f1 - business law april 08

8/14/2019 F1 - Business Law April 08

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NOTESYou 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.

BUSINESS LAWSFORMATION 1 EXAMINATION - APRIL 2008

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


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THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND

BUSINESS LAWSFORMATION 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 Irishlegal system.

[Total: 20 marks]

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

[Total: 20 marks]

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

[Total: 20 marks]

4. Christina is the Managing Director of a growing Irish company selling consumer goods in the domesticmarket. Although she always travels executive class, Christina is a great fan of the low cost model in theIrish 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 toexpect particularly good quality. Christina has a recollection from her college days that a well draftedexclusion clause in a contract can protect a company in this sort of situation. Advise Christina.

[Total: 20 marks]

5. David was told by his uncle that if he passed his final college exams, that his uncle would give him 2,000in cash the day after the results were announced. David passed the exams but when he presented himselfto his uncle for the money, the uncle laughed and said that he made the comment in jest. David said hewas most displeased as he had promised his girlfriend, Donna, that if he passed the exams that he wasplanning 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 owingto 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.

[Total: 20 marks]

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

[Total: 20 marks]

END OF PAPER

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General PrinciplesThe general principles of Community law have been to a large extent set out by the European Courts andhave been sourced from the laws of the Member States. These principles include for the most part humanrights.

Secondary LegislationThere are five different types of Community measures or legislation provided for in Article 249 of the ECTreaty:1. Regulations.

2. Directives.3. Decisions.4. Recommendations.5. Opinions.

Article 249 EC Treaty specifically states that "in order to carry out their task and in accordance with theprovisions of this Treaty, the European Parliament acting jointly with the Council and the Commission shallmake regulations and issue directives, take decisions, make recommendations or deliver opinions." It isthe responsibility of the Community institutions to enact secondary legislation. Each of the institutions hasa role to play in the law making process and the extent of their respective roles depends on the procedurethat is used in a particular area. All secondary legislation must derive from the EC Treaty. It must be basedon 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 enactwill be ultra vires.(4 Marks)

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

DirectivesDirectives

A directive does not have general application; it is only binding on the Member State or States to which itis addressed. It is also only binding as to the result to be achieved. Each Member State to which itaddressed has the discretion to decide how that result is going to be achieved. The obligation that isimposed on the Member State is to make the necessary changes to achieve the substantive objective ofthe 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 atthe 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 thelegislation. 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 theMember State the choice of form and method of implementation. Initially because directives were notdirectly applicable and contemplate further action by a Member State, they were thought not to be directlyeffective. However, over time the European Court of Justice recognised that the effectiveness of a directivewould be undermined in if Member State nationals could not rely on them against a Member State that hadfailed to implement the directive on time or had wrongly implemented the directive. Individuals must provethat the provision that they are seeking to rely on is clear, precise and unconditional. Individuals may alsobring actions on the basis of Member State liability in damages if they suffer loss as a result of the failureof the Member State to implement the directive on time or correctly. They must prove that the directiveconferred rights on individuals, that the content of those rights was ascertainable from the terms of thedirective and that there is a causal link between the failure of the Member State to implement on time andthe damage suffered. In addition to this, the Commission may bring an enforcement action against theMember State that has failed to implement the directive under Article 226 of the EC Treaty for failure tofulfil its obligations of Community law. Other Member States can do so under Article 227.

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DecisionsDecisions 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 personalisedregulation they are addressed to specific people. In fact when a decision is issued, it has to be directedto a limited and defined group. They differ from directives as they are binding in their entirety and theMember States have no discretion as to how to implement them.

Recommendations and OpinionsAs 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 initiativeof an institution. An opinion is usually given in response to a question asked. Although they are not bindingthey 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 IrelandIreland 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 toEuropean Community law in Ireland, Article 29 of the Constitution had to be amended to enable the Stateto ratify the Treaty of Accession. When Ireland joined the Community, the State agreed to subscribe to anew legal system and thereby created an additional source of law in this jurisdiction EuropeanCommunity 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 nationallaw in the case of a conflict, but only in areas of Community competence. In addition to the EuropeanTreaties, 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 re-stated its position in Van Gend en Loos, [1963] ECR1, to the effect that the EC Treaty had created a newlegal order binding both Member States and their Nationals. The doctrine of supremacy not only called forsignificant change of state sovereignty but also involved a significant curtailment of the role of nationalcourts insofar as they are not the ultimate arbiter of the impact of Community law on domestic law. InIreland 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 lawprevails and provisions of European Community law can be enforced before National Courts. Regulationsand directives bind everyone, while decisions only affect the parties to whom they are addressed (whichcan be individuals, corporations, or member states). Regulations have direct affect, i.e. they are binding inand of themselves as part of national law, while directives require implementation by national legislation tobe effective. However, states that fail or refuse to implement directives as part of national law can be finedby the European Court of Justice.The European Communitys major impact, from a business prospective, has been in the area of regulation-particularly the area of banking and insurance, and consumer protection, Title XIV, Article 153, of the Treatyestablishing the European Community, on consumer protection.

