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Commercial Law in England

Info: 5382 words (22 pages) Law Essay
Published: 28th Jun 2019

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Tags: UK Law

Does Commercial Law Exist?

Definition of commercial law

Commercial law in England and Wales is not susceptible to succinct categorisation as a unified body of law such as, for example, criminal law or the law of torts. Goode has commented:

The absence of anything resembling a commercial code makes [the question, Does Commercial Law exist?] harder to answer than might be imagined. If, by commercial law, we mean a relatively self contained, integrated body of principles and rules peculiar to commercial transactions, then we are constrained to say that this is not to be found in England.

Commercial legal practice will deal with a wide variety of subjects including the law relating to contracts, consumer credit, insurance, tax and partnerships. Commercial Law is thus an amalgam of common law, statute and even equity.

Historical Development

Despite these difficulties of categorisation the existence of a body of law controlling mercantile life has been recognised since medieval times when special courts existed for the purpose of dealing expeditiously with trade disputes. In the eighteenth century Lord Mansfield held sittings in the Guildhall in the City of London to hear commercial cases assisted by special panels of merchant jurymen to provide commercial expertise. When these sittings were discontinued the parties were forced back into the common law courts which proved unpopular due to procedural delays and the fact that the judges were often not conversant with the needs of the commercial community. Accordingly, in 1892, the Council of Judges recommended that there should be a special court to hear commercial cases and this led to the introduction in 1895 of a special commercial list in the Queen’s Bench Division. In 1970, a special Commercial Court was established but this remains part of that division.

Court Structure and Jurisdiction

The Commercial Court is subject to the Civil Procedure Rules. Part 49 and the associated Practice Direction provides that the court has jurisdiction in:
any case arising out of trade and commerce in general including any case relating to:
A business document or contract;
The export or import of goods;
The carriage of goods by land, sea, air or pipeline;
The exploitation of oil and gas resources;
Insurance and reinsurance;
Banking and financial services;
The operation of markets and exchanges;
Business agency; and


The remit of the court therefore also represents a succinct statement of the type of disputes which might be regarded as commercial notwithstanding the vagueness of this term. However, it should be noted that the county court has unlimited jurisdiction in claims in contract and tort and it is mandatory for claims worth less than 15,000 to be commenced there. Thus a high volume of commercial law is administered by this court with the more valuable or complex being dealt with by the Queen’s Bench Division of the High Court. The Chancery Division (the role of which in this regard can be summarised by its dealing with cases concerning companies and insolvency) will therefore also hear commercial matters. Finally, it should be noted that in addition to the Commercial Court, there is also a specially constituted Companies Court. The rationale behind the establishment of these fora is to allow the speedy resolution of commercial disputes by a body with expertise in and sympathy for the unique needs of those involved in commercial enterprise.

Thus the scope and extent of commercial law is vast and full description is impossible within the scope of this submission. Nonetheless, it is proposed to examine certain key elements of the corpus of commercial law which characterise its principles and demonstrate its operation in practice.

Sale of Goods

This is a species of the law of contract which has long existed and been regulated by common law principles. Contracts have been defined as legally enforceable agreements which represent a vehicle for planned exchanges. Contracts for the sale of goods are therefore subject to contract law principles but it should not be forgotten that they are increasingly controlled by specific statutory provisions. Thus all contracts for the supply of goods now contain terms which are implied by statute and prescribe that they must be of a stipulated quality. The Sale of Goods Act 1979 (as amended by the Sale and Supply of Goods Act 1994) imposes a number of requirements:

  • that the seller should have the right to sell the goods, that the goods should be free from encumbrances and that the buyer should enjoy quiet possession of them;
  • that where the goods are sold by description, they should corespond with that description;
  • that the goods should be of satisfactory quality;
  • that the goods should be fit for the buyer’s purpose;
  • that where the goods are sold by sample, they should correspond with that sample.

