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 gov’t 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 harmful events.
a) Identification: For e.g. If you are accuse your ex-employee of theft, she can
sue you for defamation (that’s 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
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
Risk Reduction: Some risk can be reduced to an acceptable level via
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
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 demage.
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: provides a benefit if the purchaser is held liable for
doing something wrong.
ii. Property insurance: provides a benefit if the purchase’s property is
damaged, lost, or destroyed.
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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.
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. doesn’t 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 S YSTEM
For example, if you are fishing and you see someone 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: is a system that traces their history to ancient Rome, which was embodied in
the Justinian code, especially that which applied to the rights of private citizens.
Since the Roman Empire covered almost all of Europe, the legal system of the vast
majority in that continent are sill civilian. The only civil law jurisdiction in Canada is
Quebec, which initially borrowed its law from France.
o Jurisdiction: is a geographical area that uses the same set of laws.
o Common Law: is a system that traces their history to England. These laws are based
on court decisions and precedent, which has grown out of legal customs and practices.
Consequently, most jurisdictions that were settled in English colonists continue to
use the common law. This is true for rest of Canada, Australia, New Zealand, and
most of the U.S.
o Public Law: is concerned with gov’t and the ways in which they deal with their citizens.
Fig 1.1 shows that the major division is b/t public law & private law.
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o Constitutional Law: provides the basic rules or our political and legal systems.
It determines who is entitled to create & enforce laws, and it establishes the
fundamental rights and freedoms that Canadians enjoy.
o Administrative Law: is concerned with the creation & operation of
administrative agencies and tribunals. E.g. a human rights tribunal may decide
that a corp. discriminated against women by paying them less than men for work
so similar values, and thus must compensate millions of dollars.
o Criminal Law: deals with offences against the state. In other words, it is
concerned with ppl who break rules that are designed to protect society as a
White-collar Crimes: are crimes committed by people in suits. A manager
who steals money from the petty cash drawer is a white-collar criminal.
Corporate Crime: A crime committed by the company itself. E.g. when a
car dealership adopts a policy of rolling back the odometer on its vehicles.
o Tax Law: is concerned with the rules that are used to collect money for the
purpose of public spending.
o Private Law: is concerned with the rules that apply in private matters. Both parties in a
private dispute are usually private persons, either an individual or org. like corporations.
Private law is usually divided into 3 main parts:
o Law of Torts: is a private wrong, and offences against a particular person. Tort
laws covers a great deal of territory and may be split into 3 categories:
i. Intentional torts: such as assault & false imprisonment
ii. Business torts: such as deceit and conspiracy
iii. Negligence: which covers most situations in which one person carelessly
o Law of Contracts: is concerned with the creation and enforcement of
agreements. For business ppl, this is a tremendously important area of law. Bus.
is based on transactions, and the law of contracts governs virtually every one of
i. Sales of Goods:
ii. Use of negotiable instruments: such as cheques
iii. Real Estate Transactions: such as purchase of land
iv. Operation of Corporations:
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v. Employment: relationship that exists between bus. & its workers
o Law of Property: is concerned with the acquisition, use, and disposition of
i. Real Property: involves things that are attached to land.
ii. Personal Property: involves things that can be moved from one place to
iii. Intellectual Property: involves things that consists of original ideas, such
as patents and ©.
B4 leaving this section, we must stress that different areas of law can overlap. There are
at least 2 possibilities:
i. A single event can set off more than one set of rules. For e.g. If you hired a lawyer
who provided poor work and bad advice, you can sue them for both the tort &
negligence (b/c they carelessly caused you to suffer a loss) and breach of
contract (b/c they did not fulfill your agreement).
ii. Some situations involve various types or law. For e.g. an employment relationship
is based on a contract b/t the employer & the employee. Nevertheless, the parties
should have some knowledge of administrative law (in case of comp.
discriminates against ethnic minorities), criminal law (in case a boss sexually
harasses an employee) etc.
Sources of Law
There are 3 sources of law
1) The Constitution is the document that creates