Applied Business Law

June 2012

Suggested answers and examiners comments

Important notice When reading these answers, please note that they are not intended to be viewed as a definitive model answer, as in many instances there are several possible answers/approaches to a question. These answers indicate a range of appropriate content that could have been provided in answer to the questions. They may be a different length or format to the answers expected from candidates in the examination. Examiners general comments Overall, there was a very low pass rate for this examination session. Candidates did not appear to have been adequately prepared and the standard of answers was indicative of limited knowledge of the law and an inability to apply the law to the facts of question scenarios. Some candidates provided a general description of the key areas of law pertaining to the questions they answered but the answers lacked substance. Many candidates did not support their arguments with reference to relevant case law and many did not apply the law appropriately. A number of candidates did not focus on the issues raised by the questions and provided very general answers, which resulted in low marks being achieved for those answers. Also, a number of candidates repeated the facts of the questions without actually answering the question set. This paper was very challenging for the majority of candidates who, from the answers provided, appeared to lack the substantive knowledge required and the necessary examination techniques in order to achieve a pass standard. It was obvious that many candidates were not adequately prepared for the examination. The candidates who did achieve a pass standard demonstrated a good understanding of the topics, good powers of analysis, made good use of case law in order to support their propositions and were able to apply the law appropriately to the questions set.

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1.

Ruby jointly owned the family home with Christian, her husband. Christians business was experiencing financial difficulties. In order to try and improve the financial position of his business, he negotiated a potentially lucrative contract with a major retailer whereby he was to deliver a consignment of goods to be sold in time for Christmas. Christian then entered into a contract with a haulier (a firm providing road transport services) which agreed to deliver the goods in time for the Christmas period. However, the haulier subsequently contacted Christian and told him that it had underpriced the carriage charges and sent an invoice showing higher charges. Christian initially refused to pay these higher charges but was told by the haulier that it would not deliver any goods unless Christian agreed to them. Christian was concerned that if he did not agree to the higher charges his goods would not be delivered in time for Christmas and this would cause more problems for his business. Christian reluctantly agreed that he would pay the higher charges but, after the goods had been delivered, he refused to pay the new amount, insisting that he was only prepared to pay the charges agreed when he entered into the contract. When sued by the haulier, he pleaded economic duress. Christian also contacted his bank manager to arrange a loan. The bank said that it was prepared to lend Christian 50,000 provided he put up his house as security. Christian asked Ruby to sign the contract agreeing to this. Ruby did not have much confidence in her husbands business and was reluctant to do this. However, Christian persuaded her to go along to the bank to speak with the bank manager. Ruby said that she wanted to speak to the bank manager alone but this did not happen and she eventually signed the contract. The loan was not repaid and the bank wants to take possession of the house. Required Explain what is meant by duress and economic duress and whether Christian will be liable to pay the higher charges. (7 marks) Suggested answer (a) Duress In order to establish that a legally binding contract has come into existence, it is necessary to show a consensus between the parties to the contract. If there is no true consent because one of the parties has been coerced into entering into the contract, then the contract would be voidable at the option of the coerced party. There are two basic forms of duress: physical and economic. In order to establish that a contract had been entered into under duress, candidates should have identified the conditions that have to be satisfied, namely: Pressure was exerted on the contracting party. The pressure induced the claimant to enter into the contract. The claimant had no real choice but to enter into the contract. The claimant protested at the time or shortly after the contract was made.

Economic duress Economic duress occurs where one party is forced to enter into a contract due to economic pressure. The difficulty, however, is distinguishing between acceptable business pressure and unacceptable economic duress. In Atlas Express v Kafco [1989], Kafco entered into a contract with Woolworths for the delivery of goods in time for Christmas. Kafco then entered into a contract with the claimants to deliver the goods to Woolworths. The claimants subsequently increased their delivery charges and informed Kafco that unless Kafco agreed to the increase
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charges, then they would not deliver the goods. Kafco reluctantly agreed to pay the increased charges but subsequently refused to pay claiming economic duress. The court held that this was a clear case of economic duress and Kafco did not have to pay the increased charges. Candidates should have advised Christian that, following Atlas Express v Kafco, there is a clear case of economic duress and Christian would not be required to pay the increased hire charges. The haulier had clearly tried to coerce Christian into agreeing to pay the increased charges by refusing to deliver the goods in time for Christmas. (b) Explain what is meant by undue influence and outline the different classes of undue influence. (8 marks)

Suggested answer Undue influence is an equitable doctrine, which applies where one party uses their influence over the other to persuade them to enter into a contract. Undue influence can be divided into two classes: (i) (ii) Actual undue influence. Presumed undue influence inferred from the relationship between the parties and the nature of the resulting transaction.

