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“The ‘fair dealing’ defences occupy a pivotal position in copyright law. They ensure a balance between the interest of the copyright owner in securing a just return on creative work and the public interest in ensuring that intellectual property does not impede the flow of ideas and information.” J Griffiths Preserving Judicial Freedom of Movement –Interpreting Fair Dealing In Copyright Law IPQ 2000, 2,2 164-186. To what extent do you consider that the fair dealing provisions and the supporting case law provide a desirable and consistent balance between these interests?

This paper will criticize the restrictive approach of ‘fair dealing’ defences in UK copyright law. American copyright law will be examined in comparison to discuss the alternative attitudes towards ‘fair dealing’ defences in infringement disputes. Changes to the rule will be proposed and discussed to demonstrate how the current copyright defence can be improved to maintain the balance of protecting intellectual property and freedom of information.

Fair Dealing defences which are used against copyright infringement cases raise important philosophical issues at the heart of Intellectual Property. There is a need for society to share and build on existing knowledge for progress. For example it can be argued the need to allow freedom of expression, is ‘more than necessary to incentivise creative expression in the first place.’^[1] Fair dealing defences attempt to mediate between the fine line of the commercial proprietary rights granted through copyright and the legitimate public use of material in good faith, to teach, educate and share cultural works. Thus there is a fundamental dichotomy between the free expression of ideas in the public domain and the rightful protection of creative works which use such knowledge and information. This is termed the ‘idea-expression divide.’^[2] Kretschmer ^[3] argues against the concept of copyright, due to its capacity to act as an ‘artificial barrier’^[4] impeding the exchange of ideas in society. One explanation behind such divisions can be suggested to lie in the historical Lockean conceptualization of property. This is defined negatively creating ‘rights to exclude access.’^[5] This ‘absolutist conception of property rights’^[6] allows the creators to exploit and monopolize economic, cultural production at the expense of fair uses in the public interest and freedom of expression. But there are those who support the rights of the author. For example the French system of droit d’auteur enables an artist to control how their work is distributed in the market. While concerned about economic exploitation of work, moral rights also ensure the author has rights to protect the integrity of a work. Thus the British concept of fair dealing defences must balance these conflicting tensions.

British copyright law protects the manner of expression or form of the idea, not the idea itself. A book can be protected but not the actual underlying ideas and themes conveyed in the written text. This was stated in the case of Donoghue^[7] where the judge held ‘the person who has clothed the idea in form, whether by means of a picture, a play or book’ will enjoy the benefits of copyright protection.

Fair Dealing in UK copyright law is a defence under Sections 28-76 of the CDPA 1988^[8]. The legislation provides for a set of prescribed circumstances, where reproductions of copyright material will not be considered an infringement. Fair dealing is outlined in sections 20-30. There are three categories where copying can be considered a fair action to take when using copyright protected material. They are 1) for research and private study under section 29; 2) for criticism and review in section 30; and 3) reporting current events under section 31. It must be noted that the legislation provides no clear definition of what constitutes fair use of material which attracts copyright. Thus the act restricts the defence to the non exclusive purposes as stated above. One reason for restricting fair use to a number of permitted acts enables the judge to consider other factors which are unique to the case itself. Fair dealing in this sense is shaped in the UK by judges as a ‘matter of impression’^[9] on a case by case basis.

The scope of fair dealing was clarified by Lord Denning in Hubbard v. Vosper. ^[10] This case suggested certain criteria to be considered by the judge in order to determine whether fair use can be permitted in different situations involving the use of copyrighted material. Denning outlined considerations, such as the frequency and extent of quotations, and subsequently the nature of using quotations. Denning states in response to this test, ‘If they are used as a basis of comment, criticism or review that may be fair dealing. If they are used to convey the same information for a rival purpose, they may be unfair.’ Another rule of thumb is the extent of the quotation within copyrighted work. This considers the size of the actual quote used and its justified proportions in fair use. For example Denning suggests ‘to take long extracts and attach short commentary maybe unfair.’ Each case of infringement is judged by objective standards, through the eyes of an honest person as to whether they would have dealt with the protected material in the same way as the infringer has acted.

Existing fair dealing case law, only serves to highlight the ambiguity of the defence under English law. It is difficult to provide a desirable balance which protects the exclusive rights of the copyright holder but maintain a consistent approach which provides certainty to use material which is permitted in law.

For example the purposes of legitimate research, the courts will not allow commercial research if it is used to produce a competing product or work. This was highlighted in the case of Time Out.^[11] It can be suggested large amounts of copying will be allowed for private research and study in the eyes of the law. Academics argue in this context fair dealing functions to enable freedom of individual research and study. To require and enforce protective measures to prevent the use of copyrighted material is impractical and uneconomic. It is argued copyright should not be used as a bar to those who wish to use the work in their own studies. Torremans argues copyright property rhetoric should not be allowed to supersede important value of free ideas. For example ‘copyright should not become a financial and practical obstructing barrier. There needs to be a balance between the interests of the copyright owners and society in the good functioning of the copyright system and the interest of society for its development.’^[12] It can be suggested this same line of reasoning underpins the fair dealing doctrine for educational purposes. Copying is permitted for intellectual property in dramatic, literary, artistic or musical work for purposes of instruction. Thus a student would be allowed to copy a part of an academic article in order to support their research or point of view in an essay.

Under the category of infringing material for the purposes of criticism and review, it has been established that infringement will not occur if there is adequate acknowledgement of the author, the title or description of work is made available, as held in the case of Sillitoe.^[13] Fair dealing was extended in the case of Pro Sieben Media AG ^[14] which held criticism of work can be fair, even if including the ideas in a work to discuss its ethical implications. The case stated that the ‘defence is limited to criticizing or reviewing that or another work or a performance of a work.’ The function of the defence is to allow a critic a sensible degree of leeway to conduct a review of the work. The courts stated the use of infringing material in a documentary was ‘a genuine piece of criticism and review rather than an attempt to dress ordinary copyright infringement up as criticism.’^[15] This case suggests it is fair to critically treat copyrighted material using the ideas within the work. But crucially ‘the defence does not cover those cases where only ideas, doctrine, philosophy and events are criticized.’ ^[16] Therefore the fair dealing doctrine is narrow in scope, restricted only to the fair use for the purposes of critical review. This case been criticized by Torremans who has argued it is not sufficient to rely on the infringers ‘sincere belief’ they are conducting fair criticism. There is an imbalance for those to wishing to exploit the fine line and cynically infringe work and simply claim the fair dealing defence for the purpose of criticism and review.

It can be suggested in comparison to US legal ‘multi – purpose’^[17] concept of fair use, the UK fair dealing doctrine is too restrictive in scope and interpretation. The UK is restrictive because the CDPA legislates three categories of permitted copying under the fair dealing defences, which are determined on a case by case basis of the judge. Thus anything else will be uncovered by the doctrine. The American legal system in contrast uses four standard ‘balancing’^[18] tests to determine the extent of copying protected material which is covered under the fair use doctrine. The fair use doctrine is a wider and more flexible legal concept to balance the ‘idea-expression’ division in intellectual property. Under the American Copyright Act 1976 17 U.S.C Section 107 states:

‘In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include-

1.the purpose and character of the use, including whether such use is of a commercial nature or it is for non profit educational purposes;

2.the nature of the copyrighted work;

3.the amount and substantiality of the portion used in relation to the copyrighted work as a whole, and

4.the effect of the use upon the potential market for or value of the copyrighted work.’

The fair use doctrine is not defined within the statute, it is left open to broad interpretation by judicial opinion. This ensures a degree of flexibility for the continued transmission of ideas in society. This for example can be seen when analyzing the primary factor of purpose and character. The concept of fair use rests on the idea of limited ‘transformative use’^[19] for similar purposes of educating, parody or comment. The standard allows the courts to asses whether the use is fair and justified. It also requires the burden of proof on the infringer to ‘demonstrate how the consideration is the extent to which the use is interpreted as transformative as opposed to merely derivative.’^[20] This point of law was considered in cases such as Mattel Inc.^[21] The toy company lost the claim against an artist who parodied the iconic “Barbie” doll figure in a non derivative manner. The doll was used in an entirely different context which defeated the copyright infringement claim.

Secondly the benefits of American fair use can be seen when considering the nature of the work. The standard allows for the distinction between created work and factual information which serves the public through its dissemination into the open arena. It is argued there is more ‘leeway’^[22] to copy factual material. This provision directly allows the courts to ‘prevent the private ownership of work that rightfully belongs in the public domain, as facts and ideas are separate from copyright.’^[23] This was held to be the case in Time Inc ^[24]concerning the public interest of the film depicting the assignation of President Kennedy. The social need to keep this in the public domain was greater than the commercial need to uphold the copyright in the film footage.

The third factor assessing the amount and substantiality of the original copied work is a more troublesome standard to determine in the courts. For example the issue of sampling in hip – hop music, which reclaims existing music and uses it to create a new track, was litigated. Here the courts have been unusually strict seen in the decision Grand.^[25] The case enforced the copyright of a Gilbert O’Sullivan song and lead to the restrictive requirement of licensing samples of music from the copyright owner, if the sample if substantially recognizable.

The fourth factor of investigating the effect upon the work’s value attempts to quantify the commercial impact infringement has had on the protected material. The ‘Betamax’^[26] case involved the copyright owner Universal loosing the infringement claim as it could not prove with any reliable evidence that the Betamax technology had dented the commercial broadcaster’s profits. Such an approach allows the courts to factor in alleged market harm to copyrighted material, and give equal consideration to economic concerns of the rights holder to make a fully informed assessment of the situation.

These four non exclusive factors provide enough flexibility for judicial opinion to consider other important considerations in relation to each individual case of infringement. In addition flexibility is encouraged as the fair use doctrine is a positive ‘defense to copyright, which means if the defendants actions do not constitute and infringements of the plaintiffs rights, fair use does not even arise as an issue.’^[27] Thus a broader view is established in the US system. You do not need the consent of the copyright owner under American law to engage in fair use of material which attracts copyright.

However further criticism of the UK approach to fair dealing arises in the wider context of digital copying technology and file sharing. The doctrine is made to look ineffective, mainly through the botched nature of the UK implementation of the EU Directives on the Information Society. This paper believes it is necessary to resolve these problems and rethink the traditional approach to copyright infringement in a digital environment. The aim to balance the conflicting factors of the author’s rights and the need to allow the free exchange of knowledge in society is harder to perform with widespread digital copying. But it is possible through Digital Management Systems, to distribute copyrighted content through technology which limits the capacity to duplicate files by the consumer. Despite DMS, this paper believes the frequency and simplicity of replication facilitated through digital technology far outweighs such content managed systems that use inbuilt licensing restrictions. For example peer 2 peer file sharing and online digital content has facilitated the exchange of copyrighted music in huge numbers among users of a globalised network on the internet.

It can be suggested that the UK’s implementation of the EU Information and Society Directive (2001) shows how outdated the present conception of fair dealing defences are. Article 5 deals with the exceptions and limitations to the use of copyright, in order to harmonize European policy. Under Article 5(5) a ‘draconian’^[28] three step test is used to assess any infringement exceptions in special cases. This section is to be ‘applied if they do not conflict with normal exploitation of the work and if the exception does not unreasonably prejudice the legitimate interests of the rights holder.’^[29]Critics suggest this is an even stricter standard providing no fair use for ‘copy protected on demand services.’^[30] Critics view the directive to mistakenly allow principles of freedom of expression to be ‘handed over to the rights owner.’^[31] For example under article 6(4) availability of research material through on-demand services can be contractually blocked by the copyright holder. This has major repercussions for the role of UK fair dealing defences as it renders the doctrine ineffective in the digital arena. Kretschmer worries this amounts to a ‘possibility of perpetual copyright.’^[32] In addition to this under 5(1), the directive provides for technical exceptions which involve necessary copying for technological process and digital content. Temporary reproductions such as the cache of files within a browser which copy files of data will not infringe copyright as such acts are ‘incidental and should have no economic significance.’^[33]

In light of such developments it can be suggested there is a need to find alternative solutions to reward copyright owners interest within a digital context. There is a need for copyright to ‘generate new resources of remuneration’^[34] for rights owners instead of functioning in a prohibitive manner. Kretschmer proposes alternative system of royalties to be used to compensate owners who can not stem the tide of digital copying. For example ‘a small royalty percentage on content traffic revenues from ISP’s would have been the obvious legal innovation.’^[35] Such novel solutions are needed in order to successfully balance the freedom of information with traditional copyright interests.

In conclusion this paper argues for the need to make changes and decided upon pragmatic alternative solutions to the current legal situation. Fair dealing should be redefined to enable copyright infringement defences take into account the development of digital content. It can be suggested to ensure greater flexibility the UK should adopt the wider US fair use doctrinal approach to defending infringement. Legislation should widen the scope of fair dealing through standard factor based tests. Adopting such standards would promote a liberal approach to asses the degree and nature of infringement. This is needed to make sure the vital balancing act of competing ideological tensions continue within intellectual property law.

Bibliography

Klang & Murray (eds) Human Rights in the Digital Age, 2005 Cavendish

Lloyd, Information Technology Law 4^th Ed, 2004 ,OUP

Bently & Sherman, Intellectual Property Law, 2^nd Ed, 2004, Oxford

Holyoak & Torremans, Intellectual Property Law, 3^rd Ed, 2001, Butterworths

Intellectual Property Law, Fourth Edition 2004, Cavendish Publishing

J Griffiths, Preserving Judicial Freedom of Movement –Interpreting Fair Dealing In Copyright Law IPQ 2000, 2,2 164-186

M. Kretschmer, Digital Copyright: End of an Era, 2003 www.cippm.org.co.uk

Joint Information Systems Committee and Publishers Association, Guidelines for Fair Dealing in An Electronic Environment, 1998, www.ukonln.ac.uk/services/elib/papers/pa/fair/intro.html

R. Buchan, Fair Picture, Guidance from the English High Court on Fair Dealing for the Purpose of Criticism and Review, as Applied to Copyright Material, The Journal of Law and Society, August 2005, Page 52, www.journalonline.co.uk/article/1002090.aspx

1

“The decision of the House of Lords in Street v Mountford in 1985 represented a sea-change in the approach of the courts” (Smith R, Property Law 6th edition (2009) p. 354, Longman Press). Discuss in the context of the court’s approach to the distinction between leases and licences.

Introduction

Many cases prior to Street v Mountford^[1] had attempted to identify the difference between a right to ‘possess’ land and a personal right to ‘occupy’ land. Lord Denning explained the difference as ‘the nature and quality of the occupancy.’^[2] In other words, ‘a legal right of exclusive possession of the land for a term’^[3] would constitute a lease, and a mere permission to use land would amount to a licence. The ‘exclusive possession’ test established by the House of Lords in Street v Mountford, per Lord Templeman, was that an occupier would not be a tenant if he had no exclusive ‘possession’ for a ‘certain’ duration. This case has now been regarded as having marked a ‘sea-change’ in land law.

The distinctions to be drawn between leases and licences

There are certain reasons why the courts have sought to distinguish between licences and leases. Different statutory protections exist for both. The real problem, however, is in how the courts have attempted to draw the line between leases and licences, particularly in the light of the exclusive possession test^[4]. The court’s first concern would be that the term ‘licence’ is too broad – it covers almost all types of permission. When we use the term ‘licence’ in relation to land, however, we mean, not merely a personal right to occupy the land but also, a right to use the land in any way. However, such right can be distinguished from a proprietary right^[5]. In licences, the individual holding the licence (i.e. the licensee) has, in general, no right to exclude others from the land (including the landowner). A difficulty therefore arises in circumstances where the licensee has the full right (including where s/he has been granted exclusive possession) to occupy the land. In this context, as shall be discussed below, Lord Denning stated that exclusive possession does not necessarily equate to the grant of a lease, particularly if the parties did not intend to create a tenancy. Although the test in distinguishing between licences and leases does assist in practice, such test is not as straightforward (at least in theory) as one might first expect.

