Examiners’ reports 2019 1 Examiners’ reports 2019 LA2017 Commercial law – Zone A Introduction The Commercial law examination followed the same format as previous years with candidates required to answer their choice of four out of eight questions, the questions being a mix of both essays and problems. As in previous years, many candidates achieved scores below their potential as a result of three common but costly errors. The first is in relation to time management. Many candidates answered only three questions fully and, in some cases, only two. Whatever the quality of these answers, it is very difficult to achieve even a pass when one or more questions has not been attempted or is little more than a series of hurried bullet points. It is essential to ensure you give yourself sufficient time to give four complete answers. Secondly, many candidates are not answering the questions set. This manifests in three ways. Not reading the question carefully, for example, confusing a question concerning ‘transfer of title’ with a question on the ‘passing of property’, or applying the Sale of Goods Act to a problem question centred around defective goods sold to a consumer. In these instances, a minor misreading of the question will probably mean the candidate’s answer is well below the pass standard. Not reading the instruction carefully, for example, disregarding the instruction to ‘analyse’ the law and instead simply describing it. Answers like this may pass but cannot achieve a high mark. Using learned or pre-prepared answers. Usually, these answers totally fail to address the question set, or fail to engage with it in any substantive way, and the answer will invariably be below the pass standard. Finally, in relation to problem questions, candidates must bear in mind that identifying the relevant law is only one part of the task. The more skilled part of the task (the part that carries higher marks) is applying the law to the facts to offer a reasoned solution to the problem. Too often, candidates simply assert or describe potentially relevant law without explanation and with little or no analysis of the problem at hand.
2 Comments on specific questions Question 1 ‘A theme that runs through our law of contract is that the reasonable expectations of honest men must be protected.’ (Steyn J in First Energy Ltd v Hungarian International Bank (1993)). Discuss the extent to which this is correct in relation to commercial law. General remarks This question was attempted by many candidates and many good answers were seen, although very often the focus was on the case mentioned in the question rather than the question itself. Law cases, reports and other references the examiners would expect you to use This question invites candidates to think about commercial law as a whole and the themes within it. As such almost any aspect of the law covered in this module could be relevant here if used effectively. Common errors The most common error in relation to this question was a failure to follow the rubric, using the quotation from First Energy as a prompt to discuss that case, or instances of apparent authority or the law of agency in isolation. Agency is a potentially good example of how the law is shaped by commercial norms and the expectations of commercial people but this was often not considered. Where candidates did discuss the law more widely, there was a tendency to describe an area of law with which they were familiar, as opposed to explaining what that area of law might tell us about the nature and function of commercial law as a whole. A good answer to this question would… select a range of examples from the syllabus, provide some description of them to show understanding but most importantly analyse them to understand whether ‘fulfilling the expectations of honest men’ really is a ‘theme’ that runs through the law, or just something we might see in isolated instances, or not at all. Poor answers to this question… described an aspect of commercial law but offered no analysis or explanation as to what it tells us about ‘reasonable expectations’, or simply discussed apparent authority as a result of misreading or misunderstanding the question. Question 2 ‘The concepts of “ownership” and “possession” are what is really at the heart of commercial law.’ Discuss. General remarks This question aimed to examine some of the new material on the syllabus in relation to concepts of property and possession and invited candidates to consider how the commercial importance of interests in property influenced the development of rules and doctrines of commercial law more widely. Most answers to this question confined themselves to a discussion of the basic principles or the rules on passing of property. Almost no answers offered the wider analysis the question called for. Law cases, reports and other references the examiners would expect you to use All answers should have included a discussion of the basic concepts of ‘ownership’ and ‘possession’ and the concepts of ‘interest’ and ‘title’ as the foundations of their answer. From that point, there is a range of material candidates could call on to
