Suggested Answers - ICSA
Suggested Answers - ICSA
Suggested Answers - ICSA
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Applied Business Law<br />
June 2012<br />
<strong>Suggested</strong> answers and examiner’s comments<br />
Important notice<br />
When reading these answers, please note that they are not intended to be viewed as a definitive<br />
‘model’ answer, as in many instances there are several possible answers/approaches to a question.<br />
These answers indicate a range of appropriate content that could have been provided in answer to the<br />
questions. They may be a different length or format to the answers expected from candidates in the<br />
examination.<br />
Examiner’s general comments<br />
Overall, there was a very low pass rate for this examination session. Candidates did not appear to<br />
have been adequately prepared and the standard of answers was indicative of limited knowledge of<br />
the law and an inability to apply the law to the facts of question scenarios. Some candidates provided<br />
a general description of the key areas of law pertaining to the questions they answered but the<br />
answers lacked substance. Many candidates did not support their arguments with reference to<br />
relevant case law and many did not apply the law appropriately.<br />
A number of candidates did not focus on the issues raised by the questions and provided very general<br />
answers, which resulted in low marks being achieved for those answers. Also, a number of candidates<br />
repeated the facts of the questions without actually answering the question set.<br />
This paper was very challenging for the majority of candidates who, from the answers provided,<br />
appeared to lack the substantive knowledge required and the necessary examination techniques in<br />
order to achieve a pass standard. It was obvious that many candidates were not adequately prepared<br />
for the examination.<br />
The candidates who did achieve a pass standard demonstrated a good understanding of the topics,<br />
good powers of analysis, made good use of case law in order to support their propositions and were<br />
able to apply the law appropriately to the questions set.<br />
© <strong>ICSA</strong>, 2012 Page 1 of 19
1. Ruby jointly owned the family home with Christian, her husband. Christian’s business<br />
was experiencing financial difficulties. In order to try and improve the financial position of<br />
his business, he negotiated a potentially lucrative contract with a major retailer whereby<br />
he was to deliver a consignment of goods to be sold in time for Christmas.<br />
Christian then entered into a contract with a haulier (a firm providing road transport<br />
services) which agreed to deliver the goods in time for the Christmas period. However,<br />
the haulier subsequently contacted Christian and told him that it had underpriced the<br />
carriage charges and sent an invoice showing higher charges. Christian initially refused<br />
to pay these higher charges but was told by the haulier that it would not deliver any<br />
goods unless Christian agreed to them. Christian was concerned that if he did not agree<br />
to the higher charges his goods would not be delivered in time for Christmas and this<br />
would cause more problems for his business. Christian reluctantly agreed that he would<br />
pay the higher charges but, after the goods had been delivered, he refused to pay the new<br />
amount, insisting that he was only prepared to pay the charges agreed when he entered<br />
into the contract. When sued by the haulier, he pleaded economic duress.<br />
Christian also contacted his bank manager to arrange a loan. The bank said that it was<br />
prepared to lend Christian £50,000 provided he put up his house as security. Christian<br />
asked Ruby to sign the contract agreeing to this. Ruby did not have much confidence in<br />
her husband’s business and was reluctant to do this. However, Christian persuaded her<br />
to go along to the bank to speak with the bank manager. Ruby said that she wanted to<br />
speak to the bank manager alone but this did not happen and she eventually signed the<br />
contract. The loan was not repaid and the bank wants to take possession of the house.<br />
Required<br />
(a) Explain what is meant by ‘duress’ and ‘economic duress’ and whether Christian will<br />
be liable to pay the higher charges.<br />
(7 marks)<br />
<strong>Suggested</strong> answer<br />
Duress<br />
In order to establish that a legally binding contract has come into existence, it is necessary to<br />
show a consensus between the parties to the contract. If there is no true consent because one<br />
of the parties has been coerced into entering into the contract, then the contract would be<br />
voidable at the option of the coerced party.<br />
There are two basic forms of duress: physical and economic. In order to establish that a contract<br />
had been entered into under duress, candidates should have identified the conditions that have<br />
to be satisfied, namely:<br />
� Pressure was exerted on the contracting party.<br />
� The pressure induced the claimant to enter into the contract.<br />
� The claimant had no real choice but to enter into the contract.<br />
� The claimant protested at the time or shortly after the contract was made.<br />
Economic duress<br />
Economic duress occurs where one party is forced to enter into a contract due to economic<br />
pressure.<br />
The difficulty, however, is distinguishing between acceptable business pressure and<br />
unacceptable economic duress. In Atlas Express v Kafco [1989], Kafco entered into a contract<br />
with Woolworths for the delivery of goods in time for Christmas. Kafco then entered into a<br />
contract with the claimants to deliver the goods to Woolworths. The claimants subsequently<br />
increased their delivery charges and informed Kafco that unless Kafco agreed to the increase<br />
© <strong>ICSA</strong>, 2012 Page 2 of 19
charges, then they would not deliver the goods. Kafco reluctantly agreed to pay the increased<br />
charges but subsequently refused to pay claiming economic duress. The court held that this was<br />
a clear case of economic duress and Kafco did not have to pay the increased charges.<br />
Candidates should have advised Christian that, following Atlas Express v Kafco, there is a clear<br />
case of economic duress and Christian would not be required to pay the increased hire charges.<br />
The haulier had clearly tried to coerce Christian into agreeing to pay the increased charges by<br />
refusing to deliver the goods in time for Christmas.<br />
(b) Explain what is meant by ‘undue influence’ and outline the different classes of<br />
undue influence.<br />
(8 marks)<br />
<strong>Suggested</strong> answer<br />
Undue influence is an equitable doctrine, which applies where one party uses their influence<br />
over the other to persuade them to enter into a contract.<br />
Undue influence can be divided into two classes:<br />
(i) Actual undue influence.<br />
(ii) Presumed undue influence inferred from the relationship between the parties and the<br />
nature of the resulting transaction.<br />
Actual undue influence<br />
