Part 1 INTRODUCTION TO LAW

1 The nature of law 3

2 Law making 12
3 Resolving disputes 46
 Chapter 1 The nature of law

Learning objectives
After studying this chapter you should understand the following main points:
■ the nature of law;
■ the ways in which the law may be classified, including the differences
between public and private law, civil and criminal law and common law
and equity;
■ the development of English law including the emergence of the common
law and equity;
■ the basic principles of legal liability, such as the distinction between civil
and criminal liability.

shall consider such matters as the requirements that

The law affects every aspect of our lives; it governs our must be observed to start a business venture, the rights
conduct from the cradle to the grave and its influence even and duties which arise from business transactions and
extends from before our birth to after our death. We live in the consequences of business failure. In order to under-
a society which has developed a complex body of rules to stand the legal implications of business activities, it is
control the activities of its members. There are laws which first necessary to examine some basic features of our
govern working conditions (e.g. by laying down minimum English legal system. It is important to remember that
standards of health and safety), laws which regulate English law refers to the law as it applies to England
leisure pursuits (e.g. by banning alcohol on coaches and and Wales. Scotland and Northern Ireland have their
trains travelling to football matches), and laws which own distinct legal systems.
control personal relationships (e.g. by prohibiting
marriage between close relatives).
So, what is ‘law’ and how is it different from other
kinds of rules? The law is a set of rules, enforceable by Classification of law
the courts, which regulate the government of the state
and govern the relationship between the state and its
There are various ways in which the law may be
citizens and between one citizen and another. As
classified; the most important are as follows:
individuals we encounter many ‘rules’. The rules of a
particular sport, such as the off-side rule in football, or 1 Public and private law. The distinction between
the rules of a club, are designed to bring order to a public and private law is illustrated in Figure 1.1.
particular activity. Other kinds of rule may really be
social conventions, such as not speaking ill of the dead. (a) Public law. Public law is concerned with the
In this case, the ‘rule’ is merely a reflection of what a relation-ship between the state and its citizens. This
community regards to be appropriate behaviour. In comprises several specialist areas such as:
neither situation would we expect the rule to have the (i) Constitutional law. Constitutional law is concerned
force of law and to be enforced by the courts. with the workings of the British constitution. It covers
In this book we are concerned with one specific area such matters as the position of the Crown, the composition
of law: the rules which affect the business world. We
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Part 1 Introduction to law

Figure 1.1 The distinction between public and private law

(a) Criminal law. The criminal law is concerned with

and procedures of Parliament, the functioning of central forbidding certain forms of wrongful conduct and pun-
and local government, citizenship and the civil liberties ishing those who engage in the prohibited acts. Criminal
of individual citizens. proceedings are normally brought in the name of the
(ii) Administrative law. There has been a dramatic Crown and are called prosecutions. In 1985 responsibility
increase in the activities of government during the last for the process of prosecution passed from the police to a
hundred years. Schemes have been introduced to help newly created independent Crown Prosecution Service
ensure a minimum standard of living for everybody. under the direction of the Director of Public Prosecu-tions
Government agencies are involved, for example, in the (Prosecution of Offences Act 1985). It should be noted
provision of a state retirement pension, income support that prosecutions may also be undertaken by bodies, such
and child benefit. A large number of disputes arise from as the trading standards department of the local authority,
the administration of these schemes and a body of law, and by private individuals, e.g. a store detective
administrative law, has developed to deal with the prosecuting a shoplifter. In criminal cases you have a
complaints of individuals against the decisions of the prosecutor who prosecutes a defendant in the criminal
administering agency. courts. The consequences of being found guilty are so
serious that the standard of proof is higher than in civil
(iii) Criminal law. Certain kinds of wrongdoing pose
cases: the allegations of criminal conduct must be proved
such a serious threat to the good order of society that
beyond a reasonable doubt. If the prosecution is
they are considered crimes against the whole commu-
successful, the defendant is found guilty (convicted) and
nity. The criminal law makes such anti-social behaviour
may be punished by the courts. The Criminal Justice Act
an offence against the state and offenders are liable to
2003 sets out for the first time in legislation the purposes
punishment. The state accepts responsibility for the
of sentencing adult offenders, which are punishment,
detection, prosecution and punishment of offenders.
crime reduction, the reform and rehabilitation of
(b) Private law. Private law is primarily concerned with offenders, and reparation. Punishments available to the
the rights and duties of individuals towards each other. court include imprisonment, fines, or community orders
The state’s involvement in this area of law is confined to such as an unpaid work requirement. If the prosecution is
providing a civilised method of resolving the dispute that unsuccessful, the defendant is found not guilty
has arisen. Thus, the legal process is begun by the (acquitted). A businessperson may find themselves in
aggrieved citizen and not by the state. Private law is also breach of the criminal law under such enactments as the
called civil law and is often contrasted with criminal law. Companies Act 2006, the Consumer Protection from
2 Criminal and civil law. Legal rules are generally Unfair Trading Regulations 2008 and the Health and
divided into two categories: criminal and civil. It is Safety at Work etc. Act 1974.
important to understand the nature of the division because (b) Civil law. The civil law deals with the private rights
there are fundamental differences in the purpose, and obligations which arise between individuals. The
procedures and terminology of each branch of law.
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 Chapter 1 The nature of law

