Chapter 1: Risk Management & Sources of Law
W HY S TUDY L AW ?
As consumers, we all need to be aware of the rules that govern commercial transaction. In terms
of employment, you may intend to work in the public sector, thus you need to understand not
only the nature of govt org., but also the different types of laws that may affect you.
Every business decision or choices has a legal consequence. Some consequences are profitable
while others maybe financially disastrous. The difference between winning & losing in the
business world often depends upon the ability to make the right choice from a legal perspective.
o Risk Management is the process of identifying, evaluating, and responding to the possibility of
a) Identification: For e.g. If you are accuse your ex-employee of theft, she can sue you
for defamation (thats the risk).
b) Evaluation: After identifying the risk, you may decide that a candid letter would
nevertheless be legally acceptable. Assess you case, & determine if you should share
this info with her new employer.
c) Response: After identifying and evaluating your risks, you need to formulate a
response. Do you write the letter?
The goal in risk management is not to eliminate the risk but to manage them. The appropriate
strategy depends upon the circumstances.
Risk Avoidance: Some risks are so serious that they should be avoided altogether.
E.g. A car that regularly explodes should be taken off the market. Aside from
issues of morality, the financial liability will probably outweigh the sales profits.
Risk Reduction: Some risk can be reduced to an acceptable level via precautions.
E.g. A bank can lead $500,000 to a manufacturing company, and to reduce their
risk of non-repayment they can have the company put a mortgage over its factory.
Risk shifting: Even if a risk cannot be avoided or reduced, it may be shifted onto
another party. Two important methods of shifting include insurance and exclusion.
Risk Acceptance: It is sometimes appropriate to simply accept a risk.
If a golf course operates behind a factory, it is possible that a wild shot might hit a
factory window & that the golf course could be held responsible for the resulting
Three important concepts:
a) 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.
i. Liability insurance:ovides a benefit if the purchaser is held liable for doing
ii. Property insurance: provides a benefit if the purchases property is damaged, lost,
b) Exclusion Clause: is a contractual term that changes the usual rules of liability.
For instance, a courier comp. may provide notice that it will not be held liable for
more than $100 if a package is lost, damage, or destroy.
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www.notesolution.comChapter 1: Risk Management & Sources of Law
c) Incorporation: Many businesses are set up as corporations or companies the
many benefits of incorporation is limited liability. That means that if something goes
wrong, it is usually only the company itself, and not the people who run it, that may
be held liable. The company itself might be lost, but the ppl behind it will be safe.
Risk mgt. doesnt require you to become a lawyer, but it requires you to hire one. Although,
lawyer fees may be expensive, they will help you recognize potential problems, and help you
avoid expensive compensations down the road.
INTRODUCTION TO THE L EGAL SYSTEM
For example, if you are fishing and you seesomeone drowning? Are you legally responsible for
saving his life? Or for his death if he dies?No, and No. You are not legally responsible for his
death, but you might be morally punished by the public opinions.
o Law: is a rule that can be enforced by the courts
A Map of the Law
To make sense of it all, we need to organized law into different parts; in Canada it is necessary to
distinguish b/t civil law & common law.
o Civil Law