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Insolvent employers

It is a source of additional worry (above the prospect of unemployment) to employees who have been injured at work, to find that their employer is insolvent.

The reason for that lies in the fact that, in Ireland, only a party (the employer) to employers’ liability insurance may sue an insurance company for an indemnity in respect of a claim made against the employer.

In addition, in the general law of insurance, any money paid to the insolvent employer by the insurance company would become the property of the insolvent company and would be swallowed up in the insolvency.

To avoid this, the Oireachtas legislated in Section 62 of the Civil Liability Act 1961;

62.—Where a person (hereinafter referred to as the insured) who has effected a policy of insurance in respect of liability or a wrong, if an individual, becomes a bankrupt or dies or, of a corporate body, is wound up or, if a partnership or other incorporated association, is dissolved, moneys payable to the insured under the policy shall be applicable only to discharging on full all valid claims against the insured in respect of which those moneys are payable, and no part of those moneys shall be assets of the insured or applicable to the payment of the debts (other than those claims) of the insured in the bankruptcy or in the administration of the estate of the insured or in the winding-up or dissolution, and no such claim shall be provable in the bankruptcy, administration, winding-up or dissolution.”

As a consequence of the Section a liquidator holds the money in trust for the insured employee and should pay it directly to the employee in the appropriate circumstances.

The Lengthening Anglo Irish Bank Road

An important application should be made as soon as the litigation is launched; it will be for an injunction pursuant to Section 55 of the Company Law Enforcement Act 2001.

If successful, it will preserve the assets, for the benefit of the plaintiffs, of any director or officer of the company who is a defendant in the proceedings.

Under the Market Abuse (2003/6/EC) Regulations 2005 it is an offence to breach the regulations by engaging in the acts set out in Regulation 5. It provides:

5. (1) Subject to paragraphs (4) and (5) and Regulations 8(2) and (4) and 9(1), a person to whom this paragraph applies who possesses inside information shall not use that information by acquiring or disposing of, or by trying to acquire or dispose of, for the person’s own account or for the account of a third party, directly or indirectly, financial instruments to which that information relates.”

To understand this it is necessary to look at the definition of Insider information and market manipulation:

“inside information” means –

(a) information of a precise nature relating directly or indirectly to one or more issuers of financial instruments or to one or more financial instruments which has not been made public and which, if it were made public, would be likely to have a significant effect on the price of those financial instruments or on the price of related derivative financial instruments,”

“market manipulation” means –

(a) transactions or orders to trade —

(i) which give, or are likely to give, false or misleading signals as to the supply of, demand for or price of financial instruments, or

(ii) which secure, by a person, or persons acting in collaboration, the price of one or several financial instruments at an abnormal or artificial level,

unless the person who entered into the transactions or issued the orders to trade establishes that the person’s reasons for so doing are legitimate and the transactions or orders to trade, as the case may be, conform to accepted market practices on the regulated market concerned,”

Unless the transaction whereby Sean Quinn’s CFD position was “unwound” (whatever that means) is justifiable by reference to legitimate reasons or accepted market practices, then the transaction appears to have been in breach of Regulation 5 (1) of the Market Abuse (2003/6/EC) Regulations 2005.

There is a potential remedy (under Section 33 (1) of the investment Funds, Companies and Miscellaneous Provisions Act 2005), accruing to any aggrieved shareholder to recover, in a derivative action, any profit made by a party or parties to the transaction.

Of course, given that the major benefit of Sean Quinn’s CFD interests was to avoid reporting his stake-building to the regulator, and given that Anglo Irish Bank knew or learned of his interests (as did the Central Bank, the Regulator, the Taoiseach and the Minister for Finance), the very interesting question is this; who were the “vendors” of the 10% of the shares of Anglo Irish Bank?

Or the 15%, for that matter?

What was the size of that profit?

To whom did it accrue?

Please read that again..

Reference has been made in this blog to the necessity of having a lawyer in the conclusion of complex contracts.

The same can be said of the necessity of having a lawyer on the interpretation of contracts.

In Analog Devices v Zurich Insurance the Supreme Court affirmed the judgment of the High Court in favour of the plaintiff/respondent.

The plaintiff had a factory in Limerick engaged in;

the manufacture, research and design of high performance linear mix signal and digital integrated circuits…”

The factory closed for maintenance. A workman replaced a filter in a machine with an inappropriate part. When production recommenced the products from the machine were defective.

The losses were substantial.

The plaintiff had the benefit of insurance cover with the defendant for “all risks”. There were two policies; one local (Irish) and one “global”.

