LA372 COMMERCIAL LAW
Lecture 1: Introduction to Commercial Law
Lyla Latif, PhD

Content
Definitions and Purpose of Commercial Law
History and Development of Commercial Law
Scope of Commercial Law
Commercial Law under Different Legal Systems
Sources, Content and Principles of Commercial Law
Overview of Contract Law and its Applicability to Commercial Law
Introduction to Sale of Goods

Definitions
• Benson explains that commerce is an evolving process of
interaction and reciprocity which is simultaneously
facilitated by and leads to an evolving system of
commercial law.
• Interaction by whom? (Buyer and Seller, 3rd Party?) or (Through
enforcement and the judicial process?
• Reciprocity in what sense? Offer, Acceptance, Consideration,
Incorporated terms: of delivery and implied terms?
• Evolving system? Customs, Law, Jurisprudence, Markets: through
globalisation and digitalisation?
• Hayek emphasised that commercial law has evolved out of
traditions and practices as part of customary law
developed through a process of trial and error relating to the
rules of property and contract.
• Which traditions and practices? Mercantile law?
• Why the rules of property and contract? Sources of commercial law,
basis or foundation for interaction, reciprocity and negotiations, sets out
terms and binding aspects

Definitions
• According to Goode, commercial law is the branch of law
which is concerned with rights and duties arising from
the supply of goods and services in the way of trade.
• Rights and duties of whom? Buyer and Seller, and sometimes a 3rd
party/intermediary
• Supply of which goods and services? Determined by statute, e.g., SOGA
1979, HP Act 1964, IP, digital currency, NFTs, petroleum, aircrafts,
timber, textiles, leather etc
• What sort of trade? Legal business through permanent establishments or
online marketplaces. This explains the scope of commercial law to
encompass all business transactions and trade.
• Sealy and Hooley describe commercial law as the law of
commerce, which includes commercial transactions.

Definitions
• Gutteridge emphasises that commercial law applies to
contracts for the sale of goods and also to the carriage
and insurance of goods and contracts which finance the
carrying out of contracts of sale.
• All these definitions do not define commercial law. Instead,
they set out its scope and purpose.

Purpose
Lord Devlin in Kum v Wah Tat Bank Ltd [1971] 1 Lloyd’s
Rep 439 at 444 explained the purpose of commercial law:
“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 to require them to stick to forms that they may think
to be outmoded.”
1. Freedom of contract and party autonomy
2. Flexibility: problems with legal certainty

Is there a
Commercial
Law? A
response by
Goode, p.1299
• "Does commercial law exist?
• Are there unifying principles which bind the almost infinite
variety of transactions in which businessmen engage,
marking these off from other types of contract? …
• If by commercial law we mean a relatively self-contained,
integrated body of principles and rules peculiar to
commercial transactions, then we are constrained to say
that this is not to be found in England.
• The law affecting business transactions is not a seamless
web, nor is it a jigsaw in which, with careful study and some
luck, all the pieces can be fitted neatly together to make a
harmonious whole. Rather it is a collocation of ill-assorted
statutes bedded down on an amorphous mass of constantly
shifting case-law.
• But if we view commercial law as the totality of the law’s
response to the needs and practices of the mercantile
community, then, indeed, commercial law exists and
flourishes in England, adapting itself constantly to new
business procedures, new instruments, new demands.”
(ibid.)

History of Commercial Law
• Emergence of a class of professional merchants.
• Need for law as a language of interaction.
• lex mercatoria (the Law Merchant) voluntarily produced, voluntarily
adjudicated and voluntarily enforced.
• Partly based on Roman commercial law, but the majority of it was
formulated by the merchants themselves.
• Law Merchant was customary law.
• Law Merchant comprised of business practice based on common usage,
which became norms. As these norms became more precisely specified,
they were increasingly recorded in writing. These written laws were not
statutory codes.
• These written laws were characterised as commercial instruments and as
contracts.
• Law Merchant developed, the merchants formed their own courts to
adjudicate disputes in accordance with Law Merchant.
• Decisions were enforced by the threat of boycott sanctions.