Actual undue influence This arises where the claimant can prove that they entered the transaction as a result of undue influence from the other party. Candidates were required to refer to case law in order to illustrate their answers. In Williams v Bayley [1866], the plaintiffs son had given forged documents to a bank. The bank told the claimant that they had the power to prosecute his son. The father of the forger executed a mortgage in the bankers favour in return for the forged documents. It was held that the mortgage was unenforceable because it had been extorted from the father by undue pressure as the father knew that his son would be prosecuted if he did not give the mortgage. The House of Lords set the contract aside because undue influence had been proved as the father had not entered the contract freely. Presumed undue influence Candidates should have made reference to the different types of relationship where undue influence is automatically presumed to exist: Parent and child. Religious advisor and disciple. Guardian and ward. Solicitor and client. Trustee and beneficiary. Doctor and patient.

In such relationships one party is, by reason of the confidence placed in him, able to take unfair advantage of the other and the presumption is that it is up to the defendant to disprove the existence of undue influence (Tate v Williamson [1866]). In Tate v Williamson, Williamson became the financial advisor to an extravagant student and persuaded the student to sell the estate to Williamson for half of is true value. The student died and his executors challenged the sale on the grounds of undue influence and were successful in having the sale of the estate set aside.
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If the relationship does not fall within one of the automatic relationships of trust and confidence, then the influenced party must prove on the facts that there was such a relationship between the parties. This would include a husband and wife, who do not fall within one of the automatic relationships. (c) Explain whether the bank will be able to take possession of Ruby and Christians home. (10 marks)

Suggested answer Candidates should have discussed third party cases where the typical transaction is between a wife and a bank, whereby the wife signs a guarantee with the bank with undue influence allegedly coming from the husband (the third party) whose debt to the bank is being guaranteed by his wife. There is no contract between the husband and wife; the contract sought to be rescinded is between the wife and the bank and this is free from undue influence. The key question is whether the bank is tainted by undue influence between the wife and the third party (her husband). A transaction will not be set aside on the ground of undue influence unless it can be shown that the transaction is to the manifest disadvantage of the person subjected to the undue influence. Moreover, a presumption of undue influence will not arise merely because a confidential relationship exists, provided the person in whom confidence is placed keeps within the boundaries of a normal business relationship. In National Westminster v Morgan [1985], Mrs Morgan agreed to the family home being mortgaged to secure a loan made to her husband. The bank manager told her in good faith, but incorrectly, that the mortgage only covered the house and not her husbands business. Mr Morgan died owing the bank money in respect of the house loan but there was no liability in respect of his business. The bank sought possession of the house but Mrs Morgan argued that she had only signed the mortgage because of undue influence on the part of the bank and therefore the possession order should be set aside. The House of Lords held that her action should fail as the bank manager had not taken advantage of her and the transaction was not to her disadvantage. If it is proved that there was a relationship of trust and confidence and there was a transaction calling for an explanation, then that still does not necessarily establish a case of undue influence; the other party still has the opportunity to rebut the presumption by showing that the vulnerable party was acting independently from any influence and with the full appreciation of what he was doing. This is most easily shown by proving that the party complaining of undue influence had independent advice. One way of doing this would be for the bank to insist that the wife attends a private meeting with a bank representative (i.e. without the husband) at which the full extent of her liability is explained, where she is warned of the risks she is taking and urged to take independent advice from a solicitor. Essentially, the solicitor should: Explain why he has become involved (because the bank seeks assurance that the wife understands the transaction and freely consents to it). Explain the documents and the consequences of signing them. Point out the seriousness of the risks (including potentially losing her home). Emphasis that she has a choice. Check that she wishes to proceed on the terms offered by the bank.

The consequence of finding that the bank had notice of any irregularity between the husband and wife is that the guarantee or charge given by the wife is voidable. To avoid this happening, the bank must get a written confirmation from the solicitor providing the independent advice that the wife has been independently advised.
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Ruby should therefore have been advised that she had a good case for arguing that she was not bound by the contract she signed with the bank, as she did not receive independent advice. She should have seen an independent solicitor, without the presence of her husband, who should have advised her of the risk she was undertaking. Hence the bank may not be able to take possession of Ruby and Christians home. Examiners comments This was a straightforward question on duress and undue influence and produced some very good answers. However, many candidates, after stating the law accurately, did not apply the law to the facts of the scenario. Many candidates also did not make the distinction between actual and presumed undue influence and did not refer to relevant case law. Several answers assumed that the bank had been guilty of undue influence over Ruby and Christian. However, the question required a discussion of whether there was undue influence on the part of Christian to persuade his wife to enter into the contract with the bank. There was no contract between Ruby and Christian, and the contract that was sought to be set aside on the grounds of undue influence was the contract between Ruby and the bank, which was free from undue influence. The issue was whether the bank was tainted by undue influence by Christian over Ruby. Answers should have considered whether the bank had acted reasonably in ensuring that Ruby was fully aware of the risks she was taking. In order to protect itself, the bank should have insisted that Ruby sought independent advice and that she was made aware that she could lose her home if the loan was not repaid. It should have been made clear to Ruby that she had a choice whether to enter into the contract with the bank and, if the bank did not advise Ruby accordingly, it may not be able to enforce the contract against her.

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2.