The interpretation of the local policy fell under the appropriate Irish law and the interpretation of the global policy fell under the law of Massachusetts.

The local policy had an exclusion clause in the following terms:

(F) Perils excluded
This policy does not ensure against loss or damage caused by or resulting from:

(4) Errors or defects in design or specification, faulty workmanship or faulty materials, unless a loss by a peril not otherwise excluded ensues, and then only for such ensuing loss;

(5) Errors in processing or manufacturing resulting in damaged property being worked upon, unless a loss by a peril not otherwise excluded ensues, and then only for such ensuing loss.

(13) Against loss or damage caused by, resulting from, contributed to or made worse by actual or threatened release, discharge, escape or dispersal of contaminance or pollutants, or whether direct or indirect, proximate or remote or in whole or in part caused by, contributing to or aggravated by any physical damage insured by this policy, unless loss or damage from a peril insured herein ensues and then this policy shall cover such ensuing damage. This exclusion shall not apply where loss or damage is directly caused by a peril insured against under this contract to property covered.

Contaminants or pollutants means any material which after its release can cause or threaten damage to human health, welfare or causes or threatens damage deterioration, loss of value, marketability or loss of use to property insured hereunder, including, but not limited to, bacteria, fungi, virus or hazardous substance.”

The global policy also had exclusion clauses.

The defendant claimed that the loss was covered by the exclusion clauses.

Because Massachusetts law is foreign law, the High Court had heard evidence from legal experts as to the principles applied there in the interpretation of contracts and exclusion clauses. (The experts were not wholly in agreement with each other as to what those principles were.)

The Supreme Court immediately stated:

In general “all risks” policies of insurance cover all perils unless they have been unambiguously and clearly excluded.”

The High Court had found that the losses were not excluded and the Supreme Court approved of that finding, citing, in addition, the “contra proferentem” rule:

If the exempting provision is ambiguous and capable of more than one interpretation then the courts will read the clause against the party seeking to rely on it.”

Repeat what I just said, please

Reference has been made in this blog to the impracticality of litigants, generally, representing themselves.

In short, a lawyer is generally needed.

The same dictum applies in the conclusion of complex contracts.

In O’Mahony v Patrick O’Connor Builders Ltd. the parties agreed that the defendant do some building work for the plaintiff. When difficulties arose the parties agreed to the preparation of a report by an independent surveyor who would value certain works.

The defendant contended that the outcome of the valuation was binding on the parties.

(The plaintiff was denying that, and was asking the court to revisit the valuation issues).

As the court noted, there was not a clear contract in writing agreed between the parties. (Drawings and specifications were not sufficient to meet the need).

Consequently, through no fault of the valuer he had not executed his task on terms agreed between the parties. In particular, the valuer had made his report final without notifying the parties in advance; advance notice by the valuer before doing so had been a term of the agreement between the parties.

Consequently, the valuation was not binding and the issues, apparently settled by the valuation, were still at large.

Bankruptcy

Fianna Fail ministers have discovered the seat of Ireland’s problems; the Labour party is the problem, apparently.

There is justice in this. Eamon Gilmore, leader of the Labour Party has directed some sharp questions towards Brian Cowen, leader of Fianna Fail, in the Dail.

Now these questions should not be allowed. They resemble the process condemned in Hollingshead v M’Loughlin [1917] 2 IR 28.

…that examination … ought to be conducted in such a way as to avoid any kind of concussion upon the bankrupt to make him give evidence in one direction rather than another. A bankruptcy examination ought not to be converted into a torture chamber. The sanctions of the law behind the evasions or concealments or untruths or bankrupts are strong enough without concussions in the course of the examination being practised.”

Mr. Gilmore, request an urgent inventory of Dail ice-picks; Mr. Cowen is not a man to be crossed.

Builder’s GUBU

A breach of contract does not give rise to an entitlement to compensation for every loss sustained by a Plaintiff.

Some losses are deemed too remote for the Defendant to be held responsible for them.

A good example of this occurred in Balfour Beatty Construction (Scotland) Ltd v Scottish Power plc [1994] CILL 743.

The Plaintiff was constructing a concrete aqueduct over a roadway. It established a batching plant to provide the concrete on site, with the Defendant supplying the power to run the plant. The concrete had to be delivered in one continuous process; a hiatus longer than 30 minutes would prevent a re-start and would ruin the work and materials applied. The Defendant’s power supply failed during the batch run. The work done had to be undone and the Plaintiff had to start again.