Difficulties in distinguishing between leases and licences

According to Lord Templeman, the exclusive possession test is conclusive: a person granted exclusive possession must have a lease. However, it does not necessarily mean that one has a lease even though the courts have tended to adopt this approach. Furthermore, it is not easy to apply the exclusive possession test in practice. The first problem for the courts to consider would be when the grant of a right to ‘occupy’ land should amount to a grant of a lease for ‘possession’. The same problem also arises in the definition of ‘certain’ duration.

An underlying issue arising out of the first problem would be for the courts to distinguish between ‘possession’ and ‘occupation’^[6]. The meaning of ‘possession’ and ‘occupation’ are not exactly the same. The inconsistent use of the term ‘occupation’ and the term ‘possession’ in the Street v Mountford judgment somewhat confused the understanding of the concepts of ‘exclusive occupation’ and ‘exclusive possession’. Lord Templeman also failed to distinguish whether those concepts were statements of legal entitlement or statements of fact. Nevertheless, according to the judgment read as a whole, the term ‘occupation’ should refer to the fact that an occupier merely enjoys the occupation of the land. The term ‘possession’ should refer to those situations where the occupier has the right to enjoy land and exclude all others (including the landowner) from the land. Lord Templeman sought to distinguish leases and licences in the following ways:

‘Occupation’ is not sufficient for the occupier to grant a lease; ‘exclusive possession’ is essential.
No lease is granted when there is no exclusive possession. Even though an occupier has exclusive possession – the landowner and the occupier may have no intention to create a legal relationship or the intention may be negatived by the facts of the case – those occupations should not amount to the grant of lease. The latter factor is sufficient to distinguish between lodgers and tenants in circumstances such as renting a hotel room.
In the absence of those negative factors, the possession held by the occupier should amount to ‘exclusive possession’.
When the occupier has been granted ‘exclusive possession’ for a certain period and at a rent, the grant of a lease should be presumed.
Although the occupier has exclusive possession and the right to exclude all others from the land, the right granted might be considered to be something other than a lease such as ‘fee simple ownership’.

Prior Street v Mountford, the element of exclusive possession was not a necessary requirement to be considered.^[7] However, Lord Templeman confirmed that the consideration of exclusive possession was necessary and conclusive. He further developed the principle expounded by Lord Denning: ‘the nature and the quality’ of occupation is essential to determining whether the occupation is a lease or a licence.^[8] Lord Denning stated that although exclusive possession could be considered as the main element in deciding whether an occupier has granted a lease, it does not necessarily mean that an occupier who grants exclusive possession is not necessarily granting a lease. Nevertheless, a person in ‘occupation’ has no tenancy if he has no exclusive right in the land. Lord Templeman explained that the intention of creating a legal relationship is also important to distinguishing between a lease and a licence. However, the subjective intention between the occupier and landowner is irrelevant – the court should look at the objective agreement, i.e. whether the parties intended to create a legal relationship. First, the parties cannot assume that the label attached to the agreement will be conclusive.^[9] Secondly, the parties’ agreement cannot act as a device in order to disguise^[10] the grant of a tenancy.^[11] Thirdly, specific provisions within the agreement may be ignored by the court if the surrounding circumstances suggest that those provisions could not have been intended to form part of the agreement.^[12] It has been held that a time limitation may apply (in this case between 10:30am to noon) in respect of exclusion of persons from a property.^[13] Finally, if the occupier shares occupation with others, the court may read the relevant agreements together and treat those agreements as one transaction, even if the facts suggest that those occupiers’ relationships are interdependent.^[14]

The House of Lords reaffirmed these principles in the latter case Burrows v Brent LBC^[15]. In that case, the landowner granted a possession order against the tenant for unpaid rent. They agreed temporarily not enforce the order and to allow the tenant to remain in occupation if she paid a sum equivalent to the rent due. Applying those principles to this situation, it was held that the parties had not intended to create a legal relationship, and the tenant therefore was considered a ‘tolerated trespasser’.

Lord Millett^[16] also confirmed the principle that exclusive possession on its own is not sufficient for the granting of a lease, but that occupation with the identification of a legal relationship between the occupier and the landlord is an essential consideration. Lord Millett therefore regarded Street v Mountford^[17] as a significant authority for the proposition that a person in ‘occupation’ or ‘possession’ may be regarded as merely a licensee if there is no legal relationship. Notwithstanding the fact that the debate about the definition of ‘legal relationship’ will be ongoing, the differences between leases and licences may be distinguished by the degree of ‘possession’. If someone who is purely holding a personal right to occupy land without a legal relationship, then such right will, in most cases, be a licence. Alternatively, if someone grants a right to exclude all others from the land in question, including the landlord, for a certain period of time, then such right may be called a lease.

The ‘terminology’ problem of the words ‘possession’ and ‘occupation’ appear to have been solved by the cases which were decided after Street v Mountford^[18]. The debate surrounding the meaning to be given to ‘certain’ duration, however, still remains alive. Lord Denning posed: what would the court do if the occupier has been granted exclusive possession of land without certain duration?^[19] In law, if a landlord grants an occupier (who pays rent) exclusive possession of a property without certainty of duration, the occupier will have a periodic tenancy (demonstrated by the payment of a periodic rent) rather than a licence.^[20] This case reaffirmed that the element of ‘exclusive possession’ is the most important consideration to the granting of a lease.

Nevertheless, the distinction between the tenant (leaseholder) and the lodger (licensee) is very significant^[21]. Case law has established that the distinction will arise from the fact that an agreement might allow a landowner to exercise unrestricted rights to use or access property, and not simply ‘from the provision that the landowner provides service to such property’.^[22] An additional consideration for the courts, established by one particular case, was to examine the extent of the right which the landowner actually has to exercise.^[23] By reference to that approach, it will become clear whether there is a tenant or a lodger to property.^[24]

Another significant impact which Street v Mountford^[25] has made in the context of litigation has been in relation to the duties of local authorities to provide accommodation for the homeless under the Housing Act 1985 (now Part VII of the Housing Act 1996). The Court of Appeal has held that although an occupier has been granted exclusive possession, a local authority might have had provided accommodation pursuant to its statutory duties towards the homeless which will have the effect of negating the intention of creating a legal relationship between the parties.^[26] However, if the accommodation was provided by a housing association or an organisation other than the local authority (even on referral from the local authority), the background of homelessness will not negative the intention of creating a tenancy as such an association or organisation does not exercise any statutory duty.^[27] Therefore, the House of Lords affirmed that the duties of local authority were held to negative the intention of creating a lease even though the occupier was granted an exclusive possession of the property.^[28]

In the case Burton v London and Quadrant Housing Trust, since the agreement in question stated that the housing trust had no legal title to the property and the parties had attempted to create a licence rather than a lease, the Court of Appeal held that there was no lease because the housing trust had no legal title to the property. However, the House of Lords found that legal title was not relevant.^[29] Nonetheless, the distinction between licence and lease in this context (under statutory duty) has been reduced by the Housing Act 1996, section 216(3), Schedule 17, para 3.

Having regard to the Housing Act 1996, the Court of Appeal held that granting exclusive possession under the statute would not amount to the creation of a lease. This rule also applies to the relationship between beneficiaries and trustees – the trustee has the power to grant the right, but the grant of a lease may intrude upon the trustees’ duties.^[30]

Conclusion

Although the rules of Street v Mountford^[31] apply in cases of residential occupation, certain principles deriving from it such as the distinction to be drawn between ‘lodger’ and ‘tenant’ may not be applicable in certain circumstances. The basic elements of ‘exclusive possession’ and ‘the nature and quality’ test will, however, be applicable in the commercial occupation context. Nevertheless, we should note that Street v Mountford^[32] was a case of a single occupier. Multiple occupation may, therefore, lead to a more complicated situation, which Lord Templeman has not discussed.

(2,333 words)

Bibliography

Texts

Gravells N P, Land Law: Text and Materials (1999) Street & Maxwell, London
Dixon M, Principles of Land Law (2002) Cavendish Publishing Ltd, London
Oakley A J, Megarry’s Manual of the Law of Real Property (2002) Street & Maxwell, London
Clarke A and Kohler P, Property Law Commentary and Materials (2005) Cambridge University Press, Cambridge

Articles

Wilkinson H, The lease – licence distinction. Again? (2001) NLJ
Pawlowski M, Contractual licences, personal tenancies and tenancies at will (2001) L & T Review 2001, 5(6), 117-118
Colbey R, Detecting a sham (2001) NLJ
Morgan J, The changing meaning of ‘dwelling-house’ (2002) CLJ 61(2), 312
Grundy N and Joss N, Landlord and tenant update (2006) SJ 805
Peachey L, Elements of a tenancy assured and assured shortholds (2007) HLM 14 5(5)

Cases

Errington v Errington and Wood [1952] 1 KB 290
Radaich v Smith (1959) 101 CLR 209 at 222
Marchant v Charters [1977] 3 All ER 918
Street v Mountford [1985] AC 825
Markou v Da Silvaesa (1986) P & CR 204
Brooker Settled Estates Ltd v Ayers (1987) 54 P & CR 165
AG Securities v Vaughan (1988) 56 P & CR 168
Hadjiloucas v Crean [1988] 1 WLR 1006
Ogwr BC v Dykes [1989] 1 WLR 295
Aslan v Murphy (No. 1) [1990] 1 WLR 766
Antoniades v Villiers [1990] 1 AC 417
Duke v Wynne [1990] 1 WLR 766
Family Housing Association v Jones [1990] 1 WLR 779
Prudential Assurance Co. Ltd v London Residuary Body [1992] 2 AC 386
Westminster City Council v Clarke [1992] 2 AC 288
Burrows v Brent LBC [1996] 1 WLR 1448
Gray v Taylor [1998] 1 WLR 1093
Family Housing Association v Jones [1999] 3 WLR 150
Ramnarace v Lutchman [2001] UKPC 25

1

Introduction

This essay will consist in an attempt to analyse the doctrine of impossibility and its operation in relation to contracts. It will look closely at both the concept of initial impossibility arising from a common mistake on the part of both parties as to the state of things before the contract was agreed and the concept of subsequent impossibility and frustration. The latter deals with a situation whether the parties enter into agreement on terms both express and implied and then a supervening event renders the performance of that agreement radically different from that which was envisaged by both parties at the outset. These themes will be discussed in greater detail in the first section and will run throughout the work. The essay will examine the concept of objective and subjective impossibility, and the rules relating to discharge of contractual obligations and allocation of risk. It will look at the situation when either the subject matter or a thing essential for performance is destroyed or unavailable, either partially or completely. It will then look at how the death or supervening incapacity of a party will affect a personal contract. Towards the latter part of the essay, it will discuss the problems that arise when a method of performance becomes impossible or a particular source becomes unavailable. It will conclude by looking at the effect of delay and temporary impossibility on a contract.

The concept of impossibility

The concept of impossibility in contract law can be split into two distinct categories. There are the cases where the parties never actually reach a true agreement because they are mistaken as to some element of the contract before the contract is concluded and the cases where the contract becomes impossible to perform subsequent to the agreement having been reached. Generally speaking, in the first instance, the contract is void ab initio and in the second, an otherwise valid contract is brought to an end from the point when the impossibility arises. A basic example to illustrate the difference would be a contract for the sale of a car. If unknown to the parties, the car had blown up 5 minutes before the contract was signed the contract would be void ab initio, whereas if the car blew up 5 minutes after the contract was signed, the contract would be valid, but brought to an end by the fact that its subject matter no longer existed. Essentially the courts are implying into the contract a condition precedent that the subject matter exists and is capable of transfer. This concept of implied condition precedent has been regarded with considerable scepticism among commentators in light of the traditional common law view that the courts should neither make nor amend a bargain.

The main problem arises when dealing with the first type of impossibility. It is not always entirely clear how the courts will formulate the implied condition precedent. Smith and Thomas suggest three possibilities:

A impliedly promised B that the thing existed.
A impliedly promised B that he had taken reasonable care to ascertain that the thing existed.
A and B proceeded on the common assumption, for which neither was more responsible than the other, that the thing existed and its existence was a condition precedent of the contract.^[1]

Which of these options it will be, depends largely on the relative means of knowledge of the parties and whether one is relying on the other. This will be discussed at length through the course of the work.

It also may be that on proper construction of the contract either, or both of the parties have made absolute promises. In that event, the courts will not excuse non-performance for either type of impossibility. There are also cases where the contract has not become entirely physically or legally impossible, but an event has occurred which “strikes at the base of the contract so as to frustrate its purpose.”^[2] This is commonly referred to as frustration and it operates as a form of subsequent impossibility.

Objective and Subjective Impossibility

The contract will have to be objectively impossible to perform before it is held to be void. The case of Thornborow v Whitacre (1705) 2 Ld Raym 1164 held that a party cannot escape liability on the grounds of impossibility purely relating to his individual ability or circumstances. Neither will he be discharged from his obligations simply because he finds the contract particularly difficult or onerous to perform:

“It is not hardship or inconvenience or material loss itself which calls the principle of frustration into play”^[3]

Subsequent impossibility will similarly not excuse the parties from performance if it was brought about by the conduct of one of the parties. The case of Southern Foundries (1926) Ltd v Shirlaw ^{[1940] AC 701} held at 717 per Lord Atkin:

“…conduct of either promisor or promisee which can be said to amount to himself of his own motion, bringing about the impossibility of performance is in itself a breach.”

Clearly, any impossibility that can be attributed to either party will be considered a breach of contract and the defaulting party will become liable in damages in the usual way. Where the impossibility brought about by one of the parties existed at the time of the contract he is likely to be held to have warranted possible performance of the contract and held to be in breach of that warranty.

As discussed above it is sometimes possible for the courts to hold that a party made an absolute promise and therefore accepted the risk of the fact that the contract might be impossible to perform. Whether a contract is considered to be absolute will be a matter of objective construction of the terms of the contract. If the contract is held to be absolute, the party will be held to his performance whether or not the impossibility is his fault or not. In the case Paradine v Jane (1647) Aleyn 26 a lessee was held liable to pay rent even though he had been evicted from the property by armed forces during the civil war. A lease is a type of contract that is commonly regarded as being objectively absolute without reference to the subjective intentions of the parties.

Overall the contract must be objectively impossible to perform, the subjective views of the parties as to their circumstances and their personal ability to perform the contract will not usually be taken into account. Similarly, if a party is active in bringing about the impossibility the contract will not be seen as objectively impossible, but as having been breached. Conversely, some contracts will be held to be objectively absolute and the subjective intentions of the parties in forming the contract and their level of fault in bringing about the impossibility of performance will not be relevant.

Destruction of the Subject Matter

In the case of Taylor v Caldwell (1863) 3 B & S 826 the claimants granted the defendants the use of a music hall and gardens for a series of music concerts. After the contract had been concluded, but before the concerts had begun the music hall was destroyed by fire and the concerts could no longer be held there. The claimants argued that the defendants were in breach of the contract for failing to provide the music hall and sought to recover ?58, which they had spent on advertising the concerts. The courts however held that the contract had become impossible to perform and was therefore frustrated. Both parties were therefore released from their obligations under the contract. In coming to this conclusion Blackburn J referred to the dicta of Pothier[4] stating that:

“The debtor is freed from obligation when the ting has perished, neither by his act nor his neglect and before he is in default, unless by some stipulation he has taken on himself the risk of the particular misfortune which has occurred.”

