Commercial Law I

1. Prince Ganaku Commercial Law I Ganaku’s Notes on Commercial Law Based on Sealy & Hooley

2. Prince Ganaku Introduction to Commercial Law History Of Commercial Law Function of commercial Law Sources Of Commercial Law

3. Prince Ganaku History of Commercial Law • The history of commercial law is important to understanding its application and why what is important to it is important to it • In the 11th Century, cross-border trade between states in Western Europe grew at rates that had, at that point, been unprecedented. • The merchants, who were the agents of this trade, found that the Roman Law and Common Law were not particularly suited to the needs of their trade.

4. Prince Ganaku History of Commercial Law • Take the NemoDat rule for example. You cannot give to another what you don’t have. • The consequence of this rule for the traders was that whenever they bought something, they had to enquire into the title of that thing back to its remote possessors, to make sure that no one in the chain of title had obtained it by fraud. • However, as per the laws of lexmercatoria, commercial business “cannot be carried on if we have to enquire into the title of everybody who comes to us with the documents of title."

5. Prince Ganaku History of Commercial Law • This is how a body of rules known as the lexmercatoriawas gradually created. • The rules of the lexmercatoria were based on the general customs and practices of the merchants which were common throughout Western Europe. • According to Sealy & Hooley, it is disputed whether the lexmercatoria developed as a distinctive body of substantive law or whether it was more of an expeditious procedure specially adapted for those who were inconvenienced by the common law.

6. Prince Ganaku History of Commercial Law • The application of the lexmercatoria was done in special local courts (the merchant courts) all across Europe. • The judge and jury in these Courts were merchants themselves. • It should be evident by now that the lexmercatoria only had any authority because of the voluntary acceptance by the merchants whose conduct it sought to regulate.

7. Prince Ganaku History of Commercial Law • Why did they voluntarily submit to rules of specialized courts? • Unlike the common law, the lexmercatoria emphasized speed, freedom of contract and freedom of alienability of movable property. These are the things that the merchants cared about. • The lexmercatoria established certain documents or choses in action which were transferable by delivery and endorsement or by delivery so that the holder could sue in his own name and which passed good title to the transferee who took them in good faith, notwithstanding the transferor had no title.

8. Prince Ganaku History of Commercial Law • They could be sued on by their holder in his own name and were not affected by previous lack of title. • This instrument was the original negotiable instrument. • By the 16th Century, the business of the Merchant Courts in England were taken over by the Courts of Admiralty, which continued to recognize the lexmercatoria

9. Prince Ganaku History of Commercial Law • In the 17th Century, the commercial jurisdiction of the Courts of Admiralty was taken over by the common law courts. • In an attempt to keep that business, the common law courts adopted some of the rules of the lexmercatoria, but by the 18th Century, the lexmercatoria had been fully incorporated into the common law, largely due to the work started by the efforts of Holt CJ and finished by Mansfield CJ. • With the rise of nationalism and the codification period of the 19th century the ‘law merchant’ was incorporated into the municipal laws of each country. These laws blended with the national laws and thus lost its uniform character.

10. Prince Ganaku History of Commercial Law • In England, the development of the lexmercatoria through the common law led to a complex and sometimes conflicting mass of case law, leading scholars to call for the codification of Commercial Law • The nationalization of the lexmercatoria and the complex nature of private international law rules has also exposed the need for the harmonization of lexmercatoria internationally. • Professor Goode provides a brilliant argument for the harmonization of commercial law to international trade in his article “Reflections on the Harmonization of Commercial Law”

11. Prince Ganaku History of Commercial Law • He argues that a harmonized lexmercatoria; • may fill a legal vacuum by providing rules in a field where national law was previously non-existent or obscure; • substitutes a single law for a proliferation of national laws and thus within the given field dispenses with the need to resort to conflict of laws rules and the opportunity these give for forum shopping; • is usually available in several languages, official or unofficial, and is therefore more readily accessible than a national law; • by reason of (1) and (2), facilitates conversance with its provisions and saves time and expense;

12. Prince Ganaku History of Commercial Law • He continues by adding that it would; • provide a neutral law for parties to a contract neither of whom is willing to accept the law of the other's country; • offer a legal regime more attuned to international transactions than domestic law, since it reflects the influence of many legal systems, whereas domestic law is focused on internal transactions and may thus be less accommodating of international dealings; • operate as part of the law of each ratifying State, so that the courts of each such State take judicial notice of it and it is established by legal argument, not by the expensive and time-consuming process of adducing expert evidence, often from a different jurisdiction; • facilitate a common market.