(4 Marks)

Importance in relation to Commercial LawThe European Community has played an important role to the extent that consumer protection legislationencourages consumers to participate in the market and thereby increases commercial activity. In regardsto commercial law, the European Communitys influence has been proportionally important in the area ofintellectual property, and commercial agents.A European Green Paper on European Contract Law was published in 2001 on Contract Law. Oneproposal is to harmonies contract law on European Community level. Such harmonization would broadenthe 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. TheEC has produced directives on electronic commerce and electronic signatures, which have beenimplemented in part by the Electronic Commerce Act 2000. While European and international frameworkfor e-commerce is being agreed, many legal questions remain to be answered. These will be resolved bya 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 ECDirective on self commercial agents.

(2 Marks)

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SOLUTION 2

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

AIM:- The purpose of this question is to assess students understanding of the principles of StatutoryInterpretation; discussing the traditional rules of interpretation; the modern approach to legislativeinterpretation and to discuss the impact of the interpretation Acts on interpretation; making reference torelevant case law. Students will obtain good marks for identifying and setting out clearly the abovementioned.

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

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 forthat of the Oireachtas.

The courts use various conventions of interpretation whenever they are called upon to interpret uncertainlegislative provisions. The imprecise nature of language is dealt with everyday by the courts. From a legalposition the function of interpreting legislation rests with the court. However, in the every dayimplementation of legislation the bodies charged with that implementation will interpret legislation, e.g. theplanning authority will to a certain extent interpret the provisions of the planning regulations insofar as therequirements for a valid planning application are concerned. Lawyers also interpret legislation whenadvising 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 asto 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 believesthat a more equitable result would be achieved by adding text it cannot do so because it would then beengaged in law making. Even where the court has identified an obvious oversight by Parliament inlegislation, it cannot supply the omission through interpretation.

In State (Murphy) v. Johnson [1920] IR 235 the Supreme Court refused to correct an obvious mistake inthe provisions of the Road Traffic (Amendment) Act 1978. Murphy had been convicted of drunken drivingunder the provisions of s 49 of the Act but s 23 erroneously referred to Part III (driving licences) rather thanPart V (road traffic offences) of the Road Traffic Act 1968. The District Court Judge held that he was entitledto read Part III of the 1968 Act as meaning Part V. The accused was convicted. The Supreme Courtquashed the conviction. Although it was clearly an error it clearly and unambiguously referred to Part Vand to read it otherwise would be to amend the section. This decision re-affirmed the courts inability to

correct legislative errors. Griffin J held that the courts proceed on the strong presumption that thelegislature does not make mistakes and that, where possible, statutory words must be construed so as togive 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 aresupplemented by a number of maxims and presumptions. These canons are not necessarily binding onthe courts, they act as guideline; they have been traditionally referred to as the literal rule, the golden ruleand the mischief rule.

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(a) The Literal RuleThis 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 beconstrued 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 legislaturelies in examining the words they used to draft the statute. Thus the court would apply the literal meaningeven if that would lead to unfairness or injustice.

(2 Marks)

(b) The Golden RuleThis was an exception to the literal rule, to be used where the application of the literal rule would lead toabsurdity 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 statutemust prima facie be given their ordinary meaning. That literal construction has, however, but prima faciepreference. As Lord Shaw said in Shannon Realties v. St Michel (Ville de) [1924] AC 185 at page 192 ofthe report:where alternative constructions are equally open, that alternative is to be chosen which will beconsistent 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 thesystem.

When applying the golden rule the court is allowed to look at the preamble and all the provisions of thestatute, but cannot look at other material.

(2 Marks)

(c) The Mischief RuleThe mischief rule allowed a court to examine pre-existing common law rules in order to ascertain the defector mischief which the statute was designed to remedy the statute would then be interpreted in a mannersufficient to deal with the mischief.

