BUSINESS LAWS
FORMATION 1 EXAMINATION - AUGUST 2012
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 to pay particular attention to your 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 your 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 – AUGUST 2012
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.
Outline both the traditional and current methods of statutory interpretation used in Ireland.
[Total: 20 marks]
2.
Outline the law regarding tenants in common and joint tenancy under Irish law.
3.
A politician, Patrick, resigns as a minister in the government. On the following day a newspaper, News of the
Day, publishes an article on the circumstances of the resignation but fails to explain the reasons Patrick
gave for the events surrounding his decision, mentioning that statements he had made to other ministers
turned out to be untrue. Patrick decides he wants to bring a case of defamation against the newspaper’s
editors because he believes that in not telling his side of the story the newspaper was deliberately misleading
the readers. The newspaper argues that it was justified in running the story in the manner it did because it
was a matter of public concern and it was fair and reasonable to publish as Patrick was a minister in the
government and the public have a right to know.
[Total: 20 marks]
Advise Patrick as to his rights under the Defamation Act 2009, the possible defences the newspaper may
raise and any mitigation the newspaper may pursue.
[Total: 20 marks]
4.
Describe the doctrine of consideration in Irish contract law.
5.
Outline the duty of good faith and the duty to disclose information under Irish insurance law.
[Total: 20 marks]
[Total: 20 marks]
6.
Discuss the rules under the Sale of Goods and Supply of Services Acts regarding the transfer of title.
[Total: 20 marks]
7.
Discuss the following under Irish company law:
(i)
(ii)
(iii)
Articles of Association;
Memorandum of Association; and
Registration of a company.
(6 Marks)
(6 Marks)
(8 Marks)
[Total: 20 marks]
END OF PAPER
Page 1
SUGGESTED SOLUTIONS
THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND
BUSINESS LAWS
FORMATION I EXAMINATION – AUGUST 2012
SOLUTION 1
General Comments
In this question the students should be able to give a description of the various methods for the interpretation of
statutes. Students should be able to give a brief description of the various approaches used and why these are
important in considering 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
The conventions of interpretation are the principles, practices, rules and techniques used to interpret statutory
provisions in Ireland. As language is not always clear and there may be multiple interpretations of particular statues
it is important to adopt methods of coming to decisions on the meaning of terms or phrases. Provisions can also be
complicated by their length or convoluted character. Courts are generally the interpreting body for statutory provisions
and this was emphasised in Shannon Regional Fisheries Board v AN Bord Pleanála however other governmental
bodies and individuals such as civil servants also are involved in interpreting legislation and different perspectives
on the use of statutory provision may be made by differing bodies. The intention of the legislature is an important
factor in interpretation, however this may be difficult to decipher by the courts. In Howard v Commissioners of Public
Works the primacy of the text itself was emphasised. Historically several different forms of interpretation have been
used by the Courts with different approached taking precedence at different times.
[6 marks]
Traditionally the courts used the literal, mischief and golden rules to interpret statutes. The literal rule requires the
court to apply the literal meaning of a provision in a case and was emphasised in Rahill v Brady. The aim of the literal
rule is to understand the intention of the Oireachtas even if it may lead to an undesirable or unjust result. However,
if the wording is unclear or vague a secondary meaning may be applied to the provision. The golden rule is employed
when the literal rule would lead to absurdity or inconsistency. In Warburton v Loveland the Court emphasised the
need to use a modified meaning in the case of absurdity. In using the golden rule a court may go beyond the
particular provision to consider the intention of the legislature. The mischief rule enables a court to consider what
the legislation was designed to remedy or fix and was established by the common law courts. All three of these rules
overlap with each other and may be employed to differing degrees by the courts.
[6 marks]
There are two main approaches to statutory interpretation, the literal approach and the schematic/teleological
approach. The literal approach is the primary method utilised by courts. In these instances the courts apply the
ordinary and natural meaning to the words as per Texaco (Ireland) Ltd v Murphy. The context is also important in
considering the meaning of the words, for example the use of the phrase ‘lunatic’ or ‘infancy’ have a context in which
they are used. The technical meaning is used in two instances. Legal terms of art are given their legal meaning rather
than their ordinary meaning, for example the use of terms such as hire purchase. The second aspect is the use of
particular words or phrases by a class of persons such as professions or persons in a particular trade.