He recognises that the civil law is not binding on English Courts, but states that it is a useful indicator of the principles on which the law is grounded.

Blackburn J also refers to a line of authority involving bailment. For example the case of Williams v Lloyd W.Jones 179 the claimant had delivered a horse to the defendant on the condition that it be returned on request. Without fault on the part of the defendant, the horse became sick and died and was therefore not able to be returned on the request of the claimant. It was held that bailee was discharged from his promise by the fact that the horse had died. Blackburn J stated that it was a settled principle of English law that in contracts for loans of chattels or bailments, if the promise of the bailee or borrower to return the goods becomes impossible because the goods have perished through no fault of his own, the bailee is excused from this promise. It is noted that in none of the cases relating to bailment was it expressly agreed that the destruction of the subject matter would release either party from their obligation, “the excuse is by law implied” ^[5]

This principle established in Taylor and subsequent cases^[6] is now contained in section 7 of the Sale of Goods Act 1979

“Where there is an agreement to sell specific goods and subsequently the goods, without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is avoided.”

Partial Destruction of the Subject Matter

It is interesting to note that the contract in Taylor was for the use of ‘Surrey Music Hall and Gardens’. It was therefore only part of the subject matter that was destroyed by the fire; the gardens were still in tact. However, it was held that the destruction of the music hall rendered performance of the contract impossible. This implies that when part of the subject matter is destroyed the courts will investigate the purpose of the contract. If the part that is destroyed renders that purpose impossible the contract will be held to have been frustrated by its destruction.

Discharge and Rules Governing Risk

As discussed above a contract, which is the subject of a mistake made by both parties prior to its formation that makes performance impossible, will be void ab initio. This is not the case if the impossibility arises after the formation of the contract, i.e. the contract is frustrated. In that event, the contract is said to be discharged from the time when the frustrating event arose. The parties are discharged from any future performance without having to elect that that will be the case.^[7] Where the core of the contract is the happening of some future event and that event is cancelled the time of frustration will be the time when the cancellation is announced. In the case of Krell v Henry [1903] 2 KB 740 the defendant hired a flat on Pall Mall to watch the coronation procession of Edward VII, though this purpose was not expressed in the contract. The procession was cancelled before the formation of the contract, but the announcement was not made until after the contract had been agreed.

If the contract is severable, it may be that only part of the contract is frustrated and the other parts remain in force. It seems that even when an entire contract of sale is held to be discharged because it has become impossible to deliver some of the goods, the buyer can ‘waive’ this and demand delivery of the rest of the goods. This was the case in HR & S Sainsbury Ltd v Street ^{[1972] 3 All ER 1127}. Supervening events may also make the suspend the contract without actually discharging it.[8] Temporary impossibility will be discussed in greater detail in a later section. Furthermore, illegality may frustrate a minor obligation without discharging the entire contract. The implications of things like this for a potential doctrine of partial frustration will also be discussed later.

The essay will now go on to look at who should bear the risk and hence the loss of a frustrating event. For a long time it was thought that the losses resulting from the frustration of a contract should lie where they fell. This led to the conclusion that any money paid before the frustrating event occurred was irrecoverable and conversely any money already due under the contract for services provided was enforceable. In the case of Chandler v Webster ^{[1904] 1 KB 493}, CA, a room was hired to view the coronation procession, the price being payable immediately. When the procession was cancelled, ?100 had been paid on account. It was held that the contract was frustrated thereby releasing the parties from further performance, but leaving promises performable before the frustrating event still standing. On the other side a party who had only partially performed the contract could not recover anything for his services even when he had conferred a benefit on the other side.[9] It is possible however that a party who, after a frustrating event, takes reasonable steps to protect the other party’s interest will be entitled to recover remuneration for his expenditure on a restitutionary quantum meruit basis. This was the case in Societe Franco-Tunisienne d’Armement v Sidermar SpA ^{[1961] 2 QB 278}[10].

Until 1942 it was also considered that there could be no recovery for total failure of consideration. This was on the basis that up until the point of frustration the party who had paid any money had the benefit of a executory contractual promise and that was consideration enough^[11]. However, in the case of Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd ^{[1943] AC 32} the House of Lords held that a party could recover where there had been a total failure of consideration. This was an improvement on the Chandler position discussed above, but two principle defects in the law remained. The first was that the principle only applied when there was a total failure of consideration; where there was a partial failure the claimant could not recover anything.[12] The second defect was that the payee could not set off any expenditure that he had incurred in the performance of his side of the contract. These defects were rectified by section 1(2) of the Law Reform (Frustrated Contracts) Act 1943. The subsection states:

“All sums paid or payable to any party in pursuance of the contract before the time when the parties were so discharged (in this Act referred to as “the time of discharge”) shall, in the case of sums so paid, be recoverable from him as money received by him for the use of the party by whom the sums were paid, and, in the case of sums so payable, cease to be so payable:

Provided that, if the party to whom the sums were so paid or payable incurred expenses before the time of discharge in, or for the purpose of, the performance of the contract, the court may, if it considers it just to do so having regard to all the circumstances of the case, allow him to retain or, as the case may be, recover the whole or any part of the sums so paid or payable, not being an amount in excess of the expenses so incurred.”

This deals with the defects in the common law by stating that monies paid before the frustrating event are recoverable, sums payable prior to the time of discharge cease to be payable and the payee is entitled to set off expenses reasonably incurred in their performance of the contract. Goff and Jones note that whilst the Act does deal in outline with the deficiencies of the common law it does not completely resolve the issues.^[13] For example, the Act does not say what principles the court ought to employ to decide how much the payee is entitled to set off. In the case Gamerco SA v ICM/Fair Warning Agency Ltd [1995] 1 WLR 1226 Garland J felt that the court’s task was to:

“…do justice in a situation which the parties had neither contemplated nor provided for, and to mitigate the possible harshness of allowing all loss to lie where it has fallen.”

Section 1(2) does permit the payee to recover or retain more than he has been paid up to the tine of frustration. I.e. for expenses incurred in expectation of future payment. They may be able to recover such expenditure under section 1(3), which takes effect when one party has conferred a valuable benefit on the other party (other than money) before the time of discharge. In that event, he will be able to recover a just sum, which shall not exceed the value of the benefit conferred.

Robert Goff J held in the case of BP v Hunt [1979] 1 WLR 783 that there were two steps to assessing a claim under section 1(3), the first was identifying and valuing the benefit conferred. Goff J held that usually the benefit would be the end product of any services. In some contracts the services were the end product themselves, for example, a contract for the transportation of goods. He held that if the end product is destroyed by the frustrating event then no benefit is conferred because the other party does not have the product either. This interpretation has been heavily criticised as failing to give effect to the intention of the Act.^[14] This section of the Act was intended to mitigate against the harsh consequences of the common law rule of ‘entire obligations’. In the case of Appleby and Myers (1876) LR 2 CP 651 the claimants contracted to make machinery in the defendants factory and to maintain the machinery for two years. Payment was upon completion of the work. After part of the machinery had been erected, a fire destroyed the whole factory and all the machinery. The claimants could not recover anything, as they had not completed the work. Goff J’s interpretation of section 1(3) would lead to the same result. However, this interpretation has also been adopted in the Commonwealth^[15]. It does appear to accord closely with the wording of section 1(3), which draws a distinction between the performance by on party and the benefit conferred on the other. This implies that the claimant must actually have received the benefit of any performance on the part of the defendant before the defendant can recover or retain any money.

The second step Goff J laid down was the measurement of a ‘just sum’. Contractual allocation of risk will of course be a factor. Goff J thought that it ought to be as much as is necessary to prevent the unjust enrichment of the other party. This approach was rejected by the Court of Appeal in the same case, who simply held that it was in the almost unrestricted discretion of the trial judge. In conclusion, the Act is sadly deficient in its guidance as to the allocation of risk and loss between the parties to a contract that has been discharged for frustration.

It is possible for the parties to allocate the risks contractually. This is one of the main reasons that the courts have kept a tight reign on the doctrine of frustration. Parties are expected to be able to foresee the possibility of dramatic price increases and the outbreak of labour disputes etc. Contracts therefore regularly include clauses which allocate the risk of such an unforeseen event occurring. One common example is a ‘force majeure clause’. In the case of Channel Island Ferries Ltd v Sealink UK Ltd [1988] 1 Lloyd’s Rep 323 the relevant clause stated:

“A party shall not be liable in the event of non-fulfilment of any obligation arising under this contract by reason of Act of God, disease, strikes, Lock-Outs, fire and any accident or incident of any nature beyond the control of the relevant party.”

The advantages of such clauses are that they provide a degree of certainty and the parties can agree to a wider range of circumstances than are currently available under the doctrine of frustration. For example, an unexpected increase in prices is not considered to be a frustrating event,^[16] but it is common in a commercial contract to see a force majeur clause containing provision for ‘abnormal increase in prices and wages.’ It also allows the parties to determine their future relationship. The frustration doctrine discharges the contract regardless of the wishes of the parties, but they can provide for a continuing, adapted relationship if they so wish.

Unavailability of the Subject Matter

Where both parties are mistaken as to the availability of the subject matter at the time of the contract, this may be sufficiently fundamental to avoid the contract. The leading case on this issue is that of Courturier v Hastie (1856) 5 HLC 637 in which the parties entered into a contract for the sale of a cargo of corn, which was believed to be in transit from Salonica to England. Unknown to both the parties, the corn’s quality had deteriorated to such an extent that the master had sold it. The House of Lords held that the matter turned on the construction of the contract concluding that:

“The contract plainly imports that there was something which was to be sold at the time of the contract, and something to be purchased, no such thing existing,… judgment should be given for the defendants.”^[17]

The exact legal basis for importing this term has been the subject of some debate among commentators and will be discussed briefly now. The draftsmen of section 6 of the Sale of Goods Act 1979 appear to have interpreted the decision as stating that a mistake as to the existence of the subject matter of the contract inevitably renders it void:

6 Goods which have perished

Where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when the contract is made, the contract is void.

The court in Couturier did not however mention the word mistake; they based their reasoning on the construction of the contract and the fact that there was a total failure of consideration on the part of the sellers.

Lord Denning applied a different interpretation in the case of Solle v Butcher [1950] 1 KB 671 at 691 in which he held that there was an implied condition precedent that the contract was capable of performance. He reasoned that in Couturier the parties had proceeded on the assumption that the goods were capable of being sold, when in fact they were no longer available for sale. Lord Denning’s interpretation does seem to give effect to the most likely intention of the parties. However, in the absence of a clear intention to release each other from the agreement if the subject matter is not available, it is not clear when Lord Denning is suggesting a term of this nature should be implied into the contract.

The third interpretation is that whether or not the contract will be void, depends on the its construction. This was the interpretation put on Couturier by the High Court of Australia in the case of McRae v Commonwealth Disposals Commission 84 C.L.R. 377. The defendants invited tenders for the purchase of an oil tanker described as lying on the Jourmand Reef off Papua, together with its contents, which were stated to be oil. The Claimants won the tender and spent a considerable amount of money modifying a vessel for the salvage work. In a bizarre turn of events it was later discovered that no such tanker had ever existed. The court held that:

“The only proper construction of the contract is that it included a promise by the commission that there was a tanker in the position specified.”

On that construction the Commission had assumed the risk of the tanker not existing. They distinguished Couturier, holding that this was not a case in which both parties had entered the contract on a common assumption. The Commission had assumed the existence of the tanker, but the buyers had only relied on their assertion. In policy terms there can be little doubt that the approach taken in McRae is a sound one and one which ought to be followed by the English courts, but its is somewhat difficult to reconcile with section 6 of the Sale of Goods Act. There is the possible argument that McRae does not fall under section 6 because the tanker had never existed and therefore could not have ‘perished’. This distinction does seem somewhat artificial and not within the intention of the court in McRae.

If the subject matter becomes unavailable after the contract has been concluded this may also render the contract frustrated for impossibility. For example in the case of Bank Line Ltd v Arthur Capel & Co [1919] AC 435 a charterparty was held to be frustrated when the ship was requisitioned and so unavailable to the charterer. Temporary unavailability may also suffice, but this will be discussed later.

Destruction or Unavailability of a Thing Essential for Performance

Lord Atkin in the case of Bell v Lever Brothers Ltd [[1932] A.C. 161, discussed the circumstances in which one might wish to imply a condition into the contract. He states that a condition derives its efficacy from the consent of the parties, express or implied. He supposes a possible term:

“Unless the facts are or are not of a particular nature, or unless an event has or has not happened, the contract is not to take effect.”

If there are express words in the contract such as ‘a foundation essential to the existence’, there need not be any further enquiry, but when there are no such words the court must investigate the circumstances of the agreement to see whether any such condition can be implied. Lord Atkin uses the example of the hire of a professional vocalist whose continued health would be essential to the performance of the contract.

The case of Krell v Henry [1903] 2 KB 740 has been discussed earlier. For present purposes it can be described in the following terms: The contract was for the hire of a room on Pall Mall to watch the coronation procession of Edward VII. The subject matter of the contract was the room and that was still in tact. However, the purpose of the contract was to watch the procession and without the procession the contract was not capable of full performance. Vaughn Williams LJ refers in his judgment to the case of Nickoll v Ashton [1901] 2 K.B, which is authority for the proposition:

“ English Law applies the principle not only to cases where performance of the contract becomes impossible by the cessation of existence of the thing which is the subject matter of the contract, but also to cases where the event which renders the contract incapable of performance is the cessation or non existence of an express condition the continued existence of which is necessary for the fulfilment of the contract, and essential to its performance.”

This concept was extended in Krell to include a situation in which that particular set of circumstances (the viewing of the coronation) was not expressly mentioned in the contract. The contract in Krell was, however a strange one; the room was only hired out by the day, not the night, and the purpose for the contract on both sides was the viewing of the coronation. It is clear that the particular set of circumstances must have been in the contemplation of the parties and one that they both realised was necessary for the full performance of the contract. There is some dispute surrounding the Krell case. Cheshire and Fifoot point out that the cancellation was probably not in the contemplation of the parties, but with regard to the proposition that the buyer should be discharged from his obligation to pay on cancellation:

“It is incompatible with the character of a hard bargainer to say that the owner of the room would have agreed to this proposal if it had been put to him during negotiations.”^[18]

It is more likely that the owner would have told the hirer that that was a risk he would have to take. It seems somewhat unreasonable to import to the seller a state of mind which he may well not have been in had he thought about it. McElroy and Williams, on the other hand say that the contract was impliedly for the hire of “rooms to view the procession”, the fact that there was no procession therefore amounted to a complete failure of consideration on the part of the owner of the rooms, discharging the hirer from his obligation to pay.^[19]

The circumstances in which Krell will apply are extremely limited. The set of circumstances, which the parties assume to be continuing, must be the common foundation of the contract. In the case of Herne Bay Steamboat Co v Hutton [1903] 2 KB 683 the claimant hired a ship from the defendant to watch the naval review and for a day’s cruise around the fleet. After the contract, the naval review was cancelled owing to the same illness of Edward VII, but the contract was held not to have been frustrated. This is thought to be because the hirer could still see the fleet and the boat had not been hired out by the owner for the specific purpose of seeing the Naval Review. This meant that seeing the Naval Review was not the common purpose of the contract and its cancellation was not therefore a frustrating event. Thus interpreted, Krell can be seen as a very narrow decision and as indeed been distinguished in more recent cases.^[20]

The Death of a Person Essential to Performance

In the case of Galloway v Galloway (1914) 30 TLR 531 the defendant thought that his first wife had died and married the claimant. The defendant and claimant subsequently separated and entered into a deed of separation under which the defendant agreed to pay the claimant a weekly sum in maintenance. The defendant then discovered that his firs

The Children’s Act 2004

The Children’s Act introduced in 2004 aimed to address concerns about the protection of children. As such, to a significant extent it built on the provisions of the 1989 Children’s Act. Above all, the main motivation for establishing a new act relating to children was a series of high profiled cases involving abuse against young children. Moreover, many people felt that the provisions of the 1989 act failed to fully unite the various different organisations that are involved in the protection of children.^[1]

The purpose of this essay is to examine the aims and provisions of the 2004 Children’s Act. Above all, we will see that the 2004 act aimed to bring about a series of changes that would allow for greater cooperation between various different agencies and organisations. This change has also taken place across the wide general area of social policy in Britain. The name given to this process of greater cooperation is collaborative partnerships.^[2] The idea behind this new initiative is that if differing groups involved in social service provision work together then there will be greater possibilities for safeguarding the security and interests of children. However, before I go into detail on this subject let us first examine the reasons and cases that brought about the 2004 Children’s Act.

