DRAFT – Marking Scheme

EXAMINATION PAPER: ACADEMIC SESSION

2022/2023 (MAIN SIT)

MARKING SCHEME
Campus Greenwich Maritime

Faculty Business

Department Accounting, Finance and Economics

Module Code Law1091

Module Title Business & Company Law

Level 5

Duration THREE (3) HOURS

Date May 2023

Module Leader: M F Ottley

INSTRUCTIONS TO CANDIDATES
Answer THREE questions only – ONE from Part A and TWO from Part B

All questions carry equal marks.

This is a CLOSED book examination.

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THIS PAPER MUST NOT BE REMOVED

FROM THE EXAMINATION ROOM
Part A (answer ONE question)

Question One

Giving examples of decisions from reported cases, compare the doctrine

of consideration with the doctrine of promissory estoppel.

(100 marks)

Contract Formation

Can a promise be enforced?

Identify and define consideration – a common law doctrine, one which is

strictly applied (why?)
Explain the rules of consideration – past consideration, sufficiency, ore-
existing duties
Use cases – eg Thomas, McArdle, Stilk, Glasbrook, Collins, Roffey (and
now Rock Advertising) Panel’s case

Explain the existence/development of promissory estoppel (PE) – an

equitable doctrine and its desire to soften the doctrine of consideration
Start with High Trees (Denning J) – unfair for creditor (eg landlord) to go
back on their word
Explain the requirements of PE – unequivocal promise; not given under
duress; suspensory or distinguishes the debt; the giving of reasonable
notice; reliance
Give cases: Tool Metal, Rees, etc

Question Two

After a spillage of oil on his garage forecourt, in Deptford, Gary, the

proprietor, covers the area with sawdust, although, as he runs out of
sawdust, he is unable to cover a small amount of oil next to Pump No 3
which is the furthest away from the attendants’ kiosk, Thirty minutes
later, Dawn drives into the garage, to fill her car up with petrol, She
drives past two pumps before parking her vehicle at Pump No 3. She is
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wearing high heels, as she is on her way to a corporate event in central

London, but she is running late. On getting out of her car and
approaching the pump, in some haste, she slips on the uncovered patch
of oil and breaks her ankle.

Advise Dawn as whether she can sue Gary in the tort of negligence.

(100 marks)

Tort of Negligence

The claimant (Dawn) would need to establish the following:

Duty of care. This is based firstly on Donoghue v Stevenson (‘neighbour’

principle) and more recently by Caparo v Dickman, using the three-fold
test of reasonable foresight (eg Haley), proximity (eg Home Office v
Dorset) and fair, just and reasonable (eg Hill).

Breach of duty. This is the man (reasonable person) on the Clapham

Omnibus test (ie viewed objectively). Various factors can apply, eg
seriousness of harm (Paris), chances of harm (Bolton) and costs of
precautions (Latimer).

Causation. This is usually satisfied by the ‘but for’ test (Barnett). No

liability for intervening act unless reasonably foreseeable
(Holland/Sayers)

The requirement of remoteness (Wagon Mound) cuts down on the

recovery of losses, which must be reasonably foreseeable (subject to the
thin skull rule (Smith).

Could the defendant (Gary) rely on any defence, eg contributory

negligence? This defence reduces the award of damages (Froom etc)

Question Three

With reference to decided cases, analyse the elements of the doctrine of

vicarious liability.
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(100 marks)

Vicarious Liability

Introduction:

 Rationale for vicarious liability - enterprise theory and victims go

uncompensated if they could only sue the employee.
 Both e/ee and e/er are liable.
 Compare a direct duty of care (Caparo) owed by the employer

The requirements for vicarious liability:

 Is there, eg, a tortious act, eg negligence? Assaults (intentional

torts) covered too
 Is the worker an employee? Tests? (Control and akin to
employment in particular). For borrowed employee, see eg Mersey
Docks, Luminar cases
 Is the employer acting in the course of employment, noting the
Lister/Catholic Society/Morrison (HL/SC) approach? Is the act so
‘closely connected’ to the employee’s job, that it is fair and
reasonable to hold the employer liable? But you can use old cases
under the old, sphere of employment approach (eg London
Omnibus, Rose, Hilton) in cases of negligence.