The second approach is the schematic/teleological approach. This approach was put on a statutory footing in Section
5 (Construing ambiguous or obscure provisions etc.) of the Interpretations Act 2005. If the literal approach results
in absurdity the courts may use alternative approaches which are often articulated as the scheme or purpose of the
statute such as in Frescati Estates v Walker. In doing so courts look to the long title of an act, its subject matter, the
pre-existing law which it was aimed to alter among other elements and results in a modified meaning being given
to the text of the statute. One issue is the relativity of absurdity and when the courts should turn to a teleological
approach, an example is when a literal interpretation may make a piece of legislation redundant. At times courts will
use a combination of both approaches regarding the interpretation of legislation if it is deemed necessary.
[8 marks]
[Total: 20 marks]
Page 3
SOLUTION 2
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
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, in these kinds of circumstances, joint tenancy and tenancy in common
are the two forms of co-ownership. These forms of co-ownership each have their own legal regime which result in
different outcomes and relationships for the owners. Co-owners of property share concurrent ownership and are
simultaneously entitled to possession of the whole property. Therefore one co-owner may not exclude other coowners from any section or part of the property.
[2 marks]
However, joint owners or co-owners in tenancy in common do not have to be in possession of the property all the
time. If the property is sold, the joint owners or co-owners in tenancy in common share the proceeds from the sale.
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 ensures that the tenant owns a certain share
in the property which has not as yet been divided up. 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]
There are two main characteristics that distinguish joint tenants from a tenancy in common. These 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. If there are three joint tenants in a piece of land and one dies,
her share passes to the other two co-owners and 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. This cannot be defeated 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. As such, one co-owner is forbidden
from delineating any part of the co-owned land as 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 means that each co-owner
is wholly entitled to the whole interest. The interest of each joint tenant must be the same in extent, nature and
duration. Therefore joint tenancy cannot 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. Unity of title is the third unity and 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. Section 30 of the Land and Conveyancing Law
Reform Act 2009 amended the need for consent regarding elements of joint tenancy. Prior written consent is required
for the conveyance or acquisition of land held in joint tenancy. In a tenancy in common there is no right of
survivorship.
[10 marks]
[Total: 20 marks]
Page 4
SOLUTION 3
General Comments
This question asks the students to discuss the law of defamation. The students have to apply the tort to the fact
pattern, pointing to any distinguishing features. The fact pattern is uncomplicated and students should be able to
describe the various issues in a straightforward manner. Students who include statutes or case law will gain extra
marks.
Solution
Defamation is the publication of a false statements which tends to injure the plaintiff’s reputation. Under the
Defamation Act 1961 and common law there are two types of defamation, libel and slander. Libellous defamation
is produced in permanent form or for general reception; this would include newspapers and as such would be the
form of defamation that Patrick would be suing under. Slander on the other hand is transient and this is not what
occurred in these circumstances. Libel is actionable per se, therefore Patrick would not have to show actual damage.
To succeed Patrick will have to show that the statement was defamatory, that the words tend to lower the plaintiff’s
estimation in right-thinking members of society generally. Under the Defamation Act 1961 the plaintiff must show
that the statement expressly or impliedly would be reasonably understood to refer to him, as the newspaper article
refers to Patrick in his capacity as a politician, this would seem to be fulfilled. The statement must also be untrue;
therefore Patrick would have to show that the newspaper’s comments were incorrect. In Fulham v Associated
Newspapers, innuendo can be libel, therefore depending on the wording of the newspaper article, even if it only
indirectly suggests that Patrick lied, the paper could be liable.
[10 marks]
There are several defences available to the newspaper such as consent, justification, or fair comment. Patrick clearly
did not consent to the newspaper article or its contents. If the newspaper can show that the claims they made were
true in substance they would be able to make a claim of justification. Small inaccuracies according to Alexander v
N.E. Railway Company do not suffice to defeat a defence of justification. The defence of fair comment can be raised
if a statement of opinion was a fair comment made in good faith on a matter of public interest. As Patrick is a politician
and a minister and the article was written about his resignation the newspaper may be able to argue that it is a matter
of public interest. The comments must be based on facts which were either true or substantially true, the comment
must be fair and on good faith, therefore an honest representation of the newspaper’s opinion and cannot be
malicious and must be of public interest. In Reynolds v Times Newspapers it was found that a newspaper article
about the resignation of the Taoiseach was undoubtedly of public concern, as Patrick is a government minister this
probably applies to him The case also stated that as such serious allegations were made, the plaintiff’s explanation
was not included and therefore were libellous. In this instance, the newspaper did not include Patrick’s explanation
and therefore he could claim that this made the piece libellous even if the allegations were based on a matter of
public interest. The newspaper could claim mitigation if it made an apology or offer of amends, for example by
publishing a correction and apology, the newspaper could argue that Patrick’s reputation was bad anyway and the
article did not add to this, they could also argue provocation or that Patrick had received compensation in another
form. From the facts of the case it does not appear that the newspaper would be able to make these claims.
