Legal Course NotesOur legal system is that of England and Wales – the English Legal System.

There is a difference between legal and moral duties – legal duty carries with it sanctions enforceable by the state eg. Custodial sentences or damages.

Contract Law is about agreements between individuals and Criminal Law is about the right of the State to punish individuals.

Company Law is the law concerning companies – about the duties and rights of companies, their owners and their officers.

The two principal institutions which can be said to make law in the English Legal system are Parliament and the courts. Parliament consists of the Queen, the House of Lords, and the House of Commons. The Government usually has a majority in the House of Commons and is responsible for introducing most of the laws made by Parliament, called “Acts of Parliament, “statute” or “legislation”.

1 Contract LawEnglish Law sees contacts as formed by one person putting forward a proposal and the other agreeing to it. The proposal is called an offer and the agreements to the proposal is an acceptance. A contact is formed when an offer is accepted.

Offer + Acceptance = Agreement

Two requirements of an offer:

Willingness to be bound if the proposal is agreed to

Certainty of terms – sufficient certainty

We can define acceptance as the unqualified assent to the terms of the offer.

There are 3 ways an offer can disappear:

Revocation – offer is withdrawn by offeror

Rejection – terms rejected by offeree

Lapse – under its terms

The law takes the view that whether an agreement is to be legally binding, depends on whether the parties had an intention to create legal relations.

People have freedom of contract – can agree pretty much anything. The law may restrict freedom of contract e.g. contracts to commit crimes or sexual immorality.

There are 2 rules governing incorporation of terms into contracts:

Incorporation by signature – if you sign a contract you are bound by it

Reasonable notice at or before the time of the contract

The law steps in and supplements express agreements with implied terms – terms which are unspoken and unwritten but which the law treats as part of the agreement.

Express Terms are those included in contracts. One reason for implying terms into a contract is to reflect what the parties have implicitly agreed anyway. Terms can be implied by:

Custom – “terms implied by custom”

o A term may be implied if it reflects what are regarded as the well known and legally binding customs of a particular trade

Fact – “terms implied by fact”

o A term may be implied into a contract where the parties have not expressly agreed something, but the contract would be unworkable without the relevant term Law

Law – “terms implied in law”

o The law regards it as a necessary incident of a particular type of contract e.g. part and parcel of the deal.

Statute – “terms implied by statute”

o Legislation made by Parliament – like a sub-category of terms implied in Law. It’s the most important way terms are implied into contracts.

For terms implied by Statute – the relevant law is to be found in the Sale of Goods Act 1979.

Not all terms of a contact are of equal importance. Some terms are regarded as so important, that, if they’re breached, the innocent party can treat the contract as at an end, or, as lawyers say, “terminate it” – these are called conditions.

Others are less important - if these less important terms are breached, the innocent party might not be able treat the contract as at an end – these are called warranties.

You can only sue someone for damages if they have broken the contract – breach of contract. Next we need to establish what you are claiming for – it is almost always for what you lost out on. The idea is to provide compensation for loss the claimant suffers.

If there is a breach but you have suffered no loss, you do not have a claim. We are interested in substantial damages. An award of damages is to compensate the claimant for the loss caused by the breach of contract.

Need to decide whether damages have been incurred:

Determine loss by considering their position had they not entered the contract at all

Compare their position had the contract been properly adhered to

It is generally accepted in the law that there should be some sort of constraint on what losses can be claimed for. Otherwise, the potential liability of defendants would be completely open ended – through remoteness of loss.

Pecuniary losses can be rectified by compensation – due to loss or damage of property

Non-pecuniary losses – amount is arbitrary e.g. emotional damage, pain

The claimant has to take reasonable steps to mitigate the loss caused by the breach.

Parties can use exemption clauses legitimately to allocate risks between them. The law tried to prevent exemption clauses from being used unfairly.

