
Marks Money laundering is the process by which the proceeds of
crime are converted into assets that appear to have a legal rather
than an illegal source. The aim of disguising the source of the
property is to allow the holder to enjoy it free from suspicion as
to its source. Money laundering is primarily regulated by the
Proceeds of Crime Act 2002. The legislation imposes some important
obligations upon professionals, such as accountants, auditors and
legal advisers. These obligations require such professionals to
report money laundering to the authorities and to have systems in
place to train staff and keep records. Money laundering usually
comprises three distinct phases: placement the initial disposal of
the proceeds of criminal activity into an apparently legitimate
business activity or property; layering the transfer of money from
business to business, or place to place, in order to conceal its
initial source; integration the culmination of the previous
procedures through which the money takes on the appearance of
coming from a legitimate source. [12] [12] [12] [12]
[12]
The Proceeds of Crime Act 2002 created three categories of
criminal offence laundering, failure to report and tipping off.
Laundering It is an offence to conceal, disguise, convert, transfer
or remove criminal property from England, Wales, Scotland or
Northern Ireland. Concealing or disguising criminal property
includes concealing or disguising its nature, source, location,
disposition, movement or ownership, or any rights connected with
it. Criminal property is defined as property which the alleged
offender knows (or suspects) constitutes or represents benefit from
any criminal conduct. [12]
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Final Assessment Marks Criminal conduct is defined as conduct
that which: constitutes an offence in any part of the United
Kingdom; would constitute an offence in any part of the United
Kingdom if it occurred there. [1]
Failure to report Under S330 individuals carrying on a relevant
business may be guilty of an offence of failing to disclose
knowledge or suspicion of money laundering where they know or
suspect, or have reasonable grounds for knowing or suspecting, that
another person is engaged in laundering the proceeds of crime. This
offence only relates to individuals, such as accountants, who are
acting in the course of business in the regulated sector. Any
individual who is covered by S330 is required to make disclosure to
a nominated money laundering reporting officer within their
organisation, or directly to the Serious Organised Crime Agency
(SOCA), as soon as is practicable. Tipping off S333 states that it
is an offence to make a disclosure likely to prejudice a money
laundering investigation. It therefore covers the situation where
an accountant informs a client that a report has been submitted to
SOCA. The maximum penalty for the S327 offence of money laundering
is 14 years imprisonment. Failure to report and tipping off are
punishable on conviction by a maximum of 5 years' imprisonment
and/or a fine. It would appear from the information given in the
scenario that Samson could reasonably suspect that Timothy has
obtained the balance of 50,000 from an illegal source. By using the
money to buy property, Timothy has committed the offence of money
laundering. Samson, as a solicitor, is required to report this
matter to a nominated money laundering officer within his firm or
directly to SOCA. If he fails to do so, Samson commits a criminal
offence. If Samson informs Timothy that he has done so, Samson will
commit a criminal offence. [12] [12]
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