Legal Framework

LEGAL FRAMEWORK FORMATION 1 EXAMINATION - APRIL 2005 NOTES Number of Questions to be answered: FIVE (Only the first five questions answered will be marked)

TIME ALLOWED: Three hours and 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.

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 2005 Time Allowed: 3 Hours and 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 Law, should, where appropriate be mentioned)

1.

Discuss the structure and the operation of the civil courts in the Irish legal system. [Total: 20 marks]

2.

Discuss the differences between legal and equitable mortgages. [Total: 20 marks]

3.

John was driving home on a dark and wet evening in hazardous driving conditions when his car was hit by a lorry, which skidded on the road due to travelling at high speeds. As a result of the accident, John suffered serious physical injury and his car was destroyed. The lorry driver was not hurt nor was his lorry damaged in any way. The lorry driver maintains that he is not responsible for the accident. Advise John as to any line of action that he might pursue and the type of compensation that he might be entitled to. [Total: 20 marks]

4.

Superplus, a supermarket, operates a bonus points scheme, whereby the purchase of certain products gives the customer bonus points. The customer can collect these bonus points and then choose a gift from the supermarket s catalogue. There is a picture of a tropical island on the front of the catalogue with the words "1 million bonus points = Paradise Island here I come!" Mrs. Smyth, a long-standing customer of the supermarket, has been collecting points for five years and has reached 1 million bonus points. She makes an appointment with Joe, the manager of the supermarket to claim her gift. Joe explains that the island picture and caption was only a marketing ploy for the scheme. Furthermore, Joe informs her that the catalogue bonus scheme has recently been withdrawn by the supermarket. Mrs. Smyth is not happy and decides to take legal action. Advise Mrs. Smyth as to her line of action. [Total: 20 marks]

5.

Kevin works as a painter with Bright Lines Ltd. Every working day, Kevin travels to a workplace designated by Bright Lines Ltd, where he carries out painting duties. Other than being told where to go, Bright Lines does not tell Kevin how to carry out his functions. Apart from the paint (supplied by Bright Lines), Kevin supplies himself with the tools necessary to carry out his functions. One day, Kevin is involved in an accident while carrying out his functions. A rung on his ladder falls out; Kevin slips and drops the paint tin, which lands on Mark, a passer-by who suffers serious head injuries as a result of this accident. Advise Mark as to any line of action he would have against Kevin or Bright Lines Ltd. [Total: 20 marks]

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6.

Explain and outline the characteristics of negotiable instruments, distinguishing in particular between bills of exchange and cheques. [Total: 20 marks]

7.

Discuss the provisions of the EC Treaty and the Irish Competition Act 2002 that deal with anti-competitive agreements. [Total: 20 marks]

END OF PAPER

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Suggested Solutions

LEGAL FRAMEWORK FORMATION I EXAMINATION - MAY 2005

Solution 1 General Comments The purpose of this question is to test students knowledge of the Irish civil law court system, within the Irish legal system. Students are expected to outline any relevant constitutional provisions and extra marks will be awarded where students are also able to refer to any relevant secondary legislation. Likewise, extra marks will be awarded for any analysis or general discussion that a student engages in. Although it is not expected, students may if they wish also discuss the European court system. Other than this, the subject matter is self-contained. Students should start their answer with a general introduction, setting out as mentioned the relevant provisions of the Constitution and secondary legislation. They should also indicate what courts operate in the Irish legal system and deal with the hierarchical structure and jurisdictional issues at this stage also before going on to deal with a description of each of the courts in more detail. SOLUTION Articles 34 to 38 of Bunreacht na h ireann 1937 deal with court structure and system. These provisions required the establishment of a new court system, which formally came about with the Courts (Establishment and Constitution) Act 1961. Bunreacht na h ireann provides for courts of first instance and a court of final appeal in Article 34.2. Article 34.3.1 further states: The Courts of First Instance shall include a High Court invested with full original jurisdiction in and power to determine all matters and questions whether of law or fact, civil or criminal. Article 34.3.4 provides: The Courts of First Instance shall also include Courts of local and limited jurisdiction with a right of appeal as determined by law. The Courts of local and limited jurisdiction are the Circuit Court and the District Court. The term local refers to geographical limits. There are eight circuits and twenty-four districts. Circuit and District Court judges may only exercise jurisdiction in the circuit or district to which they are assigned. The term limited refers to jurisdictional limits. The courts may only hear those cases that are specifically legislated for. Each court has a different jurisdiction. The Supreme Court The Supreme Court is provided for in Article 34.4 of the constitution and is made up of the Chief Justice and seven ordinary members of the Supreme Court. The President of High Court is an ex officio member of the Court. In the event of illness of a Supreme Court Judge, members of the High Court may sit on the Supreme Court. In terms of its jurisdiction, the Supreme Court has original civil jurisdiction in relation to the capacity of the President and the constitutionality of legislation and it has full appellate jurisdiction to hear appeals on a point of law from the High Court and appeals on liability and quantum from the High Court. The Supreme Court is a collegiate court when dealing with the issue of the validity of a law, meaning that the Court will hand down only one judgment.

