The legal system: the courts - Business Environment

A country’s legal system can be said to have two main functions: to provide an enabling mechanism within which individuals and organisations can exist and operate (e.g. companies are constituted by law) and to provide a means of resolving conflicts and of dealing with those who infringe the accepted standards of behaviour. These functions are carried out by a variety of institutions, including the government and the courts, and a detailed analysis of the legal system within a state would require consideration of the inter relationship between politics and law. Since the political system has been examined, the focus here is on the courts as a central element of a country’s legal system, with responsibility for interpreting the law and administering justice in democratic societies. It is worth remembering, however, that political and governmental activity take place within a framework of law and that framework is itself a product of the political process at a variety of spatial levels.

The English legal system
Under the English legal system, a useful distinction can be made between courts on the basis of their status. The superior courts are the House of Lords, the Court of Appeal and the High Court. Law reports generally emanate from the higher courts these cases involve a major point of law of general public interest (e.g. R v R, 1991). Inferior courts, in contrast, have limited jurisdiction and are subject to the supervisory jurisdiction of the High Court. The current hierarchy of courts is illustrated in Figure. For domestic purposes (i.e. not concerning EU legislation), the highest court is the House of Lords, which is the final court of appeal for both civil and criminal cases. Decisions reached by the Law Lords are binding on all other courts, though not necessarily on their Lordships themselves.

Like the House of Lords, the Court of Appeal has only appellate jurisdiction. In the case of the Civil Division of the court, its decisions bind all inferior courts and it is bound by its own previous decisions and by those of the House of Lords. TheCriminal Division similarly is bound by the decisions of the Law Lords, but not by the Court of Appeal’s Civil Division; nor is it bound by its own previous decisions where these were against a defendant, as exemplified in a number of celebrated cases in recent years.


The High Court is divided into three separate divisions, Chancery, Queen’s Bench and Family, and has virtually unlimited original jurisdiction in civil matters, many of which are of direct relevance to business organizations. The Family court deals with such things as adoption, wardship and contested divorce cases, while the Chancery court deals with cases concerning trusts, property and taxation. Claims in contract and tort are the responsibility of the Queen’s Bench division, which has two specialist courts to deal with commercial matters and with ships and aircraft. It also exercises the criminal jurisdiction of the High Court the latter being entirely appellate in instances referred to it by the magistrates’ courts or the Crown Court.

In criminal cases the Crown Court has exclusive original jurisdiction to try all indictable offences and can hear appeals against summary conviction or sentence from magistrates’ courts. Broadly speaking, the latter largely deal with less seriousoffences (especially motoring offences), where trial by judge and jury is not permitted an issue still under discussion following the publication of the Run ciman Report (1993). Whereas magistrates’ courts have both criminal and civil jurisdiction with the emphasis towards the former the jurisdiction of the county courts is entirely civil and derived solely from statute. Amongst the issues they deal with are conflicts between landlords and tenants and disputes involving small claims (e.g.concerning consumer matters) where a system of arbitration provides for a relatively in expensive and quick method of resolving problems.

In disputes with a supranational dimension involving EU member states, institutions, organisations, companies or individuals ultimate jurisdiction rests with the European Court of Justice. Under Article 220 (ex 164) of the Treaty of Rome, the court is required to ensure that in the application and interpretation of the Treaty the law is observed. As indicated elsewhere, in carrying out this function, the court has adopted a relatively flexible approach in order to take account of changing circumstances. Few would dispute that its judgments have had, and will continue to have, a considerable influence on the development of EU law.

As a final comment, it is perhaps worth stating that while conflict remains an enduring feature of daily life, many disputes are settled without recourse to the courts, often through direct negotiation between the parties concerned (e.g. Richard Branson’s attempts to reach a negotiated settlement with British Airways over its alleged ‘dirty tricks’ campaign). Moreover, even where negotiations fail or where one party declines to negotiate, a dispute will not necessarily result in court action, but may be dealt with in other ways. Disputes over employment contracts, for example, tend to be dealt with by a specialist tribunal, set up by statute to exercise specific functions of a quasi-legal nature. Similarly, complaints concerning maladministration by public (and increasingly private) bodies are generally dealt with by a system of ‘ombudsmen’, covering areas as diverse as social security benefits and local authority services. Financial services such as banking and insurance are covered by the Financial Services Ombudsman.

Business organisations and the law

Business organisations have been described as transformers of inputs into output in the sense that they acquire and use resources to produce goods or services for consumption. As Table illustrates, all aspects of this transformation process are influenced by the law.It is important to emphasize from the outset that the law not only constrains business activity (e.g. by establishing minimum standards of health and safety at work which are enforceable by law), but also assists it (e.g. by providing a means by which a business unit can have an independent existence from its members), and in doing so helps an enterprise to achieve its commercial and other objectives. In short, the legal environment within which businesses operate is an enabling as well as a regulatory environment and one which provides a considerable degree of certainty and stability to the conduct of business both within and between democratic states.

Given the extensive influence of the law on business organisations, it is clearly impossible to examine all aspects of the legal context within which firms function. Accordingly, in the analysis below attention is focused primarily on contract law, agency, and some of the more important statutes enacted to protect the interests of the consumer, since these are areas fundamental to business operations.

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