Arnold Jacklaus (Arnold), a well-known golfer, agreed to act as coach to Peter Franklin (Peter), the Managing Director of Franklin Golf Equipment Ltd. The agreement contained terms stating that: (i) Arnold would not partner any player other than Peter in any tournament in which Peter was eligible to play. Arnold would use only Franklin golf equipment. Arnold would act as coach to Peter.

(ii) (iii)

Peter and Arnold entered the Skada Cars Tournament but Peter failed to turn up on day one because his car broke down. Arnold then partnered Nick Pravino, who also owns a golf equipment business. Nick Pravino provided a sweater and golf bag with Pravino written on them, which Arnold used for the first hour of the tournament until he remembered his agreement with Peter. Arnold had given up the opportunity to coach another player at a very good price in order to coach Peter and is very angry when he is told by Peter that he is repudiating their agreement. Required (a) Advise Arnold how contractual terms can be classified and the consequences of breaching such terms. (10 marks)

Suggested answer Candidates were required to discuss the difference between a condition, warranty and innominate term. A condition is a term which goes to the root of the contract and, if breached, amounts to a repudiatory breach of contract, entitling the innocent party to terminate the contract. If the term is classified as a warranty, this is a minor term of the contract which, if breached, entitles the innocent party to claim damages in respect of the breach but he must continue with the contract. If the term is classified as an innominate term, then the court will wait and see what the consequences of the breach are before determining whether it should be treated as a breach of condition or a breach of warranty. For example, in Hong Kong Fir Shipping [1962], a ship delivered under a 24 month charter party was unseaworthy and took seven months to repair. Lord Diplock stated that the obligation to provide a seaworthy ship was neither a condition nor a warranty but could constitute both depending on the consequences of the breach. The innocent party should be entitled to rescind the contract only if the effect of the breach was to deprive him of substantially the whole benefit of the contract. As the ship was available for 17 months out of 24 months, rescission was not granted. Such a breach based approach has the advantage of flexibility over the term based approach. However, the argument against the use of innominate terms is that they cause uncertainty as the parties do not know what the consequences are of any breach until the court has decided the status of the term. Certainty is less important in one off contracts than in commercial contracts. In a commercial contract, it is important that the parties know what their rights are when they enter into a contract. Whether the court decides to adopt the traditional approach of classifying terms as conditions or warranties or whether to follow the approach in Hong Kong Fir Shipping [1962], will be driven by two considerations:

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 (b)

The need for certainty, which is particularly important in commercial contracts and particularly where the term is a standard one always to be found in a particular type of contract. The desire to do justice between the parties. This is more relevant in one off contracts. Advise Arnold whether he has breached any terms of the contract and, if so, whether Peter can repudiate their agreement. (15 marks)

Suggested answer Answers should have identified three terms: Term 1: Not to play in any tournament except as Peters partner. Term 2: Only to use Franklin golf equipment. Term 3: To coach Peter. Term 1 Candidates should have considered what type of term this is and whether the term goes to the root of the contract or not. As the first line of the agreement sates that the agreement is to coach Peter, it could be argued that the playing in tournaments is incidental to that and therefore a warranty only. However, candidates should also have considered the possibility that it could be classed as an innominate term. Although it probably would not affect the remedy on this occasion, it may allow for repudiation if the same term is broken in the future in a more serious way or if the term is broken persistently. The argument against the use of the innominate term, i.e. uncertainty, does not really apply here. It is unlikely that such a contract is to be widely used and therefore predictability for others is not really an issue. Therefore, on balance, the term is likely to be regarded as innominate. Having established the type of term in question, it was then necessary to consider whether it had actually been broken, otherwise there is no remedy. Better answers would have considered whether it might have been possible to imply a term into the contract that Arnold should be able to partner others when Peter was not available to play. If no such term was implied, then Arnold could end up playing in no tournaments for two years if Peter refused to enter any. This would not be in the best interests of either party since Term 2, only to use Franklin golf equipment, would be of no value if he was never able to play in a tournament. Hence, it is suggested that such a term could be implied. Term 2 Candidates should have discussed whether this term was a condition or a warranty, which depends on whether the contract is about coaching or is a sponsorship agreement. The only way this could be determined would be by looking at how much Arnold was being paid. If the fee was substantial then it would be more likely to be one of sponsorship and the term is therefore more likely to be a condition. If the fee was more commensurate with coaching then the term is more likely to have been classified as a warranty. Again, the term could have been classed as innominate. On this occasion, the breach seems trivial but it could be serious if Arnold deliberately used Pravino equipment in a highly publicised tournament or if there were persistent breaches in the future. Candidates should also have considered whether it made any difference if the breach was deliberate or accidental. Liability for breach of contract is strict and therefore it makes no difference whether the contract was breached accidently or deliberately. Therefore, Arnold would be liable for breach of contract for using the Pravino equipment, even though he stopped using it after one hour. As this breach was accidental, it is likely to have been regarded as a breach of warranty only.