Ultimately, the aim of the 2004 Children’s Act was to build on the previous legislation passed in 1989 and further the possibilities for effective child protection. However, another further motivating factor was the murder of Victoria Climbie in 2000. Nine-year-old Victoria was abused and murdered by her guardians in her London home. The public and media outcry following the case was enormous. Furthermore, it was widely felt that the case had highlighted serious problems within the children protection service. Above all, it was felt that different agencies had failed to act in unison in the months and years prior to Victoria’s murder. As such, a series of new ideas and approaches were adopted towards the protection of children.^[3]

This new wish to provide better and more effective protection can be seen in the form of two moves. Firstly, the establishment of the Every Child Matters programme and secondly the passing of the 2004 Children’s Act. Every Child Matters was launched in 2003 and aimed to ensure that all children regardless of the financial or social background would be able to achieve their full potential in life.^[4] Furthermore, Every Child Matters was set up in an attempt to allow for greater cooperation between varying agencies and organisations involved with children. The setting up of Every Child Matters was a prelude aimed at laying the basis for the Children’s Act of 2004. The Children Act itself aimed to put in place a legal framework, which would provide better protection for children and greater levels of efficiency in the organisations charged with child protection. Local authorities were to receive more support and advice on how to carry out better service for children. There were also changes to the law with regard foster homes, caring and babysitting services, and adoption services. However, although all these issues are very important provisions within the act, the ultimate purpose was to create far greater levels of cooperation and multi agency action in relation to the protection of children.^[5]

Above all, the Victoria Climbie case had highlighted the extent to which there was little cooperation between different agencies in terms of child protection. Furthermore, it was now realised that there were a considerable number of organisations and agencies that could play a role in child protection. Naturally, local authority child protection services were seen as the most important agency. However, it was clearly vital that child protection services needed to work in close collaboration with other agencies. Therefore, agencies such as the police, school authorities, social services, doctors and charity organisations now all work together in order to provide better protection for vulnerable children. Because each agency has a unique role to play in relation to children it is hoped that such collaborative partnerships will produce better services for children.^[6] For example, if a social worker feels that a particular child is in possible danger, they can call upon the expertise and opinion of a variety of other professionals such as the child’s schoolteacher or doctor. Therefore, with everyone working together for same purpose possible problems can be highlighted and dealt with in a much more effective manner.

Now although the 2004 act and Every Children Matters has brought about significant changes to the way in which child protection services operate, there have nonetheless been serious problems. For example, it is sometimes difficult to bring different agencies together in combination when they have previously not worked in collaboration.^[7] Also, different agencies may have very different ways of understanding a particular situation, such as that of a social worker compared to a police officer. Very recently such problems have been highlighted in the form of another tragic and horrible case. The case of baby P shows above all the extent to which collaboration between multi agency organisations can break down with terrible consequences. Doctors, police and social services failed to work together effectively enough to protect baby P and therefore the case shows the possible problems that could continue in the future.

In conclusion, the main reasons behind the 2004 Children’s Act have been discussed. Above all, it is clear that both the act and the Every Child Matters initiative came about because of perceived failings within the child protection service as highlighted in the case of Victoria Climbie. Above all, government has attempted to enact a system whereby agencies involved with children work in collaboration to achieve better levels of protection. However, although such moves are positive the case of baby P highlights the extent to which there are still serious problems. Ultimately, it will take a considerable time for such moves to work effectively.

Cree, Viviane and Myers, Steve. Social Work: making a difference, Bristol: Policy, 2008.

Sheldon, Brian and Macdonald, Geraldine. A Textbook of Social Work, London: Routledge, 2008.

UK Government, Every Child Matters: Change for Children, “Children’s Act 2004: guidance on the duty to cooperate” http://www.everychildmatters.gov.uk/strategy/guidance/, date accessed, 01/01/2009.

UK Government, Every Child Matters: Change for Children, “Aims and Outcomes”, http://www.everychildmatters.gov.uk/aims/, date accessed, 01/01/2009.

1

“The cases provide many examples of judicial awareness of the danger that too strict an application of the requirement of certainty could result in the striking down of agreements intended by businessmen to have binding force” – Treitel.

Critically evaluate this statement in light of case law and consider in your answer whether the extent to which the parties have acted on an agreement influences the judges.

Introduction

In looking to critically evaluate the above statement in view of the case law that has been decided in this area, so as to also be able to consider the extent to which parties have acted on a business agreement serves to influence any judge, this essay will first look to consider the importance of certainty in agreements by recognising the significance where there is a lack thereof. Then, this essay will also look to reflect upon how a contract is generally formed and as to how the issue of certainty relates specifically to a contract’s formation in this regard for when it is said to come into being. Following on from this, this essay will look to determine the issues that a court will look to consider in evaluating as to whether a particular agreement before them is sufficiently certain to be considered a legally binding contract, whilst also looking to consider the extent to which the parties have acted on an agreement serves to influence the judges in coming to their decisions in relation to these matters, before finally looking to conclude with a summary of the key points that have been derived from an understanding of this discussion.

The significance of certainty

On this basis, to begin with it must be appreciated that the issue of certainty in any business agreement is generally considered to be paramount to the formation of a formal contract because it has been a long-held maxim of the law that that which is certain is that which can be made so leading to a binding contract being formed that is enforceable by the courts^[1]. Consequently, a lack of certainty increases the costs of disputes because the ability to avoid, manage and/or resolve any dispute early, and on a reasonable commercial basis, is clearly negated where there is a lack of accurate documentation, whilst the lack of certainty also serves to create risks for those involved where there is a lack of a formally recognised agreement in place.

Therefore, by way of illustration, it was recognised in Montreal Gas Company v. Vasey^[2] that where the company in question made a contract with the other party to this case with the promise that, if it was ‘satisfied’ with them as a customer, the company would then look ‘favourably’ on an application for renewal of their contract with them, this was not considered sufficiently certain to create a legal obligation because of the indefinite or unsettled nature of such a term. Nevertheless, it is also important to appreciate a transaction that may otherwise be considered to have left some essential term of their agreement undetermined may provide some method of determination other than what is considered to be a future agreement.

The formation of a contract – Where do the problems lie?

Ostensibly, it is commonly understood that a contract is effectively formed where there is an offer, consideration and acceptance that is sufficiently certain so that it is then for the courts to determine whether the required elements are present in any business arrangement^[3]. This is because the offer refers to a proposal that is expressed orally or in writing from one party (the ‘offeror’) to another (the ‘offeree’) to do or give something for remuneration with a view to forming an agreement that is usually legally binding on the basis of the conduct the parties. Such a view arises from the fact it was recognised in Adams v. Lindsell^[4] the rules in relation to the recognition of a valid offer states that thus will be so where it is (a) made to definite person, class, or the world; (b) it is effectively communicated; and (c) it reaches the offeree. Then, with regards to the element of consideration required, this consists of a “right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility given, suffered or undertaken by the other”, in keeping with the decision in Currie v. Misa^[5], that must be legal, not past, and move from the promisee to the promisor^[6].

However, the problem with certainty in business agreements arguably arises most commonly in relation to the issue of acceptance of an offer to formalise the agreement between the parties in the prescribed manner. This is because it was recognised in Hyde v. Wrench^[7] that the offeree must accept the offer made by the offeror unequivocally without qualification in words or through conduct in conformation with the indicated or prescribed terms of the offer. But then, in the decision in Chillingworth v. Esche^[8], it was effectively understood that it is possible to have an acceptance of terms that are ‘subject to contract’ where the parties will only be bound by a formal contract. Moreover, where the terms of an offer are not accepted by the offeree without alteration, then it could be argued that negotiations will continue because anything that the offeree then proposes may be considered to be a counter-offer so that the positions of the respective parties change (i.e. offeror becomes offeree and vice versa). Therefore, this effectively means that there is only likely to be an agreement on terms that are substantially different from those originally put forward by the parties in such circumstances^[9].

Buying and selling

More specifically, where there is an unequivocal desire to buy and sell, but a lack of certainty as to terms of the agreement, the courts will look to consider the nature of the transaction for themselves that may be determined by the standard of reasonableness (i.e. what is considered reasonable) in the specific circumstances of the case. Such a view is effectively illustrated by the examples of the decisions in Brown v. Gould^[10], where what was considered the ‘market value’ of the goods was determined by the courts, and Didymi Corporation v. Atlantic Lines & Navigation Company Ltd^[11], where the idea that an agreement regarding a hire was to be ‘equitably decreased’ was also determined by the courts. But, in the case of price of goods and services in such cases, this has largely been governed by section 8 of the Sale of Goods Act 1979^[12] which effectively means that the courts are able to allow actions for the recovery of reasonable sums of the value of the goods or services in question^[13] so long as the contract itself is silent as to the issue of price^[14]. Therefore, by way of illustration, in May & Butcher v. The King^[15] when the supplicants agreed to purchase all of the Crown’s old tentage for a price “agreed upon … as the quantities of the said old tentage become available and are offered to the purchasers” it was held there was no concluded contract because the price would be agreed subsequently for the transference of the goods in question.

The influence of parties to an agreement upon the courts

However, more generally, the function of any court is to put a fair construction on what the parties have said and done because Lord Wright in Hillas & Co v. Arcos Ltd^[16] said “Business men often record the most important agreements in crude and summary fashion”, that are “far from complete or precise” to those unfamiliar so that it is arguable that the parties to such agreements may be considered to have some influence over the approach that the courts may take in such cases. On this basis, this means that it is “the duty of the court to construe such documents fairly and broadly”^[17] because the courts need to be satisfied that parties to an agreement have concluded a contract, whilst also still considering what has been said and done in its context, the relative importance of the unsettled matter and whether the parties have provided machinery within the terms of their agreement for settling any dispute.

By way of further illustration, in the decision in Hillas & Co v. Arcos Ltd^[18] the court decided that the terms of the contract in this case were based on previous transactions (the original contract) between the parties and the custom of the timber trade because it was determined that in view of their previous agreements there was still sufficient intention to be bound in the future. Therefore, with this in mind, in view of the influence of the parties in acting on the same basis as under their previous transaction, clearly, in such circumstances it will be extremely difficult for the courts to say that a “contract is void for vagueness or uncertainty”, where it has been either or wholly or partially performed, since this serves to make it easier to imply a term into an agreement to resolve such problems^[19].

However, as well as the influence acceded to the parties to agreements by the courts, it is also important to appreciate that a court will not commonly allow a contract to fail for uncertainty more generally if the contract also provides the means to acquire the level of certainty required for the particular contract. For example, in cases including Foley v. Classique Coaches Ltd^[20], it was recognised that if the contract in question provides parties are to agree a price or quantities for delivery, but also contains an arbitration clause in this regard, the courts will imply a reasonable price will be paid where there is otherwise default on the part of the parties to the agreement determined by arbitration so that parties to the agreement still retain a level of influence even where they are in dispute.

Moreover, matters in this regard may actually only be further complicated by the fact that parties in business often act on their informal agreements – even their version of events – pending the formalising of their agreement into a contract^[21]. Then, where a contract is formalised, the courts may allow this contract to take on a retrospective effect to cover the work done during the period when the parties were working on the basis of an informal agreement^[22]. But where there is no formalisation of an agreement between parties, work that is done, or goods that are delivered, under a letter of intent may lead to a restitutionary obligation to pay a reasionable sum by way of remuneration for this^[23] so that the parties actions continue to have an effect on any decision that is reached.

The problem with documentation

In spite of the influence of the parties themselves on the decisions reached by the courts, however, in looking to consider how the courts deal with the issue of certainty (or lack thereof) in business contracts, it is important to appreciate that matters are also complicated somewhat by the use of other documents in the build up to the recognition of a formal agreement. Such a view is effectively illustrated by the use of letters of intent in the construction industry with a view to formalising a contract at a later date. This is because whilst, in the past, in decisions including British Steel Corporation v. Cleveland Engineering Co^[24], such a document may have been considered akin to a conditional contract by the courts since it is effectively looked upon as a sign that one party is likely to want to contract with another, in Regalian Properties Plc v. London Dockland Development Corporation^[25] there was an unsuccessful action for reimbursement of expenses incurred by a property developer regarding preparatory work regarding a contract that also never materialised in spite of the presence of a letter of intent since it is a matter of interpretation.

Consequently, it is important to appreciate that the courts have become prone to taking a differing view from case to casxe because they do not consider cases decided in this area to be analogous in the circumstances. Such a view is reflected in the fact that whilst one party, in British Steel Corporation v. Cleveland Bridge Engineering Co^[26], requested the other to perform services and supply goods needed under the expected contract, the costs Regalian Properties Plc v. London Dockland Development Corporation^[27] sought reimbursements for what it did in an effort to put itself in a position to obtain and then perform the contract that was unsuccessful. This is largely because the court in such cases may be unwilling to imply a contract on the basis of a letter of intent because the language used is often uncertain and, in view of previous negotiations, it may also be argued that all that is assumed is a moral responsibility and not something that is contractual but, again, that is something for the courts to determine on the facts as they arise as a matter of interpretation^[28].

Nevertheless, matters in this regard are also not helped in relation to the recognition of certainty in business agreements where the contract between the parties is considered incomplete because of a failure to cover all of the pertinent points that are considered significant by the parties so that one party asserts that a contract has been formalised and the other claims that it has not. Therefore, it is important to appreciate that in such cases the courts will need to consider whether an agreement is reached by the parties to a contract at a particular time, or as to whether there are other terms of the intended contract without the settlement of which the parties to the agreement have no hope of formalising a contract^[29].

But where documentation produced in correspondence between the parties in dispute shows the parties have definitely come to terms – despite having some material points left open – a subsequent revival of negotiations will not affect the contract that is believed to have been made in the eyes of the court without the consent of the parties to the agreement that has been made so that they retain some influence over the courts that look to resolve their disputes^[30]. More specifically, Justice Parker recognised in the decision in Von Hatzfeldt-Wildenburg v. Alexander^[31] that if “documents or letters relied on as constituting a contract contemplate the execution of a further contract … it is a question of construction whether the execution of the further contract is a condition or term of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through”^[32]. Consequently, it is matter upon which the courts could arguably go either way on in looking to interpret because it is really something to be decided upon on the facts of each individual case.

