BUSINESS LAWS
FORMATION 1 EXAMINATION - AUGUST 2010
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 2010
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 account of the office of Attorney General and Director of Public Prosecutions.
2.
Outline the two forms of co-ownership of real property in Irish law, joint tenants and tenants in common.
3.
Contracts can come to an end in several ways. Give an outline of:
4.
5.
6.
7.
[Total: 20 marks]
[Total: 20 marks]
(a)
(b)
(c)
discharge by performance,
discharge by express agreement; and
discharge by breach of contract.
[Total: 20 marks]
Jim owns a pub in Cork. On a busy night Cormac comes in with some friends for a few drinks. After three
pints Cormac drops his pint on the floor. Jim sends one of the barmen, Brendan, to wipe it up. Since it is
so busy Brendan only wipes up some of the beer and the floor remains quite wet. After several more pints,
whilst going to the bar to buy another round, Cormac slips on the wet floor. Cormac breaks his arm.
[Total: 20 marks]
Advise Jim as to his potential liability.
Outline in detail the law with regard to two of the three items listed below:
(a)
(b)
(c)
Cheques
Bank Drafts
Bills of Exchange
[Total: 20 marks]
What is the nature of the insurable interest and contracts of utmost good faith in Irish insurance law?
[Total: 20 marks]
Describe in detail the nature of separate legal personality and the lifting of the corporate veil in Irish
Company Law.
[Total: 20 marks]
END OF PAPER
Page 1
SUGGESTED SOLUTIONS
BUSINESS LAWS
THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND
FORMATION I EXAMINATION – AUGUST 2010
General Comments
This question tests the student’s knowledge of two of the most important legal offices in the state. It is a descriptive
question though the students will need to have a good general knowledge of both offices to answer the question.
Reference to relevant legislation or case law will earn extra marks.
SOLUTION 1
The Office of Attorney General was created under the Ministers and Secretaries Act 1924 under the auspices of the
1922 Constitution. The 1937 Constitution under Article 30 preserved the office in a similar role. The Attorney General
is the legal advisor to the government on matters of legal opinion. Article 30 of the Constitution provides that the
Attorney General shall not be a member of the Government. The principal role of the Attorney is as the adviser of
the Government in matters of law and legal opinion and in that capacity she attends cabinet meetings. The Attorney
General is the chief law officer in the state. Normally the Attorney General is a practicing barrister and a Senior
Counsel. The Attorney General is appointed by the President on the nomination of the Taoiseach. The Attorney
General can be requested to resign and also resigns when a Taoiseach does so. The Attorney General institutes
and defends proceedings to which the State is a party. The Attorney General’s consent is also required in some
instances by the Director of Public Prosecutions to bring some criminal proceedings. The Attorney General
scrutinises all draft legislation proposed by the Government and gives advice with regard to international legal
matters. Besides the constitutional requirements other functions of the office can and have been created by law,
these include the scrutiny of extradition warrants and the enforcement of charitable trusts.
(10 marks)
The Office of the Director of Public Prosecutions was established under the Prosecution of Offences Act 1974. The
DPP is a civil servant and his staff is made up of solicitors, barristers and civil service administrators. Under Section
2 of the Act the DPP is appointed by the Government and at the time of her appointment she must have been a
practising solicitor or barrister for at least 10 years. The DPP prosecutes serious offences in the name of the people
as is set out under Article 30.3 of the Constitution. This role was originally fulfilled by the Attorney General but it was
decided that the office was two wide for one office holder to fulfil all the duties as well as that the prosecutor of crimes
should be independent of all political connections. Article 30.3 of the Constitution permits another officer to fulfil this
role. Proceedings maybe initiated by the office of DPP when it is referred to by a government department or when
the DPP considers that such a prosecution is required. The DPP is fully independent in the carrying out of his
functions. The Director makes decisions independently of all other bodies and institutions, including both the
Government and the Garda. All decisions made by the DPP regarding prosecution are final and thus his decisions
are not published. The Office of the DPP has three main divisions, The Directing Division which consists of barristers
and solicitors who examine criminal investigation files and decide whether or not a prosecution should be taken. The
Solicitors Division which consists of solicitors and legal executives who prepare and conduct cases on behalf of the
DPP in all courts sitting in Dublin. The third and final is the Administration Division which provides the organisational,
infrastructural, and administrative and information services required by the Office and also provide support to both
the Directing and Solicitors Divisions.
(10 Marks)
Page 3
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 2
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 more than one owner 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 fixed 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 one-quarter 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 4
General Comments
This question asks students to describe the different manners in which a contract relationship comes to an end.
