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A Guide to Leadership, Ethics, Teamwork and Teamwork in the 21st Century


Maxwell Pinto


TO DEAL WITH IT! A Guide to Leadership, Ethics and Teamwork in the 21st Century
Copyright © Maxwell Pinto 2009

All Rights Reserved

No part of this book may be reproduced in any form

by photocopying or by any electronic or mechanical means,
including information storage or retrieval systems,
without permission in writing from both the copyright
owner and the publisher of this book.

ISBN 1 86106 852 2

First Published 1998 by

195 Knightsbridge
London SW7 1RE

Printed in THE USA for XLIBRIS

A Guide to Leadership, Ethics and Teamwork in the 21st Century


I Introduction to the Problem 21

Approach 23
Limitation 23

II An Approach to Sound Management 24

Leadership 25
Guidelines for Effective Leadership 26
How to Practise Leadership... 27
and Perfect Leadership Potential 28
Understanding and Meeting Responsibilities 28
Developing a Capable Understudy/Subordinate 29
Other Matters 30

III To Be or Not to Be... a Human Being 33

The Various Needs and Wants of Man 33

Man is a Social Creature 35
Psychoanalytical i.e. a Biological Theory of Personality 35
Social and Cultural 36
Business and Society 36
Religion 36
Ethics and Business Morality 37
Social Objectives 37
Pragmatic Views 37
A Cross-Cultural Analysis of Profits in Western Society 37
Perception, Motivation and Business Behavior 38
A Behavioral Approach to the Theory of Business 38
Motivation 39
Objectives of the Business Enterprise 40
Conditions of Work 40
Technical Efficiency not Enough 41
Provision of Interesting Work 41
Reduction of Exhausting Work 41
Some Views on Business Behavior 42
Employees’ Right of Appeal 42
Joint Court of Appeal 42
A Study of Labor-Management Conflict 43

IV Some Views on Personnel Relations 45

The Laws of Human Association 46
Attitudes 46
Symptoms of Frustration 48
Building Good Human Relations 49
Manage the Employee and his/her Work 51
Appraisal Interview 51
Salaries and Benefits 52
Correction and Discipline 52
Taking Corrective Action 53
Correction Interview 54
Maintaining Good Discipline 54
Labor Relations 55
The Manager and the Labor Agreement 55
The Human Resources Manager 55
Importance of the Human Resources Department 56
Success of the Human Resources Department 56
Selection and Recruitment of Employees 56
Selection of Interviewees 57
Employment through Selection Consultants 57

V The Role and Significance of Training and Communication 58

Motivation and the Learning Process 58

Training Methods Adopted Depend on Goals 58
Simple but Varied Presentation 59
Friendly Competition 59
Determining Training Needs 59
Performance Standards 59
Training Methods 60
Summary of Training Methods 63
Communication 63
Importance of Effective Communication 64
Psychology of Communication 64
Hidden Messages Employees Send 64
Breakdowns in Communication 65
Communication Skills 65
Methods of Downward Communication 66
Methods of Upward Communication 66
Horizontal Communication 67
The Grapevine 67
Channels of Communication 67
Strategies of Effective Interviewing 68
How to Run a Meeting 68
Functions of a Meeting 69
What Sort of Meeting 69
Prior to the Meeting 69

The Election of a Chairperson 70
The Chairperson’s Duties 70
The Secretary’s Duties 70
Motions and Amendments 70
Minutes 71
Miscellaneous Matters 71

VI Elements of Cost Control and Work Simplification 72

Availability of Cost Data 72

Work Simplification 72
Analyzing Office Layout 74
The Office Landscape 75

VII Fundamental Concepts: Planning, Organization and Control 76

Management by Objective (MBO) 77

The Organization and Control of Office Procedures 77
Planning and Layout 77
Time is Money 78
Managers Should Avoid Wasting Time 79
Budgeting and Controlling Your Time 80
Organizing 80
Basic Principles of Organization 80
Types of Organization 81
Controlling 82
Value of Controls 82
Procedure for Reorganization 82
Conclusion 83

VIII Factory Planning and Control 84

Location of Departments and Sections 84

Supervision 84
Plant and Equipment 85
Materials 85
Stores Department 85
Production Control 86
Work Study 86
Maintenance Department 86
Manufacturing and Corporate Strategy 86
Major Characteristics of the Focused Factory 87
Conclusion 87

IX Motivation and Co-ordination –– their Role in Promoting Success 88

Factors to Consider in Developing Employee Initiative 88
Relating the Employee’s Job to the Firm’s Operations 89
Developing a Spirit of Professionalism in Employees 89
Responsibility Encourages Participation 89
Growth within Employees 89
Understanding Employees 90
Rivalry or Competition 90
Comfortable Standard of Living 90
Friendship or Companionship 90
Clear Conscience 90
Needs 90
Employee Morale 90
Mutual Confidence and Respect 91
Keep your Promises 91
Be Fair and Impartial 91
Make Prompt Decisions 91
Be Easy to Talk to 91
Employee Orientation 92
Why Employees Stay 93
Pragmatic Approach to People Problems 93
Management via Team Effort 93
The Relevance of Physical Fitness 94
Co-ordination 94
Vertical Co-ordination 94
Horizontal Co-ordination 94
Policies and Procedures 94
Administrative Orders and Conferences 95
Staff Meetings and Advisory Committees 95

X Information Technology –– the New World 96

Profit or Loss 98
Other Important Matters 99
Steering Committee 100
Database Management Systems (DBMS) 100
What is Dbase IV? 100
Conventional Files vs. Databases 101
Objectives of Database Management Systems 101
Implications for Auditing of DBMS 101
Innovative Accounting Systems Using Databases (IASD) 103
Data Dictionaries 104
Data Administration 104
Implications for Control 105
Areas of Exposure 106
Control Techniques for Database Management Systems 107
Design, Development and Maintenance 107

Input, Updating and Integrity Checking 108
Access Control 108
Back-Up and Recovery Controls 109
Audit Implications 109
International Management Information Systems 111

XI Marketing Management 112

The Market Research Manager 112

Sources of Data 113
Entry into a Foreign Market 114
The Sales Manager 114
The Art of Salesmanship 114
The Advertising Manager 116
The Public Relations Manager 117
Ethics and Public Relations (PR) 117
Selling and Distribution 118
Marketing and Sales Management 118
Other Matters 118

XII Financial Control in a Broader Context 120

Implications for Managers 120

Cost Effectiveness of the Office 120
Ratio Analysis 121
Finance: Equity vs. Debentures/Loans 121
Advantages of Loans/Debentures 123
Limitations of Loans/Debt Finance 123
Factoring –– its Implications for Liquidity 123
Factoring and International Trade 124
Foreign Exchange Risk Management 125
A Model MIS 125
Internal Hedging Techniques 125
External Hedging Techniques 127
Setting Hedging Strategy 127
Integration with Liquidity Management 128

XIII Documentary Letters of Credit 129

General/Open/Special Credits 130

London Acceptance Credit 130
Transferable Credit 130
Red Clause 130
Back-to-Back 130
Deferred Payment 130
Cable Credit 130

Revolving Credit 131
Standby Credit 131
Revocable and Irrevocable Credits 131
Legal Aspects of L/Cs 131
The Seller’s Drafts 132
Warranty as to Documents 132
Transmission of the Benefit of a Credit 132
Legal Nature of Transfer 132
The Buyer-Applicant 132
Back-to-Back Credits 133
Forged Documents Presented for Payment under L/Cs 133
The Banker’s Security 133
Conflicts (of Laws) 133

XIV Close Encounters of the Management Kind 134

Growth 134
Effective Pricing 134
The General Manager 135
Inflation 135
The West vs. Japan 135
Other Problem Situations 136

XV Management and the Law 137

Sources of English Law 137

Ratio Decidendi and Obiter Dicta 138
Legislation 138
Forms of Liability 139
The Nature of Criminal and Civil Liability 139
Nature of a Crime 139
The Classification of Civil Law 139
Liability in Contract and Tort 139

XVI The Law of Contract 141

Offer 142
Invitation to Treat 142
Auctions 142
Lapse of Offer 143
Revocation of Offer 143
Rejection of Offer 143
Acceptance 143
Intention to Create Legal Relations (Legal Intent) 144
Consideration 144
Rules of the Doctrine of Consideration 145

Promissory Estoppel 146
Formality 146
Contracts Requiring a Deed 146
Capacity 147
Minors 147
Terms 149
Conditions and Warranties 149
Express and Implied Terms 149
Exclusion Clauses 150

XVII The Law of Contract –– Part 2 151

Mistake 151
Non est Factum 152
Misrepresentation 152
Contracts Uberrimae Fidei 153
Inducement 154
Types of Misrepresentation 154
Rescission 154
Criminal Penalties 155
Duress and Undue Influence 155
Contracts in Restraint of Trade 155
Severance 156
Discharge of Contract 156
Provision for Discharge 157
Form of Discharge 157
Time of Performance 158
Remedies for Breach of Contract 159

XVIII The Contract of Employment 161

Formation 161
The Employer’s Duties 162
The Truck Acts (1831-1940) 162
The Payment of Wages Act (1960 and 1986) 162
Provision of an Itemized Pay Statement 162
Sickness Pay 162
Other Duties Regarding Wages 163
Other Duties of Employer 163
The Employee’s Duties 164
Termination of Employment 164
Remedies at Common Law 164
Unfair Dismissal 164
Dismissal 164
Unfair Dismissal 165
Fair Dismissal 165

Remedies for Unfair Dismissal 165
Written Reasons for Dismissal 165
Redundancy 165

XIX Sale of Goods and Hire Purchase 166

Formation of the Contract 167

Implied Terms 167
Exclusion of the Implied Terms 168
Transfer of Property in the Goods 168
Specific Goods 169
Unascertained Goods 170
Reservation of Title 170
Sale by Non-Owner 170
Performance of the Contract 172
Rights of Unpaid Seller 172
Remedies of the Buyer 173
Consumer Credit Agreement 174
Distinction between Hire Purchase, Credit Sale
and Conditional Sale 174
Hire Purchase 175
Formalities 175

XX Agency 177

Creation of Agency 177

Effects of Contracts Made by Agents 178
Relationship between Agent and Principal 179
Termination of Agency 180
Effect of Revocation 180
Irrevocable Agency 181

XXI Company Law 182

Formation 182
Certificate of Incorporation 182
Pre-Incorporation Contracts 183
Commencement of Business 183
The Memorandum of Association (M/A) 183
Amendment of an M/A 183
Name of the Company 184
Status 184
Domicile 184
Objects Clause 185
Contracts and the Doctrine of Ultra Vires 186
Criticism of Doctrine of Ultra Vires 186

Remedies of a Party to an Ultra Vires Contract 186
Rights of the Company Under an Ultra Vires Transaction 187
Alterations to the Objects Clause 187
Dissentient Debenture Holders 188
Notes on Procedure 188
Limited Liability 188
Capital Clause 188
The Articles of Association (A/A) 188
Table A 188
Alteration to Articles of Association 189
Enforcement of A/A 189
Contracts Incorporating an A/A 190
The Nature and Form of Company Securities 190

XXII Company Law –– Part 2 191

Management of Registered Companies 191

Types of Company Meeting 191
Extraordinary General Meetings (EGM) 191
Requisites of a Valid Meeting 191
Chairperson 192
Quorum 192
Voting 192
Corporate Representatives 192
Proxies 192
Resolutions 193
Filing 193
Directors 193
Duties of Directors 194

XXIII The Law of Partnerships 195

Profits and Sharing of Profits 195

Types of Partners 196
Number of Partners 196
Meaning of Firm 196
Choice of Name 196
Capacity 197
Relation of Partners to Persons Dealing with Them 197
Partners’ Liability for Debt and Breaches of Contract
by Firm 198
Partners’ Liability in Tort 199
Misapplication of Property (including Money) 199
Improper Employment of Trust Money 199
Partnership by Estoppel or Holding Out 199
Continuing Guarantees 200

Other Effects of Changes in the Constitution of the Firm 200
Relationship Between Partners 200
Partnership Property 200
Business Matters 200
Transmission of a Partner’s Share 201
Remedies for Breach of a Partnership Agreement 201
Dissolution of Partnership Agreement (Review Insolvent
Partnerships Order 1994) 201
Powers of Partners upon Dissolution 202
Treatment of Assets upon Dissolution 202
Profits After Dissolution 202
Rescission of a Partnership Agreement 202
Limited Partnerships 203

XXIV Sexual Harassment –– a Burgeoning Problem in the Corporate World

What is the Problem? 205

Sexual Harassment and the Law 207
Education and Knowledge –– Why? 207
Quid Pro Quo 208
Sexual Favoritism 208
Threats as a Result of Refusal 208
Harassment of Customers/Clients 208
Harassment of Non-Employees 208

XXV Women... Yesterday, Today, Tomorrow... 211

Sexual Harassment 212

Preventing Sexual Harassment 213
Sexual Discrimination 213
Exploring the Glass Ceiling 214
The Feminine Advantage 215
Practical Examples of Change 216
Women and Family 216
Making a Statement... the Corporate Attire 217
The Last Tango 218

XXVI Conclusions and Views 220

Other Matters 221

Bibliography 224

To my family and friends who
have continuously offered me continued support and encouragement in my effort to
produce a
dossier on management techniques.
Hopefully, this reference manual will provide valuable reading for students
professionals and businessmen alike.

DURING THE PREPARATION of this book, several books were reviewed and lost due
to an unfortunate incident. I thank the publishers and authors of those books and sources
that I accessed on the internet and I apologize for not being able to include their names in
the bibliography to this book.

About the Author

Dr Maxwell S. Pinto is an established Management Consultant with a PhD in Business

Administration from Pacific Southern University, California, USA. He is also a member
of the Institute of Chartered Accountants (England and Wales) and a life member of the
Institute of Professional Managers (UK). Dr. Pinto is listed in Marquis Who’s Who in the
World and in several publications of the International Biographical Centre, Cambridge,
Dr Pinto is fluent in five languages. His international experience includes
management consulting, corporate analysis, management information systems, training
and development, valuation and sale of business, raising venture capital, administration
and finance. Dr. Pinto believes that sound theory promotes desirable practice and that
there is always room for improvement.
Dr Pinto has also conducted lectures and seminars in business management,
human resource management, business ethics, business law, marketing research,
economics, and accounting for graduates, experienced businessmen and professionals.
This is the third edition of this reference manual and is a follow-up to his highly
acclaimed and authoritative manuals on business management, Management: Flirting
with Disaster! and Management: Tidbits for the New Millennium! and is the result of Dr
Pinto’s disillusionment with the approach adopted by managers all over the world. As an
independent management consultant, Dr Pinto has a specific commitment towards
working with businessmen, managers and other professionals in a bottom line approach
to solving their problems.


In the real world, there is no substitute for common sense. This being the case, books
alone cannot create managers. Nevertheless, this reference manual does attempt to
highlight the main areas of management within a human environment, where a degree of
knowledge and appreciation of Psychology, Sociology and Law are often lacking in most
management personnel.
This edition has been revised in the light of comments received from readers
including existing and retired businessmen, professionals: management consultants,
engineers, accountants, lawyers, bankers, principals in established educational
institutions, lecturers and students at universities and colleges, as well as lay people, on
an international basis. For those readers who believe that this is a practical book, set
against a theoretical background, I would like to stress the words of an eminent author:
‘A theoretical approach is often characterized as likely to yield impracticable decisions ––
it implies a method, which appears to be impressive on paper, but will not work in the
real world. This is rather misleading, for it is the role of theory to improve practice and
the latter is generally capable of improvement by sound theory!’
This being a book on management, it is essential to understand the meaning and
nature of the terms ‘Management’ and ‘Leadership’ as discussed in Chapter II, and to
appreciate that management is effected within a human environment (the implications of
which are elaborated upon in Chapters III and IV) in line with the Corporate Plan.
Having noted the importance of the proper recruitment and selection of
employees for success in implementing the Corporate Plan, we can proceed to consider
the importance of subsequent training, planning, organization, delegation, control,
motivation and co-ordination.
The role of information technology cannot be undermined and the same applies to
marketing, with a view to gaining an ever-increasing share of the market(s) involved.
These topics are discussed in Chapters X and XI.
As far as financial control is concerned, one looks forward to a thorough
understanding (of this area of operations), not only by accountants but also by all
managers. Hence, the inclusion of Chapter XII.
Documentary letters of credit are relevant mainly to foreign trade. The main
concepts involved are discussed in Chapter XIII.
Chapter XIV attempts to draw the reader’s attention to some problem areas faced
by managers.
Chapters XV-XXIII highlight the main areas and concepts of law that managers
should be aware of i.e. sources of law, the law of contract, the contract of employment,
sale of goods and hire purchase, agency, companies and partnerships. These chapters
have been introduced following feedback from readers of the first and second editions,
who felt that this manual would be even more valuable if it included a special section on
the main aspects of business law.
Chapters XXIV and XXV consider the role and significance of women in today’s
world, coupled with the growing awareness of sexual harassment and bullying in the
corporate world.
Conclusions and views are presented in Chapter XXVI, followed by a
bibliography at the end of this Reference Manual.


Dr Robert Holland, PhD; Dr Ahmed Mesbah, PhD, Krishna Prasad, BSc; Aley Thomas,
MBA; Lee Broadie, MA; Maurice Pinto, Mark Pinto, MBA, ChFC; Eusebia Fernandez,
MA, MSc; Mari-jane Sutton; Aaron Pinto; Vanessa; Paresh; Josie Gelacio, Carrie Garbas
and others, whose names I may have overlooked, but to whom I am eternally grateful.

Chapter I

Introduction to the Problem

Most of the problems highlighted in this chapter are mainly applicable to developing
countries, where planning is minimal and control is either misdirected or insufficiently
applied! Therefore, one needs to identify the problems, appreciate their significance and
contrast the approach adopted in developing countries with feasible techniques, some of
which are used in the more advanced countries of the world.
In a normal business enterprise, managers usually think... decide... and then act. In
developing countries, the managers are usually guilty of reverse-gear management,
whereby they act... think... decide... and later on reverse the initial action! This is the
result of improper employee selection and job evaluation procedures, coupled with vague
job descriptions, which together, spell chaos within the firm in question. Moreover, many
school leavers have the tendency to consider themselves as managers, having hardly
faced difficult times, and wish to start their employment careers almost at the top of the
ladder or in middle management. This is duly encouraged by the shareholders and senior
managers, on the grounds that they should ‘help their own people rather than foreigners,
with good jobs and remuneration packages!
Consider the example of X Ltd, a medium-sized engineering enterprise financed
by five shareholders, dealing in the manufacture and sale of electrical switchgear in a
developing country and abroad and note the evidence of a lack of planning from the

1. In a country of climatic extremes, the shareholders built a factory without central

cooling or heating and this adversely affected efficiency and profitable growth.
2. The office was located above the factory unit. Lack of soundproofing of factory
and offices compounded the adverse effects on effectiveness of factory and office
employees. Moreover, management staff displayed a growing tendency to shout at
subordinates in public, thereby adding to the already existent noisy atmosphere.
3. Lack of dust-proofing, loosely fitted air-conditioning units, and management’s
lack of desire to employ a decent full-time cleaner compounded the problem, as
far as the efficiency of employees was concerned.
4. The absence of a canteen or vending machine for employees demonstrated a lack
of concern for employee welfare.
5. Location of the tiny kitchen next to the toilet implied ignorance of the conditions
of normal hygiene.
6. The inventory location was split into four sections, one of which was outside the
factory and open to access and abuse, thus confirming the lack of proper planning
on the part of the shareholders and management.
7. Several of the three thousand plus inventory items in the stores areas were not
easily identifiable, with consequences for the design, purchasing and production
departments and implications for excessive inventory levels, costs related thereto
and the risks involved. No positive attempts were made to identify and dispose of
slow-moving and obsolete inventories.

8. The computer configuration and software were chosen by the Managing Director,
who did not have a clue as to the accounting and other requirements of the firm.
Needless to say, he had no computer background either. The result: an abortive
management information system!
9. Administrative instructions were often illogical and impractical e.g.:
a) Personal telephone calls are not allowed because the telephone is ‘an
instrument of work’. Consider the effect on employee morale and the
reaction of employees’ relatives, who might need their help in an
emergency situation.
b) Employees who arrived even one minute late were penalized, in the
absence of a clock which could match the standards of accuracy of Big
Ben (in London), England!
10. Most members of management did not possess a working knowledge of the
national language.
11. Off-the-job training by way of internal and external courses was neither
sponsored nor encouraged by the firm.
12. The selling price of the final product did not take into account the replacement
cost of component parts and probable delays in payment by the customer.
13. Debtors and creditors were not carefully analyzed with regard to their size,
importance and possible delays in settlement. The Finance Manager behaved and
performed more like a cash collector than a financial controller. Cash flow
techniques were rarely used, and, when used, were not sufficiently detailed to
enable success in this area. Cost-benefit analysis was hardly ever undertaken.
14. Diversification of products from the start of the company’s operations, without
adequate experience, caused problems for customers and inventory management.
This was compounded by lack of standardized products, with adverse results on
inventory holdings and labor efficiency.


What follows is a suggested consolidated approach to management, based on my studies,

research and experience over the past several years in North America, Europe and the
Middle-east. Several people have been interviewed including members of top
management, middle management, other employees, businessmen, professionals,
consultants and other independent personnel.


The main limitation of this study lies in the time factor. Nevertheless, I hope the material
contained herein will prove useful to managers, intending managers, professionals and
businessmen all over the world, with special emphasis on those who operate in
developing countries. Statistics have been excluded from this book, which is meant to
address an international (rather than any specific national) audience. Bias which could
result from any specific national sample has thereby been eliminated.

