BUSINESS LAWS
FORMATION 1 EXAMINATION - AUGUST 2009
NOTES:
You are required to answer Five Questions. (If you provide answers to more than five questions, you must
draw a clearly distinguishable line through the answer(s) not to be marked. Otherwise, only the first five
answers to hand will be marked).
TIME ALLOWED:
3 hours, plus 10 minutes to read the paper.
INSTRUCTIONS:
During the reading time you may write notes on the examination paper but you may not commence
writing in your answer book.
Marks for each question are shown. The pass mark required is 50% in total over the whole paper.
Start your answer to each question on a new page.
You are reminded that candidates are expected to pay particular attention to their communication skills
and care must be taken regarding the format and literacy of the solutions. The marking system will take
into account the content of the candidates' answers and the extent to which answers are supported with
relevant legislation, case law or examples where appropriate.
List on the cover of each answer booklet, in the space provided, the number of each question(s)
attempted.
The Institute of Certified Public Accountants in Ireland, 17 Harcourt Street, Dublin 2.
BUSINESS LAWS
THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND
FORMATION I EXAMINATION – AUGUST 2009
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.
Give a detailed outline of the civil law court system in Ireland.
[Total: 20 marks]
2.
Describe the law of property in relation to tenants in common and joint tenancy.
[Total: 20 marks]
3.
4.
5.
6.
7.
Mary was driving in hazardous weather conditions which had covered the road in black ice. Mary’s car was
hit by a transit van driven by Tom who had skidded on the black ice. When the Gardaí arrived, they tested
both Mary’s and Tom’s alcohol level and discovered that Mary was over the limit. As a result of the
accident, Mary suffered serious back injuries and her car was also very badly damaged. Tom was not hurt
in the accident and his transit van had some minor damage. Tom denies any responsibility for the damage
to the car or for Mary’s injuries, blaming the weather conditions for the accident.
Advise Mary as to what kind of action she may take and what type of compensation she may be entitled
to.
[Total: 20 marks]
What is the doctrine of ultra vires in Irish company law?
[Total: 20 marks]
Discuss what the rules of offer and acceptance is the law of contract
[Total: 20 marks]
Explain the nature of negotiable instruments, making particular references to bills of exchange and
cheques and the differences between them.
[Total: 20 marks]
What is the principal of indemnity in Irish law?
END OF PAPER
Page 1
[Total: 20 marks]
SUGGESTED SOLUTIONS
BUSINESS LAWS
THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND
FORMATION I EXAMINATION – AUGUST 2009
SOLUTION 1
Give a detailed outline of the civil law court system in Ireland
[Total: 20 marks]
General Comments
In this question the students should be able to give a detailed description of the civil law court system in Ireland.
Their knowledge should extend to an understanding of the hierarchy of the courts, how this impacts on their work
and what happens in each court with regard to the civil law system. The question is asked in a straightforward
manner, which should not lead to confusion. Extra marks will be given to students who include information on any
relevant cases or statutes.
Solution
The court system in Ireland is outlined in Bunreacht na hÉireann or the Constitution of Ireland under Articles 34
to 37. The Constitution required the creation of a new court system and the Courts (Establishment and
Constitution) Act 1961 completed this process. While this stipulates in Article 34.2 that there will be a Court of
First Instance, that is the High Court and a Final Court of Appeal, that is the Supreme Court; the details of the
Court structure have been outlined in legislation. Article 35.2 of the Irish Constitution stipulates that all judges
exercise their judicial functions independently and should only consider the Constitution and the law when making
their deliberations.
[4 marks]
The District Court is at the lowest level in the Court system and it is presided over by a District Judge. It is a court
of local and limited jurisdiction, having the authority to deal only with certain matters arising within its functional
area. A District Judge is appointed from the ranks of solicitors and barristers. The District Court's jurisdictional
powers are conferred upon it by statute and it may not, therefore, deal with any matters which fall outside its
statutory purview. In civil matters, the District Court has jurisdiction to deal with claims which are not in excess of
€6,348.69. There are 24 different districts. Among other areas the District Court can deal with intoxicating liquor
licence renewals, commercial and consumer protection under the Hotel Proprietors Act 1963 and the Consumer
Credit Act, 1995.
