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Bloodhounds

Auditors are “watchdogs, not bloodhounds” said the court in Re Kingston Cotton Mill Co. (No. 2) [1896] 2 Ch 279 CA. Even at the time this was a very limited view of what we can expect of auditors or their like. (It was also infelicitous; auditors are not and never were, even metaphorically, like “watchdogs”). Considering that Sherlock Holmes was an available “example” (1880 to 1907), it is surprising the judge did not feel more could be expected of the auditors of his day than he settled for.

The job of an auditor is to ascertain if the accounts provide “a true and fair view” of the company’s financial position. However, the auditor’s judgment on this is not, and should not be, absolute. After all, the auditor should not be the equivalent of an insurer where he pays if there is something wrong and loss accrues. In modern times the profession, as always, determines the liability of auditors. The profession has issued guidelines for auditors. Those guidelines now impose a higher standard on auditors than Re Kingston.

These guidelines were quoted in Moore Stephens (a firm) v Stone & Rolls Limited (in liquidation) [2009] UKHL 39

”Auditing Standard SAS 110 (issued January 1995) deals with fraud and error. It contains statements of auditing standards (SAS) and explanatory text in numbered paragraphs. SAS 110.1 states: “Auditors should plan and perform their audit procedures and evaluate and report the results thereof, recognising that fraud or error may materially affect the financial statements”. SAS 110.10 (para. 50) states that, on becoming aware of a suspected or actual instance of fraud, auditors
“should (a) consider whether the matter may be one that ought to be reported to a proper authority in the public interest; and where this is the case (b) except in the circumstances covered in SAS 110.12, discuss the matter with the board of directors, including any audit committee”.
SAS 110.12 (para. 52) provides that
“When a suspected or actual instance of fraud casts doubt on the integrity of the directors auditors should make a report direct to a proper authority in the public interest without delay and without informing the directors in advance.” “

The fact that the auditors in that case escaped by the skin of their teeth shows life is going to get difficult for the profession.

Voodoo Economics

It is difficult to know where to begin to decry what is happening in the Commission of the European Union. I am referring to the review of the National Asset Management Agency (“NAMA”) by the Commission. A good point of departure is that we do not know what is happening there. The Commission makes no (perceptible) effort to tell us and our Government likewise tells us nothing [useful].

The missing information is of economics [and consequent policies] following the disastrous property bubble here in Ireland. That bubble has caused havoc with the economy; it has driven unemployment upwards; it has destroyed pension plans; it has blighted the work prospects or careers of many young people.

Let’s start with something most people did not know; at least two of Ireland’s banks were and are too big to fail. That innocent phrase implies that we the citizens are to those banks as one conjoined twin is to another. We risk death if the bank expires, it is implied.

If true, how did we permit such a relationship with a private institution?

Leave all that aside. What should we do to “save” the banks?

The Government’s plan is NAMA. That plan is flawed. It has been changed more than once. We know that it has been mis-sold to the citizens of Ireland by the Government; it claimed the purpose of NAMA was to facilitate lending by the Banks to businesses. That is not true and never was, to the knowledge of the Government.

Now the plan is under consideration by the EU Commission. Specifically it is being considered by Joaquin Almunia the new Commissioner for Competition. He is in fact not all that new; he used to be Commissioner for Economics and Monetary policy. The bad news is, he is not good at his job. He failed to spot the Greek crisis that has hit the EU with the force of a runaway train; it was his job to see that problem. Instead he was in Dublin, cheerleading for the Government where he publicly endorsed NAMA. We learned his communication skills tend to emulation of an Electromagnetic Pulse.

Of course, no skills are needed if the EU “review” is just for the “optics” of the process. The heart of NAMA dictates that the citizens of Ireland will pay [consciously] way over the odds for the “impaired assets” of the banks. The pseudo words of justification for this are, “long–term economic value”. There is no such thing.

It’s voodoo economics.

