F1 - Legal Framework April 07

LEGAL FRAMEWORK

FORMATION 1 EXAMINATION - APRIL 2007 NOTES

Number of Questions to be answered: FIVE (Only the first five questions answered will be marked). All question carry equal marks.

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, 9 Ely Place, Dublin 2.

THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND

LEGAL FRAMEWORK FORMATION I EXAMINATION – APRIL 2007 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. (Note: Case Law and Statute, should, where appropriate, be mentioned)

1.

There are four main sources of Law in the Irish Legal System. Describe each in detail. [Total: 20 marks]

2.

All property can be classified as real or personal. Discuss the distinction between real and personal property. [Total: 20 marks]

3.

Turbo Security Ltd. (hereinafter Turbo) have contracted to provide night security patrols at the factory of Alpha plc (hereinafter Alpha). Whilst on patrol a Turbo employee lit a small fire which got out of control and destroyed Alpha’s factory and stock. Alpha has sued for breach of contract and Turbo seek to rely upon an exclusion clause which states that: ‘Under no circumstances’ are Turbo to be ‘responsible for any injurious act or default of any employee unless such act or default could be foreseen and avoided by the exercise of due diligence on the part of Turbo as his employer; nor, in any event are Turbo to be held responsible for any loss suffered by Alpha through fire or any other cause except in so far as such loss is solely attributable to the negligence of Turbo’s employees acting within the course of their employment. There is no allegation that Turbo were negligent in employing the employee involved. Discuss the likelihood of Alpha being successful in their action for breach of contract. [Total: 20 marks]

4.

Given the nature of the employment market in the Irish economy it is important to be able to distinguish between the types of employment relationships. Distinguish between a contract of service and a contract for services. Why is this distinction important? [Total: 20 marks]

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5.

Kevin recently bought a Supermatic Toaster Deluxe 2000. The manufacturer claims that the toaster, which has its own computer chip, can be set for up to six toasting cycles. Kevin has found that when he tries to use the Supermatic, it invariably incinerates his bread. He tried pressing a button on the side of the toaster to cut the toast cycle short but when this did not work he unplugged the toaster from the socket; in so doing he suffered a mild electric shock. Kevin attempted to rectify the problem by resetting the six toasting cycles. However, on the last occasion on which he used the Supermatic the bread he was toasting caught fire, was ejected with considerable force and set the curtains in his kitchen alight. When Kevin complained to the manufacturer about its product he was asked whether he had considered getting Venetian blinds for his kitchen window. The shop where Kevin bought the toaster has since closed down. Kevin wishes to take proceedings against the manufacturer and has asked that you outline and discuss the main provisions of the Liability for Defective Products Act 1991. [Total: 20 marks]

6.

The relationship between principal and agent has an important role in commercial activity. Explain how the relationship of principal and agent arises. [Total: 20 marks]

7.

There are five secondary sources of European Community Law. Discuss each of these. [Total: 20 marks]

END OF PAPER

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SUGGESTED SOLUTIONS

LEGAL FRAMEWORK FORMATION I EXAMINATION – APRIL 2007 SOLUTION 1 The purpose of this question is to assess student’s understanding of the main sources of law in the Irish legal system and their relative importance vis-à-vis one another. Introduction (4 marks) The sources of law in any legal system are the rules and legal principles of law that are applicable in that system. A lawyer must be familiar with these sources and with where to find them in order to find the relevant law which is applicable to problems with which they are presented. In addition, lawyers must also know the status of the particular rules and legal principles. This means that they must know exactly where different rules fit into the overall scheme and in the case of a conflict between rules and legal principles they must know which will take precedence. There is a hierarchical system of laws in the Irish legal system and from this system, lawyers can tell which laws prevail over others. The four main sources of law in Ireland are: Bunreacht na hEireann 1937 (The Irish Constitution) Legislation or statute law European Community Law Judicial Precedent or judge made law Bunreacht na hEireann 1937 The Constitution is the most fundamental source of law in this jurisdiction. All Irish laws are derived from the Constitution because it sets up the various organs which create the law, interpret the law and enforce the law. Ultimately, therefore we can trace all Irish laws back to the Constitution. The Constitution is the primary legal text of the jurisdiction and so it enjoys a higher legal status than all other national laws. If legislation does not comply with the terms of the Constitution, the Irish Courts can invalidate it. The Constitution regulates the structures and functions of the principal organs of government and also regulates the relationship between these institutions by setting out the balance of power between them. The Constitution does this by means of the separation of powers between the three branches of government – the legislature, the executive and the judiciary. The Constitution also regulates the relationship between these organs of government and the citizens of Ireland. In addition to setting out the balance of power between the organs of government, the Constitution also contains Articles guaranteeing fundamental rights of citizens such as equality before the law, property rights, personal liberty and freedom of religion. The Courts are responsible for interpreting the provisions of the Constitution. This function is a very important one. (4 marks) Legislation Under the Constitution, the Oireachtas is responsible for passing laws. These laws form the body of legislation or statutes of the Irish legal system. Legislation is initiated in the form of a Bill and Bills must pass through five stages in the Oireachtas, be passed by the Dail and Seanad and be signed into law by the President. Article 15.2.1 of the Constitution states that the sole and exclusive right to make laws for the state is vested in the Oireachtas and under Article 15.4.1, the Oireachtas cannot enact any statute that is repugnant to the Constitution. While the sole law making power is vested in the Oireachtas, it may occasionally delegate a law-making power to other bodies. Under this right of delegation, the Oireachtas can empower government ministers or local authorities with a limited law-making function. Ministers or local authorities must always act within the confines of