Examiners’ reports 2019 3 show the importance (or not) of property rights in commercial law. Discussion of passing of property, security, retention of title clauses are areas of particular relevance, good answers might also have analysed the nemo dat exceptions too. Common errors A number of candidates clearly did not really understand the question or chose to disregard it and just replicate the rules of passing of property or the nemo dat exceptions. A good answer to this question would… identify and explain the nature of property and interests in it before considering how concern for property rights or the safeguarding of property rights have shaped the law, looking at obvious examples such as passing of property and securities, for example, but also considering other more complex examples, such as the nemo dat exceptions, in the context of well-structured discussion. Poor answers to this question… simply described an area of law such as passing of property or transfer of title while offering no discussion as to how or why this was relevant to the question posed. Question 3 Bonnie purchased a used car from Sellars’ Garage Ltd for her personal use. The car was one-year-old and had covered only 4,000 miles. It was an upmarket saloon and cost £50,000. Bonnie paid a deposit and she settled the balance in full before taking delivery of the car on 1 February 2019. In the course of the first two weeks of her ownership, Bonnie experienced a number of faults. On two occasions, the engine has cut out while driving at high speed. Investigations show that this is likely to be caused by an intermittent fault with an engine sensor but could also be caused or exacerbated by excessive levels of impurities in the fuel being used by Bonnie. On one occasion, the ‘auto locking’ feature, designed to automatically secure the car when the driver walks away with the key, had locked the car with the key inside it. Various pieces of interior trim, on closer inspection, also seemed to be looking very worn for such a new and lightly used vehicle and the cars upholstery, a form of manmade leather, appears to have been discoloured as a result of being in contact with certain of Bonnie’s clothes. On 1 April, Bonnie took the car to Sellars’ who agreed to make good the defects. Bonnie collected the car on 3 April. Sellars’ explained that they had cured the fault with the engine and locking system, although they declined to explain the nature of the faults, but claimed that the wear to the interior and any discolouration of the upholstery were entirely the result of her use of it and did not amount to any sort of defect. The engine fault recurred. On 27 April, Bonnie once again returned the car to Sellars’ for inspection. Sellars’ claimed to find no evidence or cause of the faults and reasserted that the interior showed no premature wear. The problems have not been remedied. Bonnie has continued to use the car as she has no other means of transport but is very unhappy with it. She has not raised the continuing problems with Sellars’ since 27 April. Advise Bonnie. General remarks Many candidates attempted this question. Too often candidates used the wrong law (Sale of Goods Act 1979 as opposed to the Consumer Rights Act 2015) and scored very low marks as a result. Many candidates tried to apply both regimes either
4 together or at different points in the question. Often, the approach taken was to describe the law rather than solve the problem. Law cases, reports and other references the examiners would expect you to use Consumer Rights Act 2015 (ss.2, 9, 10, 11, 19–24) and, where appropriate, Sale of Goods Act case law elaborating the meaning of the terms implied by ss.13, 14 and 15. Common errors Many candidates did not see that this was a Consumer Rights Act 2015 question and not a Sale of Goods Act 1979 question and therefore used the wrong law. Even when the Consumer Rights Act 2015 was correctly identified, the remedies from the Sale of Goods Act were used or remedies were not discussed at all. Without discussion of remedies there is no solution to the problem. A good answer to this question would… identify clearly from the outset that Consumer Rights Act was applicable, noting the definition of a consumer, before continuing to the appropriate implied terms, making reference, where appropriate to the Sale of Goods Act case law, noting that the provisions under both Acts in this regard are identical. Work through the relevant implied terms systematically, adopting a structure that mirrors the legislation. Be clear on whether there is a breach and, if there is, identify the available remedies, considering which is