Law, as it is, is the command of the Sovereign. It means, 1) law has its source in sovereign authority, (2) law is accom­panied by sanctions, and (3) the command to be law should compel a course of conduct. Being a command the law must flow from a determinate person or group of persons with the threat of displeasure if it is not obeyed. Sovereignty is, however, only a part of the state. So, in ultimate sense, law emanates from the state. Thus the term Law is used to denote rules of conduct organised society have to follow certain common rules, otherwise peaceful living is impossible. It is the function of the State to enforce these rules.


According to Holland, Law is, "a rule of external human action enforced by the sovereign political authority". From this definition it follows that there are three essential characteristics of law.

1. Law is a rule relating to the actions of human beings.

2. Law attempts to regulate the external actions of human beings.

3. Law is enforced by the State

Anson : Rules regarding  human conduct necessary for peaceful living as well as  for  progress and  development. Anson observes as follows: ‘ The object of Law is Order, and the result of Order is that men are enabled to look ahead with some sort of security as to the future. Although human action cannot be reduced to the uniformities of nature, men have yet endeavoured to reproduce by Law something approaching to this uniformity.

1. Statutes of the Indian Legislatures: The legislature is the main source of law in modern times. In India, the Central and the State legislatures possess law making powers and have exercised their powers extensively. The greater part of Indian commercial law is statutory.


English Mercantile Law: Many rules of English Mercantile Law have been Incorpo­rated into Indian Law through statutes and judicial decisions. English Mercantile Law is a mixture of diverse elements. It contains rules originating from the following sources:

3. Judicial Decisions or Precedents

Judges interpret and explain statutes. Rules of equity and good conscience are incorporated into law through judicial decisions. Whenever the law is silent on a point, the judge has to decide the case according to his idea of what is equitable. Prior to 1947, die Judicial Committee of the Privy Council of Great Britain was the final court of appeal for Indian cases and its decisions were binding on Indian courts. After, independence, the Supreme Court of India is the final court of appeal. But decisions of the superior English courts like the Courts of Appeal, Privy Council, and the House of Lords, are frequently referred to as precedents which might be followed in interpreting Indian statutes and as rules of equity and good conscience.


Definition: The laws of a country relate to many subjects, e.g, inheritance and transfer of property, relationship between persons, crimes and their punishment, as well as matters relating to industry, trade and commerce. The term Commercial Law or Mercantile Law is used to include only the last of the aforesaid subjects, viz., rules relating to industry, trade and commerce.

Scope: The scope of commercial law is large. It includes the laws relating to contract, partnership, negotiable instruments, sale of goods, companies etc.It must be noted that there is no fixed line of division between commercial law and other branches of law, nor is there any conflict or contradiction between them. The law of contract, which is a very important part of commercial law, is applicable not only to merchants and bankers but also to other persons. When a merchant files a suit in a court of law the procedure is not materially different from that of other suits. When a trader commits an offence he is punishable under the criminal law exactly in the same way as any other person. The subjects studied under the heading of commercial law do not form a comprehensive code dealing with all aspects of mercantile activity. Commercial law deals with only those parts of law which are of special importance to the mercantile community. The same laws are applicable to other citizens under appropriate circumstances.

Sources of the commercial law of India: The commercial law of India is based upon statutes of the Indian legislature, English mercantile law and Indian mercantile usages, modified and adapted by judicial decisions. We are stating below the sources from which the rules of commercial law of India have been derived.

4. Custom and Usage

A customary rule is binding where it is ancient, reasonable, and not opposed to any statutory rule. A custom becomes legally recognised when it is accepted by a court and incorporated in a judicial decision


This chapter covers the following topics

  1. The nature of law
  2. Sources of English law
  3. Historical sources of law
  4. Legal sources of law
  5. Subsidiary sources of law
  6. Judicial precedent
  7. Avoidance of a binding precedent
  8. Interpretation of statutes


1.1The laws of any country are those rules which the nation through its law-enforcing machinery makes compulsory by imposing penalties and other sanctions against law-breaking. The body of law is not static but changes and develops. In this process it reflects the values and institutions of each era. Until Parliament was reformed in the nineteenth century, the main purpose and effect of English law was to define and safeguard rights of property and to uphold public order. Since that time there has been an increasing flow of new laws designed to deal with social problems and to develop the national economy. Many old laws have been repealed; for instance, a broken promise of marriage was formerly actionable by the jilted woman as a breach of contract, but this is no longer so. Any study of English law as it now is (for the time being) requires a brief explanation of the process of historical development which has made it what it is.

1.2.As we shall see, English law, like most other legal systems, makes~2 fundamental distinction between civil and criminal law.

1.3 But although English law has many features which are common to other national legal systems, it also has some distinctive features of its own. It differs from the law of many Western European countries (and also Scotland) in having absorbed only a small amount of Roman law, which is a major heritage of Western civilization. Secondly, English law is case-law made by decisions of the courts to a much greater extent than the law of many other countries. The countries of the Commonwealth and also the United States of America have absorbed much of the English legal tradition into their own law.


2.1.The term 'sources of law' is used in several different senses.

(a) Historical sources – generally regarded as common law and equity.

