"Analyse the significant developments in the evolution of UK Business Law in the period

between 1600 and 1900. Explain how these developments impact upon the current
operation of UK Business Law."

INTRODUCTION
Ever since the birth of UK business law the UK legal and commercial players have known that it was an
area of law for businessmen, not for lawyers: it had to be practically certain, predictable, but to allow for
flexibility, to act as a facilitator for business 1, to entail minimum complexity and maximum
accessibility2 and to minimise risk (of all kinds) but with as little control as possible. In all fairness, what
was asked of business law was seemed as hopeless as it was put in contradictory requirements. UK
Business Law works, so well it has become both a legal forum for international business, and a product in
itself when offered as commercial litigation. But to work it had to go through a long history of getting it
right, but also getting it horribly wrong. This paper will analyse just that, how major developments in the
evolution of UK Business Law (limited to the period between 1600 and 1900) led to the UK Business
Law we know of today. The first part of this essay will give a brief overview of the medieval Law
Merchant. The second part of this period will analyse the period of incorporation of this medieval law in
UK common law and the emergence of known concepts such as agency, insurance and bailment. These
most grandiose of all developments was the birth of limited liability, and accordingly the third and last
part of this essay will explore this key phenomenon. These development have culminated with the
consolidation of law in the 20 years period of codification at the end of the 19 th century. This too will be
examined in the last part of this paper.

1 John Armour, Share Capital and Creditor Protection- Efficient Rules for a Modern Company Law (2000) 63 Mod L Rev 355,
365

2 ibid
1

Business law and regulation: a definition

To understand how key historical developments of UK business law impacted UK business law in modern
times, one must first understand the purpose of business law. As a very general and somewhat circular
definition, business law is the body of law that enables and regulates commercial transactions.3 Key term
in this definition is regulation, simply because whether one takes a liberal or a socialist view of law,
self-regulation, but more importantly state regulation introduced in the last four centuries was inevitably 4
needed to enable and make possible the workings of the modern business law.

THE FIRST PERIOD - THE EARLY LAW MERCHANT

Law of Merchant, or lex mercatoria, was a system of law developed by medieval merchants to regulate
mostly cross-border commerce5 and it was really law, and it was really international. 6 It provided both a
body of customs to govern their dealings and a method of resolving disputes speedily. Although it was a
lauded working system of self-regulation, 7 its inability to deal with the multitude and increasingly
complex commercial issues of the 16 th century, led to some of these issues being taken to the Court of
Admiralty8 in later into common law courts. It is once with this when trade customs have too made their

3 P L Davies, Gowers Principles of Modern Company Law (1997) London, Sweet & Maxwell, 7
4 Lord Irvine of Lairg, The Law: An Engine for Trade (2001) 64 Mod. L. Rev. 333, 342
5 Leon E Trakman, From the Medieval Law to E-Merchant Law (2003) 53 U. Toronto L.J. 265, 265
6 A T Carter Early History of the Law of Merchant in England (1901) 17 LQR 232
7 Trakman, (n 5) 270
8 Lucy Stuart Sutherland, The Law Merchant in the Seventeenth and Eighteenth Centuries (1934) 17 Transactions of the Royal
Historical Society 149, 169

way into common law, springing new areas and concepts of commercial law that still have wide
application today. But the creation of law was not done in the Montequiean parliamentary way.

