Newsletter 56

Monday 7 October 2024

Your weekly SQE Prep Quiz has arrived

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: GreenFields Ltd., a company specializing in organic farming, enters into a partnership agreement with BioHarvest Ltd. to co-develop a new line of organic fertilizers. The partnership agreement contains a clause stating that profits will be shared equally between the two companies. After a year of working together, GreenFields Ltd. discovers that BioHarvest Ltd. has been secretly selling a portion of the fertilizers through an undisclosed third-party distributor, keeping the profits for itself and not reporting them in the partnership’s accounts. GreenFields Ltd. wants to take legal action against them.

Which of the following best describes BioHarvest Ltd.’s legal obligations under the partnership agreement, and the likely remedy GreenFields Ltd. can seek?

1. BioHarvest Ltd. is entitled to keep the extra profits as long as they were made independently of the partnership agreement.

2. BioHarvest Ltd. has breached its fiduciary duty by failing to disclose the profits from the third-party sales, and GreenFields Ltd. can seek an account of profits.

3. BioHarvest Ltd. has breached its duty of care, and GreenFields Ltd. can claim damages for any losses suffered as a result of the undisclosed sales.

4. GreenFields Ltd. can terminate the partnership immediately and is entitled to the full share of the partnership’s assets.

5. BioHarvest Ltd.’s actions constitute a fraudulent misrepresentation, allowing GreenFields Ltd. to rescind the partnership agreement.

Study Material: For more on partnerships and other business organisations see the video linked here and if you are looking for a relevant title, see here.

Free Study Planner: You can download our SQE1 Study Planner for the January 2025 exam by clicking here.

Discount Codes: 1) Use code “REVSQE10” for 10% off all ReviseSQE products (including bundles) and free p&p for printed resources when purchasing directly at https://revise4law.co.uk/revisesqe-shop/ . 2) Use “IOANNIS” to get 15% off any of the Pro Plans of AI tutor Law Drills at https://www.lawdrills.com/

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 members’-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: GlobeEnterprises Ltd., a UK-based company, has entered into a contract with an international supplier, OceanTrade Ltd., for the purchase of rare marine equipment. The contract includes a clause that specifies that any disputes arising under the contract must be resolved through arbitration rather than through the courts. A few months into the contract, GlobeEnterprises Ltd. discovers that the equipment provided by OceanTrade Ltd. does not meet the required technical specifications, leading to significant losses for GlobeEnterprises Ltd. Despite the arbitration clause, GlobeEnterprises Ltd. wants to pursue a legal action in the UK courts, arguing that the clause is unfair and should not apply.

Which of the following principles or laws will the UK courts most likely consider when determining whether GlobeEnterprises Ltd. must resolve the dispute through arbitration, as stated in the contract?

1. The Arbitration Act 1996, which upholds arbitration clauses in the majority of cases.

2. The doctrine of frustration, which would release GlobeEnterprises Ltd. from the contract due to unforeseen circumstances.

3. The Unfair Contract Terms Act 1977, which automatically invalidates all arbitration clauses in international contracts.

4. The principle of promissory estoppel, which prevents OceanTrade Ltd. from enforcing the arbitration clause after the breach.

5. The Consumer Rights Act 2015, which protects businesses from unfair terms in business-to-business contracts.

Correct Answer: 1. The Arbitration Act 1996, which upholds arbitration clauses in the majority of cases. Feedback: The Arbitration Act 1996 governs arbitration agreements in the UK. Under the Act, arbitration clauses are generally upheld as valid and enforceable, unless the clause is found to be unfair, unreasonable, or in violation of public policy. In this scenario, the UK courts will first examine the arbitration clause to determine whether it meets the fairness and reasonableness requirements under the Act. If the clause is found to be fair, GlobeEnterprises Ltd. will likely be required to resolve the dispute through arbitration as per the contract.

Option 2 (the doctrine of frustration) is not relevant here, as frustration applies when an unforeseen event makes performance of the contract impossible, not to the resolution of disputes. Option 3 is incorrect, as the Unfair Contract Terms Act 1977 does not automatically invalidate arbitration clauses in international contracts; rather, it deals with exclusion clauses and limitations of liability. Option 4 (promissory estoppel) is not applicable because it relates to promises made outside of the strict terms of the contract, and there is no indication that OceanTrade Ltd. waived the right to arbitration. Option 5 is incorrect because the Consumer Rights Act 2015 applies primarily to consumer contracts, not business-to-business contracts like the one between GlobeEnterprises Ltd. and OceanTrade Ltd. Therefore, the Arbitration Act 1996 is the most relevant law in determining whether GlobeEnterprises Ltd. must resolve the dispute through arbitration.

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You will hear from me again soon.

All the best

Dr Ioannis Glinavos

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