[4 marks]
The next court in the system is the Circuit Court. This is presided over by a Circuit Court Judge. The Circuit Court,
like the District Court is also a court of local and limited jurisdiction, though it also has an appellate jurisdiction of
all matters arising in the District Court. The Circuit Court Judge is usually a former barrister, though more recently
solicitors are now also commonly appointed. The Circuit Court has jurisdiction in civil matters where the claim
exceeds the jurisdiction of the District Court but where it is not in excess of €38,092.14. There are eight circuits.
The Circuit Court among other areas deals with cases regarding new intoxicating liquor licences, commercial and
consumer protection within its financial limit, environmental matters within the limit, landlord and tenant actions
[4 marks]
The High Court is again presided over by one High Court Judge. The High Court has full original jurisdiction in all
matters including civil. There is no upper limit on the amount of damages that may be awarded. The High Court
hears appeals from the Circuit Court over civil matters. In addition to its jurisdiction in civil and criminal law, the
High Court also exercises a supervisory jurisdiction, in cases of Judicial Review, in which it has the authority to
determine the validity of any law having regard to the provisions of the Constitution. This can at times have
implications for the civil law. This jurisdiction is granted under Articles 37 and 50 of the Irish Constitution. The High
Court also deals with company wind-ups and personal insolvency.
[4 marks]
The Supreme Court is the court of final appeal and hears appeals from decisions of the High Court. The Supreme
Court has full original jurisdiction in only two situations; where the President of Ireland, following consultation with
the Council of State, refers a Bill of the Oireachtas to the Supreme Court for a conclusive determination as to its
constitutionality under Article 26 of the Constitution of Ireland; and also where the question of the permanent
incapacity of the President is in issue.
[4 marks]
Page 2
SOLUTION 2
Describe the law of property in relation to tenants in common and joint tenancy.
[Total: 20 marks]
General Comments
This question asks students to describe the different forms of land ownership which can arise in Irish law,
particularly tenants in common and joint tenancy. Students are expected to be able to generally describe them
both before explaining the main differences between them in detail. Students should also be able to describe what
the result of these differences is. Students who include information on case law or statute will be given extra
marks.
Solution
The law of real property deals with how person or persons own land in Ireland. The law of co-ownership is a
specific form of title when several persons or bodies own estates or interests in the same land as well as holding
it at the same time. Joint tenancy and tenancy in common are the two forms of co-ownership under the Irish
system but there are distinct differences between the two forms of ownership and both have a myriad of distinct
rules.
The co-owners of the property share concurrent ownership and are simultaneously entitled to possession of the
whole property. One of the most important things to note is that there are two owners and each is entitled to
possession of the entire property. One co-owner may not therefore exclude other co-owners from any section or
part of the property. However joint owners or co-owners in tenancy in common do not have to be in possession
of the property all the time. They could for instance rent the property out and can legitimately be in receipt of rent
or any other form of profit made from the property. If the property is sold, the joint owners or co-owners in tenancy
in common share the proceeds from the sale.
[4 marks]
Joint tenancy has two characteristics that distinguish it from a tenancy in common. These characteristics are the
right of survivorship and the four unities. On the death of one co-owner, the deceased’s interest in the land
passes automatically to the surviving co-owner or co-owners. This means that when one joint tenant dies, his
undivided share in the land passes to the surviving joint tenants. If there are three joint tenants in a piece of land
and one dies, his share will pass to the other two and so on until eventually the last surviving tenant will be the
outright owner of the land and will be free to dispose of it by sale or by will as he wishes. Joint tenants cannot
defeat the right of survivorship by will. The last survivor, however, as the outright owner, will be able to dispose
of the property by will.