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Term 3 Whether this would be classified as a condition or a warranty would be determined by the nature of the contract as discussed above. Answers needed to analyse whether this is primarily a coaching contract, in which case this term would be a condition, or if the main purpose of the contract was a sponsorship arrangement, in which case this term would probably have been treated as a warranty. However, there is nothing to suggest that this term has been broken. Examiners comments This question was popular but produced some very mixed answers. Answers should have focused on the classification of terms as conditions, warranties and innominate and the consequences of breaching such terms. Many candidates correctly discussed the difference between a condition and a warranty but did not refer to innominate terms or the decision in Hong Kong Fir Shipping [1962]. Some candidates provided very general answers explaining the distinction between express and implied terms and also discussing exclusion clauses. Some candidates also discussed the difference between terms and representations, although this was not required by the question. Several candidates simply repeated the facts of the scenario without addressing the issues raised by the question. A few candidates appeared to misinterpret the question as relating to contracts in restraint of trade. Common errors when answering this question included: not applying the law appropriately to the scenario, not citing relevant case law and not focussing specifically on what the question was asking. In order to achieve a pass standard, candidates should avoid writing all they know on a topic and need to focus answers on the question that has been set.

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3.

Isabella, a journalist for her local radio station, was invited to interview Marcus, a local singer, who had recently come second in a high-profile talent competition. Isabella recorded the interview on her portable recorder. During the interview, Marcus stated that the outcome of the competition was fixed and that the person who organised it, Dalia, had taken bribes from the eventual winner. Marcus also told Isabella that Dalia is a liar and a cheat. Isabella decided not to broadcast the interview as she felt that it may have been defamatory. However, she inadvertently left her portable recorder on her desk and Magda, a fellow journalist, listened to the recording. Magda thought that this was a very interesting story and decided to broadcast the interview during her late-night radio show. Dalia, who was listening to Magdas show, was horrified by what she heard and wants to sue for defamation. Required (a) Explain what is meant by defamation and explain the difference between libel and slander. (6 marks)

Suggested answer Candidates were required to discuss and apply the law relating to defamation. Defamation occurs when the defendant publishes a statement which either lowers the claimant in the estimation of right thinking members of society generally or causes the claimant to be shunned and avoided (Lord Atkin in Sim v Stretch [1936]). By stating that Dalia is a liar and a cheat, this could make people shun and avoid her and is therefore defamatory. Defamation is an attack on reputation and takes two forms: libel and slander. Libel is a defamatory statement in a permanent form such as writing, pictures, television, films, radio, theatre, records or wax works. Slander is a defamatory statement in a temporary form such as the spoken word or gestures. However, modern technology has created some difficulties in drawing the distinction between the two. Any claim that Dalia could bring would be for libel, as the Broadcasting Act 1990 provides that words or visual images broadcast for general reception are to be treated as libel. Hence the radio broadcast by Magda would amount to libel and she would be liable unless she could successfully plead one of the defences. There are two important distinctions between libel and slander: (i) Libel which tends to provoke a breach of the peace can be a crime as well as a tort, whereas slander is only a tort. Libel is actionable per se (without proof of actual damage) whereas slander is actionable only on proof of damage, except in the following circumstances: Imputation of a criminal offence punishable with imprisonment. Imputation of a contagious disease. Imputation of unchastity, adultery or lesbianism in a woman. Imputation of unfitness or incompetence in relation to any profession, trade, calling or business held or carried on by the claimant.

(ii)

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(b)

Advise Dalia whether she can successfully bring an action for defamation. (8 marks)

Suggested answer In order to succeed in a claim for defamation, candidates should have advised Dalia that she would have to show three things: That the statement was defamatory. That it referred to her. That it had been published by the defendant.

Candidates should also have discussed that, although the statement must refer to the claimant, she need not necessarily be named (JAnson v Stuart [1789]). Moreover, it is no defence to say that the defendant did not intend to refer to the claimant, unless the defence of unintentional defamation succeeds (Hulton v Jones [1910]). Equally, it is no defence to say that the words intended to refer to a third person of whom they were true (Newstead v London Express [1939]). In order to succeed, Dalia must prove that the statement was published, i.e. communicated to at least one person other than herself. However, a person is not liable if publication occurs only as a result of an act which is not reasonably foreseeable by him, such as a letter being opened by the claimants butler. Applying this to the question, Isabella could not reasonably foresee that Magda would listen to her private interview on her personal recorder and then broadcast it. Therefore, Isabella would not be liable for defamation. Two or more persons may be responsible for the same publication, for example, the author, printer, publisher and bookseller. To mitigate the harshness of this, a statutory defence was introduced in the Defamation Act 1996, which is available to printers, publishers, sellers and those involved in the production of film, audio and electronic publications. The defence will only be available if the defendant had taken all reasonable care and had no reason to think that their act would have a defamatory effect. Also, it is not available to a defendant who knew that their act involved or contributed to a publication which defamed the claimant. As Marcus originated the statements and published them to Isabella he could be held liable as well as Magda who broadcast them. (c) Advise Dalia of any defences that can be raised. (11 marks) Suggested Answer The law on defamation seeks to protect reputation but clearly restricts freedom of speech. The law tries to strike a balance between these competing interests and does so by enabling the defendant to raise a defence. The major defences which could apply in this scenario include: Justification This defence would be available if the statement was substantially true and any small inaccuracies would not defeat this defence (Alexander v NE Railway Co [1865]). The burden of proving justification rests on the defendant and it is no defence to simply state that the defendant honestly believed the statement to be true. This is a complete defence even if the statement was made maliciously. If Magda and Marcus can prove that the statements broadcast were substantially true, this would be a complete defence.

