Business Law – Statutory Interpretation and Judicial Precedence

As society’s dynamics of interaction evolves through time due to technology, globalization and unpredictable future events, the law that governs the society has to evolve as a result. This is to ensure that justice is served with effectiveness and fairness. Henceforth, judges play an important role towards this development of the legal system to a certain extent, through their decisions made within the parameters of certain doctrines that provide consistency and guidance (Lewis, 2012).

Two such doctrines are the judicial precedent and the statutory interpretation. The judicial precedent is a major source of law that follows a Latin phrase “stare decisis” which refers to the obligation of courts to honor past precedents (Tufal, 2012). These past precedents are able to affect the development of law, as they can be binding, persuasive or original in nature towards future cases.

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However, in order to fully understand how judges can develop the law through the doctrine of judicial precedent, it is necessary to understand the operation of the doctrine. At the end of every case, the judge will give a judgment and explain his/her decision and his/her reasons. These reasons are derived from the evaluation of the principles of law and the judge will explain them based on these principles which are also known as “Ratio Decidendi” in Latin, meaning the reasons for deciding (Lewis, 2012).

This ratio is basically a binding precedent towards future cases of similar facts in lower courts or courts of the same level with certain exceptions such as the Practice Statement (1966) and distinguishing that allows the avoidance of precedents. In other words, judges from the higher courts are able to develop the law through overruling and reversing the decisions made by lower courts, as the lower court’s precedents do not bind them but instead act as persuasive precedents.

While judges from the lower courts or the same courts are able to develop the law through avoiding precedents made by higher courts or courts of the same level via the exception of distinguishing. The only two courts that are able to overrule themselves to develop law are the European Court of Justice and the House of Lords (Practice Statement (1966)). Distinguishing is done when a judge does not follow a binding precedent because the judge considers the material facts of the case to be different. An exemplary case to illustrate this would be Merritt v Merritt (1971).

This is a case whereby Mr. Merritt and his wife jointly owned a house and Mr. Merritt left to live with another woman. Mr. Merritt then made an agreement with Mrs. Merritt showing that he would pay a 40 pounds monthly sum and eventually transfers the house to her, if she keeps up the monthly mortgage payments. However, when the mortgage was finally paid, Mr. Merritt refused the transfer (Hickman, 2012). The binding precedent for this case was Balfour v Balfour (1919) whereby; family arrangements are not intended to create legal relations.

However, the court of appeal distinguished the case because at that point of time the defendant and the claimant have decided to go for a divorce and hence there was an intention to create legal relations (Hickman, 2012). Apart from the “Ratio Decidendi” in a judgment, there is also the “Obiter Dicta” which in Latin means “words said by the way”. The “Obiter Dicta” differs from the “Ratio Decidendi” as it is not binding but instead acts as a persuasive precedent towards future cases and it reflects a judge’s opinion (Tufal, 2012).

In the obiter, a judge will state what their decision would have been if the facts were different. Hence, the obiter of a higher court, though not binding, would often be persuasive in nature towards lower courts if it were deemed to be relevant towards the case (Lewis, 2012). Examples of other persuasive precedents include the decisions of the courts in the Commonwealth, decisions of the Judicial Committee of the Privy Council and the decisions of English courts lower in the hierarchy, which could develop the law through persuasion (Tufal, 2012).

An example to illustrate the “Ratio Decidendi” and the “Obiter Dicta” would be the case of Donoghue v Stevenson (1932). In this case, the claimant received a bottle of ginger beer that the defendant manufactured and the bottle of ginger beer contained a decomposed snail. The claimant won the case as the “Ratio Decidendi” by the House of Lords which will bind future cases of lower courts, was in her favor because manufacturers must take a duty of care towards customers (Study Mode, 2009). However, the “Obiter Dicta” of the case went on to persuade a development in the law of tort here people should have a duty of care for their neighbors and a neighbor is anyone that can be affected by your actions. This obiter was often referred to as the ‘neighbor principle’ and was reflected by Lord Atkin. Through this, we can see how the law has been developed by a persuasive precedent to suit the changes of moral expectations, as society develops and move from stages of conventional morality to post-conventional morality, taking on discretionary responsibilities (Study Mode, 2009).

Lastly, should the precedent be original, it means that the judge is given a larger extent to develop an area of law that has never been decided before in past cases or is unclear in nature; and although there are no binding precedents or rules, they may choose to use cases that are close in principle to guide their decision. An exemplary case to illustrate an original precedent would be the Re A (Conjoined twins) (2000). This was a case whereby a pair of twins conjoined by the spine, Jodie and Mary, would have faced death if they were not separated.

However, if they were separated, Mary would have died while Jodie lives. This case had no precedent that was binding in nature and hence the judge had to create an original precedent in which the twins should be separated to save one life instead of losing both (Bailii, 2000). This case was also unclear in nature as the judge faced a dilemma between developing the law towards the moral and ethics of the parents, the conflict of duty for medical practitioners or the sanctity of life with regards to policy issues, as there is a risk of setting a dangerous precedent with his decision (Bailii, 2000).