Hints have been given by the Government as to the high price they intend to saddle the citizens of Ireland with. If the hints are correct, we are about to agree to pay €54 billion for these “assets”. We know for sure that this is not the value of these assets. What is the value of the assets? We must look to the cases coming before the Commercial Court. On 19th February 2010, in one case alone the asset had fallen in value from €31 million to €600,000 in a period of just over 3 years. The judge remarked that in his opinion, assets had fallen by 70% to 80% in value. He had previously guessed a fall of 50%. In short, the values are still falling. Let’s take the price of €54 billion; assume that is the book value of these bank assets. A fall of 80% would mean they are worth [now] €10.8 billion. If the case of 19th February 2010 represents the full general fall in value, the €54 billion is worth “just” €1.08 billion.

One sometimes thinks that the true home and centre of he European Union is on the heights above Prague and its poet is Franz Kafka, but a better perspective is to realize that some human capacities are not as general as might be thought. Why do we think that Mr. Almunia must be capable? What if the genius of Keynes is like visuospatial ability? People without the capacity do not know of what they are bereft, and those with the capacity cannot conceive of a person who lacks it.

Wake up Joaquin Almunia!

Phew!

Insurance has a strange aspect which we often overlook; we are happy that we did not need it.

We do not think that the premia paid year after year to insure our house is wasted money. After all, we do not want our house to burn down; we just want to rebuild and restore it if it does. So, we pay a small sum of money to meet the possibility of having to pay the much larger sum if the house does burn down (or suffer some other form of damage).

Sometimes the question of what is a proportionate sum to pay as a premium to cover the perceived risk has to be publicly determined.

In the UK, unlike Ireland, there is anxiety that justice should be facilitated. By “justice” is meant the ready and easy opportunity to go to court seeking a remedy without being prevented by extraneous causes, like poverty. Poverty is relative; most people in Ireland would consider the costs of a High Court action (or even a Circuit court action) beyond them.

Consequently, the UK authorities have facilitated schemes intended to achieve this end.

One such scheme is to allow lawyers who work on a “no win, no fee” basis to charge a significantly higher fee when they are successful, and provide that the losing party has to pay that higher fee as a matter of course.

Another is to recompense a plaintiff his or her insurance premium for “After The Event” (ATE) insurance. This is insurance taken out to, effectively, help pay for some of the litigation costs of the plaintiff/insured.

Section 29 of the UK Access to Justice Act 1999 provides:

“Where in any proceedings a costs order is made in favour of any party who has taken out an insurance policy against the risk of incurring a liability in those proceedings, the costs payable to him may, subject in the case of court proceedings to rules of court, include costs in respect of the premium of the policy.”

Inevitably, the losing defendants (other insurance companies) took issue with the premia being charged for the ATE.

HERE ‘s the outcome of that dispute.

Willie O’Dea

The power of mythical thinking has to be experienced to be believed. Currently, in Ireland, nobody is more subject to its power than the judges of the Superior courts. (With the possible exception of the Irish catholic bishops).

Of course the legal profession is subject to the same myths as the judiciary, but that would not long outlast (I hope) the escape of the judiciary from their myths.

The myth of immediate interest is the fairytale that the Dail (Ireland’s lower parliamentary chamber) has any influence in the making or passing of legislation. It does not; legislation is originated by the Cabinet and driven through onto the statute books.

We know who is responsible, therefore, for the requirement that personal injury litigants must swear an Affidavit of Verification asserting the truth of the factual assertions set out in pleadings commenced on their behalf.

Willie O’Dea is in the Cabinet. He says, of his factually incorrect Affidavit, that when he realized his error in his Affidavit, he “put his hands up” and admitted the error. The Cabinet has endorsed this as the correct response. Consequently, no judge can, or should, ask for more of personal injury litigants.

Willie O’Dea’s understanding is not new or peculiar. His Affidavit will have contained the averment:

“I make this affidavit from facts within my own knowledge save where otherwise appears, and where so otherwise appearing I believe the same to be true.”

This statement is about appearances and beliefs. Willie was right to emphasise that his beliefs are the important thing and, of course, we know that appearances can be deceptive, especially to deponents in Affidavits.

That, clearly is what the Cabinet meant and means by the legislation imposing the obligation on personal injury litigants.

Judges take note.

