Category: Business Law

Stop the madness

The Sunday Independent reported yesterday on the infamous “Kilkenny trust” that supposedly allows you to scrub a property free of bank debt, as if by magic. It was reported earlier in the Summer that certain business people, including Bill Cullen, were using the mechanism.

Given the privacy of the operation it is difficult to ascertain from news reports what has been going on but, helpfully, Karl Deeter attended a presentation about the scheme and has blogged about it here. I am not a trust specialist but, in my professional opinion, it looks mad.

I had a few questions of my own reading the post:

  • Why are they recruiting people to enter into the trust? Usually, legal and accounting mechanisms are put in place by a combination of accountants and solicitors to help their clients achieve a certain goal. It is unusual for non-professionals to go about recruiting people to join a scheme like this and, as Karl points out, the don’t seem to have professional indemnity insurance to protect clients when things go wrong. However, I note that they charge a fee themselves.
  • They get you to set up “a private trust in private”. What does the second use of the word private achieve?
  • What is meant by getting a notary to create a “Court of Record”? I’ll tell you: nothing. It makes no sense. A court of record is a court, and notaries don’t “create” courts. In fact, the only notaries in Ireland are notaries public who are only involved in transactions with an international dimension. There is no international dimension to these transactions so a notary should not be involved. The most an Irish notary public might do is verify some document or signature but, again, a notary public only does this for use abroad and a solicitor or commissioner for oaths would suffice.
  • They say that only your folio number goes into the trust. This makes no sense. A folio number is a record number for registered property and has no life or value apart from the property. You couldn’t sell or rent your folio number separately from the property, so how could you transfer it into a trust on its own?

Most of the rest of what they say involves banking and mortgages and Karl has pointed out that it doesn’t add up. I’m sure other solicitors and barristers would notice flaws in the proposal by reading his post (comments welcome here too). Karl reaches the sad but unavoidable conclusion:

This has all of the hallmarks of something that is either ‘too good to be true’ or perhaps ill thought out and where the absence of a challenge to date is being taken as evidence that ‘it works’ which is not how the legal system operates. The moving of an asset to a trust doesn’t mean a legal charge suddenly doesn’t exist, it doesn’t mean that there was never a lien or a contract between two parties, if using trusts to stop creditors was that simple we probably would have heard of it before now.

Of the people at the meeting none of them seemed highly literate financially, several disclosed that they were borrowers of sub-prime lenders and the common thread was that they were all vulnerable and perhaps willing to believe something too easily, because I have learned from experience that when a person is drowning that even if you throw them a rock and say it will float that they are willing to give it a try.

Damages for misleading commercial practices

The Consumer Protection Act 2007 was a significant piece of reform legislation which has largely gone unnoticed and under utilised.National Consumer Agency

The National Consumer Agency uses the Act as part of its enforcement function and it has been reported that the NCA has initiated proceedings under the Act against Associated Newspapers (Ireland) Limited arising out the infamous Sunday Tribune wrap-around published by the Irish Mail on Sunday. In 2009, Tesco unsuccessfully sought an injunction against Dunnes Stores to prevent allegedly misleading advertising, partly under the provisions of the Act (more here).

However, there are a number of aspects of the 2007 Act that consumers can rely on. I recently obtained exemplary damages under the Act on behalf of a client in a District Court action where the client had been misled. The case concerned a contract with a tradesman for goods and related installation works where the goods had been delivered but the works not completed, despite having been paid for in full. The plaintiff was forced to engage a third party to complete the works and obtained judgment against the tradesman for the cost of doing so.

Prior to being hired by the plaintiff, the tradesman represented that he was an agent of a manufacturer (which happened to be the third party later engaged by the plaintiff to complete the works). The plaintiff assumed that he could call on the manufacturer to step in if the agent failed to complete the works. The tradesman was not an agent of the manufacturer; hence the manufacturer had no liability to the plaintiff and had to be paid for completing the works.

The 2007 Act lists four categories of commercial practice:

  1. unfair commercial practices;
  2. misleading commercial practices;
  3. aggressive commercial practices; and
  4. prohibited commercial practices.

The latter two categories are more serious and engaging in them is a criminal offence. A wide range of behaviour can constitute a misleading commercial practice and, if it would encourage a consumer to enter into a contract, the 2007 Act provides remedies. Engaging in a misleading commercial practice is not an offence (unless it relates to consumer information regulations) but does give rise to a right of a consumer to seek damages, including exemplary damages.