(b)Legal sources – the means by which the law is currently brought into existence.

There are four legal sources:

(i)judicial precedent,

(ii) legislation,

(iii) EC law, and

(iv) custom.

(c)Subsidiary sources – not currently responsible for the direct creation of law. They include, for example, Law Merchant, Roman Law and Canon Law.

2.2 The important elements will now be explained in greater detail.


3.1.English law's historical sources are those procedures, rules and ways of thinking which have given rise to today's current sources of law. Hence a legal problem today may be decided on the rules of the legal sources, but these in themselves (particularly judicial precedent) have been derived from the historical sources of common law and equity.

Common law

3.2.At the time of the Norman Conquest in 1066 there was no system of law common to the whole country. Rules of local custom were applied by local manorial courts. To improve the system, the King sent royal commissioners on tour (circuit) of different parts of the realm to deal with crimes and civil disputes. These commissioners, who often heard their cases with the assistance of a local jury, at first applied the local customary law of the neighborhood. On their return from circuit the commissioners sat in the royal courts at Westminster to try cases there. In time the commissioners in their judicial capacity developed rules of law, selected from the differing local customs which they had encountered, as a common law (ius commune) which they applied uniformly in all trials {before the King's courts) throughout the kingdom.

3.3To commence an action before any of these courts, the plaintiff obtained from the main royal office, the Chancery, an order (writ) issued under the King's authority and addressed to the Sheriff of the county in which the defendant resided, by which the Sheriff was required to ensure that the defendant appeared for the trial. The writs specified the ground of complaint and gave a brief summary of the facts on which the plaintiff required judgment. After some earlier uncertainty it was established that writs might only be issued in one of the established forms, which are grounds of action. If there was no appropriate writ it was not possible to have a new one in order to bring a grievance before the royal courts. This principle was slightly relaxed in 1285 to permit, the issue of new writs, if they were similar to established forms. But the common law system, based on the availability of standard writs, was still very rigid and hence an inadequate means of providing justice.

3.4The procedure of common law courts was also unsatisfactory. A plaintiff might lose his case owing to a minor technicality of wording or be frustrated by specious defenses, deliberate delay or corruption, or find himself unable to enforce a judgment given in his favour because there was no suitable common law remedy.


3.5Citizens who could not obtain redress for grievances in the King's common law courts petitioned the King to obtain relief by direct royal intervention. These petitions came before the King in Council and by custom were referred to the principal civil minister – the Chancellor, who was usually a cleric. In dealing with each petition his concern was to establish the truth of the matter and then to impose a just solution without undue regar2i for technicalities or procedural points. The Chancellor enforced his authority by summoning the parties to attend for interrogation; the penalty for failure to comply could be imprisonment or confiscation of property. Thus royal power was made available to make the law more effective.

3.6.Because the principles on which the Chancellor decided points were based on fair dealing between two individuals as equals, it became known as equity.

3.7.the system of equity, developed and administered by the Court of Chancery, was not a complete alternative to the common law. It was a method of adding to and improving on the common law; it provided a gloss on the law. This interaction of equity and common law produced three major changes.

(a)New rights: equity recognised and protected rights for which the common law gave no safeguards. If, for example, A transferred property to the legal ownership of B to pay the income of the property to C (in modern law B is a trustee for C) the common law simply recognised that B was the owner of the property at common law and gave no recognition to B's obligations to C. Equity recognised that B was the owner of the property at common la w but insisted, as a matter of justice and good conscience, that B must comply with the terms of' the trust imposed by A (the settlor) and pay the income to C (the beneficiary).

(b)better procedure: as explained above, equity could be more effective than common law in bringing a disputed matter to a decision.

(c)Better remedies the standard common law remedy for the successful plaintiff was the award of monetary compensation, damages, for his loss. Equity was able to order the defendant to do what he has agreed to do (specific performance) to abstain from wrongdoing (injunction), to alter a document so that it reflects the parties' true intentions (rectification) or to restore the pre-contract status quo (rescission).

3.8.the  development of equity was based on a number of 'equitable maxims', or principles. These are still applied today if an equitable remedy is sought. The following are examples.

(a)he who comes to equity must come with clean hands. To be fairly treated, the plaintiff must have acted fairly himself.

(b)Equality is equity.The law attempts to play fair and redress the balance; hence what is available to one person must be available to another.

(c)He who seeks equity must do equity.Similar to (a) above, this means that a person wanting equitable relief must be prepared to act fairly in future himself.

(d)Equity looks at the intent, not the form.However a person may try to pretend that he is doing something in the correct form, equity will look at what he is actually trying to achieve.


Common law and equity. later developments

3.9In theory, equity accepted common law rights but insisted that they should be exercised in a just fashion. The practical effect was nonetheless that a decision of the Court of Chancery often reversed or conflicted with common law rules. At one stage, the Court of Chancery went so far as to issue orders by which litigants were forbidden to bring an action at common law to enforce strict common law rights. The rivalry between Chancery and common law courts was resolved in 1615 by a decision of the King (in the Earl of Oxford's Case) that where common law and equity conflict, equity must prevail.