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The High Court The High Court is made up of the president of the High Court and a number of ordinary High Court Judges. The Chief Justice and the President of the Circuit Court are ex officio members of the High Court. In the event of illness of a High Court judge, where there is a necessity for more judges, the President may request a Supreme Court judge to sit as an additional judge. The High Court may sit as judge, judge and jury or three-judge court (divisional High Court). The High Court goes on circuit in Cork and Galway. It has full original civil jurisdiction and can hear cases in the first instance where the damages involved are greater than the euro equivalent of £30,000. It can also deal with constitutional cases, judicial review, wardships, company wind-ups and personal insolvency. The High Court also has appellate jurisdiction. The Circuit Court The Circuit Court is composed of the President of the Circuit Court and a number of ordinary Circuit Court judges. The President of the District Court is an ex officio member of the Circuit Court. In the event of an absence of a judge, a temporary Circuit Court judge may be appointed. Judges generally sit alone, but there may be jury trial in criminal actions. The Circuit Court has original civil jurisdiction to hear cases involving damages claimed between the euro equivalent of £5,000 and £30,000. It can also deal with cases regarding new intoxicating liquor licences, commercial and consumer protection within its financial limit, environmental matters within the limit, landlord and tenant actions, judicial separations and nullity, and gender equality cases under Employment Equality Act, where it has an unlimited financial jurisdiction. Appeals from the Circuit Court in all civil matters go to the High Court and appeals on a point of law by case stated go to the Supreme Court The District Court The District Court is composed of the President of the District Court and a number of ordinary judges of the District Court. The absence of a judge from the courts may lead to the appointment of temporary District Court judges. The District Court judge always sits alone and operates only within his or her own district. The District Court has original civil jurisdiction to hear cases involving damages of up to the euro equivalent of £5,000. It can also deal with intoxicating liquor licence renewals, maintenance for spouses and children, commercial and consumer protection under the Hotel Proprietors Act 1963 and the Consumer Credit Act, 1995. Full de novo appeal lies to the Circuit Court for all civil cases, with very limited exceptions. An appeal on a point of law by case stated lies to the High Court in civil matters and where the High Court gives leave the point of law may go to the Supreme Court.