Chapter II

An Approach to Sound Management

Management is the art of achieving results through the efforts of other people, who must
be willing to perform the task(s) required of them. The manager should therefore
understand and appreciate the values of his/her subordinates, because these
values/standards determine their opinions, attitudes, preferences and actions. Congruence
in the values of the organization, its top executives and other employees, leads to
organizational effectiveness. Failure to understand values leads to barriers in
communication, wastage of time and energy and distrust, plus ill-feelings within the
enterprise. These factors have adverse implications for effectiveness in line with pre-
determined objectives (as specified by the Corporate Plan).
The Authoritarian type of manager insists on his/her instructions being carried out
to the letter, without due regard for the psychological impact on his/her subordinates.
This implies that he/she considers himself/herself to be a ‘Mr. (or Ms) Know-all’.
The Democratic type of manager attempts to achieve employee and departmental
effectiveness by being ‘nice’. This is also an extreme type of manager, who places more
emphasis on courtesy than on effectiveness.
Neither of the above styles of management challenges the employee or promotes
effective performance.
The Non-entity type of manager is content to accept the decisions of others and
maintain a low profile, rather than be directly involved in any decisions or actions. This is
hardly conducive to good leadership or effectiveness.
The Fence-sitting type of manager attempts to achieve results without disturbing
employee morale (through confrontation).
The Ideal manager leads by example and encourages team effort and participation
of employees in an ethical manner. The latter should have been selected in accordance
with proper employee selection procedures, with due respect for qualifications,
experience, background and the ability to perform effectively within a team environment.
The Ideal manager regularly and frequently evaluates employees. Responsibilities and
targets are mutually set (and altered if necessary) and personal matters and goals are
regularly discussed, to spur the employee towards motivated effectiveness, in line with
corporate objectives and goals. The Ideal Manager ensures that:

1. Co-ordination is achieved whereby everybody who is affected by any decision is

duly informed.
2. Organization is effected so that there is a proper chain of command, delegation of
authority and responsibility and orderly working relationships between
subordinates and others, thus facilitating harmony. Praise or criticism is on the
basis of fairness, with motivation and the bottom-line in mind. Each member
understands how his/her job relates to those of other team members and
departmental members, with goals and procedures being specified and altered if
necessary, thus maintaining an adequate degree of flexibility. In the event of
conflict, the ideal manager approaches those involved, ascertains the cause(s) and
solves the problem.

3. Discipline is effected for control purposes. Self-control is often the most difficult
to maintain, especially in cases where most managers feel that one set of
disciplinary rules applies to employees and another set applies to managers!
4. Objectives are communicated to those involved and the same is true of authority,
responsibilities and methods. The main objective is normally profit maximization;
decisions and actions should not be based on politics, nationality, friendship or
other irrelevant factors, which are contrary to what profit maximization demands!


To be effective, a manager must understand the basic principles of leadership. A good

leader is one who can significantly influence employees and others to achieve the desired
results (in accordance with organizational objectives) through a logical and reasonable
approach, which convinces them of the need for such results. He/she must serve the
interests of the organization and its employees, so that the latter are geared towards
working at maximum potential. He/she then helps them to solve most problems, without
his/her direct involvement in the solution to such problems. The leader’s behavior affects
his/her followers and organizational development.
Decision making may need to be aggressive at times, but should not be postponed
unduly, otherwise frustration will ensue for those concerned, i.e. the team and others.
Moreover, decisions may be obsolete and ineffectual, when taken.

Guidelines for Effective Leadership

a) Be knowledgeable to a greater degree than your followers, as regards jobs,

responsibilities, procedures and occurrences in the past and present, as well as
possibilities in the near future;
b) Be enthusiastic and inspired so that it influences followers and others;
c) Capitalize on your authority and learn from the good and bad experiences of other
leaders within and outside the firm. Remember that you can learn important
management techniques even from non-managers;
d) Ensure optimal usage of employees, assets and outsiders in your attempts to attain
the firm’s goals as specified by the business plan; ensure job satisfaction and fair
appraisal plus careful grooming of potential and actual managers;
e) Motivate employees upon understanding their values and desires;
f) Work effectively with people by appealing to their human/emotional side and
influencing them via logical and reasonable methods; encourage team effort but
overrule the group’s decisions where necessary;
g) Be responsive to the needs of others and do not discriminate on the basis of
gender, race, religion, and rank in the organization or any other criteria. Do not
take undue advantage of individuals who are in need of experience to enhance
their resume's, by asking them to work for you free of charge, based on the fact
that the experience you are offering will benefit them;
h) Maintain respect through example and lack of being too familiar;

i) Ensure profit-sharing facilities for all;
j) Ensure decent location of business premises, in terms of neighborhood,
community feeling, transport, schools, banks, post offices and related matters;
k) Aim for congruence in values of the firm and its employees – this is very difficult
to achieve, because each individual has his/her own set of values and the
treatment accorded to him/her must take the latter into account.
l) Never undermine the importance of gut feeling.

Lack of contentment among employees will result in high costs and poor service, with
adverse effects on the firm concerned.1

Peter Drucker’s View: The Corporation – A Symphony Orchestra?


1 Loftus, John T., Modern Management, USA, 1971.

Chapter III

To Be or Not to Be. . . a Human Being!

In most countries, employers are vastly outnumbered by employees and are dependent
upon the latter for the success of their entrepreneurial activity. Success in business calls
for sound leadership: creative thinking, planning, organization, direction, co-ordination,
control, delegation, communication, motivation and decision-making ability. Even in the
presence of the foregoing, the organization can fall to pieces because of the inherent
selfish nature of human beings.
Human beings, like most other live species, have a tendency to care for
themselves, to the direct exclusion of all others. It is, in essence, this very attribute which
leads to the detriment of most firms, hitherto profit or growth-bound, but thwarted along
the way by the selfishness that abounds everywhere. There is, therefore, vast scope for
improvement in the area of human relations, with consequent benefits for all involved.

The Various Needs and Wants of Man


Abraham Maslow believed that, of all the resources at a manager’s disposal, human
resources are the most important – people are the life-giving element in any organization,
despite which, they are hardly understood and continue to remain a puzzle.
According to Freud, man is basically a beast – aggressive, lustful and
unscrupulous. Maslow challenged this view and believed that man is basically good and
decent. Maslow felt that human needs form a hierarchy; they are like a pyramid, with
physical needs at the base and knowledge at the apex. When, and only when, a human
being satisfies one level of need will he/she move to the next level of needs:

i) Physiological/Basic Needs: air, water, food, shelter and sleep;

ii) Safety Needs: at work and includes security/permanency of job plus insurance;
iii) Love and Belongingness Needs: as a social animal, he/she wants friends plus love
at work and at home;
iv) Esteem Needs: recognition and status, without which he/she feels doubtful of
himself/herself and insecure;
v) Self - actualization : to perform at maximum potential and accomplish all he/she
has ever wished for;

Man is constantly in search of something which he/she does not possess. He/she,
therefore, remains active, motivated and geared towards self-perfection.
Although behavior is normally a function of the variables discussed earlier

including values, experiences, upbringing and a given stimulus may be strong enough to
override these variables, in any given situation.
The stimulus situation consists of physical, social and cultural objects and
processes that initiate decision-making. The individual has to contend with various types
of situation, when dealing with people from different segments of society i.e.
government, business and employment.
Employers often drown themselves in an ocean of commitment, without realizing
the basic wants of their employees: job satisfaction, recognition, security and status,
equitable wages, sound communication, motivation, fair treatment, a sense of belonging
and the opportunity to participate in policy and decision making. They ignore the adverse
effect on efficiency and subsequently complain of the undesirable results. Employers
should concentrate on co-coordinating human, rather than technical, activity by directing
their attention to and trying to influence group norms, rather than individual norms.
While possessing the qualities required of successful leaders – qualifications,
experience, effectiveness, personality, creativity, honesty, fairness, a friendly attitude and
courage to be decisive, a manager may yet be restricted by the imprecise nature of his/her
job description. Lack of clarity in defining his/her own authority and accountability
reduces his/her effectiveness. There are managers who are unsuited to their posts but
continue to fill them, because of obscurity in defining their responsibilities.
Psychology and sociology have focused on the essential nature of human beings.
Human beings have been endowed with a certain level of intelligence and temperament,
which are subject to modification within any given environment i.e. organic desires of
hunger, thirst and sex. People long for love, emotional security, social status and a feeling
of belonging to a group. Loss of status results in social isolation and possible neurosis.
The loyalty of an individual rests with his/her primary group and with his/her secondary
group (only to the extent that the interests of the two groups coincide). With this in mind,
management must create an atmosphere which fosters desirable moral attitudes,
intellectual skill, improved communication and co-operation through alterations in
original structure. A healthy working environment promotes effective operations.

Man is a Social Creature

The Hawthorne Investigations and subsequent studies confirmed that the employee’s
behavior is governed by groups, rather than by selfish individual motives. This
contradicts Taylor’s findings in relation to scientific management.

Psychoanalytical i.e. a Biological Theory of Personality

Human beings are selfish but do need others: employers/employees, customers, suppliers,
colleagues, the law and trade unions. Individuals deal with others as a means to an end,
rather than an end in itself.
Human beings feel the need to belong to a group, for reasons related to friendship,
love, happiness and security, at the very minimum. Man loses his/her identity in a group
which welcomes him/her and he/she begins to function well, to smile, laugh, gossip,

throw paper balls and, generally, to develop a family feeling within the group. Proper
understanding of groups promotes team effort and organizational effectiveness, bearing in
mind that the group leader plays an important role in building up an effective team.
‘Every group involves emotional relations of like and dislike among its members,
develops norms of its own and a hierarchy of prestige, often culminating in a single
person, who has a dominating influence’ – W.J.H. Sprott, in his book Human Groups.

Social and Cultural

Language, customs, beliefs, cultural-social and geographical environment do influence

behavior. Even though the same cultural elements are found in a plurality of societies,
each will be found to have a distinctive cultural basis which differentiates it from others.
The weight of each variable will vary among individuals and under varying
behavioral conditions; therefore, individual predictability may not be possible. However,
it may be possible to group individuals in business according to attributes such as
income, ethnic group, age, sex, occupation and other factors to determine what empirical
regularities exist under various decision-making situations. Management cannot coerce
workers but has to win their confidence and respect, educate them, develop them and
secure their wholehearted participation in the mainstream of productive activities of the
business enterprise. People do not like being ordered around or being exploited. They
look for respect, equality and the ability to participate; hence, profit sharing, joint
consultation, explanations to employees and appropriate training methods.

Business and Society

There are those who believe that businessmen should concentrate on making money and
helping the economy grow. Others believe that businessmen should contribute to social
welfare, rather than being a parasite on society and focusing on money alone. In this
context, one is advised to review the stockholder and stakeholder theories, as discussed
by Milton Friedman, Edward Freeman and Immanuel Kant.

Stockholder vs. Stakeholder


Chapter IV

Some Views on Personnel Relations

Human beings are not machines; they have feelings which, if well handled, will bring out
the best in them, in terms of efficient teamwork and desirable results. Cold calculations
and ridiculous procedures, rules and policies will not help achieve the firm’s objectives.1
Employee relations are taken care of by departmental heads and/or the human
resources department. This department should always be aware of the various labor laws
and employment rules. The human resources department may also be responsible for
wage and salary administration, employee selection for interviews based on head-hunting
techniques, insurance, health, safety, communications, recreation, training, counseling,
public relations, research and dealings with trade unions.
Most problems of subordinates should be solved by department managers
concerned in line with their knowledge of employees, the firm’s rules and agreements
with unions and the law. Managers are useful to their employers only if they can work
effectively with people. They should be aware of factors influencing behavior.

a) Environmental Influences: The manager who wants to alter an individual’s

behavior must influence the individual or the factors that affect the individual,
such as his/her circumstances and the environment.
b) Values and Personality: People have values, willpower and a personality –
therefore they are not slaves to external factors.
c) Job Influence: Individuals seek to maximize their standards of living through
increases in income, which adversely affect firms which aim to maximize profits.

Managers should try to identify the causes of certain patterns of behavior by observation,
noting attendance records, performance records, employee complaints, morale surveys
and other methods. Once the cause(s) of undesirable behavior is known, the manager
should attempt to influence or eliminate the same, with a logical and open-minded
approach. He/she should then proceed to study the results following from his/her actions
on the cause(s) while being alert for changes in job performance or behavior.

The Laws of Human Association

No two individuals are exactly alike, although they will have some traits in common.
Each person behaves in a manner which he/she believes will fulfill a need or combination
of needs, whether physical, emotional or whatever. Therefore, one must study people
carefully and deal with them accordingly.

i) Anxiety produced upon first contact should be relieved by the manager;

ii) Strong need for participation in groups is predominant in most individuals;
iii) Need for approval and appreciation from superiors is very strong;
iv) Will to win exists very strongly in most people because our society always

1 Hall, L., Business Administration, L.J.K. 1976.

respects a winner and usually despises a loser;
v) Sound mind and body are essential for healthy decisions and subsequent actions;
vi) Influence of invisible forces is present in almost every person, although the most
important influence of the subconscious may not be realized.



Attitudes are shaped by several factors including backgrounds, experiences, cultural

influences: such as traditions, customs, family, friends, and group memberships in
religious and educational institutions. A manager should realize that attitudes differ
between individuals and his/her attitude should not be rigid or illogical. He/she cannot,
for example, assume that all bearded men are cheats.
Since attitudes affect behavior and performance, a good manager should help
develop constructive attitudes in his/her subordinates and others. Observation,
conversation and other techniques discussed earlier are important in understanding
attitudes, predicting behavior and acting accordingly.
Managers should be available to solve problems while being accessible to
superiors, peers and subordinates. Managers should be concerned about the feelings of
others and the effect on work performance, without any indications of prying into
people’s affairs. The manager should set aside time for his/her own work.
If the manager is an honest person without preconceived notions and ideas and
prepared to give the devil his/her due, his/her subordinates will learn from his/her
example. The manager should follow up by interviewing his/her subordinates from time
to time and trying to replace their undesirable attitudes with favorable ones.
Even individuals with exemplary attitudes and sound environmental influences
can exhibit unsatisfactory behavior in the following circumstances:

a) Frustration may result from poor working conditions, delays in decision making,
unfulfilled promises or unreasonable demands made by the manager; this will
reduce effectiveness;
b) Level of tolerance is higher for more flexible persons, but disappointment will
occur beyond a certain point;
c) Needs of the moment may influence a person to behave in a way which displays
his/her frustration;
d) Interpretation of the situation may lead to a certain pattern of behavior, partly
because of the way an individual feels towards his/her manager and job;

Symptoms of Frustration


An adverse change in job performance or continued regression after months or years of

excellence is indicative of a reasonable degree of frustration. Aggressive behavior or a
negative attitude may follow and can be more detrimental than a punch in the nose.
Resignation is a sure sign of frustration and may take the form of physical quitting
or functioning in name only. To eliminate frustration, define precisely the role of each of
your subordinates, set achievable targets, guide your subordinates and provide necessary
training, review progress and praise or criticize (politely). Act as counselor and listen
carefully to their problems during and after working hours, thus helping to relieve their
tension. Constantly reassure your subordinates and increase job security.
Frustration also results from unsuccessful marital and other relationships, which
undermine the importance of love, communication, understanding, compromise, patience
and commitment. In some cases, this adversely affects performance at work, whereas in
other cases, the employee turns to his/her job with an even greater sense of commitment.2
As regards counseling interviews, plan them to ensure an informal and friendly
atmosphere so that you may gain the employee’s confidence. He/she may then disclose
his/her problems... you are present to listen and advise only, if requested to do so. The
fact that the employee has approached you indicates that he/she trusts and respects you.

Building Good Human Relations


Thoughtful leadership and an intelligent and considerate approach to building good

working relations will help your team’s performance. Consider the following guidelines:

Be self-motivated so that you can motivate others

Observe and evaluate the actions of others

Control your emotions before you attempt to control others

Tactfully correct and change the behavior of others

2 Bartolome, F., The Work Alibi – When It’s Harder to Go Home, Harvard Business Review, USA 1985.

Communicate with your subordinates and learn from them

Increase job knowledge



Keep subordinates informed

Encourage creativity

Counsel your subordinates

Understand yourself before you attempt to understand others and always seek perfection.

Manage the Employee and the Employee’s Work

The personnel function is responsible for employment, promotions, safety, pension plans
and labor relations. Appraisals should be regular, frequent and based on fair standards.
The manager should assign work, salary and promotion recommendations/evaluations
accordingly. Appraisals help to ascertain the worth of an employee to the firm and should
make use of:

i) Up-to-date personnel records: Education, qualifications, experience, length of

service, attendance record, disciplinary action, participation in the firm’s
activities, as a team member and physical health reports.
ii) Employee merit appraisals forms: Quality of work, promptness, dependability,
initiative, ability to learn, co-operation, judgment, ability to get along with people,
care exercised in using materials and equipment, and job performance.
Individuals are different in mental, physical and character traits – therefore, examine each
trait of each individual separately and without bias, prejudice or preconceived notions.
Avoid generalization and over-emphasis on isolated events and then rate each employee
on actual rather than potential traits, as discussed above.

Appraisal Interview


Prior to this interview you will have rated the employee carefully and noted down which
points you wish to discuss at the interview and in what order and manner. Decide on a
plan of improvement and in which areas you need additional information.3
Then arrange a time for the interview, when neither of you will be under pressure
and when there will be no interruptions. Be friendly and informal and explain the purpose
of the interview. Ask the subordinate how he/she is progressing with his/her job and other
employees and whether he/she has any problems which you could help him/her solve.
Listen carefully so that you understand his/her feelings.
Start on the employee’s strong points and praise him/her for the same. Then
continue with his/her weak points and criticize politely and constructively but do not
generalize in your criticism – be precise and state facts and instances. If the employee
disagrees with you, let him/her explain his/her point rather than allow yourself to lose
your temper.
Following the discussion of strengths and weaknesses of the subordinate, sit down
with the employee and frame a program for the latter’s improvement. Offer and accept
suggestions because this is a team effort aimed at improving the subordinate’s
performance. Close the interview on a friendly note and encourage the worker to come
back if necessary. Leave the subordinate with a desire to improve.
Record the pertinent points and essential information for further use and
subsequent interviews. Live up to your end of the plan for improvement and continually
review the subordinate’s progress for comparison with the plan.
Progressive transfers between departments, with improvements in pay and other
benefits, should be discussed between the manager and subordinate before being effected
and should be in the interests of the firm and the employee.


Chapter V

3 Trull, Samuel, Strategies of Effective Interviewing, Harvard Business Review, USA 1964.

The Role and Significance of Training and Communication

Training is a method of transferring knowledge and ability, whereby the individual is

taught what to do, how to do it and why it should be done in a particular manner. This
may be taught on the job and otherwise, via seminars and internal plus external courses.
People learn by listening, observing and using their intellectual capacity. They
should be tested to ensure that they meet the required standards.

Motivation and the Learning Process

The importance of the training should be discussed and trainees should be persuaded in
favor of the training. People should be made to realize their own goals and the goals of
the firm – therefore, cultivate in them a desire to learn continuously.
A comfortable place, a friendly atmosphere, skilful instructions and participation
of trainees will help ensure successful training. They should be taught one step at a time,
with each step being related to their previous level of knowledge and experience. Each
step should be more difficult than the preceding one. Give them practice by way of
constant tests and case studies to keep the trainees mentally active.
The objectives of the training should be duly specified and progress, measured, on
a continual and consolidated basis, to ascertain the knowledge gained by each trainee.
The course should proceed in the light of its objectives, as specified by the training
instructor, prior to commencement of the training.

Training Methods Adopted Depend on Goals

Lectures, classroom discussions, visual aids, on-the-job training, conferences and

correspondence courses are all useful methods of teaching and training employees. The
specific method of training which is adopted depends on the goals of the training.

Simple but Varied Presentation

Present the new material in several ways and from more than one point of view, using the
spoken word, and demonstrating with real equipment or mock-ups and audio-visual aids
such as charts or motion pictures. The instruction provides opportunities for the trainees
to use their eyes, ears and brain, with difficult words being defined precisely. The training
package should be split into units, as discussed earlier.
Training should be adapted to meet the needs of the individuals, who differ in
background, knowledge and ability. Trainees should be allowed to progress at the desired
pace and slow individuals should be given special attention so that they keep pace with
the rest. The trainees should be tested on a continual basis, and their strengths reinforced
while their weaknesses are eliminated in a polite manner, without excessive emotion.
Friendly Competition

This stimulates transfer of the desired learning. Competition on a group basis encourages
participation and may be less harmful than competition on an individual basis.

Determining Training Needs

Managers are in contact with their subordinates and must sense their potential needs for
the acquisition of knowledge, skills and attitudes to help satisfy their job requirements.
The department may be in need of simpler procedures, more realistic working conditions,
lower expenses, lower employee absenteeism and turnover, no duplication of work,
deadlines which are met on time, fewer customer complaints and higher employee
morale. Jobs must be analyzed carefully before training employees for them.

Performance Standards

These standards should be realistic and up-to-date and must be set by somebody who is
well aware of and fully understands the work involved.
If performance does not meet the required standards, the cause should be
ascertained; is it equipment problems, systems problems, lack of training, laziness or
some other cause, such as unrealistic standards?

Training Methods

Conferences help to communicate objectives and ensure that problems are discussed by a
group of people, with the active planned guidance of a leader. The purpose may include
decision making, creative planning, info-sharing, review and evaluation. The sharing of
views and brainstorming are conducive to sound business relations and operations.
Effective business conferences are the result of sound planning, leadership and
participation, in the light of objectives of the conference. The steps in planning a
conference are:

i) Ascertain the purpose of the meeting;

ii) Consider the participants;
iii) Prepare an agenda;
iv) Arrange facilities and notify participants;
v) Report on the results.