This was the oldest rule of statutory interpretation and has been used since the 16th century. In Heydons

Case (1584) 3 Co Rep 7a (at 7b), the golden rule was explained as follows:-Four things to be consideredare; firstly; what was the common law before the making of the Act, secondly; what was the mischief anddefect for which the common law did not provide, thirdly; what remedy the Parliament hath resolved andappointed to cure the disease of the Commonwealth, and fourthly; the true reason for the remedy.

The modern approach to legislative interpretation can be summed up in two headings: (a) The literalapproach and (b) the schematic or teleological approach.

(2 Marks)

(a) The literal approachThe literal approach is the modern version of the literal rule. The court will apply the literal meaning of thewords 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 thecourts to attribute the ordinary and natural meaning to words; this has to be derived from the context inwhich they appear.

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

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the singularity of its ordinary meaning, or where there are grounds for suggesting that the meaning of theword has changed since the statute in question was passed. Henchy J concluded that in regard to cattle,which is an ordinary and widely used word, ones experience is that in its modern usage the word, as itwould fall from the lips of the man in the street, would be intended to mean and would be taken to meanno 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

"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 andunambiguous, then no more can be necessary than to expound those words in their ordinary and naturalsense. The words themselves alone do in such a case best declare the intention of the lawgiver."

(2 Marks)

(b) The Schematic/Teleological ApproachThere will be circumstances in which the literal approach will lead to absurdity. In such cases, the courtsoften apply the teleological approach. It involves examining the scheme and purpose of the statute. Theschematic 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 werestrange to me - the "schematic and teleological" method of interpretation. ... All it means is that the judgesdo not go by the literal meaning of the words or by the grammatical structure of the sentence. They go bythe design or purpose which lies behind it".

The emergence of this approach in this jurisdiction can be traced to the Supreme Court judgment inFrascati 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 2005repealed a number of previous Interpretation Acts from 1889, 1923, 1937, andthe 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 theexample 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 masculinegender;c. Person. Person shall be read as importing a body corporateand an unincorporated body of

persons, as well as an individual, and the subsequent use of any pronoun in place of a further useof person shall be read accordingly;

Schedule: Interpretation of Words and ExpressionsPart 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 Saturdayweek-day means a day which is not a Sunday

writing includes printing, typography, lithography, photography, and other modes of representing orreproducing words in visible form and any information kept in non-legible form, whether storedelectronically 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 judicialprinciples 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 datesfrom 1850. A further Interpretation Act was enacted in 1889, and remained in force in Ireland for over 100years (although it was supplemented and amended by Acts from 1923, 1937, and 1993, and by the 1997Interpretation (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 Generals 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 andstatutory instruments are interpreted.

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

Commentators agree that the effect of the 2005 Act is to require the courts to take a more purposiveapproach 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, theOireachtas, 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 orparliament concerned, as the case may be, where that intention can be ascertained from theAct as a whole.

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

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 2006A purposive approach is clearly permitted as is clear from s. 5 of the Interpretation Act, 2005, that bestreflects the plain intention of the parliament where that intention can be ascertained from the Act as awhole.

Minister for Finance v. Civil and Public Service Union High Court, Laffoy J, 20 January 2006The respondent challenged the jurisdiction of the High Court to hear an appeal on a point of law pursuantto s. 21(4) of the Employment Equality Act 1977, contending that the decision of the Labour Court was nota determination of a dispute. Laffoy J held that the Court did have jurisdiction and also held that apurposive 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 statutoryinstruments) 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 anychanges in the law, social conditions, technology, the meaning of words used in that Act or statutoryinstrument and other relevant matters, which have occurred since the date of the passing of that Act or themaking 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 wasimpermissible for the court to have regard to notes in the margins of the legislation in order to interpret anyAct. 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 marginalnotes is allowed. Hunt describes this as perhaps one of the Acts most significant features and asignificant 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 havingregard 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 effecton 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 helpfulextrinsic aids when interpreting legislation. The Commission also took the view that the courts should havethe option of referring to this extrinsic material in any case, and not only in cases where the meaning of theprovision 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 suchas parliamentary debates when interpreting legislation. Therefore, the use of such material is still notpermitted.

(1 Marks)

Traditional Aids to Interpretation

1 The long title of the Act itself.2 Prior or related statutes.3 International treaties and travaux prparatoires.4 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 2303Willes J: [T]he sense and meaning of an Act of Parliament must be collected from what it says whencast 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 32Costello J took the view, contra the received wisdom, that it was possible to look at parliamentarydebates as an aid to statutory interpretation in appropriate cases.

