Damages & Tax
Taxes Consolidation Act, 1997
189
Payments in respect of personal injuries.
[FA90 s5(1) and (2)]
(1)This section shall apply to any payment made—
(a)to or in respect of an individual who is permanently and totally incapacitated by reason of mental or physical infirmity from maintaining himself or herself, and
(b)(i)pursuant to the issue of an order to pay under section 38 of the Personal Injuries Assessment Board Act 2003, or
(ii)following the institution by or on behalf of the individual of a civil action for damages,
in respect of personal injury giving rise to that mental or physical infirmity.
(2)(a)In this subsection—
“relevant gains” means chargeable gains (including allowable losses) within the meaning of the Capital Gains Tax Acts, which accrue to an individual, to or in respect of whom payments to which this section applies are made, from the disposal of—
(a)assets acquired with such payments,
(b)assets acquired with relevant income, or
(c)assets acquired directly or indirectly with the proceeds from the disposal of assets referred to in paragraphs (a) and (b);
“relevant income” means income which arises to an individual, to or in respect of whom payments to which this section applies are made, from the investment—
(a)in whole or in part of such payments, or
(b)of income derived directly or indirectly from such payments,
being income consisting of dividends or other income which, but for this section, would be chargeable to tax under Schedule C or under Case III, IV (by virtue of section 59, 745 or 747E) or V of Schedule D or under Schedule F.
(b)Where for any year of assessment the aggregate of the relevant income arising to and the relevant gains accruing to an individual exceeds 50 per cent of the aggregate of the total income arising to and the total chargeable gains (including allowable losses) accruing to the individual for that year of assessment—
(i)the relevant income shall be exempt from income tax and shall not be reckoned in computing total income for the purposes of the Income Tax Acts, but the provisions of those Acts relating to the making of returns shall apply as if this section had not been enacted, and
(ii)the relevant gains shall be exempt from capital gains tax, but the provisions of the Capital Gains Tax Acts relating to the making of returns shall apply as if this section had not been enacted.
(c)For the purposes of computing whether a chargeable gain is, in whole or in part, a relevant gain, or whether income is, in whole or in part, relevant income, all such apportionments shall be made as are, in the circumstances, just and reasonable.
536
Capital sums: receipt of compensation and insurance moneys not treated as a disposal in certain cases.
[CGTA75 s29(1) to (3) and (5)]
(1)(a)Subject to paragraph (b), where the recipient so claims, receipt of a capital sum within subparagraph (i), (ii), (iii) or (iv) of section 535(2)(a) derived from an asset which is not lost or destroyed shall not be treated as a disposal of the asset if—
(i)the capital sum is wholly applied in restoring the asset, or
(ii)the capital sum is applied in restoring the asset except for a part of the capital sum which is not reasonably required for the purpose and which is small as compared with the whole capital sum;
but, if the receipt is not treated as a disposal, all sums which, if the receipt had been so treated, would have been taken into account as consideration for that disposal in the computation of a gain accruing on the disposal shall be deducted from any expenditure allowable under Chapter 2 of this Part as a deduction in computing a gain on the subsequent disposal of the asset.
(b)Paragraph (a) shall not apply to cases within subparagraph (ii) of that paragraph if immediately before the receipt of the capital sum there is no expenditure attributable to the asset under paragraphs (a) and (b) of section 552(1) or if the consideration for the part disposal deemed to be effected on receipt of the capital sum exceeds that expenditure.
(2)Where an asset is lost or destroyed and a capital sum received as compensation for the loss or destruction, or under a policy of insurance of the risk of the loss or destruction, is, within one year of receipt or such longer period as the inspector may allow, applied in acquiring an asset in replacement of the asset lost or destroyed, the owner shall on due claim be treated for the purposes of the Capital Gains Tax Acts as if—
(a)the consideration for the disposal of the old asset were (if otherwise of a greater amount) of such amount as would secure that on the disposal neither a loss nor a gain accrued to such owner, and
(b)the amount of the consideration for the acquisition of the new asset were reduced by the excess of the amount of the capital sum received as compensation or under the policy of insurance, together with any residual or scrap value, over the amount of the consideration which such owner is treated as receiving under paragraph (a).
(3)A claim shall not be made under subsection (2) if part only of the capital sum is applied in acquiring the new asset; but, if all of that capital sum except for a part which is less than the amount of the gain (whether all chargeable gain or not) accruing on the disposal of the old asset is so applied, the owner shall on due claim be treated for the purposes of the Capital Gains Tax Acts as if—
(a)the amount of the gain so accruing were reduced to the amount of that part of the capital sum not applied in acquiring the new asset (and, if not all chargeable gain, with a proportionate reduction in the amount of the chargeable gain), and
(b)the amount of the consideration for the acquisition of the new asset were reduced by the amount by which the gain is reduced under paragraph (a).
(4)This section shall not apply in relation to a wasting asset.
613
Miscellaneous exemptions for certain kinds of property.
[CGTA75s24]
(1)The following shall not be chargeable gains—
(a)any bonus payable under an instalment saving scheme within the meaning of section 53 of the Finance Act, 1970;
(b)any prize under section 22 of the Finance (Miscellaneous Provisions) Act, 1956;
(c)any sum obtained by means of compensation or damages for any wrong or injury suffered by an individual in his or her person or in his or her profession;
(ca)any sum obtained by means of compensation under the 2017 Voluntary Homeowners Relocation Scheme administered by the Commissioners of Public Works in Ireland under section 2 of the Commissioners of Public Works (Functions and Powers) Act 1996;
(d)any payment to which section 205A applies.
(2)Winnings from betting (including pool betting), lotteries, sweepstakes or games with prizes shall not be chargeable gains, and rights to winnings obtained by participating in any pool betting, lottery, sweepstake or game with prizes shall not be chargeable assets.
(3)No chargeable gain shall accrue on the disposal of a right to or to any part of—
(a)any allowance, annuity or capital sum payable out of any superannuation fund, or under any superannuation scheme, established solely or mainly for persons employed in a profession, trade, undertaking or employment, and their dependants,
(b)an annuity granted otherwise than under a contract for a deferred annuity by a company as part of its business of granting annuities on human life, whether or not including instalments of capital, or
(c)annual payments due under a covenant made by any person and not secured on any property.
(4)(a)Subject to subsection (5), no chargeable gain shall accrue on the disposal of an interest created by or arising under a settlement (including in particular an annuity or life interest and the reversion to an annuity or life interest)—
(i)by the person for whose benefit the interest was created by the terms of the settlement, or
(ii)by any other person except one who acquired, or derives that person’s title from one who acquired, the interest for a consideration in money or money’s worth, other than consideration consisting of another interest under the settlement.
(b)Subject to paragraph (a), where a person who has acquired an interest in settled property (including in particular the reversion to an annuity or life interest) becomes as the holder of that interest absolutely entitled as against the trustee to any settled property, the person shall be treated as disposing of the interest in consideration of obtaining that settled property, but without prejudice to any gain accruing to the trustee on the disposal of that property deemed to be effected by the trustee under section 576(1).
(5)Subsection (4)(a) shall not apply—
(a)to the disposal of an interest in settled property, other than such a disposal treated under subsection (4)(b) as made in consideration of obtaining the settled property, if at the time of the disposal the trustees are neither resident nor ordinarily resident in the State,
(b)if the settlement falls within subsection (6), or
(c)the property comprised in the settlement is or includes property that is derived directly or indirectly from a settlement falling within subsection (6).
(6)(a)In this subsection “arrangements” means arrangements having the force of law by virtue of section 826(1) (as extended to capital gains tax by section 828).
(b)A settlement falls within this subsection if there has been a time when the trustees of the settlement—
(i)were neither resident nor ordinarily resident in the State, or
(ii)fell to be regarded for the purposes of any arrangements as resident in a territory outside the State.
(7)(a)No chargeable gain shall arise on the receipt of an amount of compensation in money or money’s worth under the Cessation of Turf Cutting Compensation Scheme or the Protected Raised Bog Restoration Incentive Scheme administered by the Minister for Arts, Heritage, Regional, Rural and Gaeltacht Affairs, relating to—
(i)a European Site (within the meaning of Regulation 2 of the European Communities (Birds and Natural Habitats) Regulations 2011 (S.I. No. 477 of 2011)) that contains raised bog,
(ii)a Natural Heritage Area (within the meaning of section 2 of the Wildlife Act 1976 (No. 39 of 1976)) that contains raised bog, or
(iii)any other lands which, in the opinion of the Minister for Arts, Heritage, Regional, Rural and Gaeltacht Affairs, are necessary to achieve the restoration of a European Site or Natural Heritage Area, referred to in subparagraph (i) or (ii).
(aa)No chargeable gain shall arise on a disposal of land (including a right of turbary) to the Minister referred to in paragraph (a) where that land has been acquired by that Minister for the purposes of granting a right of turbary to an individual who—
(i)is entitled to compensation under the scheme referred to in paragraph (a), and
(ii)enters into an agreement with that Minister in respect of that land (or any estate, right or interest in or over that land).
(b)Any amount paid under the Protected Raised Bog Restoration Incentive Scheme for the voluntary purchase of land or under a management agreement within the meaning of Regulation 2 of the European Communities (Birds and Natural Habitats) Regulations 2011 shall be deemed to be an amount of compensation for the purposes of paragraph (a).
Cases
Glover v BLN Limited
[1973] IR 388
DOUGLAS WILLIAM VICTOR GLOVER Plaintiff v. B.L.N. LIMITED, LINCOLN AND NOLAN LIMITED, LINCOLN AND NOLAN (SALES) LIMITED and LINCOLN AND NOLAN (PARTS) LIMITED Defendants.
[1966. No. 1844 P.]
Supreme Court 24-26 April 1968
30 May 1968
31 July 1968
1-5 May 1972
18 Dec. 1972
KENNY J. :”
31 July
Lincoln and Nolan Ltd. (“the operating company”) was incorporated as a private company in Ireland in 1923. Since 1933 its principal business has been the assembly of Austin motor cars, though for some time it also assembled Rovers and Heinkels: it imported the parts from the British Motor Corporation in a completely knocked-down condition and assembled them at a number of factories in Dublin. The parts for all the cars (except Minis) were sent from England in containers which were shipped through Rosslare and were brought to Dublin where they were unpacked: the parts for Minis were imported through the port of Dublin in cases and cartons.
