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S T U D Y PAPER F4 T E CORPORATE AND BUSINESS LAW X (GLOBAL) T In this edition approved by ACCA x We ddiscuss the bbest strategies for studying for ACCA exams x We hhighlight the mmost important elements in the syllabus and the kkey skills you will need x We ssignpost how each chapter links to the syllabus and the study guide x We pprovide lots of eexam focus points demonstrating what the examiner will want you to do x We eemphasise key points in regular ffast forward summaries x ThiNganHang.comWe ttest your knowledge of what you've studied in qquick quizzes x We eexamine your understanding in our eexam question bank x We rreference all the important topics in our ffull index BPP's i-Learn and i-Pass products also support this paper. FOR EXAMS IN DECEMBER 2009 AND JUNE 2010 ThiNganHang.com
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First edition 2007 Fourth edition June 2009 ISBN 9780 7517 6366 9 (Previous ISBN 9870 7517 4725 6) British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Published by All our rights reserved. No part of this publication may be BPP Learning Media Ltd reproduced, stored in a retrieval system or transmitted, in BPP House, Aldine Place any form or by any means, electronic, mechanical, London W12 8AA photocopying, recording or otherwise, without the prior written permission of BPP Learning Media Ltd. www.bpp.com/learningmedia We are grateful to the Association of Chartered Certified Printed in the United Kingdom Accountants for permission to reproduce past examination questions. The suggested solutions in the exam answer bank have been prepared by BPP Learning Media Ltd, unless where otherwise stated. Your learning materials, published by BPPLearning Media Ltd, are printed on papersourced from sustainable, managed forests.ThiNganHang.com © BPP Learning Media Ltd 2009 ii ThiNganHang.com
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Contents Page Introduction How the BPP ACCA-approved Study Text can help you pass v Studying F4 (Global) vii The exam paper x Part A Essential elements of legal systems 1 Economic, political and legal systems 3 2 International trade and regulation 27 3 Commercial arbitration 47 Part B International business transactions 4 Contracts for the international sale of goods 63 5 Obligations and risk in contracts for international sales 77 6 Transportation and payment 97 Part C International business forms 7 Agency 121 8 Sole traders and partnerships 135 Part D Joint stock companies 9 Corporations and legal personality 153 10 Company formation 173 11 Constitution of a company 189 Part E Capital and financing of companies 12 Share capital 209 13 Borrowing and loan capital 223 14 Capital maintenance and dividend law 239 Part F Management, administration and regulation of companies 15 Company directors and other company officers 255 16 Company meetings and resolutions 289 Part G Legal implications relating to companies in difficulty or in crisis 17 Insolvency and administration 307 Part H Governance and ethical issues relating to business ThiNganHang.com18 Corporate governance 335 19 Fraudulent behaviour 361 Exam question bank 379 Exam answer bank 383 List of cases and index 409 Review form and free prize draw Contents iii ThiNganHang.com
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A note about copyright Dear Customer What does the little © mean and why does it matter? Your market-leading BPP books, course materials and e-learning materials do not write and update themselves. People write them: on their own behalf or as employees of an organisation that invests in this activity. Copyright law protects their livelihoods. It does so by creating rights over the use of the content. Breach of copyright is a form of theft – as well as being a criminal offence in some jurisdictions, it is potentially a serious breach of professional ethics. With current technology, things might seem a bit hazy but, basically, without the express permission of BPP Learning Media: x Photocopying our materials is a breach of copyright x Scanning, ripcasting or conversion of our digital materials into different file formats, uploading them to facebook or emailing them to your friends is a breach of copyright You can, of course, sell your books, in the form in which you have bought them – once you have finished with them. (Is this fair to your fellow students? We update for a reason.) But the e-products are sold on a single user licence basis: we do not supply ‘unlock’ codes to people who have bought them second-hand. And what about outside the UK? BPP Learning Media strives to make our materials available at prices students can afford by local printing arrangements, pricing policies and partnerships which are clearly listed on our website. A tiny minority ignore this and indulge in criminal activity by illegally photocopying our material or supporting organisations that do. If they act illegally and unethically in one area, can you really trust them? ThiNganHang.com iv ThiNganHang.com