3.10 Equity was not in its origins a consistent code of law: it was simply disconnected intervention in legal disputes. Each Chancellor (and the Chancery judges acting under his authority) applied a personal and sometimes arbitrary standard of what he considered fair. Equity, it was said, varied with the length of the individual Chancellor's foot. From the sixteenth century onwards, however, the Chancellor and his deputies were usually recruited from the legal profession trained in common law. (Sir Thomas More, appointed Chancellor by Henry VIII, was the first of these). Under common taw influence, equity become a consistent body of doctrine and at least as technical as the common law.

3.11 Thus the common law, administered in royal courts, was supplemented and sometimes overruled by principles of equity administered in the Court of Chancery. A plaintiff who began proceedings in one set of courts might after years of expensive litigation find that for some technical reason, he could not obtain the desired result but must abandon his case and begin again in the other courts. This dual court system was ended by the Judicature Acts 1873 – 1875 which amalgamated the English courts. It is now possible to rely on any principle of common law or equity in any court of law in which the principle is relevant. In case of conflict equity still prevails over common law.

3.12 Although the courts have been amalgamated, common law and equity remain distinct. Where common law applies it tends to be automatic in its effect. Equity recognizes the common law, as it always did; it sometimes offers an alternative solution but the court has discretion as to whether or not it will grant an equitable remedy in lieu of a common law one.

3.13 If, for example, breach of contract is proved, the plaintiff will a: least get common law damages as compensation for his loss automatically; in certain circumstances the court may, at its discretion, provide an alternative remedy of equity. It may, for instance, order the defendant to perform the contract rather than allow him to buy his way out of his contractual obligations by paying damages. The discretionary nature of equitable remedies means that a person who wins an action will not necessarily get the remedy he wants.

Case: Miller v Jackson 1977

The Court of Appeal held that a cricket club had committed both negligence and nuisance by allowing cricket balls to be struck out of the ground into M's adjoining premises. However, the court refused to grant the injunction that M had sought. They awarded damages instead on the grounds that the interest of the public in being able to play and watch cricket on a ground where it had been played for over 70 years should prevail over the hardship of a few individual householders who had only recently purchased their homes.


4.1The development of common law and equity have led to one of the main legal sources of law – judicial precedent – and informs much of the other main source – the passing of statutes. Judicial precedent.

4.2Both common law and equity are the product of decisions in the courts. They are judge-made law but based on a principle of consistency. Once a matter of principle has been decided (by one of the higher courts) it becomes a precedent. In any later case to which that principle is relevant the same principle should (subject to' certain exceptions) be applied. This doctrine of consistency, following precedent, is expressed in the 'maxim stare decisis 'to stand by a decision'.

4.3 Judicial precedent is based on three elements.

(a)There must be adequate and reliable reports of earlier decisions.

(b)there must be rules for extracting from each earlier decision on a particular set of facts the legal principle to be applied in reaching a decision on a different set of facts.

(c)Precedents must be classified into those which are binding and those which are merely persuasive.

4.4Point (a) – reporting of cases – is discussed immediately below. The points concerning legal reasoning and how binding precedents should be interpreted are clarified later in this chapter.

4.5Until the mid-nineteenth century law reports – reports of decided cases – were notes made by practising lawyers. Later on, reports were published without official authorisation by professional law reporters. In modern times there are major series of law reports on general law published weekly and then bound as annual volumes. In addition there are other special' series of reports, e.g. of tax cases, commercial cases, industrial relations cases etc. At E hearing in court, the barrister who cites a case as a precedent upon which he relies will read aloud from the reports the passage from the reported judgement.

4.6 Every case has a title, usually (in a civil case) in the form Brown v Smith ie. Brown (plaintiff) versus (against) Smith (defendant). But if Smith loses and goes to appeal the order may then be reversed as Smith (appellant) v Brown (respondent). Some cases are cited (for technical reasons of procedure) by reference to the subject matter e.g. Re Enterprises Limited (company case) Re Black's Settlement (a trust case) (`re' means `about'); or in shipping cases the name of the ship, e.g. The Wagon Mound. In a full citation the title of the case is followed by abbreviated particulars of the volume of the law reports in which the case is reported, e.g. Best v Samuel Fox & Co Ltd (1952) 2 All ER 394 (The report is at p 394 of Vol. 2 of the All England Reports for 1952). The same case may be reported in more than one series of law reports and sometimes under different names.

4.7 As regards content. –

  • (a)each report begins with a summary (head note) of the points o£ law established by the case and a list of the earlier cases cited as precedents at the hearing;
  • (b)the verbatim text of the judgement (or judgments if more than one) follows as given in court but with any minor corrections which the judge decides to make at the proof stage.

It is only decisions of the higher courts – the High Court, Court of Appeal and Judicial Committee of the House of Lords – which are included in the general law reports. Only the important cases (in the effect on the law) are included in the law reports (though certain libraries hold a copy of the judgements in unreported cases also).

4.8 Students are often perplexed as to how much they are expected to memories of cases referred to in textbooks, teaching manuals etc. The important aspect of a leading case is what it was about, – its essential facts and the point of law which it illustrates or establishes. It is always useful to preface the mention of a case (in a written answer) by citing the name of the case. But if you cannot remember the name you can say `In a decided case…'.