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Fair comment This defence would apply where the statement is a fair comment made in good faith on a matter of public interest. In order to succeed in this defence it must be shown: (i) (ii) (iii) (iv) The subject matter must be of public interest, such as the conduct of a politician. The statement must be an opinion and not fact. The comment must be based on facts which, if stated with the comment, must be true. The comment must be fair and not motivated by malice.

If it could be proved that Dalia did take bribes then the comment that she is a cheat and a liar may amount to fair comment. Qualified Privilege This is not an absolute defence but could be a defence provided the statement was not published with malice. This defence applies where the defendant has a duty or an interest to pass on information about the claimant to a third party and the third party has a duty or interest in receiving the information. Answers should have concluded that Marcus was potentially liable for defamation as he made the statements thinking that they would be broadcast. Equally, Magda would be liable as she broadcast the interview. If Magda and Marcus can prove that Dalia did accept bribes then the defence of fair comment would lie in respect of the statement that Dalia is a cheat and a liar. Examiners comments This was a popular question and produced some very good answers. Most candidates identified the distinction between libel and slander. However, many of the answers lacked substance and could have been developed more fully. Again, some answers did not apply the law to the facts of the scenario. Also, some answers confused the defences to an action in defamation with the remedies that are available if defamation is proved. Good answers made use of case law to support the arguments made and the arguments were presented clearly and concisely, with the law applied appropriately to the facts of the question.

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4.

Thomas was the Managing Director of Just Bikes Ltd (Just Bikes). Just Bikes owns four bicycle shops in London, but Thomas decided to reorganise the shops following a drop in profits. In one of Just Bikes bicycle shops, Bob was the Manager and Jeff was the Assistant Manager. Thomas decided that the post of Assistant Manager was no longer required. However, rather than dismiss Jeff, he gave Jeff the Managers job and has instructed Bob that he must relocate to work as Manager of the second shop, which is a mile away. Ken was Manager of the third shop and Horace was Manager of the fourth shop. Thomas decided to merge the two shops. As only one Manager would be required, Thomas interviewed Ken and Horace for the post of Manager. Ken was informed that he had been unsuccessful. However, rather than dismissing him, Thomas offered Ken the job of Assistant Manager of the merged shop on his existing salary. Required (a) Explain what is meant by dismissal by reason of redundancy as set out in s.139 Employment Rights Act 1996. (5 marks)

Suggested answer Section 139 Employment Rights Act 1996 provides that redundancy is presumed to occur where the services of employees are dispensed with or because the employer ceases or intends to cease carrying on business at the place where the employee was employed or does not require so many employees to do work of a certain kind. In certain circumstances an employee may receive compensation for the loss of his job. The amount of compensation is related to the age, length of service and average weekly earnings of the redundant employee. (b) Using case law as a basis for your answer, advise Bob and Ken whether they have been dismissed by reason of redundancy and are entitled to claim redundancy payments. (20 marks)

Suggested answer Candidates were required to apply the law to the scenario and refer to appropriate case law. Redundancy occurs either when the whole or part of the business is closed or when the requirement for employees of a particular kind has ceased or diminished. For example, in European Chefs v Currell Ltd [1971], a pastry cook was dismissed because the requirement for his speciality (clairs and meringues) had ceased and had been replaced with the need for continental pastries. Another person was employed to make the continental pastries and the pastry cook was deemed to be redundant and entitled to redundancy payment as the need for a cook of this type had ceased. In Vaux & Associated Breweries v Ward [1969], the landlord of a public house dismissed the 57 year old barmaid as he was converting the pub into a disco and wanted to employ a younger person in order to attract customers. It was held that there had been no redundancy as there had been no change in the nature of the particular work being done and therefore she was not entitled to redundancy payments. In UK Atomic Energy Authority v Claydon [1974], an employee was obliged under his contract of employment to move anywhere in the UK. The court held that the need for fewer employees at one plant did not constitute a diminuition at his place of employment as his place of employment was anywhere in the UK.

