F1 - Business Law April 08

BUSINESS LAWS

FORMATION 1 EXAMINATION - APRIL 2008 NOTES

You are required to answer 5 Questions. If you provide answers to more than five questions, you must draw a clearly distinguishable line through the answer(s) not to be marked. Otherwise, only the first five answers to hand will be marked.

TIME ALLOWED:

3 hours, plus 10 minutes to read the paper.

INSTRUCTIONS:

During the reading time you may write notes on the examination paper but you may not commence writing in your answer book. Marks for each question are shown. The pass mark required is 50% in total over the whole paper. Start your answer to each question on a new page. You are reminded that candidates are expected to pay particular attention to their communication skills and care must be taken regarding the format and literacy of the solutions. The marking system will take into account the content of the candidates' answers and the extent to which answers are supported with relevant legislation, case law or examples where appropriate. List on the cover of each answer booklet, in the space provided, the number of each question(s) attempted.

The Institute of Certified Public Accountants in Ireland, 17 Harcourt Street, Dublin 2.

BUSINESS LAWS

THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND FORMATION I EXAMINATION – APRIL 2008

Time Allowed: 3 hours, plus 10 minutes to read the paper. Number of Questions to be answered: FIVE (Only the first five questions answered will be marked). All questions carry equal marks.

1.

Discuss the developing importance of Community (European Union) Law as a source of law in the Irish legal system. [Total: 20 marks]

2.

Discuss the principles of Statutory Interpretation with reference to relevant legislation.

3.

Discuss the concept of possession of chattels and the types of possession that may arise in Irish law.

4.

5.

[Total: 20 marks] [Total: 20 marks]

Christina is the Managing Director of a growing Irish company selling consumer goods in the domestic market. Although she always travels executive class, Christina is a great fan of the low cost model in the Irish airline sector. Accordingly, she has decided to apply the low cost model to the sale of consumer goods. Christina is of the view that if the Irish consumer is getting goods at low cost that they have no right to expect particularly good quality. Christina has a recollection from her college days that a well drafted exclusion clause in a contract can protect a company in this sort of situation. Advise Christina. [Total: 20 marks]

David was told by his uncle that if he passed his final college exams, that his uncle would give him €2,000 in cash the day after the results were announced. David passed the exams but when he presented himself to his uncle for the money, the uncle laughed and said that he made the comment in jest. David said he was most displeased as he had promised his girlfriend, Donna, that if he passed the exams that he was planning for the two of them to go to Spain.

The uncle said that this was news to him. David retorted that he would get further news later on that day, when David and Donna issue High Court proceedings looking for their money and seeking damages owing to the fact that they would have to cancel their holiday. Advise David and Donna. [Total: 20 marks]

6.

Discuss the concept of Insurable Interest in Irish law.

7.

Discuss the types of company that may be formed under the Companies Acts 1963 – 2006.

[Total: 20 marks]

[Total: 20 marks]

END OF PAPER

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SUGGESTED SOLUTIONS

BUSINESS LAWS

THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND

FORMATION I EXAMINATION – APRIL 2008 SOLUTION 1 Discuss the developing importance of Community law as a source of law in the Irish legal system.

AIM:

The aim of this question is to test both studentsʼ knowledge of the European Community law as a source of Law in Ireland and to see that they clearly understand the affect of European Community Law in the Irish Legal System. Students should outline the membership of Ireland to the European Community in their introduction before going on to deal with the European Community in detail, explaining its nature. Students who set out the impact at the level of (i) Treaties; (ii) Regulations/Directives; (iii) Case Law of European Court of Justice and Decisions (iv) obligations on Member States in a clear and logical manner, will perform well in the question. Students will obtain good marks for identifying the supremacy of Community Law and direct affect of Community mandate. Introduction:Since joining the European Union in 1973, the Republic of Ireland has transformed itself from a largely agricultural society into a modern, technologically advance economy. The European Union itself is the culmination of successive international treaties which establish the powers, institutions and laws of the Union. The functioning of the European Union is supported by five principle institutions. The institutions instructed with carrying out the work of the European Union are the following;

1. 2. 3. 4. 5.

The The The The The

European Commission; Council of European Union; European Parliament; European Court of Justice; European Court of Auditors.

Ireland has a Common Law Legal System with a written constitution which provides for a parliamentary democracy with an elected president, separation of powers, a developed system of constitutional rights and judicial review. It also provides that government ministers may adopt statutory instruments in order to implement European Union law and that as an exception to the general rule such statutory instruments have effect as if they were primary legislation.

The European Communities Act, 1972, as amended, provides that Treaties of the European Union are part of Irish law, along with directly effective measures adopted under those treaties.

As is the case in the Irish legal system, there is a hierarchical set of sources of European law. At the head of the sources, are the European Treaties. At the same level as the Treaties, fall the general principles of European law. Underneath the treaties, we find secondary legislation. (4 Marks) The European Treaties There are currently two European treaties in existence, the Treaty of Rome 1957 (known as the EC Treaty), as amended, which brought both the European Economic Community (EEC) and EURATOM into existence and the Treaty on European Union of 1992. Preceding the Treaty of Rome, was the Treaty of Paris of 1951 which set up the European Coal and Steal Community. This Treaty is no longer in existence and the coal and steal sector has been subsumed into the general rules of the Treaty of Rome.

The Treaty of Rome has been amended on a number of occasions. Firstly, by the Single European Act of 1986, which aimed to bring about the completion of the internal market; secondly, by the Treaty on European Union, which created the EU, changed the name of the EEC to the European Community (EC) and introduced two new intergovernmental pillars – Justice and Home Affairs and the Common Foreign and Security Policy pillars; thirdly by the Treaty of Amsterdam of 1997 and more recently by the Nice Treaty of 2001, both of which were primarily designed to deal with the enlargement of the EU. With the exception of the Treaty on European Union, which is a stand alone treaty, the amendments introduced by the other treaties were incorporated into the body of the Treaty of Rome. Page 3

General Principles The general principles of Community law have been to a large extent set out by the European Courts and have been sourced from the laws of the Member States. These principles include for the most part human rights. Secondary Legislation There are five different types of Community measures or legislation provided for in Article 249 of the EC Treaty: 1. Regulations. Directives. 2. 3. Decisions. 4. Recommendations. 5. Opinions.

Article 249 EC Treaty specifically states that "in order to carry out their task and in accordance with the provisions of this Treaty, the European Parliament acting jointly with the Council and the Commission shall make regulations and issue directives, take decisions, make recommendations or deliver opinions." It is the responsibility of the Community institutions to enact secondary legislation. Each of the institutions has a role to play in the law making process and the extent of their respective roles depends on the procedure that is used in a particular area. All secondary legislation must derive from the EC Treaty. It must be based on a provision of the EC Treaty. This is to ensure that the Community institutions act only in the areas of EC competence and that they legislate as provided for in the Treaty. Otherwise, any legislation they enact will be ultra vires. (4 Marks)

Regulations Regulations are general in their application. They apply to everybody and every organisation in the Member States (governments, companies and citizens). They are binding in their entirety – this means that an incomplete application of a regulation is forbidden. They are also directly applicable meaning that once enacted in Brussels, they become part of EC law in all the Member States without the need for the Member States to ratify them into law individually. Regulations are used by the Council of Ministers or Commission when they want to achieve identical or uniform rules in all the Member States.

Directives A directive does not have general application; it is only binding on the Member State or States to which it is addressed. It is also only binding as to the result to be achieved. Each Member State to which it addressed has the discretion to decide how that result is going to be achieved. The obligation that is imposed on the Member State is to make the necessary changes to achieve the substantive objective of the directive. A directive envisages two general obligations: 1. The adoption of the directive at Community level. 2. The implementation or transposition obligation on the national governments of the Member States at national level.