In this instance, the trader’s representation that he was an agent of the manufacturer was a factor which influenced the plaintiff’s decision to contract with him and exemplary damages of €500 were awarded against the trader as a result, adding 18% to the total award.

The Act makes for interesting reading and covers a wide range of commercial practices. It is likely that the extent to which the Act affects everyday marketing and sales is not widely appreciated, though the NCA has published a guide.

Here are some interesting examples: it is prohibited to

  • represent that a product is able to cure an illness, dysfunction or malformation, if it cannot;
  • use advertising to encourage children to purchase a product or to persuade a parent or adult to purchase it for them;
  • persistently fail to comply with a customer’s request to cease unjustified contact.

A number of other prohibitions might be particularly relevant in light of current economic conditions:

  • a representation that the trader is about to cease trading or move premises, if the trader is not;
  • a representation that describes a product as “gratis”, “free”, “without charge” or anything similar, if a consumer has to pay anything other than necessary and reasonable costs;
  • operating, running or promoting a competition or prize promotion without awarding the prizes described or reasonable equivalents;
  • explicitly informing a consumer that if the consumer does not purchase a product, the trader’s job or livelihood will be in jeopardy.

The maximum penalties for breaching these prohibitions, on a first summary conviction, are a fine of €3,000 or imprisonment for up to 6 months (or both). Subsequent convictions for offences under the Act carry maximum penalties of €5,000 or 12 months’ imprisonment (or both).

Conspiracy theorists (and others): who is writing our laws?

Perhaps it’s only fitting, with the IMF and the EU pulling the State’s financial strings, that Irish legislation is taking on a European flavour.

© Rem Koolhaas and/or others

Irish primary legislation usually consists of a short title, a long title, operative sections and schedules. The short title is the name by which legislation is known to and the long title describes it further. For example, the long title to the Finance Act 2010 is:

AN ACT TO PROVIDE FOR THE IMPOSITION, REPEAL, REMISSION, ALTERATION AND REGULATION OF TAXATION, OF STAMP DUTIES AND OF DUTIES RELATING TO EXCISE AND OTHERWISE TO MAKE FURTHER PROVISION IN CONNECTION WITH FINANCE INCLUDING THE REGULATION OF CUSTOMS.

It has 165 operative provisions and four schedules, the latter containing tables of rates and other technical amendments. Background information is contained in the explanatory memorandum which accompanies legislation at draft stage (the 35-page explanatory memo for the Finance Bill 2010 is here).

Murdoch‘s notes:

In Irish legislation, preambles [which include descriptive recitals] are mainly found in Acts to amend the Constitution [eg. the 2009 ratification of the Lisbon Treaty], and Private Acts [eg. the Limerick Markets Act 1992].

Take 2006 as representative: 42 acts passed in a pre-crash year, with no constitutional amendments or private acts. None of those 42 acts contains recitals.

recently observed that legislative mission statements were present in new Irish financial laws. These include operative sections outlining the purpose of the legislation (rather than the actual effect) and recitals, which I said were “common in continental European civil law systems and familiar to Irish lawyers thanks to the regulations and directives of the European Union.” Take, for example, Directive 2010/65 which puts up 28 recitals for the reader to wade through before getting to the good stuff: reporting formalities for ships in EU ports (though article 1(1) again sets out the purpose of the directive).

Yesterday, the Minister for Finance published the Credit Institutions (Stablisation) Bill 2010. This is a substantial piece of legislation containing sweeping powers for the Minister, but on a superficial level, it was striking that the Bill again contains a purpose provision (section 4) and a lengthy set of recitals which shout the background (reproduced below).

One might be inclined to speculate as to the source of this Europeanisation of Irish legislation.

Recitals to the Credit Institutions (Stabilisation) Bill 2010

WHEREAS THERE IS A SERIOUS DISTURBANCE IN THE ECONOMY OF THE STATE;

AND WHEREAS MEASURES ARE NECESSARY TO ADDRESS A UNIQUE AND UNPRECEDENTED ECONOMIC CRISIS WHICH HAS LED TO DIFFICULT ECONOMIC CIRCUMSTANCES AND SEVERE DISRUPTION TO THE ECONOMY;

AND WHEREAS THERE IS A CONTINUING SERIOUS THREAT TO THE STABILITY OF CERTAIN CREDIT INSTITUTIONS IN THE STATE, AND TO THE FINANCIAL SYSTEM GENERALLY;