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In North East Riding Garages v Butterwick [1967], Butterwick had been employed as a workshop manager at a garage for 30 years. His work was mainly of a mechanical nature. The garage was taken over and the new owner required Butterwick to take on work of an administrative nature as well as mechanical. Butterwick could not adapt to his new role and was dismissed. He claimed redundancy but failed as there had been no diminuition in the need for a workshop manager. In Chapman v Goonvean Rostowrack China Co [1973], the company provided free transport for employees living in excess of 30 miles from the works. The free transport was discontinued as it was no longer economically viable to provide it as demand had fallen. Those employees who could no longer get to work gave notice but it was held that there was no redundancy situation as the requirement for employees had not been diminished. Candidates were required to advise Bob on his chances of successfully claiming a redundancy payment and should have referred to Murray & Another v Foyle Meats Ltd [1999], where the House of Lords held that, as long as the staff was reduced by the number of redundancies specified, it did not matter whether the person in an unwanted post was made redundant or another person. If Bob had a mobility clause in his contract then, given reasonable notice, he would have to transfer and so would not be made redundant. If there was no express mobility clause then one may be implied, if reasonable to do so, if the distances in question were not excessive. In advising Ken, answers should have explained that if suitable alternative employment is offered, and the employee unreasonably refuses it, he will not be entitled to redundancy payments. However, the alternative employment must be on the same or similar conditions. If the offer of continued employment is on different terms and conditions, the employee must be permitted a trial period of up to four weeks in which to decide if the job is suitable. Whether an offer of alternative employment is suitable or not must be determined objectively. If an employees wages or status are considerably reduced, this will not normally amount to a suitable alternative. Even if the offer is suitable, an employee may not be barred from compensation if he can demonstrate that his refusal to accept it was not unreasonable in the circumstances. This is a subjective test and may depend on personal or financial circumstances. In Taylor v Kent County Council [1969], Taylor was the headmaster of a boys school which was subsequently merged with a girls school and a new head appointed over the merged school. Taylor was offered employment in a pool of teachers standing in for short periods in understaffed schools. His salary was to remain the same but it was held that he was being offered something substantially different, especially with regard to his status and therefore was entitled to redundancy pay. Ken should have been advised that, following Taylor v Kent County Council, he had a good claim for redundancy payments as the job of Assistant Manager is substantially different to that of Manager, even though his salary remains unchanged. Examiners comments For this question, most candidates provided a good account of the law relating to redundancy but, again, often did not apply the law to the facts of the question. Despite the question requiring candidates to refer to case law to support their answers, most candidates did not refer to sufficient case law. Many candidates did not include in their answers that any alternative employment offered to a redundant employee has to be suitable alternative employment and if the offer of a different job resulted in a loss of status, even though the salary remained the same, the employee is not obliged to accept it.

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NOTICE Regrettably, an error was included in the examination paper taken in June 2012. Question 4(a) originally referred to s.136 Employment Rights Act 1996 and this has been corrected as s.139 Employment Rights Act 1996. We would like to assure you that no students were disadvantaged as a result of this. For future reference, question 4(a) has been corrected in this document.

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5.

(a)

Explain what is meant by copyright and how it is protected. (10 marks)

Suggested answer Copyright involves the exclusive right to use ones own work and it protects every original literary, dramatic, musical and artistic work which was previously unpublished. Copyright does not protect ideas but protects the way in which the ideas are expressed. The law relating to copyright is to be found in the Copyright, Designs and Patents Act 1988 as amended by the Copyright and Related Rights Regulations 2003, which implemented the Information Society Directive (2001/39). Section 1(1) defines copyright as: Original literary, dramatic, musical or artistic works. Sound recordings. The typographical arrangements of published editions.

Copyright exists for different lengths of time, depending on the type of work concerned. In the case of music, the copyright expires at the end of 70 years from the end of the calendar year in which the author dies: Duration of Copyright and Rights in Performance Regulations 1995. Candidates should have described the remedies available for the infringement of copyright. Section 96 provides that the remedies available for infringement of copyright include damages. However, the remedy of damages is not available if the defendant, at the time of infringement, did not know and had no reason to believe that copyright subsisted in the work. When a court awards damages, it may award additional damages if the justice of the case so requires. In assessing this, s.97 requires the court to have regard to all the circumstances of the case but particularly to the flagrancy of the infringement and the benefits accruing to the defendant by reason of that infringement. The court may also order an account of profits made from the wrongful use of the copyright work or issue an injunction in order to prevent any further infringement. There are also criminal sanctions that may be imposed for making copies of work for sale or hire, importing them for business purposes, possessing them for business purposes with a view to committing a copyright infringement and selling, exhibiting or distributing them. The 2003 Regulations created a new criminal offence of infringing a work by communicating it to the public to such an extent as to prejudicially affect the owner of the copyright. (b) What defences may be available for infringement of copyright? (5 marks) Suggested answer There are a number of defences which could be raised: Fair dealing, which entails research or private study. For the purpose of criticism or review. Reporting of current events. Use by licence or short extracts. Use by educational establishments and librarians. Use for the purpose of judicial or parliamentary proceedings.