available and which is most appropriate. Poor answers to this question… applied the Sale of Goods Act and often (even if candidates did apply the Consumer Rights Act) only described the law, often considering only the implied terms, totally ignoring the need to discuss the available remedies for this to be of any use. Student extract The approach of the implied terms has shifted from ‘caveat emptor’ (buyer beware) to ‘caveat venditor’ (seller beware) more so in relation to implied terms regarding reasonable quality of goods and fitness for a particular purpose. Since Bonnie has bought the car for personal use, her contract will be governed by the Consumer Rights Act but the Sale of Goods Act and its case law will also apply. Under s.14(2) the seller must sell goods in the course of business, but it is not necessary to sell what the business normally trades in. Sellars Garage Ltd is a business that deals in automobiles and therefore it can be said it is a business selling goods in their ordinary course of trading activities. Comments on extract This extract exemplifies confusion of many candidates around the Consumer Rights Act and Sale of Goods Act. Only one can apply. If it is the Consumer Rights Act, Sale of Goods Act case law maybe relevant but only Consumer Rights Act provisions and remedies can be referred to. Initially, it may appear that this is what the candidate is suggesting but as the answer continues, it becomes clear there is confusion about the relevant law and a low mark results. This answer also shows a general lack of detail and is not well focused. For example, the opening lines are not really relevant to a problem question (if you were Bonnie, would it be helpful to be told this?) and there is no explanation as to why they might be. Whether it is a Sale of Goods Act case, or a Consumer Rights Act case, the seller must be selling as a business but the candidate does not explain this and does not
Examiners’ reports 2019 5 identify the relevant provision of the Act, so it is not clear why this is relevant. A well-structured answer makes clear to the reader what is being shown or discussed. Question 4 Professor Atiyah has stated that ‘the law relating to the transfer of the title to goods is in a complex and confused state.’ Discuss. General remarks A substantial number of candidates attempted this question that specifically asks that transfer of title be discussed. Too often, this was misunderstood as passing of property. Many candidates failed to discuss Professor Atiyah’s remark and instead just described or set out the relevant law. Law cases, reports and other references the examiners would expect you to use Factors Act ss.1 and 2; ss.21–25 Sale of Goods Act; relevant sections of the Hire Purchase Act and the case law that interprets those statutory provisions. Common errors The main error was confusing ‘transfer of title’, i.e. the statutory exceptions to the nemo dat rule with the rules on ‘passing of property’, therefore offering little of relevance to the question. A good answer to this question would… identify and explain the basic rule of nemo dat quod non habet and explain that a range of exceptions had grown up around it (and why). A balanced answer would describe these exceptions and how they had come to be understood but place particular emphasis on the subtle distinctions that they draw, their complexity and in some cases, the difficulty in proving them (as shown by the case law) before offering an overall analysis of how they operate as a coherent scheme to deal with the fundamental problem famously expressed by Lord Denning in Transport Brakes. Poor answers to this question… either misunderstood the question (see above) or simply replicated the statutory provisions from the statute book, offering no examination or analysis and failing to answer the question. Student extract There are some critics who think Denning’s view in this area is apt, while others think Lord Goff’s view establishing that the exceptions are only minor in nature and does not affect the main principle is rather a better reflection of what really exists. In my view, even though complicated, the exception generally do not undermine the nemo dat principle too much. Comments on extract This quotation came at the end of lengthy essay where the candidate had primarily just described the statute, often quoting the statute at length. The lack of structure and analysis of the law earlier means that these concluding remarks do not fit well into the essay, it is important to not just set the law out but to analyse it at every stage and explain how this analysis relates back to the question. More importantly, this extract, while it shows some knowledge of judicial analysis of this area, lacks detail. It does not show real knowledge of these potentially important sources and, without detail, the analysis that is offered is superficial.