AND WHEREAS IT IS NECESSARY, IN THE PUBLIC INTEREST, TO MAINTAIN THE STABILITY OF THOSE CREDIT INSTITUTIONS AND THE FINANCIAL SYSTEM IN THE STATE;

AND WHEREAS IT IS NECESSARY, IN THE INTERESTS OF THE COMMON GOOD, TO CONTINUE THE PROCESS OF REORGANISATION, PRESERVATION AND RESTORATION OF THE FINANCIAL POSITION OF ANGLO IRISH BANK CORPORATION LIMITED BEGUN WITH THE ANGLO IRISH BANK CORPORATION ACT 2009;

AND WHEREAS THE FUNCTIONS AND POWERS CONFERRED BY THIS ACT ARE NECESSARY TO SECURE FINANCIAL STABILITY AND TO EFFECT A REORGANISATION OF CERTAIN CREDIT INSTITUTIONS;

AND WHEREAS IT IS NECESSARY TO AMEND THE EUROPEAN COMMUNITIES (REORGANISATION AND WINDING-UP OF CREDIT INSTITUTIONS) REGULATIONS 2004 (S.I. NO. 198 OF 2004) TO IMPLEMENT DIRECTIVE 2001/24/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL OF 4 APRIL 2001 TO PRESERVE OR RESTORE THE FINANCIAL POSITION OF CERTAIN CREDIT INSTITUTIONS;

AND WHEREAS THE CONSIDERABLE FINANCIAL SUPPORT PROVIDED BY THE STATE TO CERTAIN CREDIT INSTITUTIONS HAS HELPED THOSE INSTITUTIONS TO MEET THEIR FINANCIAL AND REGULATORY OBLIGATIONS;

AND WHEREAS THE STATE WISHES TO PROVIDE FOR THE PERFORMANCE OF THE FUNCTIONS CONFERRED BY THIS ACT IN ORDER TO ACHIEVE THE FINANCIAL STABILISATION OF THOSE CREDIT INSTITUTIONS AND THEIR RESTRUCTURING (CONSISTENTLY WITH THE STATE AID RULES OF THE EUROPEAN UNION) IN THE CONTEXT OF THE NATIONAL RECOVERY PLAN 2011–2014 AND THE EUROPEAN UNION/INTERNATIONAL MONETARY FUND PROGRAMME OF FINANCIAL SUPPORT FOR IRELAND;

AND WHEREAS THE COMMON GOOD REQUIRES PERMANENT OR TEMPORARY INTERFERENCE WITH THE RIGHTS, INCLUDING PROPERTY RIGHTS, OF PERSONS WHO MAY BE AFFECTED BY THE PERFORMANCE OF THOSE FUNCTIONS;

AND WHEREAS THE URGENT REORGANISATION OF CERTAIN CREDIT INSTITUTIONS IS OF SYSTEMIC IMPORTANCE TO THE STATE;

AND WHEREAS IT IS NECESSARY TO MAINTAIN PUBLIC CONFIDENCE IN, AND ENHANCE, THE PROTECTION OF DEPOSITS IN CREDIT INSTITUTIONS GENERALLY;

AND WHEREAS IT IS DESIRABLE TO PROMOTE AND FACILITATE INVESTMENT BY PERSONS OTHER THAN THE STATE IN CREDIT INSTITUTIONS TO REDUCE THEIR
RELIANCE UPON STATE SUPPORT;

AND WHEREAS BECAUSE CERTAIN CREDIT INSTITUTIONS IN THE STATE ARE PARTIES TO CONTRACTS AND OTHER ARRANGEMENTS GOVERNED BY THE LAW OF A STATE OTHER THAN THE STATE;

BE IT ENACTED BY THE OIREACHTAS AS FOLLOWS:

Strange laws for strange times

Has the Government been planting background statements and political justifications into primary legislation in the expectation of court challenges?

As “one of the recession’s worst casualties”, Ireland has had its share of disruption since 2007 and the financial turmoil since the collapse of the Celtic Tiger has led to a spate of crisis legislation.

http://www.flickr.com/photos/johnjoh/448665548/

There are two striking features of the more rushed pieces of legislation: (1) the inclusion of political commentary and (2) repeated use of the phrase “in the public interest” (which might remind some readers of Bull Island‘s Charlie McCreevy sketches).