This arises where the claimant can prove that they entered the transaction as a result of undue<br />
influence from the other party.<br />
Candidates were required to refer to case law in order to illustrate their answers. In Williams v<br />
Bayley [1866], the plaintiff’s son had given forged documents to a bank. The bank told the<br />
claimant that they had the power to prosecute his son. The father of the forger executed a<br />
mortgage in the banker’s favour in return for the forged documents. It was held that the<br />
mortgage was unenforceable because “it had been extorted from the father by undue pressure”<br />
as the father knew that his son would be prosecuted if he did not give the mortgage. The House<br />
of Lords set the contract aside because undue influence had been proved as the father had not<br />
entered the contract freely.<br />
Presumed undue influence<br />
Candidates should have made reference to the different types of relationship where undue<br />
influence is automatically presumed to exist:<br />
� Parent and child.<br />
� Religious advisor and disciple.<br />
� Guardian and ward.<br />
� Solicitor and client.<br />
� Trustee and beneficiary.<br />
� Doctor and patient.<br />
In such relationships one party is, by reason of the confidence placed in him, able to take unfair<br />
advantage of the other and the presumption is that it is up to the defendant to disprove the<br />
existence of undue influence (Tate v Williamson [1866]). In Tate v Williamson, Williamson<br />
became the financial advisor to an extravagant student and persuaded the student to sell the<br />
estate to Williamson for half of is true value. The student died and his executors challenged the<br />
sale on the grounds of undue influence and were successful in having the sale of the estate set<br />
aside.<br />
© <strong>ICSA</strong>, 2012 Page 3 of 19
If the relationship does not fall within one of the automatic relationships of trust and confidence,<br />
then the influenced party must prove on the facts that there was such a relationship between the<br />
parties. This would include a husband and wife, who do not fall within one of the automatic<br />
relationships.<br />
(c) Explain whether the bank will be able to take possession of Ruby and Christian’s<br />
home.<br />
(10 marks)<br />
<strong>Suggested</strong> answer<br />
Candidates should have discussed third party cases where the typical transaction is between a<br />
wife and a bank, whereby the wife signs a guarantee with the bank with undue influence<br />
allegedly coming from the husband (the third party) whose debt to the bank is being guaranteed<br />
by his wife. There is no contract between the husband and wife; the contract sought to be<br />
rescinded is between the wife and the bank and this is free from undue influence. The key<br />
question is whether the bank is tainted by undue influence between the wife and the third party<br />
(her husband). A transaction will not be set aside on the ground of undue influence unless it can<br />
be shown that the transaction is to the manifest disadvantage of the person subjected to the<br />
undue influence. Moreover, a presumption of undue influence will not arise merely because a<br />
confidential relationship exists, provided the person in whom confidence is placed keeps within<br />
the boundaries of a normal business relationship.<br />
In National Westminster v Morgan [1985], Mrs Morgan agreed to the family home being<br />
mortgaged to secure a loan made to her husband. The bank manager told her in good faith, but<br />
incorrectly, that the mortgage only covered the house and not her husband’s business. Mr<br />
Morgan died owing the bank money in respect of the house loan but there was no liability in<br />
respect of his business. The bank sought possession of the house but Mrs Morgan argued that<br />
she had only signed the mortgage because of undue influence on the part of the bank and<br />
therefore the possession order should be set aside. The House of Lords held that her action<br />
should fail as the bank manager had not taken advantage of her and the transaction was not to<br />
her disadvantage.<br />
If it is proved that there was a relationship of trust and confidence and there was a transaction<br />
calling for an explanation, then that still does not necessarily establish a case of undue<br />
influence; the other party still has the opportunity to rebut the presumption by showing that the<br />
vulnerable party was acting independently from any influence and with the full appreciation of<br />
what he was doing. This is most easily shown by proving that the party complaining of undue<br />
influence had independent advice.<br />
One way of doing this would be for the bank to insist that the wife attends a private meeting with<br />
a bank representative (i.e. without the husband) at which the full extent of her liability is<br />
explained, where she is warned of the risks she is taking and urged to take independent advice<br />
from a solicitor.<br />
Essentially, the solicitor should:<br />
� Explain why he has become involved (because the bank seeks assurance that the wife<br />
understands the transaction and freely consents to it).<br />
� Explain the documents and the consequences of signing them.<br />
� Point out the seriousness of the risks (including potentially losing her home).<br />
� Emphasis that she has a choice.<br />
� Check that she wishes to proceed on the terms offered by the bank.<br />
The consequence of finding that the bank had notice of any irregularity between the husband<br />
and wife is that the guarantee or charge given by the wife is voidable. To avoid this happening,<br />
the bank must get a written confirmation from the solicitor providing the independent advice that<br />
the wife has been independently advised.<br />
© <strong>ICSA</strong>, 2012 Page 4 of 19
Ruby should therefore have been advised that she had a good case for arguing that she was not<br />
bound by the contract she signed with the bank, as she did not receive independent advice. She<br />
should have seen an independent solicitor, without the presence of her husband, who should<br />
have advised her of the risk she was undertaking. Hence the bank may not be able to take<br />
possession of Ruby and Christian’s home.<br />
Examiner’s comments<br />
This was a straightforward question on duress and undue influence and produced some very<br />
good answers. However, many candidates, after stating the law accurately, did not apply the law<br />
to the facts of the scenario. Many candidates also did not make the distinction between actual<br />
and presumed undue influence and did not refer to relevant case law.<br />
Several answers assumed that the bank had been guilty of undue influence over Ruby and<br />
Christian. However, the question required a discussion of whether there was undue influence on<br />
the part of Christian to persuade his wife to enter into the contract with the bank. There was no<br />
contract between Ruby and Christian, and the contract that was sought to be set aside on the<br />
grounds of undue influence was the contract between Ruby and the bank, which was free from<br />
undue influence. The issue was whether the bank was tainted by undue influence by Christian<br />