Lincoln and Nolan (Holdings) Ltd. (“the holding company”) was incorporated as a public company in 1950 to acquire the shares in the operating company. Its original capital was £300,000 divided into 100,000 preference shares of £1 and 800,000 ordinary shares of 5s. and it obtained a quotation for these on the Dublin Stock Exchange. It never assembled motor cars and it received from the operating company and from its other subsidiaries the sums which its directors considered prudent to distribute as dividends to the share holders. In May, 1966, its name was changed to B.L.N. Limited.
Lincoln and Nolan (Sales) Ltd. (“the sales company”)was incorporated as a private company in 1950 and was a wholly-owned subsidiary of the holding company. International Sales Ltd. (“the factor company”) was incorporated as a private company in 1958: its name was subsequently changed to Irish Motor Factors Ltd. and later to Lincoln and Nolan (Parts) Ltd. It was also a wholly-owned subsidiary of the holding company. Until April, 1966, the holding company and the other companies had the same persons as directors.
Mr. John W. Freeman, a well-known Dublin stockbroker and a director of many public companies, was the chairman of the holding company and its subsidiaries: he was never a whole-time or, as it is now called, an executive director of any of the companies and he did not claim that he had any technical knowledge about the assembly or sale of motor cars. Mr. H. Martin Brierley was the managing director of the holding company and of its subsidiaries and
held these positions until he resigned in December, 1966. Mr. Brierley had no technical training in the assembly of motor cars; he concentrated on increasing the sales of Austin cars and lorries in Ireland. He believed that the best way to sell them was to build up goodwill and a favourable public image with the dealers who sell Austin cars. He succeeded in increasing the sales of cars assembled by the operating company from 2,400 in the financial year which ended in March, 1958, to about 10,000 in the financial year which ended in March, 1965: during this period the number of those employed by all the companies increased from about 300 to about 600.
This policy, which produced large increases in sales and excellent profits, imposed a very heavy strain on those who had to do the assembly work as the factories were scattered and the work could not be concentrated in one area. This became a particularly difficult problem when a strong demand for Mini cars developed in 1963: the directors of the operating company realised what a large market there was for these cars and it was not easy to produce about 10,000 cars in old buildings which had been acquired when a production of 2,500 was the aim.
The policy of building up goodwill included the carrying out by the operating company of alterations and repairs without charge to cars which had developed defects after the period mentioned in the warranty given by Austins had expired. This seems to me to have been a prudent approach for there is nothing more irritating to a motorist or to a dealer than to be asked to pay for making good some defect which has developed in a new car shortly after the warranty period has expired.
The other directors of the holding company and its subsidiaries were Mr. Patrick Duggan, Mr. Thomas P. Hogan and Mr. Arthur Phillips. Mr. Duggan is a chartered accountant and is a director of many insurance and investment companies. He has not any technical knowledge of motor assembly and was not at any time an executive director. He examined the weekly production charts carefully and commented on any fall in the productivity ratio. Mr. Hogan is an engineer who now specialises in management and is a director of a number of public companies: he did not make any claim to expert knowledge of motor assembly. Mr. Phillips had been a director when the plaintiff, Mr. Glover (whom I intend to call “Mr. Glover”to distinguish him from his son, Mr. David Glover), was appointed as technical manager, but died before 1966.
Mr. Glover, who was born on the 11th January, 1914, has many qualifications and a wide experience in mechanical engineering and in the assembly of motor cars. He had worked in the Nuffield organisation and with the British Motor Corporation. In 1957 the directors of the operating company were looking for a technical manager and asked the British Motor Corporation to recommend someone for this position. Mr. Glover was advised to write to Mr. Brierley and a meeting between them was arranged. On the 30th September, 1957, Mr. Brierley wrote to Mr. Glover offering him an immediate appointment as technical manager at a commencing salary of £2,500, with the right to become a member of a non-contributory pension scheme (established by the operating company) after a qualifying period of three years. Mr. Brierley stated that the capital sum assured under this scheme would be £14,878 which would be payable on death; that a pension of £1,334 for each year would be paid at the age of 65; and that, at the discretion of the board, a capital sum could be taken in place of it. In later letters Mr. Brierley stated that some form of production bonus would be given at a later date. Mr. Glover accepted the offer and took up his duties on the 1st November, 1957. In 1959, Mr. Glover was appointed a director of the holding company and of its subsidiaries and technical and production manager of the Lincoln and Nolan Group and was given a commission on the profits of the companies similar to that which he later got under the written contract made in 1964.
On the 1st April, 1959, Mr. Glover joined a retirement benefit scheme set up and managed by Irish Pensions Trust Ltd. for the operating company who paid all the contributions. The basis of this scheme was that the Pension Trust company were to take out policies of assurance as trustees on the lives of those employed by the operating company and were to hold these policies and their proceeds on the trusts stated in a declaration of trust made on the 20th July, 1950. These were that the Pension Trust company was to hold the policy and its proceeds for the employee
if he retired at the age of 65 or if he did so with the consent of the operating company when he was between 55 and 65 years old; if he died while he was employed, the policy was to be held for his personal representative. If the employment was terminated before the employee reached 65 for any reason except fraud or misconduct, the policy was to be held for the employee; while if the employee was discharged before he reached 65 for fraud or misconduct (in relation to which a certificate by the operating company was to be conclusive), or if he voluntarily left the employment of the operating company before he was 65, the policy was to be held as the operating company should decide. Mr. Glover was 52 when he was dismissed. The result of this scheme was that, if he remained in the employment of the operating company until he was 65, Mr. Glover would have got a pension of two-thirds of his salary (the salary scale not to exceed £2,000) for the rest of his life with the right to take this in a lump sum which Mr. Early, an official of the Pension Trust company, valued at £14,192. However, if Mr. Glover left the employment of the operating company on the 31st March, 1968, when his contract on which this action is based would have expired, he would have been entitled to get a fully paid policy for £6,910 payable at 65 or earlier death, or to have received the sum of £4,701 14s. 0d. as the surrender value of the policy, or to have continued it until April, 1977, by paying an annual premium of £659. Thus, under the scheme, Mr. Glover had rights to large sums unless he was discharged for fraud or misconduct or unless he left the employment of the operating company voluntarily; these rights did not depend on the discretion or decision of anyone and they could have been enforced in a court of law.
As the profit history of the group of companies has been relied on by Mr. Glover, I propose to summarise it. When Mr. Freeman was speaking at the annual general meeting held in July, 1957, he stated that the average annual production of cars (which at that time included Rovers) from the time the holding company was formed was about 3,000. Substantial import levies were imposed on parts for assembly in March and July, 1956, and for the year which ended on the 31st March, 1957, the loss of all the subsidiary companies was £38,417 while the loss after allowing for tax which could be recovered and depreciation was £29,749. There was a substantial increase in sales in the year which ended on the 31st March, 1958, and there was a profit of £74,862 before payment of tax. For the year which ended on the 31st March, 1959, there was a profit of £78,733 before tax and a dividend of 15% was paid on the ordinary shares. In the year which ended on the 31st March, 1960, the profit was £108,400 and 3,819 motor cars and 525 commercial vehicles were sold. For the year which ended on the 31st March, 1961, the profit before tax was £104,158 and the sales of all vehicles were 4,892. For the year which ended on the 31st March, 1962, the profit was £159,379 and a dividend of 30% was paid on the ordinary shares. In the year which ended on the 31st March, 1963, the companies seem to have supplied the greater part of the market in Ireland for Minis and had a profit of £213,735. In January, 1964, retained profits amounting to £100,000 were capitalised and 400,000 fully-paid ordinary shares of 5/- were issued to the shareholders so that the ordinary share capital was 1,200,000 shares of 5/- each. In the year which ended on the 31st March, 1964, the profit before tax was £217,108 and the company sold 7,924 vehicles. In the year which ended on the 31st March, 1965, the profit before tax was £326,395 and the company sold 10,039 vehicles. From the 1st April, 1965, to the 26th March, 1966, when the amalgamation with Brittains (Dublin) Ltd. became effective, the profit before tax was £233,582 and sales of all vehicles fell to about 8,200.
Brittains (Dublin) Ltd. (which I shall call “Brittains”)was a long-established private company which had been assembling Morris motor cars and commercial vehicles from 1933. The parts for these cars were manufactured by the British Motor Corporation and were exported by them to Ireland. The establishment of the European Economic Community, and the movement towards reductions in tariffs on imports into Ireland and England, made the future of the car assembly industry in Ireland uncertain: if it was to survive, it could do so only if its prices became competitive with imported cars and it seemed absurd that two companies should be assembling the products of one English company in different premises and with different staffs. Mr. George Vincent Brittain (“Mr. Brittain”) realised that Brittains and the operating company would have to merge or amalgamate and so Brittains began in January, 1960, to buy the ordinary shares of the holding company on the Dublin stock exchange as a first step towards an eventual amalgamation. These purchases were not made in the name of Brittains but in the name of a nominee company and the identity of the purchaser was a well-kept secret. The directors of the holding company knew that someone was buying large numbers of the shares of their company but were not able to find out who it was until some time in 1963. These purchases continued until October, 1963, when Brittains had acquired about 25% of the ordinary shares of the holding company. Shortly before this date the directors of the holding company discovered the identity of the purchaser when a transfer to the nominee company, with the name of Brittains written on it in pencil, came before them for registration. The purchases of these shares were not made by Mr. Freeman or by his firm (Goodbody & Webb) and, though he was a friend of Mr. Brittain, he did not know who the buyer was. At the end of 1963 Mr. Brittain went to see Mr. Freeman and told him that he had purchased about 25% of the ordinary shares of the holding company with the aim of an amalgamation between the two companies. Before the directors of the holding company knew who the purchaser was, they had agreed to give service agreements for five years to Mr. Brierley and to Mr. Glover to protect their positions as whole-time executive directors if the holding company were taken over. Although the directors had agreed to give these contracts before October, 1963, Mr. Glover’s agreement was not signed until the 10th January, 1964, though the five-year period ran from the 1st April, 1963. This, I think, is the explanation of Mr. Freeman’s evidence that the contracts to Mr. Glover and Mr. Brierley were given before it was known who the purchaser was.