For example, section 2(1) of the Credit Institutions (Financial Support) Act 2008 provides:

The Minister has, in the public interest, the functions provided for under this Act because, after consulting the Governor and the Regulatory Authority, the Minister is of the opinion that—

(a) there is a serious threat to the stability of credit institutions in the State generally, or would be such a threat if those functions were not performed,

(b) the performance of those functions is necessary, in the public interest, for maintaining the stability of the financial system in the State, and

(c) the performance of those functions is necessary to remedy a serious disturbance in the economy of the State.

Section 2(1) of the Anglo Irish Bank Corporation Act 2009 contains a strikingly similar provision which effectively copies section 2(1) of the 2008 Act and pastes in a few Anglo-specific details.

I haven’t been through the entire Statute Book, but had never before encountered primary legislation which explained its background in this way. One might expect this in the appropriately titled explanatory memorandum which accompanies each draft law (eg. this one). However, while an explanatory memorandum might be examined by a court when interpreting legislation, this is the exception rather than the norm.

The legislative editorialising seems to have developed somewhat by the time the National Asset Management Agency Act 2009 was drafted. Section 2 of that Act uses similar terminology which is, again, more political than legal in content but which is aimed at addressing the purpose of the legislation, rather than the context of it. The Financial Emergency Measures in the Public Interest Acts No. 1 & 2 2009 (scroll to bottom of linked pages) see the adoption of recitals, common in continental European civil law systems and familiar to Irish lawyers thanks to the regulations and directives of the European Union.

Lawyers in Ireland and the UK often wonder what the point to recitals is. The law should be confined, the thinking goes, to the four corners of primary legislative provisions and not muddied or complicated by mission statements, which may be advanced by a litigating party as, for example, giving rise to legitimate expectations. This article on the topic makes the point:

Recitals are supposed to be general statements. General statements are not something which ordinarily are recognized as giving rise to legitimate expectations. But also recitals in general (for instance, in contract law) are, well, recitals, not operative provisions and it is hard to fathom how they could give rise to positive obligations or defeat operative clauses.

Section 18(g) of the Interpretation Act 2005 is of relevance here. In general terms, it provides that marginal notes, headings and the like are to be ignored when interpreting legislation. However, the sections already referred to in recent crisis legislation are not headings and take the form of operative provisions (though they generally do not provide for any active measure).

It will be interesting to see on 1 November whether the divisional court which heard McKillen v. NAMA (a.k.a. Dellway Investment Ltd & ors v. NAMA, Ireland & the Attorney General) will consider section 2 of the NAMA Act when determining whether the circumstances outlined in that provision justify the operations of that agency [Update: it did make brief reference to section 2 at para. 4.2 & 9.55 of the judgment].

PS. The core pieces of emergency legislation are:

Unfair advertising actions are not just for big business

[Updated 5/4/11 re. Cork Independent] What can a business do if a competitor engages in unfair advertising? The Competition Acts 2002 and 2006 deal with anti-competitive practices but these mostly involve cartel operations and abuse of dominance.

In the past, trade mark and passing off actions have been used to stop comparative advertising, but this had the unsatisfactory result of often blocking any form of comparative advertising, rather than just unfair comparative advertising. Most businesses are still very cautious when it comes to comparative advertising, but the trade mark problem was resolved somewhat by the ECJ decision in the O2 bubbles case: a competitor can use another’s trade mark once it does not confuse the public.

The European Communities (Misleading and Comparative Marketing Communications) Regulations 2007 updated Irish advertising law and supplement the unfair marketing provisions in the Consumer Protection Act 2007 and the non-statutory ASAI Code. A summary of the Regulations and available remedies is available here. The Regulations are not widely known among Irish SMEs, but that is changing fast.

Last year, Tesco sought an injunction under the Regulations against Dunnes Stores. The Irish Times reported:

Tesco had sought to stop Dunnes from running allegedly misleading price comparison advertisements in the run-up to the lucrative Christmas shopping spree. Tesco claimed Dunnes promotional advertisements made direct and unexplained comparisons with Tesco’s standard prices and misled customers by failing to compare like with like. Dunnes argued that its advertising campaign, in which it highlighted its lower prices, was incapable of misleading consumers.

Tesco failed to get an injunction because the High Court cannot grant a temporary injunction in this type of case (ironically, this is due to an earlier Supreme Court judgement in a case taken by Dunnes Stores). Miss Justice Laffoy’s decision does not mean that Tesco has lost or that Dunnes’ ads were not misleading: it only means that Tesco must pursue their complaint to trial of the full action.