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the powers confined on them – in other words, they must act intra vires. If they do not do so, then any subsequent measure that they pass may be challenged before the courts as being ultra vires. Delegated law making occurs in very specific areas where secondary legislation requires more detail or more technical legislation. This allows the Oireachtas to focus on more important legislation and policy areas. Legislation passed by government ministers or local authorities is called delegated legislation or subordinate legislation. Delegated legislation may be updated and modified more easily than primary legislation. Delegated legislation usually takes the form of statutory instruments, orders, by-laws and regulations and has the same force of law as statutes passed by the Oireachtas. Delegated legislation must, like primary legislation, comply with the terms of the Constitution and with primary legislation also. (4 marks) European Community Law 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. Secondary legislation includes regulations, directives and decisions. (4 marks) Judicial Precedent Statute law is an incomplete source of law in spite of the enormous volume of it that exists today. As a result, a large part of the law is derived from decisions of the courts. This judge-made law is based on a rule known as the doctrine of binding precedent. The principle underlying this doctrine is that a decision made by a court in a case involving a particular set of circumstances is binding on other courts in later cases, where the facts are the same or largely similar. The idea of judges making use of previously decided cases dates back to the formation of the common law by the royal justices out of English customary law. English common law was introduced to Ireland following the Norman conquest in 1167. It was not until the 19th Century that the general principle of judicial consistency in decision-making developed into a more rigid system of binding precedents. The necessary conditions for such a system did not exist until the standard of law reporting was improved by the creation of the Council of Law Reporting in 1865 and a hierarchy of courts was established by the Supreme Court of Judicature (Ireland) Act 1877. Precedents may be either binding or persuasive. A binding precedent is one which a court must follow, while a persuasive precedent is one to which respect is paid, but it is not binding. Whether a court is bound by a precedent will depend on the status of the court relative to the court which established the precedent. The general rule is that the decisions of superior courts are binding on lower courts. Therefore, the decisions of the Supreme Court are binding on all lower courts, but decisions of the High Court are not binding on the Supreme Court etc. A decision of an earlier court at the same level of the system is binding on a later court unless that court has good reason not to follow it. (4 marks) [Total: 20 marks]

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SOLUTION 2 An understanding of the concept of property, both real and personal, is necessary as it provides a foundation for the later study of particular areas of the syllabus, including, inter alia, the study of fixed and floating charges in Company Law. As per the solution to Question 2 of the September 2004 Legal Framework Examination but with the following introductory paragraph: In Commercial Law (Thomson Round Hall 2002), White states at pages 65 – 66: All property can be classified as real or personal. Real property includes land and anything permanently attached to the land, such as buildings. Personal property is all property except real property. … Personal property is divided into two categories: chattels real (mainly leasehold interests in land) and chattels personal (items which are not chattels real. Chattels personal sub-divide broadly into two classes: tangible moveables (or choses in possession, such as goods or money) and intangible moveables (or choses in action). Intangible moveables comprise legal rights which have no tangible form in themselves, though they may be represented in the form of a document (documentary intangibles, such as bills of lading, and negotiable instruments). Documentary intangibles are notable because the document represents the property rights which can be transferred by transfer of the document itself. Rights which are not documentary intangibles are called pure intangibles (for example, debts, copyright and goodwill). As Professor Goode has noted, when the differences between land and personal property are explored, it becomes apparent why the law treats the two types of property differently. Land is considered immoveable and permanent. For these reasons it is susceptible to restrictions on transfer or use, such as are found in restrictive covenants and planning legislation, and its permanence facilitates the creation of multiple interests of long duration (for example, 999-year leases and life interests). As a result, the investigation of title in land and its transfer can be prolonged and complex. The unique character of land means that if a contract for the sale of land is not performed, the purchaser cannot usually be adequately compensated by an award of damages; an order of specific performance may be granted. In contrast, personal property is moveable, and more easily transferable. It tends to be of shorter duration: for instance, goods may perish or be consumed; patents expire with the passage of time. Personal property is not usually unique; goods may be indistinguishable from other goods of the same class. Where under a contract for the sale of goods, the goods are not delivered, an award of damages will usually compensate the buyer. Orders for specific performance of sale of goods contracts are rare. [Total: 20 marks]