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Solution 2 General Comments This is a straightforward self-contained question on mortgages in the area of property law, the purpose of which is to test students understanding of the differences between legal and equitable mortgages. As part of their answer, students are expected to deal with the issues of legal mortgages of unregistered land, equitable mortgages of unregistered land, and charges for registered land. Students will pick up extra marks if they include a good general introduction, a discussion of the system as it was under common law and equity, and reference to relevant legislation in their answers. It is not necessary to refer to case law in this answer, but again, extra marks will be awarded if students do so. It is preferable that students deal with each issue individually, as this will allow for a clear and succinct answer. SOLUTION Given the high number of property purchases in Ireland as of late, the issue of mortgages is a highly important issue in Irish society. Mortgages generate the means needed to purchase property by allowing people to borrow money at a reasonable rate of interest over a substantial period of time with the property being used as security. Mortgages can also be used against a property already owned to renovate or improve a house, to develop a property for business purposes, to buy farm machinery, to start a business or indeed to buy something unconnected to the property, with the property being used as collateral. A mortgage is defined as a form of security in which a legal or equitable estate in the property is conveyed to the lender, subject to the property being conveyed back the borrower once repayment on the loan is complete. Mortgages existed in common law but their terms could be harsh on the borrower. Usually, the borrower, who had freehold estate, conveyed the fee simple to the lender with a reconveyance proviso. The date by which repayment had to be made was usually not far off and if the loan and the interest were not repaid, common law took a strict view. As a result, the borrower lost all rights to his land to the lender, while still having to repay his debt to the lender. Overtime, equity intervened and the view prevailed that the essence of the mortgage was that it was security for the loan rather than a conveyance to the lender. This meant that although the date for repayment may have passed, equity kicked in and the borrower did not lose his property. This development is crucial to how mortgages work today. There are various forms that mortgages and charges can take. Mortgages can be either legal or equitable and this depends on whether the lender takes a legal or equitable interest in the property. A legal mortgage occurs where the borrower has a legal estate in the property which he conveys to the lender. If the proper procedures for the creation of a legal mortgage are not followed, the borrower will only be entitled to an equitable interest. If the borrower only has an equitable interest in the property, then only an equitable mortgage can be created. A legal mortgage in unregistered land can be created in two ways. First, the borrower can convey or assign the whole legal estate or interest in the property to the lender. This is subject to a proviso for redemption, which means that the legal title to the land is conveyed to the lender and has to be reconveyed to the borrower upon repayment of the loan. Second, the borrower can grant some type of lesser estate or interest in the property to the lender, such as a lease, subject to a proviso for cesser on redemption, which means that the lease for example will automatically come to an end when the mortgage is redeemed. This is what happens in the case of freehold. Where the borrower has a leasehold interest only, he can make arrangements similar to those pertaining to freehold. He cannot however convey the fee simple estate as he does not hold that estate. He can nonetheless assign his lessee s interest to the lender, with a provision for a lease or, more usually he can make a sub-demise or sub-lease to the lender with a provision for redemption. This means that the borrower remains the lessee and the lender as sub-lessee is under no obligations under the original lease. An equitable mortgage in unregistered land may be created in three ways. First, where the borrower only has an equitable interest to convey; second, where he holds the property as a beneficiary under trust; or third, where he had Page 5

already created a legal mortgage on the property, thereby already conveying the legal interest in the property to another lender. The borrower can assign this equitable interest subject to a proviso for redemption. The equitable right of redemption is the right to redeem the mortgage at any stage, in other words once the sum of money is repaid, the borrower has the right to get the property back. The Statute of Frauds of 1695 provides that an equitable conveyance must be made in writing and signed by the assessor or made by will. The second instance where an equitable mortgage will be created is where there is an agreement or contract in existence for the creation of a legal mortgage. In this case, the equitable maxim equity treats as done that which ought to be done applies. The contract will therefore be treated as an effective grant of an equitable mortgage. So until the legal mortgage is formally created, equity will hold the intended legal mortgagee as holding an equitable mortgage on the property. The final way to create an equitable mortgage is by deposit of title deeds — this applies to registered land and is recognised by the Registration of Title Act, 1964. The deposit of title deeds will be recognised as prima facie evidence of an equitable mortgage, unless the deposit is for another purpose, such as safekeeping. There is no requirement for written documentation to accompany the title deeds but such documentation may be useful in the event of a dispute. The most predominant way of creating a legal mortgage on registered land is to place a charge on the register. The register is supposed to be conclusive evidence of title. When a person is registered as owner for the first time, he is issued with a document called the Land Certificate, which must be produced to the Land Registry before any subsequent dealing with the land is registered. Evidence of title is contained in this single document. But its deposit with the lender of money creates an equitable mortgage similar in its effects to the equitable mortgage created by the deposit of deeds in the case registered land.