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

(1 Marks)

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SOLUTION 3Discuss 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 students knowledge of the concept of possession of chattels andthe types of possession that may arise in Irish law. Students will obtain good marks for identifying andanalysing the area of law which involves the classification of property and the types of possession that mayarise 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 transferof negotiable instruments, or the grant of a licence to use a trade mark. Property can be classified as realor personal; real property being land, and anything permanent attached to it i.e. buildings, and personalbeing everything else.

Personal property is divided into two categories chattels real, comprising mainly of leasehold interests inland, and chattels personal. Chattels personal can be divided further into mainly two classes, namelytangible movables and intangible movables. Intangible movables comprise of legal rights that have notangible form in themselves. They may be represented in the form of a document, i.e. bills of lading. Rightswhich 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 orequity when a person agrees to hand over possession. The remedy for failure to deliver would be breachof 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. Possessionmay 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 actualpossession 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 whilethe 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 ofstoppage in transit.

(2 Marks)

Possession had three basic elements, physical possession; legal possession and the right to eitherphysical or legal possession. Physical possession may be acquired by taking possession of a chattel oran object which will give physical control of the chattel i.e. possessing the key to the warehouse where thechattel is stored. Possession is deemed to continue once acquired unless abandoned or acquired bysomeone else. An intention to exclude others is a prerequisite for physical possession to constitutepossession in law. Normally legal possession exists with physical possession which makes the exercise ofcontrol over the chattel lawful. Legal possession may exist with or without physical possession and with orwithout rightful origin. As per White Commercial Law the following example, from Pollock and Wright,

explains the concept: (2 Marks)

A tailor sends to JSs house a coat which JS has ordered. JS puts on the cost and then has both physicalcontrol and rightful possession in law. JS takes off the coat and gives it to a servant to take back to thetailor for some alterations. Now the servant has physical controland 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 physicalmaster of the coat, but, so soon as he has complete control of it; he has possession in law, though awrongful possession.

(2 Marks)

From the above it is clear that JS had legal possession of the coat to begin with. JS maintains legalpossession when he gives the coat to the servant, he gives physical possession to the servant, but theservant 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, andJS loses legal possession. A right to physical or legal possession is what remains when the lawfulpossessor is wrongfully dispossessed. When the coat is stolen JS is left with a right to possession or to

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legal possession. Where the Bailee holds possession for the bailors interest, the bailor and bailee willshare legal possession. That is said that the bailee has physical possession while the bailor hasconstructive possession. Constructive possession is a legal concept; there is no such thing aspossession 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 thelaw. The most common form of transfer in a commercial context is the voluntary transfer effected by actualor 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 thoughactual 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 processwhere one party holding actual possession of the chattel, later undertakes to hold possession of the chattelfor someone else- the attornor to the attornee. The former must give his undertaking to the latter and oncegiven 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 tothe bailor or in accordance with his directions. . The notable feature about a bailment is that there is notransfer of ownership in the chattels, merely possession. This transaction is temporary in nature. Aneveryday example of a bailment is leaving a coat in a cloakroom for later collection. . They can becontractual or gratuitous. There are three requirements for a bailment

1. The bailee must receive possession of the chattel2. The bailee must consent to take possession of the chattel3. 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 bailmentis negligence, where the bailment is for reward the usual standard of bailment applies; where the bailmentis gratuitous it is thought the bailee will only be liable for gross negligence; the bailee must prove he wasnot negligent to reverse liability.

(2 Marks)

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SOLUTION 4Christina is the managing director of a growing Irish company selling consumer goods in the domesticmarket. Although she always travels executive class Christina is a great fan of the low cost model in theIrish 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 toexpect particularly good quality. Christina has a recollection from her college days that a well draftedexclusion 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. Whenpurchasing goods consumers have entitlements under the said Act.The provisions of the Sale of GoodsAct 1893 as amended by the Sale of Goods and Supply of Services Act 1980 are designed in largemeasure to fill in the gaps by means of implied terms and other rules, e.g. as to the passing of propertyand damages.