Therefore, through the discussion of the judicial precedents above, we can see that there is a paradox where a prior case only binds a court if the court decides it as binding such as when the House of Lords over rule themselves (Law Teacher, 2012). It goes to show further that common law is not a fixed set of rules but a process instead, where the rules are defined as they are applied and judges constantly develop the law whilst ensuring consistency and equality to suit the changing demographics of society (Law Teacher, 2012).

However, judges can only develop of law through the operation of the doctrine of judicial precedent to an extent due to parliamentary sovereignty (which will be explained below) and certain disadvantages of judicial precedent such as the restrictions on judges which creates rigidity, the law developing too slowly due to the volume of cases and the development of the law being dependent on the chance of a case reaching a higher court.

Also, for precedents to work effectively, decisions of past cases must be recorded properly and the Incorporated Council of Law Reporting ensures that (Hickman, 2012). Following that, the doctrine of statutory interpretation plays a part in the development of law through judicial precedent as the interpretation of the statute made by the presiding judge affects the decision of the case presented, which can result in new judicial precedents that could be binding or persuasive in nature towards cases in the future.

Hence it is important to fundamentally understand that statutes are acts drafted by delegated legislations and Parliament to form the general law of the UK and it is the highest form of law that takes priority over judicial precedent due to parliamentary sovereignty where no parliament can bind its successor (Hickman, 2012). It is also crucial to know the presumptions of legislative intent whereby a guilty mind is required in criminal cases, laws cannot function retrospectively and laws that create unlawful activity should be interpreted in favor of the defendant when there is ambiguity (Hickman, 2012).

There are four main approaches of statutory interpretation and they are the literal rule, the golden rule, the mischief rule and the purposive approach. These approaches are at the judge’s disposal and it is within his/her discretion to interpret the statute according to the parliaments intention and ensure that the law is developed to satisfy the justice in society (Lewis, 2012). The literal rule for example, is used when a judge interprets the words in statute literally by taking the words as they are given in the dictionary even if the result leads to injustice or does not portray the parliaments intention (Hickman, 2012).

This rule is restrictive in nature, as although the judge is developing the law towards parliamentary sovereignty, this development could be theoretically correct but realistically or practically wrong should the result lead to injustice. On the other hand, the golden rule of statutory interpretation allows a greater extent for a judge to develop the law, as the judge is able to depart from the selective word’s meaning in a statute if there are ambiguities in the words themselves or if the result is obnoxious towards principles of public policy.

Thus, if a word in a statute is a homograph for example, the judge may apply the rule in a narrow sense and choose the preferred meaning of the word that fits the case before him most appropriately. And if the words of the statute have just one meaning and results in obnoxiousness towards the principles of public policy, the judge may depart from the meaning of the statute and apply the rule in a wider sense to avoid this result (Lewis, 2012). Deviating from the golden rule, there is the mischief rule where the judge is able to adopt an interpretation that remedies a mischief that defeated the purpose of a statute passed.

This allows the judge to develop the law through setting a judicial precedent that improvises and supports the statute in a certain way whereby it prevents future cases to conduct that mischief (Hickman, 2012). Similar to the mischief rule but with a wider application, the judge may use the purposive approach to review the intention of the statute passed. An example to show the development of law through the use of the purposive approach would be the case of The Royal College of Nursing v DHSS (Department of health and social security) (1981).

In this case, it was regarding nurses administering pills for abortion as under the Abortion Act (1969), only registered medical practitioners can administer pills for abortion (Hickman, 2012). However, the judge used the purposive approach as the intentions of the act was to ensure the safety of abortions and with science and technology being more advanced compared to when the act was passed, nurses could administer the procedure without compromising on safety. Hence the law was developed based on that approach and a judicial precedent was created whilst serving the intention of the statute.

In one way, the parliament is elected by the people to draft new or improve statutes based on their ideas, theories or what they read, hear, see or experience from judicial precedents and past cases. However, this may not be fully practical when applied in real cases, as there are factors of uncertainty such as the use of broad terms and ambiguous language. Likewise, although judges develop the common law, it is safe to say that the people are the ones who create the judicial precedents indirectly as they are the ones living in the legal system and being judged in the cases.

This then leads to human creativity that would instinctively try to work around the legal system to ensure law abidance whilst benefiting their interests, which pushes and provides the opportunity and extent for judges to develop the law. Therefore, statutory interpretation is an important theory tool for judges to convene the intention of the statute and apply it in conjunction with judicial precedents, as judicial precedents are a practical form of law based on real people and statutes are a theoretical form of law created by a parliament that was elected by the people.

This two-way relationship ensures that the law is developed hand in hand by judges towards the ideals of elected officials in parliament through a realistic application and only then, will the law be an effective tool to govern society. However, it is still important to note that judges can only develop the law to a certain extent due to the boundaries of parliamentary sovereignty and that the extent the judge can go to when developing the law is also dependent on his position in the hierarchy of courts as mentioned above.

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Business Law – Statutory Interpretation and Judicial Precedence. (2016, Oct 17). Retrieved from