13. Prince Ganaku History of Commercial Law • Despite these evident advantages, he informs us that there is still a lot of resistance to the idea of one lexmercatoria for the world to use. • First, detractors argue that domestic law is better known and better understood by lawyers and traders. • That proceeds on the premise - assuming we were taking that position from the perspective of a Ghanaian lawyer representing a Ghanaian trader - that domestic law is what will govern the contract in question.

14. Prince Ganaku History of Commercial Law • In fact, the reality is that if a Ghanaian merchant entered into a contract with a Swedish merchant, that contract could very well be governed by the Swedish law that would be unfamiliar to the Ghanaian lawyer, and may be inferior to the Ghanaian law. • A harmonized law however would govern everybody, and everybody would be familiar with it. • Another line of criticism which detractors point to is that the drafting of such a code will bring problems. Everybody, coming from a different legal background, will find problems in it.

15. Prince Ganaku History of Commercial Law • But Professor Goode rejects this argument, saying that there is no such thing as a perfect code. However, where different jurists and lawyers and academics from different countries come together to draft a code, it is likely to be good. • At the bottom of the criticism, Professor Goode argues is a resistance to change. It is easy to advocate change in someone else’s backyard, but to resist it in one’s own. • This means that every country would prefer to maintain its own lexmercatoria, while simulataneously expecting others to conform to it.

16. Prince Ganaku Commercial Law is that branch of law which is concerned with rights and duties arising from supply of goods and services in the way of trade Professor Roy Goode What is Commercial Law?

17. Prince Ganaku The object of commercial law is to deal in merchandise and if we adopt this criterion, commercial law can be defined as the special rules which apply to contracts for the sale of goods and to such contracts that are ancilliary thereto, namely, contracts for the carriage and insurance of goods, and contracts, the main purpose of which, is to finance the carrying out of contracts of sale. H. C. Gutteridge What is Commercial Law?

18. Prince Ganaku Commercial law is that body of law which governs commercial transactions, that is agreements and arrangements between professionals for the provision and acquisition of goods, services and facilities in the way of trade. (1/2) Professor R. Goode; The Codification of Commercial Law What is Commercial Law?

19. Prince Ganaku Commercial law, thus defined, possesses four characteristics. It is based on transactions, not on institutions; it is concerned primarily with dealings between merchants (…) as opposed to consumers; it is centred on contract and on the usages of the market; and it is concerned with a large mass of transactions in which each participant is a regular player and in large part repetitive and lend themselves to a substantial measure of standardized treatment (2/2) Professor R. Goode; The Codification of Commercial Law What is Commercial Law?

20. Prince Ganaku Functions of Commercial Law • From the definitions above, one thing is striking. • The objective of commercial law is to facilitate commerce i.e. transactions between parties dealing with each other in the course of business • Thus, justice within commercial law is not some moral or metaphysical concept of “fairness, it is in upholding the principles that facilitate commerce. • So as you mature in Commercial Law, you will come to find that this purpose underlies the reasoning of judges in cases involving commercial disputes

21. Prince Ganaku The function of Commercial Law is to allow, so far as it can, commercial men to do business in the way they want to do it, and not require them to stick to forms that they may think to be outmoded Lord Devlin; Kum v Wah Tat Bank Functions of Commercial Law

22. Prince Ganaku Our only desire is to give sensible commercial effect to the transaction. We are there to help businessmen, not hinder them. We are there to give effect to their transactions, not frustrate them. We are there to oil the wheels of commerce, not to put a spanner in the works or even grit in the oil Lord Goff Functions of Commercial Law

23. Prince Ganaku Functions of Commercial Law • In Re Bank of Credit and Commerce International SA, the bank loaned money to a number of companies. • In the loan contract, the bank took, as security, a charge over the money that the companies had in their bank accounts. • There were some conceptual difficulties with this transaction, even though it was a common commercial practice.

