BUSINESS LAWS
FORMATION 1 EXAMINATION - APRIL 2011
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.
THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND
BUSINESS LAWS
FORMATION I EXAMINATION – APRIL 2011
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.
Briefly outline the structure of the Irish Court System.
2.
Describe the law of property in Ireland with relation to tenants in common and joint tenancy.
[Total: 20 marks]
[Total: 20 marks]
3.
John was driving home for Christmas in treacherous weather conditions which had covered the roads in
snow and black ice. John was caught in slow moving traffic on the M50 for four hours when his car was hit
from behind by a SUV, driven by Eileen, who was attempting to pass the traffic on the hard shoulder. Eileen
was on her way home from her Christmas party. When the Gardai arrived, they questioned both John and
Eileen as to the cause of the crash. John argued that it was Eileen’s dangerous driving, whilst Eileen argued
it was due to the weather conditions. As a result of the accident, John suffered neck injuries and his car was
also very badly damaged. Eileen was also hurt in the accident with only minor damage to her SUV. Eileen
denies any responsibility for the damage to the car or for John’s injuries, blaming the weather conditions for
the accident.
Advise John as to what kind of action he may take and what type of compensation he may be entitled to.
[Total: 20 marks]
4.
Briefly outline the following elements of a contract:
(a)
(b)
(c)
Express Terms
Implied Terms
Exclusion clauses
[Total: 20 marks]
5.
Describe the law on guarantees and after-sale services in Ireland under the Sale of Goods and Supply of
Services Acts.
[Total: 20 marks]
6.
Briefly outline the doctrine of ultra vires in Irish company law.
[Total: 20 marks]
7.
What is the principle of Indemnity in Irish Insurance law?
[Total: 20 marks]
END OF PAPER
Page 1
SUGGESTED SOLUTIONS
THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND
BUSINESS LAWS
FORMATION I EXAMINATION – APRIL 2011
SOLUTION 1
Briefly outline the structure of the Irish Court System.
[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. 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. This Act stipulates under 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
The district court is the lowest court and under the Courts and Court Officers (Amendment) Act 2007 the numbers of
judges should not be more than 60, excluding the President of the Court. It is divided into twenty-three districts where
one judge is appointed, though in a number of instances, due to the volume of cases, there maybe more than one. The
District Court’s civil jurisdiction covers matters up to €6,349 and also grants dance and liquor licences. Its criminal
jurisdiction covers summary offences and some indictable cases of a minor nature. The District Court also has specific
family law jurisdiction.
[4 marks]
The Circuit Court
Under the Court and Court Officers (Amendment) Act 2007 the Circuit Court has no more than thirty seven judges and
a President. It is divided into eight circuits: one judge is permanently assigned to a circuit while in busier courts the
number maybe larger. Civil cases up to €38,092 maybe heard in the Circuit Court, though this figure maybe amended
by the parties. The Circuit Court also has specific family law jurisdiction. In criminal cases, the Circuit Court covers
indictable offences and has a jury. It is also the court of appeal for both civil and criminal cases as well as the
Employment Appeals Tribunals and the District Court.
[4 marks]
The High Court
The High Court has jurisdiction over all matters to come before the Courts. This includes matters arising out of the
Constitution. Under the 2007 Court and Court Officers (Amendment) Act, there is a President who is also a member of
the Supreme Court and not more than thirty five judges. Generally judges sit on their own, though at times in certain
cases three judges sit together. A jury also sits on certain civil cases and in criminal cases where a plea of not guilty
has been entered. It is also the Court of Appeal from the District and Circuit Courts. For criminal cases the court sits as
the Court of Criminal Appeal. The Special Criminal Court was set up under the Offences against the State Act 1939 and
sits with no jury. It is only used for a limited number of cases.
[4 marks]
The Supreme Court
The Supreme Court is the highest court in the system and is the court of appeal for any cases which originated in the
High Court and cases from both the District and Circuit Courts. The Chief Justice plus seven other judges sit on the
Court and the President of the High Court is an ex officio member. The President may send a Bill to the Supreme Court
to test its constitutionality before signing it into law.
[4 marks]
Page 2
SOLUTION 2
Describe the law of property in Ireland with relation to tenants in common and joint tenancy.
[Total: 20 marks]
General Comments
This question asks students to describe two different forms of land ownership in Irish law: 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 who include information on case law or statute will be given extra marks.
Solution
The Irish 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 have interests in the same land and hold it at the same time. Under the Irish
system joint tenancy and tenancy in common are the two forms of co-ownership where land is owned by more than one
legal entity. These forms of co-ownership each have their own legal regime. The co-owners of property share concurrent
ownership and are simultaneously entitled to possession of the whole 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. Section 30 of the Land and Conveyancing
Law Reform Act 2009 has made some amendments with regard to the need for consent with regard to elements of joint
tenancy.
