Business Law

A STUDY ON BUSINESS LAWWith reference to international cases

ROBEN GEORGE JACOB Reg No: (S1AA8A61119A)

GREAT EASTERN MANAGEMENT SCHOOL THRISSUR 2011-2013

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CERTIFICATE

This is to certify that the Project work of COMMUNICATION THROUGH FILMS submitted to the College by the candidate ROBEN GEORGE JACOBbearing Reg.No: S1AA8A61119Ais the product of bona fide research carried out by the candidate under my supervision in Business Communication

(GUIDE) THRISSURMRS.SHALINI K FEBRUARY, 2012Lecturer, Business Communication Great Eastern Management School

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ACKNOWLEDGEMENT

First of all I wish to express my deep gratitude and thanks to god who helped me in completing the project successfully. I honestly express my gratitude towards Mrs.SHALINI K, Lecturer, Great Eastern Management School,Thrissur The success of this project lies in the hands of many people who have helped and guided me in completing this project. With due reverence, I also thank my parents, my friends and all my wellwishers who had encouraged and supported me in making this endeavor a success.

Place: Thrissur

Roben George Jacob

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LIST OF CONTENTS SL NO I. INTRODUCTION PAGE NO 5-10

TITLE

II.

COMMUNICATION THROUH MOVIES

11-12

III.

TOOLS OF COMMUNICATION

13-20

IV.

MOVIE GENRES

21-40

V.

CONCLUSION

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VI.

BIBLIOGRAPHY

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5 Introduction Business Law, also referred to as Mercantile Law, comprises a set of laws concerning the business world trade, commerce and industry. It generally includes pertaining to contracts, sale of goods, partnership, companies, negotiable instruments, insurance, consumer protection, payment of bonus,payment of gratuity,minimum wages,carriage of goods,insolvency and arbitration. But, with the fast development and globalization, and the ever-increasing complexities of the business world therewith, the scope of Business Law is also widening to cope with the ever-changing opportunities.

Indian contract act 1872 Indian contract act contain about 1 to 128 sections. Section 1 to 75 deals with different aspects relating to contract formation and later parts deals with other types of contracts. All types of contracts in India can be classified as general and special contracts. General contracts: is one which the consideration to the contract can be in the form of money, goods or service. Special contracts: the consideration given to a person should be in the form of money. The present business law has emerged from mercantile law which is considered as a branch of civil law. Definitions: Section 2(h) of contract act defines contract as an agreement enforced by law. Section 2(c) of contract act defines agreement as every promise and every set of promises forming in consideration for each other. Section 2(k) defines promise as when the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepted proposal when accepted become a promise. According to this act all agreements are contracts if they are made by the free consent of the parties competent to contract for a lawful object and are not hereby expressly declared to be void.

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Essentials of a valid contract.

1. A legal binding: A legal binding should be through proper offer and acceptance. They should have intention to impose duty on the promisor to fullfill promise and give a right in the promise to seek its fulfilment. 2. Consideration: is something in return. That is quid pro quo. 3. Capacity to contract: Capacity is legal ability. These must be an assent of the parties. It comes from fare, free and serious exercises of the reasoning facility. There should not be any ban by law against either of the party. a. The party should not be a minor b. The party should be of sound mind and c. Not disqualified from contracting by any law such as insolvent and convicts. As per section II the above qualifications are necessary. Unsound mind means a. Lunatics b. Idiots c. Drunkards d. Convicts e. Insolvents They are legally incapable to enter in a valid contract. 4. Genuine consent of parties: The parties should give their free consent for the agreement. It is called consensus ad item. The consent should be under free and fair atmosphere devoid of coercion, undue influence, fraud and mistake. 5. Lawful agreement: The object must be lawful. If the object of the agreement is unlawful such agreement is void. The object of the agreement should not be for doing un lawful, immoral, and fraudulent or acts opposed to public policy. They are in general a. Interference with state administration. b. Agreement to give false evidence c. Marriage brokerage contract

7 d. Restraining of trade e. Trading with enemy 6. The act should be possible: the possibility to perform the act is prima-facia. Impossible act cannot be enforced, it is void 7. Fixed terms and conditions: there should not be any ambiguity or vagueness regarding the terms and conditions of the contract. If it is uncertain the agreement is not enforceable.

Types of contracts. 1. Void contract: Section 2 (i) defines void contract as a contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. 2. Voidable contract: if an agreement which is enforceable by law at the option of one or more parties but not at the options of the other or others a voidable contract. Any contract brought about by coercion, fraud, undue influence, misrepresentation would be voidable at the option of the person whose consent was caused by any one of these above factors. 3. Unenforceable contract: Normal contracts when suffer from technical defect like not in writing etc. These may be express or implied contracts. 4. Tacit contract: A contracts is said to be tacit when it has to be inferred from the conduct of the parties. Example is ATM teller machine. 5. Executed contract: If the consideration for the promise is a contract is given or executed, such contract is called with executed consideration. 6. Executory contract: It is so called because the reciprocal promises or obligation while served as consideration is to be performed in failure. 7. Unilateral contract: It is a one sided contract in which only one party has to perform his promise or obligation to do or forbear. 8. Bilateral contract: The promise or obligation in a contract is outstanding on the part of both parties it is known as bilateral contract. 9. Implied contract: This is implied by law. The law implies a contract through parties never intended. Example Quasi contract.

8 Offer and acceptance.

Offer

A proposal and its acceptance is an acknowledged process for the making of an agreement. The proposal is the starting point. Section 2(a): It is a medium through which a person signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that other to such act. Case1: Ram tells laxmi that he desires to marry by next year. It is not an offer of marriage by Ram to Laxmi. To make it a proper offer he should elicit her consent. If Ram adds will you marry me? It will constitute an offer. Case2: In Laxmi Vs. Tauri dutt case Allahabad High court laid down that an offer cant be accepted unless and until it has been brought to the knowledge of the person to whom it is made.

Types of Offer

1. General offer: Section 8 of Indian contract act points out that performance of the condition of a proposal is an acceptance of the proposal. 2. Cross offer: When two parties exchange identical offers in ignorance at the time of each others offer the offers are called cross offers. 3. Special offer: When offer is made to a definite person it is known as specific offer and such offers can be accepted only by that specified person. 4. Counter offer: When the offeree to qualified acceptance of the offer subject to modifications and variations in terms of the original offer he is said to have made a counter offer. Standing offer: Here the offer is allowed to remain open for acceptance over a period of time. Tender for supply of goods is a kind of standing offer

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Customary International Law

Case:The Lotus Case (1927, France v. Turkey, PCIJ) Facts: There was a collision between French steamer Lotus, who was going to Constantinople, and Turkish collier Boz-Kourt, where the Boz-Kourt sank. The Lotus tried to save the people on the Turkish vessel, and did save 10, but 8 Turkish nationals who were on board died. The officer on watch onboard the Lotus, Ltn. Demons, and of the Boz-Kourt, Bey, were taken by Turkish police for examination, and then arrested (pending trial) for criminal prosecution of manslaughter, without previous notice given to the French Consul-General. During trial in Turkey, Demons (French national) submitted that Turkish courts had no jurisdiction, but his objection was overruled. Demons was then sentenced to 80 days imprisonment, and a fine of 22 pounds. The French government protested this, and both countries agreed to bring the issue before this International court at the Hague in Geneva.

Issue: Whether or not the rules of international law prevent Turkey from instituting criminal proceedings against a French national under Turkish law. If yes, what pecuniary reparation is due to Demons?