over Ruby.<br />
<strong>Answers</strong> should have considered whether the bank had acted reasonably in ensuring that Ruby<br />
was fully aware of the risks she was taking. In order to protect itself, the bank should have<br />
insisted that Ruby sought independent advice and that she was made aware that she could lose<br />
her home if the loan was not repaid. It should have been made clear to Ruby that she had a<br />
choice whether to enter into the contract with the bank and, if the bank did not advise Ruby<br />
accordingly, it may not be able to enforce the contract against her.<br />
© <strong>ICSA</strong>, 2012 Page 5 of 19
2. Arnold Jacklaus (‘Arnold’), a well-known golfer, agreed to act as coach to Peter Franklin<br />
(‘Peter’), the Managing Director of Franklin Golf Equipment Ltd. The agreement contained<br />
terms stating that:<br />
(i) Arnold would not partner any player other than Peter in any tournament in which<br />
Peter was eligible to play.<br />
(ii) Arnold would use only Franklin golf equipment.<br />
(iii) Arnold would act as coach to Peter.<br />
Peter and Arnold entered the Skada Cars Tournament but Peter failed to turn up on day<br />
one because his car broke down. Arnold then partnered Nick Pravino, who also owns a<br />
golf equipment business. Nick Pravino provided a sweater and golf bag with ‘Pravino’<br />
written on them, which Arnold used for the first hour of the tournament until he<br />
remembered his agreement with Peter.<br />
Arnold had given up the opportunity to coach another player at a very good price in order<br />
to coach Peter and is very angry when he is told by Peter that he is repudiating their<br />
agreement.<br />
Required<br />
(a) Advise Arnold how contractual terms can be classified and the consequences of<br />
breaching such terms.<br />
(10 marks)<br />
<strong>Suggested</strong> answer<br />
Candidates were required to discuss the difference between a condition, warranty and<br />
innominate term.<br />
A condition is a term which goes to the root of the contract and, if breached, amounts to a<br />
repudiatory breach of contract, entitling the innocent party to terminate the contract.<br />
If the term is classified as a warranty, this is a minor term of the contract which, if breached,<br />
entitles the innocent party to claim damages in respect of the breach but he must continue with<br />
the contract.<br />
If the term is classified as an innominate term, then the court will wait and see what the<br />
consequences of the breach are before determining whether it should be treated as a breach of<br />
condition or a breach of warranty. For example, in Hong Kong Fir Shipping [1962], a ship<br />
delivered under a 24 month charter party was unseaworthy and took seven months to repair.<br />
Lord Diplock stated that the obligation to provide a seaworthy ship was neither a condition nor a<br />
warranty but could constitute both depending on the consequences of the breach. The innocent<br />
party should be entitled to rescind the contract only if the effect of the breach was to deprive him<br />
of substantially the whole benefit of the contract. As the ship was available for 17 months out of<br />
24 months, rescission was not granted. Such a ‘breach based’ approach has the advantage of<br />
flexibility over the ‘term based’ approach. However, the argument against the use of innominate<br />
terms is that they cause uncertainty as the parties do not know what the consequences are of<br />
any breach until the court has decided the status of the term. Certainty is less important in ‘one<br />
off’ contracts than in commercial contracts. In a commercial contract, it is important that the<br />
parties know what their rights are when they enter into a contract.<br />
Whether the court decides to adopt the traditional approach of classifying terms as conditions or<br />
warranties or whether to follow the approach in Hong Kong Fir Shipping [1962], will be driven by<br />
two considerations:<br />
© <strong>ICSA</strong>, 2012 Page 6 of 19
� The need for certainty, which is particularly important in commercial contracts and<br />
particularly where the term is a standard one always to be found in a particular type of<br />
contract.<br />
� The desire to do justice between the parties. This is more relevant in ‘one off’ contracts.<br />
(b) Advise Arnold whether he has breached any terms of the contract and, if so,<br />
whether Peter can repudiate their agreement.<br />
(15 marks)<br />
<strong>Suggested</strong> answer<br />
<strong>Answers</strong> should have identified three terms:<br />
Term 1: Not to play in any tournament except as Peter’s partner.<br />
Term 2: Only to use Franklin golf equipment.<br />
Term 3: To coach Peter.<br />
Term 1<br />
Candidates should have considered what type of term this is and whether the term goes to the<br />
root of the contract or not. As the first line of the agreement sates that the agreement is to coach<br />
Peter, it could be argued that the playing in tournaments is incidental to that and therefore a<br />
warranty only. However, candidates should also have considered the possibility that it could be<br />
classed as an innominate term. Although it probably would not affect the remedy on this<br />
occasion, it may allow for repudiation if the same term is broken in the future in a more serious<br />
way or if the term is broken persistently. The argument against the use of the innominate term,<br />
i.e. uncertainty, does not really apply here. It is unlikely that such a contract is to be widely used<br />
and therefore predictability for others is not really an issue. Therefore, on balance, the term is<br />
likely to be regarded as innominate.<br />
Having established the type of term in question, it was then necessary to consider whether it had<br />
actually been broken, otherwise there is no remedy. Better answers would have considered<br />
whether it might have been possible to imply a term into the contract that Arnold should be able<br />
to partner others when Peter was not available to play. If no such term was implied, then Arnold<br />
could end up playing in no tournaments for two years if Peter refused to enter any. This would<br />
not be in the best interests of either party since Term 2, only to use Franklin golf equipment,<br />
would be of no value if he was never able to play in a tournament. Hence, it is suggested that<br />
such a term could be implied.<br />
Term 2<br />
Candidates should have discussed whether this term was a condition or a warranty, which<br />
depends on whether the contract is about coaching or is a sponsorship agreement. The only<br />
way this could be determined would be by looking at how much Arnold was being paid. If the fee<br />
was substantial then it would be more likely to be one of sponsorship and the term is therefore<br />
more likely to be a condition. If the fee was more commensurate with coaching then the term is<br />
more likely to have been classified as a warranty. Again, the term could have been classed as<br />
innominate. On this occasion, the breach seems trivial but it could be serious if Arnold<br />
deliberately used Pravino equipment in a highly publicised tournament or if there were persistent<br />