6 Question 5 Southern are an importer of pistachio nuts. Their standard written terms of business contain the following clause: It is agreed until full payment for the goods is made by Buyer, Seller retains title to: goods supplied under this contract; any goods that result from the processing of those goods or incorporate them and the proceeds of any sale of the goods supplied under this contract, which it is agreed are made by Buyer as fiduciary agent of Seller. Southern contracted to sell to Nut Processors Ltd three tonnes of raw, unshelled, fresh pistachio nuts, all to be Grades B or C. One tonne of raw nuts was shelled and the resulting kernels placed in a storage container with 14 tonnes of Grade B shelled pistachios previously supplied under two other agreements, one for 20 tonnes and one for four tonnes, with two other suppliers. One tonne of nuts was roasted, shelled, then salted and sold to Nut Traders Ltd. Nut Processors’ contract with Nut Traders includes a clause that is substantially the same as the one found in Southern’s agreement. The proceeds of sale remain in the bank account of Nut Processors. The other tonne of nuts was ground to form a paste and mixed with sugar and vegetable oil. The resulting mixture is now stored in a vat with 50 tonnes derived from nuts purchased from other suppliers. Nut Processors Ltd are now in insolvent liquidation. Southern’s invoices for the goods remain unpaid. Southern are now seeking advice on the enforceability of their retention of title clause. Advise Southern. General remarks This question was widely answered and most candidates were clear that it concerned retention of title clauses and were able to construct a solid answer to it. However, in general, answers needed to improve their structure and there was a lack of understanding of some of the more nuanced points, particularly those discussed in Clough Mill and those raised by claims to proceeds of sale. Most candidates seemed to grasp the issues around claims to altered or manufactured goods and were familiar with a range of relevant case law. Law cases, reports and other references the examiners would expect you to use Discussion of Romalpa and Clough Mill as founding cases in this area, noting relevant Sale of Goods Act provisions, which allow for RoT clauses. Case law considering when goods supplied lose their character (Re Peachdart, Modelboard v Outerbox, Borden v Scottich Timber, etc.). Case law considering effectiveness of terms claiming proceeds of sale (Romalpa, Tatung v Galex, Pfeiffer v Arbuthnot, Compaq v Abercorn). Case law considering the effect of mixing (Indian Oil v Greenstone, Mercer v Craven Grain; for general principles Hendy Lennox v Grahame Puttick, Re CKE Engineering). Common errors Some candidates tackled this not as a retention of title problem but from the perspective of the unpaid seller’s statutory remedies or less frequently as a nemo dat problem, neither approach was correct. Candidates tended to provide lengthy description of the law without any serious application of the law to the facts.
Examiners’ reports 2019 7 A good answer to this question would… begin with a concise overview of the nature of RoT clauses, noting the founding cases in this area, before working systematically through the problem dealing with each batch of nuts separately and in turn, explaining the relevant principles for each, applying the law and coming to a clear conclusion and demonstrating an understanding that it is in the nature of this area of law that each case, including this one, turns on its own facts. Poor answers to this question… tended to do no more than explain what an RoT clause was with some descriptive discussion of Romalpa, often setting out the facts at length with little or no discussion of the problem, or a very brief discussion with no analysis and weak conclusions. Question 6 Pete has recently acquired a coffee shop from Arya. Previously, Arya was both owner and manager, she has continued to act as manager. Pete wants the coffee shop to become more profitable by reducing its costs. Pete has instructed Arya to renegotiate with suppliers, achieving at minimum a 12 per cent reduction in their prices. Pete has returned from holiday to find Arya has done the following: 1. Achieved a saving of 12 per cent on a contract for the supply of almond milk but also agreed that the coffee shop will accept deliveries weekly instead of daily and buy an agreed minimum per week. 2. Purchased a new refrigerator to store fresh milk and fresh salads after the old refrigerator broke down. The new refrigerator cost £500. Arya tried to have the old one repaired, but the repair company refused to help after hearing that she had asked all suppliers to reduce their prices. Quickly buying a new refrigerator, however, meant that food worth £300 did not have to the thrown away. 3. Terminated a contract with a cleaning company to provide cleaning services for 10 hours per week and entered into a new contract with another company, who she had worked with years before. Under the new contract, cleaners will provide services for 15 hours per week, but the cost will increase by just 10 per cent. The manager of the new cleaning company was not sure why the coffee shop needed the extra hours of cleaning but was reassured when Arya told her ‘don’t worry, I know the business, after all it’s been my coffee shop for many years.’ Advise Pete. General remarks This question was widely answered and the majority of candidates were clear that it concerned the law of agency, specifically, different forms of authority. Candidates tended to describe the law rather than applying it and did not always scrutinise the facts closely, making errors particularly on the third part. Law cases, reports and other references the examiners would expect you to use Rama Corp v Proved Tin, Freeman Lockyer v Buckhurst Park Properties, Watteau v Fenwick, Queen v Kane, Hely-Hutchinson v Brayhead, Armagas v Mundogas, First Energy v Hungarian National Bank, The Winson, The Choko Star.