The court held that the Defendant was not answerable for the cost of demolition and reconstruction because the Plaintiff had not informed it of the need for a continuous pour.

Self-Representation

Sometimes a phrase or a slogan lodges its unwanted self in the brain – “Esso Blue for Happy Motoring”, or, as authors manqué of the Supreme Court could, no doubt, attest – “Plumtree’s Potted Meat”.

But it would be hard to beat the title of the book – “Represent Yourself in Court and Win!”, for an unhelpful and irritating phrase.

How would “Yourself” fare in People (DPP) v Cleary [2005] IECCA 51 where the Court of Criminal Appeal remarked;

There were a number of unusual features of the trial.”

The essence of the case against Mr. Cleary turned on two factors; first, the failure of the prosecution to prove certain elements of secondary legislation. Secondary legislation usually takes of the form of a Statutory Instrument. Unlike primary legislation, (Acts of the Oireachtas), judicial notice is not taken of Statutory Instruments. They must be proved, either by being produced to the court in the form as published in Iris Oifigiuil or by production of a copy as published by the Stationery Office.

The second factor was the taking of Mr. Cleary’s fingerprints by the Garda Siochana.

Apparently, the Gardai found a bag with what appeared to be an illegal drug in it. They waited nearby and arrested Mr. Cleary when he appeared. It was alleged that his fingerprint was found inside the lid of the box, holding the drug, which itself was in the bag.

On arrest, the Gardai took his fingerprints with his consent. (He was not obliged to consent. If he did not, only a Garda of the rank of Superintendent or above could oblige him to furnish the fingerprints.)

The Court of Criminal Appeal quashed the 2nd charge in the Indictment because of the failure to prove the secondary legislation. The 2nd charge (possession with intent to supply) was the more serious of the two charges.

The Court affirmed the conviction on the 1st charge, brushing aside the objection of defence counsel that Mr. Cleary’s consent to having his fingerprints taken was not an “informed consent”; (he was not told that the evidence could be used against him, thus, possibly, provoking a refusal to allow the taking of the fingerprints).

What amenable person from rural Ireland could possibly know how to prove secondary legislation in a trial?

Is there merit in book-burning after all?

Holiday Hell

Irish consumers intending to book a package holiday are covered by the Package Holidays and Travel Trade Act 1995.

(The Act was passed to comply with Ireland’s obligation to transpose European Union law into national law. In short, we have the EU to thank for the legislation.)

The Act serves one purpose, by two means. It is designed to secure proper service and facilities to consumers who have booked holidays with a tour operator. It does this by specifying the circumstances in which holidays are to be booked and the requirements on the tour operator to deliver the holiday as agreed. It makes a breache of the Act a criminal offence. It makes provision to imply certain terms in every consumer contract for the delivery of a package holiday:

18.—(1) In every contract the following terms are implied—

( a ) that, subject to section 17, where the organiser is compelled before departure to alter significantly an essential term of the contract, such as the price, the consumer will be notified as soon as possible in order to enable the consumer to take appropriate decisions and in particular to withdraw from the contract without penalty or to accept a variation to the contract specifying the alterations made and their impact on the price; and

( b ) that the consumer will inform the organiser or the retailer (as appropriate, in the light of the organiser’s instructions) of the decision as soon as possible.

(2) ( a ) The terms set out in paragraphs (b) and (c) shall be implied in every contract and shall apply where the consumer withdraws from the contract pursuant to the term in it implied by virtue of subsection (1) (a) or where the organiser, for any reason other than the fault of the consumer, cancels the package before the date when it is due to start.

( b ) The consumer is entitled—

(i) to take a replacement package of equivalent or superior quality if the organiser (whether directly or through a retailer) is able to offer such a replacement; or

(ii) to take a replacement package of lower quality if the organiser is able to offer such a replacement and to recover from the organiser the difference in price between that of the package purchased and the replacement package; or

(iii) to have repaid as soon as possible all the moneys paid under the contract.

( c ) The consumer is entitled, without prejudice to paragraph (b), to be compensated by the organiser for non-performance of the contract except where—

(i) the package is cancelled because the number of persons who agree to take it is less than the minimum number required and the consumer is informed of the cancellation, in writing, within the period prescribed in the contract, or

(ii) the package is cancelled by force majeure, that is to say the package is cancelled by reason of unusual and unforeseeable circumstances beyond the control of the organiser, the retailer or other supplier of services, the consequences of which could not have been avoided even if all due care had been exercised.