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(c)

Sundeep has been selling football souvenirs and memorabilia bearing the name and logo of the football club Manford United (Manford) for many years. He set up a stall outside Manfords ground and put up a sign stating that his merchandise was not official club merchandise. Manford objects to Sundeeps enterprise, arguing that this is an infringement of Manfords trade mark, which it had duly registered. Required Advise Manford what is meant by a trade mark and how it can be enforced in this situation. (10 marks)

Suggested answer For the final part of the question, candidates were required to apply the law correctly to the facts of the scenario and should have advised Manford that a trade mark is defined under s.1(1) of the Trade Marks Act 1994 as: any sign capable of being represented graphically which is capable of distinguishing goods or services of one undertaking from those of other undertakings. A trade mark may, in particular, consist of words (including personal names), designs, letters, numerals or the shape of goods or their packaging. Once a trade mark has been registered, this prevents others from using the same image and provides the owner with exclusive use of the mark and anyone who infringes the mark will be liable to a civil action by the owner. Moreover, the police and Trading Standards can also bring criminal proceedings for breach, such as with counterfeiters. Infringement of a trade mark occurs where the trade mark and the other item are confusingly similar to make the consumer buy one good believing it to belong to the trade mark holder. In Arsenal Football Club Plc v Reed [2003], Arsenal Football club brought an action against Mr Reed who sold souvenirs and other memorabilia bearing the clubs name and badge outside the clubs ground. Mr Reed had a notice by his stall indicating that his products were not official club merchandise. The ECJ ruled that the function of a trade mark is to avoid confusion as to the origin of goods and that the disclaimer did not remove the confusion. Hence Mr Reed was found guilty of infringing the Arsenal trade mark in spite of his disclaimer. Following this decision, candidates should have advised Manford that it has a good cause of action against Sundeep for infringement of its trade mark and could apply for an injunction to prevent him from selling his merchandise in the future. The court could also exercise its power to make an award of damages. Moreover, Trading Standards could also bring a criminal action against Sundeep for selling counterfeit goods, for which he could receive a term of imprisonment of up to 10 years and/or an unlimited fine. Examiners comments This was the least popular of the questions but was generally answered quite well. It was a straightforward question on copyright and trade marks and most candidates cited the law correctly and applied it appropriately to the scenario. However, in general, part (b) on defences to infringement of copyright was not as well answered.

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6.

Chelmer Medical Services Ltd (CMS) is a private medical company which owns a hospital in London. You have been asked to advise the board of directors of CMS on the following equal pay issues that have arisen recently: (i) Marcus and Petra are both hospital administrators and their duties are largely the same. Marcus is unhappy that Petra earns 5,000 a year more than him. Petra does have additional authority to approve payments to suppliers although, in practice, Colin, their manager, always carries out this task. Ben is the only male nurse employed by the hospital. Some of the female nurses earn more than Ben and some earn less, even though they all carry out the same duties. Ben is unhappy that he earns less than Christina, another nurse. At the hospital, all the physiotherapists are female and all the radiographers are male. The radiographers earn a higher basic wage than the physiotherapists. Sin, one of the physiotherapists, complained to her manager about the pay difference. Her manager told her that the difference was a result of separate pay negotiations in the past. Due to a shortage of doctors in casualty, CMS is forced to recruit three new doctors on a higher basic rate of pay than the five female doctors already employed in the casualty department. The new recruits are all male.

(ii)

(iii)

(iv)

Required (a) Explain the law relating to equal pay. (7 marks) Suggested answer Note: candidates were permitted to answer this question according to the provisions of the Equality Act 2010 or the Equal Pay Act 1970. Candidates were required to discuss a variety of equal pay related issues. The Equal Pay Act 1970 (Equality Act 2010) has the object of eliminating discrimination between men and women in regard to pay and other conditions of employment such as overtime, bonuses, piecework payments, holidays and sick leave entitlement. Pay is defined broadly and includes, for example, travel concessions given to retired male employees which are not available to female retirees. It also includes part-time employees not receiving sick pay when it is paid to full-time employees and differing payments, including pensions, resulting from redundancies. The Act applies to all persons under a contract of employment, whether full or part-time, irrespective of age or length of service. The Act implies an equality clause into contracts of service which means that a man or a woman must be given contractual terms no less favourable than those given to an employee of the opposite sex. Section 79 Equality Act 2010 provides that: It is for the applicant to identify a particular comparator who must be in the same employment as the applicant. For the equality clause to operate, one of three principal tests must be satisfied: As work is equal to that of B if it is:
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like Bs work; rated as equivalent to Bs work; or of equal value to Bs work (Hayward v Cammel Laird [1984]).
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As work is like Bs work if: As work and Bs work are the same or broadly similar; and such differences as there are between their work are not of practical importance in relation to the terms of their work (s.65 Equality Act 2010).