24. Prince Ganaku Functions of Commercial Law • Money that is “placed in a bank account” is technically loaned to the bank on the understanding that the bank will pay on demand. So the bank is technically in debt to the customer. • Take the holding in Re Charge Card Services, where the Court of Appeal stated that “a man cannot have a proprietary interest in a debt or other obligation which he owes another”. • What is a proprietary interest?

25. Prince Ganaku Functions of Commercial Law • However, even with the existence of this principle, the Court managed to hold that there was no reason why the bank could not take a charge over its own customer’s deposit. • Lord Hoffman said, “I think that the Courts should be very slow to declare a practice of the commercial community conceptually impossible • This is just an example of how the Courts are likely to perform mental acrobatics, bending established legal doctrine, to prioritize commercial needs and uphold commercial practice, even in the face of apparent conceptual/legal impossibilities.

26. Prince Ganaku Functions of Commercial Law • So we’ve covered the fact that generally Courts will be reluctant to interfere with good commercial practice and are likely to prioritize the needs of commerce. • Hammond J in Commercial Factors Ltd. v Maxwell Printing stated that “good commercial law should follow good commercial practice”. • The emphasis shows that if the Courts determine that the practice is not good, they may be willing to rein it in, however rarely that is.

27. Prince Ganaku Functions of Commercial Law • In Hazell v Hammersmith and Fulham LBC, the defendant authority entered into interest rate swap deals to protect itself against adverse money market movements. They began to lose substantial amounts when interest rates rose, and the district auditor sought a declaration that the contracts were void, there being no express power in the relevant legislation.  • The problem was that up until then the practice was quite commonplace; a large number of local authorities had entered into such swap transactions. • If the Court held that the transactions were unlawful, it would cause difficulties for the banks and local authorities engaged in such swap transactions, which is typically what the Courts want to avoid.

28. Prince Ganaku Functions of Commercial Law • That notwithstanding the Court held that the local authorities had no power, under the 1972 Local Government Act, to engage in interest rate swap agreements, and that all the contracts were void. • As a result of the decision, over 200 separate actions were filed, and hundreds of interest rate swap contracts had to be unwound by the courts at great expense. • The banks lost more than £600M, but really, it’s hard to be sympathetic, when the banks were helping the local authorities circumvent statutory controls on their expenditure. The Courts will not endorse an illegality.

29. Prince Ganaku Functions of Commercial Law • We’ve spoken about the priority the Courts give to commercial needs in commercial cases. • But what are these needs. • First, we have the interlinked concepts of freedom of contract and sanctity of contract. • According to Professor Schmitthoff, the basis of commercial law is the contractual principle of autonomy of the parties’ will.

30. Prince Ganaku Functions of Commercial Law • And so subject to the ultimate reservation of public policy, the parties are really quite free to arrange their affairs as they like. • The Courts, in servicing this need, are generally reluctant to interfere with the terms or the nature of the bargain. • Secondly, men of commerce require decisions of the courts on commercial issues to be predictable so that they know where they stand. Locus classicus on certainty is Vallejo v Wheeler

31. Prince Ganaku In all mercantile transactions the great object should be certainty: and therefore, it is of more consequence that a rule should be certain, than whether the rule is established one way or the other. Because speculators in trade then know what ground to go upon. Lord Mansfield; Vallejo v Wheeler Functions of Commercial Law

32. Prince Ganaku Functions of Commercial Law • Again, recall that modern commercial law evolved from the lexmercatoria. • The lexmercatoria was based on the customs and usages of the merchants across Europe. • This brings us to the third need of businessmen. They need commercial law – and by law in this sense, I mean the prediction of what the Courts will do in fact and nothing more pretentious – to be flexible enough to take account of the latest business practices.