Part B (answer TWO questions)

Question Four

To what extent are the articles of association of a company enforceable

and to what extent are the articles of association of a company
amendable? Give examples from reported decisions.

(100 marks)

The Company’s Constitution

Legal effect of the articles of association (the enforceability issue)

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Cases needed to explain the s 33 CA 2006 contract and enforceability of

articles qua member, eg Pender, Eley. Any exceptions? Inferred contracts
(Re New British Iron); express contracts (Shirlaw); Quin & Axtens. Cf s 994
CA 2006 (perhaps/briefly)

Amendment of articles (the second issue)

S 21 – by special resolution
Common law constraint: bona fide for benefit of the company as a whole
(Allen) – subjective/objective test? Dafen, Sidebottom, Brown, Citco,
cases.

Question Five
Andy is the managing director of England Cricket (‘EC’) Ltd, a company
which runs the professional game of cricket in England and Wales.

Last year, unknown to EC, Andy, who took up paid employment to sit on
the board of directors of Cloud TV Ltd, entered into a contract on behalf
of EC with Cloud TV for Cloud TV to have the rights to show television
coverage of England test matches for £10m television deal over a ten
year period.

Six months ago, also unknown to EC, Andy’s company, AS Ltd, made a
profit of £1m from selling television rights to the Blast to ITW Ltd, a
contract that Andy was negotiating on behalf of EC, a month prior to AS
obtaining the contract.

These activities have come to the attention of EC. Advise the company as
to whether any action can be taken against Andy and/or any other party.

(100 marks)

Directors’ Duties

To whom duties are owed? S 170 CA 2006 (based on the common law
(Percival v Wright)) provides that it is to the COMPANY.

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Relevant CA 2006 duties: here, the most likely is the no conflict rule – eg
(i) interest in company contracts (s 177) (ii) misuse of corporate property
(information) (caught by s 175). Define ‘real sense/likelihood of conflict’,
‘conlicting duties’. Consider also the s 172 duty of good faith (eg Cooks,
Item Software)

Use cases such as Regal/Blaikie/Mahesan/Cook/IDC/Boston/Bhullar to

support evidence of breach. Remember, state of mind of the director is
immaterial (Blaikie/Regal – both HL).

Remedies for breach are available via s 178 which refers to the common
law and equity. Therefore, consider account of profit (note cases above)
and/or equitable compensation

Any third party ‘accessory’ liability (knowing receipt/assistance)?

Finally, but briefly, note relief from liability (authorisation/ratification, eg

s 239 CA 2006). And mention also (briefly, again) that the company is the
proper claimant to litigate (Foss v Harbottle – majority rule). Ties in with s
170.

Question Six

In 2012, Charlie won a reality television programme called ‘The

Entrepreneur’. Under competition rules, the host of the programme, Lord
Sweetener, would form a company, with the winner, in order for the
winner’s business to be undertaken. As a consequence, Barrow Boy Ltd.
was formed, with a view to making and selling aids for disabled people,
which was Charlie’s winning, business proposal. Charlie had 60% of the
shares in the company, while Lord Sweetener had 40%. Both were
appointed directors. The company’s articles of association state that, in the
event of a valuation of a member’s shares, a valuer shall be appointed by
the majority shareholder.

In 2015, Lord Sweetener discovered that Charlie was having an affair with
Lord Sweetener’s civil partner and was invoicing the company for
purchasing supplies of disability products for his personal and family use.
When Lord Sweetener confronted Charlie about these matters, Charlie
offered to purchase Lord Sweetener’s shares at a value placed on the
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shares by a valuer appointed by Charlie. Lord Sweetener refused Charlie’s

offer. With both parties refusing to communicate, Charlie passed an
ordinary resolution, at the company’s next general meeting, removing Lord
Sweetener as director.

