Institute of Financial Accountants (IFA) Qualifications Corporate and Business Law Syllabus

Define misrepresentation and name its three types.

A false statement of material fact made by one party that induces the other to enter the contract. Types: (1) Fraudulent (knowingly false / reckless — Derry v Peek), (2) Negligent (no reasonable grounds to believe it true — Misrepresentation Act 1967 / Hedley Byrne), (3) Innocent (honest belief on reasonable grounds).

Distinguish duress from undue influence.

Duress is illegitimate pressure — actual or threatened violence to the person, or economic duress (illegitimate commercial pressure leaving no practical choice). Undue influence is the improper use of a relationship of trust/confidence to gain an advantage (may be actual or presumed). Both make a contract voidable.

List the four main ways a contract may be discharged.

(1) Performance (complete and exact performance of obligations), (2) Agreement (both parties agree to release/replace), (3) Frustration (an unforeseen event makes performance impossible or radically different), and (4) Breach (failure to perform, allowing the innocent party to elect to terminate).

Define frustration of a contract and give two examples of frustrating events.

Frustration occurs where, after formation, an unforeseen event beyond the parties' control makes performance impossible, illegal, or radically different from what was agreed, automatically discharging the contract. Examples: destruction of the subject matter (Taylor v Caldwell); subsequent illegality; non-occurrence of the contract's sole purpose (Krell v Henry).

State the rule in Hadley v Baxendale on remoteness of damage.

Damages for breach are recoverable only if the loss (1) arises naturally from the breach (in the ordinary course of things), OR (2) was within the reasonable contemplation of both parties at the time of contracting as a probable result of breach. Losses too remote are irrecoverable.

List four remedies available for breach of contract.

(1) Damages (monetary compensation — the primary common law remedy), (2) Specific performance (equitable order to perform), (3) Injunction (equitable order to do/refrain from doing something), (4) Rescission and (5) action for an agreed sum / quantum meruit. The aim of damages is to put the claimant in the position they would have been in had the contract been performed.

What is the duty to mitigate, and how does it affect a damages award?

The innocent party must take reasonable steps to minimise their loss following a breach. They cannot recover for losses that could reasonably have been avoided; failure to mitigate reduces the damages recoverable accordingly. They need not take unreasonable risks or steps.

State the three elements a claimant must prove to establish negligence.

(1) The defendant owed the claimant a duty of care, (2) the defendant breached that duty (fell below the standard of the reasonable person), and (3) the breach caused reasonably foreseeable damage/loss (causation and remoteness).

State the modern test for establishing whether a duty of care exists (Caparo v Dickman).

The three-stage Caparo test: (1) the harm was reasonably foreseeable, (2) there was sufficient proximity between the parties, and (3) it is fair, just and reasonable to impose a duty of care.

How is the standard of care assessed in a negligence claim, and what is the 'but for' test?

Standard of care: the objective standard of the 'reasonable person' performing the task (a professional is judged by the standard of a reasonably competent member of that profession — Bolam). Causation 'but for' test: would the harm have occurred 'but for' the defendant's breach? If not, factual causation is established (Barnett v Chelsea Hospital).

Define vicarious liability and state the two conditions for it to arise.

Vicarious liability is where one party (usually an employer) is held liable for the torts of another (an employee) committed in the course of employment. Conditions: (1) there is a relationship of employment (a contract of service), and (2) the tort was committed 'in the course of employment' (a close connection to the employee's duties).

In vicarious liability, what is the difference between an authorised act done improperly and a 'frolic of his own'?

An employer IS liable for a wrongful/unauthorised mode of doing an authorised act (still 'in the course of employment'). The employer is NOT liable where the employee was on a 'frolic of his own' — acting entirely outside the scope of employment for their own purposes.

Distinguish a contract of service from a contract for services, and why the distinction matters.

A contract of service = an employee (employed under the business). A contract for services = an independent contractor (self-employed). It matters for: vicarious liability, employment rights/protection, tax/NIC treatment, and statutory duties owed by employers.

List three tests the courts use to determine whether a person is an employee.

(1) Control test (degree of control over how, when, where work is done), (2) Integration/organisation test (whether the work is integral to the business), and (3) Multiple/economic reality test (overall picture: mutuality of obligation, who bears financial risk, provision of own equipment, etc.).

List four implied duties owed by an EMPLOYEE in a contract of employment.

(1) Duty to obey lawful and reasonable orders, (2) duty to act with reasonable care and skill, (3) duty of good faith/fidelity (including not competing or disclosing confidential information), and (4) duty to give personal/faithful service. (Also: to account for secret profits.)

List four implied duties owed by an EMPLOYER in a contract of employment.

(1) Duty to pay agreed wages, (2) duty to provide a safe system/place of work, (3) duty of mutual trust and confidence, and (4) duty to provide work where appropriate (e.g., piecework/commission roles) and to indemnify reasonable expenses.

Distinguish wrongful dismissal from unfair dismissal.

Wrongful dismissal is a common-law/contractual claim — dismissal in breach of contract (e.g., without proper notice). Unfair dismissal is a statutory claim — dismissal without a fair reason and/or fair procedure, generally requiring a qualifying period of continuous employment; remedies are statutory (reinstatement/re-engagement/compensation).