[4 marks]
In a tenancy in common there is no right of survivorship. The size of the share of each tenant is fixed and 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, though undivided share in the land, which can be left in a will to whomever she chooses. This requirement
does not mean that a tenant in common owns any particular part of the property rather it ensures 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 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]
Joint tenancy has two main 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]
Page 3
SOLUTION 3
John was driving home for Christmas in treacherous weather conditions which had covered the roads in snow and black
ice. John was stuck on the M50 for four hours when his car was hit from behind by a SUV, driven by Eileen, attempting
to pass the traffic on the hard shoulder. Eileen was on her way home from her Christmas party. When the Guards arrived,
they tested both John and Eileen’s alcohol level and discovered that Eileen was over the limit. As a result of the accident,
John suffered neck injuries and his car was also very badly damaged. Eileen was also hurt in the accident but her SUV
only suffered minor damage. Eileen denies any responsibility for the damage to the car or for John’s injuries, blaming
the weather conditions for the accident.
Advise John as to what kind of action he may take and what type of compensation he 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 more 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.
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 be proved. These elements are central to negligence and include the duty to
protect others against reasonably foreseeable harm or loss. This has potentially been breached in this scenario.
Secondly, there must be some loss or damage to a plaintiff. This loss or damage must have a causal link between the
breaches of duty of care. Therefore it must be clear that a 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 Eileen owed John a duty of care to protect
him against an unreasonable risk, he would then have to prove that this duty had been breached by Eileen and this
resulted in damage to John.
[4 marks]
Donoghue v Stephenson is the case which established that when a duty of reasonable care is owed. The case
established that parties must take care to avoid acts or omissions which they can reasonably see would injure their
neighbours. In Ireland, 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 Court this in Glenclar
Expropriation plc and Adaman Resources plc v Mayo County Council and further added that it must also be just and
reasonable to impose a duty of care upon the defendant. The core question is whether Eileen was a neighbour or
proximate to John. When ruling on the existence of a duty of care, in addition to the elements of foreseeability and
proximity, the court must also consider the fairness, justice and reasonableness of the facts. This means that in this
instance the Court must have regard for all relevant circumstances in the problem. This leads to the question of whether
using a public road leads to a duty of care. Since Bourhill v Young all those using the public road system are deemed to
owe other users a duty of care. This would suggest that Eileen owes John a duty of care. Given that the treacherous
road conditions, Eileen should have taken care not to drive in such a manner as to cause his an accident, this would
include driving on the hard shoulder, which is not permitted. It is reasonably to argue that Eileen could foresee the
possible injuries to another driver when driving on the hard shoulder during such treacherous conditions. This leads to
the issue of causation. Was there a casual link between Eileen’s driving and the accident? If it can be proved that Eileen’s
driving in the hazardous conditions caused an unjustifiable risk to other drivers or whether her driving was reckless than
Eileen would be liable. Given the fact that Eileen was driving on the hard shoulder it could be argued that it was reckless
besides the weather conditions.
[6 marks]
Eileen, in defence, could argue that there was a break in the chain of causation. 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 This would require a novus actus interveniens to be evident in the facts before
us. An act or event that breaks the casual connection between a wrong committed by the defendant, here Eileen, and
subsequent events. If this could be proved than Eileen would be relieved of responsibility. Neither the fact that Eileen
was over the alcohol limit nor the weather conditions would be considered to be novus actus interveniens.
[6 marks]
There are two forms of damages which John could seek if Eileen 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 Eileen failed in her 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 Eileen may also be liable for this
form of damages.
[4 marks]
Page 4
SOLUTION 4
Briefly outline the following elements of a contract:
(a)
(b)
(c)
Express Terms
Implied Terms
Exclusion clauses
[Total: 20 marks]
General Comments
This question asks students to describe the terms of a contract. Students are expected to be able to generally all
three terms in detail with reference to relevant cases and statutes. Students who include information on case law
or statute will be given extra marks.
Solution
(a)
Express Terms
Not every statement made by the parties will form part of the contract, for example statements made during
preliminary negotiations or in advertising materials. Express terms may be written or oral and must be spoken or
written down by the paries. For express terms there is a distinction between mere representations and warranties.
Mere representation has no contractual effect while a warranty is a term which has contractual effect. Though the
word warranty, which could be also referred to as the terms of the contract, has several different meanings in
contract law when deciding whether a term is a warranty or a representation the words used by the parties nor
the use of the word warranty will be conclusive. The test as to whether a statement is a warranty of mere
representation is based upon the reasonable man and focuses on the intention of the parties.
[6 marks]
(b)
Implied Terms
Exemption clauses generally come in two forms, the exclusion clause and the limitation clause. Exemption
clauses are terms in a contract that attempt to restrict or exclude entirely the liability of one of the parties or both.
The exclusion clause attempts to absolve one party to the contract of all liability in the event of a breach of
contract or the commission of a tort. The Sale of Goods and Supply of Services Act 1980 S 46 limits exclusion
clauses use in those contracts covered by the statute. The courts are unwilling to enforce very broad exclusion
clauses that limit all liability such as in Pearson v Dublin Corporation, where the Court decided to ignore the
exclusion clause when assessing liability. The limitation clause merely restricts the form of remedy available to
one of the parties to the contract if the other party or parties breaches the contract or commits a tort. This can
include a limitation of damages or the insertion of a time limit on claims.
