Significant Developments in the Evolution of UK Business Law

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Analyse the significant developments in the evolution of UK Business Law in the period between 1600 and 1900. Explain how these developments impact upon the current operation of UK Business Law INCORPORATING THE LAW MERCHANT INTO COMMON LAW In the 1600’s a major development of business law was the incorporation of merchant law into the UK system. Before merchant Law was properly incorporated in the UK, it operated in the court of Admiralty which had been strengthened by a statute in 1540[1]. As identified by Frederick Beutel, the demand for a special mercantile court was recognized by the parliament and this led to acts in 1648 and 1653 which gave the Admiralty jurisdiction over mercantile and commercial matters except for bills of exchange and accounts between merchants[2], However due the opposition of common law judges the bill was lost in 1970 and the court ceased to have an influence over commercial matters.[3] The law was unsatisfactory when the common law courts finally achieved jurisdiction over commercial matters.[4] This led the business community to avoid litigation in the king’s courts; although this was before Lord Mansfield took position has chief justice.[5]Commercial arbitration which was a very important part of merchant Law --- Arbitration accounted for a large portion of the disputes on commercial paper. Which led to the Parliament, at the request of the merchants, passing the Commercial Arbitration Act in I698. This was another important part of the law merchant which was re-enacted into the English law by legislation A great step was taken with the incorporation of merchant law in year 1666, which was characterised as " one of the boldest fictions known in our legal history,"[6] The courts declared that the custom was part of the law of the land and therefore applied to all persons. Then came the final stage of incorporation which was for the courts to take judicial notice of mercantile custom and to treat it as part of the law. This feat is usually attributed to Lord Mansfield: L stuart stated that the incorporation of merchant law into the UK was two fold [7], it began with the growingly powerful and systematic expression of merchant customs; as well as the beginning of the reception of those customs into the Common Law[8]. L, stuart particularly commended Lord Mansfield for “his use of foreign examples, his quotation of the works of Juris consults, his use of portions of the Civil Law, dnd finally, the tendency to stress, where necessary, equity rather than precedent,”[9] In the eighteenth century two astounding judges brought about a solution to the problem of common law actions based on mercantile custom . Charles Bane stated that it was because of these two judges that the law of the merchant merged in to the UK[10] Lord holt was in position from 1989 to 1710 he was the first judge to make used of special juries composed of merchants [11]and he was the first common law judge to recognize the title to a bill of exchange in a bona fide transferee for value In a memorable case appropriately entitled Anonymous.[12]Although Lord Holt was commended for his steps within the UK ,he was viewed as conservative because he refused to accept the seventeenth-century mercantile custom that recognized promissory notes as negotiable instruments.[13] an example of this is the case of Clark V martin[14]. However promissory notes were finally seen as negotiable instruments in 1704 in the promissory notes act. Then came Lord Mansfield , As stated Lord Mansfield key technique was the use of a special jury of merchants to find the right mercantile custom or usage.[15]and then use those findings as a rule of law for subsequent cases. Charles bane argued that lord Mansfield was not bothered by technical questions in regard to the necessity of custom being long standing and limited in scope.[16]Lord Mansfield’s decisions were commended for his efficiency and diligence[17]business men found that could obtain a speedy decision. Lord Mansfield valued certainty in the law over flexibility as seen the case of Edie v East India co.[18]where he acknowledged a previously settled rule that a bill not endorsed "to order" could still be negotiable , even though there was evidence that the customs of the merchants had changed.[19] Charles stated that “he rarely refused to follow the findings of his special jury as to the customs of merchants and incorporate them into the common law”[20]. However legal scholars criticized this because it gave merchants the impression that new merchant customs could be automatically incorporated into common law[21] . The Impact of Merchant Law The incorporation of Merchant customs has to the incorporation of Laws that helps the merchants operate more efficiently. This is specifically in regard to INCOTERMS.[22]These are a uniform body of price-delivery terms where each price-delivery term, when employed by merchants engaged in international affairs is actually formulated in the light of pre-existing merchant practice.[23] Incoterms have a major impact on carriage of goods, because they address issues such as the passing of risk in cargo from seller to buyer; the delivery obligations of the seller, the expenses which they parties must bear in relation to the shipment (e.g. customs clearance, the payment of freight and cargo insurance arrangements). In addition, several of the terms as defined are only applicable only in respect of shipments by sea or inland waterways, thereby making them especially relevant to maritime carriage contracts and hence to marine cargo claims. Although incorporated by reference most frequently in contracts for international sales of goods, the Incoterms are also found as well in many agreements for domestic sales. http://www.internationalprivatelaw.com/files/Property_and_Risk.pdf Trakman, Leon states that that “the spirit of the medieval Law Merchant is embodied today in renewed faith in mercantile autonomy, including dispute resolution, and the resistance to incursions by the nation state into the purportedly self-regulatory regime of borderless merchant trade”. [24] The incorporation of Merchant Law can be said to be having an impact on the current operation UK business law ,most especially is U.K cyberspace law which was characterised as “distinctly cost and time effective methods of dispute resolution”[25]. Individuals can resolve online merchant disputes in a virtual court which mirrors that which the medieval merchants sought for the resolution of their disputes, virtual courts, in a very different context, seek comparable efficiencies as stated by Trakman[26]. These are seen in online markets suchs as Ebay and Amazon Also a form of arbitration has evolved due to the evolving nature of the law of merchant, Arbitration is seen both internationally and nationally , Arbitrators are appointed by the parties to apply the parties' choice of law. Chosen for their commercial expertise,arbitrators conduct arbitral hearings in an allegedly time- and cost effective manne rin