THE SECOND PERIOD: INCLUSION IN COMMON LAW

Negotiable instruments, agency and bailment
Instead, the 18th and mid-19 th century have seen the courts becoming the main instrument used to create
legal rules based on realistic mercantile customs. 9 For the most part of the 18th century Lord Holt was one
of, if not the, key figure incorporating some of the principles of commercial law 10 that have beautifully
stood the test of time to present. An excellent example, the use of cheques - and negotiable instruments in
their multitude and diversity - so embedded in contemporary transactions, 11 have their cornerstone in a
judicial decision of Lord Holt, Hussey v Jacob (1696).12
Additionally, in 1702, Lord Holt was also the first to define the law of agency, 13 a fundamental
concept in commerce today.14 To that effect, in Boulton v Arslden15 he stated: a note under the hand of an
apprentice or servant shall bind his master, where he is allowed to deliver out notes, though the money is

9 Lord Irvine of Lairg, (n 4) 339

10 Sutherland (n 7) 172
11 Frederick K Beutel, Development of Negotiable Instruments in Early English Law (1937-1938) 51 Harv L Rev 813,
12 1 Comyns 4
13 Boulton v Arslden Holt, K.B. 641
14Harry Rajak, Company Law, Limited Liability, and the Small World of Directors' Negligence (2004-2005) 7 Stud Intl Fin
Econ Tech L 117, 119

15 Holt, K.B. 641

3

never applied to the use of the master. 16The principles major significance is ever present nowadays,
particularly in terms of accountability. For instance, the governmental endorsement of shareholder
primacy has the law of agency as its foundation, that of principal and agent, 17 of shareholders holding
directors to account.18
One year later, in 1703, another key significant body of law begins to crystallise with Holts
decision in Coggs v Bernard19: the law on bailment. As his Lordship was constantly looking to the
practicality and fairness of commercial rules, 20 Holt was prepared to acknowledge the inherent need to
progressively manage risk with more certainty. In modern commerce Coggs still remains the leading case
on bailment, a root to allocation of risk between parties in situations involving custody of goods in transit.
Lord Holts predecessor, believed to be the funding father of commercial law, Lord Mansfield, realised
too from this relatively early age that in all mercantile transactions the great object should be
certainty21, and so it carried up, developed and added to Holts work during the last part of the 18 th
century.

Insurance
His Lordships work was mostly focused in finding solutions and rules to determine commercial disputes.
A central principle which he has made significantly contributions to has been the principle of insurance,
16 ibid
17 Robert Goddard,Modernising Company Law The Government's White Paper(2003), 66 MLR 402, 414
18 Stephen Copp, Company Law Reform and Economics Analysis - Establishing Boundaries (2001) 1 J Corp L Stud 1, 10
19 (1703) 2 Ld Raym 909
20 Legal ideology, P 948
21 Vallejo v Wheeler (1774) 1 Cowp 143, 153 (Lord Mansfield).
4

a contract upon speculation 22 advanced as a way of addressing risk. Several judicial decisions in which
judges have construed a steadier case for insurance have culminated in the key authority of Carter v
Boehm (1766)23 where Lord Mansfield provides a definition for insurance policies. Today business law
needs to ensure predictability, and insurance covers secure businessmen against the risk of their deals
being defeated.24 More than that, commercial practice in the field of insurance is able to deal with a
substantial degree of uncertainty in the law relating to disclosure for example, and many argue that
mandatory insurance should be imposed on organisation with hazardous activity. 25 With these and other
legal developments, by the end of the 18 th century common law effectively provided an open handbook
for commercial law.
Open, because it is crucial to understand that rather than being an event, change was a process
in commercial law, spread over centuries, each having its own impact on the Business Law of today.
Accordingly, the business law of the 18 th century, entirely judge made, has fortuitously started to see signs
of parliamentary regulation in the century to come.26
THE THIRD PERIOD LIMITED LIABILITY AND CODIFICATION OF COMMERCIAL LAW
Limited liability
Around the middle of the 19th century, the balance of power weighed in favour of legislation becoming
the key law-enacting instrument, and it allowed for the creation of probably the most important
phenomenon from 19th century onwards: the limited liability. 7 August 1855 is a date as resonant for
22 Carter v Boehm (1766) 3 Burr 1905
23 3 Burr 1905
24 Lord Irvine of Lairg, (n 4) 334
25Eilis Ferran,Place for Creditor Protection on the Agenda for Modernisation of Company Law in the European Union(2006)
3 ECFR 178, 197