breaches in the future.<br />
Candidates should also have considered whether it made any difference if the breach was<br />
deliberate or accidental. Liability for breach of contract is strict and therefore it makes no<br />
difference whether the contract was breached accidently or deliberately. Therefore, Arnold would<br />
be liable for breach of contract for using the Pravino equipment, even though he stopped using it<br />
after one hour. As this breach was accidental, it is likely to have been regarded as a breach of<br />
warranty only.<br />
© <strong>ICSA</strong>, 2012 Page 7 of 19
Term 3<br />
Whether this would be classified as a condition or a warranty would be determined by the nature<br />
of the contract as discussed above. <strong>Answers</strong> needed to analyse whether this is primarily a<br />
coaching contract, in which case this term would be a condition, or if the main purpose of the<br />
contract was a sponsorship arrangement, in which case this term would probably have been<br />
treated as a warranty. However, there is nothing to suggest that this term has been broken.<br />
Examiner’s comments<br />
This question was popular but produced some very mixed answers. <strong>Answers</strong> should have<br />
focused on the classification of terms as conditions, warranties and innominate and the<br />
consequences of breaching such terms. Many candidates correctly discussed the difference<br />
between a condition and a warranty but did not refer to innominate terms or the decision in Hong<br />
Kong Fir Shipping [1962].<br />
Some candidates provided very general answers explaining the distinction between express and<br />
implied terms and also discussing exclusion clauses. Some candidates also discussed the<br />
difference between terms and representations, although this was not required by the question.<br />
Several candidates simply repeated the facts of the scenario without addressing the issues<br />
raised by the question. A few candidates appeared to misinterpret the question as relating to<br />
contracts in restraint of trade.<br />
Common errors when answering this question included: not applying the law appropriately to the<br />
scenario, not citing relevant case law and not focussing specifically on what the question was<br />
asking. In order to achieve a pass standard, candidates should avoid writing ‘all they know’ on a<br />
topic and need to focus answers on the question that has been set.<br />
© <strong>ICSA</strong>, 2012 Page 8 of 19
3. Isabella, a journalist for her local radio station, was invited to interview Marcus, a local<br />
singer, who had recently come second in a high-profile talent competition. Isabella<br />
recorded the interview on her portable recorder. During the interview, Marcus stated that<br />
the outcome of the competition was ‘fixed’ and that the person who organised it, Dalia,<br />
had taken bribes from the eventual winner. Marcus also told Isabella that Dalia is a liar<br />
and a cheat.<br />
Isabella decided not to broadcast the interview as she felt that it may have been<br />
defamatory. However, she inadvertently left her portable recorder on her desk and Magda,<br />
a fellow journalist, listened to the recording. Magda thought that this was a very<br />
interesting story and decided to broadcast the interview during her late-night radio show.<br />
Dalia, who was listening to Magda’s show, was horrified by what she heard and wants to<br />
sue for defamation.<br />
Required<br />
(a) Explain what is meant by ‘defamation’ and explain the difference between ‘libel’ and<br />
‘slander’.<br />
(6 marks)<br />
<strong>Suggested</strong> answer<br />
Candidates were required to discuss and apply the law relating to defamation. Defamation<br />
occurs when the defendant publishes a statement which either lowers the claimant in the<br />
estimation of right thinking members of society generally or causes the claimant to be shunned<br />
and avoided (Lord Atkin in Sim v Stretch [1936]). By stating that Dalia is a liar and a cheat, this<br />
could make people shun and avoid her and is therefore defamatory.<br />
Defamation is an attack on reputation and takes two forms: libel and slander.<br />
Libel is a defamatory statement in a permanent form such as writing, pictures, television, films,<br />
radio, theatre, records or wax works. Slander is a defamatory statement in a temporary form<br />
such as the spoken word or gestures. However, modern technology has created some<br />
difficulties in drawing the distinction between the two.<br />
Any claim that Dalia could bring would be for libel, as the Broadcasting Act 1990 provides that<br />
words or visual images broadcast for general reception are to be treated as libel. Hence the<br />
radio broadcast by Magda would amount to libel and she would be liable unless she could<br />
successfully plead one of the defences.<br />
There are two important distinctions between libel and slander:<br />
(i) Libel which tends to provoke a breach of the peace can be a crime as well as a tort,<br />
whereas slander is only a tort.<br />
(ii) Libel is actionable per se (without proof of actual damage) whereas slander is actionable<br />
only on proof of damage, except in the following circumstances:<br />
� Imputation of a criminal offence punishable with imprisonment.<br />
� Imputation of a contagious disease.<br />
� Imputation of unchastity, adultery or lesbianism in a woman.<br />
� Imputation of unfitness or incompetence in relation to any profession, trade, calling<br />
or business held or carried on by the claimant.<br />
© <strong>ICSA</strong>, 2012 Page 9 of 19
(b) Advise Dalia whether she can successfully bring an action for defamation.<br />
<strong>Suggested</strong> answer<br />
(8 marks)<br />
In order to succeed in a claim for defamation, candidates should have advised Dalia that she<br />
would have to show three things:<br />
� That the statement was defamatory.<br />
� That it referred to her.<br />
� That it had been published by the defendant.<br />
Candidates should also have discussed that, although the statement must refer to the claimant,<br />
she need not necessarily be named (J’Anson v Stuart [1789]). Moreover, it is no defence to say<br />
that the defendant did not intend to refer to the claimant, unless the defence of unintentional<br />
defamation succeeds (Hulton v Jones [1910]). Equally, it is no defence to say that the words<br />
intended to refer to a third person of whom they were true (Newstead v London Express [1939]).<br />
In order to succeed, Dalia must prove that the statement was published, i.e. communicated to at<br />
least one person other than herself. However, a person is not liable if publication occurs only as<br />
a result of an act which is not reasonably foreseeable by him, such as a letter being opened by<br />
the claimant’s butler. Applying this to the question, Isabella could not reasonably foresee that<br />
Magda would listen to her private interview on her personal recorder and then broadcast it.<br />
Therefore, Isabella would not be liable for defamation.<br />
Two or more persons may be responsible for the same publication, for example, the author,<br />
printer, publisher and bookseller. To mitigate the harshness of this, a statutory defence was<br />