Therefore, each Member State must pass implementing legislation but the method of implementation is at the discretion of each Member State. The transposition can be subdivided into firstly a formal obligation to implement the legislation and secondly the substantive obligation to subscribe to the objectives of the legislation. In contrast to regulations, under Article 249 EC Treaty, directives are not directly applicable. They are addressed to Member States and only binding as to the result to be achieved, leaving to the Member State the choice of form and method of implementation. Initially because directives were not directly applicable and contemplate further action by a Member State, they were thought not to be directly effective. However, over time the European Court of Justice recognised that the effectiveness of a directive would be undermined in if Member State nationals could not rely on them against a Member State that had failed to implement the directive on time or had wrongly implemented the directive. Individuals must prove that the provision that they are seeking to rely on is clear, precise and unconditional. Individuals may also bring actions on the basis of Member State liability in damages if they suffer loss as a result of the failure of the Member State to implement the directive on time or correctly. They must prove that the directive conferred rights on individuals, that the content of those rights was ascertainable from the terms of the directive and that there is a causal link between the failure of the Member State to implement on time and the damage suffered. In addition to this, the Commission may bring an enforcement action against the Member State that has failed to implement the directive under Article 226 of the EC Treaty for failure to fulfil its obligations of Community law. Other Member States can do so under Article 227.

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Decisions Decisions are really administrative acts. They are binding in their entirety but only on those Member States, undertakings or individuals to which they are addressed. They are the equivalent of a personalised regulation – they are addressed to specific people. In fact when a decision is issued, it has to be directed to a limited and defined group. They differ from directives as they are binding in their entirety and the Member States have no discretion as to how to implement them.

Recommendations and Opinions As with decisions, these two measures are administrative in nature. They are not legally binding. They are addressed to Member States, to real or legal persons. Recommendations are usually given on the initiative of an institution. An opinion is usually given in response to a question asked. Although they are not binding they are very important, as they are indicative of the view of the institution on a particular matter. (4 Marks)

European Community Law as a Source of Law in Ireland Ireland is a dualist state and treaties are not part of its domestic law unless incorporated by the Oireachtas. Ireland became a member of the European Community in January 1973. In order to give legal effect to European Community law in Ireland, Article 29 of the Constitution had to be amended to enable the State to ratify the Treaty of Accession. When Ireland joined the Community, the State agreed to subscribe to a new legal system and thereby created an additional source of law in this jurisdiction – European Community law. By accession to the Treaty of Rome and other European treaties, Ireland ceded some of her sovereignty and created a new body of law. European Community law takes precedence over national law in the case of a conflict, but only in areas of Community competence. In addition to the European Treaties, Ireland is also bound to secondary legislation emanating from the European Community. (2 Marks)

Doctrine of Supremacy and Obligation on Member States:European Community Law provides that directly effective Community law has primacy over National Law. The court first established the doctrine in the case of Costa v Enel, [1964] ECR 585. Here the Court restated its position in Van Gend en Loos, [1963] ECR1, to the effect that the EC Treaty had created a ʻnew legal orderʼ binding both Member States and their Nationals. The doctrine of supremacy not only called for significant change of state sovereignty but also involved a significant curtailment of the role of national courts insofar as they are not the ultimate arbiter of the impact of Community law on domestic law. In Ireland the supremacy of European Community law required a constitutional amendment, as the constitution is regarded as the supreme source of law. Where there is a conflict between European Community Law and Domestic Law European Community law prevails and provisions of European Community law can be enforced before National Courts. Regulations and directives bind everyone, while decisions only affect the parties to whom they are addressed (which can be individuals, corporations, or member states). Regulations have direct affect, i.e. they are binding in and of themselves as part of national law, while directives require implementation by national legislation to be effective. However, states that fail or refuse to implement directives as part of national law can be fined by the European Court of Justice. The European Communityʼs major impact, from a business prospective, has been in the area of regulationparticularly the area of banking and insurance, and consumer protection, Title XIV, Article 153, of the Treaty establishing the European Community, on consumer protection. (4 Marks)

Importance in relation to Commercial Law The European Community has played an important role to the extent that consumer protection legislation encourages consumers to participate in the market and thereby increases commercial activity. In regards to commercial law, the European Communityʼs influence has been proportionally important in the area of intellectual property, and commercial agents. A European Green Paper on European Contract Law was published in 2001 on Contract Law. One proposal is to harmonies contract law on European Community level. Such harmonization would broaden the influence of the European Community in the private rights of persons involved in the business area. Also at a European Level, the provision of a legal frame work is seen as central to the single market. The EC has produced directives on electronic commerce and electronic signatures, which have been implemented in part by the Electronic Commerce Act 2000. While European and international framework for e-commerce is being agreed, many legal questions remain to be answered. These will be resolved by a case by case basis before the courts. Many agency agreements are subject to the European Community (Commercial Agents) Regulations 1994 and 1997. These regulations were passed to implement the EC Directive on self commercial agents. (2 Marks) Page 5

SOLUTION 2

Discuss the principles of statutory interpretation with reference to relevant legislation.

AIM:- The purpose of this question is to assess studentʼs understanding of the principles of Statutory Interpretation; discussing the traditional rules of interpretation; the modern approach to legislative interpretation and to discuss the impact of the interpretation Acts on interpretation; making reference to relevant case law. Students will obtain good marks for identifying and setting out clearly the above mentioned.

Statutory interpretation is the process of interpreting and applying legislation. Interpretation is always necessary when a case involves a statute. Sometimes words of a statute have a straightforward and plain meaning, however in most cases; there may be some ambiguity or vagueness in the words of the statute that must be resolved by the judge. Judges use various tools and methods of statutory interpretation to find the meanings of statutes, including traditional canons of statutory interpretation, legislative history, and purpose.

Where a court interprets a statute, that interpretation has force of law, it also has significant moral authority, since the courts are deemed to be impartial. The courts are not allowed to substitute their preference for that of the Oireachtas.

The courts use various conventions of interpretation whenever they are called upon to interpret uncertain legislative provisions. The imprecise nature of language is dealt with everyday by the courts. From a legal position the function of interpreting legislation rests with the court. However, in the every day implementation of legislation the bodies charged with that implementation will interpret legislation, e.g. the planning authority will to a certain extent interpret the provisions of the planning regulations insofar as the requirements for a valid planning application are concerned. Lawyers also interpret legislation when advising clients. The courts are impartial. The interpretation of legislation by the courts is enforceable law. The courts are the ultimate arbiters in respect of the interpretation of legislation.

This general view was expressed by Barr J in Shannon Regional Fisheries Board v. An Bord Pleanala [1994] 3 IR 449. In that case it was argued that a court could not interfere with the finding of a tribunal as to its interpretation of the word “sow” unless it was shown to be unreasonable. In interpreting legislation the Court seeks to discover and give effect to the intention of the Legislature. Even if the Court believes that a more equitable result would be achieved by adding text it cannot do so because it would then be engaged in law making. Even where the court has identified an obvious oversight by Parliament in legislation, it cannot supply the omission through interpretation.

In State (Murphy) v. Johnson [1920] IR 235 the Supreme Court refused to correct an obvious mistake in the provisions of the Road Traffic (Amendment) Act 1978. Murphy had been convicted of drunken driving under the provisions of s 49 of the Act but s 23 erroneously referred to Part III (driving licences) rather than Part V (road traffic offences) of the Road Traffic Act 1968. The District Court Judge held that he was entitled to read ʻPart III of the 1968 Actʼ as meaning ʻPart Vʼ. The accused was convicted. The Supreme Court quashed the conviction. Although it was clearly an error it clearly and unambiguously referred to Part V and to read it otherwise would be to amend the section. This decision re-affirmed the courtsʼ inability to correct legislative errors. Griffin J –held that the courts proceed on the strong presumption that the legislature does not make mistakes and that, where possible, statutory words must be construed so as to give a sensible meaning to them. (2 Marks) There are a number of methods used by the courts in statutory interpretation.

Traditional rules of interpretation: The courts have adopted a number of canons or general rules of interpretation. These general rules are supplemented by a number of maxims and presumptions. These canons are not necessarily binding on the courts, they act as guideline; they have been traditionally referred to as the literal rule, the golden rule and the mischief rule.