33. Prince Ganaku Functions of Commercial Law • Again, recall that modern commercial law evolved from the lexmercatoria. • The lexmercatoria was based on the customs and usages of the merchants across Europe. • This brings us to the third need of businessmen. They need commercial law – and by law in this sense, I mean the prediction of what the Courts will do in fact and nothing more pretentious – to be flexible enough to take account of the latest business practices.

34. Prince Ganaku Functions of Commercial Law • One way this need is met is when Courts take mercantile custom and usage into account when interpreting commercial contracts. There are certain guidelines the courts will follow in meeting that need. • First, it has to be proven that the mercantile custom or usage in question is reasonable. A custom or usage is not reasonable unless it is fair and proper and such that reasonable, honest and right minded men would adopt it. Paxton v Courtnay • Secondly, you have to understand that there are situations in which trade usages and customs may conflict with the need for freedom and sanctity of contract.

35. Prince Ganaku Functions of Commercial Law • There are situations where parties may choose to contract out of that trade usage or custom • And so where there is a well drafted, complete and binding contract, the Courts will be most reluctant to make reference to a custom or usage, mostly because the contract will leave very little room for such importation. • This basically means that the second requirement for a mercantile custom or usage to be accepted is that it has to be shown that such custom or usage is not inconsistent with the express terms of the contract (See: Kum v Wah Tat Bank Ltd.) or the general nature of the contract (London Export Corp. v Jubilee Coffee Roasting Ltd.)

36. Prince Ganaku An alleged custom can be incorporated into a contract only if there is nothing in the express or necessarily implied terms of the contract to prevent such inclusion and, further, that a custom will only be imported into a contract where it can be so imported consistently with the tenor of the document as a whole. London Export Corp. v Jubilee Coffee Roasting Ltd Functions of Commercial Law

37. Prince Ganaku For a practice to amount to a usage, it must be certain, in the sense that it is so well known, in the market in which it is alleged to exist, that those who conduct business in that market contract with the usage as an implied term; and it must be reasonable. A party to a contract is bound by usages applicable to it [if it is] certain, notorious and reasonable, but not known to him. If the practice, though certain and notorious, is unreasonable, it, of course, follows that it cannot constitute a usage which the Court will enforce as a usage Cunliffe-Owen v Teather & Greenwood. Functions of Commercial Law

38. Prince Ganaku Functions of Commercial Law • The mercantile custom or usage has to be shown to be universally recognized in a trade as a binding custom. See: Cunliffe-Owen v Teather & Greenwood. • Finally, as we saw in Hazell v Hammersmith & Fulham LBC, the custom must not be unlawful. • Returning to the needs of businessmen, the fourth thing that businessmen need is speedy and efficient resolution to their disputes so that they can go about their business. This is why the Commercial Court exists. • Why is the Law so willing to make allowances for Commercial needs? Speculate

39. Prince Ganaku Functions of Commercial Law • Commerce is important to any economy. • The judiciary, like the legislature, is an arm of government, and one of the key functions of the government is the sustenance of the economy. • The needs of commerce are given priority so that businessmen can carry on their work, and in so doing, grow the economy and by extension create a better life for everyone. • Servicing the needs of men of commerce are not the end in itself, it’s just a means to an end.

40. Prince Ganaku Functions of Commercial Law • Parliament may step in to regulate Commercial Law, and sometimes these regulations may run counter to the needs of men of commerce, but may serve the public interest. • It is important that in reading cases, you do not lose sight of the fact that the needs of men of commerce are generally important, but not more important than the public interest. • See the Sale of Goods Act and the Hire Purchase Decree for ways Parliament has prioritized the public interest over needs of commerce

41. Prince Ganaku Sources of Commercial Law • What is Law? • The Scandinavian Realist school of Jurisprudence proposes that the law is not a thing that can be touched or felt. • A person or group of people decree something and that decree causes a specific type of change how people (used in this sense to mean the judges, the people, institutions etc) behave. That is a fact. Observable changes in behaviour are facts. • So even where this “phenomenon” is not decreed by a group of people, but comes into existence, and causes that change in how people behave, then you may have a law.