The leader should ensure that the conference does not get out of hand. Each attendant
should be allowed to express his/her opinion, bearing in mind that differences will exist.
Lectures are effective if the material can be tailored to suit the subject and
audience. Factual material is best presented in short sentences: more difficult concepts
may have to be elaborated upon. Lectures should be precise and in simple language.
Seminars attempt to relate the knowledge gained during the seminar to real world

situations, through participation and exchange of information. Consider the following:

i) Presentation – tell what is to be learned;

ii) Demonstration – show and explain what is to be learned;
iii) Supplementary instruction – the class of trainees must do outside reading and
related course assignments;
iv) Application – show how the learning is to be applied;
v) Examination – ensure that the trainees have learnt what you wanted them to learn.

Correspondence courses enable subjects to be taught through relatively short, well-

prepared texts that trainees read and study alone in their own time. This method is
effective, well known, and widely accepted by industry.
Programmed instruction enables the trainees to be taught by way of programmed
texts, followed by questions for marking by the instructors. This method consists of
logical learning steps which are well planned, prepared and allow for participation by
trainees, whose knowledge and minds are thoroughly tested.
But the trainees must exert self-discipline since they cannot ask questions. They
may become bored with the texts if they absorb knowledge too quickly.
Resident training usually involves training via the lecture or seminar method with
their advantages and disadvantages.
On-the-job training is effected on a daily basis, where the trainee is taught by
his/her boss or seniors, one step at a time and tested as he/she works.
Informal oral instruction requires minimum preparation and is usually used when
problems require a soft rather than a formal approach. This method can be administered
to several persons at any given time.
Written instructions or procedures should be logical, practical and clearly
written/prepared, with adequate details that can be presented to large groups at any given
time and can be referred to at a future date.


Training Methods Advantages Disadvantages

Conferences Consultation Mainly for general subjects
Participation May not present definite
Exchange of information Difficult to control: some
and opinions. people get carried away.
Annoying to some people.
Trainees must have
experience in the subject
Lectures Participation Difficult to evaluate
trainees’ progress.
Exchange of information More suited to experienced
and opinions. trainees.
Seminars Participation Requires an experienced

Exchange of info and Requires long planning,
opinions based mainly on equipment and facilities.
case studies.
Paced according to Requires development of
requirement of trainees. much material.
Progress can be evaluated Limited to small groups of
Correspondence Courses An unlimited number of Requires self discipline.
and Programmed people can be instructed at
Instruction the same time.
Can reinforce trainees’ Response from trainer to
knowledge in their spare trainees’ responses to
time, off the job. questions can be very long.
Trainees can proceed at a
pace which suits them and
progress can be reviewed.
Resident Training Normally via the Lecture or Seminar method
On-the-job Training Allows several senses: A limited number of people
sight, hearing and touch. can be trained
Learning by repetition on Needs encouragement from
the job. trainer because trainees are
nervous initially.
Trainees can note their own Takes up costly production
progress and evaluation is time, which must be offset
easy. by additional benefits
resulting from the training.
Informal Oral Instruction Requires minimum Can be inaccurate due to
preparation. haste and human errors.
Can be administered to May not be geared to the
several trainees understanding of individual
simultaneously. trainees. Requires
understanding upon
Cannot be referred to
categorically at a later date.
Written Instructions or Helps develop sound Takes time to plan and
Procedures writing skills. prepare.
Can be administered to May not be easily
large groups comprehensible.
Can be boring to read and

Summary of Training Methods

The human resources department and managers are responsible for continual training of
employees, improved effectiveness and morale and goodwill resulting there from.



This often underrated tool of management is the means of effecting change in people
through an exchange of ideas, to help use human resources at their optimum.
Communication is a two-way process, which involves meeting of the minds and must
therefore be understood, whether effected verbally, in writing or through body language.
The ideas must be developed, transmitted, received, interpreted and evaluated and there
must be feedback to the sender, to ensure that the message was received correctly.
The message must be timely, clear, concise and relevant. Moreover, persons
involved must derive the same meaning from it, otherwise the communication is
ineffective – i.e. understanding is the critical step in communication.
Sound communication builds relationships through exchange of views, ideas and
opinions and facilitates successful business operations, especially in the large and
complex modern enterprise of today.

Importance of Effective Communication


Chapter VI

Elements of Cost Control and Work Simplification

Cost control, although often considered to be the function of the Finance Department, is
actually relates to how well management uses resources i.e. time, employees, equipment
and materials. Stakeholders, including customers and investors must be satisfied.1
In a world of ever-increasing competition, where the selling price is normally
influenced by the market, the ability to control costs and increase contribution usually
makes the difference between a profitable firm and the loss-making ones.
Managers should analyze favorable and unfavorable variances and their effects on
profits, for subsequent action. A favorable materials price variance may cause an
unfavorable labor variance, where unfamiliar cheap materials have been incorporated in
the final product.
Managers should understand that costs consist of direct material, direct labor,
direct expenses and overheads. They should be aware of the marginal costing approach
and the activity-based costing approach, which is becoming increasingly important.

Availability of Cost Data

This should be relevant, accurate and timely and presented in a form which is
comprehensible and suitably measured.

Work Simplification

This should be effected on a continuous basis to enable efficiency in the use of people,
equipment and material. A good example is the computer industry: hardware and
software. Do not wait for work to simplify itself – be the initiator – this is your
responsibility as manager.
Work simplification will affect internal and external relationships plus profits and
growth as the firm becomes more effective. Some work may have to be transferred to
other departments. There are two concepts involved:

i) the belief that there is always a better way, and

ii) the organized use of curiosity and common sense to find the easier and safer
method of doing the job, using the suggestions of employees and manager.


Work simplification relies strongly on training and/or recruitment and teamwork and
involves an open mind to save time, energy and material. It is based on fact rather than
opinion; tactful persuasion is often necessary to make people change their approach to

1 Loftus, John T., How to Control Costs and Simplify Work, USA, 1966.

working, upon presentation of the facts in an organized manner. Proceed as follows:

a) Identify the problem which shows the greatest need for elimination: delay,
customer complaints, high staff turnover, excessive overtime and high costs are
the effects of serious problems;
b) Record and analyze the job on paper;
c) Work out a better method(s) which may include improved office layout;
d) Convince yourself of the improved method, which is based upon feedback from
others; then convince your subordinates and superiors, if necessary, and follow up
by implementing the new methods. Some jobs can be amalgamated whereas other
jobs should be eliminated. The pertinent questions are:

What is done? Can we eliminate this job?

Why is it done?
Where is it done? Can we combine or rearrange this job?
Where should it be done and by whom?
How should it be done, if necessary to be Can we simplify the method(s)?

Analyzing Office Layout

Office space costs money. The more space required for an operation, the greater the cost.
Therefore, consider the following, when analyzing or planning layout:

a) Reduce the lines of communication for smooth flow in factory and office.
b) Conserve space: Use space economically, without cramping in individuals. The
sales department should be easily accessible to customers, who need not walk past
other departments and disturb them, to get to the sales department.
c) Organize around the important flows: The layout should be built around the major
flows of work. Minor activities should be grouped around the major activities.
When additional space for major activities is required, it should be possible to
move minor activities by relocation.
d) Make the layout flexible: Expansion should be forecast as much as possible and
allowed for in a flexible layout e.g. movable partitions.
e) Consider units being serviced: Service departments should be nearest to the
departments they serve. Departments which have the greatest amount of cross-
examination should be located next to each other. To reduce work flow to a
minimum, departments that work closest to each other should be in adjacent areas.
f) Provide good working conditions to reduce strain and fatigue and maintain high
efficiency. These conditions include lighting, heating, ventilation and decoration.
The guiding principle should be maximum economy for the total organization and
the best possible working conditions for most people.
g) Use systems information: Before the layout is effected, a basic knowledge of the
departments involved must be obtained:
i) the nature and flow of work in each department;

ii) inter-departmental work flow;
iii) the original locations and responsibilities of each unit;
iv) the most important time cycles;
v) the number of persons performing the various duties in each unit; and
vi) the kind and quantity of equipment required.

A good layout enables:

i) efficient usage of resources including employees and equipment and reduces
delays and wastage while preventing bottlenecks;
ii) high output capacity;
iii) low-cost handling methods;
iv) production control plus flexibility and future expansions;
v) efficient supervision;
vi) desirable working conditions.

The Office Landscape

The traditional office layout is characterized by isolated groups and private offices, which
may hinder commercialization and work-flow. To overcome this drawback, a new
concept – the office landscape – has emerged: an open plan in which functional, technical
and behavioral factors are combined to determine the layout of the individual work
centers, work groups and departments. Privacy is provided through the use of movable,
sound-absorbing screens and plants. Worker-status is determined more by work
assignments than by location or the amount of space allocated. This is said to create a
greater naturalness in worker relationships as well as greater efficiency of movement and
a more favorable visual impact. More and more offices are using this concept.


Chapter VII

Fundamental Concepts: Planning, Organization and Control

A plan is a predetermined course of action aimed at achieving a specific objective(s). In

the face of increasing uncertainty, the plan should be based on relevant, accurate and
timely information and the people plus other resources at the manager’s disposal. The
plan may be used once, as in the installation of a Management Information System
(MIS), or several times, as in the preparation of the monthly payroll. Decisions, forecasts,
methods and procedures are related to plans.

a) Decisions taken by a manager usually reflect a compromise between what he/she

wants and what he/she considers possible, within the given constraints. These
decisions are based on the information at his/her disposal plus his/her knowledge,
experience, common sense and judgment.
b) Forecasts help to anticipate the future and act accordingly but these should be an
educated guess rather than merely a gamble.
c) Policies such as promoting people from within the organization to higher and
more demanding posts are general guides to decision making, and the same can be
said of methods and procedures.

Successful planning helps combat uncertainty and follows from precisely defined and
understood major and minor objectives which are ranked in order of priority and dealt
with in an appropriate manner. Ensure optimal employee performance. Since people
constitute the main difference between a successful and an unsuccessful organization,
employees should be selected on the basis of merit, trained, instructed, motivated and
controlled with a view to achieving the firm’s and individuals’ objectives. Listen to their
advice and suggestions. Departmental heads are responsible for ensuring that corporate
objectives are satisfied. They may have to split major objectives into minor objectives,
before delegation of some of these minor objectives. Management by Objective (MBO) is
the key to success in business, but the human factor should never be ignored.

Management by Objective (MBO)

The boss and his/her subordinates sit down together and, upon mutual discussion and
brainstorming, set out objectives periodically. These objectives may be modified upon
subsequent developments and mutual discussion. In setting these objectives, the
knowledge and experience of all concerned is taken into account. This enables the setting
of realistic objectives and teamwork because of participation by all concerned in setting
the objectives themselves. Therefore, the objectives, instead of people, direct and control
the working of the organization. The entire organizational strength i.e. knowledge, skills
and imagination is unified and directed towards achieving the given objectives. There is
very little misdirection of effort and excellent team spirit and teamwork.
Peter Drucker, who is widely regarded as the foremost guru of management,

believes that MBO represents a definite philosophy of management, since it has full faith
in the potentialities of men. It shares the belief that people like to work and develop
themselves; given the proper opportunities, they will strive to the best of their abilities for
the attainment of mutually set objectives. It is not necessary to control them externally
because they control and direct themselves towards improved performance. MBO
promotes freedom for the individual and democracy. (See also: Peter Drucker’s views on
business being conducted like a symphony orchestra, as discussed in Chapter 2).
Sound planning helps to optimize usage of time and leads to increased
confidence, respect, goodwill, friendship, morale and decreased costs. It relieves tension
and facilitates availability of more time for extra jobs.1

The Organization and Control of Office Procedures

The office serves as the administrative centre of any business enterprise where assets and
employees are located and information is prepared and kept in order to run the
organization efficiently.2

Planning and Layout

This should enable maximum effectiveness at the lowest possible cost. As regards
location, banks, the post office, transport and other services should be considered. Size
should allow for possible expansion, with the possibility of premises being sublet on a
temporary basis.
As regards layout, an organization chart should allow for flexibility of department
location such that the logical flow of documents can be easily handled. Service
departments should be located near the departments which they serve, with sound-
proofing to eliminate or reduce noise from office machinery.
Having decided upon the location of the various departments, and the area to be
allocated to each of them, prepare a plan for each area, taking into account employees
and office equipment. An Open Plan allows greater supervision but limits privacy. A
Functional Plan is based upon the natural divisions of work undertaken and the
Systematic Plan is based on documentary flow in one direction. Other factors which
should be considered are legal requirements, minimum movements, distraction and
sound-proofing of office equipment. Moreover, placing of desks and equipment should
allow wide passageways free of obstruction and natural plus artificial lighting, heating
and cooling, without shadows on employees’ desks or excessive heat or cool on any
employee’s direct self. A good layout should enable easy and direct verbal and written
communication, in view of the desired results.

Time is Money

1 Loftus, T., Modern Management, USA, 1971.

2 Hall, L., Business Administration, UK, 1976.


In a world of increasing product and market complexities, technological changes, new

concepts in management and multinational currency considerations, concern over
pollution, housing, education, and transportation, the value of time is increasing.
Therefore, executives and others should plan the usage of their time logically,
systematically and quantitatively, possibly with computer aided info-based decisions.
Routine decisions should be delegated to worthy staff whereas other important
decisions should be effected by managers themselves.
Projects should be ranked using the limited resource (or key factor) criterion, be it
capital, executive time or whatever, otherwise the firm will not be able to fully undertake
the chosen projects.3

Managers Should Avoid Wasting Time



3 Jones, Curtis, The Money Value of Time, Harvard Business Review, USA, 1985.

Factory Planning and Control

Since most countries have an industrial base, let us consider planning and control in the
context of a factory. Factory planning and control is easier at the outset than when one is
faced with the need to improve an already established system.1
The selected site should allow for a factory, inventory store, medical facilities,
rest room, recreational facilities, canteen, office and parking area, while allowing for
extensions. The location should facilitate access to water, raw materials, labor, power
supplies, transport, banking, postal and other services.

Location of Departments and Sections

Location of departments and sections should be logical and allow for sequential flow of
work without any overlapping or omission. The premier departments should be given due
consideration while service departments are located near the departments which they
serve. No department should be adversely affected by noises, smells or any kind of
disturbances from other departments.
In the interests of control, security and minimized risk of hazard, I would suggest
that the inventory department normally be in one location with a single entrance and exit.


In order to be effective, sections should report to section heads while departments are the
responsibility of department heads. The nature and extent of supervision will be a
function of the type and volume of work involved in the section or department concerned.


Plant and Equipment

Plant and equipment should serve the purpose required, in addition to being easy to use
and reliable, bearing in mind after sales service. There will normally be a need for general
and special purpose machines.


The purchasing manager should ensure acquisition of suitable good quality materials on
time so that there are no shortages or excess materials, with implications for capital tied
up, interest or income loss, storage space, insurance and risks involved.

1 Hall, L., Business Administration, UK, 1976.

A smooth flow of materials from receipt to incorporation in final products is
desirable. This is aided by sound production layout and handling methods, thus reducing
labor costs of handling and storage and enabling better management of limited space.

Inventory Department

A sound system of inventory control enables optimum inventory levels, thus eliminating
problems associated with excessive inventories such as obsolescence, wastage, pilferage,
capital flow and cost of capital tied up, insurance, storage and risk in addition to wastage
of time by the storekeepers.
Problems associated with low levels of inventory, such as stock-outs and loss of
customer goodwill, expensive interruptions of production runs are also eliminated.
The inventory area should be suitably located, well-planned and efficiently
organized to enable easy identification, issues, receipts and recording plus checking of
the same. Inventory checks may be periodic, perpetual or a combination of both methods.

Production Control

Co-ordination between Marketing, Research and Development, Production, Design and

Purchasing will ensure delivery on time of high quality finished products demanded by
the customer at the lowest cost. Critical Path Analysis, Queuing Theory, Linear
Programming or Simulation Techniques may be used to help plan production schedules.

Work Study

Work study is an attempt to simplify methods and control costs of operation by setting
suitable standards and offering fair incentives to help promote optimal performance.

Maintenance Department

The Maintenance Department ensures smooth and efficient running of machines and
plant through regular and continuous checks, repairs and overhauls, in an attempt to
prevent or minimize time lost through breakdowns.

Manufacturing and Corporate Strategy

Instead of merely focusing on low costs, high quality and acceptable customer service,
manufacturing must aim at satisfying corporate strategy e.g. shorter production cycle and
quicker delivery, in an attempt to increase competitive strength.2

2 Skinner, Wickham, Manufacturing Missing Link in Corporate Strategy, Harvard Business Review, USA,

To facilitate control of manufacturing activity, it is not essential for top
management to possess knowledge of engineering techniques regarding plant layout,
work study or whatever, or to be knowledgeable in the field of computers and operations
research methods. Top management must set manufacturing objectives and ensure
success in their achievement, irrespective of the unwarranted tendencies of specialists in
engineering, production, computers, design and operations research, to attempt to justify
their own existence regardless of corporate needs.

Major Characteristics of the Focused Factory


Chapter IX

Motivation and Co-ordination –– their Role in Promoting Success

Motivation of properly selected and appraised personnel helps to promote team effort, job
satisfaction and subsequent achievement plus profitable growth of the individual and the
firm concerned. Those who perform well need to be appreciated as human beings and
rewarded in terms of respect, money, promotion and other benefits such as restaurant and
recreation facilities, and insurance coverage, in addition to continuous praise.
Employees should also be assigned challenging tasks, thus encouraging initiative
and emotional plus intellectual involvement and providing further motivation to work
efficiently. Moreover, the firm’s policies and procedures, employer-employee
relationships, job status, power of position and job security also provide sources of
motivation or de-motivation, as do sound communication, good working conditions, fair
appraisal systems and participation in decision-making on a team effort basis.

Factors to Consider in Developing Employee Initiative


Employees must be well trained for their jobs and should understand their objectives,
responsibility and authority, and how these relate to the jobs of others. They should be
assigned challenging tasks and given opportunities to grow in stature. They should be
given adequate, but not one hundred per cent instructions, guidance and praise or
criticism in a polite but straightforward manner.
They should be encouraged to think, decide and perform without being spoon-fed
all the way. This will help them to use their initiative and build up management potential.

Relating the Employee’s Job to the Firm’s Operations

This helps an employee to appreciate the importance of excelling in his/her job. An

employee’s own sense of pride and challenge will help develop his/her professionalism.1

Developing a Spirit of Professionalism in Employees

An employee should be respected for his/her qualifications and performance and allowed
to contribute his/her own ideas towards improving effectiveness.
A motivated employee will extend himself/herself beyond the bounds of normal
health limits because he/she feels that the job is worth doing, no matter what the price.
Extra effort means job satisfaction and an enrichment of his/her life. All employees need
to feel involved and fulfilled in their goal-oriented and always challenging jobs.

Responsibility Encourages Participation

1 Mawley, Patrick J., How to Motivate and Co-ordinate, USA, 1975.


Chapter X

Information Technology –– the New World

It has been said that, at the limit, a man with a computer and robots can rule any
company. This is, however, an exaggeration and a move towards (perhaps) wishful
thinking! The manager should know his/her business well, be aware of its strengths and
weaknesses and be positively involved in and control the development and cost of his/her
equipment, systems and other resources. The systems should be tailored to the firm’s
requirements in order to increase managerial effectiveness.
It helps if the manager has a background in computers and is able to lay down and
communicate his/her requirements to computer experts in precise terms. Employees who
will be affected by the implementation should be made aware of the resulting changes.1
Computers process large volumes of data speedily and efficiently, if supported by
good software, programmers, engineers and suitably trained staff. The stages involved in
switching over to a computerized system are as follows:

a) Initial Feasibility Study: This is an investigation into the areas of a business which
may need computerization usually due to growth, change and the need for more
sophisticated reporting. A Recommendation Report follows, mentioning the pros,
cons, outlays involved and benefits expected, some of which may be quantifiable
in precise monetary terms.

b) Specification of Requirements: This involves gathering facts regarding work

carried out, methods adopted, volume of work involved and ideas as to new
methods and presentations, coupled with additional information required.
Problems may be encountered in relation to proposed hardware, software,
support, costs, expected benefits and effects on existing and proposed new
employees whose co-operation is important. Management’s requirements will
then be specified, hopefully in precise terms.
Upon completion of this stage a report will be prepared, identifying the
objectives of the system, fact finding, recording, procedure specification,
suggestions for improvement and pros and cons of the proposed system, for
decisions as to whether or not to continue.

c) Systems Design: The computer specialists will then produce a design or model of
the system (in writing), showing input, processing, output and files, to be
understood by management and staff so that the computer system meets
management’s requirements. The manager will approve the design, if satisfied
that the same meets his/her requirements. The clerical system will then be altered
to suit the computer.

d) Development: The software is written for the system requirements, assuming that
there is no ready-made package to suit the firm, and clerical procedures are
devised, with documentation, by way of the user manuals, operations manuals and
reference manuals. This stage usually takes longer than all other stages combined
and staff must be trained to use the software and create security back-ups.

e) Testing: This is necessary prior to the new system becoming operational, to ensure

1 Eaton, Mike J., Computing for Managers, UK, 1980.

that the system satisfies management’s requirements and works well without
ambiguities or problems. Therefore management and staff must be involved in
this stage of computerization.

f) Implementation: The users must be trained and this may be followed by parallel
running, before dropping the old system. The result may be an extra burden on
staff, space and careful routing of paperwork so that both systems run smoothly.
Doubts of staff should be cleared and problems ironed out, before dropping the
old system.
Pilot running, on the other hand, enables you to isolate a small group of
people and start the new system with them, thus isolating, at the same time, the
effects of any problems that may occur.
Alternatively, you could implement the system on a facet (or phased)
basis, whereby you could consider and implement one part of the system at a
time, thus building your experience and confidence. But, as with pilot running,
there can be communication problems between different groups of people.
Combination of methods: You may implement via parallel running in
facets/phases to build experience and confidence in the new system. The method
chosen must suit the business enterprise and its people plus circumstances and

g) Running: When the system is running normally, you may revert to your normal
managerial role in the organization and consider the security aspects of the system
in terms of access, passwords, back-ups, staff retention and motivation.

h) Reviewing: This helps consolidate your knowledge regarding your experience,

costs and time scales involved, thus preparing you for further changes to the
system, if required by your firm.