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(a)

(b)

(c)

The Literal Rule This required the courts to apply the literal meaning of the words used in a statute in their ordinary, grammatical or commonplace sense. As Budd J remarked in Rahill v. Brady [1971] IR 69: “In the absence of some special technical or acquired meaning, the language of a statute should be construed according to its ordinary meaning and in accordance with the rules of grammar.”

The literal rule proceeds on the basis that the best way of discovering the true intention of the legislature lies in examining the words they used to draft the statute. Thus the court would apply the literal meaning even if that would lead to unfairness or injustice. (2 Marks)

The Golden Rule This was an exception to the literal rule, to be used where the application of the literal rule would lead to absurdity or inconsistency. Budd J explained the golden rule in The People (Attorney General) v. McGlynn [1967] IR 232 as follows : “What has been described as the golden rule in the construction of statutes is that the words of a statute must prima facie be given their ordinary meaning”. That literal construction has, however, but prima facie preference. As Lord Shaw said in Shannon Realties v. St Michel (Ville de) [1924] AC 185 at page 192 of the report: ʻ…where alternative constructions are equally open, that alternative is to be chosen which will be consistent with the smooth working of the system which the statute purports to be regulating; and that alternative is to be rejected which will introduce uncertainty, friction or confusion into the working of the system.ʼ” When applying the golden rule the court is allowed to look at the preamble and all the provisions of the statute, but cannot look at other material. (2 Marks)

The Mischief Rule The mischief rule allowed a court to examine pre-existing common law rules in order to ascertain the defect or mischief which the statute was designed to remedy – the statute would then be interpreted in a manner sufficient to deal with the mischief.

This was the oldest rule of statutory interpretation and has been used since the 16th century. In Heydonʼs Case (1584) 3 Co Rep 7a (at 7b), the golden rule was explained as follows:-Four things to be considered are; firstly; what was the common law before the making of the Act, secondly; what was the mischief and defect for which the common law did not provide, thirdly; what remedy the Parliament hath resolved and appointed to cure the disease of the Commonwealth, and fourthly; the true reason for the remedy.

(a)

The modern approach to legislative interpretation can be summed up in two headings: (a) The literal approach and (b) the schematic or teleological approach. (2 Marks) The literal approach The literal approach is the modern version of the literal rule. The court will apply the literal meaning of the words used in the statute, taking account of the context of the words. A leading case on this approach is

Inspector of Taxes v. Kiernan [1981] IR 117. This case acknowledges that the literal approach requires the courts to attribute the ordinary and natural meaning to words; this has to be derived from the context in which they appear.

The Supreme Court had to interpret a statute containing the word “cattle”. They were asked whether this expression could include pigs! Henchy J (at 121-122) approached the matter by the application of three basic rules of statutory interpretation. First, he considered if the statutory provision is one directed to the public at large, rather than to a particular class and in the absence of internal evidence suggesting the contrary, the word or expression should be given its ordinary or colloquial meaning , secondly, if a word or expression is used in a statute creating a penal or taxation liability, and there is a looseness or ambiguity attaching to it, the word should be construed strictly so as to prevent a fresh imposition of liability from being created unfairly by the use of oblique or slack language, thirdly, when the word which requires to be given its natural and ordinary meaning is a simple word which has a widespread and unambiguous currency, the judge construing it should draw primarily on his own experience of its use. Dictionaries or other literary sources should be looked at only when alternative meanings, regional usages or other obliquities are shown to cast doubt on Page 7

the singularity of its ordinary meaning, or where there are grounds for suggesting that the meaning of the word has changed since the statute in question was passed. Henchy J concluded that in regard to ʻcattleʼ, which is an ordinary and widely used word, “oneʼs experience is that in its modern usage the word, as it would fall from the lips of the man in the street, would be intended to mean and would be taken to mean no more than bovine animals. To the ordinary person, cattle, sheep and pigs are distinct forms of livestock.” Howard v. Commissioners of Public Works [1994] 1 IR 101

(b)

"The cardinal rule for the construction of Acts of Parliament is that they should be construed according to the intention expressed in the Acts themselves. If the words of the statute are themselves precise and unambiguous, then no more can be necessary than to expound those words in their ordinary and natural sense. The words themselves alone do in such a case best declare the intention of the lawgiver." (2 Marks)

The Schematic/Teleological Approach There will be circumstances in which the literal approach will lead to absurdity. In such cases, the courts often apply the teleological approach. It involves examining the scheme and purpose of the statute. The schematic approach is used frequently in interpreting EU law.

Denning LJ in Buchanan and Co v. Babco [1977] QB 208

"They [EC Judges] adopt a method which they call in English by strange words - at any rate they were strange to me - the "schematic and teleological" method of interpretation. ... All it means is that the judges do not go by the literal meaning of the words or by the grammatical structure of the sentence. They go by the design or purpose which lies behind it".

The emergence of this approach in this jurisdiction can be traced to the Supreme Court judgment in Frascati Estates Ltd v. Walker [1975] IR 177: (2 Marks) Interpretation Acts

These Acts have been enacted as an aid to statutory interpretation.

The Interpretation Act 2005 repealed a number of previous Interpretation Acts from 1889, 1923, 1937, and the Interpretation (Amendment) Act 1993.

Section 11: If the word sampla in Irish or example in English are used in a section of an Act, then the example is not to be read as exhaustive and may extend the limits of the provision.

Section 18: Sets out the meanings of a number of words used in statutes. E.g.: a. Singular and plural. A word importing the singular shall be read as also importing the plural, and a word importing the plural shall be read as also importing the singular; b. Gender. (i) A word importing the masculine gender shall be read as also importing the feminine gender; (ii) In an Act passed on or after 22 December 1993, and in a statutory instrument made after that date, a word importing the feminine gender shall be read as also importing the masculine gender; c. Person. “Person” shall be read as importing a body corporate…and an unincorporated body of persons, as well as an individual, and the subsequent use of any pronoun in place of a further use of “person” shall be read accordingly; Schedule: Interpretation of Words and Expressions Part I

“Constitution” means the Constitution of Ireland enacted by the people on 7 July 1937, as amended

“land” includes tenements, heriditaments, houses and buildings, land covered by water and any estate, right or interest in or over land “midnight” means, in relation to a particular day, the point of time at which the day ends

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“month” means a calendar month

“week” means the period between midnight on any Saturday and midnight on the following Saturday “week-day” means a day which is not a Sunday

“writing” includes printing, typography, lithography, photography, and other modes of representing or reproducing words in visible form and any information kept in non-legible form, whether stored electronically or otherwise, which is capable by any means of being reproduced in legible form.

“Modern statutory construction is thus conducted on the basis of both formal statutory rules and judicial principles and informal, often implicit and unarticulated, assumptions.” (2 Marks)

The Interpretation Act 2005 in more detail:

The goal of the Interpretation Act is to standardise the use of terms in legislation. The first such Act dates from 1850. A further Interpretation Act was enacted in 1889, and remained in force in Ireland for over 100 years (although it was supplemented and amended by Acts from 1923, 1937, and 1993, and by the 1997 Interpretation (Amendment) Act.

The 2005 Act repealed the above Acts save for the 1997 Act. The 2005 Act effectively consolidates the rules set down in the previous legislation. It came into force on 1 January 2006. The Attorney Generalʼs annual report for 2005 describes the Act as follows: “The purpose of the Act is to modernise the law relating to the general principles by which Acts and statutory instruments are interpreted.”

The Interpretation Act 2005 has been described as bringing about “a subtle but significant change in the methods of statutory interpretation”.

Commentators agree that the effect of the 2005 Act is to require the courts to take a more purposive approach to statutory interpretation: this is the accepted impact of section 5 of that Act.