Statute law

4.9Statute law is made by Parliament (or in exercise of law-making powers delegated by Parliament). Until the United Kingdom entered the European Community in 1973 the UK Parliament was completely sovereign – its law-making powers were unfettered. In that respect there was a marked contrast with the position in some other countries, eg. USA, where there is a written constitution and it is possible to challenge in the courts (as unconstitutional) legislation made by the statutory law-making body.

4.10 Parliamentary sovereignty means that:

  • (a)Parliament is able to make the law as it sees fit. It may repeal earlier statutes, overrule case-law developed in the courts or make new law on subjects which have not been regulated by law before.
  • (b) No Parliament can legislate so as to prevent a future Parliament changing the law Case: Vauxhall Estates v Liverpool Corporation 1932


If compensation for compulsory purchase were assessed under an Act of 1919 the plaint would receive £ 2,370, whereas if it were assessed under an Act of 1925 they would c receive £ 1,133. The Act of 1919 provided that any Act inconsistent with it would have effect.

Held: this provision did not apply to subsequent Acts because Parliament cannot binc successors. In addition the 1925 Act by implication repealed the 1919 Act so far as it inconsistent with it. The plaintiffs therefore received £ 1,133.


  • (c)The courts are bound to apply the relevant statute law however distasteful to them it r be. But the judges have to interpret statute law (as we shall see in Chapter 3) and t may find a meaning in a statutory rule which those members of parliament who promoted statute did not intend.

4.11 In practice, Parliament usually follows certain conventions which limit its freedom. It does usually enact statutes which alter the law with retrospective effect or deprive citizen5 their property without compensation. In addition to making new law and altering existing 1 Parliament may make the law clearer by passing a codifying statute (such as the Sale of Go Act 1979) to put case-law on a statutory basis, or a consolidating statute to incorporate original statute and its successive amendments into a single statute (such as the Companies 1985).


Parliamentary procedure

4.12 A proposal for legislation is originally aired in public in a Government Green Paper. Al comments are received a White Paper is produced, which sets out the intended aim of legislation. It is then put forward in draft form as a Bill, and may be introduced into either House of Commons or the House of Lords. When the Bill has passed through one House it n then go through the same stages in the other House (see paragraph 4.15). When it has pas through both Houses it is submitted for the Royal Assent which in practice is given on Queen's behalf by a committee of the Lord Chancellor and two other peers. It then becomes an , of Parliament (or statute) but it does not (if the Act itself so provides) come into operate until a commencement date is notified by statutory instrument (see 4.19 below).

4.13 Most Bills are Public Bills of general application, whether introduced by the government or t private member. A Private Bill has a restricted application: for example, a local authority n promote a Private Bill to give it special powers within its own area. Private Bills undergo different form of examination at the committee stage.

4.14 If the House of Commons and the House of Lords disagree over the same Bill, the House of Lords may delay the passing of the Bill for a maximum of one year (only one month if it is a financial measure, such as the annual Finance Act).

4.15 In each House the successive stages of dealing with the Bill are as follows.

  • (a)First reading – publication and introduction into the agenda: no debate.
  • (b) Second reading – debate on the general merits of the Bill: no amendments at this stage.
  • (c)Committee stage – the Bill is examined by a Standing Committee of about 20 members, representing the main parties and including some members at least who specialise in the relevant subject. The Bill is examined section by section and may be amended. If the Bill is very important all or part of the Committee Stage may be taken by the House as a whole sitting as a committee.
  • (d)Report stage – the Bill as amended in committee is reported to the full House for approval. If the government has undertaken in committee to reconsider various points it often puts forward its final amendments at this stage.
  • (e)Third reading – this is the final approval stage at which only verbal amendments may be made.
  • Delegated legislation

4.16 To save time in Parliament it is usual to set out the main principles in the body of the Act as numbered sections and to relegate the details to schedules (at the end of the Act) which need not be debated though they are visible and take effect as part of the Act. But even with this device there is a great deal which cannot conveniently be included in the Act. It may for example be necessary, after the Act has been passed, for the government to consult interested parties and then produce regulations, having the force Of the law, to implement the Act or to C ix commencement dates to bring the Act into operation or to prescribe printed forms for use in connection with it. To provide for these and other matters a modern Act usually contains a section by which power is given to a minister, or public body such as a local authority, to make .  subordinate or delegated legislation for specified purposes only.

4.17 This procedure is unavoidable and essential for various reasons.

(a)Parliament has not time to examine these matters of detail.

(b) Much of the content of delegated legislation is technical and is better worked out in consultation with professional, commercial or industrial groups outside Parliament.

(c)If new or altered regulations are required later, they can be issued without referring back to Parliament, and in much shorter time than is needed to pass an amending Act.

4.18 The disadvantages of delegated legislation are that Parliament loses control of the law-making process and a huge mass of detailed law appears piecemeal each year. It is difficult for persons who may be affected by it to keep abreast of the changes. Yet ignorance of the law is not accepted as an excuse for infringing it.

4.19 Delegated legislation appears in various forms. Ministerial powers are exercised by statutory instrument(including emergency powers of the Crown exercised by Orders in Council). Local authorities are given statutory powers to make bye-laws subject to ministerial approval.