26 Henry N Butler, General incorporation in nineteenth century England - Interaction of common law and legislative
processes (1986) 6 Intl Rev L Econ 169, 169

commercial law as it could be, as it signified the entry into force of the Limited Liability Act 1855.
Through it the concept of limited liability was introduced as a matter of public policy choice, as the public
once again demanded enhanced ways of dealing with risk. Undeniably the demand was well founded, as
the key player in modern commerce is the Limited Liability Company, a company which enjoys separate
legal personality. Under the veil of limited liability, shareholders cap their liability to the price they pay
for their shares, regardless of whether the company subsequently becomes heavily indebted. But to
completely understand why limited liability is of such crucial importance in modern commerce, a look
back to history of incorporation and of the joint-stock company is essential.
The joint stock company is a now corporation easily created through a process of registration, but
which emerged in English law in the period of 1844 1855, and around the same time in other parts of
Europe. Back in Tudor times, the Crown would grant monopolies to certain business people to engage in
commerce is different parts of the world. They would do so through incorporation into companies either
by Charter from the Crown or through a Private Act of Parliament, and they enjoyed the privileges of
limited liability. Such a joint stock company was the South Sea Company, a company with freely
transferrable shares recognised by Royal Charter in 1711. 27 Incorporation was costly and done selectively,
and it was not possible for the average trader to make good use of it. Once with the promotion of the
South Sea Company, English commerce has seen the creation of an artificial market a bubble. In 1720,
when the Bubble ultimately burst,28 thousands of significant political figures have come at great loss. 29
The incident created a stigma against companies, which were beginning to be seen as unacceptable

27 David Milman, Regulating Enterprise: Law and business organisation in the UK, Hart Publishing, 1st Edition, (1999), 9
28 Ron Harris, The Bubble Act: Its passage and its effect on business organization (1994) 54(3) Journal of economic history
No.3, (1994) 610, 610

29 ibid
6

players in commerce,30 associated with investment fraud.31 What followed was a staggering piece of
legislation, the South Sea Bubble Act 1720, enacted to ban the creation of companies with freely
transferrable shares. This led to a period from 1720 to 1820 when most business was done under
partnerships or sindicates, and where although the risk was split between the parties, none enjoyed fully
capped liability. The nightmare situation of uncertainty created, and the few but important prosecutions
under the Act, have both compelled the government to rethink and repeal the Act for being unfit for
purpose.32 Consequently, the Joint-stock Companies Act was introduced to resume the allowance of
incorporation. Eleven years later, the 1855 Act was passed. As such, the existence of limited liability on
the framework of the primary regulatory structure for it, the Companies Act 1862, 33 has seen growing
number of companies of the late 19th century. Judicial acceptance has been seen in the wide view of the
concept taken in the key historic benchmark triumph of the Company Legal form 34 case , Salomon v
Salomon.35 Their Lordships there found that the principle was to also apply to the so-called one-man
companies, furthering its incremental usage, but the case is importance for many more reasons: Not until
Salomon [] were the true consequences of incorporation 'fully grasped ... even by the Courts'. 36
Not surprisingly then, the revolutionary presence of limited liability has given a complete
makeover to commerce in the UK. One the one side, it has given rise to numerous debates, and has been

30 Paddy Ireland, Capitalism without the capitalist: The joint stock company share and the emergence of the modern doctrine
of separate corporate personality (1996) 17(1) Journal of Legal History 41, 43

31 See in general Michael Lobban, Nineteenth century frauds in company formation - Derry v Peek in context (1996) 112
LQR 287