Reasons for Establishing
Merchant Courts
a. Royal courts did not consider disputes from contracts made in
another nation. Also royal court judges were not conversant
with technical commerce matters and lacked knowledge of
commercial custom and practice
b. Government courts would not honour any contractual
agreement which involved the payment of interest
c. Common law courts would not consider books of accounts as
evidence despite the fact that merchants held such records in
high regard
d. Merchant courts were known for their speed and informality.
These characteristics were needed because business required
merchants to complete their transactions fairly quickly to
move on to the next with minimal disruption to business

Development of
Commercial Law 1/3
• By the 14th century, Law Merchant was codified (Carta Mercatoria) and
governments began to systematically enact the law. For example, the Statute
of the Staples of 1353.
• Dispute resolution became competitive across merchant courts and several
other courts established in England. Merchants’ courts remained available
for commercial disputes up until early 1600s and then cases began to be
gradually shifted to government courts.
• With the absorption of Law Merchant as part of common law, Law
Merchant was no longer a separate identifiable system of law but rather was
part of the law of the realm. This meant that decisions given in merchant
courts could be reversed and merchants were bound to submit to the
jurisdiction of the common law courts and subject to those court’s
procedures.
Lord Coke’s dictum that: ‘though one may be bound to stand to the
arbitrament yet he may countermand the arbitrator…as a man cannot by
his own act make such an authority power or warrant not
countermandable, which by law and its own proper nature is
countermandable’.

Development of Commercial Law 2/3
• Law Merchant became less universal and more localised under state influence. English common law courts
either refused to admit custom into law, or custom was required to satisfy onerous admissibility tests.
• The origins of a business practice had to be demonstrated to be truly ‘ancient’ (precedent) and the practice had to
be consistently employed for a long period in order to be considered as law. English common law restricted the
use of business practice as a source of common law.
• BUT
• Common law courts’ hold (state capture) on commercial law by the late 19th century came under significant
competitive threat.
• Common law courts began to lose international business disputes to other nations’ courts.
• Commercial arbitration was also on the rise and all traders, merchants, architects, engineers, estate agents
and auctioneers took up the practice of inserting arbitration clauses resolving disputes by the application of
business practice.

Development of
Commercial Law 3/3
• After common law court system gained control of the market for disputes, it
reverted back to not recognising business practice. Instead, a rigid definition of
custom was established that it be consistent with state law.
Lord Lloyd in Kleinwort Benson Ltd v Lincoln City Council [1998] 4 All ER 513 at
549: “In the field of Commercial Law ... the custom of merchants has always been a
fruitful source of law”.
But: Customs are only recognised on condition that it is reasonable, universally
recognised in the business sector concerned as binding, and not inconsistent with the
express/implied terms of the contract. Distinguish from market practice (recurring
practice but not regarded as binding) and trade practice (recurring practice established
through the relationship between contracting parties).
• The commercial sector and commercial law are now regulated as part of contractual
agreements subject to contract law.

Scope of Commercial
Law
What constitutes commercial law?
 Sale of Goods
 Agency
 Hire Purchase and credit sales
 Leases
 Negotiable Instruments (Promissory notes, bills
of exchange, commercial credit, guarantees)
 Barter
 Non fungible exchanges
 Transactions governed by Islamic law

Commercial
Law under
Different Legal
Systems
• Secular legal systems (comprising state law, common law or
civil law)
• Religious legal systems (Islamic countries and rabbinical
courts in Israel).
• Indigenous laws but these are subordinated to state law.
These religious and indigenous laws also set out aspects of
commercial law.

Islamic Commercial Law
Source: Derived from the Qur’an and Sunnah and rulings from the four
schools of Sunni Islamic thought (madhabs). Islamic
commercial law is referred to as fiqh muamalat (jurisprudential
principles setting out the law of transactions).
Governs: Contracts, sale, partnerships, rentals (ijarah), safe custody
(wadiah) and agency (wakala)
Preliminaries: Based on offer and acceptance (ijab and qabul), maturity
(rushd) and sanity, concept of legal personality to reflect
principles and prohibitions.
Principle based: Risk sharing (profit/loss), asset backed and not asset based,
notion of khiyar (option).
Prohibitions: Commercial transactions not permitted in dealing that relate to
prohibited acts (haram), interest based/bearing (riba),
uncertainty (gharar), speculation (maysir), deception (taghrir),
inequality (ghubn), duress (ikrah).
Relevance: Islamic banking, financial instruments and credit facilities
practised beyond Muslim majority countries. Part of dialogue on
SDG17 to support financing SDGs, in particular climate action
through Islamic bonds.

African
Commercial Law
Source:
King, chiefs, tribal law, aristocracy at the apex of
political sphere, titled nobility, clan corporates
Principles:
Associational rights and obligations [the terms, for
instance, of ingress into and egress from the
association and the rights of survivorship over
property], corporate existence as family group or clan,
pulled resources as joint stock to be subsequently
divided into individual stock under a common leader,
‘a mirror of accepted usage among a given people’,
‘practices habitually followed by people in a relevant
community’, duty of good faith, principle of
collective responsibility, principle of caveat emptor
Contracts:
Oral: credit sale for regulars, barter in advance on
condition of oath before chief priest to fulfil the
bargain [limited to geographic locations].