Planning and control are the key words for each stage and for the project as a whole. At
each stage of computerization, the manager should note the:

i) Terms of Reference;
ii) Scope of Stage;
iii) Recommendations;
iv) Plans and Time scales;
v) Costs, Budgets and Costs vs. Benefits involved;
vi) Manpower required for recommended action.


Marketing Management – A 21st Century Approach

Effective marketing requires customer orientation, organizational integration and

mutually beneficial exchange between customer and organization. The marketing process
therefore begins before production and ends after sale; its steps include research,

planning, production, pricing, promotion, distribution and after-sales service.
The aim of any marketing function is to conduct market analyses and to create,
promote and manage products and/or services that meet identified customer and client
needs. In a medium- to large-sized firm, the marketing group would normally include the
market research manager, the sales manager, the advertising manager and the public
relations manager. In addition to expected managerial qualities and responsibilities
discussed in ‘An Approach to Sound Management’ – Chapter II, note the points discussed

The Market Research Manager

The market research manager studies consumer tastes and market trends through direct
and indirect contact: focus groups – either online or in person, online and print research
published by government associations and news and industry media. This role contributes
such learning to marketing colleagues for the benefit of product and market development
and to increase advertising effectiveness.
Market research, although incapable of eliminating all uncertainty can
nevertheless reduce risk and suggest the probability of success in assessing various
As markets are dynamic and competitive in nature, intuition alone will not lead to
sound decision making. Market research calls for a concerted and systematic approach to
the collection, recording, analysis, interpretation and reporting of information concerning
existing and potential markets, strategies and tactics, interaction between markets,
marketing methods and current or potential products and services.
Management must ascertain the size of the market, the pattern of demand and
influential factors, the market structure and competitive landscape i.e. based on industry,
size of companies, number of companies, income groups, sex, age, geographical
distribution, or buying habits. Management must also be aware of the company’s share of
the market and movements in the same, past and future trends and access to potential
overseas or niche markets.
One must also consider the product or service itself, in terms of suitability
to the market, design, manufacture, competitive advantages and profitability.
Market researchers would do well to combine skills from economics, psychology,
sociology, mathematics and statistics. Findings and methods should be explained in
language understood by non-specialists.

Sources of Data

Sources of data include:

a) Internal sources, such as detailed sales and accounting records;

b) External sources, such as those mentioned below.
i) Specialist marketing research agencies;
ii) Competitive intelligence firms;
iii) Advertising agencies’ internal research departments

iv) Advertising media buyers;
v) Trade associations (although data may be limited in scope);
vi) Government departments and international organizations;
vii) Direct sampling via focus groups.

Entry into a Foreign Market

Having studied tastes and preferences together with the level of competition and
motivational factors in a prospective foreign market, seek advice from a reputable export
agency i.e. an intermediary who helps develop a market in a particular geographical area
of a foreign country, in exchange for a fee, which may be commission-based. Also
consider the possibility of employing agents abroad, as opposed to setting up a foreign
branch. Other factors to be considered are:

i) fluctuations in home and foreign currencies involved;

ii) seasonal influences on demand;
iii) freight, insurance, warehousing and related charges.

The Sales Manager


Chapter XII

Financial Control in a Broader Context

In a broader context, financial control includes preparation, analysis, review and follow-
up of budgets, cash flow forecasts, inventory control analysis, debtors and creditors’
analysis, monthly management income statements and cost control, job costing,
negotiations with customers, suppliers, banks, and other bodies and related financial
procedures. Computerization with appropriate hardware, software, adequate support,
implementation of systems, testing and follow-up, direct involvement in customized
software, where necessary, computer operation and staff training are also related to
financial control, though in a broader context.

Implications for Managers

From the foregoing, it is obvious that financial control is a key area of business operation,
with a view to controlling costs, measuring performance and monitoring effectiveness or
lack thereof. There are, however, numerous managers worldwide who are unable to
compare financial reports with their business plan and the objectives contained therein.
Moreover, it often happens that management does not know whether the firm is
cost-sensitive, price-sensitive or volume-sensitive, even though breakeven charts, despite
their numerous limitations, could help in this context. Therefore, salespersons are not
adequately guided to push for higher prices or greater volume and resulting contribution.

Cost Effectiveness of the Office

In an attempt to reduce all overheads, including the cost of energy and premises, firms
may avail themselves of computerized systems which help cut the cost of energy-efficient
lighting, heating, air conditioning, maintenance, fire precautions and security, by constant
regulation of energy used, thus saving resources tied up in cash flow and labor.1
Light sensors help to keep the flow of light regular whereas automatic controls
help to switch off lights after a certain period, following which, normal controls, even via
a telephone rather than a hundred switches, can override programming controls.
Clean windows ensure maximum usage of natural (free) light and clean lamps
ensure optimal usage of artificial light and increased efficiency of staff plus reduced
overtime work and expenses related thereto.
Consider rent, depreciation, maintenance, insurance, cleaning costs per square
meter for comparison with those charged for similar premises and for previous years. Re-
negotiate prices and ask for refurbishment of offices from time to time.

Ratio Analysis
This is an important tool of measurement and helps provide information to internal
parties e.g. shareholders, management, employees and external parties e.g. creditors,
banks and the government, regarding the financial viability of the firm concerned.
The main financial ratios are concerned with the measurement and analysis plus
trends in profitability, liquidity and asset backing for the firm in question.

1 Glover, Tony, Making Your Office Cost Effective, UK, 1987.

Finance: Equity vs. Debentures/Loans

The overriding objective of the directors of a company is to maximize the wealth of the
stakeholders, within the constraints of the law, morality, public policy and the objectives
of the shareholders themselves. The shareholders, being rational in turn, will then reward
the directors accordingly and both parties will be satisfied.
Maximization of the wealth of equity shareholders calls for:

a) maximization of the net returns on funds entrusted to the company, and

b) raising of funds at the minimum cost – therefore, the planning of the company’s
initial capital structure and its modification over time calls for considerable
thought and discussion as to the split between:
i) Equity shares,
ii) Preference shares, and
iii) Loan capital (including leasing).

Finance is required to bridge the gap between cash inflows and outflows, facilitate an
increase in working capital, redeem securities or allow long-term growth.

i) Equity shares: These can be preferred or deferred, of different classes and can
enable the promoters of a company to retain voting control with minimum
contribution towards the company’s capital. They can also have special rights in
respect of subsequent issues of shares. However, as far as earnings and winding
up are concerned, these shareholders are entitled to residual rights only.
ii) Preference shares: These represent a hybrid form of financing, while combining
features of shares and debt/loans/debentures. Holders of these shares are entitled
to a fixed rate of dividend, normally on a cumulative basis. In the case of
participating preference shares, the holders also participate in appropriations of
profit, as do equity shareholders.
These shareholders do not have any voting rights or control related thereto. As far
as earnings and winding up are concerned, these shareholders’ rights must be met
after creditors, but before the rights of equity shareholders.
iii) Loans/debentures/debt capital: These may be redeemable or irredeemable and
secured (by a fixed or floating charge against the company’s assets) or unsecured,
in which case the lenders will normally impose restrictions on the borrower, in
relation to usage of the funds involved.
Lenders do not have any voting rights or rights to participation in
appropriation of profits. As far as interest and winding up are concerned, the
lenders have rights which rank before those of shareholders.
iv) Leasing: A financial lease is one which involves a non-cancellable agreement
between the lessor and the lessee, whereby (substantially) all the risks and
rewards to ownership including maintenance and insurance are transferred to the
lessee, whose payments to the lessor amount to at least ninety per cent of the
present value of the asset (to the lessor). The lessee should therefore capitalize the

asset involved and depreciate the same in his/her accounting records.

Options can be defined as the facility to buy or sell shares or debentures/loans at the
stated price or market value, within a specified time period.
Warrants represent a special type of option whereby the company issues a
document which can be exchanged for shares, at a certain price or value, within a
specified time period.
Convertibles refer to securities which can be converted into another type of
security at the option of the holders; the conversion ratio or price will be mentioned on
the document concerned.

Advantages of Loans/Debentures

i) Cheaper than equity capital because interest on debt capital is an allowable

deduction for tax purposes;
ii) Can increase the value of equity shares if the return on them is greater than the
cost of debt capital (to be raised);
iii) No effect on control exercised by equity shareholders.

Limitations of Loans/Debt Finance

i) As specified in the Articles of Incorporation;

ii) The value of the collateral(s) to be offered;
iii) Liquid funds required to meet interest charges and possible redemptions;
iv) Difficulties in attracting such capital because of the needs of lenders for security
and hence the higher interest to be offered as gearing/leverage and risks increase.

Factoring – its Implications for Liquidity

As firms grow, in terms of turnover, there is an increasing need for efficient working
capital management in order to avoid problems associated with liquidity and bad debts.
Factoring involves transferring debts to a factor, who then bears responsibility for
their collection and subsequent payment to his/her client. If the client wishes to obtain an
advance against debts transferred, the factor may agree to do so, at an interest charge.2
Prior to acceptance of responsibility for any of the client’s customers, the factor
will check their accounts and reputation. He/she may refuse to buy certain risky debtors,
or may accept them, with recourse to his/her client.
In normal circumstances, the factor performs the following functions:

i) Credit investigation and protection prior to approving credit sales to certain

ii) Sales ledger accounting in respect of customers taken over and amounts agreed

2 Gilbert, J., Factoring and Finance, UK, 1976.

for payment to the client;
iii) Collection of debts from customers taken over;
iv) Administrative functions in relation to the wording of contracts of sale,
performance in respect of quality, delivery and after-sales service, to secure a
sound legal status for the client concerned.

The factor charges a fee which may consist of fixed and variable components. One must
check the professional reputation of several factoring agents, in terms of shareholders,
expertise of personnel, knowledge of particular industries, method and range of
conducting domestic and international business, information automatically available and
minimum size of client. Then proceed to ascertain the cost and benefits of each efficient
factor and frame a precise and comprehensive contract with the most appropriate one.
Factoring constitutes a reliable source of finance, to be compared with:

i) Bank credit;
ii) Credit from suppliers;
iii) Bills of exchange;
iv) Invoice discounting;
v) Hire/Credit purchases;
vi) Leasing (including sale and leaseback);
vii) Government aid;
viii) Letters of credit;
ix) Bank loans/overdrafts backed by cover from government sponsored export credit
guarantee agencies/departments;
x) Euro-currency borrowings.

Factoring and International Trade

Factoring is often considered to be a sound alternative to letters of credit.

In many cases, the factor in the importing country, i.e. the import factor, will liaise
with the selling agent of the export factor (or exporter) and advance monies in respect of
customs duties to enable clearance, with/without security against the inventory concerned
and resulting sales. Payment may be effected to the selling agent/export factor/exporter
via (say) a letter of credit.
As far as factoring and international trade are concerned, the following
relationships may prevail:

— the export factor and the exporter, i.e. his/her client;

— the export factor and the import factor;
— the import factor and his/her customer;
— the exporter and the customer.

The tremendous growth of factoring during the past twenty-five years can be attributed to
its increasing acceptance as an important means of financing, even across national
boundaries. One must determine the levels of competence of factors before entrusting

them with the responsibility for ensuring payment from debtors.

Foreign Exchange Risk Management


Chapter XIII

Documentary Letters of Credit

A documentary letter of credit (L/C) is a legal instrument which incorporates an
undertaking by the buyer’s bank to pay the seller, upon satisfaction of the conditions
stipulated in the L/C. It proves useful in international trade, where the reputation of the
importer is unknown to the exporter.
The buyer’s bank is concerned merely with following precisely worded and
comprehensive instructions received from the applicant for the L/C, who must indemnify
the bank for losses sustained as a result. While the bank must exercise reasonable care in
ensuring that the seller meets the conditions stipulated in the L/C, it is in no way
responsible for the accuracy or otherwise of documents in relation to quality, quantity,
condition or weight of the goods, delays in transit, translation or interpretation of
technical terms, standard of performance of the exporter or for consequential loss
suffered by the buyer due to interruption of business or for any other reasons. Moreover,
disputes between the buyer and the seller (concerning the contract of sale) do not concern
the bank which issued the L/C.
On receipt of the credit the beneficiary insures and ships the goods, while
obtaining a bill of lading in favor of himself/herself/the issuing bank or the applicant for
the bank credit. The bill of lading, insurance policy, invoice, certificates of origin or
quality and other (legally) required certificates may be presented to the correspondent
bank for payment or discounted if there is a time interval which must elapse before
encashment of the draft.
The importer arranges for collection and clearance of the goods upon arrival in
his/her country. Subsequent or prior marketing of these goods is his/her responsibility.
There are laws concerning the issue and functioning of documentary credits in different
countries. In common, however, the documentary credit carries with it the promise by the
issuing bank to effect payment if the conditions stipulated therein are complied with.
Since revocable credits are normally unacceptable because of their very nature
(which allows modification by the issuing bank, without prior notice) we shall concern
ourselves mainly with irrevocable credits.

General/Open/Special Credits

General/open/special credits are vague in nature and often ignored, for practical purposes.

London Acceptance Credit

A buyer who has issued a credit may draw a ‘time’ bill on his/her bank in order to help
refinance the documentary credit which he/she applied for, to help acquire goods.

Transferable Credit

This type of credit may be transferred out by the original beneficiary in part or in full.

Red Clause

Such a clause may allow part payment to the seller before shipment of goods to the buyer
but such advance payments will be offset against subsequent encashment by the seller.


This type of arrangement enables a beneficiary to use his/her documentary credit to

support a documentary credit payable by him/her (through his/her bank) but is
uncommon, due to difficulties arising when matching two or more credits.

Deferred Payment

This type of credit was introduced in Japan and enables payment to be effected some time
after the terms of the documentary credit have been satisfied.

Revolving Credit

This arrangement with the bank helps facilitate the provision of a stipulated amount as a
facility for documentary credits to be issued within a specified time period. The
arrangement may be automatically renewed (say) every month.

Standby Credit

This may take the form of a performance bond or demand guarantee to support a contract
involving the supply of goods.

Revocable and Irrevocable Credits

In the absence of the credit indicating whether revocable or irrevocable, the credit shall
be deemed revocable unless the terms and conditions of the credit state otherwise.
A credit may be regarded as revocable:

i) where it is so described on the face of it, assuming that the credit carries no
promise of contradiction of the description;
ii) where it contains no indication of whether revocable or not;
iii) as regards an intermediary bank, where it informs the beneficiary that it merely
advises the credit without undertaking any liability for it.

A revocable credit can be cancelled without prior notice to the beneficiary but the issuing
bank is bound to reimburse a branch or other bank to which such a credit has been
transmitted for payment, acceptance or negotiation for damages resulting until receipt of

notice (of amendment or cancellation) by the latter bank.
An irrevocable credit is a binding undertaking to the beneficiary that the issuing
bank will pay against documents presented in conformity with the terms of the credit; all
bills drawn in compliance with the terms of the credit will be honored. This L/C can be
amended only upon consent of the beneficiary.

Legal Aspects of L/Cs


Chapter XIV

Close Encounters of the Management Kind

Management should adopt and implement strategies which are compatible with the

corporate plan, having evaluated the risks, competition and the resources, in terms of
capital and employees, coupled with the present and possible future needs of
shareholders, customers, employees, the public, the government and the economy. Given
the increasing complexity of business operations, it is often rather impractical to consider
all opportunities; hence most firms are profit-satisficers, rather than profit-maximizers.


Growth is advisable when firms are volume-sensitive, rather than price or cost sensitive.
In other words, we are interested in profitable growth, rather than mere growth itself.
Small and medium-sized firms are more responsive to the needs of stakeholders,
outsiders and the environment, largely because they have fewer layers of management.
They analyze product lines more frequently and eliminate non-beneficial products, unless
demand for such products complements the demand for more profitable products.

Effective Pricing

Where products are price-sensitive, effective pricing, with escalation clauses for delays in
acceptance of contract by customers and penalties ((based on the cost of funds tied up,
plus insurance and risk of damage) for late collection of goods by them are advisable.
Salesmen’s incentives should be based on the profitability rather than the volume of their
sales, while allowing for conditions prevalent in various markets. The guarantee period
should be tied in with the delivery schedule agreed upon with the customer. Maintenance
charges should be frequently reviewed and raised where necessary.

The General Manager

The general manager should be selected carefully, based upon qualifications, experience,
personality and the ability to operate effectively within a team environment. His/her
knowledge should be supplemented by consultations with his/her boss, employees and
outsiders. He/she must prepare an agenda of short-, medium- and long-run
goals/objectives, in line with the business plan and build relationships accordingly. There
will be hiring and firing of employees, persuasion, intimidation and so on.1


Many general managers take inflation for granted, allow for it in budgets and contribute
to inflation by not exerting adequate control on prices charged by suppliers. This
tendency should be avoided, with the welfare of the firm and the economy in mind.2

1 Kotter, John., What Effective General Managers Really Do, Harvard Business Review, USA, 1985.
2 McDougall, Duncan C., The Corporate Ratchet Effect on Spiralling Inflation, Harvard Business Review,
USA, 1985.

The West vs. Japan

In contrast with the Western world, where managers spend less time taking a decision and
far more time getting support for implementation of the latter, Japanese firms subject
problems to careful study, whereby dissenters are persuaded before making a consensus -
based decision. Therefore, subsequent implementation is easy.3
Moreover, in Japan, there is continual training of employees, aimed at making
them specialists and generalists. A Godfather normally attends to the problems and
welfare of each (junior or senior). Senior and junior employees meet, even after working
hours, to discuss (informally) views about work, future plans for the individual and the
company plus problems and opportunities. Japanese management is discussed in more
detail in my recent book: ‘Management: Tidbits for the New Millennium’.

Other Problem Situations


Chapter XV

Management and the Law

In a world which is gradually moving away from specialization, towards an increasing

3 Drucker, Peter F., What We Can Learn From Japanese Management, Harvard Business Review, USA,

emphasis on generalization, managers must work effectively within the constraints of the
law. Ignorance of the latter is no excuse for infringement of the same!


With the above in mind, let us consider the main areas of law which a businessman needs
to be aware of, bearing in mind that Chapters XV-XXIII inclusive are not meant to be a
substitute for sound legal advice. We shall deal mainly with English law, since it was in
England that the law originated. The same was subsequently adapted to meet the needs of
other countries. Even in the US, the term Anglo-American law is often used when
referring to the origins of the law as it now stands.

Sources of English Law

English law is the law of England and Wales. English law originated from the Norman
Conquest and was initially referred to as ‘common law’.
In order to supplement the deficiencies of common law, and to help injured parties
on the basis of equitable principles, a system of equity was set up, under which the
Supreme Court would allow a plaintiff relief of an equitable nature i.e. over the years,
there has been a fusion of common law and equity.
Common law evolved from customs and judicial precedent. Equity is based on
justice and fairness and aims to remedy defects in common law. Case law has developed
from cases held in the courts over the years. Law reports deal with these cases. The
decision of a superior court normally binds a lower court.

i) The House of Lords: By its decisions the House binds itself and all lower courts.
ii) The Court of Appeal (Civil Division): By its decisions, the Court of Appeal binds
itself and lower courts excluding the Court of Appeal (Criminal Division).
iii) The Court of Appeal (Criminal Division): By its decisions, the Court of Appeal
binds itself and lower courts excluding the Court of Appeal (Civil Division).
iv) The Divisional Courts of the High Court: By their decisions, the Divisional
Courts bind themselves (except in the case of the Divisional Courts of the
Queen’s Bench Division) and lower courts.
v) The High Court: A High Court Judge is not bound by the decisions of another
High Court Judge, as in Huddersfield Police Authority vs. Watson (1947).
vi) The Crown Court: A Crown Court Judge is bound by criminal decisions made in
the House of Lords and the Court of Appeal (Criminal Division).
vii) The Inferior Courts are bound by the decisions of Superior Courts, rather than by
their own decisions (which cannot create a precedent).

Ratio Decidendi and Obiter Dicta

The Ratio Decidendi is the reason for the decision whereas the Obiter Dicta is an
expression of opinion emanating from the case and its judgment.


Legislation includes all methods of making law and is usually referred to as Statute Law
(laid down by Parliament).
The courts attempt to interpret the Acts literally as in IRC vs. Hinchy (1960) and
also to look at the intention of the Acts as in Corkery vs. Carpenter (1951). Statutes
should be interpreted upon referring to the interpretation sections of the statutes
concerned and the Interpretation Act 1978.
The Crown is presumed not to be bound by any Act of Parliament. An Act is
presumed not to have retrospective effect.

Forms of Liability

A breach of case or statute law may give rise to criminal and/or civil liability (contract
and/or tort).

The Nature of Criminal and Civil Liability

A wrong may give rise to both criminal and civil liability, as where A deceives B and
takes his/her watch. The former may be prosecuted and sent to prison and may also be
sued in a civil court to recover the value of the watch.
Whereas criminal law is concerned with protection of the community, civil law is
aimed at compensating injured parties.

Nature of a Crime

Before a man can be convicted of a crime the prosecution must prove beyond a
reasonable doubt that: criminal law has been breached (actus reas) and the mind is guilty
(mens rea).
Therefore, act + guilty mind = criminal act.

The Classification of Civil Law

i) Contract will be discussed later (Chapters XVI and XVII);

ii) Tort: a civil wrong with damages as remedy is not breach of contract or breach of
trust or breach of mere equitable obligation;
iii) Property rights to land and other property;
iv) Succession upon death of owner;

v) Family rights, duties and status of husband, wife, parent, child etc.