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How the BPP ACCA-approved Study Text can help you pass your exams – AND help you with your Practical Experience Requirement! NEW FEATURE – the PER alert! Before you can qualify as an ACCA member, you do not only have to pass all your exams but also fulfil a three year practical experience requirement (PER). To help you to recognise areas of the syllabus that you might be able to apply in the workplace to achieve different performance objectives, we have introduced the ‘PER alert’ feature. You will find this feature throughout the Study Text to remind you that what you are learning to pass your ACCA exams is equally useful to the fulfilment of the PER requirement. Tackling studying Studying can be a daunting prospect, particularly when you have lots of other commitments. The different features of the text, the purposes of which are explained fully on the Chapter features page, will help you whilst studying and improve your chances of exam success. Developing exam awareness Our Texts are completely focused on helping you pass your exam. Our advice on Studying F4 outlines the content of the paper, the necessary skills the examiner expects you to demonstrate and any brought forward knowledge you are expected to have. Exam focus points are included within the chapters to highlight when and how specific topics were examined, or how they might be examined in the future. Using the Syllabus and Study Guide You can find the syllabus, Study Guide and other useful resources for F4 on the ACCA web site: www.accaglobal.com/students/study_exams/qualifications/acca_choose/acca/fundamentals/cl/syllabus The Study Text covers all aspects of the syllabus to ensure you are as fully prepared for the exam as possible. ThiNganHang.comTesting what you can doTesting yourself helps you develop the skills you need to pass the exam and also confirms that you can recall what you have learnt. We include Questions – lots of them - both within chapters and in the Exam Question Bank, as well as Quick Quizzes at the end of each chapter to test your knowledge of the chapter content. Introduction v ThiNganHang.com
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Chapter features Each chapter contains a number of helpful features to guide you through each topic. Topic list Tells you what you will be studying in this chapter and the Topic list Syllabusreference relevant section numbers, together the ACCA syllabus references. Introduction Puts the chapter content in the context of the syllabus as a whole. Study Guide Links the chapter content with ACCA guidance. Exam Guide Highlights how examinable the chapter content is likely to be and the ways in which it could be examined. Knowledge brought forward from earlier studies What you are assumed to know from previous studies/exams. Summarises the content of main chapter headings, FAST FORWARD allowing you to preview and review each section easily. Examples Demonstrate how to apply key knowledge and techniques. Definitions of important concepts that can often earn you Key terms easy marks in exams. Tell you when and how specific topics were examined, or Exam focus points how they may be examined in the future. Formulae that are not given in the exam but which have to Formula to learn be learnt. This is a new feature that gives you a useful indication of syllabus areas that closely relate to performance objectives in your Practical Experience Requirement (PER). Question Give you essential practice of techniques covered in the chapter. Case Study Provide real world examples of theories and techniques. ThiNganHang.comChapter Roundup A full list of the Fast Forwards included in the chapterproviding an easy source of review. , Quick Quiz A quick test of your knowledge of the main topics in the chapter. Found at the back of the Study Text with more Exam Question Bank comprehensive chapter questions. Cross referenced for easy navigation. vi Introduction ThiNganHang.com
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Studying F4 (Global) In approaching the F4 (Global) exam you should bear in mind what the paper is about, the skills you are expected to demonstrate in the exam and how you can improve your chances of passing the exam. We shall look at each of these points in turn. 1 What F4 is about The main aims of the F4 (Global) exam are: x To develop an understanding of the general legal framework in which international business takes place and of specific legal areas relating to business, but x To recognise the need to seek further specialist legal advice where necessary The exam is not designed to turn you into a legal expert. Instead you will be a well-informed professional accountant who appreciates the legal issues of doing business internationally but who recognises the boundaries of their legal knowledge and therefore the point at which professional legal expertise must be sought. The sequence of the syllabus and study guide takes you through the main areas of what you need to know. Essential elements of legal systems In this part of the syllabus you are covering areas that underlie all the other areas, namely: what is law and how does it fit into a country's political, economic and legal system. The distinctions between criminal and civil law, and between common law, civil law and sharia law systems, are very important. Most of the paper is concerned with civil law, namely the law that sets out the rights and duties of persons in relation to each other. There are elements of criminal law as well, however, especially in relation to companies, insolvency, insider dealing and international money laundering. The distinction between public and private international law is also important, affecting as it does the status of the various UN Conventions