4.20 Parliament does exercise some control over delegated legislation by restricting and defining the power to make rules and by keeping the making of new delegated legislation under review as follows:

  • some statutory instruments do not take effect until approved by affirmative resolution of parliament;
  • most other statutory instruments must be laid before parliament for 40 days before they take effect. During that period members may propose a negative resolution to veto a statutory instrument to which they object.

4.21 There are standing Scrutiny Committees of both Houses whose duty it is to examine statutory instruments with a view to raising objections if necessary, usually on the grounds that the instrument is obscure, expensive or retrospective.

4.22 As explained above, the power to make delegated legislation is defined by the Act which confers the power. A statutory instrument may be challenged in the courts on the grounds that it is ultra vires – exceeds the prescribed limits or has been made without due compliance with the correct procedure. If the objection is valid the court declares the statutory instrument to be void.

4.23 Both statutes and delegated legislation under it are expressed in general terms. It is not possible to provide in the Act for each eventuality of human endeavor which falls within its remit. It therefore often falls to judges to interpret Acts. The legal reasoning used to do this is covered later in this chapter.

EC law

4.24. On becoming a member of the European Community in 1973, the United Kingdom adhered to the Treaty of Rome (and the related treaties on coal, steel and atomic energy) and agreed to conform to EC law which is concerned with free trade in manufactured goods, agricultural support price policies, transport, company law and many other economic matters..

4.25. New EC law is created in the following ways:

(a)Regulations e.g. to implement Article 85 of the Treaty of Rome, may be issued. These are .self-executing' – they have the force of law in every EC state without need of national legislation. In this sense regulations are described as `directly applicable'. If they confer rights and impose obligations on individuals, regulations are also said to have 'direct effect'.

(b) Decisions of an administrative nature are made by the EC Commission in Brussels mainly to implement the common agricultural policy. Such decisions are immediately binding on the persons to whom they are addressed.

(c)Directives are issued to the governments of the EC member states requiring them within a specified period (usually two years) to alter the national laws of the state so tha, they conform to the directive. Thus the Financial Services Act 1986 gave force to Directives 79,81 and 82 on company securities and the Companies Act 1989 gave force to the Eighth Directive.

4.26 Until a directive is given effect by a UK statute it does not usually affect legal rights and obligations of individuals. In exceptional situations the wording of a directive may be cited in legal proceedings, but generally statutory interpretation is a matter for the UK courts (see Chapter 3).

Case: Van Duyn v Home Office 1974

Article 48 of the Treaty of Rome requires that nationals of EC member states should be free to take up employment anywhere in the EC area, subject to any restrictions imposed on grounds of public policy. An EC directive required that any such restriction of `public policy' should be limited to matters arising from personal conduct of the individual. The plaintiff challenged the decision of the Home Office to deny her entry to the UK entirely on the grounds of her membership of an organization (Scientology).

Held: a directive, like a regulation, could be `directly applicable' (if its wording was appropriate). But the plaintiff's membership of an organization was `personal conduct' and so the decision to exclude her was consistent with the directive.

4.27 Directives are the most significant and important means of importing continental law into the UK legal system since the EC has a wide-ranging Programme of assimilating the laws of member states to a common EC model. Recommendations and opinions may also be issued but these are merely persuasive and not binding.

4.28 Apart from the European Court, the principal institutions of, the EC are the Council of Ministers, the Commission (the top layer of the Brussels bureaucracy) and the European Parliament. Proposals for EC legislation are initiated by the Commission, usually in the form of draft directives. These drafts are referred to member states for comments. In the United Kingdom it is the normal practice for a committee of Parliament to examine each draft and for the appropriate ministry to consult trade associations etc which would be affected by the proposals if implemented. These preliminary consultations between the commission and the member states may continue over a period of years and result in extensive alteration of the draft directive to meet national objections. The directives are also debated in the preparatory stage by the European Parliament to which every member state elects a number of representatives. The final stage is the consideration of a directive to the Council of Ministers. If the Council unanimously approves, it authorises the issue of the directive and the member states must then alter their law accordingly.

4.29 It is true that membership of the EC restricts the sovereignty of the UK Parliament (among other GC national legislatures). But the directives to which Parliament must ultimately conform are issued as a result of negotiation and often agreement between the UK government and the other government of the EC. The UK government in turn is dependent on the support of a majority of N. embers of Parliament to retain office. To that extent, Parliament has indirect influence on the EC law-making process. It is certainly true to say, however, that since 1973 the EC has had considerable impact on the law, and this is set to increase.

Custom .

4.30 In early mediaeval times the courts created law by enforcing selected customs. Custom is now of little importance as a source of law, but it is still classified as a legal source of law.

4.31 In determining what are the implied terms of a contract, the court may take account of local or trade customs which the parties intended should be part of their contract.

Case: Hutton v Warren 1836

The parties were landlord and tenant of a farm. The landlord gave notice to the tenant to quit. Disputes arose as to the tenant's obligation to continue to cultivate the farm until the notice expired and as to his entitlement to allowances for work done and seed supplied.