Implied terms in sale of goods contracts are the key principles of consumer protection. In any consumertransaction, these terms form part of the contract, as a way of increasing the buyers legal position. A selleris not allowed to contract out of these implied statutory protections. The Act contains implied conditions andimplied 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 hasa right to sell the goods and in the case of an agreement to sell, he will have the right to sell the goods atthe time when the property is to pass. If the seller cannot pass good title to the buyer, he will be liable forbreach of a condition. (Rowland v. Divall (1923) Sale of Goods that infringe a copyright, trademark orpatent would be in breach of S.12: Niblett v. Confectioners Materials Co. Ltd. The Court of Appeal heldthat 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 animplied condition that the goods will correspond with the description. If the buyer does not see the goodsbefore he buys them (e.g. from a mail order catalogue), there has clearly been a sale by description. Evenwhere the buyer has seen the goods and, perhaps, selected them himself, it may still be a sale bydescription, provided he has relied to some extent on a description. Beale v. Taylor - The defendantadvertised a car for sale as a 1961 Triumph Herald. The plaintiff inspected the car before he bought it. Helater discovered that the vehicle consisted of a rear half of a 1961 Herald which had been welded to thefront half of an earlier model. The Court of Appeal held that the plaintiff was entitled to damages for breachof 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 thegoods 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 andas durable as is reasonable to expect having regard to any description applied to them, the price (ifrelevant) and all other circumstances. Cehave v. Bremer, The Hansa Nord (1975). Here it was held thegoods 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 buyer s 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 byimplication makes known any particular purpose for which the goods are being bought, there is an impliedcondition that the goods supplied under the contract are reasonably fit for that purpose. This term will onlybe implied if the buyer notifies the seller of the particular purpose for which the goods are required. Priestv. Last (1903). Here it was held that because the hot water bottle was not an effective hot water bottle, theimplied condition in S.14 (4) had been breached. If however, the goods can be used for more than onepurpose 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 principalinfluence 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 ofServices Act 1980.

The Consumer Information Act 1978A 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 falseor misleading trade description to goods is guilty of an offence. Trade description has a wide meaning andincludes any description, statement or other indication of goods. An oral statement may amount to a tradedescription. Effectively, the Consumer Information Act 1978 imposes a positive duty of care on traders inrespect of the level of accuracy required and information provided..

The Consumer Information Act 1978 affects the character and contents of consumer contracts by obligingbusinesses to be truthful in advertisements and negotiations leading to the formation of a contract. Thus Iwould advice Christina that is she was not going to provide particularly good quality she would be expectedto 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 ServicesAct 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 betaken away in consumer transactions. It is an offence for a retailer to do certain things, which imply thatthe consumer does not have these rights if displayed on business premises, or if published in anadvertisement, 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:G 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.G Where goods are incorrectly described by, for example, words on a package, the retailer can blockout the offending description or otherwise make it clear to the consumer that the description is nottrue.

G If the consumer indicates that the goods are going to be used for a particular purpose, the retailercan, in certain circumstances, express doubt as to whether the goods can be used in that way.

G Retailers are not responsible for defects, which arise through the misuse of the goods by theconsumer, except where the buyer has been given to understand that the goods may be used in thatparticular way.

(2 Marks)

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European Communities (Certain Aspects of the Sale of Consumer Goods and AssociatedGuarantees) Regulations 2003These Regulations give additional protection to a consumer in addition to the existing consumer protectiongranted by the Sale of Goods and Supply of Services Act 1980 and the European CommunitiesRegulations provide for the following:G the liability of retailers for statements made on the specific characteristics of goods;G the reduction of the price of the goods as a remedy open to consumers in certain circumstances;G the liability of retailers in relation to incorrect installation of the goods even where the goods were

installed by the consumer following inappropriate instructions; andG

if the goods have a guarantee, consumers have a right to obtain a written guarantee at the time ofpurchase with details on how to make a claim under the guarantee, the duration of the guaranteeand the territorial scope of the guarantee.

(1 Mark)

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

(1 Mark)

European Communities (Unfair Terms in Consumer Contracts) Regulations 1995 and 2000The fundamental aim of these Regulations is to invalidate terms in consumer contracts for the supply ofgoods and services where the terms have not been individually negotiated, and certain terms are deemedunfair according to prescribed criteria.

The effect of the Regulations is that those engaged in business who deal with consumers should be carefulabout the terms and conditions that they offer to customers. The Regulations considerably increase therights 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 andsupermarkets).

European Communities (Requirements to Indicate Product Prices) Regulations 2002These Regulations relate to consumer protection in the indication of the prices of products offered toconsumers.The Regulations apply to most products for sale by "traders" to consumers. Such products are required toindicate 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 andin proximity to the product. A trader includes any natural or legal person who sells or offers for saleproducts, 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 percentageof the previous price indicated, by a general notice or other visible means provided that the particulars areunambiguous, easily identifiable, visible and legible.