In order for a joint tenancy to exist, the four unities must also be in existence. The first is unity of possession.
Each joint tenant is as much entitled to possession of every part of the co-owned land as the other joint tenant(s).
One co-owner may not delineate any part of the co-owned land as being theirs to prevent the other co-owners
from taking an appropriate share of the rents and profits derived from the land. The second is unity of interest.
This is generally described as meaning that each co-owner is wholly entitled to the whole. The interest of each
joint tenant must be the same in extent, nature and duration. Joint tenancy cannot therefore exist between a
leaseholder and a freeholder. It means that the full legal estate in jointly owned property cannot be conveyed to
a third party without the active participation of all the joint tenants each of whom must put his/her signature to the
transfer document. The third is unity of title which means that all joint tenants must derive their title from the same
act or instrument. The fourth and final is unity of time. This means that interest of each joint tenant must vest at
the same time.
[8 marks]
In a tenancy in common, as opposed to joint tenancy, there is no right of survivorship. The size of the share of
each tenant is a fixed share which cannot be altered by the death of any other tenant in common. In the case of
tenancy in common each owner is regarded as having a distinct, albeit undivided share in the land, which can be
left in a will to which ever he or she chooses. This means that over time it may become more and more
fragmented. This requirement does not mean that a tenant in common owns any particular part of the property.
It means that the tenant owns a certain share in the property which has not as yet been divided up. This means
that two people could each be entitled to one-half share in a piece of property or one could be entitled to a onequarter share and the other to a three-quarters share.
Unity of possession means, as in the case of joint tenants, that each tenant in common is as much entitled as
any other tenant in common to the possession of the entire co-owned land. Each tenant has the right to exercise
acts of ownership over the whole property subject, of course, to the qualification that, in so doing, he may not
interfere with the right of any other co-owner. As a general rule, no tenant in common has any right to demand
compensation in respect of the simultaneous enjoyment of the land by a fellow tenant in common except where
the other has received more than his or her share.
[8 marks]
Page 3
SOLUTION 3
Mary was driving in hazardous weather conditions which have covered the road in black ice. Mary’s car was hit
by a transit van driven by Tom who had skidded on the black ice. When the Guards arrived, they tested both
Mary’s and Tom’s alcohol level and discovered that Mary was over the limit. As a result of the accident, Mary
suffered serious back injuries and her car was also very badly damaged. Tom was not hurt in the accident and
his transit van had some minor damage. Tom denies any responsibility for the damage to the car or for Mary’s
injuries blaming, the weather conditions for the accident.
Advise Mary as to what kind of action she may take and what type of compensation she may be entitled to.
[Total: 20 marks]
General Comments
The aim of this question is to examine the students’ knowledge of the law of tort and specifically the law of
negligence. Students are expected to understand the different elements of negligence that must be proved in a
cause of action. The question gives an uncomplicated problem scenario where it is important that the students
can pick out the individual issues, though in depth analysis is not required. Extra marks will be given for students
who incorporate statutes or case law into their answers.
Solution
This problem comes under the general heading of negligence in the law of tort. For negligence to be established
there are several elements which must be first proved. These are that there is duty to protect others against
reasonably foreseeable harm or loss and that this duty has been breached. There must be some loss or damage
to the plaintiff and there must be a causal link between the breach of duty of care and the loss or damage suffered.
Therefore it must be clear that the defendant was to blame for the accident as well as any damage which
occurred. In the case before us it would have to be proved that Tom owed Mary a duty of care to protect her
against an unreasonable risk, she would then have to prove that this duty had been breached by Tom and this
resulted in damage to Mary. There is also a question surrounding contributory negligence due to Mary’s alcohol
level.
