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A glossary of legal terms and expressions in UK business law and used iun this Site.

Common  law


Director’s civil liability

Director’s criminal liability

Due diligence defence


European Economic Area

EEA member states

European Union

EU Commission, EU Council, EU Parliament

EU Directive, EU Regulation, EU Decision

EU member states

Legal entity

Limited liability

Standard scale fines

Tacit consent


United Kingdom

Common  law

In England and Wales, common law refers to the rules of law built up over centuries since the Middle Ages by decisions of the courts. In very broad terms, the principle of “stare decisis” means that lower courts will apply the legal principles laid down in previous decisions made by courts of the same or higher level if the facts of the case are not distinguishable. Such law is subject to statutory law, i.e. Acts of Parliament and regulations made by government under the authority of Acts. Statutory law has become increasingly important relative to common law over the last hundred years or so; but court decisions are still very important in providing interpretation of statutory law.
Northern Ireland has a basically similar system of common law but there are differences from that applied in England.
In Scotland a different system of law developed based on codified Roman or civil law. However the Scottish system also developed a form of common law which has modified the law over the centuries.
Northern Ireland, Scotland and Wales each have their own legislature which has power to legislate in its own jurisdiction to different degrees. The first two have greater powers than the Welsh legislature. All three legislatures are subject to the legislation of the Parliament of the United Kingdom.
For a further description of the UK legal system, see Law, Lawmakers and Lawyers.

Note: Legaleze deals with English law, although most business and all employment and tax law is based on Acts of the UK Parliament and regulations made under such Acts and applies throughout the UK. Where there are significant differences, the site will indicate this by use of the headings “EW” (England and Wales), “NI” (Northern Ireland), “S” (Scotland) and “W” (Wales).

A legally binding promise or set of promises between one person and another.
The law of contract is part of the common law and has been developed by the courts in the separate UK jurisdictions
England and Wales

The essential elements of a contract in English law are:
*  Offer in certain terms to enter into a contract;
*  Acceptance of those terms without conditions and communicated to the offeror;
*  Consideration given by the person who wishes to enforce the promise, e.g. the price;
*  Intention to create a legal relationship;
*  Capacity i.e each party to the contact must have legal capacity to make a contract; e.g. a minor (person under 18) does not generally have capacity to contract..
Since the Contracts (Rights of Third Parties) Act 1999, a person who is not a party to a contract (a “third party”) may in his own right enforce a term of the contract if the contract expressly provides that he may, or the term purports to confer a benefit on him. This right may be excluded by the contract.
In modern times, there has been increasing interference in the law of contract by legislation, in particular regarding the sale of goods and supply of services.
Wikipedia contains a good article on English contract law. There is more detail of important aspects of contract law in the Selling and Marketing section.
Northern Ireland: it appears that the law is the same as in England and Wales.
Scotland: the law is different in Scotland; in particular, 'consideration' is ot an essential element for a binding contract. Wikipedia has a brief article.

Director’s civil liability
A director of a limited company may in certain circumstances be personally liable for damages caused by acts or omissions of the company of which he is a director or for the debts of the company if it becomes insolvent:

* Tortious liability: if a company director personally directs or procures the company to commit a tort (i.e. civil wrong) ,the director may be held personally liable along with the company for any loss or damage caused by the act or omission. In rare circumstances, a company director may be held personally liable for negligent advice if he assumed personal responsibility for the advice.
Case law examples:
* MCA Records Inc & anr v Charly  Records  Limited & ors [2001] EWCA Civ 1441: Director of company held personally liable for companies’ infringement of copyright in sound recordings.
* Williams & Anor v Natural Life Health Foods Ltd & Anor [1998] UKHL 17: director of franchisor company not liable for negligent advice to franchisee.

* Wrongful trading: if a director of an insolvent company knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation, the court may declare that he is to be liable to make such contribution to the company’s assets as the court thinks proper. The director has a defence if he proves that he took every step with a view to minimising the potential loss to the company’s creditors as (assuming him to have known that there was no reasonable prospect that the company would avoid going into insolvent liquidation) he ought to have taken (Insolvency Act 1986 s.214).