the way merchant practice and trade usage. As in medieval times, commercial arbitration centres have developed at merchant centres, not unlike courts of the fair, and have applied arbitration laws and procedures to suit merchant clientele, similar the actions of medieval courts of the fair It was also identified that The domain-name panel also has a functional responsibility[27], similar the duty of the Law Merchant judge[28]. The panel must determine whether the use of the domain name is illegal, in bad faith, and at the expense of the trademark holder. This resembles both rule based [29]decision making and, to a lesser degree, justice ex aequo to bono[30] which was used in merchant law The development of registered limited liability companies and separate legal personality Limited Liability started with the introduction of joint stock companies an example included the East India Company. A joint stock company could be created by a royal charter , through which each members contributed capital towards specific trade ventures. As well as through acts of Parliament[31].The joint stock companies enjoyed a separate legal identity A member of the joint stock would take shares in proportion to the amount of his initial contribution towards the company stock[32] while incorporation was increasing and a share market was becoming established there was in fact little law governing corporations. As Gower puts it, there was only an “embryonic law of partnership which applied to companies that were unincorporated as well as those that were “[33] During the first twenty years of the 1700’s a volatile investment market developed. Due to the growth in share dealings Trade in shares was common and speculative. This led to The most famous speculative investment of them all was the South Sea Company. The South Sea Company was formed in 1711, with the intention of taking over the slave trade in South America. In 1719 it convinced the state to let it take over the national debt of the British Government because the company was prosperous, many investors took up this option. Stocks soared, but purely on speculation the company wasn’t even trading at this point. The collapse of the south sea bubble company led to panic selling of shares , which resulted in markets [34]The Government passed the Bubble Act. This is perhaps the first instance of “companies legislation” but it was not a particularly fine one. The Act made it illegal to form a joint stock company or offer transferable shares unless the company was a chartered one, either by Royal Charter or a Private Act of Parliament. The also imposed harder methods to trade a company[35] limited liability began to be mentioned as the prime motivation for incorporation. An example of this is In 1802 where for example, the promoters of the Kent Insurance Company ordered that ‘application should be made for an Act of Parliament or ….to establish the Institution and especially to protect the property of the proprietors beyond the amount of their respective shares.[36] Then came the companies act of 1844 , which is said by Griffin to have given birth to the first form of registered company.[37] The Joint stock companies allowed a company to be incorporated by the registration procedure rather than by royal charter or individual acts of parliaments[38]. There were however restrictions such as the need to have more than 25 members . The downfall of this act was that it did not include limited liability to the companies ,as it was seen as a way by which companies could exploit the corporate form to the detriment of creditors and investors.[39] The Limited liability act of 1855 however allowed companies with at least 25 members to have limited liability. This act was incorporated into the joint stock companies act of 1856. In order to encourage smaller businesses the act removed restrictions in regard to the numbers of members and the minimum amount of capital that had to contributed . The Judicial acceptance of the company as a separate legal entity Legally, shares in joint stock companies, incorporated and unincorporated, were viewed as equitable interests in the property of the company. "Shareholders", says D. G. Rice, "were regarded as owners in equity of the company's property. "However this view was changed in the case of Watson v Spratley[40], in 1854, the court had to determine the nature of the shares of an unincorporated mining company. It held that the matter turned on "the essential nature and quality of a share in a joint stock company", and declared its shares to be interests only in profits. Therefore shareholders, even in unincorporated joint stock companies, had no direct interest in the physical assets of their companies. Shares were personalty irrespective not only of the nature of the company's assets but also of its legal status. They were an entirely separate form of property: legal objects in their own right. They had been freed from their direct link to the property of joint stock companies The recognition of large business as a separate legal entity was generally accepted [41]as long as it was registered according to the companies legislation. However the recognition smaller companies , registered with one substantial shareholder was a matter of uncertainty . The growth of one man businesses towards to the end of the nineteenth century . However the case of salomon v salomon was the case that established the applicability of the registered company as an acceptable and valid form of business regardless of size The impact of limited liability on the operation of business law As identified by Stephen griffin the “When general limited  liability was introduced by the  Limited  Liability Act 1855, its purpose was to generate economic growth in the wake of the industrial  revolution.  Limited  liability provided a means by which entrepreneurs and investors could raise capital and trade that capital with  limited risk to their personal wealth”[42] Due to the introduction of limited liability the common law and statutory provisions have evolved to monitor the exploitation of the  limited  liability company, however the protection provided by such measures is invoked rarely.[43] For example, the fraudulent trading provision (s.213 IA 1986)[44] has not been used in one but a cases because of the difficulty of establishing a director's dishonest intent, the wrongful trading provision (s.214 IA 1986)[45] has failed to create the substantial impact which it deserved because of the many procedural problems associated with its implementation, and the prohibition against phoenix companies has delivered so few cases as to suggest the problem does not exist, when in practice it clearly does.[46] It has been feared that a company merely transfers the burden of liability from shareholders to creditors, facilitating corporate recklessness. This would not have arisen but for  limited  liability. It is for this reason that the idea of limiting the members'  liability introduced by the 1855 Act was not welcomed by the wealthy class and treated with particular distrust in the second half of the 19th century.[47]