8 Common errors A common error was describing the law of agency in general but largely ignoring the question set, not actually analysing the problem or identifying the particular rules and cases that are relevant. A good answer to this question would… briefly outline the nature of agency and particularly the nature of authority, avoiding a lengthy description of the different forms and go on to identify the most likely form of authority for each part. For the first part, identify that the focus should probably be on the agent’s actual implied authority, defining this concept and explaining why this is the case, potentially noting how close actual implied and apparent authority can be, such that this could also be an instance of apparent authority. A really good answer would explore this fine distinction in detail through careful analysis of the facts. For the second part, explore the possibility of agency of necessity but consider whether this could really be relied on with modern communications. If not, consider apparent authority, establish requirements, working through them systematically. For the third part, consider whether this could be apparent authority (again explaining the nature of the concept and its requirements) but note that, with an undisclosed principal, this may be impossible, leaving this as a rare case when Watteau v Fenwick might apply. Explore that case and the criticism of it before reaching a reasoned conclusion as to its value as a precedent. Poor answers to this question… offered only a general description of the law of agency, often disorganised, with very little analysis of the question beyond a few token sentences at the end of the answer. Question 7 ‘Real security is always worth more than a personal one.’ Discuss. General remarks Very few students attempted this question, which required candidates to show an understanding of these different types of security and the rights that they create to consider whether a real security is preferable to a personal one. Law cases, reports and other references the examiners would expect you to use Discussion of at least one form of real security – lien: Hammonds v Barclay, Tappenden v Artus, Re Coslett (Contractors) Ltd); pledge: Coggs v Barnard, Official Receiver of Madras v Mercantile Bank of India; charge: Swiss Bank Corporation v Lloyds Bank Ltd, Re Cosslett (Contractors) Ltd; mortgage: Santley v Wilde, Downsview Nominees Ltd v First City Corporation Ltd; and the requirements for their validity and subsequent discussion of personal security: Yeoman Credit Ltd v Latter; Actionstrength Ltd v International Glass Engineering SpA. Common errors Conflating securities with remedies under the Sale of Goods Act and retention of title clauses was a common error. A good answer to this question would… define the different forms of security, providing at least one example of each, and being clear on their differing formalities and the rights that they confer on those who seek them.
Examiners’ reports 2019 9 Poor answers to this question… failed to grasp what the question was really calling for and confused securities with remedies. Question 8 Analyse the approach taken by the common law in identifying the nature of ‘a bank’. General remarks Very few candidates attempted this question, which addressed a relatively small amount of material new to the syllabus. Of those who did answer it, many made few or no legal references, instead talking generally about the commercial nature of the banking business. An answer to a legal essay or problem must always be based on the law. Law cases, reports and other references the examiners would expect you to use Answers ought to make reference to United Dominions Trust v Kirkwood, Re Roe’s Legal Charge, Ladbroke & Co v Todd, Woods v Martins Bank Ltd, Foley v Hill and Joachimson v Swiss Bank Corporation. Common errors A common error was describing the business of banking without any or enough legal discussion about the nature of banks. Not offering the analysis that the question calls for. A good answer to this question would… consider how the concept of a bank has developed through the case law, which places emphasis on the core activity of deposit-taking and a particular relationship with customers; contrast how this definition has been refined and shifted as a result of modern banking regulation, which centres on regulated activity. Potentially consider how changes in the banking sector might further challenge this definition. Poor answers to this question… discussed the commercial nature of a bank or simply the business of banking with few or no references to the law.