Figure 1.2 The differences between criminal and civil law

The distinction between the criminal and civil law does
not depend on the nature of the wrongful act, because the
purpose of the action is to remedy the wrong that has been
same act may give rise to both civil and criminal pro-
suffered. Enforcement of the civil law is the responsibility
ceedings. Consider the consequences of a typical motor
of the individual who has been wronged; the state’s role is
accident. Julie is crossing the road at a zebra crossing
to provide the procedure and the courts necessary to
when she is struck by a car driven by Gordon. An ambu-
resolve the dispute. In civil proceedings a claimant sues a
lance takes Julie to a local hospital where it is discovered
defendant in the civil courts. The claimant will be
that she has sustained a broken leg. Meanwhile, the police
successful if he can prove his case on the balance of
have arrived at the scene of the accident and they
probabilities, i.e. the evidence weighs more in favour of
breathalyse Gordon. The result is positive and Gordon is
the claimant than the defendant. If the claimant wins his
charged with a criminal offence based on driving with
action, the defendant is said to be liable and the court will
excess alcohol. He appears before the local magistrates’
order an appropriate remedy, such as damages (financial
court and is convicted. He is disqualified from driving for
compensation) or an injunc-tion (an order to do or not do
18 months and fined £400. The fine is paid to the court: it
something). If the claimant is not successful, the defendant
does not go to compensate the victim of the criminal act.
is found not liable. Many of the laws affecting the
However, a criminal court now has a limited power to
businessperson are part of the civil law, especially
order an offender to pay compensation for any ‘personal
contract, tort and property law. The main differences
injury, loss or damage’ caused to the
between civil and criminal law are illustrated in Figure
1.2.

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Part 1 Introduction to law
and they sat at Westminster. The first to appear was the
victim of his offence (under s 130 of the Powers of Court of Exchequer. It dealt with taxation disputes but
Criminal Courts (Sentencing) Act 2000). Julie must later extended its jurisdiction to other civil cases. The
pursue a separate civil action against Gordon to remedy Court of Common Pleas was the next court to be estab-
the personal wrong she has suffered. She sues Gordon lished. It heard disputes of a civil nature between one
in the tort of negligence, seeking damages for the citizen and another. The Court of King’s Bench, the last
injuries she has sustained. The case is heard in the court to appear, became the most important of the three
county court where Gordon is found liable. He is courts because of its close association with the king. Its
ordered to pay £6,000 in damages. Normally, the loser jurisdiction included civil and criminal cases and it
in a civil action pays the winner’s costs. So Gordon is developed a supervisory function over the activities of
ordered to pay Julie’s costs in bringing the action. inferior courts.
3 Common law and equity. Legal rules may also be
The Normans exercised central control by sending
classified according to whether they form part of the representatives of the king from Westminster to all parts
common law or equity. The distinction between these two of the country to check up on the local administration. At
systems of law is rooted in history and can only be first these royal commissioners performed a number of
understood properly by examining the origins of English tasks: they made records of land and wealth, collected
taxes and adjudicated in disputes brought before them.
law. English legal development can be traced back to 1066
Their judicial powers gradually became more important
when William of Normandy gained the crown of England
than their other functions. To begin with, these com-
by defeating King Harold at the Battle of Hastings. Before
missioners (or justices) applied local customary law at the
the arrival of the Normans in 1066 there really was no
hearings, but in time local customs were replaced by a
such thing as English law. The Anglo-Saxon legal system
body of rules applying to the whole country.
was based on the local community. Each area had its own
courts in which local customs were applied. The Norman When they had completed their travels round the
Conquest did not have an immediate effect on English country, the justices returned to Westminster where
law; indeed, William promised the English that they could they discussed the customs they had encountered. By a
keep their custom-ary laws. The Normans were great gradual process of sifting these customs, rejecting those
administrators and they soon embarked on a process of which were unreasonable and accepting those which
centralisation, which created the right climate for the were not, they formed a uniform pattern of law
evolution of a uniform system of law for the whole
throughout England. Thus, by selecting certain customs
country.
and applying them in all future similar cases, the
common law of England was created.
A civil action at common law was begun with the
issue of a writ which was purchased from the offices of
The common law the Chancery, a department of the Curia Regis under
the control of the Chancellor. Different kinds of action
were covered by different writs. The procedural rules
The Norman kings ruled with the help of the most and type of trial varied with the nature of the writ. It
important and powerful men in the land who formed a was essential that the correct writ was chosen,
body known as the Curia Regis (King’s Council). This otherwise the claimant would not be allowed to proceed
assembly carried out a number of functions: it acted as with his action.
a primitive legislature, performed administrative tasks
and exercised certain judicial powers. The meetings of
the Curia Regis came to be of two types: occasional
assemblies attended by the barons and more frequent Equity
but smaller meetings of royal officials. These officials
began to specialise in certain types of work and depart- Over a period of time the common law became a very
ments were formed. This trend eventually led to the rigid system of law and in many cases it was impossible
development of courts to hear cases of a particular kind. to obtain justice from the courts. The main defects of
The courts which had emerged by the end of the 13th the common law were as follows:
century became known as the Courts of Common Law
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 Chapter 1 The nature of law