“5. (1) In construing a provision of any Act (other than a provision that relates to the imposition of a penal or other sanction) – (a) that is obscure or ambiguous, or (b) that on a literal interpretation would be absurd or would fail to reflect the plain intention of – (i) in the case of an Act to which paragraph (a) of the definition of “Act” in section 2(1) relates, the Oireachtas, or (ii) in the cast of an Act to which paragraph (b) of that definition relates, the parliament concerned, the provision shall be given a construction that reflects the plain intention of the Oireachtas or parliament concerned, as the case may be, where that intention can be ascertained from the Act as a whole.”

Section 5(2) imposes an identical requirement in the case of an obscure of ambiguous statutory instrument.

The Act does indeed appear to have been interpreted as mandating a purposive approach:

Copper v. Cork City Council, High Court, Murphy J, 8 November 2006 “A purposive approach is clearly permitted as is clear from s. 5 of the Interpretation Act, 2005, that best reflects the plain intention of the parliament where that intention can be ascertained from the Act as a whole.”

Minister for Finance v. Civil and Public Service Union High Court, Laffoy J, 20 January 2006 The respondent challenged the jurisdiction of the High Court to hear an appeal on a point of law pursuant to s. 21(4) of the Employment Equality Act 1977, contending that the decision of the Labour Court was not a “determination” of a dispute. Laffoy J held that the Court did have jurisdiction and also held that a purposive approach to statutory interpretation was now mandated by section 5 of the 2005 Act.

Section 6 is also somewhat innovative in that it allows statutory provisions (and provisions of statutory instruments) to be given a more up to date construction:

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“6. In construing a provision of any Act or statutory instrument, a court may make allowances for any changes in the law, social conditions, technology, the meaning of words used in that Act or statutory instrument and other relevant matters, which have occurred since the date of the passing of that Act or the making of that statutory instrument, but only in so far as its text, purpose and content permit.”

Most pieces of legislation contain headings and notes in the margins. Under the 1937 Act, it was impermissible for the court to have regard to notes in the margins of the legislation in order to interpret any Act. However this strict rule appears to have been relaxed by Section 7 of the 2005 Act, by allowing a court, when construing a provision for the purposes of section 5 or 6, to make use of all matters that are set out in the signed text of the law. When the law is ambiguous or obscure the use of headings and marginal notes is allowed. Hunt describes this as “perhaps one of the Actʼs most significant features” and “a significant departure from pre-existing practice”. (4 Marks) Limits of the Interpretation Act 2005

The “exclusionary rule” is a “judicial policy” (Donlon and Kennedy) preventing the courts from having regard to extrinsic material when interpreting statutes.

Reasons for the “exclusionary rule” included factors such as an absence of reliable parliamentary reporting (historically), the desire to protect parliamentary privilege, and the growth of stare decisis as a hard rule, linked to the increased popularity of positivism. Practical reasons might include a possible adverse effect on legislative practice if such material were to be allowed in. (Donlon and Kennedy).

The Law Reform Commission were of the view that the courts should be allowed to refer to all helpful extrinsic aids when interpreting legislation. The Commission also took the view that the courts should have the option of referring to this extrinsic material in any case, and not only in cases where the meaning of the provision before the court was unclear.

It is important to note that the 2005 Act does not explicitly refer to the possibility of using extrinsic aids such as parliamentary debates when interpreting legislation. Therefore, the use of such material is still not permitted. (1 Marks)

Traditional Aids to Interpretation

1 2 3 4

The long title of the Act itself. Prior or related statutes. International treaties and travaux préparatoires. Can the courts look at the legislative history of a Bill? This question has caused much controversy. E.g.: Millar v. Taylor (1769) 4 Burr 2303 Willes J: “[T]he sense and meaning of an Act of Parliament must be collected from what it says when cast into law, and not from the history of changes it underwent in the House where it took place.”

Wavin Pipes v. Hepworth Iron Company Limited [1982] 8 FSR 32 Costello J took the view, contra the received wisdom, that it was possible to look at parliamentary debates as an aid to statutory interpretation in appropriate cases.

DPP v. McDonagh [1996] 2 ILRM 468 Costello P (sitting in the Supreme Court): “It has long been established that a court may, as an aid to the construction of one of its provisions, consider its legislative history, a term which includes the legislative antecedents of the provisions under construction as well as pre-parliamentary material and parliamentary material relating to it.” (1 Marks)

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SOLUTION 3 Discuss the concept of possession of chattels and the types of possession that may arise in Irish law.

AIM:

The aim of this question is to test both studentsʼ knowledge of the concept of possession of chattels and the types of possession that may arise in Irish law. Students will obtain good marks for identifying and analysing the area of law which involves the classification of property and the types of possession that may arise in Ireland, the transfer of property and the dealing in property.

The transfer or dealing in property may be through a contract for the sale of goods, the issue and transfer of negotiable instruments, or the grant of a licence to use a trade mark. Property can be classified as real or personal; real property being land, and anything permanent attached to it i.e. buildings, and personal being everything else.

Personal property is divided into two categories – chattels real, comprising mainly of leasehold interests in land, and chattels personal. Chattels personal can be divided further into mainly two classes, namely tangible movables and intangible movables. Intangible movables comprise of legal rights that have no tangible form in themselves. They may be represented in the form of a document, i.e. bills of lading. Rights which are not documentary intangible are pure intangibles, e.g. copy right and good will. (2 Marks)

Possession is a legal concept and has no equivalent in Equity. No property rights are created in law or equity when a person agrees to hand over possession. The remedy for failure to deliver would be breach of contract. Possession is only capable to chattels which are capable of physical possession, i.e. documentary intangibles, goods or money; hence pure intangibles cannot be physically possessed.

That possession is prima facie evidence of ownership indicates the importance of possession. Possession may be relevant to the transfer of legal ownership, and where there is a conflict of title over goods. Possession is the basis for certain remedies, the plaintiff in an action for trespass much have been in actual possession of the chattel, or had immediate right to possess, when the defendant allegedly interfered. (2 Marks)

In the case of insolvency possession may also be relevant. Where the buyer of goods goes insolvent while the goods remain in the possession of the unpaid seller, there is an entitlement for the seller to exercise a statutory lien over the goods. Where the goods are in transit to the buyer, the unpaid seller has a right of stoppage in transit. (2 Marks)

Possession had three basic elements, physical possession; legal possession and the right to either physical or legal possession. Physical possession may be acquired by taking possession of a chattel or an object which will give physical control of the chattel i.e. possessing the key to the warehouse where the chattel is stored. Possession is deemed to continue once acquired unless abandoned or acquired by someone else. An intention to exclude others is a prerequisite for physical possession to constitute possession in law. Normally legal possession exists with physical possession which makes the exercise of control over the chattel lawful. Legal possession may exist with or without physical possession and with or without rightful origin. As per ʻWhiteʼ Commercial Law – the following example, from Pollock and Wright, explains the concept: (2 Marks)

A tailor sends to JSʼs house a coat which JS has ordered. JS puts on the cost and then has both physical control and rightful possession in law. JS takes off the coat and gives it to a servant to take back to the tailor for some alterations. Now the servant has physical control…and JS still has the possession in law. While the servant is going on his errand .Z assaults him and robs him of the coat. Z is not only the physical master of the coat, but, so soon as he has complete control of it; he has possession in law, though a wrongful possession. (2 Marks)

From the above it is clear that JS had legal possession of the coat to begin with. JS maintains legal possession when he gives the coat to the servant, he gives physical possession to the servant, but the servant does not have the intention to control or to exclude others, which is necessary for legal possession. When the thief steals the coat from the employee the thief, although wrongful, has legal possession, and JS loses legal possession. A right to physical or legal possession is what remains when the lawful possessor is wrongfully dispossessed. When the coat is stolen JS is left with a right to possession or to Page 11

legal possession. Where the Bailee holds possession for the bailorʼs interest, the bailor and bailee will share legal possession. That is said that the bailee has physical possession while the bailor has constructive possession. Constructive possession is a legal concept; there is no such thing as possession in equity in Irish Law. (2 Marks)

The transfer of possession may be effected by a unilateral action (such as theft) or by the operation of the law. The most common form of transfer in a commercial context is the voluntary transfer effected by actual or constructive delivery. Actual delivery is where the actual physical possession of the chattel is delivered to the transferee. Constructive delivery is where the transferee is given actual control of the chattel though actual physical possession is usually not transferred. (2 Marks)

Constructive delivery is important in the context of attornments and bailments.