The agreement of the 10th January, 1964, was made between the holding company, the operating company, the sales company, the factors company and Mr. Glover. Each of the four companies thereby appointed Mr. Glover as technical director of each of them for a minimum period of five years from the 1st April, 1963, and thereafter from year to year unless the agreement was terminated by six months notice (given by the holding company or by Mr. Glover) expiring on the 31st March, 1968, or any day thereafter. It provided that during the currency of the agreement Mr. Glover was to devote his whole time and attention to the business and affairs of the four companies and that he was not, without the consent of the board of the holding company, to be interested directly or indirectly in any motor business which was or might or could be in competition with the businesses of the four companies or any of them. Clause 4 provided that he was to be paid by the holding company “as remuneration for his services hereunder to it and to the operating company, to the sales company and to the factors company” a fixed salary of £2,250 p.a. together with £250 expenses. Under clause 5 he was to receive as additional remuneration a commission of 11/4% on the excess over £30,000 up to £70,000 and a commission of 21/2% on any excess over £70,000 for each financial year on the aggregate of the net profits or losses of the sales company and of the factors company: the amounts of these profits or losses were to be certified by the auditors of the operating company.
Clause 12 of the agreement (so far as it is relevant) provided:””12. Mr. Glover’s appointment as technical adviser of all the companies may be terminated without giving rise to any claim for compensation or damages upon the happening of any events following, namely:” . . . (c) if Mr. Glover shall be guilty of any serious misconduct or serious neglect in the performance of his duties or wilfully disobeys the reasonable orders directions or restrictions or regulations of the board of directors of any of the said companies which in the unanimous opinion of the board of directors for the time being of the holding company present and voting at the meeting injuriously affect the reputation business or property or management of either the holding company or the operating company or the sales company or the factors company.” It has been wisely conceded by counsel that the words “as technical adviser” at the beginning of clause 12 are to be read as if they were “as technical director.”
Mr. Brittain was co-opted as a director of the holding company on the 21st January, 1964, and of the operating company on the 16th of June of that year. He attended a meeting of the board of the operating company on the 28th July at which there was an embarrassing discussion between Mr. Glover and him about Mr. Glover’s interest in a company called Motors and Machines Limited. Article 39 of the articles of association of the operating company provided:””A director may hold any office of profit under the company (other than that of auditor), and may enter into contracts or arrangements or have dealings with the company, and shall not be disqualified from office thereby, nor shall he be liable to account to the company for any profit arising out of any such contract, arrangement, or dealing to which he is a party or in which he is interested by reason of his being, at the same time, a director of a company, provided that such director discloses to the board at or before the time when such contract, arrangement, or dealing is determined upon his interest therein, or, if such interest is subsequently acquired, provided that he, on the first occasion possible, discloses to the board the fact that he has acquired such interest. But no director shall vote as a director in regard to any contract, arrangement, or dealing in which he is interested or upon any matter arising thereout, and if he shall so vote, his vote shall not be counted. But he may be reckoned in estimating a quorum where any such contract, arrangement, or dealing is under consideration.”
In September, 1961, Mr. Glover instructed Messrs. Gore & Grimes, who acted in a number of transactions for the holding company, to incorporate a private company called Motors and Machines Limited (“Motors and Machines”). On the 23rd September, 1961, 100 shares in this company were allotted. An allotment of 35 shares was made to Mr. David Glover, 10 to Mr. Glover, 10 to Mr. Glover’s wife, 35 to Mr. John Bassett and 10 to Colonel John Bassett; and they became the first directors of the company of which Mr. Glover was chairman. In 1961 Motors and Machines succeeded in getting the sole agency in Ireland for a company called Electro Mechan Heat Ltd., the products of which company were recommended by the British Motor Corporation for use in the assembly of Austins. As the operating company required a large amount of new capital equipment for the assembly of Minis and other cars, it began to purchase it from Motors and Machines. The circumstances in which Mr. David Glover acquired this valuable agency show that Motors and Machines were formed by Mr. Glover and his son so that this capital equipment could be sold by it to the operating company. In the period from the 9th October, 1961, to the 31st March, 1963, Motors and Machines sold equipment and goods priced at £3,837 to the operating company; and in the year to the 31st March, 1964, the sales were priced at £12,444 out of total sales of £42,905. In many cases the goods consigned from England to Motors and Machines were collected at the docks by employees of the operating company and brought direct to their factories. Although Mr. Glover was the chairman, a director and a shareholder in Motors and Machines, he did not disclose to the directors of the operating company his interest in the contracts between that company and Motors and Machines. Before he had incorporated Motors and Machines, he had asked Mr. Patrick Duggan to act as that company’s auditor and had told him that it would do agency work: he also said that he hoped to do business with the operating company. Mr. Duggan told him that this was undesirable (as it undoubtedly was) and Mr. Glover said that he only wanted to help his son. Mr. Duggan then gave Mr. Glover the good advice that the position would be regular if he confined himself to advising his son. I accept all Mr. Duggan’s evidence about this conversation and I reject that of Mr. Glover.
Mr. Brierley and Mr. Hogan knew, from the end of 1961, that Mr. David Glover was managing Motors and Machines and that it was selling equipment to the operating company, and they probably knew that Mr. Glover had some interest in it but neither of them realised the size of the business with the operating company. Mr. Glover resigned his directorship of Motors and Machines on the 29th June, 1964, after Mr. Brittain had become a director of the operating company but before he had attended any of its meetings. Mr. Brittain, having heard about Mr. Glover’s connexion with Motors and Machines, was determined to make Mr. Glover reveal his interest in contracts between Motors and Machines and the operating company. Mr. Glover did this most reluctantly and the other directors were embarrassed by the discussion. Mr. Brittain’s motive in forcing the disclosure was not any concern with the niceties of company law but a conviction that a director of a company should reveal his interest in contracts between that company and another of which he was a director. Mr. Brittain regarded the transaction with Motors and Machines as dishonest. On the same day the board of the operating company recorded its view that expenditure of a capital or revenue nature should, in all cases, be supported by alternative quotations and that these should be made available at future board meetings and that, where a director was interested, the interest should be made known directly to the board. The result of this incident was that Mr. Glover and Mr. Brittain had a strong dislike of each other and it is an important part of the background to the stormy events of June and July, 1966.
Mr. Freeman, Mr. Brittain, Mr. Duggan and Mr. Hogan favoured an amalgamation of the operating company and Brittains; while Mr. Brierley and Mr. Glover were strongly opposed to it. The grounds for Mr. Glover’s dislike of it were that he had hoped to become managing director of the holding company and of the operating company when Mr. Brierley retired, and he knew that he would never get this office if the amalgamation went through; Mr. Glover also knew that Mr. Brittain had strong and definite views about how a motor-assembly industry should be run and was going to see that these were applied. To these grounds must be added Mr. Glover’s feeling that he was in charge of the assembly of Austin motor cars but that it was unlikely that he would continue to be the final authority if the amalgamation went through. The negotiations for amalgamation must have been long and tedious and I am sure that they involved many discussions with members of the legal professions. Compliance with what company law requires on a transaction such as this often irritates business men; there was the additional element that Mr. Freeman (like Dean Swift) has an intense dislike for lawyers and so his violent reaction to a solicitor’s letter on the 21st June can be understood. The ultimate basis of the amalgamation was that as the issued ordinary share capital of the holding company was 1,200,000 ordinary shares of 5/- each, the shareholders in Brittains were entitled to an allotment of 850,000 fully-paid ordinary shares in the holding company for the transfer of their shares. However, they did not wish to take all the purchase price in shares and so they were allotted 500,000 ordinary shares in the holding company and were paid £350,000. It is an indication of the financial strength of the holding company that this was paid out of its resources. The 500,000 ordinary shares were issued at a price of £1 for each 5/- share because this was their value at that time. There were other assets in Brittains which it was decided should not be transferred and these, amounting to £452,245, were converted into cash which was paid to the shareholders. Another term of the amalgamation was that Mr. Brierley and Mr. Glover were to retire from the board of the holding company. It was suggested during this case that Mr. Glover’s resignation from that board was sought so that he could subsequently be removed from his position as technical director: it will be recalled that he could be removed only by an unanimous resolution of the directors of the holding company. I am convinced that this suggestion is incorrect. Mr. Freeman and Mr. Brittain wanted Mr. Glover and Mr. Brierley to resign from the board of the holding company because, if they remained, it would have been necessary to make two other executive directors of Brittains members of the board, and this would have made it too large to be efficient. At a meeting of the board of the holding company on 19th April, 1966, Mr. Glover was told that he was expected to resign from his position as a director of it: he was most reluctant to do this and took legal advice about his position but resigned on the 29th April. The terms of the amalgamation were announced on the 2nd May; it was to be effective from the 26th March and it was completed on the 26th May, 1966, when Mr. Brittain was made executive vice-chairman of the holding company and Mr. George Brittain was made a director of it.
The amalgamation of two large companies always creates many problems: rivalries have to be forgotten, hopes of promotion may have to be abandoned and fears of redundancies and dismissals arise. All of us support change and rationalization in the professions and businesses which other people carry on: we are not enthusiastic about them in our own. Mr. Brittain wanted the amalgamation to be successful because he thought that it would benefit the shareholders of the holding company and because, having made the decision, he was determined to see it carried out.
[The judge reviewed further portions of the evidence, including the fact that at a board meeting of the holding company held on the 5th July, 1966, Mr. Brittain had read a lengthy report upon the condition and the maintenance of the defendants factories, and that the report concluded by stating that the plaintiff had been guilty of gross dereliction of duty. The judge referred to the resolution1passed at that board meeting terminating the plaintiff’s service agreement, and to the letter of the 8th July giving the plaintiff notice of such termination, and to the fact that the plaintiff had not been given prior notice of any of the complaints made against him in the report and at the said board meeting. The judge continued . . .]