Sources
• Law Merchant [Roman Law, Customary Law:
business practice, common usage, norms]
• Common Law
• Contract Law
• Property Law
• Acts of Parliament [SOGA, Consumer Credit Act,
Unfair Contract Terms Act, Consumer Rights Act]
• Case Law
• Equity [courts cautious of allowing equity to
permeate too deeply into commercial law principles,
but willingness is there: rescission, specific
performance, estoppel when conditions met]

Content Essentials of Contract Law and
express terms incorporated

Principles
• Reciprocity (give and take: OAC)
• Objectivity (subjective intentions and man on the bus)
• Impartiality (free from influence)
• Simplicity (clear and concise)
• Certainty (unambiguous so that legal implications are foreseeable)
• Predictability [clear and consistent]
• Flexibility [to give business efficacy and accommodate evolving practices]
• Party Autonomy [freedom of contract, sanctity of contracts, facilitate business transactions]
• Reasonable Expectations
• Fairness of Exchange [mercantile law required that exchanges be entered into fairly. Fraud,
duress or other abuses of the will or knowledge of either party in an exchange meant that
the transaction would be invalidated by a merchant court]

Principles
Summarised:
Lord Goff: ‘our only desire is to give sensible commercial
effect to the transaction. We are there to help businessmen,
not to hinder them: we are there to give effect to their
transactions, not to 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.’
Sets out the importance of freedom of contract.

Freedom of Contract
Lord Toulson in Prime Sight Limited (A company Registered in
Gibraltar) (Appellant) v Edgar Charles Lavarello (Official
Trustee of Benjamin Marrache a Bankrupt) (Respondent)
[2013] UKPC 22:
“Parties are ordinarily free to contract on whatever terms they
choose and the court’s role is to enforce them. There are
exceptions and qualifications, but these too are part of the general
law of contract.
In Greer v Kettle Lord Maugham referred to fraud, illegality,
mistake and misrepresentation. Similarly, […] a court may refuse
in some circumstances to enforce a contract on grounds of public
policy (a topic closely related to illegality) […]” [para 47].
Lays out importance of reasonable expectations.

Reasonable Expectations
Lord Steyn’s observation that contract law (and commercial law) should respect the
“reasonable expectations”.
In First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] BCLC 1409 at
1410: “A theme that runs through our law of contract is that the reasonable expectations
of honest men must be protected. It is not a rule or a principle of law. It is the objective
which has been and still is the principal moulding force of our law of contract. It affords
no licence to a judge to depart from binding precedent. On the other hand, if the prima
facie solution to a problem runs counter to the reasonable expectations of honest men,
this criterion sometimes requires a rigorous re-examination of the problem to ascertain
whether the law does indeed compel demonstrable unfairness.”
Reveille Independent LLC v Anotech International (UK) Ltd [2016] EWCA Civ 443: “A
second policy is that in commercial dealings the reasonable expectations of honest,
sensible business persons must be protected….” (Cranston J, para [42]).
RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Production)
[2010] UKSC 14 “reasonable expectations” relevant in applying objective test of
whether a binding contract had come into existence.

Tensions: Certainty versus Flexibility
• There are also some tensions in Commercial Law regarding its principles: for example, with certainty and
flexibility.
• Commercial parties need the law to be certain/predictable so they can plan accordingly. However, at the same time,
there needs to be a sufficient degree of flexibility to ensure that the law can adapt to changing business practices.
• Reveille Independent LLC v Anotech International (UK) Ltd [2016] EWCA Civ 443: “These rules [on contract
formation] take effect against the background of legal policies recognised in the case law. One such policy is the
need for certainty in commercial contracts, a policy which since Lord Mansfield's time has run as a thread through
the jurisprudence…” (Cranston J at para [42]).
• Vallejo v Wheeler (1774) 1 Cowp 143 “In all mercantile transactions the great object should be certainty…” (at 153).
• Lord Hoffmann in Re BCCI (No.8) [1997] 4 All ER 568 at 578: “In a case in which there is no threat to the
consistency of the law or objection of public policy, the courts should be very slow to declare a practice of the
commercial community to be conceptually impossible. ... Rules of law must obviously be consistent and not self-
contradictory ... But the law is fashioned to suit the practicalities of life and legal concepts like 'proprietary interest'
and 'charge' are no more than labels given to clusters of related and self-consistent rules of law. Such concepts do not
have a life of their own from which the rules are inexorably derived.”
• Goff J in Clough Mill v Martin [1984] 3 All ER 982 at 987: “In every case, we have to look at the relevant
documents and other communications which have passed between the parties, and to consider them in the light of
the relevant surrounding circumstances, in order to ascertain the rights and duties of the parties inter se, always
paying particular regard to the practical effect of any conclusion concerning the nature of those rights and duties. In
performing this task, concepts such as bailment and fiduciary duty must not be allowed to be our masters, but must
rather be regarded as the tools of our trade”.