Attornment is an important commercial application of the concept of constructive delivery. It is a process where one party holding actual possession of the chattel, later undertakes to hold possession of the chattel for someone else- the attornor to the attornee. The former must give his undertaking to the latter and once given the attornee has constructive possession of the chattel. (2 Marks)

Bailment is a transaction whereby one party delivers chattels to another party – the bailor to the bailee, on terms which normally require the bailee to hold the chattels and eventually to redeliver the chattels to the bailor or in accordance with his directions. . The notable feature about a bailment is that there is no transfer of ownership in the chattels, merely possession. This transaction is temporary in nature. An everyday example of a bailment is leaving a coat in a cloakroom for later collection. . They can be contractual or gratuitous. There are three requirements for a bailment 1. 2. 3.

The bailee must receive possession of the chattel The bailee must consent to take possession of the chattel The bailor must retain a superior interest to the chattel that that of the bailee.

(2 Marks)

Broadly speaking bailments fall into two categories, bailments for reward (e.g. hire contracts) and gratuitous bailments (i.e. lending a book to a friend without charge). The basis of liability under a bailment is negligence, where the bailment is for reward the usual standard of bailment applies; where the bailment is gratuitous it is thought the bailee will only be liable for gross negligence; the bailee must prove he was not negligent to reverse liability. (2 Marks)

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SOLUTION 4 Christina is the managing director of a growing Irish company selling consumer goods in the domestic market. Although she always travels executive class Christina is a great fan of the low cost model in the Irish airline sector. Accordingly she has decided to apply the low cost model to the sale of consumer goods. Christina is of the view that if the Irish consumer is getting goods at low cost that they have no right to expect particularly good quality. Christina has a recollection from her college days that a well drafted exclusion clause in a contract can protect a company in this sort of situation. Advise Christina.

AIM:

This problem requires knowledge of the law relating to Consumer law; the Sale of Goods Acts 1893 and 1980 and an understanding in relation to exemption clauses in contracts.

Consumer contracts are protected by the Sale of Goods and Supply of Services Act 1980. When purchasing goods consumers have entitlements under the said Act.The provisions of the Sale of Goods Act 1893 as amended by the Sale of Goods and Supply of Services Act 1980 are designed in large measure to fill in the gaps by means of implied terms and other rules, e.g. as to the passing of property and damages.

Implied terms in sale of goods contracts are the key principles of consumer protection. In any consumer transaction, these terms form part of the contract, as a way of increasing the buyerʼs legal position. A seller is not allowed to contract out of these implied statutory protections. The Act contains implied conditions and implied warranties. Breach of condition gives the innocent party the right to discharge or end the contract and claim damages. Beach of warranty gives the innocent party the right to damages only. (2 Marks) Implied Condition as to Title

S.12 provides that there is an implied condition on the part of the seller that in the case of a sale, he has a right to sell the goods and in the case of an agreement to sell, he will have the right to sell the goods at the time when the property is to pass. If the seller cannot pass good title to the buyer, he will be liable for breach of a condition. (Rowland v. Divall (1923) Sale of Goods that infringe a copyright, trademark or patent would be in breach of S.12: Niblett v. Confectioners Materials Co. Ltd. The Court of Appeal held that the sellers were in breach of the implied condition set out in S.12 (1) of the Sale of Goods Act. (2 Marks)

Implied Condition as to Sale by Description

Section 13(1) provides that, where there is a contract for the sale of goods by description, there is an implied condition that the goods will correspond with the description. If the buyer does not see the goods before he buys them (e.g. from a mail order catalogue), there has clearly been a sale by description. Even where the buyer has seen the goods and, perhaps, selected them himself, it may still be a sale by description, provided he has relied to some extent on a description. Beale v. Taylor - The defendant advertised a car for sale as a 1961 Triumph Herald. The plaintiff inspected the car before he bought it. He later discovered that the vehicle consisted of a rear half of a 1961 Herald which had been welded to the front half of an earlier model. The Court of Appeal held that the plaintiff was entitled to damages for breach of S.13 as he had relied to some extent on the description contained in the advertisement. (2 Marks)

Implied Condition as to Merchantable Quality

Under S.14, where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of merchantable quality. Merchantable quality is defined in S.14 (3) as where goods are fit for the purpose or purposes for which goods of that kind are commonly bought and as durable as is reasonable to expect having regard to any description applied to them, the price (if relevant) and all other circumstances. Cehave v. Bremer, The Hansa Nord (1975). Here it was held the goods were used for its purpose, i.e. making cattle food, and so by that test, it was of merchantable quality.

The implied condition as to merchantable quality does not apply where: a) Defects are specifically drawn to the buyerʼs attention before the contract is made; b) The buyer examines the goods before the contract is made, as regards defects which that examination ought to reveal. (2 Marks)

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Implied Condition as to Fitness for Purpose

Under S.14 (4), when the seller sells goods in the course of a business and the buyer expressly or by implication makes known any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose. This term will only be implied if the buyer notifies the seller of the particular purpose for which the goods are required. Priest v. Last (1903). Here it was held that because the hot water bottle was not an effective hot water bottle, the implied condition in S.14 (4) had been breached. If however, the goods can be used for more than one purpose or there are special circumstances which affect their suitability, there is no breach of this condition unless the buyer had made an express disclosure. (2 Marks) Consumer Law in Ireland

Initially Irish Consumer Law reflected legislative developments in the United Kingdom but now the principal influence comes from EU legislation. The principal law of consumer legislation in Ireland are as follows: The Sale of Goods Act 1893; The Consumer Information Act 1978; The Sale of Goods and Supply of Services Act 1980.

The Consumer Information Act 1978 A high level of accuracy is required in respect of the trade descriptions used in the supply of goods and the provision of services. Any person who in the course of any trade, business or profession applies any false or misleading trade description to goods is guilty of an offence. Trade description has a wide meaning and includes any description, statement or other indication of goods. An oral statement may amount to a trade description. Effectively, the Consumer Information Act 1978 imposes a positive duty of care on traders in respect of the level of accuracy required and information provided..

The Consumer Information Act 1978 affects the character and contents of consumer contracts by obliging businesses to be truthful in advertisements and negotiations leading to the formation of a contract. Thus I would advice Christina that is she was not going to provide particularly good quality she would be expected to indicate same. (2 Marks)

Sale of Goods and Supply of Services Act 1980 Although the underlying principle in any transaction relating to the sale of goods is that of caveat emptor ("let the buyer beware"), under the Sale of Goods Act 1893 and the Sale of Goods and Supply of Services Act 1980, several conditions and warranties will be implied into contracts for the sale of goods.

The implied rights of a consumer under the Sale of Goods and Supply of Services Act 1980, cannot be taken away in consumer transactions. It is an offence for a retailer to do certain things, which imply that the consumer does not have these rights if displayed on business premises, or if published in an advertisement, or appearing on goods themselves or in any document (e.g. a receipt).