Held: these matters were to be resolved according to local custom which had been incorporated in the contract.

4.32 In disputes over claims to customary rights, such as to use the land of another or to remove things from it, the alleged custom may be established subject to the following conditions.

(a) It must have existed since’ time immemorial', in theory since 1189 AD. It usually suffices to show that the custom has existed without interruption from as far back as records (if any) exist.

(b) It must have been enjoyed openly as of right. If it has only been enjoyed secretly, by force, or with permission of the landowner, it is not a custom which amounts to a right.

(c)The custom must be reasonable, certain in its terms, consistent with other custom or law and exercised within a definite locality.


5.1The main sources of law as set out above are judicial precedent (derived from common law and equity) and parliamentary and EC legislation. However, a number of subsidiary sources have had some influence on the law's development, and are still recognizable today.

Law merchant

5..2 In mediaeval times, traders (who were often foreigners) submitted their disputes to courts at main ports, fairs and markets which applied mercantile custom. The law of negotiable instruments was brought to England as a commercial practice recognised by bankers and traders in Northern Italy, Germany and elsewhere in late mediaeval times. The work of these courts was absorbed (with the Law Merchant) into common taw in the seventeenth century. But a separate Court of Admiralty existed – to deal with shipping matters – down to modern times and still exists as a special court within the Queen's Bench Division of the High Court.

Roman law

5.3Although it is the basis of most continental systems of law, Roman law is of little importance  __ as a source of English law. Its influence was mainly felt in the ecclesiastical courts and in the rules relating to the requirements of a valid will. A soldier's privileged will (a verbal will) is an example of a current law which has Roman origins. Ecclesiastical law

5.4Like the courts of the Law Merchant, the ecclesiastical courts were independent of the common law courts. They mainly dealt with offences against morality, such as adultery and slander. They also had jurisdiction over the law of succession. They kept this jurisdiction until 1857 when the Divorce Court and the Probate Court were established.

Codes of practice

5.5In recent years some statutes have provided for codes of practice to be drawn up to supplement the law. These codes are usually prepared by an appropriate body as a guide to recommended practice, for example codes on picketing at a factory gate in the course of an industrial dispute or dealings between traders and their consumer customers. Such codes are not law and it is not unlawful to disregard them. But in any legal proceedings the court may take account of compliance with or disregard of a code of practice in deciding whether, for instance, a person has behaved 'reasonably' (if that is a legal obligation imposed on him in general terms – as it is, for instance, in the unfair dismissal rules of employment law).


6.1The principal legal sources of law, judicial precedent and statute, both comprise a vast amount of detailed judgements and rules. In order to apply these to the particular facts of a case, certain principles of legal reasoning have been evolved in order to ensure that the law's objectives of consistency and fairness are maintained.

6.2Judges must inevitably create law. Sometimes an Act of Parliament will deliberately vest a wide discretion in the judiciary. In other cases there may be no statutory provision and no existing precedent relevant to the particular dispute. Even so,(the doctrine of judicial precedent is based on the view that it is not the function of a judge to make law, but to decide cases in accordance with existing rules The Latin for this idea is stare decisis – to stand by a decision.

6.3The doctrine of judicial precedent is designed to provide consistency in the law. In order that this should be done in a coherent manner, three things must be considered when examining a precedent before it can be applied to a case:

  • the ratio decidendi. which may be binding, must be identified;
  • the material facts must be the same; and
  • (c)the preceding court must have had a superior (or in some cases, equal) status to the later court.

ratio decidendi and obiter dicta

6.4A judgement will start with a description of the facts of the case and probably a review o: earlier precedents and possible alternative theories. The judge will then make statements of law applicable to the legal problems raised by the material facts. Provided these statements are the basis for the decision, they are known as the ratio decidendi of the case The ratio decidendi (which literally means `reason for deciding') is the vital element which binds future judges.)f s judge's statements of legal principle do not form the basis of the decision (e.g. a dissenting (minority) judgement) or if his statements are not based on the existing material facts, but on hypothetical facts, they are known as obiter dicta statements – something said `by the way'. A later court may respect such statements, but it is not bound to follow them. They are only of persuasive authority.

Case: Rondel v Worsley 1969 .

The House of Lords stated an opinion that a barrister could be held liable for negligence when not acting as an advocate, and that a solicitor would be immune from action when acting as an advocate. Since the case actually concerned the liability’ of a barrister when acting as an advocate these opinions were obiter dicta.

6.5 It is not always easy to identify. the ratio decidendi. The same judgement may appear to contain contradictory views of the law in different passages. In decisions of appeal courts, where there are three or even rive separate judgements, the members of the court may reach the same conclusion but give different reasons. Most of all, the ratio will often be intermingled with obiter statements. To assist the process of legal reasoning, many judges indicate in their speeches which comments are ratio and which obiter.

Distinguishing the facts

6.6 Although there may arguably be a finite number of legal principles to consider when deciding a case; there are necessarily an infinite variety of facts which may be presented. Apart from identifying the ratio decidendi of an earlier case, it is also necessary to consider how far the facts of the previous and the latest case are similar. Facts are never identical. If the differences appear significant the court may 'distinguish' the earlier case on the facts and thereby avoid following it as a precedent.