( d ) Overbooking shall not be regarded as a circumstance falling within paragraph (c) (ii).
Significant failure of performance after start of the package.

19.—(1) The terms set out in subsections (2) and (3) shall be implied in every contract and shall apply where, after departure, a significant proportion of the services contracted for is not provided, or the organiser becomes aware that a significant proportion of the services cannot be provided.

(2) The organiser shall make suitable alternative arrangements, at no extra cost to the consumer, for the continuation of the package and shall compensate the consumer for any difference between the services to be supplied under the contract and those actually supplied.

(3) If it is impossible to make arrangements as described in subsection (2), or these are not accepted by the consumer on reasonable grounds, the organiser shall, where homeward transport arrangements are a term of the contract, provide the consumer at no extra cost with equivalent transport back to the place of departure or to another place to which the consumer has agreed and shall compensate the consumer for the proportion of services not supplied.
Extent and financial limits of liability.

20.—(1) The organiser shall be liable to the consumer for the proper performance of the obligations under the contract, irrespective of whether such obligations are to be performed by the organiser, the retailer, or other suppliers of services but this shall not affect any remedy or right of action which the organiser may have against the retailer or those other suppliers of services.

(2) The organiser shall be liable to the consumer for any damage caused by the failure to perform the contract or the improper performance of the contract…”

The Act makes it a criminal offence for a tour operator to breach the terms of the Act. The prosecuting authority is the National Consumer Agency.

However, for an individual consumer, the relevance of the Act is the establishment of the clear obligations of a tour operator with regard to the delivery of the holiday.

Thus, even if a brochure purports to exclude a liability on the tour operator, either expressly or by implication, it will be ineffective.

Consequently, a consumer’s right to demand compensation for the breach of contract by a tour operator is made less problematic than it would otherwise be.

In practical terms, when the breach of contract is discovered by the consumer (usually in some foreign location) the tour operator has the upper hand; it can, through its representatives plead shock and surprise and profess to be “doing its best”. The consumer will feel helpless; he/she is not psychologically geared to manage the problems. It will appear inconceivable that the operator would not deliver what it is obliged to deliver and would try to pass off to the consumer a holiday or parts of a holiday at variance with what has been agreed.

Nevertheless, that is what sometimes happens. The reasons for the failure are, generally, irrelevant. They are the tour operator’s problem, not the consumer’s problem.

If variation is unavoidable the tour operator must deliver an equivalent service to that contracted for. That means that a consumer who contracted for a 5 star hotel must be accommodated in a 5 star hotel and any replacement accommodation must be equivalent in location to the original hotel. The contract, a copy of which must be given to the consumer will set out; the destination; the length of the holiday; the transport provided; departure times; departure location; location of accommodation and its features, including official rating if in EU; meal plan, if any; included excursions; details of taxes; cancellation provisions; complaints procedure.

The consumer should always complain to the tour operator’s representative and keep a copy of any written complaint. A diary of the events should also be kept.

On return home the consumer should write a complaint to the tour operator.

Although some contracts stipulate that disputes are to be referred to arbitration, where the facts permit it, it is possible to go to court for compensation.

McGarr Solicitors represented clients in the Dublin Circuit Court on 20th February 2009. The defendant was Panorama Holidays.

The Plaintiffs wished to take their honeymoon in Sharm El Sheikh in Egypt. Having booked, they were alarmed to receive reports that their hotel was being overbooked. They checked with Panorama and were reassured that was not the case. On arrival in Egypt they found it was the case and they were declined accommodation in the hotel contracted for.

The Panorama representative informed them of the overbooking in writing immediately on their arrival. Panorama had denied, immediately before departure, that overbooking had or would occur.

They were offered inferior accommodation in lieu. It was very noisy. Different alternative accommodation was offered which the clients discovered was several miles from the beach and in the middle of building sites.

Ultimately, while waiting to return home early, one client fell ill from the substandard food in their substandard accommodation. She had to call the doctor who put her on a drip in her hotel bedroom to treat her gastroenteritis.

The court awarded the following damages:

Wife; 5,500 Euros
Husband; 3,500 Euros
Special Damage; 800 Euros
Holiday cost; 1,805.60 Euros

The court awarded the plaintiffs their legal costs.

The Short/Long Anglo Irish Bank Road

It is essential to make the correct strategic decisions for the forthcoming litigation.

By far, the most attractive basis of claim for a former shareholder is one of Fraudulent Trading.

The cause of action springs from the terms of Section 297A of the Companies Act 1963. (Inserted by Section 138 of the Companies Act 1990).