2 Tort

A tort is a wrong that involves a breach of a civil duty (other than contractual duty) owed to someone else. A tortfeasor commits a tortuous act. E.g. injury while at work or in a car accident.

Different torts:

Assault and battery – assault is when you fear and attack, battery is the attack

Nuisance – relates to use of land/property

Claim against manufacturer for negligence and breach of statute

Trespass to land

Defamation – libel (permanent form) and slander (non-permanent)

The law punishes crimes, torts are intended for compensation.

Practicalities include time, defendant’s ability to pay and costs of suing.

Third parties, to whom the actuarial firm owes a duty of care in negligence, are not party to the contract and are not subject to a cap. Professional firms, including actuaries, therefore attempt to control third-party liability in various other ways.

One approach is to place restrictions in the terms and conditions preventing actuarial or other advice being communicated to third parties. If a report is to be disclosed, the third party has to enter into a contract setting out the uses to which the report can be put, and dealing with the issue of whether the actuarial firm assumes any liability for the advice.

Sometimes professional firms go further and ask clients to indemnify them for any liability in excess of the liability cap. This is likely to be resisted by these clients’ legal advisers.

It is important, therefore, that any valuation report contains an appropriate disclaimer setting out the purposes for which it was prepared and stating clearly that no responsibility will be accepted if reliance is placed on it for other purposes.

Actuaries need to be aware when it is inappropriate for them to continue to act for all parties (generally when the actuary moves from expert valuation role to negotiating situation). There are many situations where it was common in the past for actuaries to act for all parties but where it may no longer be appropriate to do so. Often it will be possible to deal with a conflict situation by constructing a ‘Chinese wall’.

Firms also need to ensure that they have effective peer review and internal checking systems. Compared with other professions, the author’s

anecdotal impression is that actuaries have very good peer review systems in place even principals’ work is checked. Unlike other professions, actuarial peer review systems do not seem to be breaking down in the world of e-mail communication. E-mail is, however, very dangerous from a risk-management perspective, and proper guidelines for e-mail use should be in place within each firm.

It is generally accepted that actuaries advising DB schemes will owe duties of care (in tort) to the sponsoring employers as well as the duties they owe to the client trustees. Often, of course, the firm will also provide some advice directly to the company in relation to certain matters of scheme administration or strategic planning. This can result in difficult problems of conflicts of interest, which need to be closely monitored to ensure that the actuary’s position as adviser to the trustees is not compromised, particularly in the case of the individual appointed scheme actuary.

In some circumstances, the actuary may owe direct duties of care to individual scheme members. There may be situations where the actuary has provided information to the member – for example benefit calculations on which the member has relied upon in deciding to accept an offer of voluntary redundancy and early retirement. If that benefit calculation is wrong (suppose the level of benefits was negligently overstated), neither the trustees (representing the scheme) nor the employer suffers any loss – the correct level of benefits will be paid and funded. But the member may well feel aggrieved that he is receiving less than he had been led to believe and may have a claim for negligent mis-statement against the actuary.

3 Equity and Trusts

Equity is a system of law – operates alongside common law to cover situations which inflexible common law can’t deal with. It is possible for one person to hold the legal interest, and another to hold the equitable interest, or part of it, in the same property. This is where the concept of the trust arises. Property can be any asset.

In common law we have the legal owner of property. In equity, we have the equitable interest.

In any property there is both legal and equitable ownership. These may be in separate hands or owned by one individual.

A trust exists where we have one party holding property for the benefit of another. This arises where one party has the legal ownership of the property and another has the equitable interest i.e. they are split.

The person who creates the trust is called the settlor. They decide who is involved in the trust and what its terms should be.

The trustee has the legal ownership of the property and holds the property for the benefit of the beneficiary.

The person whom the property is being held for is the beneficiary i.e. they hold the equitable interest.

The trust is created by the settlor transferring the legal title in the property to the trustee and declaring the terms of the trust.