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SOLUTION 3 Exclusion clauses go to the root of contract law in that they raise fundamental questions as to the nature and purpose of a contract. Should the courts seek to regulate the extent of exclusion clauses or should they take the view that as a contract is implicitly a mechanism for risk allocation between the parties thereto, that the effect such a clause will be factored into the consideration provided by the parties. This is an area where there is a divergence between Irish and English law. The issue of exclusion clauses has been the cause of much debate amongst academic and practising lawyers over many years. In policy terms the issue raises the question as to whether primacy should be given to the intentions of the parties as expressed in the terms of their contract regardless of how broadly an exclusion or exemption clause is drafted or whether on the other hand an all embracing exclusion clause effectively deprives a contract of any real content in that the beneficiary of such a clause may, in effect, provide nothing under the contract. Historically, the approach of the Courts to exclusion clauses has been to determine firstly, whether such clauses have been incorporated into the contract between the parties and secondly, assuming such a clause has been incorporated, whether it covers the breach of contract complained of by the party against whom it is sought to invoke the clause. Two approaches by the Courts to this question have been discernible. The first approach has come to be known as the rule of construction approach which seeks to examine the exclusion or exemption clause for the purpose of determining whether it covers the circumstances arising. A consequence of the rule of construction approach has been the evolution of ever more complex exclusion or exemption clauses (and effective from the perspective of the party seeking to rely on such a clause) as lawyers respond to decisions of the courts ruling on the effectiveness of such clauses. The second approach has come to be known as the rule of law approach or doctrine of fundamental breach and suggested that the courts would not allow one party to rely on an exclusion or exemption clause, no matter how strongly it was worded, to exclude or limit liability for a breach which effectively deprived the non-breaching party of the main benefit owing to him or her under that contract. These types of breach were deemed to be fundamental. However, the authority for the second rule was never very clearly articulated and in Suisse Atlantique Societe d’Armament Maritime v. Rotterdamsche Kolen Centrale [1967] 1 A.C. 361 the House of Lords, in effect, rejected the rule of law approach. However, because the case did not turn on exemption clauses and the statements of the House were therefore obiter and the reasoning of their lordships was fragmented and inconsistent, the attempt to do away with the doctrine of fundamental breach was unsuccessful. The doctrine was resurrected by the Court of Appeal in a series of decision in the 1970’s until the House of Lords ruled conclusively on the issue in Photo Productions v. Securior Transport [1980] A.C. 827. The facts outlined in this question are similar to the facts of Photo Productions. In that case, at first instance the Court held that Securior could rely upon the exclusion clause. The Court of Appeal reversed that decision, holding that there had been a fundamental breach which prevented reliance on the clause. However, the House of Lords held that the parties were free to choose whatever exclusion or modification of their obligations they chose, there was no rule of law by which an exclusion clause could be deprived of effect regardless of the terms of the contract. The question of whether the exclusion clause applied turned on the construction of the whole of the contract, including any of the exemption clauses. In this instance the House of Lords held that the exclusion clause was clear and unambiguous and that it protected Securior from what would otherwise be a breach of their obligations. Notwithstanding the decisions in England holding against the doctrine of fundamental breach, the most recent Irish authority on this question, the decision of the Supreme Court in Clayton Love v. B & I Transport (1970) 104 I.L.T.R. 157 appears to favour the rule of law approach. In the absence of a case such as the one set out in the facts of this question being appealed to the Supreme Court the better view is that a court in this jurisdiction would apply the doctrine of fundamental breach and in such circumstances could well hold in favour of Alpha. However the prognosis in the event of an appeal to the Supreme Court would have to be much more guarded given, firstly, the age of the most recent Supreme Court decision on this question, secondly, the high authority in England in favour of the rule of construction approach and, thirdly, the fact that since Clayton Love v. B & I Transport was decided statutory regulation of exemption or exclusion clauses has come about through the enactment of the Sale Of Goods and Supply of Services Act, 1980. [Total: 20 marks] Page 6