Remedies under the Regulations can also be sought in the Circuit Court, where costs are lower. Recently, the Cork News took a case against rival paper the Cork Independent under the Regulations. As reported by the Phoenix (28(11) p.7 (11/06/10)):

THE freesheet Cork Independent was forced to admit in the Cork Circuit Court recently that it had been boasting false circulation figures to advertisers and was ordered by Judge Con Murphy to publish corrective figures. … The Cork Indo had been boasting circulation increases of 10,000 up to 65,000 in a series of full page adverts for the best part of two months up to January last. But the Cork News argued that the Cork Indo’s actual print run was only 43,000 for certain parts of the same period.

Judge Murphy ordered the Cork Indo to inform its advertisers via the newspaper of its real circulation figures last November and also ordered both papers to publish its current circulation figures.

[Update: There have been further developments in the dispute about circulation figures between the two newspapers, with the Cork Independent successfully defending a circulation challenge from the Cork News. The exact nature of the challenge is unknown.]

Tesco v. Dunnes Stores was an intensification of an existing battle between two enormous companies, but the Cork newspapers case suggests smaller Irish companies are now paying more attention to the legislative rules applicable to advertising, especially when it comes to advertising by competitors.

[Incidentally, an advertisement published by a solicitor can neither reflect unfavourably on other solicitors nor suggest specialist knowledge superior to other solicitors, which removes any real possibility of comparative advertising.]

Useful guide to Irish food law

Ireland has a long tradition of food production and an ever-increasing reputation for top quality food products. Food production and distribution is, however, a highly regulated industry and it can be difficult for small food producers to navigate the law in this area.

FSAI guide to food law

The Food Safety Authority of Ireland has published a guide on food law for producers starting a new business. It’s a good starting point, dealing with the general law and specific areas lie microbiology, labelling and additives. It is a high-level guide but references further materials available for download on the FSAI website (eg. guidance notes on the definition of “meat” and product recalls) and also their vast compendium of food law.

The guide is available here and should prove useful to food entrepeneurs and existing small producers.

Small Claims Court open to businesses (a little)

Dermot Ahern (FF/LH; Minister for Justice, Equality & Law Reform) has announced the introduction of new District Court Rules to amend the small claims procedure of the District Court, commonly referred to as the Small Claims Court (SCC). They will take effect from 11 January 2010.

I have written about this before in the context of Fine Gael’s proposals to change the SCC and to accomodate business claims. The new rules are less ambitious than those proposals and allow businesses to use the SCC in respect of goods or services not exceeding €2,000. In effect, the new rules open the SCC to business-to-business claims but maintain the existing limitations on the SCC; the most noteworthy being that a claim cannot be for an unpaid debt.

FG wanted the SCC to allow debt claims by businesses, whether against other businesses or consumers and, while the proposals may have been popular, they did raise balance-of-power concerns. For example, an unrepresented individual could be faced by a large business with daily, in-house experience of such claims. Certainly, FG’s broadening of the SCC would represent a significant function-creep, introduced as a band-aid measure during an economic downturn rather than as part of a programme of civil litigation reform in the District Court.

ISME have called for the jurisdiction of the SCC to be raised for businesses to the limit of the District Court’s jurisdiction and the implication appears to be that solicitors’ fees are the issue for businesses. Fees in the District Court are quite low and many claimants are quite happy to engage a solicitor to take or defend a claim. (As a sidenote, the implicit suggestion by ISME that solicitors’ fees are the problem in this area is interesting given that the vast majority of solicitors’ firms in Ireland are SMEs and are under tremendous pressure, like most other SMEs.)

Yesterday I sat in on a common example of a consumer complaint: a warranty claim for a defective second-hand car. The amount sought was within the SCC’s jurisdiction but three witnesses, including one expert, were questioned and cross-examined. Most parties to a dispute are happy to outsource the management of such a claim to another party (i.e. a solicitor). The SCC is more routinely used used for complaints of a value far smaller than the jurisdiction of the SCC.

Minister Ahern’s amendment is far more modest than the suggestions of FG or ISME and do not raise the concerns mentioned in relation to FG’s proposal. It is certainly a useful mechanism for businesses with small claims who are prepared to deal with them on their own. However, it is not likely to prove particularly useful to businesses in the current context, where most B2B claims under €2,000 relate to debts.