Of the above, the implied term as to satisfactory quality is one of the most frequently litigated. The word satisfactory replaced (by the 1994) the use of the historic term merchantable in relation to quality and continues a long pedigree of such a requirement in English law. Decisions in the 19th Century demonstrate a recognition by the law of the commercial expectations of a purchaser. In Gardiner v Gray, Lord Ellenborough observed somewhat bluntly:

The purchaser cannot be expected to buy goods to lay them on a dunghill(!)

While the concept of merchantability endured, it was not until 1973 that it was the subject of statutory definition. By then, the term had become somewhat outmoded with Lord Ormrod commenting in 1976:
the word has fallen out of general use and largely lost its meaning, except to merchants and traders in some branches of commerce.
Nonetheless, it was not until 1994 that it was replaced by somewhat less arcane terminology.

Another significant statutory intervention in the ability of parties to determine the contractual relationships between themselves relates to exemption clauses or unfair contract terms. The leading piece of legislation in this field is the Unfair Contract Terms Act 1977. Prior to its enactment, the courts interpreted attempts by parties to a contract to restrict or exclude their liability in the event of a breach of contract very strictly. The legislative code has now largely superseded this function. The common law lacked the ability simply to declare such a term unenforceable merely on the ground that it was unfair or unreasonable (see Photo Production Ltd v Securicor Transport Ltd) hence the need for the sometimes strained interpretation of such clauses. In broad terms the 1977 Act applies a test of reasonableness to such clauses in commercial contracts. Not surprisingly, this concept and the interpretation of the term has been the subject of much litigation. The Unfair Terms in Consumer Contracts Regulations 1999 extend certain aspects of the 1977 legislation. They were implemented as a result of a European Directive and apply to terms (other than core terms in consumer contracts. They are therefore different in certain critical aspects from the 1979 Act and a comparison of the respective effects of the two reveals anomalies. It is submitted that the original legislation should now be reviewed and redrawn in order to provide a unified and consistent framework.

Manufacturers and Product Liability

While the above legislation applies only in contract law, it should not be overlooked that there are certain commercial situations in which the law of tort can play a part supplying an additional or alternative remedy. The statutory implied terms described above may entitle the buyer to reject defective goods and, in any event, claim damages for the breach of contract. Because this law is based upon the contract, a problem arises as a result of the doctrine of privity of contract which enables only the parties to a contract to sue upon it. Accordingly, the law of tort began to develop remedies for situations in which loss or damage was caused by a breach but the breach was not actionable in contract at the behest of the party thus injured. In the classic case of Donoghue v Stevenson, the principle was established that in certain circumstances a manufacturer owes a duty of care to the end-user of his product. Thus where the product is defective and causes injury, the consumer may recover against the manufactuer in negligence notwithstanding that there is no direct contractual or other relationship between them concerning the supply of the product.

Again driven by Europe, the UK passed the 1987 Consumer Protection Act in order further to regulate product liability. A claim may be brought under the Act by any person injured by a defective product. Product includes goods and even electricity. A product is defective for the purposes of the Act if its safety, including not only the risk of personal injury but also the risk of damage to other property is not such as persons generally are entitled to expect. It is submitted that this legislation is not only appropriate but necessary in the complex modern consumer society in which products are increasingly sophisticated and the relationship between manufacturer and end-user far more difficult to discern than would have been the case in the nineteenth century.

Consumer Credit

A very significant development in commercial law in the recent age has been in respect of the protection of customers in credit transactions. In Consumer Credit Deregulation, A Review by the Director General of Fair Trading it was recognised that there was required a strong level of protection in a market which for many centuries – perhaps even since ancient times – has been regarded by law makers as particularly sensitive. Buyer-seller interactions in credit markets are characterised by imbalances of information and bargaining strength between lenders and borrowers. Accordingly, in the 1970’s, following the report of the Crowther Committee the Consumer Credit Act 1974 was enacted. The Act applies to regulated agreements which are defined as consumer credit agreements or consumer hire agreements. Despite the emphasis on the word consumer, certain types of business credit transactions are controlled. Section 8 of the Act defines a consumer credit agreement as a personal credit agreement by which the creditor provides the debtor with credit not exceeding [an amount varied by Statutory Instrument from time to time]. Section 189(1) defines an individual as including a partnership or other unincorporated body of persons not consisting entirely of bodies corporate. Thus many commercial business transactions (provided that they do not involve companies) are caught by the Act.

