Botswana Institute of Chartered Accountants

Law

Examination Paper

Date:09June 2016

Time:13:30pm -15.00pm

Time allowed: 1 hour 30 minutes

Instructions to Candidates

There are 50 questions in this paper with equal marks, together adding up to 100 marks. You should complete them all.

The questions are of two types;

  • Multiple choice- select 1 from 4 options A,B,C or D
  • Multi-part multiple choice- select 1 from 2 or 3 options, for two or more question parts

Note: Do not open this paper unless you are told to do so by the invigilators.

  1. As regards a legally binding agreements, which of the following is correct?
  1. The terms of every contract must be set out in writing
  2. There is no contract formed without offer and acceptance
  3. At no time would a person who is not a party to the contract derive a benefit from such contract
  4. Every contract must be legally enforceable

2 Marks

  1. Gaone wrote to Wandipa, offering to sell her motor vehicle for P40, 000. One week later, Wandipa wrote back saying he would pay that amount and would make payment after 2 months. Gaone did not respond. Wandipa then heard that Gaone had sold the motor vehicle to Sam.

Was there a contract between Gaone and Wandipa?

  1. No. Gaone has not made a valid offer
  2. Yes. Wandipa has accepted the offer although he has asked for additional information and Gaone is in breach of contract
  3. No. Wandipa’s response constitutes a counter-offer which effectively destroyed Gaone’s original offer
  4. No. Gaone’s letter to Wandipa constituted an invitation to treat, not an offer

2 Marks

  1. Kago has applied to Water Utilities Corporation (WUC) for WUC to connect water to his newly built house. Kago fills in the WUC forms provided by WUC after which water is connected to his premises.

Which of the following statements is/are true?

(i)The contract is voidable

(ii)The contract is known as a standard form contract

(iii)There is privity of contract

(iv)Kago must disclose to WUC that he has capacity to contract with them

  1. (i) and (ii) only
  2. (ii) and (iv) only
  3. (iii) only
  4. (ii) and (iii) only

2 Marks

  1. As regards void and voidable contracts, are the following statements true or false?

Duress makes a contract void

  1. True
  2. False

A voidable contract cannot be legally enforced

  1. False
  2. True

2 Marks

  1. To which of the following types of damages does the term ‘mitigation’ of damage apply?
  1. Unliquidated damages
  2. Punitive damages
  3. Liquidated damages
  4. Nominal damages

2 Marks

  1. Thabo has been declared insolvent by the High Court. Which of the following statement(s) is/are true?
  1. Thabo can be sued in his personal capacity
  2. All contracts made by Thabo come to an end automatically
  3. A trustee is appointed by the High Court to enforce and fulfil Thabo’s contractual obligations
  4. In the execution of his or her duties, the trustee will ensure that Thabo’s interests override those of his creditors
  1. (i) only
  2. (iii) only
  3. (i) (ii) and (iii) only
  4. (iii) and (iv) only

2 Marks

  1. As regards exclusion clauses, which of the following statement is correct?
  1. An exclusion clause can be incorporated by signature only
  2. An exclusion clause cannot be rendered void by statute
  3. An exclusion clause may be incorporated by previous dealings between the parties
  4. Notice of an exclusion clause must be given after the parties have contracted

2 Marks

  1. As regards the formation of a contract, in which of the following scenarios is the agreement legally enforceable?

(i)Lame and Moyo orally agree that Moyo will buy supper for Lame if Lame gets more marks than Moyo in a particular examination

(ii)Mothei, a 38 year-old father, agrees to buy Musa’s piece of land for P200, 000

(iii)Joy has entered into a contract with Kwapa in which Kwapa will sell his tractor to Joy. It has been medically established that Kwapa was not mentally stable when the contract was made