Negotiations

However, even where negotiations are successful, it was recognised in practice, as long ago as the decision in Kennedy v. Lee^[33] that it may prove difficult to say with certainty when an agreement has been reached. This is because of the fact that it was recognised in this case that negotiations can often be long and complex with significant variations derived from offers and counter offers that may serve to detract or embellish the original basis of attempted agreement between the parties. Nevertheless, in the dcecision in Davies v. Sweet^[34] it was understood that in spite of a prolonged period of negotiations courts may still find a concluded bargain by the conduct of the parties – thus seemingly bypassing the need for certainty – so that any continuance of the negotiations will not necessarily serve to terminate an agreement between the parties. Such a need largely arises from the fact it is important to look to give effect to the reasonable expectations of business people that is an important object of the law of contract to facilitate in relation to their ongoing relations^[35].

But, in the context of negotiations, a ‘lock out’ has also come to be considered to be unenforceable where it does not specify a time limit for its duration because it would indirectly impose a duty to negotiate in good faith which could not be considered a contract^[36] – although such an agreement may be considered thuse if it is for a fixed period^[37] – regardless of this it has been argued that certainty should have been resolveable in the interests of the parties through the recognition of the standard of reasonableness alluded to earlier in this discussion. Moreover, the courts have also felt at liberty to ‘strike out’ indefinite, but subsidiary, provisions as being insignificant so as to be able to give effect to the rest of the agreement^[38]. Furthermore, with regards to an agreement to negotiate, the House of Lords recognised in Walford v. Miles^[39] that such an agreement was effectively an agreement to agree so it was considered unenforceable because “it lacks the necessary certainty”^[40]. Such a view has arisen because negotiations are, by their very nature, adversarial and allowed them to pursue their own interests, so long as they do not make misrepresentations, and withdraw where they see fit^[41], whilst damages were also out of the question because no can tell whether the negotiations would be successful and what the result would be^[42].

Conclusion

In conclusion, in looking to critically evaluate the aforementioned statement so as to also be able to consider the extent to which parties have acted on a business agreement serves to influence any judge, it must be recognised that certainty within any agreement perpetrated by a business is extremely important. This is because certainty in relation to the agreements that are formed between parties clearly goes some way to limit and even negate the need to go to seek the resolution of their disputes. However, by its very nature, business negotiations are somewhat adversarial. Everyone involved with business wants to get ahead so it is perhaps little wonder that disputes do arise. But just because a dispute arises does not mean that the parties want to end the relationship that they have built up just because there is a lack of certainty in some aspect of the agreement that has been formed.

Therefore, whilst the courts may look to resolve issues of certainty between the parties on the basis of the law as it stands and the understanding of what is considered reasonable in the circumstances, the parties themselves can and do retain an element of influence over proceedings between them. Consequently, the respective parties intentions when forming an agreement must be taken into account when determining the binding nature of any agreement. However, that is not meant to assuage the role that the courts do play in the resolution of disputes. It is just that the area is actually somewhat complicated by the lack of certainty in aspects of an agreement that is formed that need to be effectively resolved and, in view of the close proximity of the parties to their dispute, it is sometimes considered best for the parties to accede to the resolution of their dispute to the courts where they cannot otherwise be resolved between the parties themselves despite the influence that the courts will still allow their dealings to have on their decisions in most cases.

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(i) Research Strategy

To begin with it is necessary to decide what the question set is asking – i.e. in this case, determining the need for something different to rectify a problem that apparently exists. This effectively means that any research carried out is required to seek to facilitate a ‘discussion’ involving the specific terms identified within the question so as to effectively determine and incorporate the academic and legal opinions of authorities to support the pertinent issues that have been derived from the research that has been carried out here for the purposes of answering the question.

(ii) Materials

Therefore, on this basis, it is particularly important to look to include case law in particular, in view of the stated requirement in the scope of the question, throughout the writing of this essay before listing them all in the bibliography for ease of further reference. As a result, both ‘Lexis Nexis Professional’ and ‘Halsbury’s Laws of England’ are websites that serve as significant research aids for writing this kind of work in view of the fact that they offer the most contemporary accounts of all legal subjects.

(iii) Search Terms

Legal professor David Stott’s work on legal research^[43] has recognised the best approach to researching an essay is to look to take the title/question that you have been given and then highlight what you think are the key words and phrases so that, in this case, the following search terms are recognised –

‘Business’
‘Contract’
‘Buying’
‘Selling’
‘Legislation’
‘Dispute Resolution’
‘Certainty’.

Then, having identified search terms for the purposes of research, combinations of these terms must be uses, whilst also looking to appreciate the fact that certain terms (i.e. ‘legislation’) will offer very little in view of the specifics elsewhere within the question without looking at more specific aspects. As a result, in view of the fact that the focal point of this essay’s discussion is the issue of certainty within, a particular context (i.e. business agreements), then it is clear that this must be recognised so as to be able to effectively achieve the required results to lead to further research into judicial decisions and other paper based sources outlined in the bibliography by looking at combinations of the aforementioned search terms (e.g. ‘contract’, ‘certainty’, ‘business’ and ‘agreement’).

(iv) Review of Results

In looking to effectively be able to evaluate the academic value of the research that has been carried out here, it is abundantly clear that, whilst the initial materials uncovered were excellent in view of their relevance, a true understanding of as to how successful the research actually was is only possible where we look to consider the content of what has been written in the essay itself. But then it is also necessary to look to consider as to how the answer to the question set looks to show an effective appreciation of how the materials that have been identified in the bibliography have been used. Therefore, it would seem that the results of this research have served to effectively facilitate a broad discussion of various areas in relation to the recognition of certainty within the context of business agreements and as to how the courts have dealt with the resolution of disputes, whilst also recognising the influence that the parties themselves can have in relation to the courts resolution, that have put been together in this paper so as to present an effective answer to the question that has been posed here.

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Beatson. J ‘Anson’s Law of Contract’ 27^th Edition, Oxford University Press (1998)

Fridman. D. F ‘Construing, without constructing, a contract’ (1960) 76 LQR 521

‘Halsbury’s Laws of England’ Lexis Nexis, Butterworths (2007)

Lexis Nexis Professional (2007)

(www.lexisnexis.com)

Stott. D ‘Legal Research’ Cavendish Publishing Ltd (1998)

Adams v. Lindsell (1818) 1 B & Ald. 681

Bishop & Baxter v. Anglo-Eastern Trading Co & Industrial Ltd [1944] KB 12

British Steel Corporation v. Cleveland Bridge Engineering Co [1984] 1 All ER 504

Brown v. Gould [1972] Ch 53

Butler Machine Tool Co v. Ex-Cell-O Corp [1979] 1 WLR 401

Carlill v. Carbolic Smoke Ball Company [1893] 1 QB 256

Chillingworth v. Esche [1924] 1 Ch 97

Courtney & Fairbairn Ltd v. Tolaini Brothers (Hotel) Ltd [1975] 1 WLR 297

Currie v. Misa (1875) LR 10 Ex 153

Davies v. Sweet [1962] 2 QB 300

Didymi Corporation v. Atlantic Lines & Navigation Company Ltd [1988] 2 Lloyd’s Rep 108

Foley v. Classique Coaches Ltd [1934] 2 KB 1

G. Percy Trentham Ltd v. Arhital Luxfer Ltd [1993] 1 Lloyd’s Rep 25

G. Scammell & Nephews Ltd v. Ouston [1941] AC 251

Hillas & Co v. Arcos Ltd (1932) 147 LT 503

Hussey v. Horne Payne (1879) 4 App Cas 311

Hyde v. Wrench (1840) 3 Beav 334

Kennedy v. Lee (1817) 3 Mer 441

Kleinwort Benson Ltd v. Malaysia Mining Corporation Bdh [1989] 1 WLR 379 at

Lipkin Gorman v. Karpnale [1991] 3 WLR 10

May & Butcher v. The King [1934] 2 KB 17n

Mitsui Babcock Energy Ltd v. John Brown Engineering Ltd (1996) 51 Con LR 129

Montreal Gas Company v. Vasey [1900] AC 595

Nicolene Ltd v. Simmonds [1953] 1 QB 543

Pitt v. PHH Asset Management Ltd [1994] 1 WLR 327

Queensland Electricity Generating Board v. New Hope Collieries Property Ltd [1989] 1 Lloyd’s Rep 205

Regalian Properties Plc v. London Dockland Development Corporation [1995] 1 WLR 212

Trollope & Colls Ltd v. Atomic Power Construction Ltd [1963] 1 WLR 333

Von Hatzfeldt-Wildenburg v. Alexander [1912] 1 Ch 284

Vosper Thornycroft Ltd v. Ministry of Defence [1976] 1 Lloyd’s Rep 58

Walford v. Miles [1992] 2 AC 128

Sale of Goods Act 1979

1

The annual budgeting process has been criticised as a cumbersome process which occupies considerable management time; concentrating unduly on short term financial control; having undesirable effects on motivation of managers; emphasising formal organisation structure.

Introduction

A budget is a quantitative measurable long term plan with specified corporate goals set to be achieved within a specific time period. The annual budget is usually divided into sub-plans usually quarterly and is based on an annual strategic business plan. It is formulated by following a process that requires careful analysis and evaluation of organizational objectives, alternatives, strategic options, decisions and actions and implementation of objectives as well as monitoring of results. The comprehensive nature of the budgeting process thus require participation of managers and executives who are responsible for the planning of actual operations, coordination of activities, communication of plans to responsibility centres; motivate managers to achieve budget goals; controlling activities; and evaluating performance. In all of these processes and activities, one notices the conflicting roles of budgets that involve planning, motivation and performance evaluation (Drury 2004). Due to these conflicting roles of budgets, in the recent years critics are of the opinion that the annual budget process is merely a waste of resource and a burden to management rather than enabling them to control their management environment. In the following discussion the researcher shall discuss the factors concerned and offers some recommendation for improvement of the annual budget process.

Discussion

a. Management time consumption

Conventional annual budget process is a quantified plan prepared and approved to define the course of action and activities to be carried out during a specified time period utilizing certain amount of resources to achieve given objectives (Drury 2004). The process deals with projection of activities, contingencies, strategies and interaction of processes within an organization. Budgets are also controls in the planning process to ensure the organization does not deviate from its financial and operational goals. These activities and processes require extensive analysis of organizational processes; plans for targets to be achieved by individual departments and by the overall organization; and results expected to be achieved etc. Consequently, one observes that the annual budgeting process is a complex and tedious process that requires top management directives and participation of lower management and staffs. Not only this but according to Jeremy Hope and Robin Fraser (2003) the traditional budget process require four to five months for completion and efforts of 20 to 30 percent of the manager’s time.

Furthermore, traditional budgeting is based on incremental budgeting whereby expenditures or revenue estimations are based the increments on the previous outcomes, and does not necessarily reflect the need of the environment in which the firm operates resulting in unachievable targets and undesirable outcomes. To resolve modern day organizations are focussing more on rolling forecasts and driver based budgeting models which are concentrated on participation and usage of drivers that operate the organization (Hunt 2003).

b. Short financial control

Another aspect of the annual budget process is that it is divided and based on quarterly objectives and results. Whether the organization is segmented into profit centres; cost centres; revenue or investment centres, the basic premise is that each of these centres are responsible for the designated outcome set by the annual budget. The overall outcome is estimated based on the quarterly results. The objective for quarterly results is to enable management to estimate expected results at the end of the year and also to use budgets as financial controls to counteract deviation, if there are any before the situation proliferate out of hand. Yet this very factor not only takes up a lot of management time but it also forces managers to dedicate significant time to target achievements, financial objectives and compliance with the process therein instead of concentrating on management excellence.

c. Undesirable effect on manager motivation

The pressure to deliver as Hope and Fraser (2003) note force managers and their teams to concentrate on sales targets; customers order of goods whether they want it or not; and achieve financial objectives. There is less and less time for managers to concentrate on team building; motivation; performance level; evaluation; or even time for designing effective and productive departmental structure to achieve better results. For this reason budgeting process tend to motivate managers to set their objectives to financial objectives and deliverables rather than on working as a team. The managers are thus the gatekeepers while the team members are forced to become dissociated from the organization’s structure.

d. Emphasis on formal organizational structure

Given the emphasis on extensive and detailed planning at the departmental level, it is imperative that organizations have formal structure so that budgeting process can be integrated into the forecasting and goal achievement activities. Formal organizational structure is also required for building and approving budgets through communication and coordination. Managers are therefore expected to align day to day activities with organizational strategies and budgets in order to achieve the desired objectives. Without a formal organizational structure, it would be difficult for the management to have a control over operational activities and financial consequences therein.

Conclusion

Given the above discussion, the researcher deduce that the annual budgeting process is a tedious process that eats up the time of management and lower staff alike without much productivity. The reason for this low productivity despite well planned budgeting is because of the long process that entails and the nature of the budgeting process. Budgeting from a top down approach is usually an imposition rather than participation. In modern day organization participation of team members, managers and supervisors with the top management is imperative for efficient operation. Dictated objectives and plans do not help in this regard. For this reason many organizations are changing their approach to budgeting by focussing on operational outcomes and inputs to fixate targets reinforced by incentives rather than outlined targets to be achieved without any motivation. As McGregor indicate in his Theory X/Y human beings are liable to work better if their desired motivation are in place (2005) and they are satisfied. Similarly, effective organizational planning in the form of budgets should be based on firm’s ability to respond to change and more importantly on the satisfaction of those who are responsible for carrying out the plans. Increased participation not only encourages responsibility but also makes accountability easier as individuals feel they are responsible for the operational outcomes. They are not bogged by the imposed accountability (Hunt 2003).

References

McGregor, D. 2005, The Human Side of Enterprise, Annotated Edition. McGraw-Hill.

Drury, C., 2004, Management and Cost Accounting, London: Thompson Business Press, 6th Edition.

Hope, J. and Fraser, R. Feb 2003, Trash The Budget. Optimize, Issue 22.

Hunt, S. Aug 2003, Budgets Roll With The Times. Optimize, Issue 22.

Systematic approach to recruitment and selection, and its efficacy in attracting diverse workforce within the equal opportunities employment legal framework

Introduction

In modern organizations, diversity management has become synonymous with fair and equal opportunities employment, even though traditional context of equal opportunities is closely related with legal aspects of treatments of potential and current employees. Today, diversity management activities are grounded in monitoring of direct and indirect discrimination and interventions to reinforce fair treatment of women, ethnic minorities, the aged and the disabled. Therefore, the fairness paradigm has become the benchmark for managing differences and must be congruent with business objectives. This paradigm emerged from the perspectives that organizations need a diverse workforce to re-think and re-define primary tasks related to strategies including organizational objectives, goals, markets, products and resource allocations (Cornelius, Gooch and Todd in Noon and Ogbonna 2001). Diversity management is different from equal opportunities, yet it is based on the same foundation. Equal opportunities amplify policies and practices that reflect the external legal framework and offer chances for competition. In human resource management, this is usually inherent in the practices of recruitment and selection, and at times in training and development. The basic premise is to ensure that equal opportunities should be given to people who are in competition with each other for areas of employment and selection, regardless of their age, gender, race or disability. The objective is not to elicit equal outcome.