Advise Lord Sweetener as to what action, if any, he can take under s 994 of
the Companies Act 2006 and/or s 122 of the Insolvency Act 1986.

(100 marks)

Shareholder Protection

S 994 & 996 CA 2006 provides relief (a buy-out order usually) for unfair
prejudicial conduct by the majority. The equal/minority shareholder
needs to establish a breach of legitimate expectation from the articles or
nature of the relationship, especially quasi partnerships – see eg O’Neill,
Harrison, Astec, LSE, Cumana, Sam Weller.

S. 122 IA 1986 (winding up of solvent company, more drastic). Petition

for winding up order on ‘just and equitable’ ground (eg Ebrahimi, Lock,
Re Yenidge Tobacco). S 994 a more common/likely solution.

Consider: quasi-partnerships, exclusion from management, loss of

confidence, etc; nature of relief; alternative remedies; cost of
proceedings (eg Macro).

Question Seven

Gloucester Warriors (‘GW’) Ltd, a professional rugby club, has

gone into liquidation, as of March 2023. The company's liquidator is
faced with several claims from the company's creditors. The name
of each creditor and how much each creditor is claiming is set out
as follows:

 X Bank plc is owed £2m from an unpaid loan. The loan was
originally secured against the company's stadium in 2018
 Y Bank plc is owed £5m from an unpaid loan which was
secured against the company's 'entire undertaking' in 2017.
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 Employees are owed £5,000 each in unpaid wages and

salaries.
 HMRC is owed £100,000 for an unpaid tax bill.
 Z Ltd is owed £50,000 for an unpaid invoice in connection
with supplying rugby equipment six months prior to GW’s
liquidation. Z claims it can rely on a reservation of title clause
 The former chief executive of GW is owed £50,000 from a
loan provided to the company in 2016. In November 2022,
GW granted a charge to the chief executive in connection
with the loan over the company's rugby equipment.

Advise the liquidator as to the nature of the creditors’ claims and

their respective priority. Advise also the liquidator as to whether
any of the parties could rely on a ‘negative pledge’ clause should
such a clause be in existence.

(100 marks)

Debentures and Charges

Companies have two forms of security they can deploy - fixed charges,
that is, a charge over a specified asset or property, or floating charges,
that is, a charge over a class of asset that is changing and consent not
required (Re Yorkshire). Both types of charge are subject to registration
(assume registered here) and, if not registered, are void (s 874 of the CA
2006. Fixed/floating charges may be void if caught by the IA 1986 (eg ss
245/239) – namely, if applicable, the charge in favour of the CEO.
Charge over entire undertaking is a floating charge (Re Panama Mail).
After the fixed chargee (X) would come the creditors having a
preferential debt in accordance with s 175 IA 1986. The preferential
creditors would be the company’s employees for unpaid wages and
salaries (and holiday leave) up to a maximum per employee of £800.
HMRC also a preferential creditor since December 2021. (Employees can
claim against the Redundancy Payments Office)
After payment of the preferential creditors, the next in line would be the
floating charge holders, namely, Y. Any unsecured creditor, including
creditors possessing an unsecured debt, (eg the CEO if void) and Z , the
unpaid seller (unless Z has a successful ‘Romalpa-based’ claim*) would
rank after the payment of floating charge holders. However, the
liquidator has the power to set aside a portion of the assets that would
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otherwise be realised to meet the claims of the floating charge holders

for distribution to the unsecured creditors (s 176A IA 1986). *discuss
Borden, Hendy Lennox, Peachdart etc
Note effect of NP clause – any (valid) fixed chargee ranks below floating
chargee if fixed chargee has actual notice of the NP clause. Only really
applicable to Y and X

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