  1. (i) and (iii) only
  2. (i) and (ii) only
  3. (ii) only
  4. (iv) only

2 Marks

  1. Thabiso has agreed to sell his Honda motor cycle to Banda. Performance of each party’s obligation will take place in two months’ time. The motor cycle is the only one of its kind in Botswana. Banda would like to keep it as an antique and Thabiso is well aware of this. Thabiso has now changed his mind and has told Banda that the deal is off. In the circumstances:

Banda cannot sue Thabiso before the time for their performance has arrived

  1. True
  2. False

If Banda sues Thabiso, the most appropriate remedy is specific performance

  1. True
  2. False

2 Marks

  1. As regards the law of agency:

A power of attorney applies to agency by ratification

  1. True
  2. False

In agency by ratification, one of the requirements is that the principal must have been present when the agent dealt with the third party

  1. False
  2. True

2 Marks

  1. As regards members of a close company acting in their capacity as agents of their company:

The authority of a member to represent the company may be orally given

  1. True
  2. False

If a member has not been given authority to represent the company, then any transaction made by such a member does not bind the company under any circumstance

  1. False
  2. True

2 Marks

  1. Tshepang is employed by a firm of accountants in Francistown. Although she qualified as an accountant one year ago, she has been given complex responsibilities that include advising clients on stock exchange investments. Due to her limited experience, Tshepang’s advice to three of her clients has resulted in substantial losses on their investment. In this regard:

The clients can sue the firm for breach of contract or in negligence

  1. True
  2. False

The firm of accountants is liable for all losses arising from Tshepang’s advice

  1. True
  2. False

2 Marks

  1. Which of the following statements is correct as regards the doctrine of res ipsa loquitur (the facts speak for themselves) in the law of negligence?
  1. The claimant does not have to prove the wrongdoer’s negligence
  2. The claim must succeed under all circumstances
  3. The burden of proof shifts to the claimant
  4. None of the above

2 Marks

  1. Kgagodi is the auditor of Modern Enterprises Ltd, a company listed on the Botswana Stock Exchange. Most of Kgagodi’s income is generated from the company for the audit work and consultancy services he renders to the company. If the relationship between Modern Enterprises Ltd and Kgagodi is terminated, Kgagodi’s practice would suffer severely. Directors of the company put pressure on Kgagodi for him to state in his audit report that the financial statements of the company are a true and fair view of its financial position even thoughKgagodi is aware that the financial statements have material irregularities. An annual general meeting is held in which dividends recommended by directors of the company are approved. A few months later, it is discovered that the company’s financial statements were intentionally misrepresented by the directors. In these circumstances, which of the following statements are true?
  1. Kgagodi is liable for fraudulent misrepresentation only
  2. Kgagodi has committed a crime. He may also be held liable to the company for breach of contract or fraudulent misrepresentation
  3. Kgagodi is not liable to any shareholder of the company for any additional shares bought on the basis of the financial statements and the audit report
  1. (i) only
  2. (i) and (ii)
  3. (i) (ii) and (iii)
  4. (ii) and (iii)

2 Marks

  1. A driver of an ambulance is rushing a sick person to hospital. In the process and due to the negligence of the driver, the ambulance causes slight damage to a motorist’s vehicle that is in the next lane. Which of the following would the driver of the ambulance use to defend himself in a claim by the innocent motorist?
  1. Remoteness of damage
  2. The cost or difficulty of taking precautions
  3. The social utility of the conduct of the driver of the ambulance
  4. The cost or difficulty of taking precautions

2 Marks

  1. In which of the following would the principle of ‘liability without fault’ in negligence be found?
  1. Contributory negligence
  2. Vicarious liability
  3. Legal causation
  4. Factual causation

2 Marks

  1. As regards the liability of an employer for a negligent act of an employee committed against a third party, which of the following statements are true?
  1. The employer is always liable if the third party is injured when the employee’s act is for the benefit of the employer
  2. The employer is liable to the third party when the employee is prohibited from undertaking the task that is the cause of the injury to the third party
  3. The employer is liable to the third party if his injuries are caused by an employee who has not significantly deviated from the way in which he was supposed to discharge his duties
  1. (i) and (ii)
  2. (ii)and (iii)
  3. (i) and (iii)
  4. (iii) only