When implemented within the organizational framework that follows systematic approach to human resources management, the fine line between equal opportunities and diversity management, at times, becomes blurred. Consequently, organizations are often found striving for a balance in maintaining diverse workforce within the realms of the equal opportunity laws to achieve equality and organizational strategic objectives. Given the blurring definition of diversity and equal opportunities in employment, critics find systematic approach to recruitment and selection less appealing as strategic human resource management component. Others argue that as a critical component of HRM, recruitment and selection accommodates for both external and internal environmental change. In the ensuing discussion, the researcher shall evaluate the extent of the validity of this debate, and determine how attractive systematic approach to recruitment and selection is in acquiring diverse workforce in organizations, and how successful organizations have been in integrating equal opportunities practices.

Critical Evaluation of Systematic Approach to Recruitment and Selection

Recruitment and selection processes are essential for strategic HRM involving and including job identification, job description, interviews, selection and orientation. It involves complex techniques and skills that assist decision-makers in selecting applicants for achieving organizational objectives, as well as personifies the organizational values, culture, behaviour and discipline. Recruitment and selection processes are based on systematic evaluation of personal and professional values, interpersonal skills, problem solving ability, attitude and behaviour of candidates, and testing them whether their attributes are congruent with the organizational values and objectives. Testing the type of employees the firm is about to hire helps determine the type of personality and how to mould them to the organizational culture. Selection decision is often based on a host of factors pertaining to job match, ability, professional qualifications, personal abilities, as well as employee’s personality to match with the organization (Cornelius, Gooch and Todd in Noon and Ogbonna 2001). This traditional approach (also known as systematic approach) has evolved over the years and become refined as strategic recruitment and selection processes. Traditional approaches to recruitment and selection in earlier organizations based on psychometric models often assess applicant’s performance with job fit whereas in modern organizations the systematic approach to recruitment and selection processes is strategic in nature, even though the foundation of the system has remained congruent with traditional approach (Beardwell and Holden 2003).

Experts (Beardwell and Holden 2003; Thornhill et al., 2000) believe modern systematic approach to resourcing organizations has harmoniously integrated overall organizational strategies and processes rather than merely focusing on job-specific criteria. As a result, recruitment and selection processes have strategic implications, starting from how resourcing offers competitive advantage in the short run to valuing employees as organizational assets. The processes are aimed at achieving organizational objectives aligned with long-term organizational strategic vision. Components of systematic approach to recruitment, which include job analysis, job descriptions, development of competence frameworks, identification of person specifications and accountability, as well as advertisement, executive search, and Internet recruitment provide alternatives and ease to the process of recruitment for organizational resource acquisition.

Alternatively, traditional approach to selection has remained somewhat similar to the preceding methods. For example, earlier recruitment processes have heavily relied on evaluation criteria, reliability on validity of candidate information, techniques of interviews and psychometric tests. Selection has also been based on matching job types with work styles through simulated evaluation tests. Today these components of selection are conducted in the same manner but often aided by the use of information technology systems and refined by integration of organizational objectives. Nevertheless, the fact remains – recruitment and selection processes play critical roles in resourcing organizations and pooling of work skills. According to Beardwell and Holden (2003), HRM processes such as recruitment and selection are no longer viewed as the “best-fit approach” but have changed to “resource-based view” or “best practice approach”. This makes them imperative for supporting corporate strategies and organizational change management by acting as a lever for competitive advantage for organizations.

Not only this, systematic approach to recruitment and selection has been set out to enable organizational management to establish frameworks for performance management. It is at this initial stage that managers determine roles, responsibilities, and performance outcomes to match with the most suitably skilled and motivated candidates for achieving organizational objectives. Moreover, basic principles for systematic approach to recruitment involve setting competitive framework for candidates to gauge future performance. For instance, evaluation and testing processes involve simulated tasks, psychometric tests, and validation of qualifications. It is through these simulated tests that managers gauge attitudes, behaviours, personality, and interaction with the candidates to determine job and candidate match. Selection is based on merit defined by the job specifications, individual commitment, and suitability for the positions within the company. The objectivity is to combine worker attributes, skills, and abilities, and fit it within the organizational policies, procedures, and cultural frameworks, and thereby not to waste efforts and resources in conflict, power relations, subordination and normative institutional clashes in the future (Lucas 2003).

In this regard, one could observe that systematic approach to recruitment, selection integrates external environmental factors like legal frameworks in policies, and procedures to ensure organizations establish a direct relationship with the candidates, job market and the legal environment. From this perspective, systematic approach to recruitment and selection processes is also said to have contributed to promoting and establishing trends for fair employment. However, critics do not have a consensus on fair distribution of representations of individuals where recruitment and selection processes are concerned. For example, Cornelius, Gooch and Todd (2001) are of the view that traditional equal-opportunity practices usually have unequal outcomes, depending on the culture of the organization, as well as the type of workforce required for the job. For example, gender and age discrimination are likely to become issues for “unequal” employment in industries where workers are required to be male of young age such as the logging industry. Commitment towards equal opportunity for fair representation of groups of individuals in recruitment and selection processes does not add value but rather hinders achievement of organizational objectives. Consequently, systematic approaches to recruitment and selection are not really effective in resolving strategic HRM issues pertaining to establishment of legal frameworks. Yet, one cannot deny the fact that organizations have not benefited from the systematic approach to pursue fair treatment and equal opportunities for employment. It is the essence of the systematic approach to recruitment, which takes into account of the changing environment, as well as business strategies that makes it dynamic, and thereby is effective in resolving management issues of diversity.

Attraction of diverse workforce and implementation of equal opportunities employment

There are many factors that are responsible for making an organization attractive for employees. Organizational reputation recognized for its fairness, culture, wage and talent pool, for example, are attraction for candidates. Similarly, job attractiveness is also dependent on the processes of recruitment and selection, and goals and ideology of the organization. In most organizations today, having a diverse workforce is no longer a luxury but a necessity and even a competitive advantage. A diverse workforce is essential in pooling skills and qualifications for achieving organizational strategic objectives in today’s complex business environment (Sims 2002). Diversity, many claim, is distinguishable from equal opportunity as it serves the self-interest of organizations rather than social justice. It involves pursuance of policies that meet the demand of labour pool, and thereby gain the best qualifications from employees. It makes the economic justification for hiring individuals valuable in terms of business requirement, and labour market supply. It takes into account of the expressed need for employee satisfaction, which would lead to quality in productivity and increasing the talent pool direly required by dynamic organizations (Noon and Ogbonna 2001).

Diversity is intrinsically linked with equal opportunity, according to experts (Thornley 2003). They argue that the labour market is typically characterized by competition where individuals compete for employment based on commutative justice. Free competition is prevalent and the reward for it is employment. Candidates vie for positions in organizations through display of qualifications, academic performance, ownership of skills, attitudes, and positive behaviours. Employers, on the other hand, form benchmarks for employment based on organizational requirements, policies and procedures in recruitment and selection. Employers are also mandated to follow government policy to benchmark wages, inflation and competitiveness for fair distribution of income and wealth. The government controls fair distribution of income by implementing policies of equal employment opportunities to eliminate formal and informal discrimination based on gender, age, race and disability. In the UK, this practice is regulated by the EOC and through legal Acts often tends to constrain organizations for implementing fair employment.

Despite critical objections to the efficacy and strategic nature of systematic approach to recruitment and selection, management of organizations cannot deny the fact that HRM processes have integrated diversity and equal opportunities policies and procedures to avoid adverse effects of the law. The EOC has formulated laws such as the Employment Act 1989/2002, Sex Discrimination Act, Equal Pay Act, Disability Discrimination Act 1995, Race Relations Act 1976, Employment Relations Act 1999 and the Employment Equality Regulations 2003 to curb discrimination of applicants for employment based on their gender, race, age and disability. To ensure that these laws are implemented within organizations, organizations have started to invest heavily in HRM processes congruent with the prescribed legal frameworks set by the EOC and the government. For most organizations, investment in these processes are necessary for compliance, while for others it is the long-term objective-achievement efforts as they view making their organization attractive to potential talents a strategic activity in itself. Consequently, HRM processes have been devised based on objective testing of candidates. Recruitment and selection models used for evaluating job performance, personality tests, cognitive ability tests, as well as testing of job knowledge take into account of achievement and skill proficiency. Organizations no longer depend on individual interviewer impressions to select and match candidates based on qualifications matching with job criteria. Instead, candidates are being tested for their abilities, skills and knowledge correlating with job performance regardless of their sex, age, race or disability (Hough and Oswald 2000). Furthermore, organizations are also using integrity tests and self-reports to check reliability and validity of counterproductive work behaviours. These systematic methods of recruitment and selection are based on the premise that effective recruitment leads to smooth functioning of organizations and successful recruitment and selection is based on finding the right person with the right skills, expertise and qualifications for achieving organizational objectives and contributing towards organizational values. For this purpose, a fair and consistent system of recruitment helps lessen the burden of employee conflict, turnover, absenteeism and dismissals.

According to the Workforce Development Plan (2004) in the UK, for organizations to develop leadership capacity in their respective industry, they must develop skills and capacity of workforce, organizational performance management framework, pay and rewards system and, most importantly, ensure that equal opportunity and diversity practices are aligned with the entire recruitment and selection processes. The focus on abilities and aptitudes, and not stereotypes, would help lead to fair judgements about individuals based on their merits rather than their gender, age, race or disability (EOC 2006).

Conclusion

From the above discussion, one can conclude that the strategic nature of the systematic approach to recruitment and selection has made it the ideal tool for today’s organizations to gain a competitive advantage in acquisition of skills and a diverse workforce. Strategic HRM requires that processes be in line with internal and external factors affecting organizational dynamics. For this purpose, these processes have to be flexible to accommodate change in the business environment. Two of the main factors that have been affecting modern organizations are equal employment opportunities and diversity. Self-interest for competitive advantage, as well as legal mandates have motivated organizations to invest in HRM processes and techniques to promote diversity and equal opportunities employment. These are evident in the various techniques used in recruitment and selection tests, as well as policies for hiring candidates. The practice is not isolated but rather has become the benchmark for organizations to attract a diverse workforce and remain aligned with the legal framework. Despite critics’ arguments, one could conclude that the traditional approach to recruitment and selection in today’s organizations is objective in providing the required competitive advantage and strategic edge for competing in the highly dynamic business environment.

References

Beardwell, I. Holden, L. and Claydon (2003) Human Resource Management – A Contemporary Approach. Fourth Edition. FT Prentice Hall.

Employers Organization for Local Government (2004) Workforce Development Planning – Guidance Document – May 2004. Employers Organization for Local Government, Online accessed on 12 January 2007 from: http://www.idea-knowledge.gov.uk/idk/aio/4465769.

Equal Opportunities Commission (2006) Recruiting Staff Guidance for Managers and Supervisors, May 2006. Equal Opportunities Commission.

Hough, L. M. and Oswald, F. L. (2000) Personnel Selection: Looking toward the Future-Remembering the Past. Annual Review of Psychology. pp. 631.

Lucas, R. E. (2003) Employment Relations in the Hospitality and Tourism Industries. Routledge: New York. pp. 84

Millmore, M. (2003) Just How Extensive is the Practice of Strategic Recruitment and Selection? Journal of Management pp. 87

Noon, M. and Ogbonna, E. (eds) (2001) Equality, Diversity and Disadvantage in Employment. Palgrave: Basingstoke, England. pp. 32.

Sims, R. R. (2002) Organizational Success through Effective Human Resources Management. Quorum Books: Westport, CT. Publication Year: pp. 107

Storey, J. (1992) Developments in the Management of Human Resources, Oxford: Blackwell.

Thornhill, A., Lewis, P., Millmore, M. and Saunders, M. (2000) Managing Change: A Human Resource Strategy Approach, Harlow: Financial Times, Prentice Hall.

Thornley, C. (2003) “Labour market policy and inequality in the UK” in Industrial and Labour Market Policy and Performance: Issues and Perspectives (eds) Cofey, D and Thornley, C., Routledge: New York. pp. 83

STRATEGY IN PRACTICE – Amazon.com

Introduction to Strategy

In the Words of Johnson & Scholes (2002), Strategy is the direction and scope of an organisation over the long term which achieves advantage for the establishment through its configuration of resources within a changing environment and to fulfil stakeholder expectations. In some respects strategy can be seen as a reflection of the attitudes and beliefs of those who have the most influence on the organisation.

According to Lynch (2000), the essence of corporate strategy is the identification of the purpose of the organisation and the plans and actions to achieve that purpose. Corporate strategy is often perceived as one of the most critical managerial activities that bring together the organisation’s internal resources and its external relationships with its customers, suppliers, competitors and the socio-economic environment in which it exists. In his conceptualisation of the Strategy concept Lynch (2002) clearly identifies three distinct aspects that have been discussed below:

Resources Strategy – Companies, Businesses and firms hold or acquire a wide range of resources. A firm’s resources and capabilities include all the financial, physical, human and organisational assets used by a firm to develop, manufacture and deliver products or services to its customers Barney (1991). The purpose of strategy is to make the best use of the available resources so as to outperform competition.
Environmental Strategy – The term environment includes every aspect external to the organisation. No organisation can gain competitiveness with a lack of vision for its environment. Focus that is restricted merely to what lies inside the boundaries of the firm is best criticised as incomplete and insufficient. Organisations need to and must be in synchronisation with their surroundings. It is here that strategy comes to play a major role.
Adding Value – Lynch has stressed on the notion of value addition. Apart from the above corporate strategy must meet the need to add value to the supplies brought into the organisation. To ensure its long term survival, the organisation must take the supplies, add value to them through its operations and then deliver its output to the customers. The purpose of corporate strategy is to bring the conditions under which the organisation is able to create this vital additional value. It must also ensure that the organisation adapts to the changes in the environment so that it can continue to add value in future.

In essence Strategy provides Decision Support (Grant, 2004) “to the extent that decision makers are limited by bounded rationality, strategy in the form of guidelines and decision criteria can enhance the quality and consistency of strategic decision making. It also helps in better decision making by pooling together the knowledge of many individuals and by facilitating the application of various analytical tools.”

Strategy also acts as a Co-ordinating device. The many tools and components of strategy i.e. Vision, Mission, Objectives etc. bring together the entire organisation as a single locomotive headed in one direction. With all departments and personnel aiming towards the common goals, co-ordination can be achieved with greater ease. Strategy provides the organisation a target to work for. Strategy is forward looking; it establishes a direction to guide actions. It also sets aspirations for the company that can act as motivators for the whole organisation.

The strategy function, as is evident from above, permeates through all organisational membranes to pervade into all levels and is not restricted to any particular zone. Practically all authors in field of Strategic Management acknowledge the prevalence of varied levels of strategy. Johnson & Scholes (2002) believe that Corporate level strategy relates to “the overall purpose and scope of an organisation and how value will be added to the different parts (business units) of the organisation. It is also likely to be concerned with the expectations of the owners. It is the basis of other strategic decisions and may well take the form of a mission statement.” Corporate strategy deals with the ways in which a corporation manages a set of businesses together. (Grant, 1995)

Business unit strategy is about how to compete successfully in particular markets. Business Strategy deals with the way in which a single business firm or an individual unit of a larger firm competes within a particular industry or market.

Operational strategies are concerned with how the component parts of an organisation deliver effectively the corporate and business level strategies in terms of resources, processes and people. They deal with the day-to-day working of the various sections in a firm. Operational strategies are more about implementation than planning.

Thus, “Strategic management involves understanding the strategic position of an organisation, making strategic choices for future and turning strategy into action.

The strategic position is concerned with the impact on strategy of the external environment, internal resources and competences and the expectations and influences of stakeholders.

Strategic choices include understanding the underlying bases for future strategy at both the corporate and business unit levels and the options for developing strategy in terms of both the directions and methods of development.