32 Milman (n 28), 10
33 Ibid, 10
34 Paddy Ireland, The Rise of The Limited Liability Company (1984) 12 Int J Soc L 239
35 [1897] AC 22
36 Ireland (n 31) 47
7

accused of promoting irresponsible behaviour. 37 It has also led to an undermining of the concept of
bankruptcy,38 which as a consequence is now associated with personal as opposed to business failure.
But despite this, limited liability is seen as inherent to capitalism; 39 limited liability companies have
completely out scripted all the other forms of incorporation. The phenomenon has had a very welcome
impact on the extensive growth of commerce, and by implication it has also led to the fortunate
proportional growth of the accountancy and legal professions.
Codification of commercial law
Facilitation and speed of business were the key drivers of legal developments; but business people needed
one step forward to one-stop sources to find the current legal authority, 40 rather than dwelling through
series of cases of progressive legal increments. Access to law was costly and change was demanded.
Therefore, the first response to this demand has been the setting up of governmental commissions to
consult the commercial players of the country and to find the best approach to be taken. 41 An ambitious
plan for an official digest of the statute and case law of England (with no mention of Scotland) was
advanced by Lord Westbury, and to that effect a Royal Commission was set up to explore the option of its
creation. Such an option was seen as a way of securing the advantages of codification (such as certainty
and easy access) whilst avoiding the disadvantages that come with a statutory code, such as rigidity 42 and

37 Paddy Ireland Limited liability, shareholder rights and the problem of corporate irresponsibility
(2010) 34 (5) Camb. J. Econ. 821,

38 Rajak (n 14) 121

39 Ben Pettet, Limited Liability-A Principle for the 21st Century? (1995) 48(2) Current Legal Problems 125; Ha-Joon Chang,
23 Things they dont tell you about capitalism (2010) Bloomsbury Press, 12

40 Stephen Copp, Company Law Reform and Economics Analysis - Establishing Boundaries (2001) 1 J Corp L Stud 1,2
41Alan Rodger, The codification of commercial law in Victorian Britain (1992) 108 LQR 2. 574
42M D ChamersAn experiment in codification (1886) 2 LQR 125, 130
8

difficulty in adapting to relevant changing circumstances. 43 Unfortunately, the project eventually broke
down, and it was not until the last three decades of the 19 th century when practical steps were really taken
to advance the codification of UK commercial law.44 In 1870, Dove Wilson, in his publication, advocated
the harmonisation of Scottish and English law and the great desirableness of assimilating the law of the
United Kingdom.45 To his liking, the first move in that direction was around the end of the 1870s when
Mr. Frederick Pollock began working on a draft for Partnership Bill at the request of the Associated
Chambers of Commerce.46 A decade later, a final form of the Partnership Act 47 emerged, which applied
both to England and Scotland, and with it, emerged an assimilation of the laws of the United Kingdom. 48
The wait proved to be worth, as starting with 1882 what followed on was a period of 20 years of the most
concentrated and dramatic legislative changes in the United Kingdom. The Bills of Exchange Act 1882,
drafted by Sir Mackenzie Chamers and recognised by MacKinnon LJ as the best drafted Act of
Parliament ever passed,49 and the Factors Act 1889 were passed. Later, two more of Mackenzies drafts
had become the Sales of Goods Act 1893 (later Sales of Goods Act 1979)

50

and the incomplete

codification of marine insurance in the Marine Insurance Act 1906. 51

43Rodger (n 42) 575

44 Ibid, 578
45 Ibid, 576
46 ibid
47 Partnership Act 1890
48 Rodger (n 42), 576
49 Bank Polski v Mulder & Co [1942] 1 All ER 396, 398 (MacKinnon LJ).
50 Rodger (n 42), 581
51 Iain MacNeil, Uncertainty in Commercial Law (2009) 13 Edinburgh L Rev 68,
9

These durable legal enactments have too stood the test of time and, with some restatements
and amendments, still govern the UK Business Law of today. One ought not be misled by the term
codification: the statutes represent partly pure codification, but they have also been used to change and
recreate the law in areas of need and/or doubt. To that effect were the explanatory words of Lord
Herschell in Vagliano Bros52 where he said, in relation to the Bills of Exchange Act 1882, that it was
certainly not intended to be merely a code of the existing law. It is not open to question that it was
intended to alter, and did alter [the law] in certain respects. 53