42. Prince Ganaku Sources of Commercial Law • The American Realist school proposes, per Oliver Wendell Holmes, that laws are the prophecies of what the courts will do in fact. If the courts recognize that people ought to behave in a certain way, that is law. • So when we speak of sources of Commercial Law, we really mean what informs its application in the Courts? • How do people believe they ought to behave in a Commercial context? Where does that belief come from? And how are Courts going to decide on disputes, arising from that behaviour? What is going to be the basis of the Courts’ decisions?

43. Prince Ganaku Sources of Commercial Law • The Law of Contract: The law of Contract lies at the heart of Commercial Law. In the world of commerce, goods and services are supplied pursuant to the terms of a contract. • Relationships, of a legal nature, are created by contract. Sometimes these contracts are negotiated individually, sometimes they are standard form contracts. Sometimes the courts will find that a particular type of contract has been entered into, even where the parties had not knowingly entered into that particular type of contract. • There are also principles that have been evolved over the years to construe contracts that determine how businessmen will act and how the Courts will determine disputes

44. Prince Ganaku Sources of Commercial Law • Custom and Usage: Technically, a custom is a rule which has obtained the force of law in a particular locality, and a usage is a settled practice of a particular trade or profession, but courts rarely pay attention to this distinction.(See discussion of custom and usages above). • Judicial recognition of customs and usages may crystallize into law, in the sense that Courts may take judicial notice of it in subsequent cases of the same nature. And when those customs and usages change, judges will be required to recognize the change and not stick to old forms. • Long recognition of a custom or usage may result in statutory recognition

45. Prince Ganaku The law merchant is not crystal, fixed, dead and unalterable, but, rather, it is like a tree, rooted in the customs of merchants of today as much as those of bygone centuries, ever putting on fresh foliage, discarding that which is dead, and daily growing in bulk and strength Goodwin v Robarts Functions of Commercial Law

46. Prince Ganaku Sources of Commercial Law • Statutes: Regulate rights and duties of parties in commercial transactions. • Hire Purchase Decree • Sale of Goods Act • Contract Act • Company’s Act • Banking Act • International Conventions.

47. Prince Ganaku Property Rights > Ownership • There are many different types of property rights. You could have ownership of a property. And ownership carries several advantages and disadvantages • When you own a property, you have the right to possess, the right to use, the right to manage, the right to the income the thing brings in, the right to capital, the right to security, the right to prohibit harmful use, the right to alienate some of these rights and the incident of residuarity, and liability to execution. • If you own an asset that is in the possession of another, and the person goes bankrupt? What happens to your asset?

48. Prince Ganaku Property Rights > Ownership • What happens when you pay part of the price to a vendor in Kumasi for goods, the vendor loads the goods onto a truck, the truck driver calls you to let you know he’s on his way to deliver the goods to you, but he never makes it because he was involved in an accident which destroyed all the goods in the process? Whose goods have been destroyed? You or the vendor? • What happens when a seller brings gadgets to your house for sale. He allows you to use the gadget of your choice for a week, before you pay him for it. After a week, you pay half. If the gadget breaks down on you, two days after the payment, is he still entitled to payment?

49. Prince Ganaku Property Rights > Ownership • As regards the first question, there is a distinction between owning an asset and having personal rights to the delivery or the transfer of an asset which is generally unimportant in the commercial world, so long as the debtor is traceable and solvent. • If you own assets in the possession of another, and the person goes bankrupt, you are, in principle, entitled to your assets. So that’s fine. • However… If you have personal rights to the delivery or the transfer of an asset, and the person goes bankrupt, it won’t matter that you have paid for it, you may not get it back.

50. Prince Ganaku Property Rights > Ownership • As regards the second question, see the combined effect of Sections 18(1),(2),(3)&(4); Section 26(2); and Section 27(2) of The Sale of Goods Act (Act 137). • Essentially, if you own goods, even in the possession of another, you bear the liability for their accidental loss or damage. • On the third question, If the seller transfers property to you, he can sue you for the price. See: Sections 13, 18, 26 and 46(1) of the Sale of Goods Act (Act 137) • If you own a chattel, you are entitled to sue in negligence if it is carelessly damaged or destroyed