and Model Laws that are contained in the syllabus. These are intended at least in part to address the problem of private international law, namely the conflict of laws. International business transactions The central part of this section of the syllabus is concerned with the international sale of goods, covered by the UNCITRAL Convention on the International Sale of Goods. Its detailed provisions cover formation of the contract, the obligations and remedies of the buyer and seller, the right to damages, and rules on matters such as unexpected impediment and the passing of risk. In any sale of goods the seller wants to make sure they get paid, and international trade operates much more effectively if it is properly financed. There is a variety of means of payment, such as letters of credit, credit transfers and bills of exchange. This is an area in which international bodies have been very active, so there is a Convention and a Model Law to be studied. International business forms ThiNganHang.comIn addition to the finance and expedition of international trade, the syllabus is very concerned with thevarious legal forms through which international business transactions may be conducted. It is importantto distinguish initially between natural persons and legal persons. The law of agency underlies a substantial part of our study of international business forms, since partners and directors can and sometimes do act as agents. There is a Model Law on agency, but the different forms of partnership that exist around the world are not regulated by Model Laws or Conventions. Joint stock companies Companies are probably the most common form of business engaged in international trade but the detailed rules surrounding their formation and constitution are regulated by each country slightly differently. In this text we look in detail at company law in the UK as exemplar of possible regimes. Companies are separate legal persons. Most commonly their owners have limited liability for the company's debts, although this position can be ignored if certain circumstances exist. This means that when dealing with a company as a seller or a buyer, say, the other party should ideally have knowledge of Introduction vii ThiNganHang.com
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their constitutions and their finances. In fact the price of separate legal personality for a company's shareholders is that information on these matters is publicly available, for the protection of suppliers, customers and other stakeholders. Capital and financing of companies Most trading companies are financed by a mix of share capital (provided by their owners) and loan capital (provided by third party lenders). Share capital may take a variety of forms, with each class of share having different rights within the company. However, the primary responsibility of the shareholder is to contribute funds to the company in accordance with the terms of the company's constitution and the shares which they own. Loan capital is usually provided by lenders only if they can be assured of its repayment to them. If lenders supply funds in return for debentures in the company, this usually means that they have security for their loan: the debenture is secured by means of a registered charge on particular or general assets of the company, which can (within limitations) be realised so that the loan is repaid. Management, administration and regulation of companies As an artificial legal person a company cannot manage itself. This is the role primarily of the company's directors, who owe duties to the company to manage it for the benefit of the company and thereby for the benefit of its owners, the shareholders. There are a great many legal rules which regulate the appointment, remuneration, disqualification, powers and duties of directors. These have grown up largely because of problems that frequently occur. Directors are termed officers of the company along with the company secretary. Many companies also have to have an auditor. Directors come into immediate contact with shareholders via company meetings, and the resolutions that are passed at these meetings. There is therefore a plethora of legal rules on meetings and resolutions, designed to ensure that the company is taking decisions properly and in accordance with the legitimate interests of shareholders as a body. Companies in difficulty or in crisis Not everything goes according to plan and frequently companies will encounter financial or other difficulties, or will even reach crisis point and find themselves insolvent. At this point all parties – shareholders, directors, lenders, customers, suppliers and employees – are in danger of losing out. There are procedures designed to protect struggling companies to give them a 'breathing space' while they resolve their issues. There are also rules for how a company which cannot be saved should be 'wound up', depending on whether or not the company has any funds left. Companies which have international dealings have long presented particular legal problems: where should they be wound up, which creditors should get paid, where are the assets and how can they be realised? The UNCITRAL Model Law on Cross- border insolvency is designed to co-ordinate and simplify insolvency proceedings which cross international boundaries. Corporate governance Corporate governance means trying to ensure that companies are