Common Law, Statutory Law, and the Companies Act - Essay Example

Law Assignment. Part A: The principle of vicarious liability operates under the law of tort and is also known as ‘master and servant liability’. The general rule is that, the person who is responsible for authorizing the commission of a tort, will be liable for any damage or harm that occurs thereafter. Vicarious liability is common in relationships between employers and employees, and the breach of duty that occurs in the course of employment. The principle operates on the basis of strict liability, meaning that the employer need not breach any duty that is owed to the injured party. The injured party can either be an employee or a stranger, but still hold the employer vicariously liable, (Nairns, 1999, p. 60). Of importance is the fact that, to establish a case in vicarious liability, the person who has committed the wrongful act must be an employee and the wrongful act must be connected to the employee, or be committed in the course of employment. It is therefore important to ensure that the employee was acting in the course of their employment, when the act or omission occurred. It is also important to show evidence that the employee was employed under a contract of service and where it is an independent contractor, a contract for services. In addition to the liabilities mentioned, an employer can also be held vicariously liable for a breach of statutory duty by an employee in their employ. Common Law: Employers have a duty to safeguard the health and safety of their employees under the common law of contract and the law of tort. Duties arise out of the principle of vicarious liability in tort, breach of directors duty under contract and tort and breach of statutory duty under tort. Employers are under a duty to discharge their responsibilities appropriately to prevent employees suffering injury, as the employer will incur a civil liability in damages. Common law rules regarding vicarious liability, ensure that employees who are injured are able to gain compensation for loss and or injury. Employers are liable for the torts that are committed by their employees while acting in the course of their employment. They are liable for any injuries that occur therein, and also for the injuries that occur as a result of the negligence of their fellow employees. There is, however an exception where the employer is not vicariously liable for the torts that are committed by independent contractors under his authority. It is important to note that employees are only said to be acting in the course of their business, only when they are legally performing the duties which they have been employed to perform. Employees performing their tasks in a prohibited manner or even in an unauthorized manner, do not necessarily take them outside of the course of their employment. This was seen in the case Century Insurance Co v NIRTB (1942), where an employee who was the driver of a petrol tanker lit a cigarette while transferring petrol from his tanker into the underground storage tank. After lighting the match, he threw it onto the ground, but unfortunately it was still alight, leading to an explosion and fire that caused damage to the garage. The court held that, the employer of the driver was vicariously liable for the loss that occurred in the garage. The act of lighting the cigarette was negligent, and was a negligent way of conducting the job that he was employed to do. Because he was acting in the course of his employment, the employer was liable although the employee was completing his task in an unauthorized manner, (Pitt, 1997, p. 87). The same was true in the case Limpus v London General Omnibus Co (1862). In this case, a bus driver in the course of his employment was racing against another driver from a rival company so as to get to the next bus stop first. The actions of the driver were contrary to the instructions expressly provided by the company. Unfortunately, the driver ran into the queue of waiting passengers and injured them. The Court held that, the bus company was vicariously liable for the injuries that occurred to the passengers. The driver it was held was at the time acting in the course of his employment, although he was going against the instructions of his employer. It is therefore clear that an employer is vicariously liable for any acts or omissions conducted by the employee so long as it is in the course of their employment even if he goes against the instructions given. There are instances, however that, the employee can go outside the course of his employment due to performing his duties badly. This was seen in the case General Engineering Services Ltd v Kingston & St Andrews Corporation (1989). Here the employees were fireman in Jamaica who were on a ‘go slow’ in grievances concerning their pay. In the process a fire broke out and they took twice as long to get to the site of the fire and many buildings were consequently burned to the ground and people were injured. The firemen were sued for their negligence by the people who had suffered harm and damage to their property and persons. The firemen on their part claimed that, their employers were vicariously liable for the losses that occurred on that day because the losses occurred while they were in the ordinary course of their business. The Court dissented with their argument and held that, their actions were of a serious nature. For this reason the employer was not liable as the firemen’s actions had taken them outside of the course of their employment. Employees who engage in activities that are not connected to their duties of which they are paid in employment, they are then said to be ‘on a frolic of their own’. These acts are outside of the course of their employment and the