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Solution 3 General Comments This tort problem question deals essentially with the issue of causation, remoteness and negligence, and damages. Students are expected to identify these issues at the outset before moving on to deal with them in greater detail. The purpose of the question is not only to test students knowledge in the area but also to test their ability to apply the law to the facts as presented. Application is very important in a problem question and students will perform well where they engage in application. Very often, students do not do so and this is to their detriment in a problem question. Students are expected to refer to case law and in particular to case law that they feel is pertinent to the facts of the case. They must explain why this is so. SOLUTION Under the common law of negligence, there are a number of elements that must exist in order to establish negligence. First, there must be a duty of care to protect others against reasonably foreseeable harm or loss. Second, there must be a breach of that duty. Third, there must be loss or damage to the plaintiff and finally, there must be a causal link between the breach of duty of care and the loss or damage suffered. John would therefore have to show a number of things. Firstly, he would have to show that the lorry driver owed him a duty of care to protect him against reasonably forseeable harm or loss. He would then have to show that the duty of care had been breached resulting in loss or damage to him and he would have to prove a causal link between the breach of duty and his resulting loss or damage. The fundamental test underlying all of this is the test of the reasonable man or reasonable foreseeability and a question to be asked is whether the injury suffered is of a type that ought to have been foreseen. In Blyth v Birmingham Waterworks Co. (1856) 11 Exch 781, a definition of negligence was offered, when the court held that "negligence is the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs, would do, or do something which a prudent and reasonable man would not do." In Donoghue v. Stevenson [1932] AC 562, the duty of reasonable care was established. The court in this case stated that individuals "must take reasonable care to avoid acts or omissions which [they] can reasonably see would be liable to injure [their] neighbours." The court went onto to define the concept of neighbour as a person so closely and directly affected by an act that the person responsible for that act ought reasonably to have held them in contemplation as being so affected when carrying out the act or omission called into question. This definition denotes a relationship of proximity, and this test is favoured in Ireland. In addition to this, arising from the Bourhill v Young [1943] AC 92 case, there is a rule that all those using the highway must show mutual respect and forbearance. In other words, they owe a duty of care to all other highway users. The duty of a vehicle driver is therefore to use proper care not to cause injury to a person on the highway or indeed to a person in a premise off the highway. This includes avoiding the use of excessive speed, keeping a good lookout, and observing traffic rules, which obviously includes paying extra attention in hazardous driving conditions. The lorry driver, as a highway user, owes a duty of care to John, which he has apparently breached by driving at excessive speeds in wet and hazardous driving conditions. Giving the hazardous driving conditions, the lorry driver should not have been travelling at high speed. It seems that the accident was therefore reasonably foreseeable. John has suffered loss and damage as a result of the breach of duty of care. As mentioned, John s physical injury and damage to his car must be foreseen and of the type normally resulting from an accident. In terms of causation, the lorry driver is certainly the cause of the accident, which would not have occurred but for his excessive speed. The accident would not have occurred without his action and therefore there is a causal link between his act and the accident. It could be argued that the lorry driver s behaviour was reckless and that there was a conscious acceptance of doing harm or taking an unjustifiable risk on his behalf. Page 7

The lorry driver may have a defence if he can break the chain of causation. He would be able to do so by proving a novus actus interveniens. A novus actus interveniens means that the causal link or chain of events between the defendant s action and the plaintiff s damage or injury is broken by an intervening event, which constitutes the sole or new cause of the plaintiff s injury, relieving the first defendant of liability. It is however only a voluntary (reckless or intentional) act of a third party that is sufficient to amount to a novus actus interveniens. In the absence of such an act, it would be impossible to negate the lorry driver s causal connection and liability. Weather conditions or physical events and acts of God or force majeur can amount to a novus actus interveniens. However, it is unlikely that wet and hazardous driving conditions would negate the lorry driver s responsibility in this instance. He was still taking an unjustifiable risk in driving at excessive speeds in such conditions. The lorry driver could also try to claim that John contributed to the accident in some way and is therefore contributorily negligent. It is hard to see from the facts of the case how John could have contributed to the accident. It would appear to be entirely the fault of the lorry driver. In terms of the damages that John can seek, he can look for special damages and general damages. Special damages are those that are easily quantifiable, such as medical expenses and loss of earnings. So, John can therefore seek compensation for his personal injuries and consequent loss of earnings once they are reasonably foreseeable. To be liable, the lorry driver must have foreseen damages of some type. John can also look for compensation for the cost of his car under the title of special damages. Again, the lorry driver caused the damage to John s car and such damage is reasonably foreseeable. Neither the physical injury nor damage to the car is too remote to have been reasonably foreseen. General damages are those awarded for pain and suffering and the loss of expectation of life and are subjective in that they depend on the person and the fortitude of that person. Again, if John can prove that he has been subjected to pain and suffering and that this was reasonably foreseeable, he will be able to get general damages from the lorry driver.