Goods are deemed to be in conformity with the contract if, at the moment of delivery to the consumer:

G they comply with the description given by the seller and possess the qualities of the product whichthe seller has held out to the consumer as a sample or model;

G they are fit for the purposes for which goods of the same type are normally used;G 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;G 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 whichmight arise out of the adoption or performance of the contract, or which seeks to limit his liability to aspecific 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 ofmore 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 rulesto restrain the effect of such clauses.

Before a court will permit reliance upon an exemption clause, it must be satisfied that the particulardocument relied upon as containing the disclaimer/excluding term is an integral part of the contract. It isassumed that no reasonable man would expect to find contractual terms in a mere receipt for money. InChapelton v. Barry UDC (1940), the appellant paid for the hire of two chairs and was given two tickets onthe back of which was a condition which purported to exclude the respondent's liability for any injury whichthe hirer might sustain. The appellant did not read this condition. The canvas on one of the chairs wasdefective and the appellant claimed damages in respect of the injuries which resulted. It was held thatdamages would be awarded, as the appellant was entitled to assume that the conditions of hire were to befound 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 exemptionclause to the notice of the other party. This does not mean that the notice party must actually know of theterms. In Thompson v. LMS Railway (1930), the exemption clause in question was contained in conditionson the front of the ticket. Mrs. Thompson was unaware of the terms, but as the railway company has takenreasonable 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 reasonablesteps 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 thatthe defendants were not protected by the exemption clause. In order to show that the plaintiff was boundby it, it was necessary to show either that he knew of it, or that the defendants had done what wasreasonably 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 againstexclusion 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 expectparticularly good quality. The company may or may not be able to depend on the draft exclusion clause inthe contract.

(1 Mark)

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SOLUTION 5David 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 himselfto his uncle for the money the uncle laughed and said that he made the comment in jest. David said hewas most displeased as he had promised his girlfriend, Donna, that if he passed the exams that he wasplanning for the two of them to go to Spain. The uncle said that was news to him to which David retortedit that he would be getting further news later on in the day when David and Donna issued High Courtproceedings looking for their money and seeking damages owing to the fact that they would have to canceltheir holiday. Advise the uncle.

AIM: This contract law question requires students to show an understanding of the basic requirements in theformation of a contract. Students are expected to define the meaning of an offer, the meaning ofacceptance and the meaning of consideration and to explain the rules that pertain to each and to third partyrights. 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 offerand acceptance are therefore important in determining agreement between the various parties to acontract. 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 ofagreement to the terms and conditions offered by the offeror. Acceptance is made up of two parts: first, thefact 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 individualor to a group of people. The offeror must indicate that he is willing to be bound by the proposition that hemakes. Such an intention need not necessarily be in written format. In fact, it can be inferred from thenature of the proposition or from the circumstances in which it is made. It is necessary to distinguishbetween 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 byacceptance.

It is possible to withdraw or revoke an offer once it has been made. In a unilateral contract, the offeror isusually entitled to withdraw it at any time before performance is complete. However, the courts in generaldo not allow the withdrawal of an offer after performance. The offeror must indicate that the offer has beenwithdrawn.

(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 acceptancehad occurred as a fact. What amounts to acceptance must also be addressed. Acceptance can take theform of words, written or oral or alternatively, acceptance can be made by conduct. The obvious exampleof acceptance by conduct is that in a unilateral contract, where by virtue of the performance of some actby a party, they accept the offer made by the offeror. Acceptance by conduct can also occur in the case ofa bilateral contract. This is evident from the case of Brogden v Metropolitan Railway Co. (1877). Brogdenhad supplied the defendants with coal for years without any formal agreement between them. Thedefendants later sent a draft agreement to Brogden, who inserted a new term and returned the draftcontact marked approved. The arrangement continued under the draft agreement for two years, at whichtime a dispute arose. The House of Lords held that a contract had been created by conduct. This contractcame into existence when the defendants ordered their first coal delivery under the draft agreement or ifnot at that time, when it was delivered.

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Acceptance must exactly fit the offer. This means that acceptance is only effective as such if it accepts allthe 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 acceptedby 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 agreementbetween the parties alone does not make a contract. The law concerns itself with bargains. This meansthat 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 orforbearance 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 orexecutory.(2 Marks)

Executed consideration is where one party promises to do something in return for the act of another. Forexample, if A promises a 10 reward for the return of a lost cat and B finds the cat, returns it to A and claimsthe reward.

Executory consideration is where the parties exchange promises to perform acts in the future. Forexample,"cash on delivery" terms. A promises to pay 1000 when a new computer is delivered. B promisesto deliver the computer within 6 weeks.