[4 marks]
Ireland generally follows the important English case on duty of care of Donoghue v Stephenson which established
that when a duty of reasonable care was owed, this means that parties must take care to avoid acts or omissions
which they can reasonably see would injure their neighbours. This was followed in Purtill v Athlone when the court
stated that, ‘when the danger is reasonably foreseeable, the duty to take care to avoid injury to those who are
proximate…is based upon the duty that one man has to those in proximity to him to take reasonable care that
they are not injured by his acts’. The question arises then was Tom a neighbour or proximate to Mary. The Court
reiterated its stance on negligence in Glenclar Expropriation plc and Adaman Resources plc v Mayo County
Council and added that it must also be just and reasonable to impose a duty of care upon the defendant.
Therefore a court when ruling on the existence of a duty of care, in addition to the elements of foreseeability and
proximity, the court must consider the fairness, justice and reasonableness of the facts and therefore must have
regard for all the relevant circumstances. Since Bourhill v Young all those using the public road system are
deemed to owe other users a duty of care. Therefore Tom does owe Mary a duty of care. Given that the roads
were icy, Tom should have taken care not to drive in such a manner as to cause his transit van to skid on the
road. It could reasonably be argued that Tom would have foreseen the possible injuries to another driver if his
transit van were to skid and hit another driver. The next question is that of causation. Was there a casual link
between Tom’s driving and the accident? If it can be proved that Tom’s driving in the hazardous conditions caused
an unjustifiable risk to other drivers or whether his driving was reckless than Tom would be liable. However from
the facts it is not clear whether Tom was driving recklessly or not given the conditions.
[6 marks]
Tom in defence could argue that there was a break in the chain of causation. This would require a novus actus
interveniens. This is an act or event that breaks the casual connection between a wrong committed by the
defendant, here Tom, and subsequent events. If this could be proved than Tom would be relieved of responsibility.
According to Hayes v Minister for Finance if an intervenor's act was criminal or reckless then it is likely to be
considered as a novus actus interveniens capable of breaking the chain of causation. As Mary’s alcohol level was
above the legal limit it possible that this would be considered to be a novus actus interveniens and thus relieve
Tom of the liability. However, it is not clear from the facts whether Mary’s alcohol level had anything to do with the
accident, as it was Tom’s SUV which skidded and hit Mary’s car. If the Court finds that the Mary is also guilty of
negligence which contributed to the harm, then Tom will not be found liable for all of the loss. Under the Civil
Liability Act 1961 the damages recoverable will be reduced in proportion to the Mary’s contribution
[6 marks]
Page 4
There are two forms of damages which Mary could seek if Tom was held liable by the Court. That is special
damages, which can include loss of earnings and medical expenses or the damage to the car. The question of
remoteness does not arise here as if Tom failed in his duty of care it would be foreseeable that such damage may
occur. General damages are granted to compensate a plaintiff for non-pecuniary loss arising from his injuries.
This may include pain and suffering, loss of amenity and reduction of life expectancy. If it is foreseeable that Tom
would also be liable for this.
[4 marks]
SOLUTION 4
What is the doctrine of ultra vires in Irish company law?
[Total: 20 marks]
General Comments
In this question the students should be able to give a detailed description of the doctrine of ultra vires in Ireland
particularly under the Companies Acts. This will include a detailed description how ultra vires have been regulated
and developed. The question is clear manner and students should be able to give a sufficient description of the
relevant law in the area. Extra marks will be given to students who include information on any relevant cases or
statutes.
Solution
The doctrine of ultra vires is central to company law in Ireland. It limits the capacity of directors to carry on the
business of the company. The object clause of a company’s memorandum of associations identifies the type of
business which a company must undertake under Section 6 (1) of the Companies Act 1963. If the company does
something beyond the scope of its objects clause, this is said to be ultra vires (beyond the powers of the
company).
The doctrine of ultra vires developed under the common law. One of the most important early cases is Ashbury
Railway Carriage and Iron Company v Riche Lord Cairns L.C stated that ‘no object shall be pursued by the
company, or attempted to be attained by the company in practice, except an object which is mentioned in the
memorandum of association’. If such transactions are undertaken in violation of the objects clause they are
considered void and cannot be ratified retrospectively even if the company’s objects are changed afterwards.