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Solution 4 General Comments This problem question in the area of contract law deals with the general issues of offer and acceptance in the creation of a contract. Again, as with the previous question, students are expected to identify the issues in their introduction before moving on to deal with them in greater detail. The purpose of the question is not only to test students knowledge in the area but also to test their ability to apply the law to the facts as presented. Application is very important in a problem question and students will perform well where they engage in application; if they do not do so, they will lose marks. Case law is of importance; students are expected to identify any relevant case law and apply it to the facts of the problem question. SOLUTION The main issue in this scenario is whether a unilateral offer can constitute an offer and students are expected to further address the difference between a genuine offer and an invitation to treat. The supermarket s catalogue and picture advertising the scheme could be regarded as an offer capable of leading to a contract. In some situations however, it has been held that newspaper adverts will only amount to an invitation to treat. In Partridge v. Crittenden (1968), an advert offering for sale wild birds was deemed to be an invitation to treat as the seller did not have an unlimited supply of birds and could not possibly enter into a binding contract with everyone who replied. In Carlill v. Carbolic Smoke Ball Co (1893), the court accepted that an advertisement offering £100 to anyone who caught influenza after using the advertiser s smoke ball was in fact an offer. The difference between the two cases is that in the first case, the contract was a bilateral one whereas in the second, it was a unilateral one. The defendants in Carlill v. Carbolic Smoke Ball Co (1893) argued that it was not possible to make an offer to the world at large, as then the whole world could accept the offer, which would go beyond the realms of commercial reality. However, the court held that it was not a contract with the whole world. It was considered by the court to be an offer made to the entire world which was to ripen into a contract with anybody who came forward to perform the condition. As a result, Joe cannot argue that such a unilateral offer is not an offer. The supermarket s catalogue advertisement falls within the realm of the Carlill v. Carbolic Smoke Ball Co (1893) category as few people are likely to find themselves in the same position as Mrs. Smyth and therefore few people will be entitled to the gift. As to whether the catalogue advertisement is a genuine offer or an invitation to treat, the court in Carlill v. Carbolic Smoke Ball Co (1893) held that the offer must be clear, definite and explicit. In this case, the announcement that the company had deposited £1,000 with a bank to show their sincerity persuaded the court that the advertisement was meant to be perceived as an offer. In addition, the court stated that "if a person chooses to make extravagant promises he probably does so because it pays him to make them and the extravagance of the promises is no reason in law why he should not be bound by them." Presumably therefore, it could be argued that the supermarket chose to use the paradise island campaign to attract customers to the supermarket to purchase their groceries there. This point was dealt with in Leonard v Pepsi Co, where the facts were very similar to the problem at hand. The court in the Leonard v Pepsi Co case adopted an objective reasonable person standard. In other words, in the problem at hand would an objective person reasonably have concluded that the catalogue advertisement actually offered consumers a holiday to Paradise Island? If this is so, then the supermarket s catalogue advertisement amounts to an offer. That being the case, the issue of whether Mrs. Smyth accepted the offer arises. As she has collected one million bonus points, it appears that she has. We have to consider if Joe can claim that the supermarket s offer was withdrawn before Mrs. Smyth has accepted it. In a unilateral contract like this one, 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. In addition to this, it would appear that at no time did the supermarket indicate that it was withdrawing the offer. It is too late for to do so when Mrs. Smyth turns up with her one million bonus points. To conclude, Mrs. Smyth should be able to prove that she is entitled to the gift. Page 9