introduced in the Defamation Act 1996, which is available to printers, publishers, sellers and<br />
those involved in the production of film, audio and electronic publications. The defence will only<br />
be available if the defendant had taken all reasonable care and had no reason to think that their<br />
act would have a defamatory effect. Also, it is not available to a defendant who knew that their<br />
act involved or contributed to a publication which defamed the claimant. As Marcus originated<br />
the statements and published them to Isabella he could be held liable as well as Magda who<br />
broadcast them.<br />
(c) Advise Dalia of any defences that can be raised.<br />
<strong>Suggested</strong> Answer<br />
(11 marks)<br />
The law on defamation seeks to protect reputation but clearly restricts freedom of speech. The<br />
law tries to strike a balance between these competing interests and does so by enabling the<br />
defendant to raise a defence.<br />
The major defences which could apply in this scenario include:<br />
Justification<br />
This defence would be available if the statement was substantially true and any small<br />
inaccuracies would not defeat this defence (Alexander v NE Railway Co [1865]). The burden of<br />
proving justification rests on the defendant and it is no defence to simply state that the defendant<br />
honestly believed the statement to be true. This is a complete defence even if the statement was<br />
made maliciously. If Magda and Marcus can prove that the statements broadcast were<br />
substantially true, this would be a complete defence.<br />
© <strong>ICSA</strong>, 2012 Page 10 of 19
Fair comment<br />
This defence would apply where the statement is a fair comment made in good faith on a matter<br />
of public interest. In order to succeed in this defence it must be shown:<br />
(i) The subject matter must be of public interest, such as the conduct of a politician.<br />
(ii) The statement must be an opinion and not fact.<br />
(iii) The comment must be based on facts which, if stated with the comment, must be true.<br />
(iv) The comment must be fair and not motivated by malice.<br />
If it could be proved that Dalia did take bribes then the comment that she is a cheat and a liar<br />
may amount to fair comment.<br />
Qualified Privilege<br />
This is not an absolute defence but could be a defence provided the statement was not<br />
published with malice. This defence applies where the defendant has a duty or an interest to<br />
pass on information about the claimant to a third party and the third party has a duty or interest<br />
in receiving the information.<br />
<strong>Answers</strong> should have concluded that Marcus was potentially liable for defamation as he made<br />
the statements thinking that they would be broadcast. Equally, Magda would be liable as she<br />
broadcast the interview. If Magda and Marcus can prove that Dalia did accept bribes then the<br />
defence of fair comment would lie in respect of the statement that Dalia is a cheat and a liar.<br />
Examiner’s comments<br />
This was a popular question and produced some very good answers. Most candidates identified<br />
the distinction between libel and slander. However, many of the answers lacked substance and<br />
could have been developed more fully. Again, some answers did not apply the law to the facts of<br />
the scenario. Also, some answers confused the defences to an action in defamation with the<br />
remedies that are available if defamation is proved.<br />
Good answers made use of case law to support the arguments made and the arguments were<br />
presented clearly and concisely, with the law applied appropriately to the facts of the question.<br />
© <strong>ICSA</strong>, 2012 Page 11 of 19
4. Thomas was the Managing Director of Just Bikes Ltd (‘Just Bikes’). Just Bikes owns four<br />
bicycle shops in London, but Thomas decided to reorganise the shops following a drop<br />
in profits.<br />
In one of Just Bikes’ bicycle shops, Bob was the Manager and Jeff was the Assistant<br />
Manager. Thomas decided that the post of Assistant Manager was no longer required.<br />
However, rather than dismiss Jeff, he gave Jeff the Manager’s job and has instructed Bob<br />
that he must relocate to work as Manager of the second shop, which is a mile away.<br />
Ken was Manager of the third shop and Horace was Manager of the fourth shop. Thomas<br />
decided to merge the two shops. As only one Manager would be required, Thomas<br />
interviewed Ken and Horace for the post of Manager. Ken was informed that he had been<br />
unsuccessful. However, rather than dismissing him, Thomas offered Ken the job of<br />
Assistant Manager of the merged shop on his existing salary.<br />
Required<br />
(a) Explain what is meant by dismissal by reason of redundancy as set out in s.139<br />
Employment Rights Act 1996.<br />
(5 marks)<br />
<strong>Suggested</strong> answer<br />
Section 139 Employment Rights Act 1996 provides that redundancy is presumed to occur<br />
where the services of employees are dispensed with or because the employer ceases or intends<br />
to cease carrying on business at the place where the employee was employed or does not<br />
require so many employees to do work of a certain kind. In certain circumstances an employee<br />
may receive compensation for the loss of his job. The amount of compensation is related to the<br />
age, length of service and average weekly earnings of the redundant employee.<br />
(b) Using case law as a basis for your answer, advise Bob and Ken whether they have<br />
been dismissed by reason of redundancy and are entitled to claim redundancy<br />
payments.<br />
(20 marks)<br />
<strong>Suggested</strong> answer<br />
Candidates were required to apply the law to the scenario and refer to appropriate case law.<br />
Redundancy occurs either when the whole or part of the business is closed or when the<br />
requirement for employees of a particular kind has ceased or diminished. For example, in<br />
European Chefs v Currell Ltd [1971], a pastry cook was dismissed because the requirement for<br />
his speciality (éclairs and meringues) had ceased and had been replaced with the need for<br />
continental pastries. Another person was employed to make the continental pastries and the<br />
pastry cook was deemed to be redundant and entitled to redundancy payment as the need for a<br />
cook of this type had ceased.<br />
In Vaux & Associated Breweries v Ward [1969], the landlord of a public house dismissed the 57<br />
year old barmaid as he was converting the pub into a disco and wanted to employ a younger<br />
person in order to attract customers. It was held that there had been no redundancy as there<br />
had been no change in the nature of the particular work being done and therefore she was not<br />
entitled to redundancy payments.<br />
In UK Atomic Energy Authority v Claydon [1974], an employee was obliged under his contract of<br />
employment to move anywhere in the UK. The court held that the need for fewer employees at<br />
one plant did not constitute a diminuition at his place of employment as his place of employment<br />
was anywhere in the UK.<br />
© <strong>ICSA</strong>, 2012 Page 12 of 19