well-managed and controlled. While there are plenty of legal rules designed to ensure good corporate governance, in most jurisdictions there are also (semi-)voluntary codes of practice which apply to some but not all companies. In the UK the ThiNganHang.comCombined Code on Corporate Governance applies to all companies listed on the London Stock Exchange,but is also recommended to other companies. It seeks to protect shareholders and address the problemsof conflicts of interest in part by implementing the principle of separation of duties between executive andnon-executive directors. It also covers directors' remuneration, external audit, nominations to the board of directors and other issues. In some other jurisdictions greater emphasis in corporate governance is placed on protecting the interests of all stakeholders, such as suppliers and employees, not just shareholders. The Sarbanes-Oxley Act in the US is a statutory attempt to regulate good corporate governance and to crack down on criminal behaviour in the way companies are run. Fraudulent behaviour Finally the syllabus covers the situations where activities of directors and others have strayed into criminal behaviour. This often arises in the context of companies running out of money, but the law is also concerned with company insiders with superior knowledge benefiting from insider dealing, and international crime in the form of money laundering. viii Introduction ThiNganHang.com
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2 What skills are required? To pass the F4 (Global) exam you will need to bring a number of different professional attributes to bear. First, you need technical knowledge. There is a huge amount of technical content in the syllabus: model laws, Conventions, codes of practice, and legislation. You need to learn this and be able to identify which parts of the knowledge you have are being called for in a particular question. Second, you need to be able to apply knowledge to the scenarios that are presented in the last three questions on the paper. You are aiming to solve practical problems here. Generally in scenario questions there will be marks available for stating the law, identifying the issues in the scenario in relation to the law, applying the law and reaching a conclusion. Third, you need written skills in order to be able to explain, and advise on the basis of, your technical knowledge. Explaining means providing simple definitions and covering why and how these approaches have been developed. You'll gain higher marks if your explanations are clearly focused on the question and you can supplement your explanations with examples. 3 How to improve your chances of passing To pass the exam you need to cover the syllabus thoroughly. The exam requires you to answer all TEN questions on the paper. Each topic that you fail to cover represents 10% fewer marks in the exam. You should practise answering questions as much as possible, making sure that your answers are focused, specific and completely relevant to the question. Ten questions is a lot to answer in three hours so your exam technique is very important, especially: x Strict time management: only 18 minutes per answer x Deciding on the order in which you attempt questions carefully: use your 15 minutes' reading and planning time carefully to make sure that you attempt your best topics first when you start to write. This will bolster your confidence and help to ensure that you manage your time properly, so long as you don't overrun your time allocation on the early, 'better' questions x Reading the question carefully: make sure you identify precisely what aspect of the UNCISG is being asked for, say Only answering the question set: do not stray into irrelevant areas of, say, the UNCISG. You will gain no marks and you will lose time. 4 Examinable documents Legislation passed by 30th September 2008 will be examinable in December 2009. Legislation passed after this date will be examinable in June 2010. Unless otherwise stated, material in this text is valid in both sittings. ThiNganHang.com5 Practical Experience Requirement (PER)The laws and regulations that you are about to study underpin many of the performance objectives that you need to complete. Where appropriate these links are identified, however you should bear in mind that others may be equally valid and you should look to integrate the law into these objectives where possible. Introduction ix ThiNganHang.com
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The exam paper Format of the paper The examination is a three-hour paper consisting of seven, ten-mark questions testing knowledge and three, ten-mark application (scenario) questions. Guidance As all questions are compulsory it is vital to attempt all of them. Even if you are not confident about an area of law, it is often easier to earn marks by stating a question and putting something down, than by adding material to an already developed answer. When answering scenario questions follow the ISAC approach. Identify the legal issues State the relevant law Apply the law Conclude This structure will maximise your marks as you identify what the problem is, state what the law says about the problem, apply the law and come to a reasonable conclusion – exactly what the examiner wants. You are expected to quote case names and section numbers in your answers. Do your best to learn as many as you can (at least a handful in each topic area), but don't worry if in the exam you forget the case name or section number – as long as you correctly state the principle of law you will earn most of the marks. Company law Many students have failed this exam because they refer to out-of-date company law. This text is based on the latest (Companies Act 2006) so you are assured the material you are about to study is up-to-date. ThiNganHang.com x Introduction ThiNganHang.com