Holding: Turkey did not act contrary to any existing Int'l law.

Reasoning: All that is required of Turkey is that it does not overstep the limits which international law places upon its jurisdiction; within these limits, its title to exercise jurisdiction rests in its sovereignty. The French gov't arguments to which Turkey's actions conflicted with international law. Int'l law doesnt allow a state jurisdiction over a foreigner, where the offense was committed abroad, just b/c of the victim's nationality. Here the offense was committed aboard a French vessel.

Court says this doesnt apply here, b/c they are assuming the only affiliation Turkey has to the incident are the victim's nationality. However, this is not true. The offense was committed against the Turkish vessel, which is part of Turkey's territory. In this context, there is no int'l rule

10 of law prohibiting Turkey's jurisdiction. Since the collision occurred on the high seas, France claimed that only the state whose flag the vessel flew had exclusive jurisdiction over the matter. Court agrees it is true that on the high seas, vessels are subject only to the state of which the flag they fly is. There a rule specially applying to collision cases has grown up, according to which criminal proceedings regarding such cases some exclusively within the jurisdiction if the State whose flag is flown.

Notes: Positivism and the Nature of International Law: Positivism is that all international legal rules are based on state consent. The court ruled that Turkeys state sovereignty is a fundamental principle for International Law Burden of Proof: In this case, the idea was the presumption that the burden of proof was on France. France had to prove that there is a rule of customary international law restricting Turkish independence rather than making Turkey prove that its prosecution was sanctioned by international law. Lotus reversal: In 1958 Geneva Convention on the High Seas, provides that in cases involving collisions on the high seas, only the flag state or the national state of the accused may prosecute the officer. Notes 1. How did this case get to the ICJ? French gov't challenging Turkey's jurisdiction over French citizen in Turkey. There was diplomatic chaos. Both countries mutually agreed/consented to the ICJ. Consent given after the incident, not prior. 2. Question here: does Turkey have the jurisdiction? 3. Turkey's treaty - Turkish Penal Code - says subject to principles of int'l law (or CIL) 4. Court looks at territoriality in terms of jurisdiction Where did the incident occur? Limitation - a state cant extend its arm into another territory unless they have a reason to do so France brings argument that Turkey can't extend its arm to the vessel on the high seas 5. Holding: courts rejects all (3) of France's arguments

11 State can't exercise jurisdiction just b/c victim is a national of that state (passive personality jurisdiction - some countries recognize it as a principle of jurisdiction, some dont, but increasingly being recognized) Doesnt apply b/c turkey did have a territoriality claim b/c the

incident took place on Turkish vessel flying Turkish flag No argument otherwise

Exclusive jurisdiction to the state, if it' the states flag being flown on the territory But it offense occurred against Turkish vessel No customary int'l law to the contrary

Conclusion could be overcome if there was a CIL, but none, after research, no evidence showing existing custom. 6. France has burden of proof to show that there was CIL in the contrary Why? - presumption is on proving a restriction from int'l law, rather than a sanction allowing Turkey to do this. 7. France failed to find a CIL 8. After this case, countries came together and adopted a treaty to deal with jurisdiction on the high seas, which contradicted the outcome of this case. Treaties always trump customary/common law. 9. Legal positivism - laws come from states. They are created, they dont come from nowhere. Contrasted with natural law theories, where even though law isn't written down explicitly, they should still be followed. States can create laws through actions or customs, but still made through actions. Doesnt just arise from purely moral reasons like natural law.

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Individuals as objects of International Law

Case:The Nottebohm Case (1955; ICJ) Facts:Nottebohm was born in Germany, and was a German citizen, although he lived in Guatemala since 1903, and conducted a prosperous business there, but never became a citizen of Guatemala. In 1939, he applied to become a citizen of Liechtenstein. The application was approved even though a requirement was that he be in residence there for at least 3 years, but there was an exception and he became a citizen of Liechtenstein. When he tried to re-enter Guatemala in 1943, he was refused entry (probably because of his original German citizenship and because of WWII). Liechtenstein offered Nottebohm protection against the government of Guatemala and sued Guatemala in the International Court of Justice. However, the government of Guatemala argued that Nottebohm did not gain Liechtenstein citizenship for the purposes of international law.

Issue: Whether the conferment of the Lichtenstein citizenship is not contrary to int'l law, and if Lichtenstein's claim on behalf of Nottebohm is admissible in court. - No.

Holding: The court agreed with Guatemala and held that claims by Lichtenstein were inadmissible .

Reasoning: Although the Court stated that it is the sovereign right of all states to determine its own citizens and criteria for becoming one in municipal law, such a process would have to be scrutinized on the international plain in questions of diplomatic protection. The Court upheld the principle of effective nationality, where the national must prove a meaningful connection to the state in question. This principle was previously applied only in cases of dual nationality to determine which nationality should be used in a given case. However, Nottebohm had forfeited his German nationality and thus only had the nationality of Liechtenstein.

Notes Here the individual cannot bring the claim himself (objective view)

13 Lichtenstein trying to get damages on behalf of Nottebohm Guatemala doesnt recognize his citizenship Nottebohm was under Lichtenstein laws, a citizen. ICJ says ok it might be fine under Lichtenstein's laws, but not ok under int'l law ICJ looking for real links in Lichtenstein. Must show there is a real connection before Lichtenstein can act on your behalf. Pg. 343 - first full paragraph Reasoning: What sources of law were looked at? Arbitration and judicial decisions Opinions of writers Nationality is a legal bond having as its basis a social fact of attachment, a genuine connection of existence, interests and sentiments, together with the existence of reciprocal rights and duties (pg. 345) Problem: Which state will represent him? Guatemala won't. So now that's why individuals are given the right for individuals to bring rights on their own.

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International Law

Case:The Republic of Nicaragua v. The United States of America, 1986

Nicaragua v. United States was a 1984 case of the International Court of Justice(ICJ) in which the ICJ ruled in favor of Nicaragua and against the United States and awarded reparations to Nicaragua. The ICJ held that the U.S. had violated international law by supporting Contra guerrillas in their rebellion against the Nicaraguan government and by mining Nicaragua's harbors. The United States refused to participate in the proceedings after the Court rejected its argument that the ICJ lacked jurisdiction to hear the case. The U.S. later blocked enforcement of the judgment by the United Nations Security Council and thereby prevented Nicaragua from obtaining any actual compensation. The Nicaraguan government finally withdrew the complaint from the court in September 1991, following a repeal of the law requiring the country to seek compensation, thus settling the matter. The Court found in its verdict that the United States was "in breach of its obligations under customary international law not to use force against another State", "not to intervene in its affairs", "not to violate its sovereignty", "not to interrupt peaceful maritime commerce", and "in breach of its obligations under Article XIX of the Treaty of Friendship, Commerce and Navigation between the Parties signed at Managua on 21 January 1956."The Court had 16 final decisions upon which it voted. In Statement 9, the Court stated that the U.S. encouraged human rights violations by the Contras by the manual entitled Psychological Operations in Guerrilla Warfare. However, this did not make such acts attributable to the U.S.