The doctrine of ultra vires was originally designed as a means to protect the interests of shareholders and
creditors as what the company directors could and could do is systematically laid out in the memorandum of
association. This is clear in Ashbury Railway Carriage case where the Court made it clear that shareholders of a
company should be aware of the purposes to which their funds are being put. Also for creditors it made it public
and clear what the nature of the business of the company to which they are giving credit actually is. It is important
to note that the objects clause in a memorandum of association may be changed or altered using a special
resolution under Section 12 of the Companies Act 1963. Since the inception of the doctrine, drafters of
memorandums of association have became very good at broadening the wording of objects in the memorandum
to incorporate nearly any form of business transaction that the company directors may seek to become involved
in. This has meant that the central reason for having an objects clause has been defeated as the now very broad
clauses that are usually inserted into memorandums of association. Often there is an all-inclusive clause which
could cover nearly all eventualities.
The courts are quite conservative when interpreting objects clauses so that the doctrine of ultra vires still has
important applications. This is particularly important in relation to the doctrine of powers. The court will not permit
a power to be changed into an object as per Re Introductions Limited (No.1) and this has limited the ability of
company directors to circumvent the objects clause.
One of the problems with the doctrine of ultra vires is that prior to the introduction of Section 8(1) of the
Companies Act 1963 creditors were caught by the enforcement of the doctrine of notice, however the statutory
exception provided in s.8 that a person doing business with the company who was not “actually aware” of the
company's lack of capacity to enter into a transaction. Section 8(1) states the act shall ‘be effective in favour of
any person relying on such act or thing who is not shown to have been actually aware, at the time when he so
relied thereon, that such act or thing was not within the powers of the company’. Under S.8 (2) of the Companies
Act 1963, directors who cause a company to act outside their powers are liable to the company for resulting
losses; this section also allows shareholders to take action against a director who is found to have acted ultra
vires.
The doctrine of ultra vires no longer has the potency that it once had. This is the result of both the action of
drafters to broaden the objects clause and the statutory intervention. There are now other methods of protecting
both shareholders and creditors and this has meant that the objects clause no longer needs to be relied upon and
thus the doctrine of ultra vires is no longer as necessary as it once was.
Page 5
SOLUTION 5
Discuss what the rules of offer and acceptance is in the law of contract.
[Total: 20 marks]
General Comments
The aim of this question is to examine the students’ knowledge of the law of contract and whether the students
understand the differences between offer, invitation to treat and acceptance. Students are also expected to know
what the effects of making an offer, an invitation to treat and acceptance are. In depth analysis is not required,
though an understanding of the differences between the three and being able to identify them is important. Extra
marks will be given for students who incorporate statutes or case law into their answers.
Solution
In the law of contract in Ireland, offer and acceptance form the basis of the contract. What the consideration is as
well as both the express and implied, terms of the contract may be derived from the negotiations between the
parties. The terms of the contract are created during the party’s negotiations which maybe divided into offer and
acceptance. The distinction between offer and invitation to treat is also crucial. However what these exactly are
can only be discovered when it is clear what is the offer and what is acceptance and what in any particular
contract is merely an invitation to treat.
Offer and invitation to treat are the initial aspects of the negotiation of a contract. An invitation to treat may be
defined as the initial contact between the parties to the contract. It is not a manifestation of any intention to be
bound and therefore the terms of the contract are not settled at this stage. The terms may change during this part
of the negotiation as no party is bound. An offer on the other hand may be defined as a promise to do or refrain
from doing something in the future once it is accepted by the person to whom it is addressed. The terms of an
offer cannot change, if they do this will be considered to be a counteroffer and thus the original offer no longer is
relevant. The distinction between invitation to treat and offer must balance freedom to manoeuvre and negotiate
a new contract and other situations where it would be unfair not to grant some relief to someone who has been
induced into relying upon an offer in a contract. One of the most important cases in offer and invitation to treat is
Carlill v Carbolic Smokeball Co. Here the court held that an advertisement, unusually, was an offer, even though
generally advertisements are considered to be invitations to treat. This was because the court believed that there
was an offer to the world at large to pay a sum if certain conditions were fulfilled and this was seriously meant
and therefore they should be held bound to a contract.