Liability in Contract and Tort

Tort is a civil wrong which may take the form of physical injuries from car accidents,
defective goods, injury to reputation or property and compensation for such loss.
To claim damages (damnum sine injuria) the defendant must have owed the
plaintiff a duty of care. In Mogul Steamship vs. McGregor, Gowe & Co (1892) A and B
were rival traders in China tea. A persuaded merchants in China not to act as B’s agents,
otherwise they would not be allowed to act as A’s agents. The court allowed A to protect
their rights and extend their trade in this manner.
An injury has legal consequences (injuria sine damno) even if damages cannot be
proved e.g. trespass to land, goods or person, but the same does not apply to negligence.
In most cases, damnum and injuria combine to support the claim of the plaintiff.


Chapter XVI

The Law of Contract

The law of contract is at the heart of commercial law; it is therefore imperative that every
businessman understands and appreciates the significance of its core elements;

i) Offer
ii) Acceptance
iii) Intention to create legal relations (Legal Intent)
iv) Consideration (except for contracts under seal)
v) Mutual Consent i.e. consent by both parties to the terms of the contract
vi) Capacity of both parties to contract
vii) Legality and possibility of the contract
viii) Written formalities in some cases

A contract is a freely negotiated agreement which is binding in Law – there are express
and implied (e.g. Sale of Goods Act 1979) terms. In the absence of one or more of the
above essentials, the contract may be void, voidable or unenforceable.

Voidable: where one party may affirm/reject the contract at

his/her option e.g. for fraud, from a certain date
onwards, as in Lewis vs. Averay (1971) where L
sold his/her car to X, who gave L a cheque signed in
someone else’s name and sold the car to A, who was
given title to the car and supported by the court.

Unenforceable: where the contract cannot be sued upon due to lack of the
necessary legal evidence e.g. if contracts for the sale of land/an interest in land are not
evidenced in writing, re: section 40 of the Law of Property Act 1925, such a contract
would be unenforceable. ( See also: The Law of Property (Miscellaneous Provisions) Act
1989 and The Land Registration Act 2002),


This is an expression of willingness to contract on certain terms and made to a certain

person or group or the world at large, as in Carlill vs. Carbolic Smoke Ball Co (1893)
where the offeree used the Smoke Ball offered, caught influenza and sued the offeror.
Acceptance: using the Smoke Ball
Consideration: amount paid for the Smoke Ball
The offer may be conditional and express or implied e.g. public transport, and
must be communicated to the offeree e.g. a person who returns property not knowing that
a reward had been offered would not be entitled to the reward.
If an objective test is applied and it appears that A’s words or conduct reasonably

implied an intention to be bound (even though A may have had no such intention) then A
will be bound, as confirmed by Moran vs. University College Salford (No. 2) in 1993,
where the University offered a place to an intending student, as a result of a clerical error.

Invitation to Treat

This is an invitation to induce an offer, as in window displays (Fisher vs. Bell, involving
the window display of a knife), prospectuses, mail order bargains, display of goods in the
supermarket (Pharmaceutical Society vs. Boots). However, a notice in a window display
‘We will beat any TV ...price by £20 on the spot’ is a continuing offer, as determined by
R vs. Warwickshire CC and Johnson (1993) which could be withdrawn before
acceptance, with a risk of criminal liability under the Consumer Protection Act 1987.


Acceptance is effected by the fall of the auctioneer’s hammer.

Lapse of Offer

a) On death of offeror or offeree before acceptance;

b) If not accepted within the time period stipulated in the contract or ‘reasonable’
time period, as determined by the facts of each case. In Ramsgate Victoria Hotel
vs. Montefiore (1866), M offered to buy shares in R on 8th June but received an
acceptance letter on 23rd November and refused the same.

M was entitled to refuse the shares due to lapse of an unreasonable period of time.

Revocation of Offer

An offer may be revoked if revocation is communicated to the offeree before the latter
effects his/her acceptance as in the Tuck vs. Baker (1990). The same applies to an option
unless the offeree has given consideration to the offeror of the option.
An offer may be revoked via a third party who ought reasonably to be believed as
in Dickinson vs. Dodds (1876). Dodds offered by letter to sell property with the offer
being valid until 9 a.m. Friday. On Thursday, Dickinson learnt from X that Dodds was
negotiating to sell property to B and left a letter of acceptance at Dodd’s residence. X
handed a duplicate copy of acceptance to Dodds on Friday at 7 a.m. Meanwhile Dodds
had sold the property to B on Thursday evening and won the case, because Dickinson had
not given him/her any consideration prior to revocation by Dodds.

Rejection of Offer

A counter-offer is a rejection of the original offer, as in Hyde vs. Wrench (1840).
Asking for further details is not a counter-offer.


Acceptance must be communicated unless the offer invites acceptance by conduct, as in

the Santa Clara case (1993) or when for example, a retailer accepts a credit card payment
from a customer, thus binding the issuing bank to the customer, as in First Sport Ltd vs.
Barclays Bank plc (1993), before any revocation is received from the offeror.
Acceptance may be communicated via performance e.g. Carlill vs. Carbolic
Smoke Ball Co. (1893) even if performance is undertaken before final agreement is
reached, as in G. Percy Trentham Ltd vs. Archital Luxfer Ltd (1993).
Silence alone does not constitute acceptance, as proved by Felthouse vs. Bindley
(1862) and the Leonidas D. (1985), except in truly exceptional circumstances as in
Minories Finance Ltd vs. Afribank Nigeria Ltd (1995).
Acceptance must be made in the form stipulated by the offeror and if made by
post then takes effect upon posting, even if never received by the offeror, as in Household
Fire Insurance vs. Grant (1879), but if handed over to a postman then takes effect when it
reaches the offeror, as in London and Northern Bank, ex parte Jones (1900).
Acceptance may be conditional e.g. subject to contract.

Intention to Create Legal Relations (Legal Intent)

Legal intent must be present in order that an agreement may be regarded as a contract. In
Balfour vs. Balfour (1919) a husband agreed to pay his wife thirty dollars per month
while she was abroad; this was not regarded as an intention to create legal relations... but
would have been different if husband and wife had been separated.
Where more than two persons share in the stake of any open competition there is
legal intent, as in Simpkins vs. Pays (1955).
If a business agreement includes an ‘honorable pledge’ clause i.e. one that
expressly states that the agreement is not to be legally binding, then there is no legal
intent, as in Rose and Frank vs. Crompton & Bros (1925).


Something of value rather than just ‘natural affection’ as in Mansukhani vs. Sharkey
(1992) must be given by each party to the other party. Exception: for deeds under seal.
It may be executory e.g. where both the parties exchange promises to perform acts
in the future – where A offers to sell his/her car to B for three thousand dollars and B
accepts, or executed, where A promises to perform in return for the act of B. An informal
gratuitous promise does not amount to a contract, as confirmed by Williams vs. Roffey
Bros. & Nicholls (1991).

Rules of the Doctrine of Consideration

1. Simple contracts but not deeds under seal must be supported by consideration.
2. Consideration must have some value, however small as for chocolate wrappers in
Chappel vs. Nestlé Co. (1959).
3. Consideration must be sufficient even if inadequate – if a person attends court
under subpoena and is offered $x for appearing, then he/she is not entitled to
payment because he/she was merely performing his/her legal duty by attending.
If he/she performs more than his/her legal duty, then he/she is giving
consideration, as in Glassbrook vs. Glamorgan where mine owners asked for extra
police protection from violent strikers.
An agreement by a creditor to accept less than the sum owed will not be
binding on the creditor, unless the debtor has given fresh consideration for the
discounted debt as confirmed in Foakes vs. Beer (1889) where the creditor agreed
to settlement of the debt in instalments and then sued for interest and won.
Fresh consideration includes another mode of payment e.g. asset instead of
cash or payment before due date or payment by third party or payment of a
percentage of a disputed debt.
See also ‘Doctrine of Promissory Estoppel’.
4. Consideration must be legal.
5. Consideration must be performed after the agreement has been made.
In Re: McArdle (1951) an agreement to pay for repairs to a house was
made after the repairs had been effected and the consideration was regarded as
past – therefore, there was no legal contract.
But where services are rendered at the request of the promissor and the
latter then offers an agreeable price, the performer of the services can enforce the
contract as in Steward vs. Casey (1892).
6. Consideration must move from the promise, rather than from an outsider to the
contract. See: Dunlop vs. Selfridge (1915) and Donoghue vs. Stephenson (1932).

Consideration need not move to the promissor Re: Wyvern Developments (1974). Thus,
the promisee may give up a job as in Jones vs. Padavatton (1969) or the tenancy of an
apartment as in Coombes vs. Smith (1986) even though there is no direct benefit to the

Promissory Estoppel

An individual who makes a false statement that is acted upon is stopped from
contradicting the statement if he/she ought to have realized that people would have
assumed the statement to be true and then acted upon the same.
In Central London vs. High Trees House Ltd the plaintiffs let a block of flats to
the defendants at two thousand, five hundred pounds p.a. and then in 1940 they reduced
the rent to one thousand, two hundred and fifty pounds p.a. because it was difficult to let
flats out during the war. In 1945 they claimed the arrears of rent but lost their case.



Chapter XVII

The Law of Contract – Part 2

We shall proceed to deal with ways in which a contract may be discharged.


Relief from a transaction may follow from a mistake of fact rather than law. There are
three possible types of mistake.

i) Common mistake, where each party makes the same mistake, thus cancelling the
contract as in Strickland vs. Turner (1852) where A bought an annuity from B on a
person C, who (unknown to either A or B) was already dead and as in Cooper vs.
Phibbs (1867) where A contracted to buy from B a lease on a property which,
unknown to either party, already belonged to A.
Equity may allow a person to avoid such a contract on fair grounds
proposed by the court. In Solle vs. Butcher (1950), A agreed to lease a
flat/apartment to B at £ 250.00 annually, for seven years while being unaware that
the maximum rent allowed by the Rent Acts was £140.00. Two years later, B
claimed the excess rent for the expired period and required the rent to be reduced
to £140.00 for the subsequent five years. A counter-claimed for rescission having
spent on repairs (eight per cent of which was £110.00, which could have been
charged to B if proper statutory notice had been given to him/her). The court
allowed B to surrender the lease or remain in possession and accept statutory
notice from A to enable a rent of two hundred and fifty pounds annually.
Where an oral contract is substantiated by a contradictory written
contract, equity may allow rectification of the latter on the grounds of fairness.

ii) Mutual mistake: Where each party makes a different mistake they are at cross-
purposes as in Raffles vs. Wickelhaus (1864), where there was no agreement re:
the subject matter of the contract; two ships named Peerless arrived from Bombay
and in Wood vs. Scarth (1855), where A intended to earn a premium on rented
property but did not inform B, who accepted the offer of a lease at $x p.a.

iii) Unilateral mistake: Where one party is mistaken and the other party knows or is
presumed to know of the mistake – where fraud is involved, the contract may be
declared void or the plaintiff may be able to sue for misrepresentation, depending
upon the circumstances.
In Cundy v Lindsay (1878) A (a crook) posed and signed as a
representative of Messrs. Blenkiron, received goods from X and sold them to Y
who bought them in good faith. X sued and the contract with A was held void –
therefore Y had no right to X’s goods.
In Lewis vs. Averay (1971) the crook who posed as an actor and signed a
cheque was able to pass on title. The contract was declared voidable for fraud,
rather than void for unilateral mistake. The goods could not be recovered from the
innocent third party, as in the case of Philip vs. Brooks (1919).

Non est Factum

Non est Factum is an attempt to deny the contract on the grounds that it is not my deed –
the court will consider the following points:

a) The pleader must not have been negligent when entering into the contract
although infirmity, illiteracy, blindness or senility may be accepted in mitigation.
b) The document signed and the end result should be contrary to the pleader’s
intentions when he/she entered into contract. In Saunders vs. Anglia Building
Society (1971), A, who was seventy-eight years of age, was misled into assigning
her property to B, who later mortgaged the property to C. A had been partially
negligent but was initially able to recover her property from C, with whom she
had no privity of contract. The Court of Appeal overruled this decision because A
had full capacity and should have examined the document before signing the same
– also substantiated by Carlisle and Cumberland Banking vs. Bragg (1911).


A representation is a statement of fact or past event, made with a view to encouraging a

contract. A representation of intention is not actionable unless it implies fact, whereas a
representation of law cannot found an action merely because it happens to be wrong
unless it implies a basis of fact as in West London Commercial Bank vs. Kitson (1884).
In Edgington vs. Fitzmaurice (1885), A lent Company B some money to improve
the latter company’s buildings and facilitate expansion. The directors, instead, used the
money to pay off the company’s creditors and were held liable in deceit.
A statement of opinion is not a representation normally. In Smith vs. Land and
House Property Corp (1884) A persuaded B to buy property by misrepresenting the facts
relating to the tenants – the court allowed rescission of the contract. But in Anderson vs.
Pacific Fire and Marine Insurance Co. (1872), a statement that an anchorage was safe and
in Bisset vs. Wilkinson (1927), that a piece of land would support two thousand sheep,
were held to be mere statements of opinion rather than misrepresentation of facts.
A representation must normally be via positive words/conduct rather than by
silence or non-disclosure, but pay special attention to the following situations:

i) where there is a half-truth, as in Tapp vs. Lee (1803);

ii) where true statements become false before conclusion of the contract, as in With
vs. O’Flanagan (1936);
iii) where there is a fiduciary or confidential relationship between parties, as in Tate
vs. Williamson (1866);
iv) where the contract is one of Uberrimae Fidei, or utmost good faith.

Contracts Uberrimae Fidei

In contracts of Uberrimae Fidei the parties must disclose all material facts, otherwise the
contract may be rescinded, as in the classic case of insurance, where the insured must
disclose the relevant facts, otherwise the insurance company will be allowed to repudiate

the contract, as in London Assurance vs. Mansell (1879), where the insured failed to
notify the insurance company regarding refusal of insurance by several other companies.
Uberrimae Fidei also applies to contracts between members of a family, where
the contract benefits the family, as in Greenwood vs. Greenwood (1863).
Contracts to buy shares in a company under a prospectus are not necessarily
contracts of utmost good faith.


To be considered an inducement the representation must:

i) be intended to mislead and be acted upon, unlike the case of Peek vs. Gurney
(1873), where A bought shares from B upon representation by C (the directors of
the company) but was unable to sue C because this was not an original allotment;
ii) fully encourage the contract as in Redgrave vs. Hurd (1881), where A persuaded
B to buy A’s practice, misstated its value and allowed B to check the same. B did
not check the value but was successful in an action for misrepresentation;
iii) affect the plaintiff’s judgment materially, otherwise he/she will lose the case, as in
Smith vs. Chadwick (1884);
iv) be known to the plaintiff as in Horsfall vs. Thomas (1862), where A bought a gun
from B (the maker) without examining the same. The gun broke and A sued but
was unsuccessful – the court held that he/she should have checked the gun.

Types of Misrepresentation

Misrepresentation may be:

a) Fraudulent if made to mislead or not believing it to be true or reckless – remedy:
rescission or refusal to perform plus damages;
b) Innocent if the party making the statement honestly believed the same to be true:
i) negligently – remedy as per (a) above;
ii) non-negligently – remedy as per (a) above but damages may not be
granted by the court except in lieu of rescission.


A contract may not be rescinded where:

a) the injured party has affirmed the contract or benefited from it;
b) there had been an undue lapse of time which implied affirmation, as in Leaf vs.
International Galleries (1950);
c) the parties cannot be restored to their original positions;
d) third party rights have accrued.

Criminal Penalties

The Trade Descriptions Act 1968 prescribes certain criminal penalties regarding
misleading descriptions of goods put up for sale.

Duress and Undue Influence

Duress is an attempt to force a person to act against his/her own free will and may be
economic in nature. The party threatened or unduly influenced may treat the contract as
voidable, subject to the following rules:

i) There is a presumption of undue influence in certain relationships e.g. parent and

child, trustee and beneficiary, solicitor and client, guardian and ward but not
husband and wife;
ii) An abnormally large gift may be presumed to result from undue influence;
iii) Where undue influence is presumed, the accused party should prove otherwise,
e.g. by showing that the plaintiff was independently advised... but in other cases,
the plaintiff must prove his/her case with a view to avoiding the contract;
iv) Laches i.e. unreasonable delay in suing may defeat the plaintiff’s action;
v) A contract may be avoided against a third party who knew of the undue influence
to the first party as in Lancashire Loans Ltd vs. Black (1934), where a married
woman of eighteen was unduly influenced by her mother to sign a promissory
note in favor of the latter’s creditors.

If the plaintiff has not expressly/implicitly affirmed the contract, he/she may avoid it

i) persons who were aware that he/she had been subjected to undue influence or
ii) third parties who received property without paying for the same.

Contracts in Restraint of Trade


Remedies for Breach of Contract

a) Damages: Ordinary damages may be awarded for actual loss suffered so long as
the loss is not too remote, as in Hadley vs. Baxendale (1854), where A was not
aware that by delaying the repair of B’s tools, B would suffer a loss of profits.
In Victoria Laundry vs. Newman (1949), A bought a boiler from B for A’s
laundry but B delayed delivery by five months so A sued for:

i) loss of profits during the delay and
ii) loss of two highly profitable contracts during the delay.

The latter was considered too remote but A succeeded in (i).

In Diamond vs. Campbell Jones (1961), A contracted to sell property to B
but then changed his/her mind and B sued for profit lost as a result. The court held
that B’s claim was too remote but ordered A to pay the market value less sale
price agreed with B.
The plaintiff must always try to minimize his/her post-tax damages, as
confirmed by Brace vs. Calder (1895), where A had been employed as a manager
of a firm, B, which consisted of four partners, two of whom subsequently died.
The surviving partners, wishing to continue, offered A a technical dismissal linked
to an offer of re-employment. A sued for wrongful dismissal and received only
nominal damages because he/she had not attempted to mitigate his/her loss.
If the contract provides that, upon breach, £x will be payable as damages
i.e. liquidated damages, then the court will enforce the sum if it is a reasonable
measure of the actual loss suffered rather than an excess amount i.e. a penalty.

b) Specific performance: This equitable remedy may be granted at the court’s

discretion unless:

i) damages are adequate;

ii) the court cannot adequately or continuously supervise performance as in
contracts of employment;
iii) there is no consideration;
iv) one of the parties is a minor;
v) the contract is for a loan of money,
vi) the plaintiff did not perform in accordance with his/her obligations.

c) Injunction: This equitable remedy restrains a person from performing a tortuous

act or an act which is in contravention to the contract.

d) Rescission: This equitable remedy restores the plaintiff and the defendant to their
positions before the contract unless A receives money from B as a guarantee for
B’s performance and B then commits breach of contract, in which case A will
probably be allowed to retain the guarantee money.

e) Refusal of further performance where the injured party can use the breach as
his/her defence against refusal to perform further and may ask for rescission.

f) Quantum Meruit: In addition to what was discussed earlier, a Quantum Meruit

claim may also succeed in a contract which is subsequently found to be void, as in
Craven vs. Ellis (1936) where there was a quasi-contract.

g) Promissory Estoppel has already been discussed.

Other Matters Relating to Contracts
We rarely think about life beyond the contract, but there are potential problems that can
determine the success or otherwise of any outsourcing (or other) contract. These risk-
laden areas are:
(a) The handover
(b) The transition
© Continuity
(d) Change management
(e) Termination and exit
We need to monitor performance to ensure that it does not deviate from what was agreed
upon and to ensure that contractors do not take short-cuts or resources out of the project
to increase their profit margins or to service other customers.
Normally, end-user organizations have a changing, rather than a fixed set of requirements
and there are issues which must be dealt with, in order to mitigate post-contract risks.
Organizations must keep referring to the contract on a regular and frequent basis and
amend it to reflect changes required as the project progresses. The performance of the
supplier should be monitored to help achieve the outsourcing objectives. There may be a
need to terminate the contract without undue expense, if the supplier’s performance is
unsatisfactory, but this is usually the last resort and is often an expensive option.
Constant communication will help maintain the integrity of the contract while obtaining
value for money and adding to the bottom-line.
Record everything including conversations and discussions at meetings. Evidence may
take the form of hard copies, electronic documents, handwritten notes, videos and
software. A businessman must have the ability to sense trouble (if he cannot avoid
trouble) and he must attempt to settle disputes out of court, where practical. One is
advised to minimize conflicts and hasten the conflict resolution process.
When Roads Are Rocky: Dispute Resolution in Outsourcing Relationships
Contracts must have reasonable dispute resolution procedures in order to avoid the cost
of legal action. Tactics which are counterproductive to dispute resolution e.g. withholding
payment should not be used. Some companies use committee meetings to resolve
disputes, forcing each party to formally present their arguments.
If the dispute remains unresolved…………., some contracts call for third party
mediation: a consultant, professional mediator, or, in some cases, involvement from
within the companies’ own executive ranks (enlisting a “disinterested” executive). Many
companies have difficulty agreeing on a knowledgeable and fair third party. Costs should
be equally split or apportioned based on the resolution (losers pay).