Tensions: Good Faith 1/2
• There is no duty of good faith in Commercial Law.
• Walford v Miles [1992] 2 A.C. 128 “the concept of a duty to carry on negotiations in good faith is inherently repugnant to the
adversarial position of the parties when involved in negotiations”.
• Monde Petroleum SA v Westernzagros Limited [2016] EWHC 1472 (Comm): Salter J: “There is no general doctrine of "good
faith" in English contract law. A duty of good faith is implied by law as an incident of certain categories of contract (for example,
contracts of employment and contracts between partners or others whose relationship is characterised as a fiduciary one). However,
in all other categories of contract … such a duty will only be implied where the contract would lack commercial or practical
coherence without it and where all the other requirements for implication are met…” [249].
• Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland [2013] EWCA Civ 200 the court had recently
reiterated that English law does not recognise any general duty of good faith in matters of contract.
• TSG Building Services plc v South Anglia Housing Ltd. [2013] EWHC 1151 (TCC): General reluctance of courts to recognise
instances where a term needs to be implied in fact. Express terms will be upheld but applied restrictively. Good faith not a
general duty in contract law.

Tensions: Good Faith 2/2
• MSC Mediterranean Shipping Company SA v Cottonex Anstalt [2016] EWCA Civ 789: “The judge [Leggatt
J] drew support for his conclusion from what he described as an increasing recognition in the common law
world of the need for good faith in contractual dealings. The recognition of a general duty of good faith would
be a significant step in the development of our law of contract with potentially far-reaching consequences and
I do not think it is necessary or desirable to resort to it in order to decide the outcome of the present case.
There is in my view a real danger that if a general principle of good faith were established it would be
invoked as often to undermine as to support the terms in which the parties have reached agreement.
• Arnold v Britton [2015] UKSC 36, [2015] AC 1619: The danger is not dissimilar to that posed by too liberal
an approach to construction, against which the Supreme Court warned in.” So in English commercial law,
good faith has not gained acceptance except in very specific instances (nature of certain commercial
relationships or where parties expressly stipulate this in their contract).
• Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433, 439, the court prefers to
develop "piecemeal solutions in response to demonstrated problems of unfairness", although it is well-
recognised that broad concepts of fair dealing may be reflected in the court's response to questions of
construction and the implication of terms.

Overview of
Contract Law
and its
Applicability
to
Commercial
Law
• A contract is an agreement giving rise to obligations which are
enforced or recognised by law.
• Commercial law is pegged on agreements between parties and
such agreement to be enforced and recognised must be drafted
as contracts.
• When drafted as contracts, commercial negotiations and
agreements must clearly set out the incorporated terms binding
parties. These terms must be entered into willingly with full
comprehension otherwise the contract risks vitiation.
• An understanding on what constitutes an offer and acceptance,
payment of consideration, its variation, delivery terms and
termination is necessary to negotiate commercial transactions.

Introduction to Sale of
Goods
Source: Sale of Goods Act, 1979
Scope: Sets out the rules on formation
of contract, formalities,
subject matter of contract,
price, implied terms, rights
and responsibilities, delivery,
remedies for breach, passing
of property and risk, nemo dat
consequences and exceptions
Applicability: To a contract of sale (section
2).

What is a
Contract of
Sale?
A contract of sale of goods is a contract by which the seller
transfers or agrees to transfer the property in goods to the
buyer for a money consideration, called the price [sec 2].
It follows that this is essentially a transaction in which one
side promises to transfer the ownership of goods and the
other pays the price in money.
This, therefore, excludes:
• cases where there is no money price and
• situations where what is sold is not goods but land or
what is often called intangible property, that is,
property interests which cannot be physically possessed
such as shares, patents, copyrights and so on.
The requirement in s 2 of SOGA that there must be a money
price in a sale means that an exchange of a cow for a horse
is not a sale.