[10 marks]
In contrast, acceptance is, on the assumption that there is an offer made, where the party to whom the offer was
made accepts the exact terms of the offer and contract is concluded. Where acceptance occurs and there is an
unequivocal acceptance of the terms of the offer the parties are bound to the contract. If there is any difference
in the terms of the acceptance and the offer than the parties will not be bound by the contract. Therefore to ensure
that the parties intend themselves to be bound there must firstly be an intention to accept the offer; secondly this
must exactly mirror the offer, thirdly it must be given in response to the offer, fourthly it must be made by the
appropriate mode, and finally it must be communicated to the offeror. Acceptance is usually divided into two
sections; the fact of acceptance and communication of acceptance. This second part may be inferred from the
words contained in the documents passed between the parties or from their conduct. If all these elements are
present, then a valid contract can exist. The postal rule is an exception to the general rule which is exists for all
other forms of communication. An acceptance is posted, unless otherwise stated, it becomes valid from the date
of postage. This was originally developed in English and was expressly accepted into Irish law in Sanderson v
Cunningham. Therefore, to have a valid contract there must be offer and acceptance present.
[10 marks]
Page 6
SOLUTION 6
Explain the nature of negotiable instruments, making particular reference to bills of exchange and cheques and
the differences between them.
[20 marks]
General Comments
This question is designed to test students’ knowledge in the area of documentary intangibles particularly
negotiable interests. The question requires a descriptive answer. Students are expected to set out any general
issues regarding documentary intangibles and negotiable instruments 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. Extra
marks will also be awarded if students can refer to any relevant secondary legislation.
Solution
Bills of exchange are a form of documentary intangibles called a document of title to the payment of money. A
cheque is a form of a bill of exchange. The holder of a bill of exchange has legal entitlement to the amount noted
in the bill of exchange. The debt or obligation is tied to the document and documentary intangibles are known as
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 the bill of exchange is similar to a cheque in some ways, a bill of exchange is more
akin to a credit instrument.
[5 marks]
a)
b)
Cheques
The Bills of Exchange Act 1882 is still the foundation on the law of surrounding the use of cheques and
other negotiable instruments. The Cheques Act 1959 is also relevant in relation to banks and their liabilities
with regard to cheques. Under the Act a cheque is defined in section 73 of the Act as ‘a bill of exchange
drawn on a banker payable on demand.’ Generally cheques are not used as negotiable instruments that
often, but are instead used as a direct method of payment and lodged to the payee's account. A bank may
become what is known as a holder in due course if the bank has taken a cheque in good faith and for value
and without notice of any defects in the title of the person who negotiated the cheque originally and may
have better title than the original cheque holder. The Cheques Act 1959 the balance of liability generally is
in favour of the bank. The use of cheques as negotiable instruments does open up the possibility of fraud.
The Bills of Exchange Act under Section 76 provides for the crossing of cheques to increase the security
of the cheque as a method of payment. Cheques can be crossed by simply drawing two parallel lines. The
phrase “not negotiable” on the face of the cheque which is accompanied by the general crossing provides
for further security. Another form of crossing, an account payee crossing has the effect of rendering the
cheque non-transferable and valid only as between the parties.
[5 marks]
Bills of Exchange
A bill of exchange is defined in s. 3(1) of the Bills of Exchange Act 1882 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 bearer’.