Be sure to agree on the court of law, arbitration standards, and notification requirements.
Vendor managers need to apply a few simple principles:
Try to resolve the dispute with the vendor before entering into the dispute resolution
process, but limit the time frame for doing so e.g. fifteen days.
Do not withhold payments or irritate vendors, because this will create a bigger
relationship problem.
Inform the vendor that you are triggering dispute resolution and remind him/her of
his/her obligations. Do not allow employees to use alternative means of resolution.
Follow the dispute resolution process in accordance with the contract. Resolve the
dispute without undue delays and move on to healthier conversations. Adhere to your
other obligations.
Notify the following parties about the dispute in question: your team, legal counsel,
procurement, and other executives to help speed up the dispute resolution process.
When the dispute is resolved, work to repair the damage caused by the dispute through a
friendly approach and discuss future possibilities.
E-Commerce and the Internet enable business relationships beyond national boundaries.
The question of jurisdiction and the choice of law must be addressed. The applicable law
generally results from the law of the state where that party has its principal place of
business or domicile, unless
(a) the contract is closely connected to a different country or state, according to the
entirety of the circumstances or
(b) otherwise agreed.
Managers, company directors, executives and businessmen need to clearly understand
contract law and the implications for contracts made electronically through the email and
the world wide web, over the internet.
The Nature of Contract
The rules governing the formation of contracts are complex. Where a dispute arises
between the parties to a contract, litigation or arbitration may be necessary to determine
the rights of the parties.
Most existing contracts are in paper format and this poses problems associated with the
storage and location of the documents in question. The law states that any way you would
want to record your contract is fine, as long as both parties have prior agreement on the
format, except for the sale of land.
The Electronic Communications and Transactions (ECT) Act 2002 (South Africa) paved
the way for businesses to move away from paper-based contracts to electronic format e.g.
e-mail or a WORD document, which will enable a central online repository for tracking
contracts. The ECT Act states that if a contracting party wants to retain a copy of the

contract in an electronic form, then the following requirements must be met:

* The information must be accessible and capable of being accessed and used subsequent
to the signing of the contract.
* The contract must be in the format in which it was generated, sent or received, or in a
format which can be demonstrated to accurately represent the contract.
* The origin and destination of the contract as well as the date and time it was sent or
received must be determinable.

Signatures on the Contract

"In order for an electronic agreement to be considered the original, the contract must have
remained unaltered and capable of being displayed or produced.
Signed and Sealed
A contract is a legal agreement which must be signed for validation. With regard to
electronic signatures, the ECT Act requires that either advanced electronic signatures or
electronic signatures may be used, depending on the agreement between the parties, but
subject to the law. Two major technologies which ensure legally acceptable electronic
signatures are Public Key Infrastructure digital signatures, and click wrap agreements.

Hard Copies and Electronic Copies

Businesses should store their documents properly in accordance with the Statute of
limitations i.e. normally up to 6 years, unless fraud is involved. It is advisable to convert
old hard copies to electronic formats, as backup. If all new contracts are electronically
originated and make use of electronic signatures or click wrap agreements, then perhaps
the paperless contract has come of age.

Concurrent delay arises where a project has been delayed because of two or more events
that operate at the same time—one of the events is the responsibility of the project owner
and the other is the responsibility of the contractor. For example, an owner instructs a
contractor to undertake additional work via a change order, with the understanding that
this will delay completion of the project in question. However, at the time of carrying out
the additional work, the contractor has reduced its labor resources for reasons unrelated to
the variation. The additional work and insufficient resources run concurrently delay
completion of the project.
The question arises as to who is responsible for the one-month delay to completion of the
project. Is it the contractor, in which case, the owner will be entitled to claim its delay-
related damages. Or is it the responsibility of the owner, in which case the contractor will
be relieved from liquidated damages by extending the time for completion and may also
recover its delay-related losses: prolongation, disruption, and acceleration costs. Or is
responsibility to be shared between the parties and on what basis?
An insight was found in the English decision of Henry Boot Construction (UK) Ltd v
Malmaison Hotel (Manchester) Ltd [1999]. The judgment noted the common ground

between the parties that:
If there are two concurrent causes of delay, one of which is a relevant event [e.g., the
owner's change order], and the other is not [e.g., the contractor's insufficient resources],
the contractor is entitled to an extension of time for the delay caused by the relevant
event..." (Also see the subsequent decision in Royal Brompton Hospital NHS Trust v
Hammond and Others [2001], where it was held that the contractor was "…entitled to
extensions of time by reason of …relevant events, notwithstanding its own defaults.")
It was not necessary in the Malmaison Hotel case, for the court to assess the period of
delay caused by the relevant event. The case does not provide guidance on how the
extension of time should be quantified in a situation involving concurrent delays.
Possible bases of measurement advanced at an academic level include the following (see
John Marrin QC, "Concurrent Delay," paper given to the Society of Construction Law
Hong Kong (18 March 2003)):
Apportionment—allocation of the time and money effects of the delay to project
completion based on the relative significance of the competing causes of delay;
The American Approach—the contractor is granted an extension of time, but does not
recover delay-related loss and damage related to his own actions/omissions i.e., a "zero
sum" outcome;
"But For" Test—a simplistic argument arising from the principles of causation in tort
cases, which ignores the contractor's delays and assert that "but for" the owner-caused
delay, the contract completion would not have overrun;
The Dominant Cause Approach—using principles of causation and contract law, to
emphasize the dominant cause of the delay in completion of the project, i.e., only one
delay event is determined to be the cause of the delay.
The City Inn Appeal
The Scottish Appeal decision of City Inn Limited v Shepherd Construction Limited (2007)
lays down that concurrent delays should be dealt with by apportioning responsibility
based on what is fair and reasonable, as outlined below.
The Facts
City Inn Limited ("Employer") engaged Shepherd Construction Limited ("Contractor") in
October 1997 to construct a hotel in Bristol, England. The contract was an amended JCT
Standard Form of Building Contract (Private Edition with Quantities)(1980 edition)
("Contract"). The date of possession under the Contract was January 26, 1998, but the
contractual completion date was January 25, 1999. Liquidated and ascertained damages
were payable at the rate of £30,000 per week for the period between the contractual
completion date and the achievement of practical completion. The initial architect
appointed by the Employer (i.e., the certifying party nominated in the Contact) was a firm
called RMJM, which also acted as the structural, mechanical, and electrical engineer.

RMJM was dismissed on December 2, 1998, and replaced by Keppie Architects
("Architect") and the firm of Blyth & Blyth was appointed to replace RMJM as
structural, mechanical, and electrical engineers.
The Architect issued a certificate of practical completion on April 27, 1999, stating that
practical completion was achieved on March 29, 1999, at which date the Employer took
partial possession of the works, and possession of the remaining parts on April 13 and 30,
1999. On June 9, 1999, the Architect issued a certificate extending the contractual date
for completion from January 25, 1999, to February 22, 1999 and another certificate of
non-completion, stating that the Contractor failed to complete the works by February 22,
1999. The employer was, according to the Architect's certificates, entitled to deduct
liquidated and ascertained damages of £30,000 per week for the five week delay between
February 22, 1999 and March 29, 1999 and proceeded to deduct the sum of £150,000.
The adjudicator held that the Contractor was entitled to a further five weeks' extension of
time i.e., a total of nine weeks and directed the Employer to repay the sum of £150,000.
The Employer commenced proceedings before the Scottish courts seeking to withhold the
sum of £150,000. The court initially ordered the Employer to repay the withheld sum
(see City Inn Limited v Shepherd Construction Limited 2002). The Employer appealed to
the Scottish Outer House and the case was decided by Lord Drummond Young.
The Respective Positions of Each Party
The Contractor asserted that the 11-week delay for which it was entitled to extensions of
time was caused by a number of late instructions by the Architect ("Relevant Events"),
some of which were concurrent with each other. In addition, the Contractor claimed
£27,069 for direct loss and expense (i.e., prolongation costs) incurred as a result of the
Architect's instructions and the resultant alleged 11-week delay.
The Employer argued that the Contractor was not entitled to the extension of time sought
on the following grounds:
The Contractor failed to comply with the notice requirements under the Contract. (The
Judge concluded that the notice provisions relied on by the Employer were not applicable
to the Contractor and/or the notice provisions had been waived by the Architect.)
None of the instructions relied on by the Contractor caused any delay in completion or
those delays were concurrent with contractor-caused delays: related to the late completion
of the elevator lift and stair balustrades. Consequently, the Employer contended that the
Contractor was not entitled to any extensions of time for delays related to the Architect's
The Employer also sought a declaration that the contract completion date should remain
as January 25, 1999. The amount of liquidated damages sought by the Employer was
£270,000, i.e., £30,000 per week for the alleged period of delay from January 25, 1999,
to the date of practical completion on March 29, 1999 i.e. approximately nine weeks.
The Extension-of-Time Mechanism - Contractual

The extension-of-time mechanism under the Contract was set out in clause 25. Clause provided as follows:
Whenever it becomes apparent that the progress of the Works is likely to be delayed the
Contractor shall give written notice to the Architect of the material circumstances and the
cause(s) of the delay and identify any Relevant Events (compliance with Architect's
instructions and late Architect's instructions are Relevant Events under the Contract).
The Architect's power to grant an extension of time is provided for in Clause 25.3.1:
If the Architect believes, upon receipt of any notice, particulars and estimate under clause and 25.2.2 & (1) any event stated by the Contractor to be the cause of the delay
is a Relevant Event and (2) the completion of the Works is likely to be delayed thereby
beyond the Completion Date, the Architect shall give the Contractor, in writing, an
extension of time for Completion on a fair and reasonable basis.
In addition, Clause 25.3.3 empowered the Architect to grant retrospective extensions:
After the Completion Date, if this occurs before the date of Practical Completion, the
Architect may, within 12 weeks of Practical Completion, write to the Contractor & fix a
Completion Date later than that previously fixed if he/she considers this to be fair and
reasonable in the light of the Relevant Events, whether upon reviewing a previous
decision or otherwise and whether or not the Relevant Event has been notified by the
Contractor under clause
General Considerations - Contractor's Obligation, the Prevention Principle, and
Extension of Time Provisions
The Judge's analysis dealt with the Contractor's completion obligations and the extension-
of-time mechanism. Quoting from the judgment in Percy Bilton Ltd v Greater London
Council [1982] :
The main contractor is bound by the contractual date for completion and liable for
liquidated damages, unless the employer, by his acts or omissions, prevents the contractor
from completing his work by the completion date&.
These general rules may be amended by the express terms of the contract. The express
terms of clause 23 of the contract [corresponding to the present clause 25] do affect the
general rule e.g. where completion is delayed "(a) by force majeure, or (b) by reason of
any exceptionally inclement weather" the architect is bound to make a fair and reasonable
extension of time for completion of the work.
Based on his experience and case law, the Judge provided the following valuable
The [extension-of-time mechanism] recognizes an allocation of risk: the contractor is
bound to complete the works by the completion date, except where delay is caused by
events which are not within his/her control.
The architect must estimate the period required for completion of the work, bearing in

mind non-contractor's risk events. The completion date is extended by that amount.
This process involves certain inherent uncertainties e.g. a contractor's risk event and a
non-contractor's risk event may operate concurrently and cause a delay to result from
either or both. Another possibility is that a non-contractor's risk event merely slows the
progress of the works and the architect is given power to adjust the completion date
retrospectively, because it is clearly only with hindsight that the causative potency of
each of the sources of delay can be properly assessed.
The inherent uncertainties in the process are recognized in the Clause 25. The architect
must be "fair and reasonable" in fixing a new completion date - judgment is
involved – and must exercise discretion, based on the evidence that is available. The
critical question is to determine the delay caused by the non-contractor's risk
events, and to extend the completion date accordingly. The adjusted completion date
must be set by reference to the original completion date and must correspond to the delay
attributable to the non-contractor's risk events.
The Meaning of Concurrent Delay
The court in Royal Brompton Hospital NHS Trust v Hammond (2001) considered the
Malmaison case:
If no work is possible on a site for a week because of weather conditions (a relevant
event) and because the contractor has a shortage of labor (a non - relevant event), and if
a one-week delay occurs in completion, the architect must grant a one-week extension, if
it is fair to do so, and regardless of the shortage of labor.
Judge Seymour, in Royal Brompton, distinguished between situations where work has
been delayed because of contractor-risk event followed by a relevant event, and cases
where both of these events occur more or less simultaneously, and added that the
Malmaison case was concerned only with the latter situation i.e. true concurrency, for
which the contractor would be entitled to an extension of time. The court held that the
former situation did not result in a relevant event causing delay, and the contractor is not,
therefore, entitled to an extension of time.
The Judge in City Inn did not agree with the distinction drawn by Judge Seymour. Lord
It …should not matter whether the shortage of labor developed, for example, two days
before or after the start of a substantial period of inclement weather; in either case, the
two matters operate concurrently to delay completion of the works. …both these cases
should be treated as involving concurrent causes, to be dealt with in line with Clause
25.3.1: granting such extension as the architect considers fair and reasonable.
To surmise, a contractor's claim for an extension of time cannot be dismissed simply
because the works were also delayed by a contractor-risk event. On the basis of
Malmaison, the architect must take into account all material surrounding circumstances
when determining a fair and reasonable extension of time, whether in the case of a stand-
alone delay event or concurrent delay events.

"But For" Rule of Causation Not Applicable to Assessment of Extensions of Time
The "but for" test of causation under principles of tort law was dismissed when
determining the effects of delays and assessing extensions of time. If this was not already
clear from case law prior to City Inn, then Lord Drummond's judgment has put the issue
to rest. Relying on Dyson J in Malmaison, his lordship held that:
…the application of clause 25, a relevant event, may be considered even though it
operates concurrently with a non-relevant event. The "but for" rule of causation does not
apply because the delay would have occurred as a result of the labor shortage, regardless
of the bad weather. Clause 25 is designed to achieve fairness between the contractor and
the employer, and the architect is given reasonable discretion to help achieve that result.
Apportionment of Effects of Concurrent Delays: Key to Assessing a Fair and
Reasonable Extension of Time
The Judge concluded that the delay in completion of the hotel was the result of
concurrent causes. This included relevant events (i.e., Architect's late instructions) that
ran concurrently with each other and concurrency between relevant events and
contractor-risk events (i.e., late completion of the elevator lift and the stair balustrades).
The Architect must use his judgment to determine the extent to which completion has
been delayed by a relevant event and discretion must be exercised reasonably, based on
all the relevant facts. This can be difficult even when it involves a single delay event,
especially where there is true concurrency between a relevant event(s) and contractor-
caused delay(s) where "…both existed simultaneously, regardless of which started first."
In such circumstances, it may be necessary to apportion responsibility for the delay
between the two causes: "Obviously…the basis for such apportionment must be fair and
reasonable and related to the precise circumstances of each case." Where the decision of
the architect is challenged, the court must of course perform the same exercise." The
Judge relied on cases decided by U.S. federal courts, in particular the decision of Chas. I.
Cunningham Co., IBCA 60, 57-2 BCA P1541 (1957) and Sun Shipbuilding & Drydock
Co., (1968). Lord Drummond quoted the following from the Chas. I. Cunningham case:
If a contractor finishes late partly because of a cause that is excusable under this
provision and partly because of a cause that is not, the contracting officer must make a
fair apportionment of the extent to which completion was delayed by each of the two
causes, and grant an extension based on the delay attributable to the excusable one.
Apportionment - Principles to Be Adopted
The Judge identified the following two important elements when undertaking an
apportionment between concurrent causes of delays:
(a) The significance of each factor causing the delay: length of delay and significance for
the work.
(b) The degree of responsibility involved in each of the causes of delay; and

Lord Drummond: "…an event that only affects a small part of the building may be of
lesser importance than an event whose effects run throughout the building or which has a
significant effect on other operations…the question is one of judgment."
Legal Outcome of Apportionment
The Contractor had claimed a total extension of time of eleven weeks, i.e., from January
25, 1999, to April 14, 1999. However, the Judge considered the delays caused by the
Contractor in relation to the elevator lift and the stair balustrades and reduced the number
of weeks claimed. Lord Drummond concluded that the part of the total delay to be
apportioned to Relevant Events claimed by the Contractor should be substantially greater
than that apportioned to the two causes of delay asserted by the Employer.
I am of opinion that the part of the total delay apportioned to relevant events should be
substantially greater than that apportioned to the two items for which the defendants are
responsible. A fair and reasonable result would be that the defendants are entitled to an
extension of time of nine weeks from the original completion date.
Judge Drummond reduced the Contractor's claim for extensions of time from eleven
weeks to nine weeks. The completion date was extended to March 29, 1999 - the date of
practical completion and the contractor was not liable to the employer for liquidated
damages. The same result arrived at by the statutory adjudication.
Relevance of "Dominant" Cause Test to Assess Claims for Extensions of Time

E-mail Contracts
Parties can conclude a contract, or amend an existing contract, via e-mail. In Hostcentric
Technologies Inc. v. Republic Thunderbolt, LLC, USA (2005), in a dispute over a
commercial lease, the plaintiff tenant sought to enforce a settlement agreement
documented in an e-mail exchange against the landlord defendant.
On Sept. 21, 2004, after litigation had begun, the landlord’s attorney sent an e-mail to the
tenant’s lawyer "to confirm my client's final settlement counter-proposal: …a $755,000
payment by the tenant, with the landlord retaining the security deposit, and for the tenant
to remove its property from the premises within 21 days at its own expense”….the
pending action "would be dismissed with prejudice and all parties would exchange
mutual general releases. The payment is due my client within 10 days from today's date."
The e-mail added that the counter-proposal "expires by 9:30 a.m. tomorrow, unless
accepted by you before that time," and it ended with the attorney's first name.
Later that evening, the tenant's attorney sent an e-mail to the landlord's attorney to accept
the offer, stating, "I am writing to formally accept your settlement offer as set forth by
you in your message from earlier this evening below." The e-mail added, "…[t]his matter

is now conclusively settled. Please let me know how you would like to communicate this
fact to the Court." The action was subsequently dismissed, but the settlement contained
an indemnification clause that the tenant refused to accept.
The tenant maintained that the e-mailed offer and acceptance formed a valid and final
settlement agreement, but the landlord disagreed "in the absence of a fully executed,
written agreement…the e-mails concerned the monetary accord and did not finally
resolve the scope of the release and other issues."
Held: The Sept. 21, 2004 e-mails were enforceable under contract law. The landlord sent
the tenant a "final settlement counter-proposal" with an expiration date to accept the
offer, and listed all of the essential terms of the settlement: the amount, removal of
property from the premises, mutual general releases and dismissal of the lawsuit.
The tenant accepted the offer within that time frame, e-mailing the landlord to "formally
accept your settlement offer," and stating that the matter was "now conclusively settled."
Neither of the parties expressed (or implied) his/her intention not to be bound by the e-
mail exchange!
The decision in JSO Assoc. Inc. v. Price, USA (2008) makes it clear that e-mail contracts
can comply with the New York Statute of Frauds, General Obligations Law. In an action
to recover a finder's fee, the court agreed that e-mail correspondence constituted a
sufficient memorandum of the contract since it "identifies the parties to the contract, the
subject matter… and establishes that the plaintiff in fact performed."
The court noted that the terms of the agreement may be established by a combination of
signed and unsigned documents or other writings which bear the signature of the party to
be charged or his agent, and the unsigned document refers to the same transaction.
Here, one of the defendants sent an e-mail to one of the plaintiffs about a proposed
transaction. In the e-mail, the defendant stated, "I'm impressed. ... Let's talk this
morning…tell me what you want for bringing this together."
The following morning, the plaintiff sent an e-mail to the defendant entitled, "a few
questions" and added that he had urged two other individuals to "come up with a cash
advance …to make the deal." The court had to decide whether there was a "signed"
agreement. Held: The defendant's name appeared in the e-mail address at the top of the
message, but the e-mail closed, "I'll talk to you later" and, except for the defendant's
name in the e-mail address, was otherwise unsigned.


In JSO Associates, Justice Bucaria analyzed the substance of the relevant e-mails rather
than the technical issues: whether the e-mail contained defendant's "signature" at the

bottom. He held "that where there is no question as to the source and authenticity of an
email - the email is 'signed' for purposes of the statute of frauds if defendant's name
clearly appears in the email as the sender."
Distinguishing case law "decided in a different technological era, when email and home
computers had not even entered the public imagination," Justice Bucaria noted that "the
requirement of a signature at the bottom was to minimize the opportunity for fraudulent
additions to the memorandum, a practice which is not feasible with electronic
communication." He found persuasive the U.S. Court of Appeals decision in Cloud Corp.
v. Hasbro Inc., USA (2002), in which the court concluded that "the sender's name on an
e-mail satisfies the signature requirement of the statute of frauds."
With these principles in mind, Justice Bucaria found that the e-mails sent by the
defendant to the plaintiff sufficiently supported the existence of a contract, identified the
subject matter of the alleged brokerage agreement and tied in all defendants to the alleged
contract. The court also found that in some e-mail messages, the defendant's name
appeared as the sender, while in other relevant e-mail the defendant had typed his name at
the end "in the traditional letter writing fashion."
The effect of electronic communications on substantive legal issues continues to evolve
as well. Recent case law confirms that communications by electronic means can provide
significant and powerful consequences in forming enforceable legal rights as well as the
basis for jurisdiction over foreign defendants.


Chapter XVIII

The Contract of Employment

It is essential to distinguish between contracts of employment and other contracts for
work e.g. independent contractor or consultant. Special categories of employee include
policemen, public office holders, civil servants (excluding local authority employees) and
company directors.
In Yates vs. Lancashire County Council (1975), a policeman was unable to claim
redundancy under the Redundancy Payments Act 1965 because he/she was a holder of
public office. Civil servants may be dismissed by the Crown for national security reasons.
Whether a person can be considered an employee or not depends on several
factors, including:

i) method of payment and whether income tax and social security

contributions are deducted;
ii) whether the person is managed by the organization for which he/she
iii) which party provides tools and equipment;
iv) other factors which are continually arising and the particular
circumstances of each case.


A contract of employment may be written/oral/by actual service but company directors

and shipping crew must have written contracts in accordance with provisions of the
Employment Protection (Consolidation) Act 1978. See also: The Employment Rights Act
1996, which deals with the rights of employees, including unfair dismissal, reasonable
notice before dismissal, time off rights for parenting, redundancy, the right to request
flexible working hours and more.
An employer must, within thirteen weeks of commencement of employment, give
an employee a written statement which:

i) identifies the parties;

ii) states commencement and expiry period of the contract;
iii) gives job title, details of pay, hours, conditions of work, termination notice, etc.;
iv) specifies details of disciplinary rules and grievance procedures;
v) refers the employee to easily accessible documents e.g. a company handbook or
national collective agreement;
vi) becomes a contract when signed by the employee: employees must be informed of
amendments to the written statement within one month of such an amendment.