The OFT Report referred to above proposed that all business credit transactions be removed from the scope of the Act but this suggestion was rejected. Conversely (and perhaps a little perversely) the present upper limit on such transactions of 25,000 means that many genuine non-business consumers increasingly fall outside the safety net of the Act. The operation of this type of provision in the commercial sector again serves to illustrate the difficulty of classifying commercial law as a single discrete body of regulation. The inclusion of chapters on consumer credit in most so-called commercial law textbooks plus the existence of an entirely separate body of work purporting to deal with consumer law is illustrative of this dilemma.


The scope of commercial law extends into many other fields of human activity. On such example is insurance. This remains essentially commercial in nature and, in many instances, can be said to stem from the basic commercial dealings of the parties. If commercial law is regarded as being based upon transactions, insurance has developed as a means of protecting those transactions and the subject-matter thereof. The modern law of insurance has developed directly from the activities of merchants principally those involved in seafaring from Italy in the fourteenth century. Merchants reached agreements between themselves to insure their ships and cargo against the risk of travel by sea. This practice was adopted in the coffee houses of London and gave birth to Lloyds the principal insurance underwriter in the world. The insurance industry has been subject to statutory regulation since the Life Insurance Companies Act 1870. The current regime is regulated by the Financial Services and Markets Act 2000. Interestingly, in addition to such controls, contracts of insurance where appropriate also fall under the Unfair Terms in Consumer Contracts Regulations 1999 discussed above.


Bradgate places banking at the very heart of commercial law:
The banking system plays an essential part in commercial activity in a developed economy. The modern bank provides a wide range of services to both business and private customers. The provision of such services is itself an aspect of commercein addition, banks provide essential services which underpin all other commercial activity
Banking activities in the UK have long been regulated by regulated by statute with important developments occurring in the Bills of Exchange Act 1882 and the Cheques Act 1957.

International Trade

Although this submission has focussed perforce upon UK domestic law, it would be erroneous to conclude without acknowledging the international element which represents so great a proportion of commercial activity and gives rise to a consequent need for regulation. In this regard a distinction should be drawn between two possible uses of the term international trade law. First, it is used to describe the law controlling the relationships between the parties involved in international trade transactions. Second, it may describe the body of rules which govern relationships between states and regulate the use between states of devices such as tariffs to control imports which are subject to such international treaties as the General Agreement on Tariffs and Trade. Works on commercial law habitually focus upon the English law applicable to international transactions. A great many contracts used in such international transactions contain a standard clause requiring the contract to be governed by English Law with the result that the Commercial Court in London is frequently called upon to adjudicate upon agreements that have been made between one or more parties located outside the jurisdiction.

The UK is a party to the Hague Convention on Contracts for the International Sale of Goods which is given effect in English law by the Uniform Law on International Sales Act 1967. That Act is applicable to contracts where the contract itself stipulates that it should apply. In practice, few contracts take the opportunity to do so with the result that international sales contracts which are governed by English law fall to be determined according to the principles of the Sale of Goods Act 1979 thus returning us to the outset of this discussion.


Thus the scope and extent of the law which might be grouped under the heading of commercial is seen to be vast in reach and divers in type. Detailed description is therefore beyond the limit of a submission of this length. However, an examination of the broad cross section of topics discussed above reveals an enduring theme. In all aspects of commercial law the focus is upon transactions. Some commercial law such as the sale of goods legislation regulates such transactions directly. Other areas such as the law relating to banking and insurance concern the mechanisms that are necessarily ancillary to such transactions. Others again, such as product liability, stem from the consequences of transactions even where the party seeking to avail himself of the law was not a direct participant in such a transaction.