A retailer's liability to consumers may be limited in specific cases: The retailer can draw the consumer's attention to faults in a product e.g. by labelling them "shop soiled", "seconds", "imperfect" etc. The consumer cannot claim in respect of defects brought specifically to his attention. ● Where goods are incorrectly described by, for example, words on a package, the retailer can block out the offending description or otherwise make it clear to the consumer that the description is not true. ● If the consumer indicates that the goods are going to be used for a particular purpose, the retailer can, in certain circumstances, express doubt as to whether the goods can be used in that way. ● Retailers are not responsible for defects, which arise through the misuse of the goods by the consumer, except where the buyer has been given to understand that the goods may be used in that particular way. (2 Marks) ●

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European Communities (Certain Aspects of the Sale of Consumer Goods and Associated Guarantees) Regulations 2003 These Regulations give additional protection to a consumer in addition to the existing consumer protection granted by the Sale of Goods and Supply of Services Act 1980 and the European Communities Regulations provide for the following: ● the liability of retailers for statements made on the specific characteristics of goods; ● the reduction of the price of the goods as a remedy open to consumers in certain circumstances; ● the liability of retailers in relation to incorrect installation of the goods even where the goods were installed by the consumer following inappropriate instructions; and ● if the goods have a guarantee, consumers have a right to obtain a written guarantee at the time of purchase with details on how to make a claim under the guarantee, the duration of the guarantee and the territorial scope of the guarantee. (1 Mark)

European Communities (Misleading Advertising) Regulations 1988 The 1998 Regulations give the Director of Consumer Affairs the power to request any person engaged in misleading advertising to discontinue or refrain from so doing. Any person, including the Director, may seek an injunction prohibiting advertising without having to prove actual loss or damage nor to show recklessness or negligence on the part of the advertiser. The Regulations increase the powers of the Director to include wide-ranging powers of search and inspection of company's financial records in order to discharge the Director's functions. (1 Mark)

European Communities (Unfair Terms in Consumer Contracts) Regulations 1995 and 2000 The fundamental aim of these Regulations is to invalidate terms in consumer contracts for the supply of goods and services where the terms have not been individually negotiated, and certain terms are deemed unfair according to prescribed criteria. The effect of the Regulations is that those engaged in business who deal with consumers should be careful about the terms and conditions that they offer to customers. The Regulations considerably increase the rights of consumers and also have an impact on oral contracts and contracts partly written and partly oral. The Regulations apply to a wide range of contracts including sale of goods (e.g. in shops and supermarkets).

European Communities (Requirements to Indicate Product Prices) Regulations 2002 These Regulations relate to consumer protection in the indication of the prices of products offered to consumers. The Regulations apply to most products for sale by "traders" to consumers. Such products are required to indicate the selling price (final price including VAT and all other taxes) and the unit price of that product. The indication of the selling price and of the unit price must be unambiguous, easily identifiable, legible and in proximity to the product. A trader includes any natural or legal person who sells or offers for sale products, which fall within his commercial or professional activity. A trader may offer products for a reduced sale price by reference to a reduction by a fraction or percentage of the previous price indicated, by a general notice or other visible means provided that the particulars are unambiguous, easily identifiable, visible and legible. Goods are deemed to be in conformity with the contract if, at the moment of delivery to the consumer: ●

● ●

●

they comply with the description given by the seller and possess the qualities of the product which the seller has held out to the consumer as a sample or model; they are fit for the purposes for which goods of the same type are normally used; they are fit for any particular purpose for which the consumer requires them and which was made known to the seller at the time of conclusion of the contract, and accepted by the seller; their quality and performance are satisfactory, given the nature of the goods and taking into account the public statements made about them by the seller, the producer or his representative. (1 Mark)

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Exemption Clauses

An exemption clause is a term of a contract which seeks to exempt one of the parties from a liability which might arise out of the adoption or performance of the contract, or which seeks to limit his liability to a specific sum if certain events occur, such as a breach of warranty or negligence. These are also known as "exclusion clauses".

Exemption clauses are a legitimate device between parties negotiating their contract from positions of more or less equal bargaining strength. There has, however, been strong criticism of the use of exemption clauses by large organizations to abuse their bargaining power. The courts have developed various rules to restrain the effect of such clauses.

Before a court will permit reliance upon an exemption clause, it must be satisfied that the particular document relied upon as containing the disclaimer/excluding term is an integral part of the contract. It is assumed that no reasonable man would expect to find contractual terms in a mere receipt for money. In Chapelton v. Barry UDC (1940), the appellant paid for the hire of two chairs and was given two tickets on the back of which was a condition which purported to exclude the respondent's liability for any injury which the hirer might sustain. The appellant did not read this condition. The canvas on one of the chairs was defective and the appellant claimed damages in respect of the injuries which resulted. It was held that damages would be awarded, as the appellant was entitled to assume that the conditions of hire were to be found on the notice near the stack of chairs. The ticket was a mere voucher or receipt to prove payment of the time of commencement of hire. (1 Mark)

Christina must be aware that reasonable steps must be taken to bring the existence of the exemption clause to the notice of the other party. This does not mean that the notice party must actually know of the terms. In Thompson v. LMS Railway (1930), the exemption clause in question was contained in conditions on the front of the ticket. Mrs. Thompson was unaware of the terms, but as the railway company has taken reasonable steps to notify the ordinary passenger by referring to the conditions on the ticket, Mrs. Thompson was bound by them. (1 Mark)

Where the exclusion sought is of a serious nature, such as liability for death or injury, then reasonable steps taken to notify on tickets requires that such notices be especially prominent. In Thornton v. Shoe Lane Parking Ltd. (1971), the plaintiff parked his car at the defendant's automatic car park. It was held that the defendants were not protected by the exemption clause. In order to show that the plaintiff was bound by it, it was necessary to show either that he knew of it, or that the defendants had done what was reasonably necessary to draw the exemption clause to his attention.

As an exclusion clause is invariably drafted by the imposer of it, this is an extremely useful weapon against exclusion clauses. Applying the relevant law to the facts of the case, the following conclusion may be made: Christina will have to be advised that the view she is taking is incorrect in relation to the low cost goods, that view being that if the Irish Consumer is getting goods at low cost they have no right to expect particularly good quality. The company may or may not be able to depend on the draft exclusion clause in the contract. (1 Mark)

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SOLUTION 5 David was told by his uncle that if he passed his final college exams that the uncle would give him €2,000 in cash the day after the results were announced. David passed the exams but when he presented himself to his uncle for the money the uncle laughed and said that he made the comment in jest. David said he was most displeased as he had promised his girlfriend, Donna, that if he passed the exams that he was planning for the two of them to go to Spain. The uncle said that was news to him to which David retorted it that he would be getting further news later on in the day when David and Donna issued High Court proceedings looking for their money and seeking damages owing to the fact that they would have to cancel their holiday. Advise the uncle.

AIM: This contract law question requires students to show an understanding of the basic requirements in the formation of a contract. Students are expected to define the meaning of an offer, the meaning of acceptance and the meaning of consideration and to explain the rules that pertain to each and to third party rights. Students who demonstrate a clear understanding of these concepts will preform well in the question. Extra marks will be awarded to those students who show a good knowledge of case law in the area. Introduction

A contract arises from an agreement that is formed on the basis of offer and acceptance. The rules of offer and acceptance are therefore important in determining agreement between the various parties to a contract. One party, the offeror, makes the offer, and another, the offeree, accepts that offer. An offer is a clear and precise proposition outlining the conditions and terms upon which the offeror is willing to contract, dependent upon the acceptance of the offeree. Acceptance is defined as the ultimate expression of agreement to the terms and conditions offered by the offeror. Acceptance is made up of two parts: first, the fact of acceptance and secondly, the communication of acceptance. (2 Marks) Offer

An offer can be in written or oral form and can also be indicated by conduct. It can be made to an individual or to a group of people. The offeror must indicate that he is willing to be bound by the proposition that he makes. Such an intention need not necessarily be in written format. In fact, it can be inferred from the nature of the proposition or from the circumstances in which it is made. It is necessary to distinguish between an offer and an invitation to treat. In the case of a true offer, the offeror is bound to contract once his offer is accepted. However, in the case of an invitation to treat the offeror cannot be bound by acceptance.