[6 marks]
(c)
Exclusion clauses
The vast majority of terms will be contained in a written contract or be expressed in some form or another. But it
is possible that some terms were overlooked or left out. The court adds some terms by implication into the
contract.
Implied Terms come from four sources
1.
2.
3.
4.
Custom;
Judges, by law or by fact;
Statute; and
The constitution
In regard to custom, firstly it must be certain; it must be clearly established in the case law or otherwise identifiable
and consistent, secondly it must be notorious; it must be well known by those doing business in the particular
trade or place and such that an outsider making inquiries could discover. Thirdly, it must be recognised as binding
therefore compliance with it must come out a sense of legal obligation rather than as a matter of choice or
commercial convenience. In regard to the constitution, express and unremunerated fundamental rights and
freedoms maybe implied into a contract. This has mainly has an impact on employment contracts such as right of
association and disassociation.
[8 marks]
Page 5
SOLUTION 5
Describe the law on guarantees and after-sale services in Ireland under the Sale of Goods and Supply of Services
Acts.
[Total: 20 marks]
General Comments
In this question the students should be able to give a detailed description of the Sale of Goods and Supply of Services
Acts in Ireland and their application to the law of guarantees and after-sale services. This will include a detailed
description of both and how they have been regulated by the legislation. 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
Guarantee
Under the Sale of Goods and Supply of Services Act 1980 anything that is purchased from a retailer must be have three
things: it must be of merchantable quality, it must be fit for its normal purpose, and reasonably durable, and it must be
as described, whether the description is part of the advertising or wrapping, on a label, or something said by the
salesperson. The importance of guarantees and after sale service was acknowledged in the 1980 Act. The 1980 Act
deals with guarantees in sections 15 to 19, and after-sale services in section 12. Under the Consumer Protection Act
2007 consumers are entitled to information which protects them from false claims about goods, services and prices. It
is an offence for any retailer or professional to make a false or misleading claim about goods, services and prices.
Section 15 of the Sale of Goods and Supply of Services Act 1980, defines “guarantee” as meaning, ‘any document,
notice or other written statement”, supplied by the manufacturer or other supplier, but not the retailer, in connection with
the supply of goods and indicating that the manufacturer or supplier will service, repair or deal with the goods following
purchase.’ This is a detailed description of what a guarantee means and is important in regard to the rest of the
legislation. It describes the relationship between the purchaser, the retailer and the manufacturer.
Section 16 of the Act outlines the basic principles that must be contained in a guarantee. These include among others
that it must be clearly legible; it must state the name and address of the manufacturer/supplier; it must state clearly the
duration of the guarantee; it must clearly state what the procedure is for presenting a claim, and this procedure shall not
be more difficult than ordinary commercial procedures; and it must clearly state clearly what the manufacturer/supplier
undertakes to do and what charges, if any apply to any enforcement of the guarantee. Under S16 (9) of the Sale of
Goods and Supply of Services Act, the failure to comply with the section is a criminal offence though this does not affect
the existence of the guarantee itself. This shows the importance of a guarantee that there are criminal repercussions for
the failure to comply with it.
[10 marks]
After Sales Service
Section 12 of the Sale of Goods and Supply of Services Act provides that there is an implied warranty that spare parts
and an adequate after-sale service will be made available in such circumstances as are stated in an offer, description
or advertisement by the seller, on a manufacturer's behalf or on his own behalf, for such stated period or, if no period is
stated, for a reasonable period. Any terms contained in the contract of sale that would limit this provision would be void
under section 12(3). This puts the onus on the seller or the manufacturer to grant certain provisions to customers relating
to their customers. The fact that this is an implied warranty is important as it then includes all contracts coming within
the Act.
Both the seller and the manufacturer supplier may be liable under the guarantee to the buyer. Therefore one cannot
hide behind the other should there be any issues or problems. Under Sections 17 and 19 the liability under this section
is contractual, and thus all the law of contract also applies. A court may order a seller or manufacturer or supplier to take
such action as is necessary to observe the terms of the guarantee or indeed to pay damages. Under Section 17 (1) of
Sale of Goods and Supply of Services Act a seller may avoid liability by expressly excluding himself at the time of
delivery of the goods. Where a seller gives his own written undertaking that he will service, repair or deal with the goods
after purchase, it is presumed, that he is not liable under any guarantee supplied. Importantly, “buyer” includes all
persons who acquire title within the duration of the guarantee. The rights under any guarantee are stated to be additional
to a buyer's rights at common law and under statute and these rights cannot be excluded or limited by the guarantee.
[10 marks]
Page 6
SOLUTION 6
Briefly outline 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.
[10 marks]
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.
[10 marks]
Page 7
SOLUTION 7
What is the principle of Indemnity in Irish Insurance law?
[Total: 20 marks]
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.
[10 marks]
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.
[10 marks]
END OF PAPER
Page 8