Originally the most important aspect of the bill of exchange was its negotiability. A bill of exchange can be
transferred once it has been endorsed without the need for formal assignment or transfer and the holder
of the bill of exchange is entitled to bring an action before the courts on the basis of the instrument. This is
an exception to the law of privity of contract. Once the new holder of the bill of exchange has taken the bill
in good faith and for value or some worth and without notice of any defects in the title or ownership of the
person who negotiated the bill then they become known as a holder in due course and may have better
title than the original holder. In ordinary usage cheques have generally taken the place of bills of exchange;
however their use is still important as cheques are generally not intended to be negotiated, though there
are instances where cheques may be.
[5 marks]
There are various important differences between a bill and a cheque. These include the fact that a bill can
be drawn on any person and cheques must be drawn on a banker. Importantly cheques may be crossed
to increase security whereas, bills cannot. As already mentioned there are two types of crossing – general
crossings and special crossings. 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 and are more secure. A bill of exchange is what is known
as a demand or time, a cheque is always a demand bill, but with a cheque unlike a bill, if there is a refusal
to pay there will result a right of action. A time bill must be presented for payment when due, otherwise the
liability of the writer of the bill will be discharged.
[5 marks]
Page 7
SOLUTION 7
What is the principal of indemnity in Irish law?
General Comments
In this question the students should be able to give a detailed description of the doctrine of indemnity in Ireland.
This will include a detailed description of the core principles involved. The question is asked in a clear manner
and students should be able to give a sufficient description of the relevant law in the area. Extra marks will be
given to students who include information on any relevant cases or statutes.
Solutions
The legal definition of what constitutes a contract of indemnity was established in Vance v Forster. The Court
stated that the insured may name any amount that he or she wishes and that he or she will also pay a premium;
this does not mean that the company by accepting the risk has to pay out the amount specified by the insured.
The insured cannot recover a figure above that amount however the insurance company may decide on the facts
to pay out less as the insured can only recover an amount which is equal to the damage that has been sustained.
There are four elements necessary for there to be a contract of indemnity. The first is that the insured must pay
a premium to the insurer and the insurer must cover the risks of the insured. The second is that there must be a
loss to the insured; this does not require complete destruction as the Court outlined in Colquhoun v London and
Manchester Assurance Co, and theft for example will be covered in certain insurance contracts. The third is that
the insurer is only liable for the actual loss suffered. They are therefore only entitled to be indemnified for their
loss and are not entitled to recover on any other basis. Finally the insured must pay a fee to the insurer in order
that the insurer is paid for the risk he has undertaken. The Insurer's liability to the insured will not automatically
equate to the sum insured in the policy. This principle was considered in Brodigan v Imperial Live Stock & Genera
Insurance Company Ltd. The ordinary contract of insurance contained in a marine or fire policy is also a contract
of indemnity under Castellain v Preston. It is clear from what was said earlier, that the sum insured under a policy
is not, the sum which the insured will automatically acquire should a loss arise. The sum payable will be the sum
which will compensate the insured for the actual loss sustained. This will be the cost of placing the insured in the
same position he was in the day before the loss arose.
Other Characteristics of indemnification policies include subrogation. The doctrine of subrogation gives an insurer
the right to be placed in the position of the insured. The court in Doyle v Wicklow County Council stated that this
doctrine arises once the insurer has indemnified the insured against a loss. The doctrine provides that, “all claims
of the insured arising out of any ground of legal responsibility vest in the insurer by subrogation.” In essence this
doctrine allows an insurer to succeed to all rights and remedies against third parties in respect of the loss or
damage to the insured property. There is also the doctrine of reinstatement. This means that the insurers
undertake to make good the insured's loss by replacement or rebuilding the property, as opposed to paying the
insured the amount of the loss. Where an insured recovers any payment from a third party, in respect of loss or
damage sustained, this must be taken into account in assessing an insurer's liability. An insured is only entitled
to indemnity and should never be more than fully indemnified.
[Total: 20 marks]
Page 8