Arguments: Nicaragua Nicaragua charged that(a) That the United States, in recruiting, training, arming, equipping, financing, supplying and otherwise encouraging, supporting, aiding, and directing military and paramilitary actions in and against Nicaragua, had violated its treaty obligations to Nicaragua under: Article 2 (4) of the United Nations Charter ;Articles 18 and 20 of the Charter of the Organization of American States; Article 8 of the Convention on Rights and Duties of States;

15 Article I, Third, of the Convention concerning the Duties and Rights of States in the Event of Civil Strife.(b) That the United States had breached international law by 1. Violating the sovereignty of Nicaragua by: armed attacks against Nicaragua by air, land and sea; incursions into Nicaraguan territorial waters; aerial trespass into Nicaraguan airspace; efforts by direct and indirect means to coerce and intimidate the Government of Nicaragua. 2. using force and the threat of force against Nicaragua. 3. intervening in the internal affairs of Nicaragua. 4. infringing upon the freedom of the high seas and interrupting peaceful maritime commerce. 5. killing, wounding and kidnapping citizens of Nicaragua. Nicaragua furthermore demanded that all such actions cease and that the United States had an obligation to pay reparations to the government for damage to their people, property, and economy.

United States The U.S. argued that its actions were "primarily for the benefit of El Salvador, and to help it to respond to an alleged armed attack by Nicaragua, that the United States claims to be exercising aright of collective self-defense, which it regards as a justification of its own conduct towards Nicaragua. El Salvador joined the U.S. in their Declaration of Intervention which it submitted on15 August 1984, where it alleged itself the victim of an armed attack by Nicaragua, and that it had asked the United States to exercise for its benefit the right of collective self-defense." The CIA claimed that the purpose of the manual was to "moderate" activities already being done by the Contras. The United States argued that the Court did not have jurisdiction, with U.S. ambassador to the United Nations Jeane Kirkpatrick dismissing the Court as a "semi-legal, semi-juridical, semipolitical body, which nations sometimes accept and sometimes don't." It is noteworthy that the United States, the defaulting party, was the only Member that put forward arguments against the validity of the judgment of the Court, arguing that it passed a decision that it 'had neither the jurisdiction nor the competence to render'. Other Members that sided with the United States in opposing Nicaragua's claims did not challenge the Courts findings either as to its jurisdiction or on the substantive merits of the case.

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Judgment: The very long judgment first listed 291 points. Among them that the United States had been involved in the "unlawful use of force". The alleged violations included attacks on Nicaraguan facilities and naval vessels, the mining of Nicaraguan ports, the invasion of Nicaraguan air space, and the training, arming, equipping, financing and supplying of forces (the "Contras") and seeking to overthrow Nicaragua's Sandinista government. This was followed by the statements that the judges voted on.

Findings: The court found evidence for an arms flow between Nicaragua and to the insurgents in El Salvador in 1979-81. However, there was not enough evidence to show that the Nicaraguan government was imputable for this or that the US response was proportional. The court also found established that certain transborder incursions into the territory of Guatemala and Costa Rica, in 1982, 1983 and 1984, were imputable to the Government of Nicaragua. However, neither Guatemala nor Costa Rica made any request for intervention by the US and El Salvador only in 1984, well after the US intervention started.[2]"As regards El Salvador, the Court considers that in customary international law the provision of arms to the opposition in another State does not constitute an armed attack on that State. As regards Honduras and Costa Rica, the Court states that, in the absence of sufficient information as to the transborder incursions into the territory of those two States from Nicaragua, it is difficult to decide whether they amount, singly or collectively, to an armed attack by Nicaragua. The Court finds that neither these incursions nor the alleged supply of arms may be relied on as justifying the exercise of the right of collective self-defence." Regarding human rights violations by the Contras, "The Court has to determine whether the relationship of the contras to the United States Government was such that it would be right to equate the contras, for legal purposes, with an organ of the United States Government, or as acting on behalf of that Government. The Court considers that the evidence available to it is insufficient to demonstrate the total dependence of the contras on United States aid. A partial dependency, the exact extent of which the Court cannot establish, may be inferred from the fact that the leaders were selected by the United States, and from other factors such as the

17 organization, training and equipping of the force, planning of operations, the choosing of targets and the operational support provided. There is no clear evidence that the United States actually exercised such a degree of control as to justify treating the contras as acting on its behalf.""Having reached the above conclusion, the Court takes the view that the contras remain responsible for their acts, in particular the alleged violations by them of humanitarian law. For the United States to be legally responsible, it would have to be proved that that State had effective control of the operations in the course of which the alleged violations were committed." The Court concluded that the United States, despite its objections, was subject to the Courts jurisdiction. The Court had ruled on 26 November by 11 votes to one that it had jurisdiction in the case on the basis of either Article 36 (i.e. compulsory jurisdiction) of the 1956 Treaty of Friendship, Commerce and Navigation between the United States and Nicaragua. The Charter provides that, in case of doubt, it is for the Court itself to decide whether it has jurisdiction, and that each member of the United Nations undertakes to comply with the decision of the Court. The Court also ruled by unanimity that the present case was admissible. The United States then announced that it had "decided not to participate in further proceedings in this case." About a year after the Court's jurisdictional decision, the United States took the further, radical step of withdrawing its consent to the Court's compulsory jurisdiction, ending its previous 40 year legal commitment to binding international adjudication. The Declaration of acceptance of the general compulsory jurisdiction of the International Court of Justice terminated after a 6-month notice of termination delivered by the Secretary of State to the United Nations on October 7, 1985. Although the Court called on the United States to "cease and to refrain" from the unlawful use of force against Nicaragua, and that the US was in "in breach of its obligation under customary international law not to use force against another state" and ordered to pay reparations, the United States refused to comply. Compliance proved futile as the United States being a permanent member of the Security Council blocked any enforcement mechanism attempted by Nicaragua. This is despite the fact that November 3, 1986 the United Nations General Assembly voted on a non-binding resolution urging the US to comply. It was adopted by ninety- four votes to three (El Salvador, Israel and the United States voting against).

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The ruling: On June 27, 1986, the Court made the following ruling. The Court 1. Decides that in adjudicating the dispute brought before it by the Application filed by the Republic of Nicaragua on 9 April 1984, the Court is required to apply the "multilateral treaty reservation" contained in proviso (c) to the declaration of acceptance of jurisdiction made under Article 36, paragraph 2, of the Statute of the Court by the Government of the United States of America deposited on 26 August 1946; 2. Rejects the justification of collective self-defence maintained by the United States of America in connection with the military and paramilitary activities in and against Nicaragua the subject of this case; 3. Decides that the United States of America, by training, arming, equipping, financing and supplying the contra forces or otherwise encouraging, supporting and aiding military and paramilitary activities in and against Nicaragua, has acted, against the Republic of Nicaragua, in breach of its obligation under customary international law not to intervene in the affairs of another State 4.Decides that the United States of America, by certain attacks on Nicaraguan territory in1983-1984, namely attacks on Puerto Sandino on 13 September and 14 October 1983, an attack on Corinto on 10 October 1983; an attack on Potosi Naval Base on 4/5 January1984, an attack on San Juan del Sur on 7 March 1984; attacks on patrol boats at Puerto Sandino on 28 and 30 March 1984; and an attack on San Juan del Norte on 9 April 1984;and further by those acts of intervention referred to in subparagraph (3) hereof which involve the use of force, has acted, against the Republic of Nicaragua, in breach of its obligation under customary international law not to use force against another State 5.Decides that the United States of America, by directing or authorizing over Rights of Nicaraguan territory, and by the acts imputable to the United States referred to in subparagraph (4) hereof, has acted, against the Republic of Nicaragua, in breach of its obligation under customary international law not to violate the sovereignty of another State; 6. Decides that, by laying mines in the internal or territorial waters of the Republic of Nicaragua during the first months of 1984, the United States of America has acted, against the Republic of Nicaragua, in breach of its obligations under

