Does Commercial Law Exist? | Free Law Essays

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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

  • Arbitration.

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

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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:

  • s.12:

    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;

  • s.13:

    that where the goods are sold by description, they should corespond with that

    description;

  • s.14(2):

    that the goods should be of satisfactory quality;

  • s.14(3):

    that the goods should be fit for the buyer’s purpose;

  • s.15:

    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

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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.

Insurance

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.

Banking

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

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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.

Conclusion

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.

Bibliography

  • Bradgate, Commercial Law, (3rd Ed., 2000)
  • Goode, Commercial Law (2nd Ed., 1995)
  • Poole, Textbook on Contract Law (7th Ed.,

    2004)

  • Treitel, The Law of Contract (11th Ed.,

    2003)

  • Commercial Law (2nd Ed., 1995), p.1205
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