Employees may refer to a tribunal if they have problems regarding the written statement
(as discussed above) or any other matter concerning employment.

The Employer’s Duties

The payment of wages is sometimes regarded as the employer’s primary duty, and failure
entitles the employee to leave immediately. For more information, review the
Employment Rights Act 1996, the Wages Act 1986 and The National Minimum Wage Act
In Duckworth vs. Farnish Ltd (1969), A was loaned to B by C who told A to claim
wages from B, but the court held this to be a breach of contract.
Deductions from wages and methods of payment of wages are governed by

The Truck Acts (1831-1940)

The Truck Acts stipulate that employees must be paid in cash rather than via vouchers
which were valid only at the employer’s shops; deductions may be made for food, rent,
medical benefits, education of children, reasonable disciplinary fines and other matters.

The Payment of Wages Act (1960 and 1986)

The Wages Act allows payment to an employee by cheque, postal order or giro if
acceptable to both employer and employee.
In Hewlett vs. Allen (1894), trade union dues were allowed to be deducted from
the employee and paid to an independent party.

Provision of an Itemized Pay Statement

Such a statement should detail gross pay and various additions and deductions.

Sickness Pay

This applies to employees who fall ill during the contractual period.

Other Duties Regarding Wages

The Wages Councils Act 1979 sets wage rates and conditions. Also review the Wages Act
The Sex Discrimination Act 1975 requires employers to pay men and women

Other Duties of Employer:

i) to indemnify employee for job-related expenses;
ii) to provide work for the employee and not reduce the working week below the
agreed figure, unless he/she pays according to the agreement e.g. piecework;
iii) to take reasonable care to ensure the employee’s safety, in accordance with the
Factories Act 1961, the Health and Safety at Work Act 1974 and the Health and
Safety (Consultation with Employees) Regulations 1996, otherwise the employee
may sue for damages and the employer may also be prosecuted. Making
unreasonable demands of the employee e.g. regarding hours to be worked, could
result in a lawsuit, as in Johnstone vs. Bloomsbury Health Authority (1991).
In Paris vs. Stepney Borough Council (1951), A was held liable for not
providing a one-eyed employee with protective glasses when there was a
considerable possibility of damaging his/her eye at work.
In Hudson vs. Ridge Manufacturing (1957), A was injured by a practical
joke of a fellow employee, who had the tendency to make such jokes and was not
controlled by the employers, B, who were held guilty of negligence.
In Qualcast vs. Haynes (1959), an experienced shoulder was injured
because he/she failed to wear protective equipment which was available. The
employers were held not responsible for injury that their employee suffered.
In Lane vs. Shire Roofing Company (Oxford) Ltd. (1995) the employer
was held responsible for the health and safety of an independent contractor. For
more information on this subject, see Knowles vs. Liverpool City Council (1993)
and Nelhams vs. Sandells Maintenance Ltd (1996).

iv) to trust and respect the employee, as confirmed by Imperial Group Pension Trust
Ltd vs. Imperial Tobacco Ltd (1991) and United Bank Ltd vs. Akhtar (1989).

The Employee’s Duties



Chapter XIX

Sale of Goods and Hire Purchase

The Sale of Goods Act (SOG) 1979 defines a contract of sale as one whereby the seller
transfers or agrees to transfer the property in goods to the buyer for a consideration in
money (or money plus goods). If title passes we have a sale but if title is to pass later we

have an agreement to sell. The Sale and Supply of Goods Act 1994 and the Supply of
Goods and Services Acts 1982 deal with implied terms in such contracts.
If a buyer instructs a seller to deliver his/her specific purchase and if the item is
stolen/lost/damaged in transit other than through the seller’s fault, the buyer will suffer.
But if the buyer instructs the seller to deliver one of a group of articles and the whole
group of articles is stolen/lost/damaged before delivery is effected, the seller will suffer.
However, if the goods for sale are not fully or partly in existence e.g. perished or
irretrievably lost at the time of the contract, then the contract is void. In Barrow and
Ballard vs. Phillips (1929), a minor part of a inventory of Chinese walnuts had been
stolen, although unknown to the vendors. The contract of sale was held void.
Sale of goods contracts are different from contracts for work/service/hire. In
Beecham Foods vs. North Supplies (1959), it was held that when goods are supplied in
returnable bottles, only the contents are deemed sold while the bottles are subject to a
separate contract of hire.
False teeth are regarded as goods but a contract to paint a portrait is regarded as
work and materials provided, rather than goods. In Robinson vs. Graves (1935), the
quality of the artist’s work was more important than supplying the canvas and other
materials and was therefore covered by the Supply of Goods and Services Act 1982
(which also covers exchange and barter).
SOG 1979 covers choses in possession i.e. physical objects rather than choses in
action i.e. enforceable rights e.g. cheque or document of title. Contracts for transfer of
ownership of money are not covered by SOG 1979 unless for the sale of a particular coin
or note as a collector’s item, as evidenced by Moss vs. Hancock (1899).

Formation of the Contract

In addition to the law of contract, the Sale and Supply of Goods Act 1994 and the Supply
of Goods and Services Act 1982 add implied terms to every contract of sale of goods.

Implied Terms

i) Title: If the vendor sells goods to which he/she had no title or against which there
are legal proceedings at the time of the contract, then the buyer can recover the
full purchase price on discovery of the fact even though he/she may have used the
goods in the meantime, as confirmed by Rowland vs. Divall (1923).

ii) Description: Where the goods are sold by description they must correspond with
the description and where sold by description and sample, the goods must
correspond with description and the bulk of the goods must correspond with the
sample, otherwise the buyer may reject the same if the description was influential
in the sale, in line with the Supply and Sale of Goods Act 1994 and Harlingdon
vs. Christopher Hull (1990). In Moore vs. Landaur (1921), supplying goods in
cases of twenty-four tins was not regarded as supplying the same quantity of
goods in cases of thirty tins. In Beatle vs. Taylor (1967), a car which was

advertised as a ‘1961 Triumph Herald’ was examined and bought. Later on it was
discovered to have only the rear part of a 1961 Triumph Herald, so the seller was
guilty of breach of SOG 1979. In Grant vs. Australian Knitting Mills Ltd (1935),
A bought underwear from B, caught a rash and was successful for
unmerchantable/unsatisfactory quality and negligence under Donaghue vs.
Stephenson (1932). Also review the Consumer Protection Act 1987.

iii) Satisfactory quality (in line with the Sale and Supply of Goods Act 1994 and the
Sale and Supply of Goods to Consumers Regulations 2002) and fitness for
purpose: The vendor must ensure satisfaction of these terms, unless defects are
made known to the buyer or would have been discovered upon careful
examination. When the buyer discloses his/her reasons for purchase the vendor
must advise the buyer as regards fitness of the goods for the buyer’s requirements.
In Griffiths vs. Peter Conway (1939), a lady whose skin was sensitive to tweed
did not mention this to the salesman, bought a tweed coat which was fit for
normal purposes and suffered dermatitis. She was unsuccessful in her action. In
Frost vs. Aylesbury Company (1905), contaminated milk was unfit for
consumption and in Heil vs. Hughes (1951), the Plaintiffs should have exercised
reasonable care to ensure that the pork chops had been properly cooked. Goods
are satisfactory if a reasonable person would regard them as satisfactory, after
taking into account the description, price and all relevant circumstances. Where
the seller is not made aware of the buyer’s idiosyncrasy which causes failure of
goods sold, there will not be a breach of the fitness requirement, as proved in
Slater vs. Finning (1996). Also review the Consumer Protection Act 1987.

The Sale and Supply of Goods to Consumers Regulations 2002 are aimed at
protecting consumers throughout the European Union (EU). The regulations require
businessmen who sell and supply goods to consumers to provide goods of satisfactory
quality, with suitable remedies where goods are not of satisfactory quality.
The consumer can generally only obtain a legal remedy against the retailer, rather than
against the manufacturer. Consumers have additional rights under any guarantees
supplied with the goods or against a credit card company or finance house if the goods
are purchased on credit and have a price which exceeds £100.
The Regulations do not apply to services in general or to second hand goods sold at
auctions that the consumer has the opportunity of attending in person.
There is a presumption that any defect which appears within six months of purchase
actually existed at the time of purchase unless the seller can prove otherwise! The
Regulations also allow a buyer a time limit of six years (five years in Scotland), during
which any claims for compensation may be submitted to a court.
Under the Act, the goods must be:
• of satisfactory quality i.e. the goods would meet the standard a reasonable
person would regard as satisfactory, considering the description of the goods, the

price (if relevant), their quality and all other relevant circumstances and .
• fit for any particular purpose made known to the seller.

The consumer’s rights under this Act are against the person who sold the goods and not
the manufacturer. The consumer does not have any grounds for a complaint if he/she:
• was told about the fault before purchasing the item;

• examined the item at the time of purchase and should have seen the fault;

• made a mistake when purchasing the item;

• simply changed his/her mind about the item.

iv) Sales by sample: The buyer must have the reasonable opportunity to compare the
goods with the sample and they should correspond in description, quality and
fitness. In Nichol vs. Godts (1854), the goods corresponded with the sample but
not with the agreement – therefore, the goods were unacceptable.

Exclusion of the Implied Terms


Sale by Non-Owner

Only the legal owner of goods or his/her authorized agent may pass on a good title but
there are certain exceptions:

i) Estoppel: If the vendor, A, convinces an innocent third party, C, to buy the goods
from B under the mistaken belief that the goods belong to B, then A will have
forfeited his/her rights to the goods if C paid for them. In Eastern Distributors vs.
Goldring (1957), a good title was passed to the innocent buyer, C, because the
actual owner co-operated with the seller, B, of the van in an attempt to raise
finance from the innocent buyer C.

ii) Factors: If A buys from B, upon believing the latter to be entrusted with goods and
authorized to sell them, then A will obtain legal title to the goods if:
— the owner consented (even upon being tricked) to possession of the goods
by the factor and the factor sold goods in the ordinary course of business and A
was unaware of the lack of authority of B to sell the goods.

iii) Sale by possessor of documents of title: If A buys from B but allows B to retain
the goods and/or documents of title and B then proceeds to sell the same to C
(who is unaware of the earlier sale), A will not be able to recover the goods from
C although he/she could sue B for conversion.

iv) Resale by buyer in possession: If A buys goods from B and has possession of the
goods or the documents of title and then resells the goods to C (who is unaware of
A’s transaction with B), the latter may acquire a good title even if the title had not
passed to A himself/herself.

v) Sale by virtue of office: A bailiff/trustee/official receiver may be authorized to sell

goods of the debtor and transfer good title to any purchaser.

vi) Sales in market overt: If A buys in good faith from ‘market overt’ without notice
of any defect in the title of the seller, then A will obtain good title.
(Market Overt = every shop in the City of London where goods are
exposed for sale, if the shop is allowed to sell such goods, and shops outside the
City of London but in markets prescribed by Charter or Custom so long as the
goods are sold on market days as defined by Charter or Custom).

vii) Sale by person with voidable title: If A buys from B in good faith before the
contract has been avoided, then A obtains title, as in Lewis vs. Averay (1972).

viii) Sale of motor vehicles on Hire Purchase (HP): If a motor vehicle is sold by a
hirer, A to a person, B (not a car dealer or credit broker or supplier of credit who
buys in good faith), then B obtains good title.

ix) Stolen Goods: If A steals goods from B and sells to C but is convicted for theft
then the court may restore the goods to B or allow C to keep the goods, depending
upon the facts of the case and how much can be recovered from C.

Performance of the Contract

i) Delivery is the transfer of physical possession or the granting of access to the

goods e.g. giving the key to the storage area to the buyer so that he/she can collect
the goods, i.e. constructive delivery.
In the absence of any contrary agreement, the rules relating to delivery of
goods are as follows;

— the place of delivery is the seller’s place of business or residence, but if the
contract is for specific goods located elsewhere, as known to buyer and
seller, then that location may be regarded as the place of delivery;
— the seller must deliver in accordance with the agreed upon delivery
schedule or within a reasonable period of time, perhaps by carrier;
— the seller must put the goods into a deliverable state;
— the buyer assumes the risk of deterioration during transit if delivery is to
be effected to a place other than where the sale was made;
— if goods are in possession of a third party, delivery is effected when that
party informs the buyer that he/she holds the goods on behalf of the buyer.

If the seller delivers other than the agreed quantity, the buyer may accept/reject
the whole or accept the ordered quantity. If he/she accepts the whole, he/she pays
pro rata to the contract price. NB: Unless a contrary intention appears or is
implied by the contract, if the seller’s breach of contract gives the buyer the right
to reject the goods and he/she accepts some of the goods, it does not mean that
he/she should accept all the goods.

ii) Installment delivery: Where there is a breach, the facts will determine whether the
injured party can repudiate or merely claim damages. In Robert Munro vs. Meyer
(1930), halfway through the contract the buyer noticed that the goods were not of
the agreed quality and rightly refused to accept further installments.

iii) Acceptance: If the buyer accepts (as defined by the Sale of Goods Act 1979 as
amended by the Supply and Sale of Goods Act 1994) the goods by action or
implication he/she may not reject them at a later stage.

Rights of Unpaid Seller


Chapter XX


An agent is an individual who has the authority plus capacity to create legal relations
between his/her principal and any third party; his/her actions bind the principal so long as
the actions are agreed upon in a contract between agent and principal. A minor agent will
bind an adult principal but not vice-versa – see G(A) vs. G(T) (1970).

Creation of Agency

a) By express agreement: The agent may be appointed orally/in writing/by deed.

Only when appointed by deed, can the agent execute a deed. The agent is called
the attorney and the deed which appointed him/her is called the power of attorney.
b) By implication: Where an individual is placed in a situation which would
normally appear to confer on him/her the capacity of an agent e.g. a person
appointed to act as a land agent may have implied authority to sign tenancy
agreements on behalf of his/her employer.
In Watteau vs. Fenwick (1893), A sold a public house to B but continued
as manager and bought cigars on credit from C, although forbidden to do so (by
B). C was unable to claim payment from A, whom he/she believed to be the
owner of the public house, but could claim the price from B, the present owner,
because cigars would normally be supplied to a public house.
Agency by implication also arises where A buys from B who is normally
paid by C for A’s purchase – therefore C will be stopped from denying that A is
his/her agent unless he/she expressly informs B accordingly.
c) By necessity: The individual who deals with/possesses another individual’s
property may be allowed to protect the owner’s interest without specific
instructions from the latter person if:
i) it was impossible to obtain the owner’s instructions, as in Great Northern
Railway vs. Swaffield (1874) where A carried a horse to its destination
and nobody arrived to collect the same so A put the horse in a nearby
stable and charged the owner, B, for the same. The court allowed the
charges to B because A acted in B’s interest in an emergency;
ii) there was a valid reason;
iii) the agent acted bona fide on behalf of the owner.
d) By ratification: A principal may ratify a contract made with a third party by a
person hitherto unauthorized to act as the former’s agent if:
i) the ‘agent’ informs the third party that he/she is acting for the specific first
party, unlike the situation in Keighley, Maxsted and Co vs. Durrant (1901)
and Watson vs. Swann (1862);
ii) the principal was capable of contracting at the time of the contract. In
Kelner vs. Baxter (1866) the company was not formed at the time of the
contract. Therefore the individuals who purported to have acted on the
company’s behalf were personally liable for the contract they signed, and
the situation was similar in Phonogram vs. Lane (1982);
iii) the principal ratifies the whole and valid contract within the time fixed for
ratification or within a reasonable time and is aware of all material facts as
confirmed by Savery vs. King (1856).
The ratified contract is effective from the date of contract made by the
agent. In Bolton Partner vs. Lambert (1889), A could not revoke an offer
(which was accepted by B’s agent) before ratification by B.
e) By estoppel: If A allows B to give an impression that he/she represents A, then A
will be bound by B’s actions i.e. he/she will be estopped from denying that B is

his/her agent.
Where A ceases to be a partner of a firm, he/she should inform all
concerned parties, otherwise some of them might deal with the firm in the belief
that A is still a partner and A could be held responsible for the firm’s
commitments in such cases.

Effects of Contracts Made by Agents


Chapter XXI

Company Law

Registered Companies may be limited (by shares or guarantee) or unlimited and public or
A public company must be registered with two or more members and with
nominal capital of at least fifty thousand pounds offered to the public. Its name must
include the words Public Ltd. Company, or plc.
Registered private companies, Banking/Insurance/Shipping Companies (or

members of a group which includes one of the latter) may be regarded as small/medium
sized and exempted from certain accounting disclosures if they satisfy certain criteria
regarding turnover, average (weekly) number of employees and balance sheet totals.


Registration of a company is effected by paying the registration fee and depositing the
following documents with the Registrar of Companies:
i) The Memorandum of Association (M/A) defines the objects and power of the
company, its capital and the regulations regarding the company’s external affairs;
ii) The Articles of Association (A/A) define the rights of the members of the
company inter se and in relation to the company itself;
iii) Returns as to directors and registered office;
iv) Statutory Declaration of compliance with the Companies’ Act 1985 in respect of

Certificate of Incorporation

If satisfied that all the documents are in order and that the registration fee has been paid,
the Registrar will issue a dated Certificate of Incorporation. The Registrar must serve
notice in the London Gazette accordingly.
Documents delivered on registration may be inspected by any person upon
payment of a small fee. Therefore, one is deemed to have constructive knowledge of what
they contain.

Pre-Incorporation Contracts

Such contracts are binding upon the person who acted for/as agent for the company as
confirmed by Phonogram vs. Lane (1982).

Commencement of Business
A private company may commence business upon incorporation but a public company
needs a further certificate, to the effect that is has satisfied the share capital requirements.
For this latter purpose the public company must make a statutory declaration that its
allotted capital is equal to or more than the minimum nominal capital required of a public
company. The Registrar must serve notice in the London Gazette of receipt of such
statutory declaration. If any business is transacted before receipt of the latter certificate,
the persons involved may be held liable and fined, plus prosecuted for their acts.

The Memorandum of Association (M/A)

The M/A of a registered company must state the name of the company, the type of
company, location of the registered office and the objects.
In the case of a company limited by shares, the authorized share capital and
nominal value of each share (and the rights of different classes of shareholder), must be
stated. In the case of a company limited by guarantee, the M/A must state the amount
guaranteed by each member.
There must be an association clause which states that the members/subscribers
intend to associate as a company and that each subscriber must sign the M/A in the
presence of at least one attesting witness.

Amendment of an M/A

Amendment must be via a special resolution i.e. seventy-five per cent of votes cast at a
meeting or agreement of all members without a meeting for this purpose. Members are
entitled to a M/A + A/A + effected amendments + resolutions in force regarding intended
amendments and the same applies to the registrar within fifteen days of such amendment.

Name of the Company

The company’s name should not be offensive/illegal/misleading, the name of an existing

company or similar to such name e.g. the company cannot call itself a bank unless it is
recognized as one by the Bank of England, under the Banking Act 1987.
Passing off: This is a tort and involves passing off one’s business as being the
business of somebody else. The other person may obtain an injunction to prevent passing
off or sue for damages regarding cashing in on his/her goodwill – see Exxon Corp vs.
Exxon Insurance Consultants International Limited (1981).
Limited Liability: A private limited company’s name must end with the word
‘Ltd’ but a public limited company’s name must end with the words ‘Public Limited
Company’ or ‘plc’ on the common seal, correspondence, invoices, bills of exchange and
in a notice conspicuously displayed in every location where the company operates.
(The word ‘Ltd’ may be excluded from the name of a limited company if
permitted by section 30 Companies’ Act 1985 but the fact that the company is limited
must be stated on its correspondence, invoices, etc. and in a notice).
Failure may result in the company and individual concerned being fined and the
latter individual may be held personally liable on the document, etc. used. Under the
General Law of Agency, an authorized agent who becomes personally liable under the
Companies’ Act 1985 may claim reimbursement from the company.
Change of name: This may be effected upon special resolution or instructions of
the Secretary of State and payment of the appropriate fee to the registrar.


The M/A of a public company must state that the company is a public company. The

company itself may be re-registered as a private company and vice versa.


The domicile of the company must be stated in its M/A. The company will be governed
by the law of its domicile.
Residence of the company is determined by where management control exists
rather than by location of registered office (where all communications and notices may be
addressed and certain registers and documents are required to be kept).
Location of the registered office may be altered within the company’s domicile
but the registrar must be notified within fourteen days of such change in location.

Objects Clause

The objects clause states the powers of the company. Any acts which contravene the
objects clause are deemed to be performed ultra vires i.e. beyond the company’s powers.
Such acts can be prevented by a court injunction or sued upon by the injured party.
In relation to the objects clause of the M/A the court may grant implied powers
which are incidental to the objects clause e.g. to appoint agents, to hire employees, to
borrow money with or without security, to sell the company’s property, to hold land and
to effect legal proceedings. Implied powers are granted by the court only where they
benefit the company, as confirmed by Lee Behrens & Co Ltd (1932) or where the
company wishes to provide for the welfare of its employees and ex-employees.
The court has granted implied powers to help companies carry on business which
was fairly incidental to the objects clause. In Deuchar vs. Gas Light and Coke Co (1925),
a company formed to manufacture coal gas had power to manufacture an additional
chemical (caustic soda) to help convert a certain by-product of coal.
Express powers are those mentioned in the M/A and can be used whether or not
they benefit the company, as confirmed by Charterbridge Corporation vs. Lloyds Bank
Ltd (1968).
The courts allow companies to perform specific activities intra vires i.e. as laid
down in the M/A. The M/A must distinguish between main objects and ancillary objects.
The company cannot engage in ancillary objects alone.
Concluding paragraphs of M/As which are expressed in general terms and are
meant to allow the company to do virtually anything are closely scrutinized by the courts,
with a view to controlling the activities of such companies.

