SQE1 FLK1 Practice Paper 5

A company is in financial difficulty. The directors continue to trade for a further six months, during which time the company incurs additional debts of £200,000. The company is subsequently placed into insolvent liquidation. The liquidator believes the directors knew, or ought to have concluded, that there was no reasonable prospect of avoiding insolvent liquidation. Under which provision can the liquidator seek a personal contribution from the directors? A) Section 213 Insolvency Act 1986 — fraudulent trading B) Section 214 Insolvency Act 1986 — wrongful trading C) Section 172 Companies Act 2006 — duty to promote the success of the company D) Section 993 Companies Act 2006 — fraudulent trading offence

A solicitor represents a claimant in a contract dispute valued at £45,000. The matter is allocated to the multi-track. Before trial, the defendant makes a Part 36 offer of £30,000. The claimant rejects the offer and proceeds to trial. The claimant wins and is awarded £50,000 at trial. Which enhanced costs and interest provisions apply in the claimant's favour under CPR 36.17(4)? A) No enhanced provisions apply because the claimant was always going to win B) The claimant is entitled to interest on damages at up to 10% above base rate, indemnity costs from the expiry of the relevant period, interest on costs at up to 10% above base rate, and an additional amount up to £75,000 C) The claimant only receives standard costs from the date of the offer D) The defendant must pay double the judgment amount as a penalty

A person suffers personal injury due to a defective product. They wish to bring a claim under the Consumer Protection Act 1987. Which of the following must they prove to establish liability under the Act? A) That the manufacturer was negligent in producing the product B) That the product had a defect, the defect caused the damage, and the defendant is a producer, own-brander, or importer of the product C) That the manufacturer breached an implied term of satisfactory quality D) That the product was purchased from an authorised retailer

A solicitor drafts a will for a testator. Due to the solicitor's negligence, a gift to a named beneficiary fails. The beneficiary discovers the error after the testator's death. Can the beneficiary sue the solicitor in negligence? A) No, because the solicitor's duty of care is owed only to the client (testator) and not to third-party beneficiaries B) Yes, because the solicitor owes a duty of care to an intended beneficiary who was reasonably foreseeable and whose loss results from the solicitor's negligence in preparing the will C) No, because the beneficiary has no contractual relationship with the solicitor D) Yes, but only if the beneficiary can prove that the solicitor intended to harm them

A company has entered into a transaction at an undervalue within 2 years before the onset of insolvency. The liquidator wishes to challenge the transaction under section 238 of the Insolvency Act 1986. Which of the following must the liquidator establish? A) That the company was insolvent at the time of the transaction or became insolvent as a result of it B) That the transaction was entered into in the last 6 months before insolvency C) That the directors acted in bad faith when entering into the transaction D) That the transaction was approved by the shareholders

A tenant holds a periodic tenancy of commercial premises. The landlord serves a section 25 notice under the Landlord and Tenant Act 1954 stating opposition to renewal on the ground that the landlord intends to occupy the premises for their own business (ground (g)). Which of the following must the landlord prove to succeed on this ground? A) That the landlord has owned the premises for at least 2 years and has a genuine firm and settled intention to occupy for their own business B) That the landlord has owned the premises for at least 5 years C) That the tenant has breached the terms of the lease D) That the premises are needed for residential use

A buyer enters into a contract with a seller for the purchase of specific goods. Before delivery, the goods are destroyed in a warehouse fire through no fault of either party. The parties had not agreed on when risk would pass. Under the Sale of Goods Act 1979, who bears the risk of loss? A) The buyer, because risk passes when the contract is made for specific goods B) The seller, because risk does not pass until delivery C) The buyer, because risk passes when property (ownership) passes, which for specific goods in a deliverable state is at the time of the contract D) Neither party — the contract is automatically rescinded