■ The common law failed to keep pace with the needs of trust for a beneficiary (B). The common law treated T
an increasingly complex society. The writ system was as if he were the owner of the property and B’s claims
slow to respond to new types of action. If a suitable writ were ignored. The Court of Chancery, however, would
was not available, an injured party could not obtain a require T to act according to his conscience and admin-
remedy, no matter how just his claim. ister the trust on B’s behalf. Thus, equity recognised
■ The writ system was very complicated, but trivial and enforced the rights of a beneficiary under a trust.
mistakes could defeat a claim. The Court of Chancery also came to the aid of
■ The only remedy available in the common law courts borrowers who had mortgaged their property as security
was an award of damages. This was not always a for a loan. If the loan was not repaid by the agreed date,
suit-able or adequate remedy. the common law position was that the lender
■ Men of wealth and power could overawe a court, and (mortgagee) became the owner of the property and the
there were complaints of bribery and intimidation of borrower (mortgagor) was still required to pay the
jurors. outstanding balance. Equity gave the mortgagor the
right to pay off the loan and recover his property even
It became the practice of aggrieved citizens to petition the though the repayment date had passed. This equitable
king for assistance. As the volume of petitions increased, principle is known as the equity of redemption.
the king passed them to the Curia Regis and a committee
was set up to hear the petitions. The hearings were 2 Introduction of new remedies. The new equitable
presided over by the Chancellor and in time peti-tions rights were enforced by means of new equitable reme-
were addressed to him alone. By the 15th century the dies. In the field of contract law, the Court of Chancery
Chancellor had started to hear petitions on his own and the developed such remedies as the injunction, specific
Court of Chancery was established. The body of rules performance, rescission and rectification. These
applied by the court was called equity. remedies were not available as of right like common
The early Chancellors were drawn from the ranks of law remedies: they were discretionary. The Court of
the clergy and their decisions reflected their ecclesiast- Chancery could refuse to grant an equitable remedy if,
ical background. They examined the consciences of the for example, the claimant had himself acted unfairly.
parties and then ordered what was fair and just. At first, By the 19th century the administration of justice had
each Chancellor acted as he thought best. Decisions reached an unhappy state of affairs and was heavily
varied from Chancellor to Chancellor and this resulted criticised. The existence of separate courts for the
in a great deal of uncertainty for petitioners. Eventually, administration of common law and equity meant that
Chancellors began to follow previous decisions and a someone who wanted help from both the common law and
large body of fixed rules grew up. The decisions of the equity had to bring two separate cases in two sepa-rate
Court of Chancery were often at odds with those made courts. If a person started an action in the wrong court, he
in the common law courts. This proved a source of could not get a remedy until he brought his case to the
conflict until the start of the 17th century when James I right court. The proceedings in the Court of Chancery had
ruled that, in cases of conflict, equity was to prevail. become notorious for their length and expense. (Charles
For several centuries the English legal system Dickens satirised the delays of Chancery in his novel
continued to develop with two distinct sets of rules Bleak House.) Comprehensive reform of the many
administered in separate courts. deficiencies of the English legal sys-tem was effected by
Equity is not a complete system of law. Equitable several statutes in the 19th century culminating in the
principles were formulated to remedy specific defects Judicature Acts 1873–75. The sepa-rate common law
in the common law. They were designed to comple- courts and Court of Chancery were replaced by a Supreme
ment the common law rules and not to replace them. Court of Judicature which comprised the Court of Appeal
Equity has made an important contribution to the and High Court. Every judge was empowered thenceforth
development of English law, particularly in the follow- to administer both common law and equity in his court.
ing areas: Thus, a claimant seeking a common law and an equitable
1 Recognition of new rights. The common law did not remedy need
recognise the concept of the trust. A trust arises where a
settlor (S) conveys property to a trustee (T) to hold on
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Part 1 Introduction to law