The settlor could make themselves the trustee. The trustee is bound by the terms of the trust i.e. their fiduciary duty. The beneficiary has equitable rights which are enforceable in equity.

This general duty which a trustee owes to beneficiaries, is known as a fiduciary duty. It basically means that the trustee must always do what’s best for the beneficiaries, and act with the utmost good faith and loyalty towards them.

A trustee mustn’t profit from their position as it would be in breach of his fiduciary duty. A trustee must not allow their own interests to conflict with those of the beneficiaries.

A trustee can’t buy trust property for himself. If he does, he’ll be in breach of his fiduciary duty.

Fiduciary duty arises wherever you have one person acting in relation to the property of another, or looking after property for another.

There’s also a fiduciary relationship between director and company. A company can hold property and enter contracts in its own name, but it needs people to carry out its actions on its behalf. This is what the directors do – they deal with the day- to-day running of the company. In carrying out their actions directors must always act in the best interests of

the company, and mustn’t let their own interests conflict with the interests of the company. So, for example, if a director of a company is negotiating a lucrative contract for the company, but then decides to take the contract in their own name, instead of for the company, the director will be in breach of the fiduciary duty they owe to the company. They’ll be profiting from their position, by taking a lucrative opportunity which rightfully belonged to the company, and so can’t be acting in the company’s best interests.

Anyone who owes a fiduciary duty must:

Act with good faith

Avoid their own interests conflicting with the interest of the party to which they owe duty

Must not profit from their position

The essence of a trust is that although the trustees hold the legal title to the trust property, they have no right to enjoyment of it. The enjoyment lies with the beneficiaries. The trustees may appear to the outside world to be the owners of the property and to have control of it, but they can’t do exactly as they like with it. They have various duties imposed on them, and if they fail to perform them properly they’ll be personally liable to the beneficiaries. So, if their failure to satisfactorily perform their duties results in a loss to the trust fund, they’ll have to make good that loss to the beneficiaries out of their own pockets.

We know that trustees hold the trust property for the benefit of the beneficiaries. The trustees must look after the trust property properly. This requires them to invest the trust fund to safeguard the capital of the fund, and provide income for the beneficiaries. There are statutory provisions which trustees must follow to ensure they make sensible investments. We know that trustees hold the trust property for the benefit of the beneficiaries. The trustees must look after the trust property properly. This requires them to invest the trust fund to safeguard the capital of the fund, and provide income for the beneficiaries. There are statutory provisions which trustees must follow to ensure they make sensible investments. Trustees are allowed to delegate this investment function to someone qualified to carry out this kind of work, such as an investment manager.

Trustees must take due care in choosing their [investment] agent, and they still have to keep an eye on whoever they appoint to make sure a satisfactory job is being done.

A second duty on trustees is to treat all the beneficiaries equally and fairly.

Trustees’ powers – in other words things that they can do, but aren’t obliged to do. The trustees do have power to assist beneficiaries, by using some of the income generated from the trust, or by paying some of the capital of the trust out early for their benefit. But these powers are subject to certain conditions, which protect the other beneficiaries.

Types of trust:

Express Trusts

o Any trust which the settlor expressly wanted to create

o Can be subdivided:

Fixed trusts – identify beneficiaries and prescribe their benefits

Discretionary trusts – the settlor selects who the beneficiaries are but leaves the benefits to the discretion of the trustees.

Implied Trusts

o No express intention to create a trust, but one which arises due to the surrounding circumstances i.e. the law assumes that a trust should be imposed

o Can be subdivided:

Resulting trusts - the trustees hold property on trust for the original settlor. This type of trust is implied in circumstances where it’s presumed that the settlor would have intended such a trust, if they’d thought about it

Constructive trusts - is imposed in circumstances where no valid express trust has been declared. However, rather than the trust arising to reflect the supposed intention of the settlor, it’s imposed to achieve a fair result between the parties involved - generally in circumstances where it wouldn’t be fair to allow the legal owner to have full enjoyment of the property they hold.