In a claim for vicarious liability, an employee of a delivery company deliberately assaults a customer during a delivery. The employer argues it should not be liable because the assault was not authorised. Which of the following correctly states the test for vicarious liability? A) The employer is not liable because deliberate wrongful acts can never be within the course of employment B) The employer may be liable if there is a sufficiently close connection between the wrongful act and the employment that it would be fair and just to hold the employer vicariously liable C) The employer is only liable if it expressly authorised the assault D) The employer is automatically liable for all acts committed by employees during working hours

A minority shareholder in a private company wishes to bring a derivative claim under Part 11 of the Companies Act 2006 on behalf of the company against a director for breach of duty. Which of the following correctly describes the permission stage? A) The court must give permission if the shareholder holds more than 10% of the shares B) The court must refuse permission if the act has been authorised or ratified by the shareholders, and must consider whether the shareholder is acting in good faith and whether a hypothetical director would continue the claim C) No permission is required — the shareholder can issue proceedings directly D) Permission is only needed if the defendant director objects

A claimant in a multi-track claim applies for security for costs against the defendant's counterclaim under CPR Part 25.12. Which of the following conditions must be satisfied for the court to order security for costs against the counterclaimant? A) The counterclaimant must be resident outside the jurisdiction B) One of the conditions in CPR 25.13 must be satisfied, and the court must be satisfied that it is just to make the order in all the circumstances C) Security can only be ordered against claimants, not counterclaimants D) The court will automatically order security if the counterclaim exceeds £50,000

An employer transfers its business to a new owner. Employees of the old employer are told their employment will not continue with the new owner. Which of the following correctly states the position under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)? A) The employees have no rights because the old employer can terminate employment before a transfer B) The employees' contracts of employment automatically transfer to the new owner by operation of law, and any dismissal connected with the transfer is automatically unfair unless for an economic, technical, or organisational reason entailing changes in the workforce C) The employees must apply for new positions with the new owner D) TUPE only applies to transfers of publicly owned companies

A public body exercises a statutory power to grant a licence. An applicant is refused a licence without being given reasons or an opportunity to make representations. The applicant seeks judicial review. Which principle of natural justice has been breached? A) The rule against bias (nemo iudex in causa sua) B) The right to a fair hearing (audi alteram partem) C) The principle of proportionality D) The doctrine of ultra vires

A clause in a commercial contract requires one party to pay £500,000 in the event of any breach, regardless of the nature or severity of the breach. The contract is worth £100,000. The clause is challenged. How is a court likely to characterise this clause? A) As a valid liquidated damages clause because the parties freely agreed to it B) As a penalty clause that is unenforceable because the amount is extravagant and unconscionable in comparison to the greatest loss that could conceivably follow from the breach C) As a valid indemnity clause D) As an exclusion clause subject to the reasonableness test under UCTA 1977

A claimant suffers personal injuries in a road traffic accident on 1 January 2020. They consult a solicitor for the first time on 1 March 2023. The solicitor advises that the limitation period for bringing a personal injury claim has expired. Is this advice correct? A) Yes, because the limitation period for personal injury claims is 2 years from the date of the accident B) No, because the limitation period for personal injury claims is 3 years from the date of the accident or the date of knowledge (whichever is later), and the court has discretion to extend time under section 33 of the Limitation Act 1980 C) Yes, because all tort claims must be brought within 1 year D) No, because there is no limitation period for personal injury claims

A company's articles of association contain a provision requiring all disputes between the company and its shareholders to be resolved by arbitration. A shareholder brings a claim in court alleging that the company's directors have breached their duties. Can the company enforce the arbitration clause against the shareholder? A) No, because arbitration clauses in articles of association are never enforceable B) Yes, because the articles form a statutory contract under section 33 of the Companies Act 2006 and the arbitration clause is binding on the shareholder as a term of that contract C) No, because disputes about directors' duties can only be resolved by the court D) Yes, but only if the shareholder expressly agreed to the arbitration clause in a separate agreement