Strategy into action is concerned with ensuring that strategies are working in practice.” (Johnson & Scholes, 2002)

This report aims to analyse the strategy in practice at Amazon.com. Amazon.com is one of the most successful e-businesses and undoubtedly the champion of all online retailers or e-tailers as they are often referred to. It has revolutionised the retail sector of business and is a subject of innumerable studies and research in the current e-commerce era.

The material used for study has been drawn from the Amazon.com case study^[1] and the web based portal for the company Amazon.com^[2]. The report shall use existing theory as a basis to realise how strategy has worked for Amazon.com in practice. Although it is challenging to capture every aspect of the organisation’s life so far, effort has been made to cite relevant examples so to get a glimpse of its strategic approach.

The Amazon.com Case

A summary^[3] of the Amazon.com case shall prepare the grounds to lay the analysis in the light of theories discussed. A number of strategic concepts shall be cited to gain deeper insights to particular issues.

With the explosive growth in internet companies’ market capitalisation positions, one would ask if some hype is at play. But the trend data clearly reveal that the internet is for real. According to Forrester research the total value of goods and services purchased online exceeded US$43 billion in 1998. Amazon.com believes that it is well positioned to capitalise^[4] on this growth.

According to Media Metrix 16% of web users visited Amazon.com’s stores in December 1998. ‘In a very short period of time Amazon.com has become one of the world’s most recognised brands’, said Jaleh Bisharat, Vice-president, Marketing, Amazon.com.

With Amazon.com’s current strategy combined with the ongoing recruitment of entrepreneurial top management team for each business segment, the challenge for Amazon.com is on the strategic implementation front.

Bezos had always been fascinated with technology. He came up with the statistic that the electronic world would grow at the rate of 2300% monthly. Bezos said, when something is growing that fast, every second counts.

Bezos considered selling a variety of products online, but he settled for books because the worldwide market is large, the price point is low and the range of titles is large.

Being unsure of the ideal location, Seattle was chosen because it was the location of book distributor Ingram, which has continued to provide 60% of Amazon.com’s books. Seattle also provided a favourable sales tax climate and a high-tech workforce.

“I know nothing about the book industry…I can get them to the customer and forget about bricks and mortar”, said Bezos in an attempt to raise funds for his venture.

After its entry into the market, Amazon.com had no significant rivals and there were no dominant traditional players. Even at this time Amazon.com was providing a powerful search facility as well as a host of services not provided by other online competitors. Analysts warned of a volatile internet sector with strategic plans constantly being revised.

Despite aggressive competitive entry, Amazon.com passed many milestones in 1997. The most notable of these was its ability to raise net proceeds of almost US$50 million in May. This enabled aggressive investment in building the business.

Amazon.com focussed on establishing its executive team, which included the recruitment of Richard Dalzell of Wal-Mart. In the same year, 1997, Amazon.com offered the lowest book prices anywhere in the world.

Extensive promotional relationships with other dominant internet players were concluded which reinforced Amazon.com’s momentum, e.g. Yahoo!, Excite, AOL etc.

In 1998 the company launched music, video and gift stores in the US and expanded operations to UK and Germany. Jimmy Wright of Wal-Mart joined the company in the same year.

Amazon.com’s expansion programme is evidence of a growth strategy via acquisitions, strategic relations and internal development. It received the Computerworld Smithsonian Award for having demonstrated vision and leadership in the innovative use of information technology. With its highly qualified top management team and the success trends, Amazon.com continued to enhance the total customer experience of shopping, giving them wider product range to choose from and more sophisticated services to complement them.

The case study then goes on to list the various achievements of the company. It also provides detail information on the financial and personnel aspects of the organisation. These details have been passed over as they are beyond the scope of this paper.

The Analysis of Strategic Practices

The Basic Approach

The Internet is one of the most fascinating products of the developments in information technology. It received mixed reactions from the public and the entrepreneurs. While most of them were overwhelmed with the possibilities and others called it “an over hyped mania”, only a few saw it as a business opportunity. Jeff Bezos had the vision that created “Ex ante limits” to competition (Peteraf, 1993) and gave Amazon.com the “First-mover advantage”.

Among the various lenses or attitudes towards Strategy that have been theorised, Amazon.com’s approach can be regarded as that of an Ideas lens. The ideas lens (Johnson & Scholes, 2002) sees strategy as a result of new ideas that can come from anywhere in the organisation. It promotes innovative thinking and does not inhibit experimentation. This is well evident in the very start-up of Amazon.com as an enterprise. Further, this approach is better characterised as “Emergent” than “Prescriptive” (Lynch, 2000). The dynamic nature of the internet environment makes a planned and prescribed approach unsuitable. Amazon.com’s strategy evolved largely during the course of its life depending on its position at that instant in time. In the words of Miles & Snow (1987) Amazon.com as an entity is a “Prospector” who looks for new opportunities and is willing to take risks to be able to exploit the same. Stated in general, Amazon.com’s strategy is an ambitious one.

Pattern of Strategy development

In his business development Bezos attempted a “Transformational change” in strategy through the creation of an entirely new service. The change resulted in success because it created new expectations that did not exist earlier; Amazon.com was ahead of its time. Further, the ability to convert the transformational change into a business winner comes from the fact that as the strategy for the firm was emerging, there was little mismatch between the intended and the realised strategy (Mintzberg & Walters, 1985). It is important to strike harmony among the understanding of the environment, identified opportunity, the strategy intended to capture such opportunity and finally the actual resultant strategy that was implemented. Without this happening, the transformational change would most often end in a failure.

Stakeholder Mapping

“Stakeholders are those individuals or groups who depend on the organisation to fulfil their own goals, and on whom in turn the organisation depends” (Johnson & Scholes, 2002). For Amazon.com the major stakeholders were its customers, investors and Jeff Bezos himself. With respect to the Stakeholder Mapping drawn up by Savage et al (1991) Bezos and the investors can be referred to as “Dominant Stakeholders” while the customers would identify as “Dependent Stakeholders”.

Environment

The internet industry is characterised by a high degree of “Changeability” (Lynch, 2000) i.e. there is a greater number of new problems and each problem is more complex than in other sectors. Moreover it is not very “Predictable” due to a high rate of change and uncertainty of future circumstances. This made Amazon.com’s business environment highly turbulent. As a new entrant Amazon.com had to cope with all these difficulties; but once settled these factors acted as “Barriers to entry” (Porter, 1985) for its competitors.

Culture

Culture within an organisation consists of the shared basic assumptions that have worked well enough to be considered valid and passed to fellow employees over time (adapted from Schein, 1985). It refers to “the way we do things around here”. While there can be several factors affecting the culture at a work place, in case of Amazon.com it is the ownership and technological factors. Jeff Bezos is the leader of the organisation and also the cultural head bringing in ambition and motivation to the organisation. The work practices, routines, plans, the entire business is largely governed by the technological abilities inside and the advancements outside the organisation.

The Cultural web is another important aspect that has a definitive impact on the strategy an organisation pursues. The Cultural Web (Johnson & Scholes, 2002) consists of the Routines & Rituals, Stories, Symbols, Power Structures, Control Systems and the Organisational Structure. For Amazon.com its brand name acts as a major symbol that binds together the various components of the system. It symbolises the scale of operations that Bezos aimed at, thus cultivating an aggressive work culture. If one was to draw out the power structure at Amazon.com, it would be a flat pyramid with Jeff Bezos at the peak. Although the investment came from outside, Amazon.com was his dream and “his” venture. He did not promise any profits in the first 5 years, but his faith in the idea won the investors’ confidence. All this clearly indicates the prevalence of a “Power Culture” at Amazon.com (Handy, 1993).

Key Strategic Highlights

Based on its first mover advantage Amazon.com was able to capitalise on the heterogeneity of its resources. It reaped benefits from the Ex post and Ex ante limits to competition (Peteraf, 1993). Its technological knowledge behind the search engine was imperfectly imitable for the competitors. Even if the rivals came up with substitute systems, the “first mover” position always allowed an edge in favour of Amazon.com. Employees and technicians at Amazon.com learnt to adapt and innovate better than the competitors, simply because the latter were merely copying what Amazon had done.

The Knowledge at Amazon.com was rare, valuable, not easily imitable and well organised to allow the company to enjoy a resource based competitive advantage over its rivals (Barney, 1995).

The technological skills were Amazon.com’s core competence that was used to create the Search facility – their core product which was at the heart of Amazon’s web based store/services – the end product (Hamel & Prahalad, 1990). However, it also needs to be mentioned here that the Amazon.com was rich in dynamic capabilities (Teece, 1997) to be able to successfully carry out the above. The top management team which consisted ex-Wal-mart employees, were aware of their strengths as well as the business environment to be able to identify their core competence. They ensured carrying out the best use of their resources and maintained the momentum gathered from the initial push. Even with the best resources and opportunities a business may not succeed, if those managing it are not aware of their responsibilities. It is the management that lays out the strategy and takes all decisions that are critical to the overall success.

Expansion

Given the knowledge of Ansoff’s Matrix Amazon.com for a start pursued Market development i.e. offered the existing products to new markets. It also used Cost leadership (Porter, 1985) to expand its customer base. As the website served more and more customers over time, Amazon.com introduced new products to the existing market – a product development effort. Finally, with a secure market position Amazon.com was capable of Diversification i.e. offering new products to new markets.

Not all of Amazon.com’s offerings were indigenous. It had partnered with several other wed based companies. While most of the early partnerships were aimed at gaining a greater exposure to the target audience, later excusive relationships were created to add to the existing list of products and services that were offered on the website. The motive behind these alliances was largely “Exploitative” (Koza, 1998). Such business alliances were primarily aimed at tapping into each others’ customer bases and render mutual benefits to the parties involved.

Amazon.com’s approach to collaboration is well explained by the M-B-A (Make, Buy, or Ally) matrix. It allied with services such as Yahoo and Excite because the service was not important to Amazon’s business – it sought more traffic. However, in case of similar companies such as Bookpages and Telebook, Amazon.com preferred a “Buy” because of the importance to the business activity. It also had the requisite skills to run these companies. Amazon.com did not want to allow these smaller companies to grow and later pose a threat to them.

Conclusion

Amazon.com can be easily regarded as a strategy champion. It had all the components of a great Entrepreneurial tale, and shall be cited in many more academic works in future. However, it must not be overlooked that for the first five years Amazon.com did not make any profits. Moreover, with the growth in market share, loss per share also grew. If all other competitors would have grouped together to attack Amazon from all fronts, it could have been a different story.

Essentially, Amazon’s first mover advantage was crucial. The fact that Amazon possessed the above resources and capabilities at the emergence of e-commerce is of vital importance. Therefore, it is questionable whether or not Amazon would have managed to achieve similar results if it were to launch today in 2004 in such a hypercompetitive market. Primarily, Amazon’s success was due to effective leveraging of its resources, especially knowledge and managing the capabilities derived from these resources.

REFERENCES

Barney, Jay B.. – Firm resources and sustained competitive advantage From: Journal of management vol 17 (1) 1991 p.99-120.
Grant, R. M. (Robert Morris), 1948- – Contemporary strategy analysis : concepts, techniques, applications / Robe.. – 5th ed – . – Oxford : Blackwell, 2004
Johnson, Gerry. – Exploring corporate strategy / Gerry Johnson, Kevan Scholes. – 6th ed.. – Harlow : Financial Times/Prentice Hall, 2002.
Lynch, Richard L.. – Corporate strategy / Richard Lynch. – 3rd ed. – Harlow : Financial Times Prentice Hall, 2003.
Mintzberg, Henry. – Strategy safari : the complete guide through the wilds of strategic manage… – Harlow : Financial Times Prentice Hall, 2001.
Mintzberg, H. and Waters, J.A. – Of strategies, deliberate and emergent Strategic management journal. – John Wiley and Sons Inc. Vol 6 (1985) p.257-272
Peteraf, M. – The cornerstones of competitive advantage: a resource-based view Strategic management journal. – John Wiley and Sons Inc. Vol 14 (3) 1993 p.179-191
Porter, M.E. – From competitive advantage to corporate strategy. Harvard business review – Harvard Business School Publishing Corporation, 1987
Prahalad, C.K. and Hamel, G. – The core competence of the corporation Harvard business review. – Harvard Business School Publishing Corporation. Vol 68 (3) 1990 p.79-91
Schein, Edgar H. (Edgar Henry), 1928-. – Organizational culture and leadership. – 2nd ed. – San Francisco, Calif. : Jossey-Bass, 1992. – (Jossey-Bass management series).
Teece, D. et al – Dynamic capabilities and strategic management Strategic management journal vol 17 (7) 1997 p.509-533
Whittington, Richard, 1958- – What is strategy – and does it matter? / Richard Whittington – 2nd ed – . – London : Thomson Learning, 2001 – – 1861523777
Footnotes

^[1] Amazon.com – from start up to the new millennium, Stockport & Street in Johnson & Scholes (2002)

^[2] www.amazon.com

^[3] This is a self prepared summary using the information provided in the Amazon.com Case study by Stockport & Street. The purpose of the summary is informative and allows connection with the report – it has therefore been included in the main text.

^[4] Such text in bold are exhibits of strategic highlights

Introduction to Scandinavian Civil Law

Scandinavian civil law applies to the five Scandinavian countries, namely Denmark, Sweden, Iceland, Finland and Norway. Historically, it has it roots set in Germanic law, but Scandinavian civil law is now more closely akin to the civil law of the common law countries such as the UK and Australia.

History of Scandinavian Civil Law

Scandinavian civil law has not always been recognised as a unified system of law for the five Scandinavian countries. Until the early 9^th century, Scandinavian civil law did not exist as a concept at all; instead, the five nations all had their own independent legal and administrative systems. Despite the five countries having their own systems, legally, they were all based on similar theories and it was not long until they started to merge into one body of Scandinavian civil law.

Initially, Scandinavian civil law was entirely unwritten; it was based on customs and social development that gradually became a codified system. The customary type of Scandinavian civil law was managed by group meetings which could be attended by all men. This system of Scandinavian civil law worked well until the 11^th century when the rules became too difficult to manage and some basic laws were codified into a written text. Generally, Scandinavian civil law was put together by private individuals, although increasingly the king became involved. By the 13^th century, the body of Scandinavian law was largely complete in its current form.

Scandinavian civil law became much more unified across the five countries, over the centuries. However, there were still differences regarding where the laws originated from. For example, the Gulathing Law originated from Norway, in the 11^th century, whereas the Law of Uppland came from Sweden, in the 13^th century.

These early laws formed the basis of future Scandinavian civil law; however, they were not in the same format as modern Scandinavian civil law. The first codification of Scandinavian civil law started with the areas of matrimony, property, inheritance and contract, although gradually this extended to cover the areas of administrative and criminal law. Religious law was dealt with entirely separately, with its own court and justice decisions.

Despite the early shift towards codifying Scandinavian civil law, the first common law system that was centrally arranged was actually criminal law, particularly in the area of manslaughter and blood feuds. Religious law also started to become intertwined into the Scandinavian civil law, primarily in order to ensure that assisting the poor was something written down in law.

Power also shifted towards the king, with King Magnus’s Swedish code of 1350 being the first of its kind, placing power on the King’s officials to manage the commencement of criminal proceedings. Although this only dealt with the criminal law element of the legal system, it was, nevertheless, the beginning of the Scandinavian civil system as we know it today.

By 1380, Denmark and Norway had come under the rule of one king, although the legal systems remained independent. This unification was the first step towards the Scandinavian civil law becoming one system. Over the next three hundred years, the Scandinavian civil law system gradually gained codification and unification across the two countries, influences of which filtered into the neighbouring countries.