2 Marks

  1. As regards types or forms of business, which of the following statements is correct?
  1. In a sole proprietorship, the proprietor is not personally liable for the debts of his business
  2. In a partnership, membership should not exceed 25
  3. In a partnership, a partner whose contribution to the partnership is 10% can be held liable for all the debts of the partnership
  4. In a company, a director cannot under any circumstance be held liable for the debts of the company

2 Marks

  1. Which of the following is true for both a company having a share capital and a partnership?
  1. Membership may wholly comprise of companies registered under the Companies Act
  2. There is separation between management and the owners of the business
  3. Both are issued with a certificate of registration
  4. Members are personally liable for the debts of the enterprise

2 Marks

  1. As regards companies limited by shares, are the following statements true or false?

Under common law, the courts cannot lift the veil unless there are exceptional circumstances

  1. True
  2. False

Under normal circumstances, a holding company has no legal obligation to settle the debts of its subsidiary company

  1. True
  2. False

2 Marks

  1. In which of the following forms of business entities is a member of the entity also its fiduciary?
  1. Company limited by shares and close company
  2. Company limited by guarantee and close company
  3. Company limited by guarantee and a partnership
  4. A partnership and a close company

2 Marks

  1. As regards the characteristics of a private company, which of the following statements is/are correct?
  1. Membership cannot exceed 20
  2. It cannot issue shares to the public
  3. Shares are not transferable
  4. It must hold an annual general meeting
  1. (i) and (ii)
  2. (ii) only
  3. (ii) and (iii)
  4. (ii) and (iv)2 Marks
  1. Basiame would like to form a company. In addition to preparing the necessary documentation for the formation of the company, she would like to enter into a lease agreement for the company to be formed. As regards the contract, which of the following statements is correct?
  1. The contract must be mentioned in the application for registration
  2. The contract cannot be binding on the company because it is made before the company has come into existence
  3. Basiame cannot be held liable on the contract
  4. Basiame may incur personal liability for the contract

2 Marks

  1. As regards financial statements of a company, are the following statements true or false?

The external auditor prepares a company’s financial statements

  1. True
  2. False

In a group of companies, every company must prepare its financial statements

  1. False
  2. True

2 Marks

  1. Which of the following statements is correct about a company’s statutory auditor?
  1. Every company must appoint an auditor
  2. An exempt private company may appoint an auditor
  3. Directors cannot appoint the auditor under any circumstance
  4. The auditor’s primary obligation is to the shareholders of the company

2 Marks

  1. Which of the following companies must appoint a qualified company secretary?
  1. Only public companies
  2. Only exempt private companies
  3. Every exempt and non-exempt public company
  4. Every non-exempt private company and every public company
  1. (i) only
  2. (ii) and (iii)
  3. (iii) and (iv)
  4. (iv) only

2 Marks

  1. Supply & Install Ltd has been approached by Kgosi for the appointment of the company as the company secretary of Kgosi Ltd. Which of the following requirements must be met by Supply & Install Ltd?
  1. At least two of its directors must be Botswana citizens
  2. At least one if its directors must be ordinarily resident in Botswana and he or she must be qualified for appointment as secretary
  3. At least one of its directors must be a member of the Botswana Institute of Chartered Accountants (BICA)
  4. At least one of its shareholders must be a member of the Botswana Institute of Chartered Accountants (BICA)

2 Marks

  1. Which of the following entities must appoint an accounting officer?
  1. A public company
  2. A non-exempt close company
  3. A close company
  4. A partnership