The defendants submitted that the decision of the board that Mr. Glover had been guilty of serious misconduct and of serious neglect, and that these had injuriously affected the business and property of the defendants, could not be challenged in any court and was conclusive unless the plaintiff established that the decision was dishonest; they cited the judgments in Diggle v. Ogston Motor Co. 2 as authority for this. The wording of clause 12(c) refutes this contention because it requires that Mr. Glover should be guilty of serious misconduct or serious neglect ascertained objectively before he could be dismissed: it does not make the opinion of the directors conclusive on this matter. Also I think that that decision was plainly wrong and should not now be followed. In it, the defendants employed the plaintiff as a shop superintendent for one year subject to his carrying out his duties “to the satisfaction of the directors.” Before the year had ended the plaintiff was dismissed because he had not carried out his duties to the satisfaction of the directors. The jury found that the directors of the defendants were genuinely dissatisfied with the way in which the plaintiff did his duties but that they had no good grounds for this and on these findings the County Court judge entered judgment for the defendants. The plaintiff appealed to a Divisional Court (Ridley and Lawrence JJ.) of the High Court, and the judges did not find it necessary to reserve judgment. They held that a bona fide dissatisfaction by the directors was sufficient to entitle them to terminate the agreement which should not be read as requiring reasonable satisfaction. However, it has been held in many cases that when work is to be done to the satisfaction of the owner of property, the Court will imply that this means reasonable satisfaction: the cases on this matter are conveniently summarised on p. 248 of Hudson on Building Contracts (7th ed.). I do not see why contracts of employment should be in a different category. The reasons given for the decision are also completely inconsistent with what Lord Radcliffe said in Nakkuda Ali v. Jayaratne. 3 I, therefore, reject the defendants’ first submission.
I come now to consider whether Mr. Glover was guilty of serious neglect in the performance of his duties. If the directors dismissed him for this, they can rely only on the acts and omissions which they knew of on the 5th July, 1966, and so they are confined to the serious neglect mentioned in the report of the 4th July, 1966. In Carvillv. Irish Industrial Bank Ltd. 4 it was held that the only grounds which could be relied on to justify the immediate dismissal for misconduct of an employee who was employed on a yearly basis, and whose contract did not contain provisions for summary dismissal, were those known to the board which dismissed him when they did so; and it was held that the views expressed in Boston Deep Sea Fishing and Ice Co. v. Ansell 5, that an immediate dismissal for misconduct may be justified on grounds discovered subsequently, were wrong. The same principle must, I think, apply when the contract provides for summary dismissal for serious neglect of duty or for serious misconduct.
[The judge examined the evidence relating toundelete 18allegations that the plaintiff had been negligent in the performance of his duties. The judge found that all except one of the allegations had not be established. The judge continued . . .] In my opinion, all the charges of serious neglect of duty, except those connected with the condition of the fuse board in the East Wall factory, fail.
I come now to consider the charges of serious misconduct.
It is impossible to define the misconduct which justifies immediate dismissal. In giving the advice of the Privy Council in Clouston & Co. Ltd. v. Corry 6 Lord James of Hereford said:””There is no fixed rule of law defining the degree of misconduct which will justify dismissal. Of course there may be misconduct in a servant which will not justify the determination of the contract of service by one of the parties to it against the will of the other.”What is or is not misconduct must be decided in each case without the assistance of a definition or a general rule. Similarly, all one can say about serious misconduct is that it is misconduct which the court regards as being grave and deliberate. And the standards to be applied in deciding the matter are those of men and not of angels: see Jupiter General Insurance Co. v. Shroff 7 and the decision of Mr. Justice Budd in Flynn v. Great Northern Railway Co. (Ir.) Ltd. 8 The burden of establishing serious misconduct rests on the defendants: I do not accept Mr. Costello’s argument that the defendants discharge this if they establish aprima facie case of serious misconduct. The case on which he relied, Federal Supply and Cold Storage Company of South Africa v. Angehrn 9, is not an authority for this. It establishes that when the defence to a charge of misconduct is that it was done for the benefit of the master the burden of establishing this rests on the employee; but this presupposes that the employer has proved misconduct.
The main charge of serious misconduct related to the sale of capital equipment and goods to the operating company by Motors and Machines10 when Mr. Glover was a shareholder in this company which was managed by his son. I have no doubt that until 1964 these transactions were serious misconduct because Mr. Glover had not disclosed his interest in the company to his co-directors. From 1964, however, all the directors of the operating company knew that Mr. Glover had this interest and they could have checked on the dealings between the two companies. Some of the purchase authorisations were not countersigned by Mr. Brierley as they should have been and the agencies were obtained in a remarkable way. But all these considerations are outweighed by the absence of any evidence establishing that the operating company suffered any loss from these transactions. Mr. Brittain admitted that he could not establish this and a comparison of prices charged by Motors and Machines and by other companies shows that some of the contracts were favourable to the operating company: the directors of the holding company could not reasonably conclude that the dealings with Motors and Machines injuriously affected the property or business of the operating company. Mr. Costello urged that it was serious misconduct for Mr. Glover to put himself in a position where his duty to the operating company clashed with his interest in promoting the sales of Motors and Machines, and said that it was irrelevant that the operating company had not suffered any loss in these contracts. In support of this he cited a passage from the judgment of Cotton L.J. in Boston Deep Sea Fishing and Ice Co. v. Ansell 11 at p. 357 of the report:””If a servant, or a managing director, or any person who is authorized to act, and is acting, for another in the matter of any contract, receives, as regards the contract, any sum, whether by way of percentage or otherwise, from the person with whom he is dealing on behalf of his principal, he is committing a breach of duty. It is not an honest act, and, in my opinion, it is a sufficient act to shew that he cannot be trusted to perform the duties which he has undertaken as servant or agent. He puts himself in such a position that he has a temptation not faithfully to perform his duty to his employer. He has a temptation, especially where he is getting a percentage on expenditure, not to cut down the expenditure, but to let it be increased, so that his percentage may be larger.” I do not accept this as a correct statement of the law.
It is not misconduct to put oneself in a position where duty and interest clash: it is a counsel of prudence not to do so but the misconduct is in failing to reveal the position to those likely to be affected by it, so that they cannot decide whether the performance of the duty will be influenced by the competing interest. The modern view of the position of directors of companies (who often have this problem) is shown in s. 194 of the Companies Act, 1963, and in Article 84 of the model articles for public companies and in Article 7 of those for private companies in Table A to that Act. These show that when a conflict between duty and interest arises, a director is bound to disclose the nature of his interest to his co-directors and, in my opinion, the same rule applies to those employed for it would be ridiculous that there should be one principle of conduct for directors and another for employees.
The Supreme Court has decided in Carvill v. Irish Industrial Bank Ltd. 12 that one ground of the decision in the Boston Case 13 was incorrect: I am not prepared to accept any part of it. The members of the Court of Appeal did not reserve judgment and some of the statements of the reasons are astonishing. One of the arguments in the case was that the act relied on was an isolated act and so could not be misconduct. Lord Justice Cotton dealt with this contention at p. 358 of the report in these words:””As far as we know it may have been an isolated transaction, but if we find at the very beginning of the employment that this agent, whose duty it was not to receive anything from the persons with whom he was dealing, did in fact do so, and in fact kept the receipt secret for months after the money was received, I am not satisfied that he did not do other things equally inconsistent with his duty to his principals . . .” At p. 370 of the report Fry L.J. dealt with this argument by stating:””We have no other ground upon which we can conclude this to be an isolated case except the absence of success on the part of the plaintiffs in proving any other case except that to which I shall shortly refer, and the oath of Mr. Ansell that it is such. I do not feel judicially satisfied that it is an isolated case.” These two passages mean that, if an employer establishes that an employee has committed one act of misconduct, the court may infer that he has committed many others although there is no proof that he did. I reject this view. The argument based on the Motors and Machines transactions fails because the directors could not reasonably conclude that the contracts injuriously affected the business, property or management of any of the companies; and so the directors could not terminate Mr. Glover’s agreement under clause 12 (c) on this ground.
A further charge of misconduct is that Mr. Glover authorised or allowed Motors and Machines to recondition petrol pumps for cars for £1 17s. 6d. when this work could have been done by the operating company. Mr. Golding, an employee of the operating company, arranged that Mr. Douglas Glover would purchase the necessary parts from the operating company for £1 10s. 0d., that he would then do the work and would be paid £1 17s. 6d.; 496 pumps were reconditioned. There has been no evidence that the operating company could have done the work at the same or a lower price or that Mr. Glover knew that the work had been given to Motors and Machines. This is the type of small job that most owners of large factories are reluctant to undertake and I am not prepared to hold that what was done was misconduct.
The next charge relates to the work done on four motor cars. The facts about the first two of these were known to Mr. Brittain when he made his report and are mentioned in it: the facts about the third and fourth cars were discovered afterwards. The work on the first two cars was done in the rectification department in Upper Mayor Street which was established to deal with defects found in cars after the warranty period had expired, and to do repairs to cars owned by the company. No charge was made for any work done in this department unless Mr. Glover directed the foreman to do so. Mr. Brierley and Mr. Glover believed that the operating company could get useful publicity by entering teams for motor rallies: in some of these the drivers of the Austin team drove their own cars and in others they drove company cars. Many of the Austin cars which were driven in rallies were tuned in the rectification department and those which were damaged were repaired there without charge. The rallies were a reasonable form of advertisement and the decision to do the tuning and repair work on the cars entered for them without charge was not misconduct. The first car was submerged in a flood in Dublin in June, 1963. The owner had it comprehensively insured and it was brought for repair to the operating company and examined. The owner did not wish to keep it as it had been flooded (a view reasonably held by all motor car owners) and wanted the insurance company to treat it as a total loss. The operating company then made an estimate of the 20th June for £200-250 in which the work necessary to restore the car was described in detail. I am prepared to assume in Mr. Glover’s favour that this was drawn on a generous scale and that some of the work described was not subsequently carried out in the rectification department. The insurance company were not, however, prepared to treat the car as a total loss: they paid £4 10s. 0d. to the operating company for bringing the car from Stillorgan Road and they paid the owner an amount, which was not proved, for the damage. Mr. Glover then bought the unrepaired car from the owner for £170 and the registration book was sent to him on the 26th June. Mr. Glover had the car brought to the rectification department where it was repaired; the damage to the upholstery and to the electrical parts was made good. Some of the parts for this work were obtained on Mr. Glover’s instructions from the East Wall Road factory and were subsequently replaced. No time sheets were kept in the rectification department so that the cost of the work is unknown: I estimate that the labour and material cost of the work without any addition for profit or overhead expenses was £125. No charge was ever made for any of the work and Mr. Glover paid nothing for it. Mr. Wood suggested to Mr. Glover that the transaction was bare-faced robbery and got the remarkable answer that it was not theft but that Mr. Glover was not making any excuse for it. I accept the evidence of Mr. O’Grady about the work done on this car and I reject that of Mr. Glover in so far as it conflicts with it. Mr. Glover could not have thought that he was entitled to have this work done without charge because it was a perquisite of his office. Although the amount involved was the comparatively small sum of £125, I have no doubt that what Mr. Glover did and his failure to pay the cost price of the work was serious misconduct. I am sure that many of the staff knew of this transaction and it set an utterly deplorable example to all of them. Those in the high office of director cannot expect the employees of their company to act honestly if they do not set a high standard.