Figure 1.3 Differences between the common law and equity

 range of potential liability. So, before we consider the
only pursue one action in one court. The Acts also law governing the formation, operation and dissolu-tion
confirmed that, where common law and equity conflict, of business organisations, we must first examine in
equity should prevail. These reforms did not have the outline the nature and scope of legal liability for
effect of removing the distinction between the two sets wrongful acts.
of rules: common law and equity are still two separate
but complementary systems of law. A judge may draw
upon both sets of rules to decide a case. Civil liability
The differences between the common law and equity
As we have already seen, the civil law is concerned
are summarised in Figure 1.3.
with the rights and duties which arise between private
indi-viduals. The aim of taking legal action is to put
right a wrong which has occurred, often by means of an
Some basic principles of award of compensation. The areas of civil liability
which have the greatest impact on businesses are
legal liability
liability in contract and tort.

Before we consider the specific areas of law governing Contractual liability

the activities of business organisations, we must first of Contractual liability arises when two or more persons
all consider the branches of law which are most likely enter into a legally enforceable agreement with each
to affect those in business and certain basic principles other. The law of contract is concerned with determin-
of liability. ing which agreements are binding, the nature and extent
It is a basic function of the law to set out the circum- of the obligations freely undertaken by the parties and
stances in which a person may be required to answer for the legal consequences of breaking contractual
his actions. Legal liability describes a situation where a promises.
person is legally responsible for a breach of an obligation
Every type of business transaction, from buying and
imposed by the law. Such obligations may arise from the
selling goods and services to employing staff, is
operation of either the civil or criminal law. The activi-ties
governed by the law of contract. Contractual arrange-
of business organisations are subject to a wide ments are so important to the conduct of business they
are examined in more detail in later chapters.
 Chapter 1 The nature of law

requirements. He will secure a conviction by establish-

ing that the food was unsafe and that it was sold. The
seller may be able to defend himself by showing that he
has taken all reasonable precautions and exercised due
diligence to avoid commission of the offence.

Tortious liability Law of property

A tort consists of the breach of a duty imposed by the
law. The law of tort seeks to compensate the victims of
certain forms of harmful conduct by an award of The law of property is concerned with the rights which
damages or to prevent harm occurring by granting an may arise in relation to anything that can be owned.
injunction. Examples of torts include negligence, Thus, property covers land, goods and intangible rights
nuisance, trespass, defamation (libel and slander) and such as debts, patents or the goodwill of a business. In
conversion. order fully to understand other prin-ciples of business
law which you will encounter before then, it is
necessary to consider the relationships which may arise
Criminal liability between persons and property, namely, the rights of
ownership and possession.
A crime is an offence against the state. The consequences
of a criminal conviction are not confined to the punish- 1 Ownership. Ownership describes the greatest rights
ment inflicted by the court. For example, if a person is that a person can have in relation to property. An owner
convicted of theft, his name will probably appear in the enjoys the fullest powers of use and disposal over the
local papers causing shame and embarrassment and he property allowed by law. The owner of this book, for
may even lose his job. The sanctions are so severe that the example, has the right to read it, lend it to a friend, hire
criminal law normally requires an element of moral fault it out, pledge it as security for a loan, or even tear it into
on the part of the offender. Thus, the prosecu-tion must shreds. An owner does not enjoy absolute rights;
establish two essential requirements: actus reus restric-tions may be imposed to protect the rights of
(prohibited act) and mens rea (guilty mind). For most other members of the community. The ownership of a
criminal offences, both elements must be present to create house does not entitle the occupants to hold frequent
criminal liability. If you pick someone’s umbrella up wild parties to the annoyance of neighbours.
thinking that it is your own, you cannot be guilty of theft, 2 Possession. Possession consists of two elements:
because of the absence of a guilty mind. There are, physical control and the intention to exclude others. For
however, some statutory offences where Parliament has example, you have possession of the watch you are wear-
dispensed with the requirement of mens rea. Performance ing, the clothes in your wardrobe at home and your car
of the wrongful act alone makes the offender liable. These which is parked while you are at work. Ownership and
are known as crimes of strict liability. Selling food for possession often go hand in hand, but may be divorced.
human consumption which fails to comply with food The viewer of a hired TV enjoys possession of the set, but
safety requirements contrary to the Food Safety Act 1990 ownership remains with the TV rental firm. If your house
is an example of an offence of strict liability. The is burgled, you remain the owner of the stolen property,
prosecutor is not required to show that the seller knew that but the burglar obtains (unlawful) possession.
the food did not comply with food safety

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Part 1 Introduction to law