One of the rules of consideration is that consideration must be sufficient but need not be adequate. It mustbe possible to attach some value to the consideration but there is no requirement for the bargain to bestrictly commercial. Provided the consideration has some economic value, the consideration need not beadequate. 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, andthose terms cannot be enforced against him. This is termed the doctrine of privity of contract. In the caseof Tweddle v Atkinson (1861) a son was unable to enforce an agreement made between his father and hisprospective father-in-law that money would be paid to the son on his getting married. It appears that acontract is regarded as being personal to the parties. However this rationale is no longer accepted and themodern feeling is that expressed by Steyn LJ in Darlington BC v Wiltshire Northern Ltd [1995] WLR 68, 76:

..there is no doctrinal, logical, or policy reason why the law should deny effectiveness to a contract forthe 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 isparty to a contract and when can a non party rely on a contract.

Who is party to a contract is answered the parties to the agreement are the persons from whosecommunications with each other the agreement has resulted.

The law of agency is a way of circumventing the doctrine of privity an agent is a person with authority toenter into certain transactions on behalf of another person, the agent can become a party of the contractand sue and be sued.

(2 Marks)

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

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

(2 Marks)

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

The aim of this question is to test the students 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 totypes of insurable interests.

It is a requirement of every insurance contract that the insured has an insurable interest in the event

insured against. A person has an "insurable interest" in something when loss or damage to it would causethat person to suffer a financial loss or certain other kinds of losses. If the house B owns is damaged byfire, the value of the house has been reduced, and whether B pays to have the house rebuilt or sell it at areduced price, B has suffered a financial loss resulting from the fire. By contrast, if Bs friends house, whichB does not own, is damaged by fire, B may feel loss for his friend, but B has not suffered a financial lossfrom the fire. B has an insurable interest in his own house, but not in his friends home.

(2 Marks)

A basic requirement for all types of insurance is the person who buys a policy must have an insurableinterest 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 seeksto prevent a mischievous kind of gaming

For purposes of life insurance, everyone is considered to have an insurable interest in their own lives aswell as the lives of their spouses and dependents. For property and casualty insurance, the insurableinterest must exist both at the time the insurance is purchased and at the time a loss occurs. For lifeinsurance, 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 economicinterest or a proximate legal relationship with the subject matter insured.

The concept of insurable interest is also related to indemnity insurance. Under indemnity insurance, theinsured must have suffered a loss to be indemnified, but where the insured has no interest in the eventinsured against he cannot have suffered a loss to be compensated. Irish courts have adopted a liberalinterpretation 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 LifeAccordance (Ireland Act) 1886. This legislation requires the insured under a policy of life assurance to havean 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 insurableinterest in the life of employee and vice versa. The name of the person to whom the policy is made mustbe inserted into the policy or else the policy is rendered illegal. The interest and the sum claimed for isrestricted by the value of the interest. The 1774 act expressly states that it does not apply to ships; goods;or merchandise and its application to other types of merchandise in unclear. The title of the act wouldsuggest that it is concerned with life assurance only. In M.I.B.I v P.M.P.A the Supreme Court proceeded onthe basis that the 1774 Act had a wide application. Here the court found that the insurance of a motorvehicle was insurance of goods within the meaning of section 4 of the 1774 Act. The Court found thatbecause the policy was one of indemnity insurance, there was still a requirement to have an insurableinterest. However in Church & General v. Connolly and McLoughlin the Court limited the application of the1774 Act to life policies.

(2 Marks)

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Marine insurance

Marine insurance is governed by the Marine Insurance Act 1906. In Marine insurance every person hasan insurable interest who is interested in a marine adventure. The insured must have acquired an interestby 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 atthe 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 inLucena v Crauford where it was defined as a right in the property, or a right derivable out of some contractabout the property, which in wither case may be lost upon some contingency affecting the possession orenjoyment of the party.

The House of Lords accepted this narrow definition of insurable interest.(2 Marks)

Insurance of third parties interest

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

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

AIM: The aim of this question is to test the students knowledge of the various types of companies that can becreated under company law. The student should be able to identify the difference between public andprivate companies and give a comprehensive list and definition of all the types of companies that can beformed. Students will obtain good marks if they provide detailed definitions and descriptions of each typeof 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 ofeach company they are describing.