The codes that were developed by the two Scandinavian countries were extremely well written and the envy of many of other countries. The wording in this code of Scandinavian civil law was both simple and easy to understand. Sweden was one of the first countries to accept the new code, actively, and it became clear that this was set to be the widely accepted Scandinavian civil law code.

Scandinavian Civil Law Today

Whilst the historic codes were both popular and widely accepted, the complexity of modern life has meant that Scandinavian civil law has more recently become regulated by more and more statutes. During this modern development, the five Scandinavian countries have all largely followed the same basic theories, yet have generated their own legal standards. Essentially, all Scandinavian civil law is based on the Swedish laws of the early 18^th century.

Although there is a degree of separation in terms of legal structures in the Scandinavian countries, there is still the agreement between the states to cooperate on matters of legislation. This agreement was entered into in 1872 and has become more and more important and the foundation of Scandinavian civil law as we know it today. Typically, areas such as commerce and contracts have always ensured that there is conformity amongst the Scandinavian states. One of the main benefits of having a largely uniform Scandinavian civil law is that trade and movement of both people and commerce is much more fluently achieved across the Scandinavian countries.

Scandinavian civil law is a unique blend of many different legal systems, although most notably German and French laws. This influence is primarily down to the way in which the law is taught in Scandinavia, with many Scandinavian based lawyers studying in France and Germany before returning to practise in Scandinavia. Despite the unique format of the Scandinavian civil law, it does largely follow in line with other European countries when it comes to matters of international trade and shipping.

Although it has been necessary for Scandinavian civil law to become suitably in line with other European states, the Scandinavian states have opted to stay as straightforward and close to real life practicalities, as possible. This is particularly evident when it comes to welfare law. In a similar way to the English law courts, the judges are largely responsible for making the law, although in a different way to the English courts. For example, there is no principle of binding precedent, which makes Scandinavian civil law particularly flexible and able to deal with changes is social needs as and when they arise.

Scandinavian civil law is very flexible, yet sufficiently structured to allow the Scandinavian states to compete on an entirely level footing with other European states for the purposes of commercial contracts. Many legal theorists believe that Scandinavian civil law is, in fact, a model code which should be considered by many other modern countries across the world.

Brief 187810

Sale of Goods/Consumer Protection question

To:Mr Supervisor

From: Richard Ross

Re: Graham Marshall – The Pine Tree

I met with Mr Marshall of The Pine Tree on 28^th February 2006.

Mr Marshall explained that he was being pursued for a claim by The Wine Imporium in respect of 3 items that he had ordered on 2^nd February 2006.

Mr Marshall ordered the following items:

A bottle of vintage port, priced at ?1,500
2 dozen bottles of Eldorado sherry at ?800
5 litres of Shangri-La wine at ?900

The Wine was to be purchased for Mr Marshall’s business, which is a restaurant.

It was agreed that the port and sherry would be delivered on 8^th February; but the goods were destroyed in a fire at the Imporium’s premises, and the goods were therefore not delivered. Despite this, the Imporium have issued an invoice dated 10^th February 2006, and are seeking payment of ?3,200. He is now being pressed for payment and has received a letter from solicitors acting for the Emporium (a copy is attached to this report).

Mr Marshall also purchased 5 dozen wine glasses, again for his restaurant at a cost of ?60. These items collected by Mr Marshall.

My view of the legal position is as follows:

There is a distinction between ownership and possession. Clearly, at the time of the fire, the Emporium were still in possession of the goods, but who owned them at that time is a different and more complex question.

The transfer of ownership has important legal consequences. It is of significance when considering who is liable when goods are damaged. The general rule is that risk of loss normally passes from seller to buyer at the same time as property legally passes. Therefore, if property has passed to Mr Marshall as at 7^th February 2006, he will bear the loss, and have to meet the Emporium’s claim.

The Sale of Goods Act 1979 (“SOGA”) contains detailed rules governing various aspects of transfer. The time when property is transferred is dealt with by Ss 16-19.

Section 20(1) SOGA deals with risk and provides that:

“Unless otherwise agreed, the goods remain at the seller’s risk until the property in them is transferred to the buyer, but when the property therein is transferred to the buyer, the goods are at the buyer’s risk whether delivery has been made or not.”

If Mr Marshall dealt as a consumer, this position would be varied by the Sale and Supply of Goods to Consumers Regulations 2002 (“The Regulations”).

S4 of the Regulations amends S20 SOGA. It provides that after subsection (3) there is inserted-

“In a case where the buyer deals as consumer …, subsections (1) to (3) above must be ignored and the goods remain at the seller’s risk until they are delivered to the consumer.”.

A “consumer” is defined in the Regulations as “any natural person who, in the contracts covered by these Regulations, is acting for purposes which are outside his trade, business or profession”

Mr Marshall was however buying the wine for his restaurant, and therefore will not fall within the definition of consumer. In that case, the general rule in S20(1) SOGA will apply.

The relevant question is therefore whether as at 7^th February the goods had transferred to Mr Marshall. The basic rule is that property passes when the parties intend it to pass. This is reflected in S17 SOGA. However, this is subject to the overriding provision of S18 SOGA which provides separate rules for unascertained goods.

Therefore, whether goods have transferred will depend on whether the goods are specific, or unascertained goods.

Are the goods specific goods?

Specific goods are defined at S16 SOGA as “goods identified and agreed on at the time a contract of sale is made”. Goods can only be classified as “specific” if it is possible to identify the precise subject matter of the sale at the time when the contract is made. Any goods purchased as a self service purchase (as most consumer items in supermarkets are) will be for specific goods.

Unascertained goods are not defined by the SOGA, but will comprise of goods that are not specific. This will cover any generic goods, or goods that form part of a larger consignment, or come from a source which is specified in the contract.

The Shangri-La was to be taken from a case in the cellar of the Emporium, and therefore this is clearly unascertained, since it comes from part of a larger consignment.

The Eldorado sherry is specified by description, but it is a purely generic description, and again will be for unascertained goods. It is different to the example above of self service purchases, since the specific bottles had not been selected by Mr Marshall.

The situation with regard to the vintage port is more complex. Mr Smith of the Emporium told our client at the time of the sale that he thought that this bottle was the last remaining bottle. If that is indeed the case, then the purchase was for a specific bottle of port. It is my view that this is a contract for a specific item.

Specified goods

S17 SOGA reflects the common law rule that property in specified goods, such as the port, passes when the parties intend it to pass. This means that if there is a clause in the contract, such as a retention of title clause, property passes under the terms of that clause. It is also possible that this may be implied from the parties’ conduct, trade practice or custom, or any other relevant circumstances.

There is no express provision, and no relevant trade practice. A term may however be implied if, eg, payment is deferred – this may imply that property passes on payment. Payment in this case was not due on delivery, and therefore it is possible to argue that in the case of the vintage port, if it is indeed for specific goods, there was an implied agreement that the property; and risk; did not pass until delivery. (confirmed in Dobson v General Accident co Ltd^[1]

Diplock LJ indicated in R V Ward Ltd v Bignall^[2] that the courts will be very ready to infer an intention that property will not pass until delivery; thereby ousting the statutory rule.

If this argument fails, the point will be governed by S18 SOGA. This sets out five rules, which govern the situation. The first three relate to specific goods, and the first is the basic rule.

The first rule states:-

“where there is an unconditional contract for the sale of specific goods in a deliverable state, the property passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, be postponed.”

“Unconditional” means that there is no term in the contract postponing transfer until one of the parties performs a specified act.^[3]

In Underwood v Burgh Castle Brick and Cement Syndicate^[4] it was held that an engine which was cemented to the sellers floor at the time the contract was made was not in a deliverable state until it was dismantled and ready for transport.

There is nothing however in Mr Marshall’s case to render the contract conditional, and therefore the contract is unconditional.

Therefore, if the port is specified, with no express or implied condition, then risk passed to Mr Marshall on 2^nd February 2006. It is however my view that, because payment is delayed, a court would infer a term that property (and risk) did not pass.

(The remaining three rules are not relevant to Mr Marshall’s case, and only apply to goods not in a deliverable state at time of contract; or where the seller needs to do something to ascertain the price (eg weigh the goods) or where goods are bought on approval.)

I would also comment that the statutory rule will only apply if the damage was accidental. S20(3) SOGA provides that “nothing in this section shall affect the duties and liabilities of either seller or buyer as a bailee of the goods for the other party”.

There is however no evidence to suggest that the fire was not accidental.

Unspecified goods

In the case of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained.^[5]

Rule 5 of S18 SOGA will therefore apply to unascertained goods. This applies where no contrary intention appears, as in this case. The rule states:

“1.Where there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer, or by the buyer with the assent of the seller, te property in the goods then passes to the buyer and the assent may be express or implied and may be given either before or after the appropriation is made.

2.Whether in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee…for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is to be taken to have unconditionally appropriated the goods to the contract.”

This means that the goods remain unascertained, and risk remains with the seller until the goods are:

in a deliverable condition, and
unconditionally appropriated (ie irrevocably earmarked),

Pearson J stated in Carlos Federspiel & Co SA v Twigg (Charles) Ltd^[6] that to be unconditionally appropriated, “the parties must have had, or be reasonably supposed to have had an intention to attach the contract irrevocably to those goods so that those goods and no others are the subject of the sale and become the property of the buyer”.

In that case, bicycles were packed up and labelled, and shipping arrangements had been made by the seller. The goods had also be paid for by the buyer, when the seller went bankrupt. It was held that at the time the seller went bankrupt, the goods had not been appropriated, and the buyer had no title. This is because the seller could have changed his mind before he handed the goods over to the shipper.

0

In Hendy Lennox v Graham Puttick^[7] it was held that appropriation took place once the sellers had assembled the generators and the buyers received invoices and delivery notes indicating the serial numbers.

Therefore, the seller must perform an act which puts the goods out of his control, so that he cannot use them to perform another contract.

We do not know whether the goods had been selected ready to be delivered to Mr Marshall. However, there is no evidence to support the fact that the goods have been irrevocably attached to the contract; certainly there is no consent to such an attachment by Mr Marshall. (In order to pass property, the appropriation must be made with the express or implied consent of each party).

Goods purchased from a bulk source may however become ascertained by exhaustion. This will be relevant to the Shangri La wine, which was to be purchased from a cask in the cellar of the Emporium. If that cask only had 5 litres left in that case, that wine would have been unconditionally appropriated to the contract.^[8] This is however unlikely.

I therefore conclude that as at 7^th February 2006, the goods had not been appropriated to the contract, and therefore at the time of the fire, the goods remained unascertained. Risk in the unascertained goods remains with the Emporium.

(I would mention for completeness that The Sale of Goods (Amendment) Act 1995 creates an exception to the rule relating to goods where the bulk is identified in contracts; but only applies where the buyer has paid for some or all of the goods. Its aim was to protect buyers who have paid for goods, and the seller subsequently becomes insolvent. It will not be relevant here).

Overview

It is my view that in all probability, the vintage port will be a specified item. Since payment is delayed until after delivery, I believe that risk will have not have passed at 7^th February 2006.

The wine will have been ascertained if it was the last 5 litres in the cask, but this seems unlikely. Therefore, both the sherry and wine were unascertained goods, not unconditionally appropriated to the contract as at 7^th February. Under S16 SOGA, no property passes until goods are ascertained, therefore risk again remained with the Emporium.

Frustrated contracts

Where goods perish whilst still at the sellers risk, he is not able to perform the contract – he cannot insist on the buyer accepting other goods without the buyers consent. Common law rules of frustration and mistake may excuse a seller from liability if performance becomes impossible.

Ss 6 and 7 SOGA contains rules that are broadly analogous to the common law rules of frustration. Where they apply, the common law rules are displaced.

S6 SOGA provides “where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when a contract is made, the contract is void.

(S6 is equivalent to the common law rule of mistake)

In Mr Marshall’s case, the contract was made on 2^nd February, and the goods destroyed on 7^th February. This will therefore not apply.

S7 SOGA provides “Where there is an agreement to sell specific goods and subsequently the goods, without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is avoided.”

This is equivalent to the common law rule on frustration, and displaces the impact of the Law Reform (Frustrated Contracts) Act 1943 (the “43 Act”). Therefore, this Act does not apply to the perishing of specific goods, and therefore the contract is not frustrated.

I therefore conclude that, for any specific goods, which on the balance of probability will in this case be the bottle of vintage port, the bottle has been damaged after the contract is concluded, and S7 SOGA will therefore apply.

An item perishes if it has “so changed s to become an unmerchantable thing that no honest seller would sell” (Asfar & Co v Bludnell^[9]– a case where dates impregnated with river water and sewage were found to have perished)

The port has clearly perished. Therefore, the contract is avoided, and the Emporium cannot sue for the price.

Unascertained goods

The statutory rules only apply to specific goods that have perished. The wine and sherry do not fall into this category, since they are for unascertained goods.

The sherry is purely generic. This means that other sherry of the same description can be purchased and supplied (assuming they are still available). Therefore the Emporium must source more sherry from another source – or pay damages to Mr Marshall for non-delivery. There is certainly no requirement for Mr Marshall to pay for these goods before they are delivered.

With regard to the wine, the source has been specified in the contract. It is therefore impossible for the Emporium to supply the wine. S7 will not apply, because it is not for the sale of specific goods. The contract will therefore be frustrated under the 43 Act. This means that adjustments for expenses incurred, and benefits received are possible. However, in this case, there does not appear to be any such expenses or benefits.

Therefore, the Emporium must supply the sherry – or face a claim for damages for non-delivery. However, there is no obligation on either party with regard to the port, or the wine.

Wine Glasses

Property in the wine glasses has clearly passed, as has risk. Whether Mr Marshall can reclaim his money will depend on when the glasses were broken.

S14 SOGA contains implied terms about quality and fitness.

If the glasses were broken before Mr Marshall paid and took delivery of them, they were not goods of satisfactory quality^[10] and he will be entitled to a refund.

If the glasses were broken at a later date, it will be a question of whether the glasses were broken because they were faulty or whether Mr Marshall mishandled them. If the goods contained an inherent fault, it can be argued that they were not fit for purpose. S 14(2b) SOGA provides that to be of satisfactory quality, goods must be fit for all purposes for which the goods are commonly supplied. It goes on to state that goods should be free from minor defects, be safe and durable.

Therefore, if the goods were not safe and durable (to the extent that glasses should be expected to be) Mr Marshall would be entitled to a refund.

Conclusion

Mr Marshall has no obligation to pay any money to the Emporium at this stage. If the Emporium does deliver the sherry, he will then be obliged to pay the price; but not before.

Indeed, Mr Marshall may have a claim against the Emporium if they fail to deliver replacement sherry to him; and if the wine glasses were indeed defective.

Bibliography

Consumer Law and Practice, fifth edition – Robert Lowe and Geoffrey Woodruff, Sweet & Maxwell 1999

Law Reform (Frustrated Contracts) Act 1943

The Sale of Goods Act 1979

The Sale and Supply of Goods to Consumers Regulations 2002

The Sale of Goods (Amendment) Act 1995

Asfar & Co v Bludnell [1886] 1QB 123

Carlos Federspiel & Co SA v Twigg (Charles) Ltd [1957] 1 Lloyd’s Rep 241

Dobson v General Accident co Ltd [990] 1 QB 274

Hendy Lennox v Graham Puttick [1984] 2 All ER 152

R V Ward Ltd v Bignall [1967] 1 QB 534

Underwood v Burgh Castle Brick and Cement Syndicate [1922] 1 KB 343

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