SOLUTION 4 This question seeks to test the student’s understanding of the distinction between a contract for services and a contract of service. This issue, as students will subsequently find is of considerable importance in the area of, inter alia, income tax. It is also an area that many qualified accountants will find affects them personally at some point in their professional careers. Employment relationships can be divided into two forms – the employee and the independent contractor. The employee is hired under a contract of service and he independent contractor under a contract for services. The distinction between the two is not always obvious and it falls to the courts to decide on the issue of the nature of the employment relationship. The distinction is important because it determines the statutory protection that applies. The rights and remedies provided for under the Unfair Dismissals Acts only apply to employees under a contract of service. Likewise of importance is that fact that employers are only vicariously liable for torts committed by employees who are under a contract of service. Independent contractors under a contract for services are responsible for their own torts. Another reason why it is important to distinguish between a contract of services and a contract for services is that the system of taxation applied to each category is quite different. In a contract of services, the employer is responsible under the PAYE system, whereas in a contract for services, the independent contractor is subject to the self-assessment system. The courts have established a number of criteria to determine the nature of the employment relationship. The first test is the control test, first established in Yewen v. Noakes (1880). The Irish courts have adopted this test. In Roche v. Kelly (1968), it was held that the principal test is the right of the master to direct servants as to what is to be done and how it is to be done. In this case, the defendants had a contract with a farmer to build a barn and had employed the plaintiff to build it for a lump sum of £300. The defendants were to supply the construction materials and the plaintiff was to build the barn under their specifications. The defendants monitored the progress of the construction but at no time did they tell the plaintiff how to do the job nor did they supervise his working methods. The plaintiff had considerable experience and expertise in building barns and had done similar jobs for the defendant in the past. The plaintiff was injured during the construction of this barn and one of the issues was whether he was an employee of the defendant or an independent contractor. The Supreme Court found that the main factor in determining the relationship is the element of control that the employer can exercise over the employee. The Court found in this instance that the plaintiff was not an employee as the defendants did not have the right to interfere with the manner in which he carried out his obligations and hence they did not exercise any control over him. In Re Sunday Tribune (1984), the court recognised that given difficulties in relation to skilled workers who are told what to do but not how to do it, the control test was no longer of universal application and cannot be used definitively as in a modern context, the nature of the employment relationship may not be so simplistic. The second test that can be used in determining the relationship is the integration or organisation test. This test was introduced by Denning LJ in Stevenson, Jordan & Harrison Ltd. Macdonald & Evans Ltd. (1952). He stated that an employee is a person who is integrated with others in the work place or business even though the employer does not necessarily exercise a detailed control over what he does. The courts, in applying this test, will consider whether the worker was a vital part of the operation of the work place. The third test, one favoured by the Irish courts is the mixed test, developed by McKenna K in Ready Mixed Concrete v. Minister for Pensions (1968). A contract between the plaintiff company and a lorry driver stated that the lorry driver was self-employed. He owned, insured and maintained his own lorry, but the plaintiffs had helped finance its purchase. He wore a uniform, and the lorry was painted with the company’s colours. He could delegate the driving and was paid per mile driven. The issue arose as to whether he was an employee and whether the plaintiffs should have been making pension contributions for him to the defendants. McKenna J stated that three conditions had to be fulfilled to establish a contract of service: (1) (2) (3)

there must be an obligation of the person to provide his own skill and work in return for a wage or other remuneration there must be a sufficient degree of control by the employer the other provisions of the contract must not be inconsistent with its being a contract of service

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The court found that the economic reality of the situation should also be considered when coming to a decision. Having regard to all of the factors, the court concluded that the lorry driver was an independent contractor. In Kirwan v. Dart Industries and Leahy (1980), the Employment Appeals Tribunal applied the mixed test and set out a number of criteria to consider including the extent of control over the task, the manner in which it is carried out, the means used to carry it out and where it is to be carried out; whether the person was in business of his own account or whether he was an integral part of the business; whether the person was required to provide personal service or whether he could delegate the job and finally whether the person was free to work for other employers. [Total: 20 marks]