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Analysis of past papers The table below provides details of when each element of the syllabus has been examined and the question number and section in which each element appeared. Further details can be found in the Exam focus points in the relevant chapters. Covered in Text Dec June Dec Pilot chapter 2008 2008 2007 Paper ESSENTIAL ELEMENTS OF LEGAL SYSTEMS 1 Economic, political and legal systems 1 1 2 International trade and regulation 1 1 3 Commercial arbitration 2 1 2 INTERNATIONAL BUSINESS TRANSACTIONS 4 Contracts for the international sale of goods 8 2 2, 3, 8 3, 8 5 Obligations and risk in contracts for international sales 3 3,8 2,3 4, 8 8 Transportation and payment 7 7 6 INTERNATIONAL BUSINESS FORMS 7 Agency 8 Sole traders and partnerships 10 9 JOINT STOCK COMPANIES 9 Corporations and legal personality 4 10 Company formation 11 Constitution of a company 9 4 CAPITAL AND FINANCING OF COMPANIES 12 Share capital 4 5 9 9 13 Borrowing and loan capital 5 14 Capital maintenance and dividend law 5 MANAGEMENT, ADMINISTRATION AND REGULATION OF COMPANIES 15 Company directors and other company officers 6 6 7, 10 5 16 Company meetings and resolutions 5 6 LEGAL IMPLICATIONS RELATING TO COMPANIES IN DIFFICULTY OR IN CRISIS 17 Insolvency and administration 9 GOVERNANCE AND ETHICAL ISSUES RELATING TO BUSINESS 18 Corporate governance 7 19 Fraudulent behaviour 10 10 ThiNganHang.com Introduction xi ThiNganHang.com
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Economic, political and legal systems Topic list Syllabus reference 1 The concept of global law A1(a) 2 Economic systems A1(a) 3 Political systems: separation of powers A1(a), A1(b) 4 Legal systems A1(a) 5 Criminal law A2(a), A2(b) 6 Civil law A2(a), A2(b) 7 Common law systems A2(c)(i) 8 Civil law systems A2(c)(ii) 9 Sharia law systems A2(c)(iii) Introduction In this chapter we will be looking at the overall context – economic, political and legal – in which international law exists. There is no all-encompassing global law as such; instead there are national legal systems (of three kinds: common law, civil law and Sharia law). These may be contradictory (creating the problem of conflict of laws), therefore some model international laws have been put together by international organisations such as the United Nations toThiNganHang.com resolve the problem. In these ways the relations between states, and between individuals in different states, are regulated The kind of legal system used by a country depends on historical and cultural factors, and to some extent on economic and political factors. Whatever the legal system, we will be looking in particular at: principles of law, sources of law and the role of judges. 3 ThiNganHang.com
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Study guide Intellectual level A Essential elements of legal systems 1 Economic, Political and Legal Systems (a) Explain the inter-relationship of Economic and Political and Legal systems 2 (b) Explain the doctrine of the separation of powers and its impact on the legal 2 system 2 Different legal systems (a) Differentiate between different types and different systems of law 1 (b) Explain the distinction between criminal and civil law 1 (c) Outline the operation of the following legal systems: 1 (i) Common law (ii) Civil Law (iii) Sharia law Exam guide Each topic in the study guide should be regarded as highly examinable, usually by a knowledge-based question. 1 The concept of global law FAST FORWARD There are some model international laws that regulate the relationship of sovereign states, and their rights and duties with respect to each other. Most law, however, consists of national laws, which nevertheless follow certain common methodologies. Exam focus Exam questions on the topics in this chapter are most likely to be looking to test your knowledge and point understanding of distinctions, and so are unlikely to be scenario-based. You may be asked to list and contrast different factors, such as the role of judges or the sources of law in the three different legal systems (as in December 2008). 1.1 Model international laws and exemplar national laws Although 'law' is a global concept, it is usually organised on national lines, and there is only a limited amount of truly international law. In this Study Text we shall consider some national laws that have ThiNganHang.combeen examplespractice of law in many countries worldwide. We shall also seeinternational bodiesfor other countries developing their legal systems. These may therefore indicate theand which have been adopted by various countries so that nations may interact withmodel laws that have been developed by one another more easily. First of all we shall look in general terms at how nations have ordered their own legal systems. We shall give examples of a number of nations, but we shall by no means be comprehensive in world terms. Attention!Attention! If you are studying in a country to which we do not make reference, find out the origins of your nation's legal system, so that you can compare it to the ones we lay out here. Remember that you are not going to be examined on any one nation's legal system, rather you will be examined on principles of law that have international significance. 4 1: Economic, political and legal systems ~ Part A Essential elements of legal systems ThiNganHang.com