Solution 5 General Comments This problem question covers the area of employment law. The purpose of the question is to ascertain whether students can identify the nature of Kevin s contract. Students are expected to distinguish between an employee / employer situation, where the employee works under a contract of service and an independent contractor / employer relationship, where the independent contractor works under contract for services. Students are expected to elaborate on the various tests used to distinguish between the two, with reference to any relevant case law. They must apply these tests to Kevin s situation to determine which category Kevin falls into. Extra marks will be awarded if students can identify the reasons why it would be more beneficial for Mark to go after Bright Lines Ltd. as opposed to going after Kevin. Likewise, if students can identify, in general, the area of tort law that would apply if Mark were successful in going after Bright Lines Ltd, extra marks will be awarded. SOLUTION It is important for Mark to establish whether Kevin is an employee of Bright Lines Ltd, or whether he is an independent contractor. If he is an employee hired under a contract of service, then Mark can go after the deep pocket , and sue Bright Lines Ltd in a vicarious liability action. The reason for this is that the master (employer) is liable simpliciter for any tort committed by his servant (employee) in the course of his employment. It is, however, only if the act or omission is carried out by the employee in the scope of his employment that the employer s liability will arise. An employee is hired under a contract of service whereas the independent contractor is hired under a contract for services. Independent contractors under a contract for services are responsible for their own torts. If it transpires that Kevin is in fact an independent contractor, then Mark would have to pursue an action in damages against him and not Bright Lines Ltd. It would be to Mark s advantage however to pursue Bright Lines Ltd., as they will have the deep pocket in this instance. In order to do this, Mark must show that a relationship of master and servant exists between Bright Lines Ltd. and Kevin, who has committed the wrong. It is necessary therefore for Mark to establish the relationship of master and servant or employer and employee between Bright Lines Ltd. and Kevin. Basically, a servant is any person employed by another to work for him on condition that the servant is subject to the control, supervision and direction of his employer in respect of the manner in which his work is to be done. An independent contractor is one who is his own master. He is engaged to do certain or specific work for another, but can exercise discretion as to the method and time of doing it. He is not bound by orders of the employer and maintains control over his method or means of work. The test of control is of utmost importance as it is one of the tests used for distinction between the contract of service and the contract for service. Other important factors are the master s power and choice in selecting the servant, the payment of wages or remuneration, methods of dismissal, the degree of skill involved, the owner of tools or equipment, and the level of integration into the business of the employer. Mark must further look to the case law of the courts as 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 Page 10

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. We are not told if this is the case for Kevin. We are told the Bright Lines Ltd. is responsible for the designation of his destination. Presumably, Kevin was working at a destination specified by his employer on the day of the accident. It does not appear that Kevin can decide where he is going to paint on any given day. If however, it transpires that Kevin was on a frolic of his own and not acting within the course of his employment, then Bright Lines Ltd. will not be liable. The question to be posed is whether the act was done for the employer. Kevin was providing a service for Bright lines Ltd. He was doing something that he was employed to do. This therefore would make Bright Lines Ltd. liable, even if Kevin was carrying out his work improperly. The fact remains that the act was done in connection with his employment. We are not told anything more about the level of control that Bright Line Ltd. exercises over Kevin. In fact, it may be that they do not tell him how to carry out his functions, but this may not be detrimental to Mark pursuing Bright Lines Ltd. There are cases where an employer may be unable or unwilling to give specific orders to a skilled man, thinking it best to allow him to carry out his functions in his own way, but this does not relieve the employer from liability. The question is not what specific orders are given or whether any specific orders were given, but rather who is entitled to give the orders as to how the work should be done, as per Mersey Docks & Harbour Board v Coggins and Griffith (Liverpool) Ltd. [1047] AC 1 17. 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 v 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. In applying this test, it would appear that Kevin is integrated into the workforce. The third test, one favoured by the Irish courts is the mixed test, developed by McKenna J 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

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. We are not told what type of remuneration Kevin receives. However, if it can be shown that his the employer is responsible under the PAYE system and that he does not carry out his own self-assessment for tax purposes, then he will be under a contract of services. On the facts of the case, Mark would have a good chance of showing that Kevin is in fact an employee or servant under a contract of services with Bright Line Ltd. and should have no difficulty in bringing an action in damages against Bright Line Ltd. Page 11