19 customary international law not to use force against another State, not to intervene in its affairs, not to violate its sovereignty and not to interrupt peaceful maritime commerce; 7. Decides that, by the acts referred to in subparagraph (6) hereof the United States of America has acted, against the Republic of Nicaragua, in breach of its obligations under Article XIX of the Treaty of Friendship, Commerce and Navigation between the UnitedStates of America and the Republic of Nicaragua signed at Managua on 21 January 1956; 8. Decides that the United States of America, by failing to make known the existence and location of the mines laid by it, referred to in subparagraph (6) hereof, has acted in breach of its obligations under customary international law in this respect; 9. Finds that the United States of America, by producing in 1983 a manual entitled'Operaciones sicolgicas en guerra de guerrillas', and disseminating it to contra forces, has encouraged the commission by them of acts contrary to general principles of humanitarian law; but does not find a basis for concluding that any such acts which may have been committed are imputable to the United States of America as acts of the United States of America; 10. Decides that the United States of America, by the attacks on Nicaraguan territory referred to in subparagraph (4) hereof, and by declaring a general embargo on trade with Nicaragua on 1 May 1985, has committed acts calculated to deprive of its object and purpose the Treaty of Friendship, Commerce and Navigation between the Parties signed at Managua on 21 January 1956; 11. Decides that the United States of America, by the attacks on Nicaraguan territory referred to in subparagraph (4) hereof, and by declaring a general embargo on trade with Nicaragua on 1 May 1985, has acted in breach of its obligations under Article XIX of the Treaty of Friendship, Commerce and Navigation between the Parties signed at Managua on 21 January 1956; 12. Decides that the United States of America is under a duty immediately to cease and to refrain from all such acts as may constitute breaches of the foregoing legal obligations; 13. Decides that the United States of America is under an obligation to make reparation to the Republic of Nicaragua for all injury caused to Nicaragua by the breaches of obligations under customary international law enumerated above; 14. Decides that the United States of America is under an obligation to make reparation to the Republic of Nicaragua for all injury caused to Nicaragua by the breaches of the Treaty of

20 Friendship, Commerce and Navigation between the Parties signed at Managua on 21 January 1956; 15. Decides that the form and amount of such reparation, failing agreement between the Parties, will be settled by the Court, and reserves for this purpose the subsequent procedure in the case; 16.Recalls to both Parties their obligation to seek a solution to their disputes by peaceful means in accordance with international law.

Legal clarification and importance: The ruling did in many ways clarify issues surrounding prohibition of the use of force and the right of self-defence. Arming and training the Contra was found to be in breach with principles of non-intervention and prohibition of use of force, as was laying mines in Nicaraguan territorial waters. Nicaragua's dealings with the armed opposition in El Salvador, although it might be considered a breach with the principle of non-intervention and the prohibition of use of force, did not constitute "an armed attack", which is the wording in article 51 justifying the right of self-defence.

The Court considered also the United States claim to be acting in collective self-defence of El Salvador and found the conditions for this not reached as El Salvador never requested the assistance of the United States on the grounds of self-defence. In regards to laying mines, "...the laying of mines in the waters of another State without any warning or notification is not only an unlawful act but also a breach of the principles of humanitarian law underlying the Hague Convention No. VIII of 1907."

Third-party interpretations: Professor of International Law, Anthony D'Amato, writing for the American Journal of International Law, Vol. 80, 1986, commented on this case, stating that "...law would collapse if defendants could only be sued when they agreed to be sued, and the proper measurement of that collapse would be not just the drastically diminished number of cases but also the necessary restructuring of a vast system of legal transactions and relations predicated on the availability of courts as a last resort. There would be talk of a return to the law of the jungle." The author also

21 notes that the case resulted in an unusual candor. A month after the announced withdrawal, Secretary of State Shultz suggested, and President Reagan later confirmed in a press conference, that the goal of U.S. policy was to overthrow the Sandinista Government of Nicaragua (see N.Y.Times, Feb. 22, 1985, at A10, cols. 1, 3). Although this was what Nicaragua had alleged to be the U.S. goal, while the case was actively pending, the United States could not concede that goal without serious risk of undermining its litigating position

UN voting: After five vetoes in the Security Council between 1982 and 1985 of resolutions concerning the situation in Nicaragua, the United States made one final veto on 28 October 1986. (France, Thailand, and United Kingdom abstaining) of a resolution calling for full and immediate compliance with the Judgment Nicaragua brought the matter to the U.N. Security Council, where the United States vetoed are solution (11 to 1, 3 abstentions) calling on all states to observe international law. Nicaragua also turned to the General Assembly, which passed a resolution 94 to 3 calling for compliance with the World Court ruling. Two states, Israel and El Salvador, joined the United States in opposition. At that time, El Salvador was receiving substantial funding and military advisement from the U.S., which was aiming to crush a Sandinista-like revolutionary movement by the FMLN. At the same session, Nicaragua called upon the U.N. to send an independent fact-finding mission to the border to secure international monitoring of the borders after a conflict there; the proposal was rejected by Honduras with U.S. backing. A year later, on November 12, 1987, the General Assembly again called for "full and immediate compliance" with the World Court decision. This time only Israel joined the United States in opposing adherence to the ruling.

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THE KADI CASE: RETHINKING THE RELATIONSHIP BETWEEN EU LAW AND INTERNATIONAL LAW? Yassin Abdullah Kadi, Al Barakaat International Foundation v. Council of European Union

I. INTRODUCTION

In its recent Kadi judgment, the European Court of Justice (ECJ) overruled the judgments of the Court of First Instance (CFI) in the cases Kadi and Yusuf and annulled Council Regulation 881/2002which had imposed restrictive measures against persons and entities associated with Osama bin Laden, the Al-Qaeda network, and the Talibanbecause it found a breach of fundamental rights of the European Union (EU). The case is special due to the adoption of the annulled regulation by the Council of the EU pursuant to resolutions of the UN Security Council. Even though the ECJ emphasized that it had no authority to call into question the lawfulness of UN Security Council resolutions, this judgment leaves a wide range of interpretations regarding the interplay between international law and EU law.

II. BACKGROUND

The case is related to economic sanctions against individuals. UN Security Council Resolution 1267 (1999) established a Sanctions Committee responsible in particular for designating the funds or other financial resources which all States must freeze in order to ensure that those funds or financial resources are not made available to, or for the benefit of, the Taliban or any undertaking owned or controlled by the Taliban. In Resolution 1333 (2000), the UN Security Council instructed the Sanctions Committee to maintain an updated list of the individuals and entities designated as associated with Osama bin Laden, and held that States must freeze funds and other financial assets of these individuals and entities. In order to implement this resolution, the Council of the EU adopted, inter alia, the contested Council Regulation 881/2002 on the basis of Articles 60, 301, and 308 of the Treaty Establishing the European Community (EC Treaty). Regulation 881/2002 provided that all funds and economic resources shall be frozen that belonged to, or were owned or held by, a natural or legal person, group, or entity designated

23 by the Sanctions Committee and listed in Annex I.[8] Mr. Yassin Abdullah Kadi and the Al Barakaat International Foundation, whose names were mentioned in Annex I, brought actions seeking annulment of the Regulation, alleging, in particular, breaches of the right to be heard, of the right to respect for property, and of the right to effective judicial review.