It is possible to withdraw or revoke an offer once it has been made. In a unilateral contract, the offeror is usually entitled to withdraw it at any time before performance is complete. However, the courts in general do not allow the withdrawal of an offer after performance. The offeror must indicate that the offer has been withdrawn. (2 Marks) Acceptance

Acceptance consists of two parts: 1) the fact of acceptance and 2) the communication of acceptance. (1 Mark) The Fact of Acceptance

There are a number of issues involved in the fact of acceptance. It must be ascertained that acceptance had occurred as a fact. What amounts to acceptance must also be addressed. Acceptance can take the form of words, written or oral or alternatively, acceptance can be made by conduct. The obvious example of acceptance by conduct is that in a unilateral contract, where by virtue of the performance of some act by a party, they accept the offer made by the offeror. Acceptance by conduct can also occur in the case of a bilateral contract. This is evident from the case of Brogden v Metropolitan Railway Co. (1877). Brogden had supplied the defendants with coal for years without any formal agreement between them. The defendants later sent a draft agreement to Brogden, who inserted a new term and returned the draft contact marked approved. The arrangement continued under the draft agreement for two years, at which time a dispute arose. The House of Lords held that a contract had been created by conduct. This contract came into existence when the defendants ordered their first coal delivery under the draft agreement or if not at that time, when it was delivered. Page 17

Acceptance must exactly fit the offer. This means that acceptance is only effective as such if it accepts all the terms and conditions of the offeror without qualification or additional terms and conditions. Modifications to the original offer by the offeree amount to a counter-offer which must in turn be accepted by the original offeror. The original offeror can reject the counter-offer, in which case, no contract is formed. (1 Mark) The Communication of Acceptance

It is not sufficient that the offeree decide to accept the terms and conditions offered by the offeree – he must communicate as much to the offeror. (1 Mark)

Consideration

Consideration is one of the essential elements of a binding contract. The mere fact of an agreement between the parties alone does not make a contract. The law concerns itself with bargains. This means that each side must promise or give something to the other. The element of exchange is known as the "consideration" and is an essential element of every valid simple contract.

Consideration has been defined by the House of Lords in Dunlop v. Selfridge (1915) as "an act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought and the promise thus given for value is enforceable. "Consideration can take two forms: executed or executory. (2 Marks) Executed consideration is where one party promises to do something in return for the act of another. For example, if A promises a £10 reward for the return of a lost cat and B finds the cat, returns it to A and claims the reward. Executory consideration is where the parties exchange promises to perform acts in the future. For example,"cash on delivery" terms. A promises to pay £1000 when a new computer is delivered. B promises to deliver the computer within 6 weeks.

One of the rules of consideration is that consideration must be sufficient but need not be adequate. It must be possible to attach some value to the consideration but there is no requirement for the bargain to be strictly commercial. Provided the consideration has some economic value, the consideration need not be adequate. The court does not concern itself with the adequacy of consideration. (2 Marks) Intention to Create Legal Relations

(3 Marks)

Advice to David

I would therefore advise David that the he may well experience difficulty in establishing that the agreement with his uncle is binding and supported by valid consideration.

Third Party Rights

As a general rule a person who is not a party to a contract cannot enforce the terms of that contract, and those terms cannot be enforced against him. This is termed the doctrine of privity of contract. In the case of Tweddle v Atkinson (1861) a son was unable to enforce an agreement made between his father and his prospective father-in-law that money would be paid to the son on his getting married. It appears that a contract is regarded as being personal to the parties. However this rationale is no longer accepted and the modern feeling is that expressed by Steyn LJ in Darlington BC v Wiltshire Northern Ltd [1995] WLR 68, 76:

ʻ…..there is no doctrinal, logical, or policy reason why the law should deny effectiveness to a contract for the benefit of a third party where there is the expressed intention of the parties. Moreover, often the parties, and particularly third parties, organise their affairs on the faith of the contract. (2 Marks)

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Until this rule is abrogated by statute, it remains in place. Two questions must be dealt with, firstly who is party to a contract and when can a non party rely on a contract. Who is party to a contract is answered ʻthe parties to the agreement are the persons from whose communications with each other the agreement has resultedʼ.

The law of agency is a way of circumventing the doctrine of privity – an agent is a person with authority to enter into certain transactions on behalf of another person, the agent can become a party of the contract and sue and be sued. (2 Marks)

Equity permits a beneficiary under a contract to directly enforce that contract. ʻif the contract…is intended to secure a benefit to c so that c is entitled to say that he has a beneficial right as cestui que trust under that contract; then c would, in a court of equity, be allowed to insist upon and enforce the contractʼ.

I would advise Donna that the courts would be hesitant to find that the parties to a contract intended to create a trust for the benefit of her as a third party. (2 Marks)

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SOLUTION 6 Discuss the concept of insurable interest in Irish law.

The aim of this question is to test the studentsʼ knowledge of the concept of insurable interest in Irish law. To perform well students must be able to show a clear understanding of Insurable Interest and refer to types of insurable interests. It is a requirement of every insurance contract that the insured has an ʻinsurable interestʼ in the event insured against. A person has an "insurable interest" in something when loss or damage to it would cause that person to suffer a financial loss or certain other kinds of losses. If the house B owns is damaged by fire, the value of the house has been reduced, and whether B pays to have the house rebuilt or sell it at a reduced price, B has suffered a financial loss resulting from the fire. By contrast, if Bʼs friendsʼ house, which B does not own, is damaged by fire, B may feel loss for his friend, but B has not suffered a financial loss from the fire. B has an insurable interest in his own house, but not in his friendsʼ home. (2 Marks)

A basic requirement for all types of insurance is the person who buys a policy must have an insurable interest in the subject of the insurance. You have an insurable interest in any property you own or which is in your possession. You do not have an insurable interest in the property of others. This requirement seeks to prevent ʻa mischievous kind of gamingʼ

For purposes of life insurance, everyone is considered to have an insurable interest in their own lives as well as the lives of their spouses and dependents. For property and casualty insurance, the insurable interest must exist both at the time the insurance is purchased and at the time a loss occurs. For life insurance, the insurable interest only needs to exist at the time the policy is purchased. (2 Marks)

The requirement of an insurable interest is based on the notion that the insured should have an economic interest or a proximate legal relationship with the subject matter insured.

The concept of insurable interest is also related to indemnity insurance. Under indemnity insurance, the insured must have suffered a loss to be indemnified, but where the insured has no interest in the event insured against he cannot have suffered a loss to be compensated. Irish courts have adopted a liberal interpretation of the requirements of an insurable interest.

(2 Marks)

Life Assurance:

This area is governed by the Life Assurance Act 1774, which was extended to Ireland by the Life Accordance (Ireland Act) 1886. This legislation requires the insured under a policy of life assurance to have an insurable interest in the life insured. This applies when the policy is effected and not when the claim is made. It is clear that a person has an insurable interest in his own life (despite the lack of financial interest) as do most close relatives. (2 Marks)

A creditor may have an insurable interest in the life of his debtor and an employer may have an insurable interest in the life of employee and vice versa. The name of the person to whom the policy is made must be inserted into the policy or else the policy is rendered illegal. The interest and the sum claimed for is restricted by the value of the interest. The 1774 act expressly states that it does not apply to ʻships; goods; or merchandiseʼ and its application to other types of merchandise in unclear. The title of the act would suggest that it is concerned with life assurance only. In M.I.B.I v P.M.P.A the Supreme Court proceeded on the basis that the 1774 Act had a wide application. Here the court found that the insurance of a motor vehicle was insurance of ʻgoodsʼ within the meaning of section 4 of the 1774 Act. The Court found that because the policy was one of indemnity insurance, there was still a requirement to have an insurable interest. However in Church & General v. Connolly and McLoughlin the Court limited the application of the 1774 Act to life policies. (2 Marks) Page 20

Marine insurance

Marine insurance is governed by the Marine Insurance Act 1906. In Marine insurance ʻevery person has an insurable interest who is interested in a marine adventureʼ. The insured must have acquired an interest by the time of the loss, provided that at that time the policy was effected. (2 Marks)

With regard to other forms of insurance, the gaming and Lotteries Act 1956 requires a sufficient interest at the time the contract is made to prevent the contract being one of wager, and the common law requires insurable interest at the time of the loss. (2 Marks) The classic definition of insurable interest in relation to property insurance was given by Lord Eldon in Lucena v Crauford where it was defined as a right in the property, or a right derivable out of some contract about the property, which in wither case may be lost upon some contingency affecting the possession or enjoyment of the partyʼ. The House of Lords accepted this narrow definition of insurable interest.