Status of the court

6.7 Not every decision made in every court is binding as a judicial precedent. The court's status has a significant effect on whether its decisions are binding, persuasive or disregarded.

(a)The Judicial Committee of the House of Lords stands at the apex of the judicial system. Its decisions are binding on all other English courts. The House of Lords generally regards itself as bound by is own earlier decisions but since a Practice Statement in 1966 it reserves the right to depart from its own precedents in exceptional cases.

(b) The Court of Appeal's decisions are binding on all English courts (except the House of Lords). It is bound by its own previous majority and unanimous decisions, by those of its predecessors and by those of the House of Lords: Young v Bristol Aero plane Co 1944.

(c)A single High Court judge is bound by decisions of higher courts but not by a decision o another High Court judge sitting alone (though he would treat it as strong persuasiv authority). When two or more High Court judges sit together as a Divisional Court, thei decisions are binding on any other Divisional Court (and on a single High Court judge sitting alone).

(d)Lower courts (crown courts, county courts, magistrates courts) do not make precedents (their decisions are not usually reported) and they are bound by decisions of the higher courts.

6.8Apart from binding precedents as described above, reported decisions of any court (even if lower in status) may be treated as persuasive precedents – they may be, but need not be followed in a later case. Reported decisions of the Judicial Committee of the Privy Council (which is technically a court of appeal from certain Commonwealth countries), of higher courts of Commonwealth countries which have a common law legal tradition and of courts of the United States of America may be cited as persuasive precedents. With persuasive precedents much depends on the personal reputation of the judge whose earlier decision is cited.

6.9A court of higher status is not only free to disregard the decision of a court of lower status. It may also deprive it of authority and expressly overrule it. Remember that this does not reverse the previous decision; overruling a decision does not affect its outcome as regards the defendant and plaintiff in that earlier decision.

6.10 If, in a case before the House of Lords, there is a dispute about a point of European Community law it must be referred to the European Court for a ruling. English courts are also required to take account of principles laid down by the European Court in so far as these are relevant. The European court does not, however, create or follow precedents as such, and the provisions of EEC directives should not be used to interpret UK legislation.

6.11 A case in the High Court may be taken on appeal to the Court of Appeal. If the latter reverses the former decision, that first decision cannot be a precedent, and the reversed decision becomes a precedent. However, if the original decision had been reached by following precedent, then reversing that decision overrules the precedent which formed the ratio. Overruling a precedent does not affect the parties in that original precedent's case, but the parties in the reversed decision are affected by the new decision.


7.1Even if a precedent appears to be binding, there are a number of grounds on which a court may decline to fellow it:

(a)by distinguishing the facts (see paragraph 6.6);

(b)by declaring the ratio decidendi obscure,particularly when an Appeal Court decision by three or five judges gives as many ratio decidendi;


(c)by declaring the previous decision made per incuriam-without taking account of some essential point of law, such as an important precedent;

(d)by declaring -it to be in conflict with s fundamental principle of law;

(e)by declaring an earlier precedent to be too wide -for example, the duty of care to the parties found in Donoghue v Slevenson 1932, has since been considerably refined; or

(f)because the earlier decision has been subsequently overruled by another court or by statute (see paragraph 6.11).

The advantages and disadvantages of precedent

7.2 Many of the strengths of judicial precedent as the cornerstone of English Law 'also indicate some of its weaknesses. Generally the arguments revolve around the principles of consistency, clarity, flexibility and detail.

7.3Consistency -the whole point of following binding precedent is that the law is decided fairly and predictably. In theory therefore it should be possible to avoid litigation because the result is a foregone conclusion. However, judges are often forced to make illogical distinctions to avoid an unfair result, which combined with the wealth of reported cases serves to complicate the law.

7.4 Clarity -following only the reasoning in ratio statements should lead to statements of principle for general application. In practice, however, the same judgement may be found to contain propositions which appear inconsistent with each other or with the precedent which the court purports to follow.

7.5 Flexibility -the real strength of the system lies in its ability to change with changing circumstances in society since it arises directly out of the actions of society. The counter­argument is that the doctrine limits judges' discretion and they may be unable to avoid deciding in line with a precedent which produces an unfair result. Often this may only be resolved by passing 2 statute to correct the law's failings.

7.6 Detail -precedent state how the law applies to facts, and it should be flexible enough to allow for details'to be different, so that the law is all-encompassing. As had been noted above, however, judges often distinguish on fac(rto avoid a precedent. The wealth of detail is also a drawback in that produces a vast body of reports which must be taken into account; again, though, statute canhelp by codifying rules developed in case-law – this, for instance, was the source of the Sale of Goods ActI979.

7.7 The most famous (adverse) description of case-law is that made by Jeremy Bentham, when he called it 'dog's law'. Precedent follows the event, just as beating a dog follows the dog disobeying his master – before the dog transgressed, the offence did not exist. It can be answered, however, that it is in the nature of society that a thing. can only be prevented when it is seen to be harmful, and that this is only usually seen when harm has already been done.