In its judgments, the CFI dismissed the actions for the reason that it had no jurisdiction to review the lawfulness of the decision of the EU institution in question. Due to the fact that the mere purpose of the Regulation was to put into effect a resolution of the UN Security Council, they acted under circumscribed powers, with the result that they had no autonomous discretion.[9] Any review of the internal lawfulness of EU law, especially with regard to the protection of fundamental rights, would imply that the Court was to consider, indirectly, the lawfulness of the UN Security Council resolutions. Such jurisdiction would be incompatible with the undertakings of the Member States under the UN Charter, especially Articles 25, 48, and 103. Nevertheless, the CFI found [11] that it was empowered to check, indirectly, the lawfulness of the resolutions of the UN Security Council with regard to jus cogens, understood as a body of higher rules of public international law binding on all subjects of international law. This includes the bodies of the UN, from which no derogation is possible.[13] The CFI determined that there was no violation of jus cogens and consequently dismissed the actions in their entirety.

III. THE JUDGMENT OF THE ECJ

Following the Opinion of Advocate General Maduro, the ECJ set aside the judgments of the CFI and annulled Council Regulation 881/2002 The ECJ rejected the first ground of appeal, which alleged a lack of any legal basis for the contested regulation, by stating that Articles 60, 301, and 308 of the EC Treaty constitute the legal basis of the contested regulation (paras. 158-236).

In contrast to the judgment of the CFI, the ECJ stated:

The Community judicature must . . . ensure the review, in principle the full review, of the lawfulness of all Community acts in the light of the fundamental rights forming an integral part of the general principles of Community law, including review of Community measures which,

24 like the contested regulation, are designed to give effect to the resolutions adopted by the Security Council under Chapter VII of the Charter of the United Nations. (para. 326) This review of the validity of any Community act in the light of fundamental rights must be considered to be the expression, in a community based on the rule of law, of a constitutional guarantee stemming from the EC Treaty as an autonomous legal system which is not to be prejudiced by an international agreement (para. 316). The ECJ emphasized that this review of lawfulness applied merely to the Community act intended to give effect to the international agreement at issue, and not to the latter as such (para. 286). The ECJ made clear that Community courts (i.e. ECJ and CFI) have no power to review the lawfulness of resolutions adopted by the UN Security Council under Chapter VII of the UN Charter, even if that review were to be limited to the examination of the compatibility of that resolution with jus cogens (para. 287). Furthermore, the ECJ highlighted the principle of primacy of obligations under the UN Charter: Even if any judgment given by the Community courts holds that a Community measure intended to give effect to [a UN Security Council] resolution is contrary to a higher rule of law in the Community legal order [this] would not entail any challenge to the primacy of that resolution in international law (para. 288). In conclusion, the ECJ held that the CFI erred in law by stating that the contested regulation must enjoy immunity from jurisdiction, since it is designed to give effect to a resolution adopted by the UN Security Council (para. 327).

With regard to the concrete compliance of the contested regulation with fundamental rights, the ECJ held that the rights of defense, in particular the right to be heard, as well as the right to effective judicial review of those rights, were patently not respected (para. 334). In particular, the EU Council neither communicated to the appellants the evidence used against them to justify the restrictive measures imposed on them nor afforded them the right to be informed of that evidence within a reasonable period of time after those measures were enacted. Therefore, the appellants were not in a position to make their point of view in that respect known to advantage (para. 348). Furthermore, the ECJ held that the imposition of the restrictive measures laid down by the contested regulation in respect to Mr. Kadi, by including him in the list contained in

25 Annex I to that regulation, constituted an unjustified restriction of his right to property (para. 370). As a consequence, the contested regulation, so far as it concerns the appellants, was annulled by the ECJ.[25] The ECJ allowed the effects of the contested regulation to remain in force for a period of three months running from the date of the judgment (para. 376).

IV. CONCLUSION The ECJs Kadi judgment leaves us with a number of open questions regarding its effects on the structure of the international legal order.[27] Indeed, the question must be asked whether the primacy of UN Charter obligations is jeopardized.[28]

In fact, the ECJ did not establish a new hierarchical structure regarding the interplay between international law and European law. Rather, the Court emphasized the primacy of obligations under the UN Charter. It also highlighted that the (European) review of lawfulness applies only to Community acts and never to acts of the UN Security Council under Chapter VII of the UN Charter, even if such a review were to be limited to examination of the compatibility of that resolution with jus cogens. Thus, at first the ECJ did not challenge the existing hierarchy of norms within the international legal order. But at the same time, by emphasizing the rule of law the Court stated that the judicial review also covers all Community acts, even if they are designed merely to give effect to resolutions adopted by the UN Security Council.

In effect, this approach of reciprocal concessions only works if there is a way to implement UN Security Council resolutions in conformity with fundamental rights of the EU. If it would only be possible to put a resolution into effect by adopting a Community act which breaches fundamental rightsif there were a real conflict between obligations arising under the UN Charter on the one hand and EU fundamental rights as principles that form part of the very foundations of the Community legal order (para. 304) on the otherEU fundamental rights prevail. Thus, the ECJs commitment to accept the primacy of UN Charter obligations and the integrity of UN Security Council resolutions ends in the absence of discretional power to implement such resolutions in a fundamental rights-friendly way. Therefore, a lack of discretion implies an obligation to give preference to fundamental rights even if this means a breach of UN Charter

26 obligations; this could entail a challenge to the primacy of that resolution in international law, in contradiction to the explanations of the ECJ (para. 288).

The judgment of the ECJ in Kadi represents a strong commitment to fundamental rights and the (European) rule of law. Advocate General Maduro found an appropriate summary in advance: [M]easures which are incompatible with the observance of human rights . . . are not acceptable in the Community.From a global perspective, the ECJs insistence on the protection of European fundamental rights standards means that political bodies are now on the ball. The ECJ made it harder for the UN Security Council to adhere to violations of fundamental rights. As such, Kadi stands for a new bottom-up process in which a regional court pressures the UN Security Council to change its policy towards fundamental rights.

International Law

North Sea Continental Shelf Cases (Federal Republic of Germany/Denmark and Netherlands) 1969 I.C.J. 3 (Feb 20)

* Article 6 of the Convention on the Continental Shelf (516 U.S.T.S. 205 (1958)) says that if there are two countries separated by a sea, the boundary between then should be calculated as the point equidistant from both coastlines. o This is known as the equidistance principle. o It is important to know where the boundary is because a country can drill for oil in the seabed within their territory. * The North Sea is surrounded by Norway, the UK, the Netherlands, Germany, Belgium, and Denmark. There is lots of oil right near the middle. * Germany felt that they were getting a bad deal because their coastline was concave, while Denmark and the Netherlands had convex coastlines (look at a map). This meant that based on the equidistance principle, they would get less seabed than they would get if the coastlines were all straight.