Insurance of third parties interest

(2 Marks)

A third party is caught by the privity of contract rule which provides that only parties to a contract can enforce it against each other. In relation to the insurance of goods, it is clear that an insured who has an interest in the goods can recover to the extent of his interest. If the policy is construed to cover the interest of the third party as well as of the insured, if the insured claims he will hold any proceeds for the third party either on trust or subject to a duty to account. Under agency law principles a third party may enforce a contract of insurance made in his name. . The third party may not be named in the policy but it seems that provided that he can show that he authorised the named insured to obtain insurance on his behalf, the third party may be able to enforce the insurance as an undisclosed principle. (2 Marks)

Where a person disposes of insured property, any insurance contract lapses for lack of insurable interest. However, the insurance policy may, in theory, be assigned at the same time of the property thereby ensuring no lapse of an insurable interest. This is provided the necessary formalities are complied with. (2 Marks)

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SOLUTION 7

AIM:

Discuss the types of company that may be formed under the Companies Acts 1963 – 2007

The aim of this question is to test the studentsʼ knowledge of the various types of companies that can be created under company law. The student should be able to identify the difference between public and private companies and give a comprehensive list and definition of all the types of companies that can be formed. Students will obtain good marks if they provide detailed definitions and descriptions of each type of company and extra marks will be awarded for examples of each company and mention of relevant statutes where applicable. To perform very well students must be able to show a clear understanding of each company they are describing. For the Companies Acts 1963-2006 to apply to a company, the company must be registered under those acts and appear on the registrar of companies, that the company proposes to carry on an activity mentioned in the memorandum in the State. Companies that can be registered under the Acts fall into a number of distinct legal categories: principally limited (either by shares or guarantees) or unlimited companies; private or public; one person companies; public limited companies; guarantee companies and external companies. (2 Marks)

1. Limited Companies:

In a limited company the liability of the members for the debts and wrongs of the company can be limited to the amount unpaid on the shares which they own in the company or the amount which they undertake to pay in the event of the company ceasing to exist. Limited liability therefore concerns the liability of the members to the company and not to the companies creditors. Limited liability is a product of statute (established by CA 1963 s.5 (2)) and does not stem from the fact that the company is a separate legal entity. Separate legal entity means that the company is distinct from its members and the affairs of the company are managed by the directors and not by the members. There may be circumstances when shareholders and members of a limited liability company will be held personally responsible by the courts for the company debts (piercing of the corporate veil. (2 Marks) There are three principal types of limited liability companies:

(i) Limited by shares

The issue of shares is a method for a company to raise capital in exchange for part ownership of the company (shareholders will not own company assets). The members of such a company are those who have agreed to become members and whose names have been entered on the register of members and their only liability to creditors (responsibility for debts of company) is limited to paying the full amount payable on their shares. Also, members ownership of shares usually gives certain important rights to shareholders. (2 Marks)

(ii) Limited by guarantee

This type of company does not issue shares and therefore will not have shareholders. Instead members have a form of personal membership and give a guarantee to the company that in the event that the company is wound up, they will be liable for the companies debts to the extent of the figure on the guarantee. I.e. Liability of the members is limited by the memorandum to the amount which they each undertake to contribute to the assets of the company in the event of the company being wound up. Members of such companies will not be required to provide the company with cash either on its formation or during its active life. Companies limited by guarantee are often used for clubs, social societies and charities which are not trading and do not need capital.

Membership is by subscription and undertaking is to pay a further amount (the guarantee) in the event of insolvency. They can also be used as management companies for apartment blocks. (2 Marks)

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(iii) Limited by guarantee and having a share capital

Public companies are invariably registered with limited liability and if limited by guarantee are prohibited from having a share capital. Most registered companies are private companies limited by shares, and in contrast to public limited companies, private companies limited by guarantee may also have a share capital, but such companies are rarely used. Such a company is a hybrid company where the shareholders (who owe the company any unpaid amounts on their shares) and who have also guaranteed to pay the companies liabilities up to a specified amount in the event that the company is wound up. (2 Marks)

2. Unlimited Companies:

An unlimited company is not limited by either shares or guarantee. There are extremely few unlimited companies, since their members can be held liable without limit for their companyʼs debts. They are formed when it is intended that the company will not carry out business. As they possess separate legal entity company creditors do not have a direct claim against company members. Instead they must secure the companyʼs winding up and the liquidator will attempt to recover outstanding amounts for those members.

The advantages of unlimited companies are as follows: ●

●

●

They are exempted from many disclosure requirements for financial information filed with the Companies Office and can thus keep their financial standing private. Capital maintenance rules do not apply and thus it is far easier for the company to return contributed capital to maintenance They do not have to pay stamp duty on registration.

The Companies Acts place a numerical ceiling on the size of partnerships (other than solicitors or accountants) of 20 persons, or 10 persons in the case of bankers. Unlimited companies are formed when the ceiling is exceeded and the members desire unlimited liability. (2 Marks) 3. Private Companies:

The following are examples of types of private companies in Ireland: 1) A one person or family owned entity. 2) A closely held company where there are a small number of members who will frequently know or be the directors of the company and the division, therefore, between ownership and management may be blurred. 3) A quasi partnership where the company is in substance a partnership vehicle for itʼs members. 4) Unconnected membership where management and ownership are divided.

The Legislation:

Section 33 (1) of the CAʼ63 defines a private company as a company which has a share capital and which by its articles of association requires the following:

(i) (ii) (iii)

right to transfer shares must be restricted the number of members must not exceed 50 there must be a prohibition on any invitation to the public to subscribe for shares or debentures of the company.

Share Capital:

A private company must always have a share capital. The share capital refers to those monies which a company can raise by issuing shares. The maximum amount of share capital that a company can raise is set out as a nominal figure in the memorandum of association stating the amount of capital which is (or was originally) available to be issued.

Single member companies:

Prior to 1994 it was not possible to have a limited liability company with a single member however since the introduction of the European Communities (Single Member Private Limited Companies) Regulations 1994, it is now permitted to form or convert existing companies into single member private limited companies with only one shareholder. However, all companies must have a minimum of two directors. Page 23

Advantages of a private company: ●

● ● ●

●

A private company does not need to file a statement in lieu of a prospectus (the public marketing document for a public company) on registration. A trading certificate is not required before commencing business A private company can be established without a minimum capital Provided the private company remains small or medium sized relatively little information about the companyʼs financial or trading state need to be disclosed to the Companies Office. Most of the EU Regulations concerning companies only apply to public limited companies. (3 Marks)

4. Public Companies:

A public company is defined as ʻa company which is not a private company.ʼ Membership is largely comprised of the investing public and unlike private companies the division between ownership and control is clearly visible.

Under the CAʼ63 a public company (which is a broader term than PLC defined below) must have at least seven members and can be either a company:

1) 2) 3)

Limited by shares Limited by shares or guarantee Limited by guarantee and have a share capital.

Companies Amendment Act 1983

This Act gave effect to the EU Second Directive on Company Law which created the term ʻplc.ʼ The plc is defined more narrowly than the public company in order to protect the public company from being subject to the rigours of EU company Directives. A plc has been defined as a company which is:

1) 2) 3)

Limited by shares States in the memorandum that it is public and Complies with the requirements of the Act as to registration (including a requirement that the share capital stated in the memorandum is to be not less than the authorised minimum). These requirements are designed principally to protect creditors from being victims of undercapitalisation and overtrading

A public limited company may be formed as an entirely new company, however it is far more common for such companies to be formed by converting an existing private company into a public company. (3 Marks)

5. External companies:

Any foreign company which established a ʻplace of businessʼ within Ireland was required to register with the Registrar of companies, as an external company under the Companies Acts. Now, under the European Regulations, a foreign company which has established a ʻbranchʼ will have to register. Branch is considered to mean the same as ʻplace of business.ʼ (2 Marks)

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