For the Companies Acts 1963-2006 to apply to a company, the company must be registered under thoseacts and appear on the registrar of companies, that the company proposes to carry on an activitymentioned in the memorandum in the State. Companies that can be registered under the Acts fall into anumber of distinct legal categories: principally limited (either by shares or guarantees) or unlimitedcompanies; private or public; one person companies; public limited companies; guarantee companies andexternal 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 limitedto the amount unpaid on the shares which they own in the company or the amount which they undertaketo pay in the event of the company ceasing to exist. Limited liability therefore concerns the liability of themembers 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 legalentity. Separate legal entity means that the company is distinct from its members and the affairs of thecompany are managed by the directors and not by the members. There may be circumstances whenshareholders and members of a limited liability company will be held personally responsible by the courtsfor 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 thecompany (shareholders will not own company assets). The members of such a company are those whohave agreed to become members and whose names have been entered on the register of members andtheir only liability to creditors (responsibility for debts of company) is limited to paying the full amountpayable on their shares. Also, members ownership of shares usually gives certain important rights toshareholders.

(2 Marks)

(ii) Limited by guarantee

This type of company does not issue shares and therefore will not have shareholders. Instead membershave a form of personal membership and give a guarantee to the company that in the event that thecompany is wound up, they will be liable for the companies debts to the extent of the figure on theguarantee. I.e. Liability of the members is limited by the memorandum to the amount which they eachundertake 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 formationor during its active life. Companies limited by guarantee are often used for clubs, social societies andcharities 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 ofinsolvency. 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 prohibitedfrom having a share capital. Most registered companies are private companies limited by shares, and incontrast to public limited companies, private companies limited by guarantee may also have a sharecapital, 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 thecompanies 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 unlimitedcompanies, since their members can be held liable without limit for their companys debts. They are formedwhen it is intended that the company will not carry out business. As they possess separate legal entitycompany creditors do not have a direct claim against company members. Instead they must secure thecompanys winding up and the liquidator will attempt to recover outstanding amounts for those members.

The advantages of unlimited companies are as follows:

G They are exempted from many disclosure requirements for financial information filed with the

Companies Office and can thus keep their financial standing private.G Capital maintenance rules do not apply and thus it is far easier for the company to return contributedcapital to maintenance

G 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 oraccountants) of 20 persons, or 10 persons in the case of bankers. Unlimited companies are formed whenthe 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 bethe directors of the company and the division, therefore, between ownership and management maybe blurred.

3) A quasi partnership where the company is in substance a partnership vehicle for its members.4) Unconnected membership where management and ownership are divided.

The Legislation:

Section 33 (1) of the CA63 defines a private company as a company which has a share capital and whichby its articles of association requires the following:

(i) right to transfer shares must be restricted

(ii) the number of members must not exceed 50(iii) there must be a prohibition on any invitation to the public to subscribe for shares or debentures ofthe company.

Share Capital:

A private company must always have a share capital. The share capital refers to those monies which acompany can raise by issuing shares. The maximum amount of share capital that a company can raise isset out as a nominal figure in the memorandum of association stating the amount of capital which is (orwas 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 sincethe introduction of the European Communities (Single Member Private Limited Companies) Regulations1994, it is now permitted to form or convert existing companies into single member private limitedcompanies with only one shareholder. However, all companies must have a minimum of two directors.

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Advantages of a private company:

G A private company does not need to file a statement in lieu of a prospectus (the public marketingdocument for a public company) on registration.

G A trading certificate is not required before commencing businessG A private company can be established without a minimum capitalG Provided the private company remains small or medium sized relatively little information about the

companys financial or trading state need to be disclosed to the Companies Office.G Most of the EU Regulations concerning companies only apply to public limited companies.

(3 Marks)

4. Public Companies:

A public company is defined as a company which is not a private company. Membership is largelycomprised of the investing public and unlike private companies the division between ownership and controlis clearly visible.

Under the CA63 a public company (which is a broader term than PLC defined below) must have at leastseven members and can be either a company:

1) Limited by shares

2) Limited by shares or guarantee3) 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 plc. The plc isdefined more narrowly than the public company in order to protect the public company from being subjectto the rigours of EU company Directives.

A plc has been defined as a company which is:

1) Limited by shares2) States in the memorandum that it is public and

3) Complies with the requirements of the Act as to registration (including a requirement that the sharecapital 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 under-capitalisation and overtrading

A public limited company may be formed as an entirely new company, however it is far more common forsuch 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 place of business within Ireland was required to register withthe Registrar of companies, as an external company under the Companies Acts. Now, under the EuropeanRegulations, a foreign company which has established a branch will have to register. Branch isconsidered to mean the same as place of business.

(2 Marks)

f1 - business law april 08

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