8.1 Statutes, including delegated legislation, are expressed in general terms. For example, a Finance Act may impose a new tax on transactions described as a category, it does not expressly impose a tax of specified amount on the particular transaction of a particular person. If a dispute arises as to whether or how a statute applies to particular acts or events, the courts must interpret the statute, determine what it means and decide whether or not it applies to a given case.

8.2n the interpretation of a statute the court is concerned with what the statute itself provides. It is never required to take account of what may have been said in parliamentary discussion, even by a government spokesman explaining the intended effect of the Bill. No opinion of an individual member is to be accepted as the collective intention of Parliament. For the same reason the report of a committee or commission recommending legislation is not to !+e used as 2 guide to the interpretation of a statute.

8.3Unless the statute contains express words to the contrary it is presumed that the following `canons of statutory interpretation' apply.

(a)A statute does not alter the existing law nor repeal other statutes.

(b) If a statute deprives a person of his property, say by nationalization, he is to be compensated for its value.

(c)A statute does not have retrospective effect to a date earlier than its becoming law.

(d) A statute does not bind the Crown.

(e)Any point on which the statute leaves a gap or omission is outside the scope of the i statute.

In practice a statute usually deals expressly with these matters (other than (e)) to remove any possible doubt.

8.4Since judges are called upon to interpret statutes, a system has been developed to guide them. This consists of statutory assistance and a set of general principles.

8.5 Statutory assistance consists of.

(a)the Interpretation Act 1978, which defines certain terms frequently found in legislation; (b)   interpretation sections to Acts – particularly long, complicated and wide-ranging ActU often contain self-explanations; for instance, s207 of the Financial Services Act 1986 defines `authorized persons' and `recognised investment exchanges' for its purposes;

(c)preambles or long titles to Acts often direct the judge as to its intentions and objects; private Acts must have a preamble, public ones recently have just contained long titles. But preambles may only be used to resolve an ambiguity – they may not be used when the enacted words are already clear. Attorney-General y Ernest dugustus (Prince) of Hanover 1957;

(d) side notes -statutes often have summary notes in the margin -these maybe used to give a general interpretation of the clauses to which they are attached.

8.6.In interpreting the words of a statute the courts have the following well-established general principles.

  • (a)The literal rule:words should be given their ordinary grammatical sense. Normally a word should be construed in the same literal sense wherever it appears throughout the statute. The courts will use standard dictionaries to aid them in their interpretation.
  • (b) The golden rule:a statute should be construed to avoid a manifest absurdity or contradiction within itself.


Case: Re Sigsworth 1935

The golden rule was applied to prevent a murderer from inheriting on the intestacy of his victim although he was, as her son, her only heir on a literal interpretation of the Administration of Estates Act 1925.

  • (c)The contextual rule:a word should be construed in its context – it is permissible to look at the statute as a whole to discover the meaning of a word, in it.
  • (d)The mischief rule:if the words used are ambiguous and the statute discloses (say, in its preamble as explained above) the purpose of the statute, the court will adopt the meaning which is likely to give effect to the purpose or reform which the statute is intended to achieve (this is to take account of the mischief or weakness which the statute is explicitly intended to remedy).


Case: Gardiner v Seven oaks RDC 1950

The purpose of an Act was to provide for the safe storage of inflammable cinematograph film wherever it might be stored on premises'. A notice was served on G who stored film in a cave, requiring him to comply with the safety rules. G argued that 'premises' did not include a cave and so the Act had no application to his case.

Held: the purpose of the Act was to protect the safety of persons working in all places where film was stored. Insofar as film was stored in a cave, the word `premises' included the cave.

  • (e)The eiusdem generis rule:statutes often list a number of specific things and end the list with more general words. In that case the general words are to be limited in their meaning ;o other things of the same kind (Latin: eiusdem generis) as the specific items which precede them.


Case: Evans r Cross 1938

E was charged with driving his car in such a way as to 'ignore a traffic sign'. He had undoubtedly crossed to the wrong side of a white line painted down the middle of the road. `Traffic sign' was defined in the Act as 'all signals, warning signposts, direction posts, signs or other devices'. Unless, therefore, a white line was an `other device, E had not ignored a 'traffic sign' and had not committed the offence charged.

Held: 'other device' must be limited in its meaning to a category of signs in the list which preceded it. Thus restricted it did not include a painted line which was quite  different from that category.

  • (f)Expressio unius est exclusio alterius:to express one thing is by implication to exclude anything else. For example, a statutory rule on 'sheep' does not include goats.
  • (g)In pari materia:if the statute forms part of a series which deals with similar subject matter, the court may look to the interpretation of previous statutes on the assumption that, Parliament intended the same thing.

8.7The courts have been paying more attention to what Parliament intended in recent times. This is partly an extension of the mischief rule. In October 1988, for example, the Attorney-General issued a statement interpreting the word 'obtain' in the Company Securities (Insider Dealing) ~ Act 1985. This was in order that the courts should apply the law for the purpose for which it was enacted by Parliament. A more purposive approach is also being taken because so many international and EEC regulations come to be interpreted by the courts.

8.8It is open to the UK courts to decide that a British statute should be interpreted according to British court rules – the interpretation of EC directives need not be taken into account Duke vGEC Reliance Systems Ltd 1988.