[10 marks]
[Total: 20 marks]
Page 5
SOLUTION 4
General Comments
This question examines the student’s knowledge of consideration under Irish contract law. The question is asked in
a relatively straightforward manner and requires a descriptive answer, though the students should be able to detail
the various aspects of consideration. Students that include case law in their analysis will gain extra marks.
Solution
Consideration is an act, forbearance or promise by one party to a contract that constitutes the price for which he
buys the promise of the other. Other than contracts under seal, consideration is required in all contracts. It also aids
the evidentiary requirements of contract law in establishing the seriousness of the agreement. There have been
difficulties in defining consideration exactly, it may be proven that one party conferred a benefit upon another party
in return for which the second party promisee was given or incurred a detriment for which the promise was to
compensate. There are four principals; consideration may be executory or executed but must not be past.
Consideration must move from the promisee. Consideration need not be adequate but it must be sufficient. Valuable
consideration is required. Contracts made under seal are enforceable without consideration; they are usually referred
to as covenants.
[8 marks]
Executory contracts have been enforceable since Slade’s Case. Executory consideration is when one party’s promise
is made in return for a counter-promise from the other party. There is an exception if the services were originally
performed at one party’s request. If it was done at the request of the promisor and the understanding of the parties
when it was done was that it would be paid for and a promise to pay for it would, had it been made in advance, have
been legally enforceable. A person cannot enforce a promise made to him if the consideration for it moved wholly
from some other person. This enables the court to see which agreements are enforceable and who can enforce these
undertakings. A promisee must have provided the benefit or incurred the detriment as per Tweddle v Atkinson. No
stranger to the consideration can take advantage of a contract even if it is made for his benefit, though there are
several broad exceptions to this rule. Consideration need not be adequate but it must be sufficient. Thus for
consideration to be good consideration, it must be of some value, even if it is minimal value. Courts will not investigate
the adequacy of consideration. The law of contract is not concerned with the question of whether a particular contract
is more favourable to one side than to the other. Generally token consideration is accepted such as peppercorn or
nominal rents but this is not always the case.
[8 marks]
The rule in Pinnel’s Case states that if a liquidated debt (a debt which is ascertained as to amount and undisputed
as to its existence) is owed by X to Y a promise by Y to accept a lesser sum in full satisfaction of the whole debt will
not be binding. Although there are exceptions, if it is a liquidated debt and the debtor gave consideration for paying
the smaller debt. Under promissory estoppel equity mitigates a hardship that is caused because a party relied on
a promise that a debt would not be enforced in full. Under promissory estoppel where a person makes a promise,
unsupported by consideration, to waive a debt or other obligations, and there the promise acts on this promise, the
promisor is estopped from retracting the promise. However promissory estoppel prohibits a promisor from insisting
on their legal rights when it would be unjust to do so.
[6 marks]
[Total: 20 marks]
Page 6
SOLUTION 5
General Comments
This questions requires the students to give an overview of the duty of good faith and the duty to disclose information
under Irish insurance law. Students should give an overview of insurance requirements. The question is asked in a
straightforward and 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
Generally, Irish contract law does not include a duty to disclose information. Normally, silence or a failure to disclose
a material fact is not actionable, but a duty to disclose such a fact may arise in particular circumstances. In general
contract law, during negotiations a party need not say anything but anything they do say must be honest, only active
misrepresentation generally is sufficient. Only if there is a change of facts for example if a positive statement is
made and there is a subsequent statement a failure to advise of the change will be misrepresentation. Nonetheless,
while a contract of insurance is covered by the same rules which form part of the general contract law with regard
to the disclosure of information there are specific exceptions for contract law. These types of insurance contracts
are considered to be ‘uberrimae fidei’ or of the utmost good faith and impose a duty at common law to disclose
material facts to the other party. In the case of International Commercial Bank plc v Insurance Corporation of Ireland
plc and Meadows Indemnity the Court defined an insurance contract as matters 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. There is a duty to disclose a
material fact. Non-Disclosure of a material fact will result in the insurer being able to avoid the contract and not pay
out under the contract. The standard by which materiality is to be determined is objective and not subjective and it
will be a court that will decide what is or is not material to the insurance contract.