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FAST FORWARD There are three key legal systems or underlying methodologies of law operating in the world that have been adopted by different countries for different reasons: common law, civil law and Sharia law. 1.2 Common law Common law is a system named after a historic system formulated in England. The terminology associated with this system can be confusing. You will find that the legal system is named after one distinctive source of law within itself, but that the system comprises several sources of law. Common law systems developed in England, but have been exported to many ex-British empire and Commonwealth countries, notably, for our purposes, the United States of America. 1.3 Civil law Civil law systems originated in continental Europe, but have similarly been exported through world empires and so are equally prominent in other world areas, for example, South America. Civil law systems are much younger than common law ones, although they come from equally old legal heritages. We shall use France and Germany as exemplar of these systems. Increasingly in modern times, civil and common law systems share common elements, although historic differences have a conceptual impact. 1.4 Sharia law Sharia law is significantly different from both common and civil law systems. It is a legal system bound up in the religion of Islam, which makes it different in both purpose and practice. It has influence in many Islamic countries worldwide, and has been adopted as a comprehensive legal system in some. We shall look at two exemplar countries where such adoption has taken place: Pakistan and Iran. 1.5 The effects of economics and political systems on legal systems Business activity takes place within a particular economic, political and legal context, and each of these areas will affect each other to an extent. The economic and political context of each nation is not the same (although many groups of nations are similar) and therefore nations' legal systems vary considerably from one another. The differences between the nations, in terms of economics, politics and, most importantly for this syllabus, law, can present problems for international trade. In this Study Text, we shall explore the difficulties presented and the solutions created by various international bodies, particularly the United Nations, which we introduce in Chapter 2. 2 Economic systems FAST FORWARD Economics can be described as the ways in which society decides what to produce, how to produce it and ThiNganHang.comwho to produce it for. There are three basic kinds of economic system – planned, market and mixed economies. Each individual is involved in economics, in 'providing' (by salary or labour) for himself and his family. On a wider scale, governments are involved in economics for the whole country. There are various types of economic system that might exist in a country: planned, market and mixed. 2.1 Planned economy A planned economy exists where the decisions and choices about resource allocation are made by the government. Money values are attached to resources and to goods and services, but it is the government that decides what resources should be used, how much should be paid for them, what goods should be made and what their price should be. Although the individual might be allowed to own some personal possessions, most kinds of wealth would not be available for ownership by individuals. Part A Essential elements of legal systems ~ 1: Economic, political and legal systems 5 ThiNganHang.com
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2.2 Market economy A market economy exists where the decisions and choices about resource allocation are left to market forces of supply and demand, and the workings of the price mechanism. In the market economy, most wealth is owned by individuals, with a minimum being collectively owned. 2.3 Mixed economy In a mixed economy, decisions and choices are made partly by free market forces of supply and demand, and partly by government decisions. Economic wealth is divided between the private sector and the public sector. In practice, all modern national economies are mixed economies, although with differing proportions of free market and centrally planned decision-making from one country to the next. 3 Political systems: separation of powers FAST FORWARD Political systems affect legal systems. There may be a democracy or a dictatorship, which generally influences the nature of the rule of law in the nation. In democratic systems there is usually separation of powers between the head of state, the executive, the legislature and the judiciary. In dictatorial systems some or all of these powers may be combined so that one person or party has total power. We have already referred to the role of government in national economics. Governments, as we shall see, are also heavily involved in law-making. Politics, the process of how nations are governed and by whom, is clearly relevant to how law is developed. Law-making can be a democratic process, where law is developed by citizens, or a more dictatorial process, where law is developed by a government put in place by another method, for example military coup. What process is in force in a nation also affects two very important factors: the rule of law, and the separation of powers. 