An attempt to excuse what Mr. Glover did in relation to cars, and the work done in his own home, was made on the ground that the other directors were taking benefits from the company and were having their cars tuned and repaired without charge. The only allegation against Mr. Freeman was that a client of his (Mr. Hutchinson), whose wife was an invalid, wanted his car altered so that she could get into it easily. Mr. Freeman asked Mr. Glover to have this done and no charge was made for it. Mr. Freeman never suggested to Mr. Glover that the work should be done without charge and did nothing to induce this belief: the omission to charge resulted from Mr. Glover’s view that Mr. Hutchinson should have the work done for nothing because he was a friend of Mr. Freeman. It was suggested by Mr. Glover that Mr. Hogan had had work done without charge though this charge was withdrawn by Mr. Lardner. Mr. Hogan had purchased an unusual car from the company and it did not run well. He had got assurances about work which would be done and he brought the car back to have it made right. Mr. Duggan paid for all the work which was done on cars owned by his wife or by him and I accept his evidence that, when a private company with which he was associated was buying a new Princess car, he bought it through a dealer instead of buying it at cost price plus 10%, which were the terms on which directors could buy from the operating company. The standard to be applied in judging whether something is misconduct is an objective one, and Mr. Glover’s belief (if he had it) that he was entitled to have work done without charge does not excuse him.
The second car, which was owned by the operating company, was badly damaged in an accident in April, 1964. The operating company estimated that the cost of repairs would be £326 and the insurance company decided to pay them £340 which was the pre-accident value of the car. The agreed salvage value was £80 and the insurance company paid £260 to the operating company from whom Mr. Glover bought it for £80. Repair work was done on it by his son but he could not jig it and it was brought to the Merchant’s Road factory where repairs to the body were carried out for which Mr. Glover paid £14 10s. 0d. It was then brought by Mr. Glover to the rectification department where he instructed Mr. O’Grady to take the engine out of the sub-frame, to fit a new sub-frame and to put the engine back into it. The cost of the materials used was £15 19s. 0d. and the cost of labour was £1 and no payment for this was ever made by anyone. Mr. O’Grady did not charge for this because bills were sent for work in the rectification department only when he was instructed to do so. My view is that what Mr. Glover did was misconduct but the small amount involved prevents it from being serious misconduct.
Mr. Glover’s dealings with the third and fourth cars were not known when he was dismissed and they cannot, in my view, give any ground for the termination of his contract. However, it has been argued by the defendants that they are entitled to rely on them because a general charge of corruption is made in the report. This seems to me to be incorrect because clause 12(c) required that there should be serious misconduct which, in the opinion of the directors, injuriously affected the company’s property or business and I cannot understand how they could form any view on this until they knew the details of each transaction. As my view on this may be incorrect, I think I should deal with each of the transactions. The third car was owned by Mr. Glover; it was involved in a crash when he was driving it to a rally in which he was taking part. He had the car repaired in the rectification department: the cost was £154 11s. 9d. which he did not pay. As a decision had been made to take part in rallies, I think that he may have believed that he was entitled to have the car repaired at the company’s expense. The defendants have not proved that he acted dishonestly and, in my view, what was done was not serious misconduct. Mr. Glover’s conduct in relation to the fourth car was serious misconduct because it was grossly dishonest. The car, which was owned by Mr. Glover, had an insurance excess of £75. It was involved in an accident and an estimate of £282 16s. 0d. for the cost of the repairs was prepared by the operating company. The insurance company subsequently paid £206 15s. 5d. (their estimate of the cost of repairs less the £75 excess). to the operating company. The repairs on a labour and material basis (excluding profit) cost £113 4s. 0d. and Mr. Glover was given credit in his personal account with the operating company for £92 18s. 4d. He never paid the £75 and he said that he did not notice that he had got credit for the £92 18s. 4d. I do not believe this evidence. The £92 18s. 4d. belonged either to the insurance company or to the operating company: Mr. Glover could not have believed that he had any claim to it.
The next series of complaints related to work done by employees of the operating company for Mr. Glover during the hours when they were employed by it and for which no charge was ever made. I accept the evidence of Mr. Stephen Grant on this. It establishes that Mr. Grant and Mr. Kenny worked for two or three weeks in Mr. Glover’s house at Sandycove, for four weeks in his house at Step-a-Side and for about four weeks in a flat occupied by Mr. Douglas Glover. When these employees worked outside their usual hours they were paid by Mr. Glover. The materials used in the work of building wardrobes, preparing floors and constructing a small bar came from the operating company. The work was done when there was no work for carpenters in Mayor Street. Mr. Glover estimated that the total length of time for which the men worked in his houses was about 20 days. Mr. Grant had done work for Mr. Brierley in his house and Mr. Brierley said that he regarded this as being a legitimate perquisite of his office. I do not think it was and I have no doubt that what was done was misconduct by Mr. Glover. But was it serious misconduct? If the operating company had been a small private company in which nearly all the shares were owned by one person, I would not have regarded what happened as being serious misconduct because the difference between a small private company and a privately-owned business is one which is understood by few. But the operating company was wholly owned by a public company whose shares were quoted on the stock exchange and which employed about 600 people. After much consideration I have come to the conclusion that it was serious misconduct.
Other acts of misconduct were relied on. Work was done on a boat owned by Mr. Glover and no charge was made for this. Mr. Costello candidly admitted that this was not serious misconduct and I agree with his view. Some small items of furniture were made for Mr. Glover but this was not serious misconduct. He was paid sums ranging from £86 to £96 as Christmas boxes for five years, but he did not seek these and they were got for him by Mr. Brierley. It was also said that he had obtained payment of his commission when he knew that this was calculated on a wrong basis. He did not do the calculations and certificates for the amount of the commission were not obtained from the accountants. In my view, none of these matters was misconduct.
My view then is that Mr. Glover was guilty of serious neglect of duty and of serious misconduct which the directors could reasonably have considered as injuriously affecting the business, property and management of the operating company. However, it has been argued by counsel for Mr. Glover that, if this was the position, the termination of the contract before it expired was invalid because the rules of natural or constitutional justice were not observed: see the judgment of Mr. Justice Walsh in McDonald v. Bord na gCon. 14 In this connexion they relied on the speech of Lord Reid at p. 63 of the report of Ridgev. Baldwin. 15 The principle of natural justice invoked is that when a charge is made against someone and when a person or body of persons has to decide whether it is well founded or not, the person against whom it is made should have notice of the matters alleged against him and be given a fair opportunity of making his case to the person or body which has to decide it. I do not propose to review the many cases on this matter because Lord Reid has done this in Ridge v. Baldwin. 15 His survey shows that the courts have never stated a general rule which makes it possible to say when the principle applies: they have, as always, decided each case by holding that, in some circumstances the principle applies and that in others it does not. Some rules in this connexion are, however, well established. The first is that the principle is not limited in its application to judicial or semi-judicial tribunals but extends to an administrative body which is not administering justice: see the decision of the Supreme Court in Foley v. Irish Land Commission 16 and the speech of Lord Hodson in Ridge v. Baldwin. 15 The second rule is that it does not apply to the removal of the holder of an office which is held at the will or pleasure of another. The third rule is that it applies to the removal of a person who holds an office for a term of years when he is discharged before the term has expired. The fourth is that it does not apply to the dismissal of a person who is employed under a contract of service when it is terminated under a clause in it which authorises dismissal for misconduct or when the employee is discharged under the term implied in most contracts of employment that he may be summarily dismissed for misconduct; in this case there is no such implied term because it is excluded by clause 12. The fifth is that when someone is deprived of property rights by a decision of any tribunal or body of persons, the Courts, in the absence of a statutory provision excluding the necessity for giving him notice of the charges and an opportunity of making his case, hold that justice requires that he should be given a hearing before a decision is made: see Lord Reid’s speech in Ridge v. Baldwin. 17
But does the principle apply when a person holds the office of director and has a contract under which he is entitled to retain it for a fixed period? The defendants say that Mr. Glover was an employee of the companies and nothing more, and that he cannot rely on the principle. The characteristic features of an office are that it is created by Act of the National Parliament, charter, statutory regulation, articles of association of a company or of a body corporate formed under the authority of a statute, deed of trust, grant or by prescription; and that the holder of it may be removed if the instrument creating the office authorises this. However, the person who holds it may have a contract under which he may be entitled to retain it for a fixed period: see the decision of the Supreme Court in O’Brien v. Tipperary Board of Health 18 and in Carvill v.Irish Industrial Bank Ltd. 19 This is Mr. Glover’s position because he held the office of director of three of the companies at the date of his dismissal and had a contract under which he could retain them for five years. But the holder of an office does not hold it under a contract: he holds it under the terms of the instrument which created it and so, if he has not a contract, he cannot recover damages if he is removed. So justice requires that he should not be removed until the body with power to do this knows his answer to the case against him so that it can reach a correct decision. But as the holder of an office may have a contract, the presence or absence of it cannot be the feature which distinguishes an office from employment so far as the principle of natural justice is concerned. It follows, I think, that someone who has a contract of service may successfully invoke the principle of natural justice if his position under the contract resembles that of the holder of an office and the question in every case of this type is:””Should the person who has been dismissed be put into the category of the holder of an office or should he be regarded as an employee only?” These were the considerations which Lord Reid had in mind in Ridge v. Baldwin 20 when he said at p. 65 of the report:””The law regarding master and servant is not in doubt. There cannot be specific performance of a contract of service, and the master can terminate the contract with his servant at any time and for any reason or for none. But if he does so in a manner not warranted by the contract he must pay damages for breach of contract. So the question in a pure case of master and servant does not at all depend on whether the master has heard the servant in his own defence: it depends on whether the facts emerging at the trial prove breach of contract. But this kind of case can resemble dismissal from an office where the body employing the man is under some statutory or other restriction as to the kind of contract which it can make with its servants, or the grounds on which it can dismiss them.” It was not argued that Mr. Glover could be removed from his office only under the articles of association of the companies of which he was a director. It was assumed that the termination of the contract under clause 12 had the effect of removing him from these offices and I have not considered the issue whether his removal from the office of director was valid under the articles or the application to this clause of the decision in Southern Foundries (1926) Ltd. v. Shirlaw. 21
Clause 12(c) of the contract imposes restrictions on the companies as to the grounds upon which the holding company might terminate it. Mr. Glover could not be validly dismissed for serious neglect of duty or for serious misconduct: the directors had to be unanimous that the neglect or misconduct injuriously affected the reputation, business, property or management of any of the companies. Therefore, the directors of one company had to decide whether the misconduct or neglect affected the reputation, business or property of another company which did not have the same persons as its board of directors and which was obliged to give effect to the resolution of the board of the holding company. Mr. Glover’s position as a director and an employee of the operating company, of the sales company and of the factors company, seems to me to have resembled that of the holder of an office because his directorship of and his contract with these three companies could be terminated by the directors of another company. Then there is the feature that Mr. Glover’s pension rights, which included an accrued right to a fully paid-up policy, were enforceable against the operating company and not against the holding company. These were created before the contract was signed and were not affected by it. Clause 12(c) therefore gave the directors of the holding company the power to deprive Mr. Glover of his rights against another company. Lastly, Mr. Glover had the safeguard that the decision of the board was to be unanimous.