employers will not be held vicariously liable for any acts or omissions that cause loss or damage. This was seen in the case, Daniels v Whetstone Entertainments Ltd (1962). In this case the employee, a nightclub bouncer forcibly removed a patron, Mr. Daniels from the club premises after a disturbance. Unfortunately, the bouncer went further ahead and assaulted the patron once they were outside. The Court in this matter had two different rulings, they held that the employer was only vicariously liable for the injuries caused by the bouncer when the patron was removed from the premises. The Court, however held that the employer was not liable for the assault as it had happened outside and therefore not within the scope of the bouncer’s employment. Employers are said to owe a duty at common law to take reasonable care of all the employees under their authority. The duty owed to the employees is based on the law of tort and contract. The same is also available in employee’s contracts of employment that they sign with their employers. The law deems this duty as a non-delegated which means that even in the instance that the employer assigns or delegates the performance of the duty to someone else, he will still be liable in law. The duty of care owed to employees is only one to take reasonable care, but not an absolute duty to make sure that employees are safe at any cost, (Selwyn, 2002, p. 54). Employees in law have the mandate to preventing the likelihood of accidents by balancing the risk of accidents from occurring against the cost of convenience. Employers in law are expected to provide to their employees, competent fellow employees, a safe working environment, equipment and machines that are safe and a safe and convenient system of work. Where the employer must provide competent fellow employees, the duty will overlap with that of vicarious liability. These happen where an incompetent employee injures an employee which then deems the employee liable for the injury where the injury was caused by negligence of the incompetent employee. This was seen in the case Hawkins v Ross Castings (1970). In this case, Mr. Hawkins was working and a fellow employee accidentally spilled molten metal on his legs. The employee who caused the accident was 17 years old and of Asian origin who spoke very little English. The employee was also not trained on the job of carrying and pouring out the molten metal. The Court held that, the employer was liable for the injuries that Hawkins sustained because he had breached his duty of care. This he had done by failing to provide a competent employee to work besides Hawkins. Statutory Law: This is governed by the Employer’s Statutory Health and Safety Responsibilities. Under statutory law, employer’s liabilities are focused on preventing accidents from occurring in the workplace. There is a duty to discharge duties by the employers, failure of which leads to criminal liability. In some instances, however, the courts will take a breach in statutory duty as a tort in its own right, which is then referred to as the tort of breach of statutory duty. Employees use this tort to sue their employers for injuries that they acquire in employment in addition to breach of duty of care or by itself. It is easier for an employee to sue under statutory law claims and getting evidence for the same is easier than that under common law. In most employment situations, the health and safety legislations make provisions that the employer is responsible for the safety not only of employees but also of others. In this respect, then, contractors are then able to make a claim for breach of statutory duty in situations where they cannot make a claim of duty of care under common law. While this is the case, not all breaches of statutory duty fall under the law of tort, some fall under civil liability where the Courts will consider the laws intention when it was enacted by parliament, (Lockton, 1999, p. 60). This is mainly based on statutory interpretation and in most cases, courts interpret the health and safety legislation as that creating a civil liability. Employees under civil liability must prove that their employer was liable for the situation that is in question. Employers will only be liable if there is evidence that there was a breach of statutory duty and that the breach caused an injury to the employee. Employees, however are also under a duty to show that, they are within the group or class of people that are considered to benefit from the duty imposed by statutory law. This was seen in the case Hartley v Mayoh & Co (1954). In this case, while in the course of their employment, a fireman was killed through electrocution at the factory of the defendant. The widow of the said fireman later brought a claim against the defendant for a breach of statutory duty. The claim was based on the fact that, the wiring in the premises was not good and as a result was in breach of the regulations set forth in law. The court in this case held that, the provisions in the wiring regulations only protected persons who were employed in the premises. Unfortunately, the fireman was not an employee of the factory and therefore did not fall within that class of persons where the benefit of the duty was imposed. The employee in addition, when bringing a claim under civil liability must prove that the injury that has occurred, is of such a kind that, the statute was created to prevent it. This was seen in the case Close v Steen Company of Wales (1962). In this case the plaintiff was in the ordinary course of employment, and was injured by flying metal when the machine he was working with broke down into small parts. There is a provision in the Factories Act that employers must fence dangerous parts of machinery, and in this