In North East Riding Garages v Butterwick [1967], Butterwick had been employed as a workshop<br />
manager at a garage for 30 years. His work was mainly of a mechanical nature. The garage was<br />
taken over and the new owner required Butterwick to take on work of an administrative nature as<br />
well as mechanical. Butterwick could not adapt to his new role and was dismissed. He claimed<br />
redundancy but failed as there had been no diminuition in the need for a workshop manager.<br />
In Chapman v Goonvean Rostowrack China Co [1973], the company provided free transport for<br />
employees living in excess of 30 miles from the works. The free transport was discontinued as it<br />
was no longer economically viable to provide it as demand had fallen. Those employees who<br />
could no longer get to work gave notice but it was held that there was no redundancy situation<br />
as the requirement for employees had not been diminished.<br />
Candidates were required to advise Bob on his chances of successfully claiming a redundancy<br />
payment and should have referred to Murray & Another v Foyle Meats Ltd [1999], where the<br />
House of Lords held that, as long as the staff was reduced by the number of redundancies<br />
specified, it did not matter whether the person in an unwanted post was made redundant or<br />
another person. If Bob had a mobility clause in his contract then, given reasonable notice, he<br />
would have to transfer and so would not be made redundant. If there was no express mobility<br />
clause then one may be implied, if reasonable to do so, if the distances in question were not<br />
excessive.<br />
In advising Ken, answers should have explained that if suitable alternative employment is<br />
offered, and the employee unreasonably refuses it, he will not be entitled to redundancy<br />
payments. However, the alternative employment must be on the same or similar conditions. If<br />
the offer of continued employment is on different terms and conditions, the employee must be<br />
permitted a trial period of up to four weeks in which to decide if the job is suitable. Whether an<br />
offer of alternative employment is suitable or not must be determined objectively. If an<br />
employee’s wages or status are considerably reduced, this will not normally amount to a suitable<br />
alternative. Even if the offer is suitable, an employee may not be barred from compensation if he<br />
can demonstrate that his refusal to accept it was not unreasonable in the circumstances. This is<br />
a subjective test and may depend on personal or financial circumstances. In Taylor v Kent<br />
County Council [1969], Taylor was the headmaster of a boy’s school which was subsequently<br />
merged with a girl’s school and a new head appointed over the merged school. Taylor was<br />
offered employment in a pool of teachers standing in for short periods in understaffed schools.<br />
His salary was to remain the same but it was held that he was being offered something<br />
substantially different, especially with regard to his status and therefore was entitled to<br />
redundancy pay.<br />
Ken should have been advised that, following Taylor v Kent County Council, he had a good<br />
claim for redundancy payments as the job of Assistant Manager is substantially different to that<br />
of Manager, even though his salary remains unchanged.<br />
Examiner’s comments<br />
For this question, most candidates provided a good account of the law relating to redundancy<br />
but, again, often did not apply the law to the facts of the question. Despite the question requiring<br />
candidates to refer to case law to support their answers, most candidates did not refer to<br />
sufficient case law.<br />
Many candidates did not include in their answers that any alternative employment offered to a<br />
redundant employee has to be suitable alternative employment and if the offer of a different job<br />
resulted in a loss of status, even though the salary remained the same, the employee is not<br />
obliged to accept it.<br />
© <strong>ICSA</strong>, 2012 Page 13 of 19
NOTICE<br />
Regrettably, an error was included in the examination paper taken in June 2012. Question 4(a)<br />
originally referred to s.136 Employment Rights Act 1996 and this has been corrected as s.139<br />
Employment Rights Act 1996. We would like to assure you that no students were disadvantaged<br />
as a result of this. For future reference, question 4(a) has been corrected in this document.<br />
© <strong>ICSA</strong>, 2012 Page 14 of 19
5. (a) Explain what is meant by ‘copyright’ and how it is protected.<br />
<strong>Suggested</strong> answer<br />
(10 marks)<br />
Copyright involves the exclusive right to use one’s own work and it protects every original<br />
literary, dramatic, musical and artistic work which was previously unpublished. Copyright does<br />
not protect ideas but protects the way in which the ideas are expressed. The law relating to<br />
copyright is to be found in the Copyright, Designs and Patents Act 1988 as amended by the<br />
Copyright and Related Rights Regulations 2003, which implemented the Information Society<br />
Directive (2001/39).<br />
Section 1(1) defines copyright as:<br />
� Original literary, dramatic, musical or artistic works.<br />
� Sound recordings.<br />
� The typographical arrangements of published editions.<br />
Copyright exists for different lengths of time, depending on the type of work concerned. In the<br />
case of music, the copyright expires at the end of 70 years from the end of the calendar year in<br />
which the author dies: Duration of Copyright and Rights in Performance Regulations 1995.<br />
Candidates should have described the remedies available for the infringement of copyright.<br />
Section 96 provides that the remedies available for infringement of copyright include damages.<br />
However, the remedy of damages is not available if the defendant, at the time of infringement,<br />
did not know and had no reason to believe that copyright subsisted in the work. When a court<br />
awards damages, it may award additional damages if the justice of the case so requires. In<br />
assessing this, s.97 requires the court to have regard to all the circumstances of the case but<br />
particularly to the flagrancy of the infringement and the benefits accruing to the defendant by<br />
reason of that infringement.<br />
The court may also order an account of profits made from the wrongful use of the copyright work<br />
or issue an injunction in order to prevent any further infringement.<br />
There are also criminal sanctions that may be imposed for making copies of work for sale or<br />
hire, importing them for business purposes, possessing them for business purposes with a view<br />
to committing a copyright infringement and selling, exhibiting or distributing them. The 2003<br />
Regulations created a new criminal offence of infringing a work by communicating it to the public<br />
to such an extent as to prejudicially affect the owner of the copyright.<br />
(b) What defences may be available for infringement of copyright?<br />
<strong>Suggested</strong> answer<br />
There are a number of defences which could be raised:<br />