3.1 The rule of law How and what laws are made and enforced in a country depends to a large extent on the emphasis that the country's political system places on the nature of the rule of law. This is the degree to which individual behaviour is regulated by law. In dictatorial systems there tends to be emphasis on state or government regulation and control of resources. This means individual freedom is heavily subject to the rule of state-made law, and the behaviour of individuals is to a large extent dictated by the state by means of law. In more democratic or laissez-faire political systems, the emphasis is on the law being a means of sorting problems out where they arise. Provided individuals act within the letter and spirit of the law, they are free to choose for themselves how they regulate their lives and how they relate to other people and groups. ThiNganHang.com3.2 Separation of powers The concept of the 'rule of law' is closely bound up with that of separation of powers. Most 'consensual' democratic nations in the world have power held in different places, so that no part of the political process holds too much influence. They usually have: x An elected legislature, a body which decides on what laws should be passed to ensure that the people's wishes – for freedom, wealth etc – are met; x An elected executive, or government body, which makes the decisions that put the laws into action; x A judiciary (which may or may not be elected) that rules on any disputes about laws, whether between the government and the people (criminal law) or between individuals (civil law). 6 1: Economic, political and legal systems ~ Part A Essential elements of legal systems ThiNganHang.com
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In some nations – such as the US – the legislature, the executive and the judiciary are completely separate. Therefore each is accountable to, and can operate as a 'check and balance' on, the others. In most states, such as the UK, there is a complex relationship between the three sets of powers. This means that a balance is struck between control and accountability, on the one hand, and actually 'getting things done' on the other. The other separation of powers that is frequently seen is where the person who is head of the executive is not the same person as the head of state. In most European nations for instance the two persons are separate. In the UK the head of state is the monarch, while the head of the executive is the Prime Minister. In France there is the President and the Prime Minister. In the US, on the other hand, the President is both head of state and head of the executive. 4 Legal systems FAST FORWARD 'Legal systems' can be used in two senses: to describe the body of laws and mechanisms for their enforcement in a country, and to describe the underlying nature of a country's law. 4.1 What is a legal system? A legal system in a country embodies both the laws of that country and the mechanisms the country has in place for regulating and enforcing those laws. Thus a legal system incorporates: x The country's laws x The legislature: the law-making body x The judiciary: the body that sits in judgement on disputes about laws x The prosecution system: the system that seeks to ensure the criminal law is enforced and people who break the law are prosecuted x The police: the body which seeks to enforce the law and protect the public x The prison system: the system that ensures people who have broken the criminal law are detained in accordance with their sentence The term 'legal system' is also used to describe the underlying nature of the country's law. It is in this sense that we shall be using the term later in this chapter. Before embarking on the rest of your studies for this paper and undertaking the exam, it is vital that you have an understanding of what international law is, and how the various aspects of this syllabus fit together. In order to do so, it will be necessary even to consider what law itself is, and to understand some key terms taken from the Oxford Dictionary of Law. 4.2 What is law? FAST FORWARD ThiNganHang.comLaw is the enforceable body of rules that govern any society. Positive law is the body of law imposed by the state. Law is a body of rules that enables society to operate. As such, it does not have to be written down, but can be simply rules that everyone in the society knows. Given the sheer size of the world, then, law has not historically been seen in global terms, but rather in manageable 'societies'. Both far back in human history and today in some societies, law has been seen in terms of families and tribes. More recently in much of the world, it has been seen in terms of nation states. Many states have written constitutions outlining citizens' basic legal rights, and a body of national law, or rules, which governs how the state operates. This is known as positive law. Part A Essential elements of legal systems ~ 1: Economic, political and legal systems 7 ThiNganHang.com
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