Solution 6 General Comments This question is designed to test students knowledge in the area of documentary intangibles, in particular in relation the types of documentary payment mechanisms. The question demands essentially a descriptive type answer. Students are expected to set out any general issues regarding documentary intangibles before going on to explain what a bill of exchange is and what a cheque is. The question specifically asks students to distinguish between the two and therefore students who engage in this distinguishing exercise will perform well in the question. Extra marks will also be awarded if students can refer to any relevant secondary legislation. SOLUTION Documentary intangibles are of two types — document of title of goods, called a bill of lading and document of title to the payment of money, which are bills of exchange. A cheque is a form of a bill of exchange. The bearer of a bill of exchange has legal entitlement to the amount embodied in the bill. Where documentary intangibles are concerned, the debt or obligation is considered in law to be locked up in the instrument. Documentary intangibles are negotiable instruments, meaning that they can be transferred by delivery and endorsement to a bona fide purchaser for value. It is this process of transfer that is at the basis of the negotiation. The major difference between a cheque and a bill of exchange is that a cheque by law must be drawn on a bank whereas a bill of exchange need not be. While it is similar to a cheque in characteristics, a bill of exchange is more like a credit instrument. Section 3 of the Bill of Exchange Act 1882 defines a bill of exchange as an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person or to the bearer. A bill of exchange is unconditional in that there are no conditions attached. It is therefore independent, it speaks for itself; unlike conditional documentary credit, there are no ifs attached. It is an order so to speak, a positive direction to pay from the drawee to the drawer. If it is made to pay on demand, it is called a demand bill and a site payment must be made on demand. If it is made to pay at a determinable future time, for example, a postdated cheque, it is a time bill and will only be payable at a particular time. The drawee can accept the bill or reject it. If the drawee accepts the bill by agreement, then he becomes the acceptor and is liable to pay the bill, and if the drawee refuses to accept it, then it is dishonoured. A bill is legally issued only when it is delivered to the first holder. Normally, this will be the named payee if an order bill or the bearer if a bearer bill. A bearer bill will be paid out to whoever is in physical possession of the bill. If the drawee pays out and the bill has been presented by the wrong person, the drawee s obligation has nonetheless been discharged. An order bill will be made out to a specific person and the liability of the drawee is only discharged when the drawee pays the person ordered. If not, then the drawee is liable. It is possible that the method of payment is directed. Payment can take place by special endorsement or by endorsement in blank. In a special endorsement, the endorser names the endorsee, the person to whom the payment is to be transferred. A blank endorsement takes place where you only write your own name and the bill therefore becomes a bearer bill. Whoever holds the bill is the holder of the bill. There are three types of holder — a holder, a holder for value and a holder in due course. The difference between the three lies in the rights attaching to the status of each. A truly negotiable bill can be transferred by to the holder for delivery for valuable consideration without notice (of defect). As for a holder for value - this occurs where you have notice that something is wrong and you only have defective title. As for a holder in due course, this occurs where the original holder had bad title, but you have taken the bill in good faith for valuable consideration without notice. In this situation, the law pretends that you have good title. The advantages of a bill of exchange are: 1. Its ease of transfer — delivery of possession suffices and there are no formalities per se. 2. It is an autonomous instrument. It is a separate undertaking to a sale of goods contract. Page 12

3. 4. 5. 6.

It can be drawn on anybody and this improves the standing of the bill. It can be discounted. This means that if it is a time bill payable in the future but you want it now, you can agree to a lesser amount. Negotiability — if you are a holder in due course, you are guaranteed payment as you have good title. Depending on the company on which the bill is being drawn or negotiated to, the marketability of the bill improves.

The differences between a bill and a cheque are as follows: 1. A bill can be drawn on any person; cheques must be drawn on a banker, as mentioned already. 2. Whereas a bill may be one of demand or time, a cheque is always a demand bill, and a refusal to pay will result in a right of action. 3. A time bill must be presented for payment when due, otherwise the liability of the drawee will be discharged. A cheque is valid for six months after its date. 4. Cheques may be crossed, bills cannot be. There are two types of crossing — general crossings and special crossings. A general crossing is usually indicated by two traverse lines only and special crossings by two traverse lines, in which will be found the words account payee only . For a good discharge of liability, a general crossing must be paid to a banker, but a special crossing can only be paid to the banker to whom it is crossed. Special crossing cheques therefore have a restricted negotiability. The definition of a cheque is a bill of exchange drawn on a banker payable on demand, there is no question of it being accepted. The bank must either pay or refuse to do so. A refusal to pay will occur where the account on which the cheque is drawn is not sufficiently in funds or it is a countermand or cancelled cheque. There is a possibility of set-off — if a person holds two accounts, one in credit and one on overdraft, it is possible to set off the overdrawn account for the credit account. There is no such thing as bearer cheques — all cheques are order instruments.