case the employer was in breach of this provision. The employee made a claim against the employer for breach of his statutory duty. The Court held that the employer was not liable because section 15 of the Factories Act, was meant to prevent workers from coming close to dangerous machinery parts and did not prevent dangerous objects from flying off the machine when in use. The injury that the plaintiff had suffered was not classified as one within the statute hence the employer was not liable. Part II: Company: Companies are generally regulated by the Companies Act, which allows one or more people to come together for business purposes and form a business. They are governed by a memorandum of association. A company may be defined as a business entity that is based on a voluntary association between individuals. There are different types of company’s namely sole proprietorship, limited liability, partnerships, corporations and public limited companies. Companies are legal entities, meaning that they are separate from their owners, who are known as shareholders. Companies are treated as persons in law as they are legal entities that can sue and be sued, and also have rights and obligations in the same way as a real person. Companies pay taxes and are normally established as profit making organizations and can either be held privately or publicly. Persons wishing to start a company must first select a name and ensure that the name is not in use by another establishment. There are various documents that are essential before a company can come into being. These include and are not limited to: a. Memorandum of Association: a memorandum of association that contains the company’s constitution. It also sets out the various details that were necessary for the company to come into existence and must be signed by all the shareholders. The memorandum contains information about the business including the name of the company, the address of the business, the objects of the company, a statement showing the liability of each of the shareholders, a statement showing the share capital and division of shares of each shareholder and the names of all the shareholders. b. Articles of Association: this is a document that is necessary for governing the running of the company. It contains details pertaining to the voting rights of the shareholders, the conduct of shareholders, directors meetings and other powers that are necessary for management. The articles are a contract between the company and the shareholders, but they will only apply to the rights of the shareholders in their capacity as members of the company. Articles consist of information that includes, classes of shares, the restrictions on the issue of shares, restrictions on transfer of shares and directors. There are several characteristics of a company and they include: a. Registration: companies must be registered because they are a legal entity are considered to be artificial persons. In this case they are distinct from their members in terms of liabilities. b. Limited liability: liability of shareholders in a company’s share capital is limited to the value of shares that they hold. Shareholders by law cannot be asked to pay more than what is the value of their unpaid shares, irrespective of how much in debt the company is. The liability of the shareholders is also limited in accordance with the ability of the member’s capability, (Smith, 1999, p. 200). c. Separate legal entity: companies can acquire and at the same time transfer property in their own names because they are considered to be legal entities. Shareholders by themselves do not have a legal entity or any equitable interest in the property that belongs to the company. d. Perpetual succession: companies can continue conducting business irrespective of any change of membership of the company. They do not have to close and stop conducting business, but continue with the new shareholder. e. Common seal: because companies are considered to be artificial persons, they are not allowed to sign in their own name when dealing with contracts. They use a common seal as a substitute for a signature that bears the name and address of the company and also the date of incorporation. f. Shares are transferable: the shares in a company are freely transferable unless and in the event that the company is a private company. g. Can sue and be sued: companies are legal persons and can therefore be sued and sue for any acts or omissions. h. Corporate personality: since companies are said to be legal persons, they have a legal right in the law just as those available to real persons. They are allowed to acquire property, transfer the same, enter into contracts, sue and be sued. They also have a separate legal entity that is different from the shareholders that makes them distinct. Partnership: A partnership is formed when two or more individuals come together with the view of making profit. There are many small business enterprises that are organized as partnerships, including retail stores, service industry and some professional practitioners. For a partnership to exist, there must be a partnership agreement that is drawn and it may be oral or written but for legal purposes it should be written. The agreement, identifies the partners, their duties in the business, how the income is shared in the business, criteria for distributing additional investments and withdrawals, policy for adding partners and withdrawing them and what happens in the event of liquidation of a partnership. Partners share in the net income and loss of the business and they are responsible for their own tax return. There are several characteristics of a partnership that include: a. Limited life: the partnership unlike companies have limited life span only for