however as Imanalin stated “the judiciary is very reluctant to pierce the corporate veil in company groups holding a parent and its subsidiary as a single entity”[48] Identified other ways in which the Law has developed to to tackle the corporate veil which had been placed in the case of Salmon. Creditors could create contractual guarantees from a parent promising to pay any debts unpaid by its subsidiary.[49]Also the statutory developments in the 1980s have allowed company creditors to sue directors in breach of sections 213 and 214 of the Insolvency Act 1986[50] A parent company could itself be found by the court to be in breach of these sections if the court is satisfied that it acted as a de facto or shadow director.43


[1] Frederick K. Beutel, The development of Negotiable instruments in Early English Law , Harvard Law Review ,Vol 51,No 5, Page 835 [2] I act of 117 [3] Supra note 1 ,p.837 [4] Ibid p 840 [5] J. H. Baker (1979). The Law Merchant and the Common Law Before 1700. The Cambridge Law Journal, 38, pp 295-322, page 297 [6] [7] L. stuat Sutherland ,The law merchant in England in the seventeenth and eighteenth century, Transaction of the royal Historical society , fourth series , Vol 17149-179.p 157 [8] ibid [9] Supra note 7, p 173 [10] Charles A Bane, From Holt and Mansfield to Story to Llewellyn and Mentschikoff: The Progressive Development of Commercial Law 37 U. Miami L. Rev. 351, p 356 [11] ibid [12] ibid [13] Ibid p 357 [14] ibid [15]Supra note 10 p 358 [16] ibid [17] ibid [18] Supra note 10 p 359 change it to the case [19] ibid [20] Supra note 10 360 [21] Christian, Note to 1 W. BLACKSTONE, COMMENTARIES *75 (E. Christian 14th ed. 1803) (1st ed. London 1765), [22] Evolution of the Law Merchant: our Commercial Heritage - Part II: The Modern Law Merchant, The; Trakman,Leon: E12 J. Mar. L. & Com. 153 (1980-1981) at 177 [23] ibid [24]supra note 21 [25] 53 U. Toronto L.J. 265 (2003) From the Medieval Law Merchant to E-Merchant Law; Trakman, Leon E. 53 U. Toronto L.J. 265 (2003) at 284 [26] ibid [27] From the Medieval Law Merchant to E-Merchant Law; Trakman, Leon E. 53 U. Toronto L.J. 265 at 289 [28] ibid [29] ibid [30] ibid [31] Frank Evans ,The Evolution of the English Joint Stock Limited Trading Company Columbia Law Review, Vol. 8, No. 5 (May, 1908), pp. 339-361 at 340 ibid [32] Stephen Griffin, Company Law , Fundamental Principles fourth edition , page 3 [33] L.C.B Gower, Principles of Modern Company Law, p 27 [34] Stephen Griffin, Company Law , Fundamental Principles fourth edition page 4 [35] Stephen Griffin, Company Law , Fundamental Principles fourth edition page 4 [36] [37] Stephen Griffin, Company Law , Fundamental Principles fourth edition page 5 [38] ibid [39] ibid [40] [41]

[42]Stephen Griffin Limited Liability – A Necessary Revolution Comp. Law. 2004, 25(4), 99-101. At 99

[43] [44]Section 213 of the Insolvency Act 1986 [45] Section 213 of the Insolvency Act 1986 [46] ibid [47] rethinking limited liability [48] Rethinking Limited Liability C.S.L.R. at 94 [49] Ibid at 92 [50] Insolvency Act 1986
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