All these considerations lead me to the conclusion that Mr. Glover’s position should be regarded as that of the holder of an office and not that of an employee only, and that the principle of natural justice applies to a termination under clause 12(c).
But should I, having listened to speeches and evidence for 22 days and having heard Mr. Glover’s answer to the charges, substitute my conclusions for those which the directors might have reached if they had given him an opportunity to make his case? In Byrne v. Kinematograph Renters Society 22 one of the plaintiff’s complaints was that the rules of natural justice had not been observed because the tribunal refused to hear a witness whom he wished to call. Mr. Justice Harman (as he then was) said that he had heard the evidence and that it would not have affected the decision of the tribunal if it had been heard, and he refused to set the verdict aside. I have no doubt that Mr. Glover was guilty of serious neglect of duty and of serious misconduct and that these injuriously affected the business, property and management of the operating company, but I do not know what conclusions the directors would have reached if they had heard him and whether their decision would have been unanimous. They might have allowed him to retain his pension rights if he had offered to resign immediately. I cannot say that the resolution23 of the 5th July, 1966, would have been passed if they had heard him.
As Mr. Glover did not get notice of the charges against him and as the directors of the holding company did not give him an opportunity to make his defence, the termination of his contract by the resolution of the 5th July and the letter of the 8th July was invalid and he is entitled to damages against the defendants.
It was argued by Mr. Lardner that the termination was invalid because the charges were not stated in sufficient detail in the report24 to make it possible for the directors to conclude that serious misconduct or serious neglect had been established. In my opinion, so far as serious neglect was involved, the photographs of the fuse boards were sufficient to enable the directors to decide this matter. The report does not state the amount of the losses which Mr. Glover’s serious misconduct had caused to the operating company but the details given were sufficient to enable the directors to decide that it injuriously affected the property and management of the operating company.
Counsel have agreed that the assessment of damages would be dealt with after I had decided whether the defendants were liable to Mr. Glover.
On the 25th November, 1968, damages were assessed25 at £9,694. This sum, as to £4,701 thereof, represented the surrender value of a policy of assurance issued for the plaintiff under the second defendants’ retirement benefit scheme, for which the plaintiff had had to make no payment. The remaining £4,993 was in respect of the plaintiff’s loss of salary, director’s fees and commission, and of his loss of use of the car which had been made available to him under his contract of employment.
Mark Cooke v Patrick Walsh
1981 No. 1666P
High Court
11 January 1983
[1983] I.L.R.M. 429
(Hamilton J)
11 January 1983
Subject: Damages
K
HAMILTON J
delivered his judgments on 11 January 1983 saying: The infant plaintiff herein, Mark Cooke, suffered severe personal injuries when he was involved in an accident which happened on 13 September 1980 at St Peter’s Road, Walkinstown in the City of Dublin. At the time of the accident, the said infant plaintiff was just over nine years of age, having been born on 7 July, 1971, and was in the process of crossing St Peters’ Road, aforesaid when he was struck by a motor vehicle owned and driven by the defendant, Patrick Walsh.
*432
The evidence with regard to the circumstances of the accident, the nature of the injuries sustained by him and their appalling consequences, the cost of hospital maintenance and treatment, the necessity for care and treatment in the future and the cost thereof and the financial loss likely to be suffered in the future by the infant plaintiff was heard by me, sitting with a jury, on 30 November 1982 and the two subsequent days.
At the conclusion of the evidence, it was agreed between the parties that I should, without the benefit of the jury, determine all the issues between the parties.
On Monday, 6 December 1982, I delivered a judgment in which I determined a number of the said issues. I found that both the infant plaintiff and the defendant were guilty of negligence causing or contributing to the accident and apportioned degrees of fault as to 80% on the defendant and 20% on the infant plaintiff, for the reasons set forth in the course of the said judgment.
I assessed the cost of hospital maintenence and treatment from the date of the accident until 6 December 1982 as being £68,998.92 and the cost of future maintenance and treatment in the National Medical Rehabilitation Centre for the period of 12 months from that date as being £30,718.
I further assessed the cost of providing alterations to a bungalow to meet the infant plaintiff’s specific requirements as being £18,722.
I assessed damages for loss of expectation of life in the sum of £2,000, damages for pain and suffering to date in the sum of £28,000 and damages for pain and suffering in the future in the sum of £100,000.
I decided that the infant plaintiff would suffer financial loss by way of loss of wages which he would have expected to earn between his eighteenth birthday and his attainment of the age of 51 to be at the rate of £115 per week, at present day levels of earnings.
On the basis of, and for, the reasons set forth in the judgment delivered by me on 6 December 1982, I decided that the cost of providing the necessary care, attention and treatment in a home environment for the infant plaintiff would be at the rate of £325 per week, at present day levels of cost, and that such care, attention and treatment would be necessary from the anticipated date of his discharge from the National Medical Rehabilitation Centre until he reached the age of 51.
For the purpose of assisting the jury, and, in the events which have happened, of assisting me in determining the sum of money which if invested will enable the infant plaintiff by recourse to interest and capital to replace his financial loss and to provide for the cost of the care, attention and treatment which he will undoubtedly require for the rest of his life based on a life expectancy of 40 years, actuarial evidence was adduced on behalf of the plaintiff.
The assistance of such evidence is welcomed by the Irish courts in determining the present value of future financial loss of earnings and cost of future care. As stated by Walsh J in the course of his judgment in Daniel Long v O’Brien and Cronin Ltd Supreme Court 1970 No. 107, 24 March 1972:
In at least one dozen cases this court has indicated that the evidence of an actuary *433 is not only desirable but necessary to enable a jury to arrive at anything like a reasonably accurate figure under this heading.
The heading to which he was referring was the loss of future earnings but his remarks are of equal relevance to the cost of future care.
It must, however, be emphasised as stated by Walsh J in the course of his judgment in Swords v St Patrick’s Copper Mines [1965] Ir Jur Rep. 63:
That the actuary is not the judge of the case and that his real value is to act as a guide on the mathematical calculations which must be made to arrive at a figure. It is, therefore quite open to a jury to give a figure differing from his, whether it be higher or lower, if the evidence or the inferences to be drawn from the evidence warrant that course.
In the case of McMorrow v Knott Supreme Court 1959 No. 44 21 December 1959, O’Dalaigh CJ stated:
Acturial evidence can furnish guidance to a jury in its deliberations but it must, as a basis for ascertaining loss, be acted upon with caution. Such evidence has to be re-orientated by reference to the special problems raised by the evidence in the case and other countervailing circumstances, such as the ups and downs of life in health and business have to be allowed for.
The reason why actuarial evidence, helpful and desirable as it is, must be approached with caution in any particular case is that such evidence is based on calculations based on averages, and in the words of Diplock LJ, ‘do not allow for all the chances and changes of this mortal life’, (Fletcher v Auto and Transporters Ltd [1968] 2QB 322 at 346), whereas the assessment of damages in any particular case must be based on the facts of the individual case and must allow in the light of those facts for a wide range of further contingencies which might have affected the amount and duration of the loss to be valued. Figures which do not take into account all of these factors must therefore, of necessity, be approached with caution and are capable of adjustment upwards or downwards depending on the evidence in any particular case.
In the course of delivering the advice of the Privy Council to Her Majesty in an Australian case Paul and Another v Randall, (1981) 57 ALJR 371 Diplock LJ stated:
the assessment of damages in actions for personal injuries is not a science. A judgment as to what constitutes proper compensation in money terms for pain, suffering or deprivation of amenities of life, can only be intuitive, and the assessment of future economic loss involves a double exercise in the art of prophesying not only what the future holds for the injured plaintiff but also what the future would have held for him if he had not been injured. What matters to the parties, however, to the plaintiff and the insurer of the defendant alike, is the total sum awarded. Neither party is concerned how the assessor of the compensation has rationlaised his intuitive assessment of the total amount that the plaintiff ought to recover by apportioning it between the various components, past and future, economic and non-economic loss, and interest on each class of loss which he has taken into consideration, before arriving at his final answer.
So long as juries continued to be the assessors of damages they were not called upon *434 to rationalise their hunches: but judges are, and this has given rise to a considerable body of case law in the various State Supreme Courts and in the High Court of Australia about the principles to be applied where the use of particular mathematical formulae form steps in the process by which the judge has sought to justify his choice of a particular figure for one of the components into which he has broken down his total award. This is particularly so with these components that represent future economic loss and interest or loss sustained before the date of judgment. But while it is possible to lay down principles for the choice of the formula and its parameters (in its accurate sense of constants in a mathematical equation) the choice of figures for the variables is within the discretion of the assessing judge. By adjusting one or other of these factors he can make the formula work out at whatever figure he feels intuitively to be correct. Where as in the present case the plaintiff’s disability is permanent it is, their Lordships are informed, the common practice in Australia to use actuarial tables for calculating the present capital value of future annual economic loss resulting from the reduction in the plaintiff’s annual earnings which the judge considers he will suffer for the remainder of his working life. From this figure as a starting point the judge makes such adjustment as he thinks appropriate. Some adjustment downward would be needed to take account of all these contingencies such as unemployment, ill-health or any other disability short of premature death, for which allowance is not made in the actuarial tables but which might have deprived the plaintiff of his earning power or reduced it below the figure adopted for the purpose of the actuarial calculation. Some adjustment upwards might be needed to allow for any prospect that the plaintiff might have had of being promoted to a more highly paid post if he had not sustained the injury for which the damages are being awarded.