[10 marks]
However contracts of insurance are contracts of utmost good faith and the duty emerges at the pre-contract stage,
during negotiation of the insurance contract. Under Fagan v General Accident, however, there is some authority for
claiming that the duty of utmost good faith extends to all aspects of an insurance contract. The insured will usually
have to disclose material facts to the insurer who will assess these facts and determine whether to insure the insured
and if so, what premium should be paid in consideration of this insurance. If there is non-disclosure of a material
fact that is within the knowledge of the insured the contract of insurance will be rendered void. This was described
in Chariot Inns Ltd v Assicuraxioni Generali S.P.A. and Coyle Hamilton. This is because those seeking insurance
are in the best situation to know the facts of the situation. This is outlined in the Marine Insurance Act 1906 S 18(1),
though generally this is the law in all areas of insurance law. In Brady v Irish National Insurance Co. Ltd the court
stated that the failure to disclose information that was common knowledge would not be a violation of the duty to
disclose. The duty of disclosure is only a duty to be honest. This is important as actual not constructive knowledge
is relevant. it There is only an obligation to pass on information to the insurance company that the person actually
has. Insurance Contracts often put a bigger onus on the insured to answer questions which, in reality, the insured
is not in a position to warranty. In Keating v New Ireland Assurance Co. Plc the defendants wished to avoid paying
out on life assurance on the basis that the insured claimed he was in good health when unbeknownst to him he had
angina. The court stated for the insurers to rely on a particular warranty, it must be expressed in clear terms without
any ambiguity. If fraudulent misrepresentation is proved an insurer may be able to avoid the contract and not pay
out under the insurance contract.
[10 marks]
[Total: 20 marks]
Page 7
SOLUTION 6
General Comments
This question asks students to briefly outline and consider the law relating to the transfer of title under current law
in sale of goods and supply of services. This requires a descriptive answer though students should be able to give
a detailed analysis of the statutory arrangements. Students who include related case law will gain extra marks.
Solution
The Sale of Goods Act 1893 deals with issues associated with the transfer of ownership during the sale of goods.
This is an important aspect of this area as the title of goods may pass to the buyer even though the seller has
retained possession of the goods. While the buyer is in possession of the goods, the seller could also hold the title.
The importance of distinguishing who holds the title to the goods and when it has been transferred relates to
accidental damage, and the ability of the seller to sue for the price once title has passed to the buyer even if delivery
has yet to occur. If the property has passed to the buyer, the goods may be claimed by the buyer or if the seller
becomes bankrupt or the company goes into liquidation and if the seller resells the good after the property has
passed to the buyer, no title is acquired by the second buyer unless they are protected by certain exceptions. When
title is transferred depends upon whether goods are specific, ascertained or unascertained. Specific goods are
those identified and agreed upon at the time of contract. Unascertained goods are defined by description only and
are not identified until after the contract, ascertained goods are identified and agreed upon after the contract of sale
is made. Under section 16 of the Act, where there is contract for the sale of unascertained goods, no title is
transferred to the buyer unless and until the goods are ascertained. If the contract is for the sale of a specific or
ascertained good, title is transferred to the buyer when it appears the parties intended it to be transferred. Under
section 17 the intention can be deduced from the conduct of the parties, from the terms of the contract or in the
circumstances of the case.