27 o They went to the International Court of Justice and asked for a ruling on how to draw the boundary. o Denmark and the Netherlands argued that the equidistance principle was not only codified in the Convention of the Continental Shelf, but that it was already 'crystallized' into customary international law. * The ICJ found that the boundary should be redrawn on the basis of equitable principles. o The ICJ agreed that the equidistance principle gives a country with a convex coastline more seabed than what a country with a concave coastline would receive. o The ICJ found that the equidistance principle was still relatively new, and so it wasn't exactly customary international law just yet. + In addition, there is a clause in Article 6 that allows for different boundary lines to be drawn when "justified by special circumstances." o The ICJ told the parties to go back and work out a boundary that was equitable to everybody. * Basically, this case said that countries didn't need to follow the equidistance principle if it was inequitable. o Later, this theory of equity was codified in Article 83 of the Convention on the Law of the Sea (1833 U.N.T.S. 3 (1982)),

28

Case Study on Business Ethics and Corporate Social Responsibility

Enron: What Caused the Ethical Collapse? Introduction Kenneth Lay, former chairman and chief executive officer (CEO) of Enron Corp., is quoted in Michael Novaks book Business as a Calling: Work and the Examined Life as saying, I was fully exposed to not only legal behavior but moral and ethical behavior and what that means from the standpoint of leading organizations and people. In an introductory statement to the revised Enron Code of Ethics issued in July 2000, Lay wrote: As officers and employees of Enron Corp., its subsidiaries, and its affiliated companies, we are responsible for conducting the business affairs of the companies in accordance with all applicable laws and in a moral and honest manner. Lay went on to indicate that the 64-page Enron Code of Ethics reflected policies approved by the companys board of directors and that the company, which enjoyed a reputation for being fair and honest, was highly respected. Enrons ethics code also specified that An employee shall not conduct himself or herself in a manner which directly or indirectly would be detrimental to the best interests of the Company or in a manner which would bring to the employee financial gain separately derived as a direct consequence of his or her employment with the Company. Enrons ethics code was based on respect, integrity, communication, and excellence. These values were described as follows: Respect. We treat others as we would like to be treated ourselves. We do not tolerate abusive or disrespectful treatment. Ruthlessness, callousness and arrogance dont belong here. Integrity. We work with customers and prospects openly, honestly and sincerely. When we say we will do something, we will do it; when we say we cannot or will not do something, then we wont do it. Communication. We have an obligation to communicate. Here we take the time to talk with one another . . . and to listen. We believe that information is meant to move and that information moves people. Excellence. We are satisfied with nothing less than the very best in everything we do. We will continue to raise the bar for everyone. The great fun here will be for all of us to discover just how good we can really be. Given this code of conduct and Ken Lays professed commitment to business ethics, how could Enron have collapsed so dramatically, going from reported revenues of $101 billion in 2000 and approximately $140 billion during the first three quarters of 2001 to declaring bankruptcy in December 2001? The answer to this question seems to be rooted in a combination of the failure of top leadership, a

29 corporate culture that supported unethical behavior, and the complicity of the investment banking community. Enrons Top Leadership In the aftermath of Enrons bankruptcy filing,

numerous Enron executives were charged with criminal acts, including fraud, money laundering, and insider trading. For example, Ben Glisan, Enrons former treasurer, was charged with twodozen counts of money laundering, fraud, and conspiracy. Glisan pled guilty to one count of conspiracy to commit fraud and received a prison term, three years of post-prison supervision, and financial penalties of more than $1 million. During the plea negotiations, Glisan described Enron as a house of cards. Andrew Fastow, Jeff Skilling, and Ken Lay are among the most notable top-level executives implicated in the collapse of Enrons house of cards. Andrew Fastow, former Enron chief financial officer (CFO), faced 98 counts of money laundering, fraud, and conspiracy in connection with the improper partnerships he ran, which included a Brazilian power plant project and a Nigerian power plant project that was aided by Merrill Lynch, an investment banking firm. Fastow pled guilty to one charge of conspiracy to commit wire fraud and one charge of conspiracy to commit wire and securities fraud. He agreed to a prison term of 10 years and the forfeiture of $29.8 million. Jeff Skilling was indicted on 35 counts of wire fraud, securities fraud, conspiracy, making false statements on financial reports, and insider trading. Ken Lay was indicted on 11 criminal counts of fraud and making misleading statements. Both Skilling and Lay pled not guilty and are awaiting trial.The activities of Skilling, Fastow, and Lay raise questions about how closely they adhered to the values of respect, integrity, communication, and excellence articulated in the Enron Code of Ethics. Before the collapse, when Bethany McLean, an investigative reporter for Fortune magazine, was preparing an article on how Enron made its money, she called Enrons then-CEO, Jeff Skilling, to seek clarification of its nearly incomprehensible financial statements. Skilling became agitated with McLeans inquiry, told her that the line of questioning was unethical, and hung up on McLean. Shortly thereafter Andrew Fastow and two other key executives traveled to New York City to meet with McLean, ostensibly to answer her questions completely and accurately. Fastow engaged in several activities that challenge the foundational values of the companys ethics code. Fastow tried to conceal how extensively Enron was involved in trading for the simple reason that trading companies have inherently volatile earnings that arent rewarded in the stock market with high valuationsand a high market valuation was essential to keeping Enron from collapsing. Another Fastow venture was setting up and operating partnerships called related party

30 transactions to do business with Enron. In the process of allowing Fastow to set and run these very lucrative private partnerships, Enrons board and top management gave Fastow an exemption from the companys ethics code.Contrary to the federal prosecutors indictment of Lay, which describes him as one of the key leaders and organizers of the criminal activity and massive fraud that lead to Enrons bankruptcy, Lay maintains his innocence and lack of knowledge of what was happening. He blames virtually all of the criminal activities on Fastow. However, Sherron Watkins, the key Enron whistleblower, maintains that she can provide examples of Lays questionable decisions and actions. As Bethany McLean and fellow investigative reporter Peter Elkind observe: Lay bears enormous responsibility for the substance of what went wrong at Enron. The problems ran wide and deep, as did the deception required in covering them up. The companys culture was his to shape. Ultimately, the actions of Enrons leadership did not match the companys expressed vision and values. Enrons Corporate Culture Enron has been described as having a culture of arrogance that led people to believe that they could handle increasingly greater risk without encountering any danger. According to Sherron Watkins, Enrons unspoken message was, Make the numbers, make the numbers, make the numbersif you steal, if you cheat, just dont get caught. If you do, beg for a second chance, and youll get one. Enrons corporate culture did little to promote the values of respect and integrity. These values were undermined through the companys emphasis on decentralization, its employee performance appraisals, and its compensation program. Each Enron division and business unit was kept separate from the others, and as a result very few people in the organization had a big picture perspective of the companys operations. Accompanying this emphasis on decentralization were insufficient operational and financial controls as well as a distracted, hands-off chairman, a compliant board of directors, and an impotent staff of accountants, auditors, and lawyers. Jeff Skilling implemented a very rigorous and threatening performance evaluation process for all Enron employees. Known as rank and yank, the annual process utilized peer evaluations, and each of the companys divisions was arbitrarily forced to fire the lowest ranking one-fifth of its employees. Employees frequently ranked their peers lower in order to enhance their own positions in the company. Enrons compensation plan seemed oriented toward enriching executives rather than generating profits for shareholders and encouraged people to break rules and inflate the value of contracts even though no actual cash was generated. Enrons bonus program encouraged the use of non-