the years in the agreement. Where there is no stipulated agreement, then other factors can terminate a partnership that includes the death of a partner, inability to fulfil their responsibilities, bankruptcy or withdrawal of a partnership. When a partner withdraws from the partnership, then a new partnership agreement must be put in place for the business to continue operating as a partnership. b. Mutual agency: the partners of a partnership are also known as agents of the partnership. The partners can legally bind each other to a contract where the same is in line with their operations. Partnerships are known to create unlimited liability to its partners and it is therefore important that the partners know each other before starting the business. Partners are able to limit their fellow partners in terms of liability, but the limit only applies where there is a third party that is a party to the contract and is fully aware of the provisions provided. The partners are responsible to ensure that they inform third parties particular partners have limited liability before they enter into contracts. c. Unlimited liability: in some cases partners may be asked to use their assets in order to recover the debts of the partnership. Where one of the partners does not have sufficient assets to complete their obligations, then the other partners can be held liable by the said creditor to pay the debt. In the event that the partnership is made by partners who are individually liable then it is called a general partnership. The limited partnership is normally used when the investors are not actively involved in the day to day running of the business and where the partners do not want to risk their personal assets. The liability of partners is limited to the amount of their investment in the partnership. d. Ease of information: partnerships unlike companies have fewer requirements when it comes to formation. e. Transfer of ownership: transfer of ownership requires the approval of all the partners of the group, and the partnerships are easy to dissolve. Differences between Companies and Partnerships: There are various differences between companies and partnerships that include: a. Formation: companies are created through registration under the Companies Act and partnerships are created agreements between the partners. The partnership agreement can be express or implied either from the conduct of the partners. b. Status in law: companies are considered to be artificial legal persons with unlimited life, meaning that they go on after the departure of their members. Companies may make contracts, sue and be sued and also own property, hence it’s a legal entity separate from its members. Partnerships on the other hand, are not legal entities and they sue and are sued in the partnership’s name. The partners own all the property of the firm and are liable for the contracts of the partnership jointly as well as severally, Morse, 2010, p.150). c. Transfer of shares: the shares in a company are freely transferable unless the constitution of the company says otherwise. In partnerships however, partners can transfer shares, but the person to whom they are transferred does not become a partner and is only entitled to the partners share capital. d. Number of members: companies are divided into private and public companies. Private companies have a membership of between 2 to 50 members. Partnerships on the other hand cannot in their establishment and life have more than 20 partners. e. Management: the members of the company are not entitled to take part in the management of the company unless they are directors of the company. Partners are entitled to share in the management of the business unless there are provisions that they cannot in their agreement. Recommendation: Jane and Cherry should engage in a partnership kind of business seeing that it is a small business and they do not have a lot of capital at their disposal. Since they are attracting many clients it will be then easy for them to gain capital through profits that they can then use to open up other establishments. They should continue operating as a partnership because they will have the freedom to make arrangements of how to run the business in their partnership agreement. There will be no interference by law as to what they include in the agreement and what they choose to omit. Also in the partnership they will own all the property in the business and will be liable for the contracts that they get. Where they need extra funding they can get a loan or look for extra people to bring into the business so long as the partnership does not have more than 20 people. In addition, the shares cannot be transferred freely and if they bring in another or other people in as partners, they can only transfer their share of the profits and not their partnership. This means that they will still maintain ownership of the business as a whole without interference by persons they do not want to work with. They will be able to share in the management decisions and hire people that they feel will add value to their business. Decision making will be easy because they do not have to call for a meeting in order to make decisions about running and management of the business. When one of the partners leaves the business will not be dissolved as partnership operates in perpetuity. References: Lockton, D. 1999. Employment Law. MacMillan. Morse, G. 2010. Partnership Law. Oxford University Press. Nairns, J. 1999. Employment Law for Business Students. Financial Times Management. Pitt, G. 1997. Employment Law. Sweet & Maxwell. Selwyn, N. 2002. The Law of Health & Safety at Work: Croner Health & safety in Practice. Croner CCH Group Ltd: Rev Ed edition. Smith, D. 1999. Company Law. Taylor & Francis. Read More