* “Phoenix” company: if a person was a director or shadow director of a company at any time in the 12 month period ending with the day before it went into liquidation, he will be personally liable for the liquidating company’s debts if at any time in the period of 5 years beginning with the day on which the liquidating company went into liquidation, he becomes a director or involved in the management of another company with the same name as the liquidating company or a name which is so similar to its name as to suggest an association with the liquidating company. Such a person also commits an offence punishable by a fine and/or imprisonment.

* Directors Disqualification Act liability: an individual may be made personally liable for a company's debts if he is involved in the management of a company while disqualified from acting as a director, or if he acts on instructions given by another individual whohe knows is disqualified as a director or is an undischarged bankrupt (Directors Disqualification Act 1986 s.15).

NB: The provisions above applying to a director of a company will in general apply toa member of a limited liability partnership.

Director’s criminal liability
As in the case of an individual, a company or other Legal entity may commit an offence under the Companies Act 2006 and under many other statutes. In most cases, the legislation will provide that if the offence is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of any director, partner, manager, secretary, or other similar officer of the entity, or of any person who was purporting to act in any such capacity, he as well as the legal entity will be guilty of the offence. If the affairs of a legal entity are managed by its members, a member may be guilty of the offence as if he were a director of the body corporate.
In serious cases of misconduct, an individual may be disqualified from acting as a company director for a certain period (Company Directors Disqualification Act 1986).
A director of a small company where he alone or with a few others are closely involved with the day to day activities are more at risk of being fdound personally liable for commission of an offence; this occurs particularly in Health and Safety at work offences.

NB: The provisions above applying to a director of a company will in general apply toa member of a limited liability partnership.

Where possible, directors should minimise the risk of personal liability by using due diligence and taking out appropriate directors' and officers' liability insurance.

Due diligence defence
In the case of a number of regulatory and trading standard offences, the legislation provides a defence for aperson charged with an offence under the legislation with a “due diligence” defence. The precise scope and wording of the defence will vary according to the legislation. However in general a due diligence defence for an offence is allowed  if the accused proves that the commission of the offence was due to a mistake or cause beyond his control and that he took all reasonable precautions and exercised all due diligence to avoid the commission of such an offence by himself or any person under his control. Nottingham Council has made available a note entitled 'Ensuring compliance with trading standards law' which is of interest particularly in relation to compliance with trading standards law. Another useful note on due diligence is that prepared by the National Measurement Office dealing with the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment Regulations and more generally.

In England, courts of equity originated in the Lord Chancellor's court and developed principles of 'equity' or fairness, in order to mitigate the harsh effects of the common law or to supplement it. Thus equity developed the remedy of the injunction or mandatory order to carry out or not carry out an act, whereas at common law generally the only remedy was that of damages. An important creation of equity was the notion of the trust and the obligations of a trustee.

As with common law, equity is entirely case driven and in that sense may be regarded in a broad sense as part of English common law as distinct from statutory law.

European Economic Area
The European Economic Area (EEA) was established on 1 January 1994 by a treaty made between the seven member states of the European Free Trade Association (EFTA) and the twelve member states of the European Community, later the European Union. Switzerland chose not to join the EEA after a referendum.
The current EEA member states which are not EU members are Iceland, Liechtenstein and Norway. These states may participate in the EU's internal market and in exchange, they are obliged to adopt all EU legislation related to the single market, except laws on agriculture and fisheries.