31 standard accounting practices and the inflated valuation of deals on the companys books. Indeed, deal inflation became widespread within the company as partnerships were created solely to hide losses and avoid the consequences of owning up to problems. Complicity of the Investment Banking Community According to investigative reporters McLean and Elkind, One of the most sordid aspects of the Enron scandal is the complicity of so many highly regarded Wall Street firms in enabling Enrons fraud as well as being partners to it. Included among these firms were J.P. Morgan, Citigroup, and Merrill Lynch. This complicity occurred through the use of prepays, which were basically loans that Enron booked as operating cash flow. Enron secured new prepays to pay off existing ones and to support rapidly expanding investments in new businesses. One of the related party transactions created by Andrew Fastow, known as LJM2, used a tactic whereby it would take an asset off Enrons handsusually a poor performing asset, usually at the end of a quarterand then sell it back to the company at a profit once the quarter was over and the earnings had been booked. Such transactions were basically smoke and mirrors, reflecting a relationship between LJM2 and the banks wherein Enron could practically pluck earnings out of thin air. Epilogue The Enron Code of Ethics and its foundational values of respect, integrity, communication, and excellence obviously did little to help create an ethical environment at the company. The full extent and explanation of Enrons ethical collapse is yet to be determined as legal proceedings continue. Fourteen other Enron employeesmany high levelhave pled guilty to various charges; 12 of these are awaiting sentencing, while the other two, one of whom is Andrew Fastows spouse, have received prison sentences of at least one year. Juries have convicted five individuals of fraud, as well as Arthur Andersen, the accounting firm hired by Enron that shared responsibility for the companys fraudulent accounting statements. Three of the convicted individuals were Merrill Lynch employees involved in the Nigerian barge deal with Fastow. Ken Lay and Jeff Skilling, along with Richard Causey, Enrons former chief accounting officer, are awaiting trial. Lay faces 11 criminal counts, Skilling faces 35 criminal counts, and Causey faces 31 criminal counts. Five executives from Enrons broadband division are also awaiting trial. Three bank executives from Britain who had been involved in a complicated series of deals in a Fastow partnership are fighting extradition. In addition, there are 114 unindicted co-conspirators in the federal governments case against Lay and Skilling.

32 Questions for Discussion

1. What led to the collapse of Enron under Lay and Skilling? 2. How did the top leadership at Enron undermine the foundational values of the Enron Code of Ethics? 3. Given Kenneth Lays and Jeff Skillings operating beliefs and the Enron Code of Ethics, what expectations regarding ethical decisions and actions should Enrons employees reasonably have had? 4. How did Enrons corporate culture promote unethical decisions and actions? 5. How did the investment banking community contribute to the ethical collapse of Enron?

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1. What led to the collapse of Enron under Lay and Skilling? Answer:There are a number of reasons that led to Enrons collapse. Following are some reasons for Enrons collapse: 1. A corrupt leadership at the top. 2. Violation of laws that were not enforced by the companys CEO, Chair and members of its Board of Directors, and auditors. 3. Lack of regulation Enron had one of the best ethics code in the industry. The collapse of the company clearly illustrates that written ethics and compliance codes alone do not work. A corrupt leader at the top and middle level of organizations is a recipe for disaster. Enron Code of Ethics issued in July 2000, Lay wrote that Enrons officers and employees should conduct the companys business affairs in accordance with all applicable laws and in a moral and honest manner. Enrons ethics code was based on the values of respect, integrity, communication, and excellence. The code specified that An employee shall not conduct himself or herself in a manner which directly or indirectly would be detrimental to the best interests of the Company or in a manner which would bring to the employee financial gain separately derived as a direct

33 consequence of his or her employment with the Company. This ethics codes were only written but never followedby the leaders. 4. Lay and skilling also created a corrupt partnership among themselves, Fastow, and several of the traders in the company. The corrupt culture which became the mainreasonfor bankruptcy of the company.In Enrons case, the primarypartnerships values were greed, richness, and winning at anycost.

2. How did the top leadership at Enron undermine the foundational values of the Enron Code of Ethics?

Answer:The Key players among the top leadership were Andrew Fastow, Jeff Skilling, and Ken Lay. Each of these individuals contributed to undermining Enrons foundational values; their activities raise crucial questions about how closely they adhered to the values of respect, integrity, communication, and excellence. Skilling, for example, did not take the obligation to communicate very seriously when he accused an investigative reporter of unethical behavior because she asked him to clarify Enrons nearly incomprehensible financial statements and he refused to do so. A subsequent effort to have three key executives meet with the reporter to answer her questions completely and accurately turned out to be more deception than clarification. The communication value was also undermined when Fastow tried to conceal how extensively Enron was involved in trading in order to maintain the high market valuation that was essential to keeping Enron from collapsing. The preceding decisions and actions did little to support the values of integrity and respect. Fastows exemption by the board and top management from the companys ethics code undermined the values of respect and integrity. 3. Given Kenneth Lays and Jeff Skillings operating beliefs and the Enron Code of Ethics, what expectations regarding ethical decisions and actions should Enrons employees reasonably have had?

Answer: The employees were unknown of the corrupt, strategic and operational dealings of Lay, Skilling, and Fastow. Sherron Watkins warned Lay several times but to no benefit. In an August

34 2001 interview it was noted that, Sherron Watkins, an Enron vice president, had sent an anonymous memo to Lay that read, I am incredibly nervous that we will implode in a wave of accounting scandals.Of course, that's exactly what happened. After the company's demise, the investigating U.S. Congress discovered Watkins' memos to Lay and other top executives.In this observation, Enron was continually winning Fortune Magazines best-in-class awards, Arthur Andersen saw no problems year after year with Enrons accounting procedures, the SEC (Security Exchange Council)Enrons regulatorhad no problem with Enrons business practice, Watkins stated in 2001, Enron was primarily a financial trading house. A financial trading house lives on its investment grade rating and its reputation. Any hint of trouble and business disappears like water through a filter. When I met with Ken Lay, I was both optimistic and immature. I not only expected that a thorough investigation would occur but I also expected Enron to establish a crisis management team to address the financial peril Enron would face when the accounting was exposed, which in my opinion was sure to happen.

4. How did Enrons corporate culture promote unethical decisions and actions? Answer: The brief and clear answer to this question is that Enrons corporate culture did little to promote the values of respect and integrity that were stated in the Enron Code of Ethics. These values were undermined through the companys emphasis on decentralization, its employee performance appraisals, and its compensation program. By keeping each Enron division and business unit separate from the others, very few people had a holistic perspective of the companys operations. This decentralization, in conjunction with insufficient operational and financial controls as well as a distracted, hands-off chairman, a compliant board of directors and an impotent staff of accountants, auditors and lawyers, contributed to a corporate culture that enabled the occurrence of unethical decisions and actions. The extremely rigorous and threatening performance evaluation process utilized peer evaluations wherein employees frequently ranked their peers lower in order to enhance their own positions in the company. Enrons compensation plan seemed oriented toward enriching executives rather than generating profits for shareholders, and encouraged people to inflate the value of contracts and to use non-

35 standard accounting practices. In short, Enrons culture encouraged and reinforced unethical decisions and actions. As revealed by Sherron Watkins, Enrons unspoken message was, Make the numbers, make the numbers, make the numbers if you steal, if you cheat, just dont get caught. If you do, beg for a second chance, and youll get one.

5. How did the investment banking community contribute to the ethical collapse of Enron?

Answer:Investment banks were not found legally liable in actively contributing to the Enron scandal. However, the debate continues with regard to whether or not J.P. Morgan and Citibank, in particular, violated their ethical responsibilities to shareholders and the public in continuing to loan Enron funds while the company lied and defrauded all who were involved during the scandal. Unfortunately, the lessons from Enron have been repeated as witnessed by the latest subprime lending crises that also involved investment banks in even more risky practices than Enron. the subprime lending crisis that continues to negatively affect the national and global economies recently occurred and involved many more financial institutions and companies, including banks. The problem appears to be multifaceted: 1. The deregulation of the financial industry, including banks and a lack of federal laws, some of which have been canceled, to regulate this industry; 2. A lack of enforcement of laws. 3. A lack of ethical leadership of CEOs and boards of directors to safeguard their corporations from scandals such as Enron and the subprime lending crisis.