List the potentially fair reasons for dismissal under UK employment law.

(1) Capability or qualifications, (2) conduct, (3) redundancy, (4) statutory illegality (continued employment would breach a statutory duty), and (5) some other substantial reason (SOSR). The employer must also act reasonably and follow a fair procedure.

Define redundancy as a reason for dismissal.

Redundancy arises where dismissal is wholly or mainly attributable to: the employer ceasing or intending to cease the business; ceasing the business at the employee's location; or the requirements for employees to do work of a particular kind having ceased or diminished. Qualifying employees are entitled to a statutory redundancy payment.

Compare a sole trader, a partnership, and a company in terms of legal personality and liability.

Sole trader: no separate legal personality; owner has unlimited personal liability. Ordinary partnership: generally no separate legal personality (in England); partners have joint unlimited liability. Company: separate legal personality; members' liability is limited (to unpaid share capital or guarantee).

State the principle established in Salomon v Salomon & Co Ltd.

A company, once validly incorporated, is a separate legal person distinct from its members and directors. Its debts are its own; the members are not personally liable beyond their unpaid share capital, even where one person owns nearly all the shares ('the veil of incorporation').

List three circumstances in which the 'veil of incorporation' may be lifted.

(1) Statutory lifting (e.g., fraudulent or wrongful trading under the Insolvency Act 1986; group accounts). (2) Where the company is a mere 'sham' or 'façade' to evade an existing legal obligation. (3) Agency/single economic unit situations recognised by the courts. (Courts lift the veil only in limited circumstances.)

Distinguish a private limited company (Ltd) from a public limited company (plc).

Private (Ltd): cannot offer shares to the public; no minimum share capital; can have a single member/director. Public (plc): may offer shares to the public; minimum allotted share capital of £50,000 (at least 25% paid up); must have at least two directors and a qualified company secretary; needs a trading certificate before trading.

What documents must be filed to incorporate a company, and what does the registrar issue on success?

An application (memorandum of association, articles of association if not using model articles, and statement of capital/proposed officers/registered office — form IN01) plus the fee, filed at Companies House. On success the registrar issues a Certificate of Incorporation (conclusive evidence the company exists).

What is the role of a company's articles of association, and what are 'model articles'?

The articles are the company's internal constitution/rulebook, governing the relationship between the company and its members and the conduct of its affairs (e.g., directors' powers, meetings, share rights). 'Model articles' are default standard articles provided by regulation that apply automatically unless the company adopts its own.

Explain the effect of the constitution as a contract (s.33 Companies Act 2006).

Under s.33 CA 2006, the company's constitution binds the company and its members as if there were a covenant by each to observe its provisions. It creates a statutory contract between (a) the company and each member, and (b) the members among themselves, enforceable in respect of membership rights.

Distinguish an ordinary resolution from a special resolution.

Ordinary resolution: passed by a simple majority (over 50%) of votes cast. Special resolution: requires at least 75% of votes cast, and is needed for major matters (e.g., altering the articles, changing the company name, reducing capital, winding up voluntarily).

List four general duties of directors codified in the Companies Act 2006.

(1) Duty to act within powers (s.171), (2) duty to promote the success of the company for the benefit of members as a whole (s.172), (3) duty to exercise independent judgment (s.173) and reasonable care, skill and diligence (s.174), and (4) duty to avoid conflicts of interest (s.175) and not to accept benefits from third parties (s.176) / declare interest in transactions (s.177).

Distinguish share capital from loan capital (debentures), including the holder's status.

Share capital: funds raised by issuing shares; shareholders are members/owners with voting rights and receive discretionary dividends, ranking last on a winding up. Loan capital (debentures): borrowed funds; debenture holders are creditors (not members), receive fixed interest, may hold security, and rank ahead of shareholders on insolvency.

Distinguish a fixed charge from a floating charge as company security.

A fixed charge attaches to a specific, identifiable asset (e.g., land); the company cannot freely deal with it without the chargee's consent and it ranks first. A floating charge 'floats' over a class of changing assets (e.g., stock); the company deals with them freely until the charge 'crystallises', after which it attaches like a fixed charge but ranks behind fixed charges and preferential creditors.

Distinguish compulsory liquidation from voluntary liquidation, and state who can petition for compulsory winding up.

Compulsory liquidation: ordered by the court, commonly on a creditor's petition where the company cannot pay its debts (e.g., a debt over £750 unpaid after statutory demand). Voluntary liquidation: initiated by the members' resolution — either a members' voluntary winding up (solvent, with a declaration of solvency) or a creditors' voluntary winding up (insolvent).

Distinguish fraudulent trading from wrongful trading under the Insolvency Act 1986.

Fraudulent trading: carrying on business with intent to defraud creditors (requires dishonesty; rare to prove); applies to anyone party to it. Wrongful trading: a director continues trading when they knew or ought to have concluded there was no reasonable prospect of avoiding insolvent liquidation and failed to minimise creditors' losses; no dishonesty required. Both can lead to personal liability to contribute to assets.