In Dugdale v Kraft Foods Ltd [1976], Mrs Dugdale and others claimed unfair discrimination under the Equal Pay Act 1970 as they earned lower basic rates of pay than men working on the night shift and on Sundays. The women did work which was broadly similar to the men. The tribunal held that the women were discriminated against and should receive the same basic pay as men; just because the men worked at a different time did not constitute a difference of practical importance. Earlier case law has given a wide interpretation to a similar provision under s.1 Equal Pay Act 1970 (Capper Pass Ltd v Lawton [1977]) and the Tribunal can take into account general matters such as differences in responsibility (Eaton Ltd v Nuttall [1977]). (b) Advise the board in relation to claims for equal pay by Marcus, Ben and Sin. (14 marks)

Suggested answer Advice to the board in respect of Marcus If it is deemed that Marcus is engaged in work which is broadly similar to that of Petra, he would be entitled to the same rate of pay and other terms of employment. In Capper Pass v Lawton [1976], a female cook sought equal pay with male chefs. She worked in the directors dining room preparing 20 lunches a day, whilst the male chefs worked in the companys canteen preparing 350 meals a day. The EAT held that the work done by the female cook was broadly similar to the work of the male chefs and that the differences of detail were not of practical importance in relation to the terms and conditions of employment. Therefore, she was entitled to be paid at the same rate of pay as her male colleagues. In Coomes (Holdings) Ltd v Shields [1978], the employer owned a string of betting shops. In some shops, the male employees were paid more than female employees because of anticipated trouble from customers. It was held that the deterrent function of the male staff was not a genuine difference as all males received the higher rate irrespective of performance of this function. In fact, there was no evidence of the man in question ever having to deal with any trouble and therefore the only difference was, in practice, one of sex. The Court of Appeal found that the tribunal had paid too much attention to bare contractual obligations and insufficient attention to the practicalities. When considering whether any differences are of practical importance, the tribunal again takes a broad approach. Clearly, if work is broadly similar it is not the same but s.1(4) Equal Pay Act 1970 (s.65 (3) Equality Act 2010) states that in comparing work regard shall be had to the frequency or otherwise with which any such differences occur in practice as well as the nature and the extent of the differences. Hence the tribunal must look at the duties actually performed and not just those that are theoretically possible. Marcus and Petra seem to be on like work and, following Capper Pass Ltd v Lawton, Marcus should be entitled to the same rate of pay as Petra as there are no differences of practical importance (Shields v Coombs (Holdings) Ltd.) The fact that Petra has additional authority is irrelevant because, in practice, it is her manager Colin who performs the task. Hence Marcus has a good equal pay claim.

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Advice to the board in respect of Ben The board should be advised that Ben also has a good claim under the Equal Pay Act 1970, as he is employed on like work which is of a broadly similar nature to Christina. It does not matter whether some nurses are paid more as the Act allows the claimant to choose their own comparator (as long as they are of the opposite sex). Moreover, the Equality Act 2010 s.77 provides that employers can no longer include a confidentiality clause forbidding employees from discussing their pay with other workers. Advice to the board in respect of Sin If the work performed by the physiotherapists is of equal value to that of the radiographers in terms of the demands placed upon them (such as effort, skill and decision making) then the work will be rated as equivalent. In Hayward v Cammel Laird [1984], Mrs Hayward was employed as a cook in a shipyard and the tribunal held that her work was of equal value to the company as the men employed at the yard in other trades and she was therefore entitled to equal pay. The point about equal value is that it is available even if the jobs are totally dissimilar. Therefore, if Sin can prove that the work of a female physiotherapist is of equal value to the hospital as a male radiographer, then she will be entitled to the same higher rate of pay as the male radiographers. (c) Advise the board on any claims that the current doctors may have in relation to the newly recruited doctors being appointed on a higher basic rate of pay and whether CMS will have a defence to such claims. (4 marks)

Suggested answer Section 1(3) Equal Pay Act 1970 (s.69 Equality Act 2010) provides a material factor or material difference defence to an equal pay claim. This defence will assist an employer if they are able to show that the difference in pay is genuinely due to a material factor which is not the difference of sex. CMS will argue that there is a genuine material difference and that the defence can be raised. As there is a shortage of doctors, CMS may be able to prove that the variation in pay is genuinely due to a material difference not based on sex, which justifies the differences in pay. In Enderby v Frenchay Health Authority [1994], the ECJ held that the state of the employment market, which may lead to an employer increasing the pay of a particular job in order to attract suitable candidates, may constitute an objectively justified economic ground for a difference in pay. Examiners comments Overall, this question was not answered well. Answers generally explained the law relating to equal pay well but did not then apply the law appropriately to the facts of the scenario. Also, many candidates did not refer to case law in order to illustrate their arguments. Several answers did not refer to the fact that work can be rated as equivalent or can be of equal value and does not necessarily have to be the same. Many candidates did not focus specifically on the question and went into lengthy discussions about discrimination generally instead of answering the question set. Part (c), relating to the new doctors being appointed at a higher salary than the current doctors, was not well answered. Answers often did not refer to the defence of material difference, where a variation in pay can be justified in order to attract new doctors. The difference in pay is not based on gender but is in order to attract applicants due to the shortage of doctors.

The scenarios included here are entirely fictional. Any resemblance of the information in the scenarios to real persons or organisations, actual or perceived, is purely coincidental.
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