36 Insurance

In today's world we hardly come across anyone who is not familiar with the term insurance. Our life is uncertain, we do not have any idea what will happen in our future. But insurance has become one of the great ways to secure our future. Getting the right introduction to insurance is important so as to get more familiar with the term. The idea of insurance is very simple. It can simply be defined as an instrument used for managing the possible risks of the future. Throughout our life we may face many kinds of risks such as failing health, financial losses, accidents and even fatalities. Insurance addresses all these uncertainties on financial terms. So one should understand the importance of insurance in their life. With that, you will get to know all the types of insurance plus the benefits. As insurance covers risks against financial losses, it should not be taken as an investment instrument. There a need of insurance in every stage of our life and risks always increases with the changing environment of our life. Insurance is essentially a mechanism that eliminates risks primarily by transferring the risk from the insured to the insurer. Its never too late to get insured. Insure now and secure your financial future. Learn how to buy insurance online. Different types of insurance companies discussed will broaden your horizon on insurance. Characteristics of insurance:Risk which can be insured by private companies typically share seven common characteristics: 1. Large number of similar exposure units: Since insurance operates through pooling resources, the majority of insurance policies are provided for individual members of large classes, allowing insurers to benefit from the law of large numbers in which predicted losses are similar to the actual losses. Exceptions include Lloyd's of London, is a British insurance and reinsurance market. It serves as a partially metalized marketplace where multiple financial backers, underwriters, or members, whether individuals (traditionally known as Names) or corporations, come together to pool and spread risk, which is famous for insuring the life or health of actors, sports figures and other famous individuals. However, all exposures will have particular differences, which may lead to different premium rates.

37

2. Definite loss: The loss takes place at a known time, in a known place, and from a known cause. The classic example is death of an insured person on a life insurance policy. Fire, automobile accidents, and worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory. Occupational disease, for instance, may involve prolonged exposure to injurious conditions where no specific time, place or cause is identifiable. Ideally, the time, place and cause of a loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements.

3. Accidental loss: The event that constitutes the trigger of a claim should be fortuitous, or at least outside the control of the beneficiary of the insurance. The loss should be pure, in the sense that it results from an event for which there is only the opportunity for cost. Events that contain speculative elements, such as ordinary business risks or even purchasing a lottery ticket, are generally not considered insurable.

4. Large loss: The size of the loss must be meaningful from the perspective of the insured. Insurance premiums need to cover both the expected cost of losses, plus the cost of issuing and administering the policy, adjusting losses, and supplying the capital needed to reasonably assure that the insurer will be able to pay claims. For small losses these latter costs may be several times the size of the expected cost of losses. There is hardly any point in paying such costs unless the protection offered has real value to a buyer.

38

5. Affordable premium: If the likelihood of an insured event is so high, or the cost of the event so large, that the resulting premium is large relative to the amount of protection offered, it is not likely that the insurance will be purchased, even if on offer. Further, as the accounting profession formally recognizes in financial accounting standards, the premium cannot be so large that there is not a reasonable chance of a significant loss to the insurer. If there is no such chance of loss, the transaction may have the form of insurance, but not the substance. (See the US Financial Accounting Standards Board standard number 113)

6. Calculable loss: There are two elements that must be at least estimable, if not formally calculable: the probability of loss, and the attendant cost. Probability of loss is generally an empirical exercise, while cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and a proof of loss associated with a claim presented under that policy to make a reasonably definite and objective evaluation of the amount of the loss recoverable as a result of the claim.

7. Limited risk of catastrophically large losses: Insurable losses are ideally independent and non-catastrophic, meaning that the losses do not happen all at once and individual losses are not severe enough to bankrupt the insurer; insurers may prefer to limit their exposure to a loss from a single event to some small portion of their capital base. Capital constrains insurers' ability to sell earthquake insurance as well as wind insurance in hurricane zones. In the US, flood risk is insured by the federal government. In commercial fire insurance it is possible to find single properties whose total exposed value is well in excess of any individual insurer's capital constraint. Such properties are generally shared among several insurers, or are insured by a single insurer who syndicates the risk into the reinsurance market.

39 Insurance sector in India In India, insurance has a deep-rooted history. Insurance in various forms has been mentioned in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmashastra) and Kautilya (Arthashastra). The fundamental basis of the historical reference to insurance in these ancient Indian texts is the same i.e. pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. The early references to Insurance in these texts has reference to marine trade loans and carriers' contracts. Insurance in its current form has its history dating back until 1818, when Oriental Life Insurance Company was started by Anita Bhavsar in Kolkata to cater to the needs of European community. The pre-independence era in India saw discrimination between the lives of foreigners (English) and Indians with higher premiums being charged for the latter. In 1870, Bombay Mutual Life Assurance Society became the first Indian insurer. At the dawn of the twentieth century, many insurance companies were founded. In the year 1912, the Life Insurance Companies Act and the Provident Fund Act were passed to regulate the insurance business. The Life Insurance Companies Act, 1912 made it necessary that the premium-rate tables and periodical valuations of companies should be certified by an actuary. However, the disparity still existed as discrimination between Indian and foreign companies. The oldest existing insurance company in India is the National Insurance Company Ltd., which was founded in 1906. It is in business. The Government of India issued an Ordinance on 19th January, 1956 nationalizing the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The Life Insurance Corporation (LIC) absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies245 Indian and foreign insurers in all. In 1972 with the General Insurance Business (Nationalization) Act was passed by the Indian Parliament, and consequently, General Insurance business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1sst 1973.

40 The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. Before that, the industry consisted of only two state insurers: Life Insurers (Life Insurance Corporation of India, LIC) and General Insurers (General Insurance Corporation of India, GIC). GIC had four subsidiary companies. With effect from December 2000, these subsidiaries have been DE-linked from the parent company and were set up as independent insurance companies: Oriental Insurance Company Limited, New India Assurance Company Limited, National Insurance Company Limited and United India Insurance Company Limited.

41 Conclusion

In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as The equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the insurance; an insured, or policyholder, is the person or entity buying the insurance policy. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice. In the last few decades we have seen numerous changes in the insurance industry since the need for insurance is more evident now than earlier. People's spending patterns are changing and more & more resources are needed for immediate consumption. So review your insurance portfolio from time to time. Specially due to the inflation is increasing day by day so you must get the proper return as equals to your spending. The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate (indemnify) the insured in the case of a financial (personal) loss. The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated. The Insurance sector in Indiagoverned by Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and General Insurance Business (Nationalisation) Act, 1972, Insurance Regulatory and Development Authority (IRDA) Act, 1999 and other related Acts. With such a large population and the untapped market area of this population Insurance happens to be a very big opportunity in India. Today it stands as a business growing at the rate of 15-20 per cent annually. Together with banking services, it adds about 7 per cent to the countrys GDP .In spite of all this growth the statistics of the penetration of the insurance in the country is very poor. Nearly 80% of Indian populations are without Life insurance cover and the Health insurance. This is an indicator that growth potential for the insurance sector is immense in India. It was due to this immense growth that the regulations were introduced in the insurance sector and in continuation MalhotraCommittee was constituted by the government in 1993 to examine the various

42 aspects of the industry. The key element of the reform process was Participation of overseas insurance companies with 26% capital. Creating a more efficient and competitive financial system suitable for the requirements of the economy was the main idea behind this reform. Since then the insurance industry has gone through many sea changes .The competition LIC started facing from these companies were threatening to the existence of LIC .since the liberalization of the industry the insurance industry has never looked back and today stand as the one of the most competitive and exploring industry in India. The entry of the private players and the increased use of the new distribution are in the limelight today. The use of new distribution techniques and the IT tools has increased the scope of the industry in the longer run.