The practice in the Australian courts, as outlined in this passage, seems to me to be in accord with the views expressed by Walsh J in Swords v St Patrick’s Copper Mines and the late O’Dalaigh CJ in McMorrow v Knott in the passages from their respective judgments already quoted and the views expressed by Conor Maguire CJ in McMorrow v Knott when he stated that:
The jury should have been instructed that while it was open to them to consider these figures they should realise that the figure of expectation of life was an artificial one based on statistics and that they were not bound to accept the figure as unalterable in an individual case. They were, of course, entitled to consider the plaintiff’s physical condition at the time of the accident but must take into account the ordinary recognised hazards of life to which he would be subject.
Moreover, they were bound to consider the obvious risks in connection with his practice as a solicitor. It might expand as was suggested but as with any calling depending upon individual effort it might diminish.
Though as a general rule, actuarial evidence, as a basis for ascertaining loss, must be acted upon with caution, it can, in the circumstances of this particular case, be accepted with a degree of confidence. It is relevant to two questions and two questions only, viz.
(a) the assessment of damages in respect of the costs of future care and treatment and
(b) the assessment of damages in respect of future loss of earnings.
With regard to (a) I am satisfied that the infant plaintiff’s expectations of life is forty years, and that the cost of such care for a period of 39 years is at the rate of £325 per week. There are no imponderables to which regard need to be *435 had in determining the capital sum necessary to provide such care for such period and this can be determined by a single mathematical calculation made by the actuary. The only conceivable imponderable is that he could die within that forty years, but this can be treated as cancelled by the fact that he could live beyond the forty years.
With regard to (b), viz. loss of future earnings, there are of course many imponderables. It is impossible to know what this infant plaintiff’s future workwise would have been if he had not suffered the injuries which he did in the accident. In assessing damages which depend on its view as to what will happen in the future or would have happened in the future if something had not happened in the past, a court must make an estimate based on the evidence as to what are the chances that a particular thing will or would have happened and reflect these chances, whether they are more or less than even, in the amount of damages which it awards.
The infant plaintiff comes from a working class background and the probabilities are that in the future he would have worked as a semi-skilled or skilled workman though with the advantages of free second-level education there is no certainty that he would have been so limited.
The evidence of Professor Quinn established that the present wages of an unskilled labourer is £103 per week, of a semi-skilled workman £115 per week and of a skilled workman £150 per week.
I have already decided that as a matter of probability that the infant plaintiff would have secured employment in the semi-skilled area at a present day wage of £115 per week.
The imponderables or future contingencies which could arise in such an employment include inability to obtain employment or inability to work due to ill-health which could reduce the capital sum necessary to compensate for such loss, but I consider these risks are cancelled by the fact that he may have qualified to secure employment as a skilled workman or that he may have progressed from being a semi-skilled workman to become a skilled workman or advanced himself in some other way.
I am satisfied that the infant plaintiff will suffer financial loss at the rate of £115 per week at present levels from the age of 18 until age of 51, and that the capital sum necessary to compensate for such financial loss can be determined by a simple mathematical calculation made by the actuary.
I have disregarded the financial loss likely to be suffered by the infant plaintiff between the age of 51 and the termination of his ordinary working life as I am of opinion that there would be no real loss to his estate.
The actuary called on behalf of the infant plaintiff, Mr. Segrave-Daly, gave evidence with regard to the value of the loss of £1 per week for a boy of the infant plaintiff’s age beginning one year from now up to the age of 51 years, and furnished four sets of figures based on four different rates of interest. These figures were as follows:
2%
3%
4%
5%
£1358
£1138
£1069
£837
He also gave evidence with regard to the value of the loss of £1 per week for *436 a boy of the infant plaintiff’s age beginning on his eighteenth birthday and expiring on reaching the age of 51 years, and furnished four sets of figures based on four different rates of interest. These figures were as follows:
2%
3%
4%
5%
£1073
£866
£708
£587
A dispute arose between the parties as to which figure should be regarded as the value of each £1 per week loss suffered by the infant plaintiff, counsel on behalf of the infant plaintiff submitted that the appropriate figure was that based on an interest rate of between 2% and 3%, and counsel on behalf of the defendant submitted that the appropriate figure was that based on an interest rate of 5%.
As I was not satisfied that I had at that stage sufficient evidence to enable me to decide such a crucial and important issue I adjourned the matter until 15 December 1982 to enable the parties to adduce further evidence on this as part of the case, which they did on that and the following day.
Before proceeding to deal with such evidence, there are a number of principles relative to actuarial evidence to which I should refer. The law accepts as relevant to the assessment of damages a concept of value such that the capital sum awarded should represent the present value as at the date of trial of the loss of income or of the future expenditure as a result of the tort.
This capital sum is frequently described as that sum of money which if invested will enable the plaintiff by recourse to interest and capital to replace his loss over his lifetime or working lifetime and is exhausted at the end of the period.
The rate of interest selected for valuation should have regard to the notional investment of the damages award by the plaintiff, and must therefore depend inter alia on the general investment climate at the date of the hearing.
The decision as to the rate of interest selected for valuation will hinge on the assumption made as to the mode of investment and generally the test should be the yield obtainable from safe easily realisable investment at the time of receipt of the judgment damages. In determining the rate of interest to be selected for valuation, allowance must be made for devaluation in the value of money.
In the course of his judgment in Donnelly v Browne Supreme Court 1969 No. 153 May 15 1972 the late Cearbhall O Dalaigh CJ stated:
An actuary gave evidence that the value of loss of £100 for a man of the plaintiff’s age up to the age of 65 and 70 years respectively, and he furnished two sets of figures, one based on a 5% interest rate which allows for devaluation in the value of money at the rate of 3% per annum, and the other based on an 8% interest rate, which provides compensation on the basis of value of money … The trial judge represented the actuary’s evidence to the jury and then pointed out to them that where there is present payment of compensation then by investment in a business, land or a house a plaintiff may be able to safeguard himself against the drop in the value of money in the future, but he did not direct them that the figures of the 8% table were those which they must apply … As to the choice between the 5% and 8% tables it should be noted that this court has on a number of occasions — and most recently in Long v O’Brien and Anor — stated that the accepted annual allowance to cover the now well established pattern of inflation is 3%, and therefore acted on the 5% tables. The trial judge, in my view, went too far in the defendant’s favour in allowing them a *437 choice between the 8% and 5% tables. His observation that by wise investment one can safeguard against future inflation by investment in business, land or house property seems to me to fail to advert to the fact that the actuarial calculation is made on the basis that the capital sum is consumed over the period of years for which the calculation is made until, at the end, nothing remains.
This judgment is clear authority for the statement made by me immediately prior to its citation that in determinang the rate of interest to be selected for valuation, allowance must be made for devaluation in the value of money.
In addition to the foregoing principles, which in my opinion are of general application, it will be necessary in this present case, having regard to the fact that the plaintiff is an infant and will undoubtedly be taken into wardship, to take account, in selecting the rate of interest appropriate for valuation, of the fact that the plaintiff will not have control of the mode of investment of his damages award. The mode of investment will be determined by the High Court in accordance with its statutory obligations.
At the resumed hearing I had the benefit of the evidence of the following witnesses on behalf of the plaintiff:
Professor Gerard Quinn of University College Dublin; Mr Gerard McEvoy, an accountant and member of the firm of Stokes Kennedy and Crowley; Mr Richard Davies, Stockbroker; Mr Patrick Ryan, Investment Manager, Allied Irish Investment Bank; Mr Segrave-Daly, actuary.
And on behalf of the defendant:
Mr Frank Fagan of F. Fagan & Associates; Mr Paul Montgomery, Investment Director, Investment Bank of Ireland; Mr Peter Delaney, actuary.
It is unnecessary to review in any detail the evidence given by these witnesses because there is no dispute of any significance with regard to real interest returning in the past or indeed at present. There is undoubtedly a dispute with regard to the future and in so far as the future is concerned, in so far as it is relevant, I accept the evidence of the witnesses called on behalf of the plaintiff. I do not accept the evidence of Mr Fagan and Mr Montgomery as being relevant to conditions prevailing in this country because it is based on trends in other countries and on their belief that the trend of diminishing return to capital and investors must be reversed if the economic community is to survive.
The evidence of the witnesses called on behalf of the plaintiff clearly established that for the period 1970–1982 the average rate of inflation was 14.5% per annum; that the average annual return on investment in equities was less than that figure; that when the dividends were re-invested an average annual return of 15.26% was obtained giving a real return of 0.75%; that investment in Government securities over this period gave a substantial negative return and during the period 1972 to 1982 gave a negative return of 3.5% even when rolled-over; and that investment in property modules and mortgaged funds with the New Ireland did not in any case show a real return in excess of 2% per annum and in some cases showed a negative return.
Consequently, it appears to me that certainly for the immediate past there has been no realistic basis for the selection of an interest rate of 5%, and the question for determination by me is the rate of interest appropriate to this case having *438 regard to the permitted mode of investment, the rates of interest available at this time and the current rate of inflation.
As already stated, it is obvious in this case that the damages awarded to the infant plaintiff in this case will be under the control or subject to the order of the court.
S. 3(1) of the Trustee (Authorised Investments) Act, 1958 provides that:
Money under the control or subject to the order of any court may be invested in —
(a) any of the investments specified in s. 1 of the Trustee Act 1893, as amended by s. 1 of this Act or,
(b) where those investments have been varied by order under s. 2 of this Act, any of these investments as so varied, and shall not be invested in any other manner.