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Solution 7 General Comments This question is designed to show students understanding of both the EC and Irish competition provisions. Students are expected to identify the relevant law and explain how it operates. Students who refer to case law will get extra marks for their answers. SOLUTION Article 81(1) EC deals with anti-competitive agreements. It provides that anti-competitive agreements are prohibited where their object or effect is the prevention, restriction or distortion of competition within the common market. It offers a list of the type of agreement that might be caught and essentially agreements which directly or indirectly fix purchase prices or any other trading conditions, limit or control production, markets, technical development or investment, share markets, apply dissimilar conditions to equivalent transactions with other trading parties thereby placing them at a competitive disadvantage or make the conclusion of contracts subject to acceptance by other parties of supplementary obligations, which, by their nature or according to commercial usage, have no connection with the subject of such contracts are caught by the prohibition. Any such agreements or decision shall be automatically void. It is possible however to get an exemption where the agreement falls within Article 81 (3) EC, which it will do if it contributes to improving the production or distribution of goods, to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit. In addition, to merit exemption, the agreement must not impose on the undertakings concerned restrictions which are not indispensable to the attainment of there objectives nor afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question. Block exemptions may also apply, if the agreement falls within a particular sector covered by a block exemption. In order to be caught, the agreement must be between undertakings . No definition is offered of what constitutes an undertaking, but it includes any natural or legal economic entity involved in the market, which has the possibility of influencing competition in the market. Examples of "undertakings" are found in Commission and Court decisions and include individuals, trade associations, the State, and non-profit organisations. Article 81 EC speaks of agreements not just contracts. Anti-competitive agreements between undertakings are not limited to legally binding contracts — they can take the form of informal contracts, concerted practices and conscious parallelism. If the "object" of an agreement is deliberately designed to restrict competition then Article 81 EC will automatically apply whether or not the agreement does in fact restrict trade. Some agreements are inherently anti-competitive — market sharing or division, price fixing at an uncompetitively high or low rate, the application of dissimilar conditions to similar transactions without objective justification, the prevention of parallel imports etc. In relation to the "effect" of an agreement, if the agreement does not specifically intend to restrict competition but does in fact do so in practice, then Article 81 will apply to the agreement. Not all competition in the market need be prevented before an illegal agreement falls under Article 81(1). There is also a de minimis notice, whereby agreements with an insignificant effect on competition will escape the application of Article 81(1). In order to be caught, the agreement etc must affect trade between Member States. This is a very important part of the definition because this element decides whether or not the case falls within the jurisdiction of the EC. If it does not satisfy this clause, then the national competition law rules of the Member States involved will be applied to the case. In Ireland, competition is regulated by the Competition Act 2002, which recently replaced previous competition legislation enacted in Ireland. The Competition Act of 2002 is designed to prevent anti-competitive arrangements and Page 14

to a large extent, the provisions of the 2002 Act, dealing with anti-competitive arrangements, mirror the equivalent provisions of the EC Treaty. Section 4 of the Competition Act 2002 deals with the regulation of anti-competitive behaviour and contains largely similar terminology to Article 81 EC Treaty. Section 4 places a general prohibition on agreements between undertakings, decisions by associations of undertakings and concerted practices whose object or effect is the prevention, restriction or distortion of competition. This prohibition is subject to exception where certain procompetitive efficiency conditions are fulfilled under section 4(5). An undertaking, under Irish, like EC law, is any economic entity engaged in the market for gain. It must also be shown under section 4 that there is an agreement or concerted practice . An agreement need not necessarily be in the form of a legally binding contract. A loose oral agreement between undertakings will be sufficient for the application of section 4. The object or effect of the agreement, decision or concerted practice must be to prevent, restrict or distort competition.

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