According to the intentions of the White Paper ‘Mental Health National Service Framework’ presented to Parliament by the Secretary for Health in December 2000, mentally disordered offenders should be the responsibility of the NHS and social services rather than automatically liable for prosecution within the criminal justice system. This New Mental Health Act is the result of an investigation by Professor Richardson whose report highlighted changes that needed to be made to current legislation to instigate new national standards and provide additional funding so that adequate secure beds and sufficient outreach teams would be available, providing a full out-of-hours service throughout the year. The intention was to provide a safe environment for patients, carers and the public.

Still an issue, however, is the distinction between those who should be liable for prosecution and those who should fall within the remit of the NHS. When an accused stands trial and it has been proved that insanity can, in fact, be substantiated, the defendant is acquitted according to the M’Naghton rules. When fitness to plead and a defence of insanity is contested the courts are inevitably confronted with particular difficulties, especially when crimes involving murder have been committed. This correlation between the effects of insanity and its effect on crime, together with fitness to stand trial have a significant effect on the Criminal Justice System and the aim of this study is to evaluate the current legal policy surrounding mentally disordered offenders, focusing on the manner and impact within criminal law and justice. The manner and impact of its implementation is investigated, together with any proposals for change being considered.

The defence of fitness to plead is not especially uncommon, in the event of which it needs to be decided whether legal capacity is such that the accused is fit to stand trial. When Huntley used this defence prior to standing trial for the Soham murders he was remanded for special reports at Rampton Special Hospital under Section 35 of the Mental Health Act 1983. The question that has to be resolved prior to trial is whether the accused has sufficient understanding to know what they are pleading and, in the event of a trial proceeding, to have sufficient capacity to understand the evidence being presented and make a proper defence according to precedent.


Progress of the Draft Mental Health Bill 2002

Concern for public safety in respect of mentally disordered patients has led to various investigations being set up, the resultant reports being presented to Parliament as working documents or white papers. The MacLean Consultation Paper reported that:

Since the Butler Report (if not before), there has been concern about people who are dangerous because of a personality disorder, particularly those who are sometimes labelled as psychopaths.

This includes a significant review of the Mental Health Act 1983 which was, itself, the result of a review of mental health legislation that was last undertaken during the 1950s. The Richardson Committee, formed in October 1998, in response to widespread concern for public safety, led to a Green Paper outlining various reforms, the publication of which took place in November 1999. The White Paper ‘Reforming the Mental Health Act 1983′ followed in December 2000 as the result of which Professor Richardson’s proposals for changes were expected to be achieved, with additional funding being available by April 2001 to provide 500 extra secure beds, legislation.

Entitled ‘Mental Health National Service Framework: Reforming the Mental Health Act’, Part I set out the standards that cover 320 24-hour staffed beds, 170 assertive outreach teams and access to services 24 hours a day, seven days a week. The Secretary of State for Health claimed that 3,000 new staff in mental health services, including over 350 more consultant psychiatrists and nearly 2,000 nurses had been recruited since 1998. However, the first Draft Mental Health Bill 2002 was not produced until June 2002. This was only a Consultation Document which was followed by a number of amendments to refine the Bill following suggestions by over 2,000 stakeholders. The Revised Draft Mental Health Bill was published for Pre-Legislative Scrutiny in September 2004.

Draft Mental Health Bill [revised] 2004

The Pre-legislative Scrutiny Committee published its First Report on the Revised Draft Mental Health Bill on 20th March 2005, too late for inclusion into the current session of Parliament. As Parliament has now been dissolved prior to a new General Election the Draft Mental Health Bill [revised] has to await its second Reading in Parliament, followed by approval by the House of Lords. If the draft format is approved by both Houses an application will be made for Royal Assent, after which a suitable period of time will elapse before this Bill will enter the Statute Books. This is to ensure any secondary legislation has been prepared and a new Code of Practice published and there are sufficient staff knowledgeable about any new legislation.