EEA member states
The EEA member states are currently (2011) all the EU member states and:
* Iceland
* Liechtenstein
* Norway

European Union
The European Union ('EU') is a union of independent member states which is an international legal entity and has a common body of law. Founded as the European Economic Community by six original member states in 1957 which signed the founding Treaty of Rome, it is now (2013) constituted by the Treaties on European Union and consists of 28 member states.
The EU has developed a single market through a standardised system of laws which apply in all member states. Within the “Schengen Area” (which includes EU and non-EU states) passport controls have been abolished. The EU has policies which aim to ensure the free movement of people, goods, services and capital, enacts legislation in justice and home affairs, and maintains common policies on trade, agriculture fisheries and regional development. The “Eurozone” monetary union was established in 1999 and is currently composed of 17 member states.
More information about the EU is available on its website

EU Commission, EU Council, EU Parliament
The EU Treaties provide for a number of institutions and other bodies. The main bodies are the:
* Council of the European Union: this body represents the governments of the individual EU member states. The Presidency of the Council is shared by the member states on a rotating basis.
* European Parliament: represents the EU’s citizens and is directly elected by them.
* European Commission: represents the interests of the Union as a whole.

Together, these three institutions produce the policies and laws that apply throughout the EU. In principle, the Commission proposes new laws, and the Parliament and Council adopt them. The Commission and the member states then implement them, and the Commission ensures that the laws are properly applied and implemented.

Other EU institutions include:
* EU Court of Justice: upholds the rule of European law, adjudicates on cases between EU member states and institutions arising out of EU law, and answers questions on EU law interpretation referred to it by courts within member states.
* Court of Auditors: audits the finances of the EU's activities.

EU Directive, EU Regulation, EU Decision
EU law-making consists of Regulations, Directives and Decisions:
* EU Directives: a "directive" is a legislative act that sets out a goal that all EU member states must achieve. However, it is up to the individual member state to decide how.
Example: this was the case with the working time directive, which limits the amount of time during which an employer may require a worker to work. The directive sets out minimum rest periods and a maximum number of working hours, but it is up to each member state to devise its own laws on how to implement this.
However, if a state fails to implement a directive, under certain conditions an individual body or person may take legal action to force the member state to implement the directive. In this sense, a directive may be said to have “direct effect” in the law of individual member states, even though the state must pass a law to give full effect to the directive.
* EU Regulations: a "regulation" is a binding legislative act. It must be applied in its entirety across the EU. For example, when the EU wanted to protect the names of agricultural products coming from certain areas such as Parma ham, the Council adopted a regulation.
* EU Commission Decisions: a "decision" is binding on those to whom it is addressed (e.g. an EU country or an individual company) and is directly applicable. For example, when the Commission issued a decision fining software giant Microsoft for abusing its dominant market position, the decision applied to Microsoft only.

EU member states
As at December 2011, the EU member states are:


Czech Republic
United Kingdom


What's new item:
01/07/2013: Croatia becomes 28th EU Member State
Croatia applied for EU membership in 2003. Following lengthy negotiations, the EU and Croatia signed the accession treaty and Croatia became the 28th EU member country on 1 July 2013.

Candidate EU member states
The EU is proceeding with negotiations for five candidate countries: Iceland, Montenegro, Serbia, the former Yugoslav Republic of Macedonia and Turkey.
Potential candidate countries include Albania, Bosnia and Herzegovina, and Kosovo.

Further information on the EU member states and the candidate countries may be found at

Legal entity
A legal entity (usually called a “body corporate” in English legal terminology) is a body of individuals and/or legal entities which the law recognises as having a “personality” separate from that of its individual members. The attributes of a legal entity include the right to own property, the ability to incur obligations or criminal liability, the right to make a contract and to take or receive legal action before the courts.  A legal entity may or may not have limited liability.

Limited liability
Limited liability in relation to a company or other organisation which is a legal entity means that the liability of the members of the entity to pay the debts of the entity is limited to the capital or guarantee they have put in or agreed to put in.