Students are expected to be able to generally describe how contracts end through agreement, performance and
termination. 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 3
Discharge of contract brings about the termination of the contract; it also brings to an end the primary obligations
associated with the contract. It may take place through performance, express agreement, or through breach of a
contract. When both parties have performed their contractual obligations completely as outlined in the contract, the
contract is said to be discharged or extinguished. If a contract can be divided into sections, then part performance
may occur. In these circumstances the court may treat one section as completed and allow a party to recover for
the incomplete aspects only. The doctrine of substantial performance states that once a contract is completed as
completely as reasonable person could in the same circumstances a party is only liable for the contract price and
no more. The parties may also decide by mutual agreement to terminate the contract. This may be done in a specific
agreement or by both parties abandoning the remainder of their obligations. This maybe covered by the contract
itself or through subsequent negotiations between the parties. It is often referred to as discharge through accord
and satisfaction
(10 marks)
Breach of contract occurs when there is an actual failure by one of the parties to the contract to perform his
obligations under the contract. A party may breach a contract before performance this is known as an anticipatory
breach. This can occur either through renunciation or impossibility this is in contrast to when performance is falls
due and there is a failure to perform. Breach itself does not always terminate a contract. The party not in breach of
their contractual obligations has two options, they may treat the contract as discharged or alternatively they may
waive this right to repudiate the contract and then recover damages for any loss. These remedies are mutually
exclusive and there are also separate rules under the Sale of Goods and Supply of Services Acts for contracts
falling within its remit. The right to terminate does not arise in every situation and may be restricted by the existence
of a warranty. If there is a breach of the contract not all clauses of the contract will be inoperative. Future obligations
may still be relevant in the assessment of damages. The innocent party must act promptly and decisively to make
use of the remedies and clauses that are still available to them under the contract. In the case of a breach a party
may be entitled to: damages, rescission, specific performance an injunction or Quantum meruit.
(10 marks)
Page 5
General Comments
This questions tests student’s knowledge of the law of tort and negligence more specifically. Students will discuss
negligence, duty of care, contributory occupier’s liability and vicarious liability. The problem question requires the
students to understand the operation of the law. Extra marks may be gained from knowledge of legislation and
case law.
SOLUTION 4
Jim may be held liable under the law of negligence as an occupier and as an employer; however Cormac may have
also contributed to his accident. Negligence occurs when there is failure by the defendant, here Jim, to exercise the
level of care which the law states is due to the plaintiff, here Cormac, if this causes a loss to the person to whom
the care is owed this will result in court finding against the defendant. This does not mean that everyone owes
some duty of care all the time; it is only if any person could reasonably foresee that their actions would cause injury
or loss due to their actions. This was established in Donoghue v Stevenson. Cormac will have to prove three things.
Firstly that Jim owed him a legal duty of care that Jim has breached this duty of care and that Cormac has suffered
a loss, damage or injury due to the Jim’s breach. The court must then examine whether Jim took reasonable care
in the circumstances.
(6 marks)
The fact that it is Jim’s pub may make him liable as an occupier. Regardless of any legal relationship between them,
an occupier will be required to exercise a duty of care towards persons who enter their premises. This is governed
by both common law and statute. The Occupiers’ Liability Act 1995 establishes that there are three different
circumstances a duty of care is due; firstly where a visitor who enters on invitation, or with the permission of the
occupier, by virtue of an express or implied term in a contract, or as of right, secondly a recreational visitor, a person
who enters without any charge, with or without the permission of the occupier whether with implied consent or
otherwise or thirdly a trespasser, this is a person who is not in either category 1 or 2. Under Section 3 of the Act
there is a duty of care such as the occupier will be liable for any injury or damage to the visitor or their property due
to any danger existing on the property. There are also supplementary duties regarding maintenance of structures
for the use of visitors in a safe condition. If the wet floor could be regarded as a danger existing on the property and
that Jim failed to maintain in a safe condition the court may find him liable as an occupier.
(8 marks)
Jim could argue that he was not responsible as he sent Brendan to dry the floor. Generally a person is only liable
for their own actions; however there is an exception for vicarious liability. Here, a person maybe held liable when
they authorise another person, expressly or impliedly, to take some action. If this action causes harm, injury or
damage to another then the authorising person will be held liable. This is most common with relation to employers,
agents and employees. An employer will be liable for employees who commit the tort in the pursuit of their
employment. If the employee has acted negligently or committed another tort, then the employee will be liable and
not the employer. Jim had sent Brendan to dry the floor which he failed to do, it is likely that the court would find
Jim liable for Brendan’s actions. The fact that Cormac spilled the pint maybe considered to be contributory
negligence. If the Court finds that Cormac is also guilty of negligence which contributed to the harm, then the Jim
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 plaintiff’s contribution.
(6 marks)
Page 6
General Comments
This question is designed to test the student’s understanding of the nature of insurance contracts and particularly
the differences between insurable interests and the idea of utmost good faith. Extra marks may be gained from the
inclusion of case law or legislation.
SOLUTION 5
Insurance in Irish law was defined by Blayney J in International Commercial Bank plc v Insurance Corporation of
Ireland plc and Meadows Indemnity, as ‘a matter of speculation where the person desiring to be insured has means
of knowledge as to the risk, and the insurer has not the means or not the same means. The insured generally puts
the risk before the insurer as a business transaction, and the insurer of the risk stated fixes a proper price to
remunerate him for the risk to be undertaken and the insurer engages to pay the loss incurred by the insured in the
event of the certain specified contingencies occurring.’ The law in Ireland is generally covered under the Insurance
Acts 1909–2007.