Contract of
Service:
Contract for
Work and
Materials
• It is clear that there are many contracts in which goods are
supplied as part of a package which also includes the
provision of services.
• Some are treated as contracts of sale, others are treated as a
separate category called contracts for work and materials.
• In some cases, it is possible to say that the property transfer
element is so predominant that the contract is clearly one of
sale; in others the work element is so large that it is
obviously work and materials.
• In Lee v Griffin (1861), a contract by a dentist to make and fit
dentures for a patient was said to be a contract of sale on the
ground that at the end of the day there was a discernible
article which was to be transferred from the dentist to the
patient.
• On the other hand, in Robinson v Graves (1935) it was said
that a contract to paint a portrait was one for work and
materials because ‘the substance of the contract is the skill
and experience of the artist in producing a picture’. These
tests appear irreconcilable.

Goods
• Section 61(1) of SOGA states that goods:
Includes all personal chattels other than things in action and money, and
in particular ‘goods’includes emblements, industrial growing crops, and
things attached to or forming part of the land which are agreed to be
severed before sale or under the contract of sale.
• A question of great practical importance is whether computer software is
goods. If it is supplied on a disk, it would seem that the disk is goods, but
software suppliers often simply install the software and nothing physical
changes hands. Indeed, the suppliers usually seek to retain the intellectual
property rights and simply grant a licence.
• In the Court of Appeal in St Albans C and DC v International
Computers Ltd (1996), Sir Iain Glidewell said, obiter, that, if not goods,
software should be treated like goods for the purpose of the implied
terms as to quality. However, it is a possible argument that the software
supplier is really providing a service and is only under a duty of care.
• Contrast this with Computer Associates UK Ltd v The Software
Incubator Ltd [2018] EWCA Civ 518

Goods:
Existing or
Future
• These can be existing or future goods (sec 5)
• Existing: goods which exist, are owned or
possessed by the seller
• Future: goods to be manufactured or acquired
by seller after the making of the contract of
sale
• Goods which have perished (sec 6) - 3 conditions:
[1] contract for the sale of specific goods, [2]
without knowledge of the seller [3] perish at the
time contract is made- contract is void
• Goods perishing before sale but after agreement to
sell (sec 7) - 3 conditions: [1] agreement to sell
specific goods, [2] goods perish without fault on
the part of seller or buyer and [3] perish before
risk passes to buyer - agreement is avoided.
• Must be movable goods.

Price: Rules
under Sec 8
for a Contract
of Sale
1. May be fixed by the contract
2. May be left to be fixed in a manner agreed by the contract
• In May and Butcher Ltd v R (1934), Lord Dunedin said: ‘With regard to
price it is a perfectly good contract to say that the price is to be settled by
the buyer.’
• In May, there was a contract for the sale of tentage at a price to be agreed
between the parties. The parties failed to agree and the House of Lords held
that there was no contract. The argument which was accepted was that s
8(2) only applied where there was no agreement as to the price so that its
operation was excluded where the parties had provided a mechanism for
fixing a price which had not worked. This decision has never been
overruled and is still in theory binding. Nevertheless, the courts have not
always followed it.
• In Foley v Classique Coaches (1934), the plaintiffs sold land to the
defendants who agreed as part of the same contract to buy all their petrol
from the plaintiffs ‘at a price to be agreed between the parties in writing
and from time to time’. The transfer of the land was completed and the
defendants later argued that the agreement to buy the petrol was not binding
as the price was uncertain. There is therefore a good chance that a court
will hold, where the parties do not agree, that they intended the price to be a
reasonable one.
3. May be determined by the course of dealing between the parties
4. If 1-3 not agreed, buyer pays a reasonable price

Price: Rules
under Sec 9
for an
Agreement to
Sell Goods
1. May be fixed by the
valuation of a third party
and if the third party cannot
conduct valuation,
agreement is avoided -
condition: goods have not
been delivered and
appropriated by the buyer -
if so done, buyer must pay a
reasonable price
2. A party who is disappointed
with the valuation will have
an action against the valuer
if it can be shown that the
valuation was negligent.
This was clearly accepted by
the House of Lords in
Arenson v Casson (1977), a
case involving the sale of
shares in a private company
at a price fixed by valuation.

6 Considerations Relating to
the Contract of Sale
1. Such a contract can be express [made in writing, orally or partly in
writing and partly orally] or implied from the conduct of the parties
(sec 4)
2. There may be a contract of sale between one part owner and another.
3. A contract of sale may be absolute or conditional.
4. Where under a contract of sale the property in the goods is transferred
from the seller to the buyer the contract is called a sale.
5. Where under a contract of sale the transfer of the property in the
goods is to take place at a future time or subject to some condition
later to be fulfilled the contract is called an agreement to sell.
6. An agreement to sell becomes a sale when the time elapses or the
conditions are fulfilled subject to which the property in the goods is to
be transferred.

Next Lecture: The Nature of Goods