Integrated Care

Integrated care had been ensured following the Health Act 1999 which, in conjunction to the Care Standards Act 2000 and the Commission for Health Improvements and the National Care Standards, has attempted to reduce any inconsistencies between the social care services and the health service in their shared care of mentally disordered patients. In May 1996 the Home Office released a Press Notice which revealed that the public has a right to expect to be protected from dangerous offenders. Whilst Clause 36 of the Crime (Sentences) Bill allows for a Hospital Direction Order to be made, which contains an inherent clause specifying the offender must revert to prison if treatment fails and the offender is still likely to be considered a risk to the public, or continue treatment in hospital if this is a more appropriate outcome.

Hospital Orders are an option for all offenders detained under the Mental Health (Scotland) Act 1984, whilst in England and Wales it only relates to psychopathic offenders. Hospital Orders are cited under Section 37 of the Mental Health Act 1983 under which judges may make a mandatory order for mentally disordered offenders to be treated in an appropriate hospital, dependent on clinical evidence which can range from mental impairment, a mental illness to psychopathic disorders. In order to afford the public as much security as possible the judge does have the discretion to make a Hospital Order subject to Section 41 which is designed to ensure the offender is detained indefinitely, with release often at the discretion of the Home Secretary.

A Hospital Order effectively removes the mentally disordered offender from the criminal justice system. Information taken from the 2003 Statistics for England and Wales show evidence of 1% reduction in restricted patients being detained in high security hospitals during 2002 and 2003 whilst there was an 8% rise in restricted patients being detained in other hospitals, with figures over ten years showing a rise from 1,050 patients in 1993 to 2,015 in 2003. These same statistics exhibit a corresponding fall in high security hospitals during the same ten year period from 53% to 35%.

Butler Report

Originally, the Butler Committee opposed the concept of Hospital Orders when it was first suggested in 1975, but a Steering Group reassessed this consideration in 1994 and decided that, when used just for psychopathic offenders it would supplement the courts powers when sentencing, one of the reasons being that these ‘offenders with psychopathic disorders were known to re-offend at twice the rate of offenders with mental illness’. The concept of fitness to plead is a controversial measure to protect mentally ill offenders from facing the ‘exactitudes’ of court. Controversy currently exists when medical opinion, which recognises such psychiatric conditions as irresistible impulse, is in conflict with defences currently acknowledged by the law and, as such, the Butler Report implies that the concept of fitness to plead should take into account the fact that those who are mentally ill should receive mandatory treatment in hospital with a trial of facts, including the mens rea relating to the case, being held. The Report suggests that a guilty verdict would be recorded as ‘a finding of unfit to plead and proven’ and not guilty result recorded as a plain acquittal.

Possible Defences

The defence of insanity relates to a defendant’s mens rea and is considered to provide a complete defence in relation to any alleged criminal conduct, being contained in the M’Naghton Rules of 1843 which is still regarded as the only test for legal insanity and continues to be upheld by the House of Lords. According to these precepts:

it must be clearly proved that, at the time of the committing of the act, the party accused was labouring under such a defect of reason from disease of mind, as not to know the nature and quality of the act he was doing, or, if he did know it, that he did not know what he was doing was wrong.

If this defence is allowable and the defendant found guilty, the court may give a special verdict of ‘not guilty by reason of insanity’ which relates to the accused person’s state of mind at the time the crime was committed and are taken into account if, subsequently, the defendant is considered fit to plead. Defect of reason is acknowledged in accordance with the concept of disease of the mind relating to medical evidence being presented in court, although a different defence to that of incompetence by way of insanity due to the mens rea factor, as in the case of Kemp [1957] who suffered from arteriosclerosis.

It was argued that mens rea was not a factor in this instance, with the defence quoting automatism which could result in a full acquittal. There was medical doubt as to the relevance of disease of the mind as a defence, ruled by Devlin, LJ as being immaterial regardless of medical evidence due to a potential discrepancy between diseases with a physical nature and those which manifested as mental disabilities. Devlin interpreted this disparity as intending to limit the effect of the connotations associated with the defence of ‘defect of reason’. Interestingly, the court ruled in Burgess [1991] that the defendant was suffering from a disease of the mind at the time he strangled his victim whilst sleepwalking due to its cause being of internal origin rather than an external factor which might amount to the defence of non-insane automatism.

