CH 1 - Risk Management and Sources of Law
Why Study Law?
There are various reasons why to study law depending on who you are, and what you need it for. Factors can
affect success and failure in business- primarily decision-making abilities. Business decisions have legal
consequences, which affect profit and losses (liability imposed for poor decisions/opportunities exploited by
Acontract is a legal concept that allows people to create enforceable promises.
RISK MANAGEMENT: is the process of identifying, evaluating, and responding to the possibility of harmful
events. In risk management you go through these steps:
Identification- Liability is a concern when identifying, because you can be held legally responsible.
Evaluation- Evaluate the risks
Response- You need to formulate a response, with the options you have and then you are in a position to make
an informed decision.
Many goals of businesses are to not necessarily eliminate risk but to manage them. The appropriate strategy
depends upon the circumstances.
Risk Avoidance- some risks should just be avoided altogether
Risk Reduction- some risks can be reduced to an acceptable level through precautions
Risk Shifting- sometimes risks cannot be avoided or reduced but it can be shifted onto another party. Two
important strategies for shifting risks are: insurance and exclusion clauses.
Risk Acceptance- Sometimes it is appropriate to simply accept a risk.
Insurance- Insurance is a contract in which one party agrees, in exchange for a price, to pay a certain amount of
money if another party suffers a loss. There are many type of insurance but for now, we will talk about two.
Liability insurance provides a benefit if the purchaser if held liable for doing something wrong. Liability
insurance also creates a duty to defend; it means that the insurance company is responsible for the litigation,
including the costs of hiring lawyers, if its customer is sued by a third party. Property insurance provides a
benefit if the purchaser's property is damaged, lost, or destroyed. In either situation, insurance shifts the risk.
Insurance works by spreading the cost of that liability over the entire group.
Exclusion and limitation clauses- Contracts usually contain exclusion or limitation clauses. Such a clause is a
contractual term that changes the usually roles of liability. The clause may attempt to exclude all risk of liability,
or it may exclude liability for certain types of acts or certain types of losses, or it may limit the amount of
compensation that is available. While exclusion and limitation clauses are subject to certain rules and
restrictions, the law generally allows people to sign away their right to sue.
Incorporation- Many businesses are set up as corporations or companies to avoid some risks of being held
personally liable for any debts or liabilities incurred by the businesses. The most significant benefit of
incorporation is limited liability, meaning usually only the company itself, and not the directors/shareholders are
held liable for debts. The company may be lost but the people behind it are safe. However, limited liability
doesn’t cover/protect individuals from ALL risks; you can still be held liable for the torts that you commit.
An Introduction to the Legal System
The Nature of Law
All laws are rules but not all rules are laws. Laws are not necessarily rules; the above ethical perspective
shows that it is occasionally difficult to distinguish between moral obligations and legal obligations. A law is a
rule that can be enforced by the courses. Moral wrongs are informally sanctioned, legal wrongs are formally
sanctioned. Law is an evolving, “malleable”/flexible process, rather than a static/still list of “dos” and “don’ts”.
Laws evolve to reflect changes in society.
A Map of the Law
Civil law systems (later this also means private law) trace their history to ancient Rome; the only civil law
jurisdiction in Canada is Quebec. Jurisdiction is a geographical area that uses the same set of laws.
Common law systems (later it refers to rules that are made by judges) trace their history to England (used by
the rest of Canada besides Quebec, as well as Australia, New Zealand, and USA). The phrase common law
refers to the fact that the rules in question were used throughout ancient England, in contrast to the various
systems of localized rules that had developed over time. Because of the different law systems (civil/common)
used, we focus mainly on common law however criminal and constitutional laws are the same across Canada.
Canadian law breaks into these two:
Public and Private (This doesn’t cover every possibility but it’s the important one that will be covered)
Public Law is concerned with governments and the ways in which they deal with their citizens. It includes
constitutional law—provides the basic rules of our political and legal systems, it determines who is entitled to
create and enforce laws and it establishes the fundamental rights and freedoms that Canadians enjoy—,
administrative law—is concerned with the creation and operation of administrative agencies, boards,
commissions, and tribunals (ex: regulating broadcasting systems, resolving disputes under the competition act,
work place safety, labour disputes, regulating use of land etc.)—, criminal law—deals with offences against
the state (convictions are under the Criminal Code); it is concerned with people who break rules that are
designed to protect society as a whole— and tax law—is concerned with the rules that are used to collect
money for public spending.
Crime can happen anywhere, including the business world. White-collar crimes are committed by people in
suits or by a company itself which is called corporate crime.
Private Law is concerned with the rules that apply in private matters. Private law is usually divided into three
main parts: Law of Contracts—is concerned with the creation and enforcement of agreements (Sales of
goods, negotiable instruments, real estate transactions, corporations, employment), Law of Torts—a private
wrong, an offence against a particular person/persons (Intentional torts: such as assault, business torts: such
as dishonesty and conspiracy, negligence: which covers most situations in which one person carelessly hurts
another), and Law of Property—concerned with the acquisition, use, and disposition of property (real
property: involves land and things that are attached to land, personal property: involves things that can be
moved from one place to another, and intellectual property: involves things that consist of original ideas such
as patents and copyrights).
There are several areas of law that deal with all forms of property, the law of succession deals with the
distribution of a person’s property after death and the law of trusts deals with a situation in which one person
holds property on behalf of another.
*Do keep in mind that different areas of law can overlap* EX: Punching someone, you have committed both a
crime and a tort or when you hire a lawyer who provides poor and bad advice-> sue them for tort of negligence
and breach of contract. EX2: Employment (admin. Law (discrimination), criminal law (sexually harassment) and
tort law: (one worker injures another))
Sources of Law: Hierarchy: Constitution->Legislation-> Courts
Sources of laws are: the Constitution, legislation and the courts.
The First source of law: The Constitution is the document that creates the basic rules for Canadian society,
including its political and legal systems. The fact that it provides the foundation for everything else has two
significant consequences: 1) every other law in the country must be compatible with it; Section 52 of the
Constitution states, “The Constitution of Canada is the supreme law of Canada, and any law that is
inconsistent with the provisions of the Constitution is, to the extent of the inconsistency, of no force or effect.”,
2) the Constitution is very difficult to change, it can only be changed through a special amending formula which
requires the consent of Parliament plus the legislatures of at least two-thirds of provinces, where those
consenting provinces rep. at least 50% of the country’s population.
Division of Powers: Canada is a federal country because it has two levels of government, Federal—parliament
in Ottawa. Composed of the House of Commons consisting of Parliament (MPs) elected by every
province/territory and the Senate consisting of senators who are appointed to their jobs, and Provincial &
Territorial—elected politicians are set to rep. their own province/territory, these elected bodies/legislature are
usually called the Legislative Assembly (13 total). S