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SOLUTION 5 Product liability law is one area of consumer protection legislation and is invariably of importance to companies dealing in goods. This question seeks an understanding of the protections granted by this area of the law and also the important limitations on those protections. Introduction The Liability for Defective Products Act 1991 transposes the provisions of Directive 85/374/EEC (the Product Liability Directive). The Product Liability Directive was amended by Directive 1999/34/EC, which was transposed by the EC (Liability for Defective Products) Regulations 2000. The purpose of the later Directive was to extend the meaning of product to include primary agricultural products. Aim of Directive An aim of the legislation is to harmonise the law on product liability throughout the Community thus facilitating the free movement of goods, however this aim is undercut to the extent that the Directive contains optional provisions. Strict Liability Unlike the position under the tort of negligence liability, the directives and the transposing legislation impose strict liability. As against that however the types of damage that can be compensated for are restricted. Definition of Product Under the legislation as amended section 1 defines products as covering all moveables, including electricity and primary agricultural products that have not undergone initial processing. When is a Product Defective Under section 5 of the Act a product is defective if it fails to provide the safety that a person is entitled to expect taking all circumstances into account, including; the presentation of the product; the use to which it could reasonably be expected that the product would be put; and the time when the product was put into circulation. The legislation also provides that a product shall not be considered defective for the sole reason that a better product is subsequently put into circulation. Who is a Producer Under section 2 of the Act a producer is defined as including: ●

The manufacturer or producer of a finished product, or any raw material, or of a component part of a product.

●

Any person who, by putting his name, trade mark or other distinguishing feature on the product, has held himself out to be the producer of the product.

●

Any person who has imported the product into the Member State from outside the Community in order, in the course of any business of his, to supply it to another.

Defences Under section 6 of the Act a producer is not liable if he proves that: ●

He did not put the product into circulation.

●

Having regard to the circumstances, it is probable that the defect which caused the damage did not exist at the time when the product was put into circulation by him or that the defect came into being afterwards.

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The product was neither manufactured by him for sale or for any form of distribution for an economic purpose nor manufactured or distributed by him in the course of his business.

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The defect concerned is due to compliance by the product with any requirement imposed by or under any enactment or any requirement of the law of the European Communities.

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The state of scientific and technical knowledge at the time when the product was put into circulation was not such as to enable the existence of the defect to be discovered.

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●

In the case of a manufacturer of a component of the producer of a raw material, the defect is attributable entirely to the design of the product in which the component has been fitted or the raw material has been incorporated or to the instructions given by the manufacturer of the product.

Type of Damage that may be Compensated under the Legislation Under section 1 of the Act damage means death or personal injury, or loss of, damage to, or destruction of, any item of property, other than the defective product itself. Limitation Periods Under section 7 of the Act the limitation period for an action is three years from the date of damage or injury. Where such damage or injury is not immediately apparent the limitation period starts to run from the date on which the injured party became aware or should reasonably have become aware of the damage, the defect and the identity of the producer. However, no claim may be brought more than ten years after the product was put into circulation.

[Total: 20 marks]