� Fair dealing, which entails research or private study.<br />
� For the purpose of criticism or review.<br />
� Reporting of current events.<br />
� Use by licence or short extracts.<br />
� Use by educational establishments and librarians.<br />
� Use for the purpose of judicial or parliamentary proceedings.<br />
(5 marks)<br />
© <strong>ICSA</strong>, 2012 Page 15 of 19
(c) Sundeep has been selling football souvenirs and memorabilia bearing the name and<br />
logo of the football club Manford United (‘Manford’) for many years. He set up a stall<br />
outside Manford’s ground and put up a sign stating that his merchandise was not<br />
official club merchandise.<br />
Manford objects to Sundeep’s enterprise, arguing that this is an infringement of<br />
Manford’s trade mark, which it had duly registered.<br />
Required<br />
Advise Manford what is meant by a ‘trade mark’ and how it can be enforced in this<br />
situation.<br />
(10 marks)<br />
<strong>Suggested</strong> answer<br />
For the final part of the question, candidates were required to apply the law correctly to the facts<br />
of the scenario and should have advised Manford that a trade mark is defined under s.1(1) of the<br />
Trade Marks Act 1994 as:<br />
‘any sign capable of being represented graphically which is capable of distinguishing goods or<br />
services of one undertaking from those of other undertakings. A trade mark may, in particular,<br />
consist of words (including personal names), designs, letters, numerals or the shape of goods or<br />
their packaging.’<br />
Once a trade mark has been registered, this prevents others from using the same image and<br />
provides the owner with exclusive use of the mark and anyone who infringes the mark will be<br />
liable to a civil action by the owner. Moreover, the police and Trading Standards can also bring<br />
criminal proceedings for breach, such as with counterfeiters. Infringement of a trade mark occurs<br />
where the trade mark and the other item are confusingly similar to make the consumer buy one<br />
good believing it to belong to the trade mark holder. In Arsenal Football Club Plc v Reed [2003],<br />
Arsenal Football club brought an action against Mr Reed who sold souvenirs and other<br />
memorabilia bearing the club’s name and badge outside the club’s ground. Mr Reed had a<br />
notice by his stall indicating that his products were not official club merchandise. The ECJ ruled<br />
that the function of a trade mark is to avoid confusion as to the origin of goods and that the<br />
disclaimer did not remove the confusion. Hence Mr Reed was found guilty of infringing the<br />
Arsenal trade mark in spite of his disclaimer.<br />
Following this decision, candidates should have advised Manford that it has a good cause of<br />
action against Sundeep for infringement of it’s trade mark and could apply for an injunction to<br />
prevent him from selling his merchandise in the future. The court could also exercise its power to<br />
make an award of damages. Moreover, Trading Standards could also bring a criminal action<br />
against Sundeep for selling counterfeit goods, for which he could receive a term of imprisonment<br />
of up to 10 years and/or an unlimited fine.<br />
Examiner’s comments<br />
This was the least popular of the questions but was generally answered quite well. It was a<br />
straightforward question on copyright and trade marks and most candidates cited the law<br />
correctly and applied it appropriately to the scenario. However, in general, part (b) on defences<br />
to infringement of copyright was not as well answered.<br />
© <strong>ICSA</strong>, 2012 Page 16 of 19
6. Chelmer Medical Services Ltd (‘CMS’) is a private medical company which owns a<br />
hospital in London. You have been asked to advise the board of directors of CMS on the<br />
following equal pay issues that have arisen recently:<br />
(i) Marcus and Petra are both hospital administrators and their duties are largely the<br />
same. Marcus is unhappy that Petra earns £5,000 a year more than him. Petra does<br />
have additional authority to approve payments to suppliers although, in practice,<br />
Colin, their manager, always carries out this task.<br />
(ii) Ben is the only male nurse employed by the hospital. Some of the female nurses<br />
earn more than Ben and some earn less, even though they all carry out the same<br />
duties. Ben is unhappy that he earns less than Christina, another nurse.<br />
(iii) At the hospital, all the physiotherapists are female and all the radiographers are<br />
male. The radiographers earn a higher basic wage than the physiotherapists. Sin,<br />
one of the physiotherapists, complained to her manager about the pay difference.<br />
Her manager told her that the difference was a result of separate pay negotiations in<br />
the past.<br />
(iv) Due to a shortage of doctors in casualty, CMS is forced to recruit three new doctors<br />
on a higher basic rate of pay than the five female doctors already employed in the<br />
casualty department. The new recruits are all male.<br />
Required<br />
(a) Explain the law relating to equal pay.<br />
<strong>Suggested</strong> answer<br />
(7 marks)<br />
Note: candidates were permitted to answer this question according to the provisions of<br />
the Equality Act 2010 or the Equal Pay Act 1970.<br />
Candidates were required to discuss a variety of equal pay related issues. The Equal Pay Act<br />
1970 (Equality Act 2010) has the object of eliminating discrimination between men and women<br />
in regard to pay and other conditions of employment such as overtime, bonuses, piecework<br />
payments, holidays and sick leave entitlement. Pay is defined broadly and includes, for example,<br />
travel concessions given to retired male employees which are not available to female retirees. It<br />
also includes part-time employees not receiving sick pay when it is paid to full-time employees<br />
and differing payments, including pensions, resulting from redundancies.<br />
The Act applies to all persons under a contract of employment, whether full or part-time,<br />
irrespective of age or length of service. The Act implies an equality clause into contracts of<br />
service which means that a man or a woman must be given contractual terms no less favourable<br />
than those given to an employee of the opposite sex.<br />
Section 79 Equality Act 2010 provides that:<br />
It is for the applicant to identify a particular comparator who must be in the same employment as<br />
the applicant.<br />
For the equality clause to operate, one of three principal tests must be satisfied:<br />
A’s work is equal to that of B if it is:<br />
� like B’s work;<br />
� rated as equivalent to B’s work; or<br />
� of equal value to B’s work (Hayward v Cammel Laird [1984]).<br />
© <strong>ICSA</strong>, 2012 Page 17 of 19
A’s work is like B’s work if:<br />
� A’s work and B’s work are the same or broadly similar; and<br />
� such differences as there are between their work are not of practical importance in<br />
relation to the terms of their work (s.65 Equality Act 2010).<br />
In Dugdale v Kraft Foods Ltd [1976], Mrs Dugdale and others claimed unfair discrimination under<br />
the Equal Pay Act 1970 as they earned lower basic rates of pay than men working on the night<br />