Relevance of Medical Opinion

Although an aspect of controversy, internal causes are considered to be a continuing factor with the potential for recurring whilst an external feature could evolve into, or otherwise become, an internal characteristic for which the defence of insanity might be relevant. There is a particular relevancy in clarifying the disparity between the plea of insanity outside of medical opinion and the defence of disease of the mind due as various detention options are available for the judge to impose if acquitted according to a plea of insanity. An additional factor is the defendant being aware of the nature and quality of his act, specifically relating to actus reus: the physical act of carrying out the crime. A defendant without the capacity for mens rea could not be convicted of murder because he could not be held responsible for his actions. Evidence of this has been reported when Noel Ruddle won an appeal, in 1999, to be released from Carstairs Hospital for the Criminally Insane in Scotland ‘because his psychotic illness was untreatable’.

The medical diagnosis of disease of the mind would result in the defendant being detained indefinitely in a special hospital such as Rampton, whilst an action

undertaken without realising the nature and quality of the act would be interpreted as an involuntary action resulting in an acquittal under special rules. The second test applied is whether the defendant has sufficient knowledge of their actions being wrong in specific terms relating to the crime the defendant is charged with. The effect of this test reveals that insanity could still be a factor even if the defendant exhibited sufficient mens rea, although insane delusions do not come within the remit of the M’Naghton Rules in courts under the jurisdiction of UK law although this factor is recognised in some states of the USA.


A clear distinction between the existing Act and the new Mental Health Bill is in terms of the use of formal powers in order to clarify the need for compulsory treatment, and greater opportunities to divert mental health offenders with non-dangerous disorders away from the criminal justice system. This includes amalgamating the distinction between patients admitted for assessment and those who require treatment on admission. However, providing these patients with safe-guards is highlighted as one of the more important innovations in accordance with the Care Programme Approach, increasing the emphasis that is currently revealed in Section 117 of Mental Health Act 1983. This involves a Specialist Independent Advocacy Service available to mental health patients and their representatives and a Tribunal or a Court independently reviewing any mandatory admission of more than 28 days.

A new Healthcare Commission will take over the responsibilities currently the remit of the Mental Health Act Commission and the emphasis will be very much on patient autonomy and choice where appropriate. Patients would be encouraged to make their own nominations about who they want to be represented by, a care plan that must be instituted within 5 days and new statutory rights for carers to be directly involved in all aspects of the patients’ care. However, courts use of ‘hospital orders’ is to be increased which, whilst many mentally disordered offenders would be diverted into the jurisdiction of Healthcare facilities, the tandem use of imposing prison sentences in conjunction with hospital care is to be increased. This effect increases the powers of the court in sentencing, perhaps aimed at reassuring the public that safety of society is a priority. Within this innocuous clause, however, lies the power to effectively diminish considerable patient autonomy due to lack of sufficient definitions as to when and how this dual affect might be imposed.

This could continue to leave the mentally disordered offender in an extremely vulnerable position: they could receive a hospital order ensuring they receive treatment then, regardless of potential new legislation be transferred to prison to serve a sentence in a place which could be totally inappropriate for their particular disorder. If the intention of the new Mental Health Bill is to remove mentally disordered offenders from the Criminal Justice System and place them under the jurisdiction of the Health Services – but at the same time increasing the courts sentencing powers for certain categories of offenders to be retained within the Criminal Justice System – not only could the object of the new Act be questionable, but a potential could be introduced for this discrepancy to be used by defence lawyers in respect to discrimination under the Human Rights Act 1998. Clearly secondary legislation does need to be in place before the new Act is made law in order to ensure that, whilst patients rights are maintained, the public continues to be protected from the more dangerous elements of mentally disordered offenders.

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