The section provides:

297A.—(1) If in the course of winding up of a company or in the course of proceedings under the Companies (Amendment) Act, 1990 , it appears that—

( a ) any person was, while an officer of the company, knowingly a party to the carrying on of any business of the company in a reckless manner; or

( b ) any person was knowingly a party to the carrying on of any business of the company with intent to defraud creditors of the company, or creditors of any other-person or for any fraudulent purpose;

the court, on the application of the receiver, examiner, liquidator or any creditor or contributory of the company, may, if it thinks it proper to do so, declare that such person shall be personally responsible, without any limitation of liability, for all or any part of the debts or other liabilities of the company as the court may direct.”

It has been established in case law that it is not necessary to prove a course of dealing to establish the liability; one transaction is sufficient.

Better still, the claim can be maintained against anybody, not just directors or employees of the target company. (“…was knowingly a party to the carrying on of any business of the company …for any fraudulent purpose”.

What proceedings are available under the Companies (Amendment) Act 1990? It provides, in Section 2, for the appointment of an Examiner to a company.

Section 2 provides:

2.—(1) Where it appears to the court that—

( a ) a company is or is likely to be unable to pay its debts, and

( b ) no notice of a resolution for the winding-up of the company has been given under section 252 of the Principal Act more than 7 days before the application hereinafter referred to, and

( c ) no order has been made for the winding-up of the company,

it may, on application by petition presented, appoint an examiner to the company for the purpose of examining the state of the company’s affairs and performing such duties in relation to the company as may be imposed by or under this Act.”

Here again the Minister for Finance can be of assistance. He can confirm that Anglo Irish bank is unable to pay its debts. Furthermore, in the case of Anglo Irish Bank an application can be made to the High Court only by the Central Bank. Section 3 of the Companies (Amendment) Act 1990 provides;

3.—(1) Subject to subsection (2), a petition under section 2 may be presented by—

( a ) the company, or

( b ) the directors of the company, or

( c ) a creditor, or contingent or prospective creditor (including an employee), of the company, or

( d ) members of the company holding at the date of the presentation of a petition under that section not less than one tenth of such of the paid-up capital of the company as carries at that date the right of voting at general meetings of the company,

or by all or any of those parties, together or separately.

( 2 ) ( a ) Where the company referred to in section 2 is an insurer, a petition under that section may be presented only by the Minister, and subsection (1) of this section shall not apply to the company.

( b ) Where the company referred to in section 2 is the holder of a licence under section 9 of the Central Bank Act, 1971 , or any other company supervised by the Central Bank under any enactment, a petition under section 2 may be presented only by the Central Bank, and subsection (1) of this section shall not apply to the company.”

No doubt the Central Bank, having a bad record to date in relation to its duties, will be only too anxious to make the necessary application to the High Court. Otherwise entitlements of the former shareholders in Anglo Irish Bank will be seriously impaired and rendered, possibly, nugatory and, conversely, wrongdoers will escape with impunity.

The Long Anglo Irish Road

No official reports are to hand and yet we now know a great deal of pertinent information about the Anglo Irish Bank scandal.

It is now possible to see the shape of appropriate litigation.

There is a possible obstacle however, in the form of the Minister for Finance. Under the terms of Section 9 of the Anglo Irish Bank Corporation Act 2009, where a right to issue proceedings springs from, effectively, the passing of the Act, that right cannot be exercised without the prior consent of the Minister for Finance.

The Anglo Irish Bank “shareholders” are all “former shareholders”; the shares of the Bank have been transferred to the Minister. Logically, no rights to issue proceedings by former shareholders against proposed Defendants can arise from the expropriation of the shares by the Minister for Finance, but it would be foolhardy to sue without first writing to the Minister and obtaining his consent to issue proceedings, seeking civil remedies.

He has publicly stated he has no wish to shelter anybody from the criminal and civil consequences of their actions or failures. He presumably will readily give his consent to the bringing of civil proceedings, therefore.

Any contemplated proceedings must be considered as being, inter alia, a derivative action. In other words, that Anglo Irish Bank is made a defendant. This is necessary where the breach of duty was to the company.

There is another reason to write to the Minister for Finance; it lies in the terms of Section 251 of the Companies Act 1990.

He should be asked to confirm that “…the reason, or the principal reason, for its not being wound up is the insufficiency of its assets”.

This would make it easier to demonstrate that proposition to a court, and the Minister is better positioned to state this fact than any former shareholder.

That’s why the letter should be written to him.

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