2 Marks

  1. The constitution of Western Groceries (Pty) Ltd provides that the only business of the company is to buy and sell groceries. In addition, the constitution states that directors of the company must obtain a resolution of the company’s shareholders for the company to borrow more than P200, 000. Which of the following statement or statements is correct?
  1. If directors borrow more than P200,000 without a resolution of the shareholders, they become personally liable to the creditor for the amount in excess of their limit if the company fails to pay
  2. If directors enter into transactions outside the business stated in the constitution of the company, they become personally liable to the other contracting party if the company fails to pay
  3. The Registrar of Companies must authorise directors to borrow any amount exceeding P20,000
  4. A transaction beyond that sanctioned by the constitution, and the borrowing of an amount in excess of that stated in the constitution without following stated process are both lawful

2 Marks

  1. Build and Repairs (Pty) Ltd does not have a constitution registered with the Registrar of Companies. Under the circumstances:

The company has no constitution at all

  1. True
  2. False

The constitution of the company is part XIX of the Companies Act

  1. True
  2. False

2 Marks

  1. Which of the following types of directors is not a substantive director of a company?
  1. Alternate director
  2. Managing director
  3. Executive director
  4. Finance director

2 Marks

  1. Sally is a director of Safaris Ltd. Which of the following statements is correct if the Chairperson of Safaris Ltd discovers that Sally has diverted a business opportunity for Safaris Ltd to Simba Ltd, a company under her full control?
  1. There is nothing that Safaris Ltd can do to Sally because Simba Ltd is a separate legal entity
  2. Only Simba Ltd is liable to Safaris Ltd
  3. Only Sally is liable to Safaris Ltd
  4. Sally and Simba Ltd are jointly and severally liable to Safaris Ltd

2 marks

  1. As regards shareholders and directors of a company, are the following statements true or false?

A shareholder can be a director of the same company

  1. True
  2. False

As owners of the company, shareholders have the power to set aside any resolution passed by directors of the company

  1. True
  2. False

2 Marks

  1. In a private company, in which of the following types of meetings may shareholders not meet but can still pass written resolutions?
  1. Annual general meeting only
  2. Class meeting and special general meeting only
  3. Meetings called by the court only
  4. Special general meeting and annual general meting

2 Marks

  1. A shareholder is aggrieved by a board of directors’ resolution not to sue a debtor who owes the company a huge sum of money. Which of the following statements is correct?
  1. The shareholder has no remedy because the debt is owed to the company and not to him
  2. The shareholder may take personal action against the directors
  3. The board of directors resolution must be ratified by the shareholders for it to be binding
  4. The shareholder should first obtain leave of court before commencing legal proceedings in the name of the company

2 Marks

  1. Which of the following resolutions by a company’s board of directors must also receive the approval of shareholders for it to be valid?
  1. Appointing the managing director and the company secretary
  2. Appointing the company secretary and the auditor
  3. Entering into a major transaction or changing the name of the company
  4. Changing the nature of the company’s business and changing the name of the company

2 Marks

  1. Are the following statements about a close company true or false?

Members of the company may delegate their duties to a manager

  1. True
  2. False

Acquisition or disposal of immovable property of the company requires the approval of member (s) with at least 50% interest in the company

  1. True
  2. False

2 Marks

  1. Laone, Patience and Moagisi all have interests in a company limited by shares. Laone is a preference shareholder, Patience is an ordinary shareholder and Moagisi is a debenture holder. Which of the following statement(s), if any, is/are correct?
  1. If a liquidator is appointed due to the company’s indebtedness, Patience and Laone must receive return of capital before Moagisi is paid anything by the liquidator
  2. Laone must be paid dividends even if the company does not make any profits
  3. Laone will not participate in a distribution of surplus dividends and Patience and Moagisi are entitled to vote in a meeting convened for the appointment of directors of the company
  4. Laone, Patience and Moagisi have the right to receive minutes of directors’ meeting
  1. (i) and (ii) and (iv)
  2. (ii) and (iii)
  3. (iii) only
  4. None of the statements is correct

2 Marks