Monday 9 September 2024
Dear Subscriber,
I hope you had a great weekend. Please see below for the question, the answer to the previous question and associated resources. This is the web version of this newsletter.
Question: EcoVentures Ltd. is a medium-sized private company specializing in sustainable energy solutions. The company’s board of directors consists of five members, including Jane, who serves as the Chair of the Board, and Alex, the CEO. Recently, Jane has been concerned about a lack of transparency and accountability in the company’s decision-making processes. She notices that Alex has been entering into high-value contracts without consulting the board or providing sufficient documentation. Some of these contracts have led to financial losses, and the board was unaware of these transactions until they were already executed. Jane wants to ensure that all significant decisions are made with appropriate oversight and is considering how to strengthen corporate governance within EcoVentures Ltd.
Which of the following actions is most likely to improve corporate governance at EcoVentures Ltd. and address the issues of transparency and accountability?
1. Require Alex to seek approval from Jane for all contracts over a certain value.
2. Appoint a new CEO who is more experienced in corporate governance.
3. Change the articles of association to require board approval for all high-value contracts and ensure regular reporting to the board.
4. Allow shareholders to directly approve or veto all business transactions over a certain value.
5. Implement a profit-sharing scheme to align the interests of the directors with those of the shareholders.
Study Material: For more on the topic of this week’s question see the video linked here and if you are looking for a relevant title, see here. Discount Code: Use core “REVSQE10” for 10% off all products (including bundles) and free p&p for printed resources when purchasing directly at https://revise4law.co.uk/revisesqe-shop/
Free Study Planner: You can download our SQE1 Study Planner for the January 2025 exam by clicking here.
Join the community: Become a member of ‘iGlinavos Scholars’ on YouTube (£2.99/month, click here for info), get priority access to new videos, and participate in members-only livestreams, where we work through SQE1 MCQs together, analysing questions and answers. Also, you get access to a member’s only FB group for support directly from me and other candidates. Receive priority notification of discounts and deals on products and services that can help you succeed, and much more!
Answer and feedback to last week’s question: Mark is an artist who agrees to sell a unique painting, “The Blue Horizon,” to Laura for £10,000. The contract specifies that the painting must be delivered to Laura within 30 days, upon which Laura will make payment. The contract does not contain any specific terms about risk or what happens if delivery becomes impossible. However, 15 days into the contract period, Mark’s studio is destroyed in a fire caused by a neighbouring business’s negligence, and “The Blue Horizon” is irreparably damaged. Mark immediately informs Laura of the destruction, stating that he is unable to fulfil the contract due to the unforeseen event and argues that the contract is frustrated. Laura disputes this, arguing that Mark should be liable and compensate her for the loss of profits from a planned resale.
Which of the following statements best describes the legal position of Mark and Laura?
1. The contract is frustrated because the destruction of the painting, a unique object, makes performance impossible, and no payments are due.
2. The contract is not frustrated because Mark assumed the risk of the painting’s destruction and is therefore liable for any consequential losses.
3. The contract is frustrated, but Mark must compensate Laura for her loss of future profits.
4. There was no valid contract, as Laura had not paid, therefore Mark has no obligation to compensate.
5. The contract is not frustrated because Mark can sue the neighbouring business for negligence and fulfil his obligation to Laura by providing equivalent compensation.
Correct Answer: 1. The contract is frustrated because the destruction of the painting, a unique object, makes performance impossible, and no payments are due. Feedback: The contract is considered frustrated when an unforeseen event occurs after the contract has been formed, rendering performance impossible or radically different from what was agreed upon. In this case, the destruction of “The Blue Horizon,” a unique object, by a fire was unforeseen and makes it impossible for Mark to perform his obligation to deliver the painting. Since the painting is a one-of-a-kind piece, its destruction frustrates the contract, meaning that both parties are discharged from their obligations, and neither is liable for breach. Option 2 is incorrect because there is no term in the contract specifying that Mark assumed the risk of the painting’s destruction. Absent such a term, and given the unique nature of the painting, frustration applies. Option 3 is incorrect because the Law Reform (Frustrated Contracts) Act 1943 does not provide for recovery of expectation losses; it allows the court to decide whether any advance payments should be returned or retained. Option 4 is incorrect because it confuses consideration with contractual performance, there is no problem here with contract formation! Option 5 is incorrect because the ability of Mark to sue the neighbouring business does not negate the fact that the performance of the contract is impossible. Frustration is determined by the impossibility of performance, not by subsequent remedies available to the parties outside the contract. Thus, the correct answer is that the contract is frustrated due to the destruction of the unique painting, and neither party is liable for breach.
Thank you for subscribing and let me know how you are getting on in your preparation through our Facebook Group. Feel free to forward this email to anyone you think will benefit.
If you wish to unsubscribe: You can stop receiving the newsletter at any time by emailing us at newsletter@glintiss.co.uk with ‘unsubscribe’ as the subject. We will promptly remove your email address from our mailing list. Thank you for being with us.
You will hear from me again soon.
All the best
Dr Ioannis Glinavos
Leave a Reply