Oddly, nobody has adverted to the role of the Attorney General in the Willie O’Dea kerfuffle. The Attorney General is the lawyer to the Cabinet. He clearly endorsed the view of the Cabinet, did he not? Maybe not. Whether he did or did not is not important. We are not entitled to know and nobody is asking.

But we should see him as he is, warts and all. We should not have to endure the consequence of more mythical thinking by the judiciary (and the Law Library). The Attorney General is down in the arena with everybody else. He fights for his clients. He represents their interests. He should not be accorded the deference he gets from the judiciary and the Law Library. (According to the Bar of Ireland, the Attorney General is the Leader of the Bar).

Insurers

I have referred previously to the difficulties sometimes encountered with insurance companies.

However, an insurer does not always have the advantage.

If an insurer, meeting a claim of wrongful refusal of indemnity (meaning, the insured person sues for breach of contract following the making of a rejected claim), pleads a simple denial, the court will invariably restrain the defendant insurer from making an affirmative case and the insurer will be confined to undermining the plaintiff’s case (if it is possible).

This means that the plaintiff cannot and should not be surprised, in the litigation, by the advancement of some theory explaining the mechanism of loss (justifying the refusal of indemnity cover). In other words, the defendant insurer is obliged to plead its specific case and reason for refusing cover and cannot take the plaintiff by surprise in the running of the case.

Furthermore, if the defendant insurer is claiming that the claim falls into an exception specified in the contract of insurance, it is for the insurer defendant to prove that fact and not for the plaintiff insured to disprove it.

Brown Envelopes (2)

There are plenty of good ideas lying around to control corruption.

This blog has referred (July 2007) to one of them.

That post referred to the fact that the UK (and Ireland, consequently) formerly had that very remedy and allowed it to fall into disuse.

It is now proposed to revive it in the UK.

Another good idea that would have stopped Charles J. Haughey, deceased leader of Fianna Fail, from getting inexplicably rich, is to be found in the laws of many former UK dominions.

Hong Kong’s version is found in the Prevention of Bribery Ordinance. It provides;

“10. (1) Any person who, being or having been a prescribed
officer –

(a) maintains a standard of living above that which is
commensurate with his present or past official
emoluments; or

(b) is in control of pecuniary resources or property
disproportionate to his present or past official
emoluments,

shall, unless he gives a satisfactory explanation to the court as to
how he was able to maintain such a standard of living or how such
pecuniary resources or property came under his control, be guilty of
an offence.”

(The definition of “prescribed officer” is critical; we are not after the dog-catcher).

A False Claim Act is, however, the superior remedy; it applies to private corruption and to public corruption; it promotes the disclosure of wrongdoing by witnesses; it acts as a disincentive to crime (by making it dangerous to undertake).

Brown Envelopes

There is a perception in the public that our corruption index is high. Only full and open investigation and punishment of offenses will reduce this perception.

It is not helped by the fact that the law relating to corruption in Ireland is controversial. It is strewn over several pieces of legislation and has been criticized on a regular basis by the OECD expressly for that reason.

Two weapons in the State’s armoury were brought in by Britain (still in force in the UK), (The Public Bodies Corrupt Practices Act 1889 and the Prevention of Corruption Act 1916) and are old. They are also inadequate. (The 1916 Act does not apply to employers: who, but employers, will fund the bribery?).

Ireland ratified the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions but, like many others, has dragged its heels in actually acting on its obligations.

In 2008 the OECD reported:

“In particular, the Working Group is disappointed that Ireland did not seize the opportunity of the Prevention of Corruption (Amendment) Bill 2008 to act upon the Phase 2 recommendations to consolidate and harmonise the two separate foreign bribery offences in the Prevention of Corruption (Amendment) Act 2001 and the Criminal Justice (Theft and Fraud Offences) Act 2001. The Group therefore recommends, as it did in 2007, that Ireland act on this issue as a matter of priority. It urges Ireland to pursue its declared intent to make changes to the 2008 Bill in order to achieve greater consistency between the two statutes, and consolidate at the first possible opportunity the corruption offences into a single piece of legislation. In addition, the Group continues to recommend that Ireland adopt on a high priority basis appropriate legislation to achieve effective corporate liability for foreign bribery.”