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SOLUTION 6 An understanding of agency is important in its own right and also as a basis for understanding the relationship of directors with their companies. Qualified accountants may also find that agency can become relevant in the practice of their profession. This question requires an understanding of the basic principles of the agency relationship. Agency is a legal relationship which arises where one person, the agent, is appointed to act as the representative of another, the principal. It has a vital role in commercial activity -commerce would come to a standstill if businessmen could not employ brokers and had to do everything themselves. The role of the agent is to negotiate and conclude contracts on behalf of the principal. The principal may have various reasons for appointing an agent; the agent may have special skills or expertise; he may have special knowledge of a particular market or area or the principal may be too busy to make the contract personally. As a general rule, the doctrine of privity of contract prevents a person from acquiring rights or liabilities under a contract unless he is a party to the contract. Agency is an exception to this rule of privity. This is because the agent concludes the contract on behalf of the principal and therefore the agent is treated as if he were the principal. The principal then steps into the shoes of the agent, and he becomes a party to the contract via the agent. There is no single definition of the concept of agency. An agent is in general one who can be recognised in law as having the power to affect the legal rights and liabilities and commercial relationships of another. An agent has power to bind his principal in five situations: by express appointment, by ratification, by estoppel, by cohabitation, and by necessity. Agency by express appointment arises where the agent is appointed either orally or in writing. He then has what is known as actual authority. As a general rule no formalities are required. However, if the agent will be required to execute a deed, he must be appointed by deed. This is known as a power of attorney. Where the agent is expressly appointed, the scope of his authority will depend on the terms of his appointment. As well as having authority to do whatever is expressly set out in the appointment, the courts may also imply terms into the agency agreement. The agent's express authority may therefore be expanded by implied authority. For example, if the principal asks the agent to lease out his house for him, the agent will have express authority to sign the lease on behalf of the principal. He will also have authority to do whatever is reasonably necessary to carry out the principal's instructions. Therefore he will have implied authority to advertise that the house is to let and to show prospective tenants around the house. An agent may sometimes act without any authority from his principal. The principal may later adopt these acts done in his name by ratifying them. If he does ratify the actions, the result is as if the agent has always been authorised; in other words, the ratification operates retrospectively. This is agency by ramification. There are further requirements that must be fulfilled in this type of agency. The agent must state that he is contracting on behalf of the principal. At the time the agent is making the contract he must state that he is acting on behalf of and intending to bind the principal. Usually the agent will be required to name the principal, but it will be sufficient if the principal is identifiable in the circumstances. According to Wilkes J. in Watson v. Swann (1862) "it is not necessary that he should be named but there must be such a description of him as shall amount to a reasonable description of the person intended to be bound by the contract. At the time the contract was made, the principal must have been competent. This means that the principal must have had the capacity to enter the contract at the time it was made. Therefore, if the principal were a minor or lunatic or an enemy alien at the time the contract was made, he may not ratify it, even if he does have capacity at the time of ratification. Finally, there must be an act capable of ratification. If the contract is void ab inito, there is nothing to ratify. In agency by estoppel, the principal is bound by the authorised acts of his agent because he consented to them and consented to be bound. He may also be bound by acts done by another person on his behalf without his consent, or even acts done in breach of an express prohibition if his words and actions give the impression that he has authorised them. This type of authority is known as apparent or ostensible authority. The following elements are necessary for the creation of agency by estoppel: there must be a representation that the "agent" has authority, the representation must be made by the principal or by someone acting on his behalf and the representation must be relied upon by the party alleging the apparent authority. In relation to presumed agency in the case of cohabitation, where a woman is living with a man, there is a presumption that she is entitled to pledge his credit for necessaries. The liability of the husband is subject to a proviso that the goods are suitable and reasonable in kind and quantity. The only way out for the husband is to rebut the presumption that his wife had any authority to pledge his credit. Page 11

Agency of necessity occurs in circumstances where a person acts in an emergency to preserve the property or interests of another and may therefore be treated as an agent of that person, with the result that his action will be deemed to be authorised even if no actual authority were given. Agency of necessity only arises in extreme circumstances; there must be an actual and definite commercial necessity for the agent's actions. The agent must show that he has satisfied four requirements: there has been an emergency; as a result, it was impossible to obtain instructions from the principal; the agent acted bona fide in the interests of the principal, rather than in his own interests and the agent acted reasonably in the circumstances. [Total: 20 marks]

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SOLUTION 7 An understanding of the Community measures set out in Article 249 and their relationship inter se is fundamental to the study of Community Law. This question tests that understanding. Secondary legislation There are five different types of Community measures provided for in Article 249 (ex 189) EC Treaty: 1. 2. 3. 4. 5.

Regulations. Directives. Decisions. Recommendations. 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 issues 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. (3 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. That means that once they are enacted in Brussels, they become part of EC law in all the Member States. Regulations are used when the Council of Ministers or Commission wants to achieve identical or uniform rules in all the Member States. (4 marks) Directives A directive is only binding on the Member State to whom it is addressed, so it does not have general application. It is also only binding as to the result to be achieved. So only the result of the directive is binding. Each Member State to whom 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. (7 marks) 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. So 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 MS and only binding as to the result to be achieved, leaving to the MS the choice of form and method of implementation. Initially, because directives were not directly applicable and contemplate further action by a MS, they were thought not to be directly effective. Direct effect is the right of individuals to rely on provisions of Community law before their national Member State courts. However, over time the ECJ recognized that the effectiveness of a directive would be undermined if Member State nationals could not rely on them against a Member State that had failed to implement the directives in 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 EC Treaty for failure to fulfil its obligations of Community law. Page 13

Decisions Decisions are really administrative acts. They are binding in their entirety but only on those MS, 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 MS have no discretion as to how to implement them. (3 marks) Recommendations and Opinions As with decisions, these two measures are administrative in nature. They are not legally binding. They are addressed to MS, 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. (3 marks)

[Total: 20 marks]

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