CONCLUDING REMARKS
By looking back for a last time, modern UK business law sees its seed in the significant legal works and
influence of merchants; it sees how the seed beautifully developed through the legal works of common
law judges into the fully working product of today; and how it has been packaged neatly by the
parliaments of the past. The medieval merchants had knowledge of the market and of what was needed
for it to work, but they could not by themselves incorporate their knowledge and customs into the
common law. The solution was found in the works of Lord Holt, Lord Mansfield and other judges of that
time, who were responsible for founding contemporary concepts of law, as the law of agency, bailment,
negotiable instruments, and the law on insurance. These key elements of business have proved even more
beneficial alongside the major developments of the mid-19 th century of incorporations into companies
under newly introduced veil of limited liability. And ultimately, through 20 years of radical codification,
this well-thought mechanism of commercial law too been bestowed with ease of access and the longcraved certainty.

52 [1891] AC 107
53 ibid, 145 (Lord Herschell).
10

BIBLIOGRAPHY

Armour J, Share Capital and Creditor Protection- Efficient Rules for a Modern Company Law
(2000) 63 Mod L Rev 355
Beutel F K, Development of Negotiable Instruments in Early English Law (1937-1938) 51 Harv L
Rev 813
11

Butler H N, General incorporation in nineteenth century England - Interaction of common law and
legislative processes (1986) 6 Intl Rev L Econ 169
Carter A T, Early History of the Law of Merchant in England (1901) 17 LQR 232
Chalmers M D, An experiment in codification (1886) 2 LQR 125
Chang H J, 23 Things they dont tell you about capitalism , (2010) Bloomsbury Press
Copp S, Company Law Reform and Economics Analysis - Establishing Boundaries (2001) 1 J Corp
L Stud 1
Davies P L, Gowers Principles of Modern Company Law (1997) London, Sweet & Maxwell
Ferran, E Place for Creditor Protection on the Agenda for Modernisation of Company Law in the
European Union(2006) 3 ECFR 178
Goddard, RModernising Company Law The Government's White Paper(2003), 66 MLR 402
Harris R, The Bubble Act: Its passage and its effect on business organization (1994) 54(3) Journal
of economic history No.3, (1994) 610
Ireland P, Capitalism without the capitalist: The joint stock company share and the emergence of the
modern doctrine of separate corporate personality (1996) 17(1) Journal of Legal History 41
Ireland P, Limited liability, shareholder rights and the problem of corporate irresponsibility
(2010) 34 (5) Camb. J. Econ. 821
Ireland P, The Rise of The Limited Liability Company (1984) Int J Soc L
Lobban M, Nineteenth century frauds in company formation-Derry v Peek in context (1996) 112
LQR 287
Lord Irvine of Lairg, The Law: An Engine for Trade (2001) 64 Mod. L. Rev. 333
MacNeil I, Uncertainty in Commercial Law (2009) 13 Edinburgh L Rev 68
Milman D, Regulating Enterprise: Law and business organisation in the UK, Hart Publishing, 1st
Edition, (1999)
Pettet B, Limited Liability-A Principle for the 21st Century? (1995) 48(2) Current Legal Problems
125
Rajak, H, Company Law, Limited Liability, and the Small World of Directors' Negligence (20042005) 7 Stud Intl Fin Econ Tech L 117
Rodger A, The codification of commercial law in Victorian Britain (1992) 108 LQR 2
Sutherland L S, The Law Merchant in the Seventeenth and Eighteenth Centuries (1934) 17
Transactions of the Royal Historical Society 149, 172
Trakman L E, From the Medieval Law to E-Merchant Law (2003) 53 U. Toronto L.J. 265, 270

12

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