shift and on Sundays. The women did work which was broadly similar to the men. The tribunal<br />
held that the women were discriminated against and should receive the same basic pay as men;<br />
just because the men worked at a different time did not constitute a difference of practical<br />
importance.<br />
Earlier case law has given a wide interpretation to a similar provision under s.1 Equal Pay Act<br />
1970 (Capper Pass Ltd v Lawton [1977]) and the Tribunal can take into account general matters<br />
such as differences in responsibility (Eaton Ltd v Nuttall [1977]).<br />
(b) Advise the board in relation to claims for equal pay by Marcus, Ben and Sin.<br />
(14 marks)<br />
<strong>Suggested</strong> answer<br />
Advice to the board in respect of Marcus<br />
If it is deemed that Marcus is engaged in work which is broadly similar to that of Petra, he would<br />
be entitled to the same rate of pay and other terms of employment. In Capper Pass v Lawton<br />
[1976], a female cook sought equal pay with male chefs. She worked in the director’s dining<br />
room preparing 20 lunches a day, whilst the male chefs worked in the company’s canteen<br />
preparing 350 meals a day. The EAT held that the work done by the female cook was broadly<br />
similar to the work of the male chefs and that the differences of detail were not of practical<br />
importance in relation to the terms and conditions of employment. Therefore, she was entitled to<br />
be paid at the same rate of pay as her male colleagues.<br />
In Coomes (Holdings) Ltd v Shields [1978], the employer owned a string of betting shops. In<br />
some shops, the male employees were paid more than female employees because of<br />
anticipated trouble from customers. It was held that the deterrent function of the male staff was<br />
not a genuine difference as all males received the higher rate irrespective of performance of this<br />
function. In fact, there was no evidence of the man in question ever having to deal with any<br />
trouble and therefore the only difference was, in practice, one of sex. The Court of Appeal found<br />
that the tribunal had paid too much attention to bare contractual obligations and insufficient<br />
attention to the practicalities.<br />
When considering whether any differences are of practical importance, the tribunal again takes a<br />
broad approach. Clearly, if work is ‘broadly similar’ it is not the same but s.1(4) Equal Pay Act<br />
1970 (s.65 (3) Equality Act 2010) states that in comparing work ‘regard shall be had to the<br />
frequency or otherwise with which any such differences occur in practice as well as the nature<br />
and the extent of the differences.’ Hence the tribunal must look at the duties actually performed<br />
and not just those that are theoretically possible.<br />
Marcus and Petra seem to be on like work and, following Capper Pass Ltd v Lawton, Marcus<br />
should be entitled to the same rate of pay as Petra as there are no differences of practical<br />
importance (Shields v Coombs (Holdings) Ltd.) The fact that Petra has additional authority is<br />
irrelevant because, in practice, it is her manager Colin who performs the task. Hence Marcus<br />
has a good equal pay claim.<br />
© <strong>ICSA</strong>, 2012 Page 18 of 19
Advice to the board in respect of Ben<br />
The board should be advised that Ben also has a good claim under the Equal Pay Act 1970, as<br />
he is employed on like work which is of a broadly similar nature to Christina. It does not matter<br />
whether some nurses are paid more as the Act allows the claimant to choose their own<br />
comparator (as long as they are of the opposite sex). Moreover, the Equality Act 2010 s.77<br />
provides that employers can no longer include a confidentiality clause forbidding employees<br />
from discussing their pay with other workers.<br />
Advice to the board in respect of Sin<br />
If the work performed by the physiotherapists is of equal value to that of the radiographers in<br />
terms of the demands placed upon them (such as effort, skill and decision making) then the work<br />
will be rated as equivalent. In Hayward v Cammel Laird [1984], Mrs Hayward was employed as a<br />
cook in a shipyard and the tribunal held that her work was of equal value to the company as the<br />
men employed at the yard in other trades and she was therefore entitled to equal pay. The point<br />
about ‘equal value’ is that it is available even if the jobs are totally dissimilar. Therefore, if Sin<br />
can prove that the work of a female physiotherapist is of equal value to the hospital as a male<br />
radiographer, then she will be entitled to the same higher rate of pay as the male radiographers.<br />
(c) Advise the board on any claims that the current doctors may have in relation to the<br />
newly recruited doctors being appointed on a higher basic rate of pay and whether<br />
CMS will have a defence to such claims.<br />
(4 marks)<br />
<strong>Suggested</strong> answer<br />
Section 1(3) Equal Pay Act 1970 (s.69 Equality Act 2010) provides a ‘material factor’ or ‘material<br />
difference’ defence to an equal pay claim. This defence will assist an employer if they are able to<br />
show that the difference in pay is genuinely due to a material factor which is not the difference of<br />
sex. CMS will argue that there is a genuine material difference and that the defence can be<br />
raised. As there is a shortage of doctors, CMS may be able to prove that the variation in pay is<br />
genuinely due to a ‘material difference’ not based on sex, which justifies the differences in pay.<br />
In Enderby v Frenchay Health Authority [1994], the ECJ held that the state of the employment<br />
market, which may lead to an employer increasing the pay of a particular job in order to attract<br />
suitable candidates, may constitute an objectively justified economic ground for a difference in<br />
pay.<br />
Examiner’s comments<br />
Overall, this question was not answered well. <strong>Answers</strong> generally explained the law relating to<br />
equal pay well but did not then apply the law appropriately to the facts of the scenario. Also,<br />
many candidates did not refer to case law in order to illustrate their arguments. Several answers<br />
did not refer to the fact that work can be rated as equivalent or can be of equal value and does<br />
not necessarily have to be the same. Many candidates did not focus specifically on the question<br />
and went into lengthy discussions about discrimination generally instead of answering the<br />
question set.<br />
Part (c), relating to the new doctors being appointed at a higher salary than the current doctors,<br />
was not well answered. <strong>Answers</strong> often did not refer to the defence of material difference, where<br />
a variation in pay can be justified in order to attract new doctors. The difference in pay is not<br />
based on gender but is in order to attract applicants due to the shortage of doctors.<br />
The scenarios included here are entirely fictional. Any resemblance of the information in the<br />
scenarios to real persons or organisations, actual or perceived, is purely coincidental.<br />
© <strong>ICSA</strong>, 2012 Page 19 of 19