Varying definitions of “small” and “medium-size” businesses are used by government, other bodies and the media. For “small firms”, the UK Department of Business, Innovation and Skills (BIS) uses a definition of less than 20 employees (Small Firms Impact Test - Guidance for Policy Makers January 2009).
However, the generally recognised and authoritative definition in this area is that used for micro, small and medium-sized enterprises (“SMEs”) in the EU Commission Recommendation 2003/361/EC. BIS and other bodies such as the UK Technology Strategy Board uses this definition which established the following criteria:
Enterprises qualify as micro, small and medium-sized enterprises (SMEs) if they fulfil the headcount (i.e. employees) criteria and one of the two other criteria laid down in the Recommendation. Micro businesses for example qualify for protection under the Financial Ombudsman scheme. The criteria are summarised in the table below:


Enterprise category
€ 50 million
€ 10 million
€ 2 million
or Balance sheet total
€ 43 million
€ 10 million
€ 2 million


Standard scale fines
References in UK Acts of Parliament to a criminal offence punishable on conviction to a fine on the “standard scale level [1-6]” are references to fines on the following scale:


Scale Level
Maximum fine


England and Wales and Scotland: wef 1 October 1992 (by virtue of Criminal Justice Act 1991 (Commencement No 3) Order 1992);
Northern Ireland: wef 9 January 1995 (by virtue of Criminal Justice (1994 Order) (Commencement) Order (Northern Ireland) 1994).

Tacit consent
Under EU legislation, government department or official bodies must process applications by service businesses for licences and registrations as quickly as possible and within set timescales. If the authority fails to meet a timescale, the licence or registration is deemed to be granted unless a different arrangement is in place in which case the arrangement must be justified by overriding reasons in the public interest. This is refered to as “tacit consent”. In the UK, this EU obligation is implemented by the Provision of Services Regulations 2009 (S.I. 2009 No 2999). For further information, see Tacit consent.

A tort is a civil wrong which entitles a person damged or affected by the wrong to a remedy such as damages or an injunction. Some torts are considered a wrong against society in general, such as theft and fraud, and assault. As in the case of contract, the common law has developed separately in England and Wales and Northern Ireland from that in Scotland.
As regards business and commercial activmities, the law of tort has been supplemented by a wide range of specific legislation imposing duties on business entities generally, e.g. Health and safety at work and product liability which are of general application throughout the UK.
Engand and Wales, Northern Ireland
Tort includes the torts of negligence, nuisance defamation, conspiracy, wrongful interference with contract and others.Wikipedia has an introductory article.
In Scotland tort is known as 'delict' and has de veloped more on genral principles than is the case in the rest of Great Britain. However, the principles of perhaps the most important tort, negligence, are the same throughout the UK.

Tribunals: First-tier Tribunal; Upper Tribunal; Employment; Employment Appeals
Tribunals are specialist judicial bodies which decide disputes in a particular area of law. Most tribunal jurisdictions are part of a structure created by the Courts and Enforcement Act 2007.
The First–tier Tribunal hears appeals from decisions of a wide range of government departments and other public bodies. It is organised into a number of “Chambers” or divisions according to subject matter. The General Regulatory Chamber hears appeals on Consumer Credit, Environment, Estate Agents, Gambling Appeals and Information Rights among others. There are also the Health, Education and Social Care Chamber, Immigration and Asylum Chamber, Social Entitlement Chamber and Tax Chamber.
The Upper Tribunal hears appeals from the First-tier Tribunal on questions of law, exercises powers of judicial review in certain circumstances and enforces decisions made by the First-tier Tribunal.
There are other Tribunals from which appeals are made on a point of law direct to the High Court including the Adjudicator to HM Land Registry, Agricultural Lands, Employment, Employment Appeals and Gangmasters Licensing Appeals.
A database of certain decisions of Tribunals is maintained; further information is available from the Ministry of Justice Tribunals website.

United Kingdom
The United Kingdom consists of three separate legal jurisdictions: England and Wales, Northern Ireland and Scotland. In addition, in certain areas Wales has adopted statutory laws which differ from those in England. Most of the law dealt with on the Legaleze Site applies throughout the UK but the Site is primarily concerned with the law in England and Wales. However, we aim to point out where the law in Northern Ireland and Scotland is different. In such cases, we will indicate where legal information on the particular subject is available in those jurisdictions if we have the information.

The Channel Islands and the Isle of Man are not part of the UK legal jurisdiction for this purpose.

[Page updated: 25/11/2014]