(6 marks)
One of the most important aspects of this definition is that the insured must have means of knowledge as to the risk
and the insurer has not the means or not the same means of knowledge. Following from this the insured must have
what is known as an insurable interest in the subject matter of the insurance policy. An insurable interest arises when
a person or thing is exposed to a risk which is the subject matter of the insurance, the insurer must bare some
relationship to the the insured person or thing where he or she stands to benefit from its safety or is prejudiced by
its loss. This means that the insured must have two elements in order to have an insurable interest. That is they
must have some economic interest and a relationship of proximity to the risk. This was established in the Matter of
the Arbitration Act, 1954, Church & General Insurance Co. v Connolly & McLoughlin. [Unreported, High Court, May,
1981] where Costello J. dismissed the plaintiff’s appeal against the decision of an arbitrator who found that the
defendants had an insurable interest in a property in which they were tenants at will. The High Court found that the
defendants should be indemnified not only in respect of the damage sustained to the property in which they were
tenants but also in respect of loss and damage caused to the interests of the owners. An insurable interest applies
to all forms of insurance contracts and is linked to indemnity policies. In the absence of an indemnity policy it is
covered by statute.
(8 marks)
With few exceptions such as in the law of insurance there is no general duty of good faith in contract law during the
negotiation of contracts, however there is a duty not to make false statements. A failure by the insured to disclose
all the relevant details will enable the insurer to repudiate liability and not pay out on the contract. In Chariot Inns v
Assicuriziona Generali SPA the court stated that in this instance where the insured had failed to disclose details of
previous insurance claims, the contract could be repudiated. This puts insurers in a highly favourable position. In
Aro Road and Land Vehicles v Insurance Corporation of Ireland [1986] the court said that the duty of discloser has
two elements; firstly the person who fills in the proposal form is bound by a duty of utmost good faith, he must
answer any question on the form to the best of his knowledge and secondly if there is no proposal form he must
disclose all material matters within his knowledge. If either of these is breached by the insured the insurer is entitled
to avoid the claim. Materiality is important, as it is only material matters which must be disclosed. Materiality is not
related to the claim that is made by the insured but rather it is material to the original insurance contract.
(6 marks)
Page 7
General Comments
This question examines two of the central elements of company law and tests whether the students understand their
nature and how they operate in Irish company law. Students should demonstrate a good understanding of company
law but it is a descriptive answer.
SOLUTION 6
A company has its own legal personality, and therefore is an entirely separate legal person to its members. This
means that its members have limited liability. The Companies Acts 1962-2009 contain the statutory provisions in
regard to company law. A company maybe limited by guarantee where its members are liable for the amount they
have guaranteed in writing to contribute in a situation where the assets of the company are insufficient to discharge
the debts of the company. It maybe a company limited by shares where the member’s liability is limited to the
nominal value of the shares held by them in the company. If the shares are not fully paid up and the company goes
into liquidation the member will only be liable for the outstanding amount to be paid up. A company may also have
unlimited liability where the members are liable for all the debts of the company including as far as their personal
assets.
(6 Marks)
Separate Legal Personality
This is one of the most important aspects of registering as a company. This allows a company, and not its members,
to make contracts, own property, sue and be sued as a legal person. Once a company is registered and a certificate
of incorporation issued a company has a separate legal existence to that of its members. As a separate legal entity
it is subject to the same rights and obligations as a legal person. It can own property in its own right and it will
continue to be in existence irrespective of changes of ownership until the grant of incorporation has been revoked.
The landmark case of Saloman v Saloman & Co. (1897) established this principal. Here Saloman was not liable for
debts of the company he has set up for only a year before, even though he had been a sole trader for 30 years
previously and would therefore have been liable. This has been applied in Irish courts since such as Roundabout
Ltd v Beirne [1959]. As a result of separate legal personality a company owns its own property and thus only a
company for example can have an insurable interest in a property and not its members. A company can also take
actions against other legal entities and be sued itself. Thus the laws of contract apply equally to a company as it
does to an individual.
(8 Marks)
Lifting the Veil of Incorporation
In some instances it is not seen as just to allow individuals to hide behind separate legal personality and this is known
as lifting the veil of incorporation. The Companies Act 1963 outlines the situations in which this will happen. In
situations not covered by the Act the Court will look to see if the company is being solely used to escape legal
obligations and liabilities or is acting for another company and may also lift the veil. Courts have pierced the veil in
a number of occasions such as when an agency relationship exists between the company and its members, whether
the relationship between companies in the same group as so entangled so as it is just to treat them as a single
economic entity, whether the company is being used to avoid an existing legal obligation, whether the company is
being used to perpetuate a fraud or an injustice, where the company is really a quasi-partnership or when the court
wishes to establish to residency of the company. There are also occasions when the officer’s of the company such
as directors and secretaries will be held liable where there has been a failure to comply with statutory requirements
such as under Section 36 which states that where membership has fallen beneath the minimum requirement after
6 months the all remaining members will become liable or when the company has been engaged in fraudulent or
reckless trading.
(8 Marks)
Page 8