Contracts and the Doctrine of Ultra Vires


Chapter XXII

Company Law – Part 2

This section covers the management and administration of registered companies.

Management of Registered Companies

The division of power between the company in general meeting and the Board of

Directors is governed by the A/A, as confirmed by Automatic Self-Cleaning Filter
Syndicate Co vs. Cunningham (1906).

Types of Company Meeting

Meetings are now "general meetings" or "annual general meetings" - there are no
“extraordinary” general meetings.
Every company must hold an annual general meeting (AGM), with the first AGM being
held within eighteen months of incorporation. At this meeting, the directors consider and
discuss the financial statements, reports of the directors and auditors, the appointment of
the directors and auditors and the terms of their contracts. In the event of failure to hold
an AGM in due time, the Secretary of State, upon application by any member, may call or
direct the calling of the AGM.
Private companies need not hold AGMs unless their articles or the requisite percentage: 5
to 10 per cent (depending on the circumstances) of the members require them to do so.
As regards general meetings, the statutory 48 hour cut-off period for returning proxy
forms is now calculated using working days, so that it will never fall on a weekend or
bank holiday (in contrast to the position under the 1985 Act) unless the articles provide
otherwise. Quoted companies must publish poll results on their websites in respect of all
general and class meetings.
Members Calling Meetings

Members holding 5 per cent of the voting rights can require the directors to call a general
meeting, if more than 12 months have elapsed since the date of the last general meeting,
in advance of which members have a right to circulate resolutions.

Notice of Meetings

Fourteen days’ notice of a general meeting is generally sufficient, even where a special
resolution needs to be passed, save in the case of an Annual General Meeting (AGM) of a
public company (21 days), unless the articles specify otherwise. Shareholders with 90 per
cent of the vote in the case of private companies, and 95 per cent in the case of public
companies can consent to short notice, unless contrary to the articles, or in the case of
AGMs, where it must be 100 per cent. The Act facilitates electronic communication
subject to detailed provisions. The notice of the meeting must contain new standard
wording explaining the member’s ability to appoint multiple proxies.
Requisites of a Valid Meeting

For the meeting to be valid it must be:

i) Properly convened: Notice duly given (by authorized person to those supposed to
attend) with necessary details of location and business to be conducted;

ii) Legally constituted: Proper chairmanship, quorum, statutory regulations, etc.;
iii) Valid transactions.


The chairperson of a general meeting should be the chairperson of the board of directors
or a director chosen by the directors present or a member chosen by the members present.
The chairperson must ensure that the meeting is properly conducted, though
he/she need not listen to everybody, as confirmed by Wall vs. London & Northern Assets
Corporation (1898).


Quorum implies the minimum number of persons required to transact business and is
therefore two persons present and entitled to vote, as confirmed by Sharp vs. Dawes
(1876) and despite any number of proxies.
There are some exceptions to the law in Sharp vs. Dawes (1876), as where one
person holds all the shares of one class or the A/A stipulates a different quorum or where
the Companies’ Act 1985 so provides.


Voting may be by a show of hands and/or a poll but much depends on the A/A, which
may lay down simpler rules than those contained in the Companies’ Act 1985.

Corporate Representatives

A corporate body that is a shareholder may be physically represented by a person

(appointed by directors’ resolution) and the latter person will count towards a quorum
even though he/she is not a proxy.


A proxy is a person who is authorized to represent a shareholder at a meeting via a

written instrument (which is referred to as a proxy). There is a tendency to encourage
shareholders to appoint directors as their proxies and this is legal, as confirmed by Peel
vs. London & Western Railway Co (1906).
Listed companies must, on other than routine matters, issue two-way proxy forms
to enable a member to instruct his/her proxy to vote for/against the resolution.
The member who appoints a proxy may revoke the appointment before
commencement of the meeting and attend plus vote at the meeting concerned, as

confirmed by Cousins vs. International Brick Co (1931).
A proxy, whether he/she is a director or not, must vote as instructed (by the
member who appointed him/her) if the proxy is a professional advisor or has a fiduciary
or contractual relationship with the person who appointed him/her.


Special: 75 % of members (or more) who are entitled to and

do vote in person or by proxy at a general meeting,
of which 21 days’ (or more) notice of intention to
pass special resolution is given.
Ordinary: 50 % of members (or more) who are entitled to and
do vote in person or by proxy at a general meeting
of which due notice specifying intention to pass
ordinary resolution is given.
Where a provision of the Act requires a resolution of the members without specifying the
kind of resolution, an ordinary resolution will suffice, unless contrary to the articles.
Elective resolutions may no longer be passed (except to renew authority to allot under
section 80A of the 1985 Act) and will become the default position for private companies.

Chapter XXIII

The Law of Partnerships

The Partnership Act 1890 defines a partnership as a relationship which exists between
persons carrying on a business in common with a view to profit. The contract may be:

i) Expressed in the form of a deed, or

ii) Implied, where the parties commence business before signing a partnership deed.

There must be business i.e. trade, profession or occupation but not mere ownership being
conducted by the parties, as confirmed by Keith Spicer vs. Mansell (1970) and Kay vs.
Johnson (1856) even if for only one particular act – see Reid vs. Hollinshead (1825),
where A asked B to buy one thousand bales of cotton for A and to take a one third share
in the sales proceeds rather than a commission. B agreed and purchased the cotton. B was

allowed to insure, warehouse and pledge the same as collateral and was allowed to do so,
having been deemed partners by the court.

Profits and Sharing of Profits

The joint owning of a horse for profits is not an indication of business, unless the horse is
owned for breeding and gains to the owners, as confirmed by French vs. Styring (1857),
where A and B owned a horse and agreed to share the winnings and expenses.
Each partner must receive a share of profits rather than gross returns, as proved by
Cox vs. Coulson (1916), but mere sharing of profits is not conclusive evidence of the
existence of a partnership.
If a widow or child of a deceased partner receives a portion of profits this does not
make her a partner – see Cox vs. Hickman (1860), Walker vs. Hirsch (1884) and Pratt vs.
Strick (1932).

Types of Partners

i) A General partner has the right to participate in the management.

ii) A Limited partner has limited liability for the firm’s debts if there is at least one
unlimited partner, but cannot participate in the management of the partnership.
iii) A Dormant/Sleeping partner takes no part in the management of the partnership
and is normally prevented from binding the partnership by his/her acts or
iv) A Partner by Estoppel leads others to believe that he/she is a partner and knows
plus consents to the same; he/she will be liable as a partner, as in Towers Cabinet
vs. Ingram (1949).
v) A salaried partner can probably bind the firm by his/her acts or omissions but
cannot dissolve the firm – see Stakel vs. Ellice (1973).
Number of Partners

The number of partners can vary between two and twenty, but more in the case of
solicitors and accountants, provided all are qualified and stock jobbers/brokers who are
members of the Stock/Securities Exchange), patent agents, actuaries, surveyors,
auctioneers, valuers, estate agents/managers, building designers and consulting engineers.
— a unit trust may have more than twenty members without the need for registration
because the members are not in business with the managers of the trust – see
Smith vs. Anderson (1879).

Meaning of Firm

Persons who have entered into partnerships comprise the firm, which is not a separate
legal entity. The firm can be sued as a firm or by actions against any individual partner.

Choice of Name


Chapter XXIV

Sexual Harassment and Bullying – Burgeoning Problems in the Corporate World

Sexual harassment includes unwelcome sexual advances and other verbal or physical
conduct e.g. inappropriate pictures, posters and dress manner. Sexual harassment need
not depend on the presence of any single variable and can be tried even if the plaintiff
cannot prove psychological injury, so long as the intention to harass is clearly shown.
Since the Supreme Court’s ruling of November 1993 on a sexual harassment case, a
company can be held liable for damages resulting from a hostile work environment.
Training is vital. There are basic approaches to sexual harassment training e.g.
packaged workshops, assertiveness training, and gender awareness training. One cannot
change a person’s attitudes and feelings immediately. However, you can change
behavior... and, a change of behavior is often the predecessor to attitudinal changes.
In the words of Eleanor Roosevelt, ‘There are no victims, only volunteers’. When
one educates one’s self about the potential difficulties of the workplace situation, one is
not relegated to the ‘victim position’. Instead, it is possible to emerge the victor - the
empowered victor.
This chapter aims to highlight the main aspects of sexual harassment – a subject
which is highly sensitive in nature. Knowing what sexual harassment is and how one can
deal with this extremely important issue in the workplace has become a priority.
This chapter will explore the different types of harassment and how you, as a
manager, can communicate to your subordinates your intolerance of harassment in a
professional, non-threatening and educational manner.

What is the Problem?

Sexual harassment and employment discrimination prevent a woman or man from

expressing herself (or himself) to the best of her (or his) ability. Frustration on the job and
elsewhere promotes sub-standard performance and adversely affects the bottom line.
As a woman endures sexual harassment and struggles to maintain both her job
and her sanity, she will most definitely need extraordinary support and understanding
from her partner, her family and her friends. Eventually, they will begin to feel the stress
and tension originating from the workplace. Sexual harassment is, therefore, more than a
work problem – it is a social and community problem!
Every business enterprise is accountable to its employees for the hostile or
discriminatory work environment generated by its policies, procedures and practices.
Employees must be allowed to exercise their talents and realize their full potential, with
fair rewards, in terms of results actually achieved. Perseverance and determination should

enable a woman to express her grievances without due fear of losing her job or
employment and social status, even if these grievances are directed at her own boss! It is
imperative that she find the initiative and courage to seek justice for herself and other
members of the female race, both in the corporate world and in society in general. By
revealing their experiences of sexual harassment and discrimination, women must effect
changes on a corporate and on a social/community level. Their silence protects people
who have committed an injustice and allows them to commit further injustices.
Absenteeism, high turnover, difficult recruitment, negative publicity and low
productivity are by-products of harassment in the workplace. Though worker-harassment
has existed since time immemorial, very little has been done about it, until recently. In
fact, much of it was expected and accepted. ‘Sex has always been in the workplace, more
or less... seductions, manipulations and the eroticizing of power create currents and
tensions that underlie most of our interactions’ (Haskell).
An added fact or by-product of sexual harassment is that, ‘...workplaces with high
rates of sexual harassment also have high rates of racial harassment, discrimination and
other forms of unfair treatment’ (Sandroff).
Laws, enactments and awareness have caused the incidence of litigation to rise.
Some significant events:

1964 The Civil Rights Act Enacted.

1981 EEOC (Equal Employment Opportunity Commission) finally adopted
guidelines defining sexual harassment as a form of illegal sex
discrimination. The US Supreme Court affirmed those guidelines in 1986.
1987 K-Mart paid $3.27 million in one case. Add to this the costs of adverse
publicity, damaged recruitment, low productivity, absenteeism and
employee turnover, and the sum can become even more astronomical
(Industry Week, July 3, 1989).
1989 90 % of the nation’s largest corporations reported some type of sexual
harassment complaints.
1990 5,500 (alleged) victims filed formal complaints against their employer,
with the EEOC.
EEOC had a backlog of 41,987 discrimination cases nationwide.
90 % of sexual harassment cases involved men harassing women.
9 % involved same-sex harassment, 1 % involved women harassing men.
1991 Anita Hill appears before committee on Clarence Thomas confirmation
35 % of US companies received complaints of sexual harassment
1992 1,340 people won $12.7 million from employers in sexual harassment
1993 1,546 people won $25.2 million from employers in sexual harassment
Harassment complaints rose to 12,500 from 1990’s total of 6,100.
Sexual harassment complaints against eating and drinking establishments
had a 27 % increase for this fiscal year. The first three quarters of 1993
yielded 739. All four quarters of 1992 reported 838 formal complaints.

Since 1993, the following cases have contributed to revisions in the laws related to
sexual harassment.

Chapter XXV

Women - Yesterday, Today, Tomorrow...

Over the years, women throughout the universe struggled hard to achieve a position in
what was once considered to be ‘a man’s world’. In today’s business world, women have
not only the determination but also the power and opportunity to pursue their goals. They
see themselves as independent persons who rely on their own talents and skills to
succeed. However, a woman’s attitude about her position in society was not always one
of emancipation and achieved success. She had to overcome many obstacles and
stereotypes to consider herself as good as, if not better than, her male counterparts.
In the past, a woman’s role was limited to one that pertained only to her individual
house and family. She was expected to be meek... ‘feminine’... and obedient to her male
counterpart. The psychology of the past was that the male was the breadwinner while the
female became a homemaker... the man set the rules while the female followed those
rules. The belief was that a good woman was one who stood by her man, regardless of
whether he was right or wrong.
Speaking on their own behalf was not a characteristic of women of earlier
generations. They were not allowed to voice opinions publicly or have a say in
government and they had no control in social, political or economic decisions. Women

existed for their families and communities... few sought careers and even fewer
succeeded. The business world offered women little power in jobs which were limited to
‘feminine’ tasks like secretarial work, nursing and teaching.
The women of the past were limited in their actions outside the home. Stereotypes
against women inhibited them from utilizing their talents and developing their potential
for the myriad of professional opportunities. Business, in particular, was considered to be
a field for strong, diligent, persevering individuals... and women did not qualify.
As time elapsed, the desire of women to join the workforce became increasingly
evident. More and more women began to seek out jobs in fields rarely touched by them
before. The corporate world itself was impacted by the new influx of female applicants.
Women attempted to gain a foothold in the previously all-male fields of accounting,
finance, advertising and management, while aiming at prominent positions in firms.
Despite their quest for equality in the work force, women found themselves being
deprived of success. The corporate world inhibited the advancement of women in several
ways. Along with the already blatant prejudice against the female gender, new challenges
and biases had to be dealt with. Sexual harassment and sexual discrimination were
practised. An invisible ‘glass ceiling’ developed as more women tried to advance in the
business world. At this point, women were working but the treatment of women in the
workplace had many flaws. The struggle of women to be accepted in the workplace
slowly evolved into a struggle to obtain respect in the workplace.

Sexual Harassment

Sexual harassment describes sexual advances or sexual inferences which are unwelcome
and includes physical pats or touches, sexual books and pictures. Society regards this
type of behavior as being morally wrong and it is illegal. In the corporate world, sexual
harassment is regarded as unethical and it defies the positive corporate culture of most
business enterprises. Women, in their struggle to achieve equality in the workplace,
encountered all sorts of sexual harassment. Entering a work environment created by men,
for men, caused many women to adapt to a situation vastly different from their previous
sheltered home environments. They had to tolerate the sexual advances and sexually
inferring conversations of their bosses and male subordinates, because they did not know
how to deal with the same. Many women refused to disclose, let alone detail, their
experiences because of shame, embarrassment and a feeling of inferiority.
As the problem of sexual harassment snowballed, women approached it
differently. Whereas in the past the behavior was objectionable but accepted because
women had no recourse, the present offers no such leniency. Women began to express
themselves by saying ‘I don’t have to put up with this!’ They felt they had as much right
as a man to work and succeed, without having to deal with disrespectful co-workers.
Women no longer feel that they have to please their male counterparts in order to
advance. They believe that they should be appreciated and acknowledged on the basis of
their performance. In today’s society, sexual harassment is totally unacceptable, will not
be tolerated and will be severely penalized

Preventing Sexual Harassment

Although there is a movement towards the elimination of sexual harassment from the
workplace, society is still a long way from seeing lasting results. The effort to stop this
unacceptable behavior is the responsibility of the firm as a whole, from the top executives
to the lowest rank and file employees. Several steps may be taken to educate workers
about this problem in order to reduce and eventually eliminate the action of perpetrators
as well as to safeguard potential victims. Firms should provide training which informs
employees about the nature and scope of this problem, as well as preventive measures
and procedures to be adopted if a person feels that he or she has been victimized.
Management should mandate attendance at seminars which focus on respect and
sensitivity toward the needs of the opposite sex. An organization should clearly define
what constitutes proper conduct on the part of its employees. Specific guidelines should
be set as to what is considered sexual harassment in the work environment. Counseling
should be offered to employees who claim to be victims. Although these actions are not
easy to implement and actions that constitute sexual harassment are difficult to define in
black and white, they are the first step towards increasing awareness of sexual
harassment. Once firms admit that harassment exists and acknowledge the emotional
and/or physical harm it causes, they can move forward in a concerted effort to destroy it.

Sexual Discrimination

Sexual discrimination is one of the greatest obstacles that women entering the workforce
had to overcome. It prevented the hiring and advancement of qualified females due to one
basic reason... gender! Once hired, women encountered the ‘glass ceiling’ - an invisible
barrier that prohibits the advancement of women to top level corporate positions.
As sexual discrimination became a serious problem, many women began to fight
back. They demanded equal opportunity pertaining to hiring and promoting within
business enterprises. Women began to form organizations that fought against sexually
discriminating industries and jobs. They attempted to change the ‘all male’ attitude of
many service and technical industries. In the business world, women began to fight
against the ‘glass ceiling’ for the right to become supervisors, managers and eventually
CEOs and owners. Today, society is adapting to a sexually diversified working
environment which promotes equal opportunity for all job applicants, in every field.

Exploring the (Re-enforced) Glass Ceiling

Although society has coined the term ‘glass ceiling’ as something that women must deal
with in their pursuit to reach the top of the corporate ladder, it is only fair for one to
explore the realms of this term, to conclude if it really exists or is merely a figment of our
imagination! The glass ceiling is defined as an invisible and arbitrary barrier which
prohibits women from advancing to top management. It is the prime explanation given
for a woman who progresses through the early stages of her career and then hits a career
plateau: a point where she finds further advancement difficult, unexpected, and in some

cases, unattainable. The glass ceiling inhibits different people at different times, leaving
some women struggling in the low ranks of a firm, and others within an arm’s reach of an
executive position – so near and yet so far!
For years women claimed that they were not selected for positions for which they
were well qualified, simply because of their gender. They still argue that they must fight
against a very strong, deep-rooted, and well-established ‘old boy’s network’... an
environment where male executives choose their fellow male subordinates for
promotions over equally qualified or more qualified women. The popular consensus
among women about the ‘old boy’s network’ is that it is an inconspicuous attempt by men
to preserve their power and control over top executive spots. One extreme view is that the
glass ceiling is a conspiracy to inhibit women in general. It is seen as extremely unfair as
well as a blatant act of sexual discrimination toward the female sex.
Despite everything women have pointed out about the existence of a glass ceiling,
one must also acknowledge the opinions of top executives who justify their acts of hiring
and promoting. These executives, be they men or women, deny the existence of any type
of glass ceiling towards women, minorities, or any other social category. They claim that
their human resource departments work in a fair and legitimate way to ascertain who is
best suited for a higher position. They offer many explanations as to why women find it
difficult to advance. Among these explanations is the opinion that women feel inferior to
men and in turn do not try to excel beyond their professional limitations. Instead of
striving to beat the odds and succeed, women blame their lack of faith on male
counterparts who take the initiative. Another explanation offered is that women find it
hard to juggle both a career and a family life. Due to the multiple roles and
responsibilities that must be employed, women lose focus and resolve to perform at less
than optimal, on the job. This, in turn, results in unsatisfactory work and causes the
women to be overlooked, come time for advancement, promotion, or raise.
The glass ceiling is a subject with many grey areas. Its actuality is accepted by
some and denied by others. Women consider it a very serious problem which threatens
their chances of succeeding in a male-dominated business world. The existence of a glass
ceiling depends upon the point of view of whoever researches it. It might be a problem
that women must overcome or break free of or an illusion: a theory concocted by women
to rid themselves of any blame for their own shortcomings or failures!

The Feminine Advantage


Chapter XXVI

Conclusions and Views

Management is concerned with moving people, be they insiders like employees or

outsiders like customers, to willing action through a combination of qualities which
reflect intelligence, knowledge, power, dignity, integrity, poise, diplomacy, persuasion

and motivation. The aim is to obtain the desired results in the light of the business plan
and related objectives.
Although considered by many to be an art, management is also a science, in the
sense that techniques associated with it can be learnt through attendance at colleges,
universities and other educational institutions and consolidated by experience.
No one can undermine the importance of properly selected and motivated
employees as a foundation for success in any business enterprise. It is a pity, though, that
employers often play games with employees, being too cost-conscious rather than
evaluating and rewarding employees, fairly, in terms of assignments and monetary
rewards. One can only hope that this trend will be eliminated soon, with resulting benefits
for all employees, firms, industries and economies of the world. Management must win
the confidence of its employees to ensure their wholehearted and optimal participation, in
line with desired results and sound human relations.
The business organization should realize that there are different types of
organizational characters, who must not be allowed to pursue their own objectives at the
expense of the welfare of the firm in question.
The jungle fighter believes in survival of the fittest and expresses himself/herself
accordingly. The craftsman/craftswoman attempts to master his/her own job rather than
manage the systems. The company man/woman tries to achieve the firm’s goals, while
appreciating the human side of people. The gamesman enjoys new ideas, techniques and
approaches, via teamwork and challenge. Most organizations of any kind have a mix of
the characters outlined above.
Professionals are committed to sound performance, rather than to length of
service or loyalty towards the firm; they belong to no man or firm, but rather to their own
professions. Firms should also bear in mind that professionals do not like to be
‘managed’, with implications for control, manipulation and direction.
Organizational slack in terms of excess or insufficient time, materials, labor,
equipment, and/or capacity implies that there is under-utilization of resources, to the
detriment of the firm in question.
Conversation is the art of transmitting thought and is therefore a function of
foresight, knowledge, skill and balance. The manager should understand the background
of the person(s) being spoken to, observe proper manners and listen as well as talk – one
without the other can prove to be fruitless, even to the extent of causing damage. Criticize
and be criticized with grace and tact while always being polite.

Other Matters



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TORONTO (Reuters Life!) -
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FARMER, Ben Harassed lawyer to get record £13m award

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Osborne and Clark The Consumer Credit Act 2006