[10 marks]
If intention is not clear at the time of contract, under section 18 five rules will be applied. First if it is an unconditional
contract for the sale of specific goods, which are deliverable, title passes to the buyer when the contract is made
immaterial of time of payment or delivery. This was applied in Clarke v Reilly & Sons. Second, if in a contract for the
sale of goods the seller is bound to do something to put the goods into a deliverable state, title passes to the buyer
once the seller has done what is necessary and the buyer is notified, this was applied in Underwood v Burgh Castle
Brick. The third rule states that if there is a contract for the sale of specific goods in a deliverable state but the seller
must weigh, measure or test the goods to determine their price, title passes when the seller has done this and
notified the buyer. Fourth, if goods are delivered to a buyer on approval or sale or return terms, title passes when
the buyer signifies approval or acceptance, when the buyer does an act which establishes they have accepted title
or when the buyer retains the goods beyond the agreed time for return without notice of rejection, if no set time, within
a reasonable time. Fifth, when there is a contract for the sale of unascertained goods, title passes when the goods
as described in a deliverable state are unconditionally appropriated to the contract by one party, with express or
implied assent. If a contract is for the sale of a specific good or if goods are subsequently apportioned to the contract,
the seller may under the contract reserve the right to dispose of the goods under certain conditions under section
19. Under section 21 of the 1893 Act, where goods are sold by a person who is not the owner, the buyer acquires
no better title than the seller unless the seller has the authority or consent of the owner, or the owner is precluded
by conduct from denying the authority to sell. Risk often passes to the buyer with property, but this is not always the
case and while risk can be apportioned in the contract, statutory protection is also available for both parties. There
are a number of rules to protect the honest buyer such as estoppel, voidable title or sale under a court order among
others. Estoppel is an equitable remedy, voidable title enables the transfer of title to be voided depending on the facts
and sale under a court order enables title to be transferred to the honest buyer.
[10 marks]
[Total: 20 marks]
Page 8
SOLUTION 7
General Comments
The aim of this question is to examine the students’ knowledge of the basic documents of a company as well as the
creation of a company under Irish law. Students are expected to understand the legal effects of these documents.
The question is relatively uncomplicated but it is important that the students can pick out the individual differences
between the two core documents of a company, though in depth analysis is not required. Extra marks will be given
for students who incorporate statutes into their answers.
Solution
The Articles of Association
The Articles of Association govern the internal management of the company and lays down how a company is to
be governed normally by choosing a standard set of Articles provided within the Companies Acts' with appropriate
amendments and in compliance with the must comply with the Companies Acts 1963-2009. Articles of association
typically cover the issuing of shares, the different voting and dividend rights attached to different classes of share,
restrictions on the transfer of shares, the rules of board meetings and shareholder meetings, and other similar
issues. They are basically the internal rules for the running of the company. The provisions of the Companies Act,
1963, in particular section 25, give a statutory status to articles of association. Section 25 states that when the
Articles are registered they bind the company and the members thereof to the same extent as if they respectively
had been signed and sealed by each member, and contained covenants by each member to observe all the
provisions of the articles.
[6 marks]
The Memorandum of Association
The Memorandum of Association states a company name, main objectives of the company, a declaration as to
liability and its share structure in compliance with the Companies Acts 1963-2009. The Memorandum also contains
the Objects Clause. This clause will define the purpose for which the company was formed and what it shall in fact
do in the way of its business. The objects clause will limit the powers and prevent the company from carrying out
business outside its remit. A memorandum also usually contains a Capital Clause. This will state the nominal capital
of the company that is the value in money of the shares which the company is authorised to issue and the number
of shares into which it is divided together with the amount of each share. The memorandum also contains the
Association Clause. In this clause the original members declare that they wish to be formed into a company and
agree to take shares.
[6 marks]
Registration of a Company
Section 18(2) of the 1963 Companies Act provides that from the date of incorporation mentioned in the certificate
of incorporation, the subscribers of the memorandum together with such other persons as may from time to time
become members of the company, shall be a separate body and capable of exercising the functions of an
incorporated company. The company will have a common seal. Registration sets into motion the main benefits of
incorporation such as limited liability and separate legal personality creating an entirely new legal person and limiting
the liabilities of both the company directors and the shareholders. Limited liability, when it was first introduced, was
absolute, however, once the company is registered and operating company directors have liabilities under the
Companies Acts 1963-2009. This is to balance the risk of creditors doing business with limited companies and to
also protect shareholders from any illegal or ultra vires actions of the company directors. From the time of registration
the company directors are capable of exercising all the functions of an incorporated company until the company is
would up under the terms of the Companies Acts 1963-2009 but there will be liability on the part of the members
to contribute to the assets of the company in the case of winding up.
[8 marks]
[Total: 20 marks]
Page 9