The Minister for Justice etc. welcomed this report, congratulating some civil servants, in effect, for meeting regularly to keep under review Ireland’s continuing default.

This is not academic stuff. See HERE.

And what of the, inadequate and insufficient, Prevention of Corruption (Amendment) Bill 2008?

It’s not even in sight.

Book of Quantum

The Personal Injuries Assessment Board (“PIAB”) has published a book showing the level of damages the Board will recommend for various injuries.

The book is incomplete. We see this from the case of Kenny v Cowley [2006] IESC 37.

In this case the Plaintiff had a defective left eye before the accident (for which accident the defendant was liable). His right eye was injured in the accident and his vision in it was much reduced. The Supreme court judge writing the consensus judgment noted that the PIAB book did not deal with the loss of an eye. (In fact, the plaintiff’s claim was not simply for the loss of an eye; it was for the loss of his only useful eye).

The Supreme Court decided the award of €90,000 by the High Court for the injury was too low. It increased the award to €120,000.

Disclaimer!

It is ironic that I should suggest HERE that an opinion should not be asked of a lawyer in any and every circumstance (or, specifically, should not be asked for in some circumstances) and then, belatedly, discover the blogging phenomenon that is Eoin O’Dell has availed of a disclaimer on his website.

What is good enough for Eoin O’Dell is good enough for McGarr Solicitors. We are now following his example (and some of his wording, which, we believe, he permits). The wording is not identical to his; his blog ranges into subjects where we do not venture. The reasons for this vary. We have, to date, for instance, refrained from telling the world our opinion of the film “The Last of the Mohicans”. (It is not a promotion of the myth of the noble savage; it rejects it. What is noble about Magua? Certainly, Uncas and Chingachgook are noble, not because they are savages but because they are civilized). (This being a blog and of limited space, it is not possible to reconcile the contradictory use of “civilized” in connection with characters unconnected with a city).

OUR DISCLAIMER

“We get some emails asking for legal advice. (Not surprisingly; that’s the business we are in).
However, this blog is not intended to convey, and should not be construed as, or used as a substitute for, legal advice. It is written for general, informational purposes, and reading it does not create a lawyer-client relationship. Moreover, this blog is always under construction, and the contents are always changing, so please do not rely on any post as a comprehensive or current statement of the law on any of the issues discussed. No responsibility of any kind is accepted for any reliance you may place on anything I have written here.
There are lots of links in my posts, but I am not in any way responsible for the content of sites linked from here – such sites are the responsibility of those who maintain them; complain to them, not to me.”

(I am going to ask our IT department to place this in a more central place; some things are beyond me).

Strict Liability?

Many claims against employers can and will fail when the claim is made as one of negligence by the employer. However, because of the multitude of duties imposed on employers by statute, it is common for the employer to be found liable to the employee for an injury even where the employer has not been “at fault” (meaning, here, “negligent”).

The duty imposed by Regulation 28 of the Safety, Health and Welfare at Work (General Application) Regulations 2007 is a case in point. Its predecessor, Regulation 19 of the Safety, Health and Welfare at Work (General Application) Regulations 1993 was described in Doyle v Electricity Supply Board [2008] IEHC 88 as

“In the instant case, I have found that the plaintiff has not established a breach by the defendant of any duty at Common Law owed by the defendant to the plaintiff as his employer.
However, with effect from 22nd February, 1993, (when the Regulations of 1993 came into force), a statutory duty was imposed upon the defendant which has been described (by Kearns J.at p. 263 in Everitt) “as virtually an absolute duty” which requires the defendant “ . . . to ensure that . . . the necessary measures are taken so that the work equipment is suitable for the work to be carried out or is properly adapted for that purpose and may be used by employees without risk to their safety and health”.”

Regulation 28 (and Regulation 19 before it) imposes duties on employers relating to work equipment. The equipment must be suitable and free of risk to the employee. It is not necessary to prove that the risk was known to the employer; all that is required is to prove the injury and relationship of the injury to the equipment.

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