(Italics supplied)
The investments specified in s. 1 of the said Trustee (Authorised Investments) Act, 1958 were added to by the Minister for Finance acting, in exercise of powers conferred on him by s. 2(1) of the said Act, in two statutory instruments, the Trustee (Authorised Investment) Order 1977 (SI No. 41 of 1977) and the Trustee (Authorised Investments) (No. 2) Order 1977 (SI No. 41 of 1977) and dated respectively 14 February 1977 and 16 November 1977. So far as I have been able to ascertain there have been no other investments added to the list of authorised investments set forth in s. 1 of the Trustee (Authorised Investments) Act, 1958, and these are the only investments in which the damages awarded to the infant plaintiff may be invested.
Having regard to the range of investments open to the court I have in addition to considering the evidence of the witnesses already referred to, considered the Dublin Stock Market Yields as published in the Irish Independent on Tuesday, 4 January 1983 in respect of short-dated, medium-dated and long-dated Government Funds, Corporation stocks, E.S.B. stocks, Allied Irish Banks stocks and Bank of Ireland stocks, as being reasonably representative of the investment open to the court.
Upon such consideration, I find that the average gross interest yield on short-dated Government stock to be 12.95%, on medium-dated Government stock to be 11.978% and on long-dated Government stock to be 13.895%.
The average gross interest yield in Corporation stock was .39%, and the highest yield from such stock was 13.68%.
The average gross interest yield from E.S.B. stock was 11.066% and the highest yield was 13.79%.
The net gross yield from Allied Irish Banks stock was 10.7%, and from the Bank of Ireland 10.5%.
On checking yesterday, 10 January 1983 I found that the average gross yield from short-dated Government stock to be 12.69%, and that the 16% Finance 1987 stock is quoted at £106.10 and is yielding 15%.
I am aware that the Accountant places considerable amounts of monies in interest bearing deposit accounts with the Bank of Ireland and the Agricultural Credit Corporation Ltd, and receives in respect thereof the prime rate of interest. I have ascertained from him that the present rate of interest payable on such deposits is at the present time 12.25%.
All of these yields are subject of course to tax.
Because of this I, in common with other judges, have from time to time in the recent past where infants have been awarded large sums of money which are not immediately required directed the investment of such sums with either the Investment Bank of Ireland Ltd or the Allied Irish Investment Bank Ltd directing them to invest same in short-dated securities, the resultant holdings to be disposed of immediately prior to a dividend payment, so that no income is reached, the proceeds of sale to be re-invested in the same or similar short term Irish Government securities and the capital profits to be invested as they arise.
In this way liability for income tax does not arise and under existing legislation there is no liability for Capital Gains Tax and the funds are carefully managed throughout the year.
The anticipated yield from such mode of investment in 15% Exchequer Bonds is 13.5% p.a. with no liability for income tax.
All these figures confirm the evidence adduced on behalf of the plaintiff, and in particular the evidence of Professor Quinn when he stated that: ‘I cannot see any foundation for a 5% figure. Two to three comes out as the typical one and a figure closer to two than three’.
This evidence related to the real interest rate for all the other European Economic Community countries over the past ten years, but he pointed out that the real interest rates in this country had been negative over the past ten years.
I have, however, to determine the rate of interest for valuation purposes as of the date of trial. The rate of financial loss and the cost of care has been determined as of such date, so also must the rate of real interest.
On the basis that 15% Exchequer Bonds are available and on the basis of a current rate of inflation of 12.5%, I am satisfied that the real interest available to the infant plaintiff at the present time is 2.5%. In so deciding, I am giving the benefit of any doubt that I may have as to the rate of inflation to the defendant.
Consequently, I am satisfied that the relevant calculation should be based on a real interest yield of 2.5%.
CONSTITUTIONAL ISSUE
In an amended Defence delivered on behalf of the defendant, the defendant pleaded that:
(a) The plaintiff is a person with full eligibility for all the services to which an eligible person is entitled free of charges on payment under the provision of the Health Acts, particularly the Health Act 1970.
(b) The plaintiff has been charged with such services on the grounds that he is alleged to be rendered ineligible for free services by virtue of the provisions of the Health Services Regulations 1971 and more particularly Regulation 6(3) thereof.
(c) In excluding or purporting to exclude from the benefit of such free services victims of Road Traffic accidents (including the plaintiff if his allegations are correct) the Minister acted ultra vires his powers and the said Regulation 6(3) of the Health Services Regulation 1971 is unconstitutional and, contrary to the provisions of the Constitution of Ireland 1937, particularly Article 40.1 thereof, *440 is discriminatory, is contrary to natural justice and is contrary to natural rights, and as a result thereof is null, void and of no effect.
The Attorney General was served with Notice of this plea made on behalf of the Defendant.
With the consent of the parties I direct that the following issues be tried:
1. Is s.72 sub-s. (1) and sub-s. (2) of the Health Act, 1970 invalid having regard to the provisions of the Constitution?
2. If the said s. 70(1) and (2) is not invalid having regard to the provisions of the Constitution, is Article 6(3) invalid having regard to the provisions of the Constitution?
3. If neither the said sections 72(1) and (2) nor the said Article 6(3) is invalid having regard to the provisions of the Constitution, was the Minister for Health acting ultra vires in making the said Article 6(3)?
4. Has the defendant the necessary locus standi to raise the constitutional issue raised in the first and second issues?
And that the defendant, Patrick Walsh, be the plaintiff in the trial of the issue, and the Attorney General and the infant plaintiff be the defendants in the trial of the issue.
It is of assistance at this stage to set forth the defendant’s replies to the notice of particulars delivered on behalf of the Attorney General dated 20 September 1982 because they set forth concisely the grounds upon which he alleges that the said section of the Health Act, 1970 and the Regulation 6(3) of the Health Services Regulations 1971 (SI No. 105 of 1971) were invalid having regard to the provisions of the Constitution.
In his said reply, the defendant stated that:
s. 72(2) was invalid having regard to the provisions of the Constitution and in particular:
(a) Article 15.2 thereof in that it purports to delegate a law making power to the Minister for Health
(b) Article 40.1 thereof, in that:
(i) Whilst the said Health Act, 1970 provides that health services are to be made free of charge to persons having eligibility, the said s. 72(2) enables the Minister to exclude, from the beneficial operation of the said Act, certain classes of persons having eligibility for the said services. (ii) The Minister in the exercise of the powers purported to be given to him by the said Act and in particular by s. 72(2) thereof can and has discriminated unfairly against some citizens and in particular the plaintiff herein. (iii) The said s. 72(2) fails to hold the citizens equal before the law in that it fails to have regard to differences of capacity, physical and moral, and of social function in the citizens, and purports to enable the Minister to exclude citizens from the aforesaid benefits of the Act without having regard to the said matters or any of them. (iv) The said s. 72(2) fails to hold the citizens equal before the law. (v) The said s. 72(2) fails to have due regard to the differences of capacity of the citizens and in particular the differences of physical capacity. (vi) The Minister in the exercise of powers purported to be given to him by the said s. 72(2) can discriminate unfairly against some citizens in that the said Act lays down no standard in the light of which such service or services are to be made available to such class or classes of citizens. (vii) The Minister in regulating which service or services is or are to be made available to which class or classes of persons having eligibility therefor may and has, while exercising such powers purported to be given to him by the Act, unjustly favoured some citizens and victimised others.
*441
(c) Article 40.3.1. in that:
(i) It purports to allow the said Minister to withhold or to remove by regulation a personal right from citizens or classes of citizens. (ii) It purports to allow the said Minister to withhold or exclude by regulation a personal right without regard to the said Minister’s duty to defend and vindicate the personal rights of citizens.
(d) Article 40.3.2. in that:
(i) It constitutes a failure to vindicate the life, person and property rights of every citizen. (ii) It constitutes a failure to protect and vindicate the contractual rights of such citizen as may be ‘eligible persons’ within the meaning of the said Section.
The reply further stated that:
Article 6(3) of the Health Services Regulations 1970 is invalid having regard to the provisions of the Constitution and in particular
(a) Article 15.2 thereof in that: the said Minister has usurped a law making power solely vested in the Oireachtas.
(b) Article 40.1 in that: (i) it unfairly discriminated between citizens injured in road traffic accidents and all other citizens. (ii) It purports to exclude citizens requiring treatment for injuries received in road traffic accidents without regard to differences in such citizens of capacity, physical and moral.
(c) Article 40.3.1 in that: (i) It purports to remove a personal right from certain citizens or alternatively a certain class of citizen. (ii) It constitutes a failure to defend and vindicate a personal right of citizen or alternatively certain classes of citizens.
(d) Article 40.3.2 in that: (i) It constitutes a failure to vindicate the life, person and property rights of every citizen and in particular the said persons and property rights of these persons requiring treatment of injuries received in road traffic accidents. (ii) It constitutes an unjust attack upon and failure to defend and vindicate the lives persons and property rights of all citizens.
The reply further stated that:
1. The said Minister acted ultra vires his power in that:
(i) He had no power under the said Health Services Acts to exclude any persons, being entitled (persons) from the benefit of the said Acts. (ii) He was not entitled to delegate the power in excluding from the benefit of the said Acts (if such power he had – which the defendant denies) to the relevant Chief Executive of the Health Board. (iii) He discriminated in an unfair, invidious and arbitrary fashion against citizens, being entitled persons contrary to Art 40.1 of the Constitution. (iv) He failed to respect or defend the personal rights of citizens being entitled persons contrary to Art. 30.3.1 of the Constitution. (v) He unjustly attacked and failed to vindicate the lives, persons and property rights of citizens being entitled persons contrary to Art. 40.3.2 of the Constitution.
The fourth issue dealt with the question whether the defendant, Patrick Walsh, had any locus standi to raise the aforesaid issues and to claim declarations in respect thereof.
As the defendant in this case is materially affected by the provisions, which are under attack, in that he is liable to compensate the infant plaintiff for the loss sustained by him, I am satisfied that he has the right to maintain these proceedings. That right is not affected in any way by the fact that he is indemnified against such loss.
S. 51 of the Health Act, 1970 provides that:
In this part ‘in-patient’ services means institutional services provided for persons *442 while maintained in a hospital, convalescent home or home for persons suffering from physical or mental disability or in accommodation ancillary thereto.
S. 52 (1) provides that:
A health board shall make available in-patient services for persons with full eligibility and persons with limited liability.
S. 53(1) provides that:
Save as provided for under sub.s (2), charges shall not be made for in-patient services made available under s. 52.
S 53(2) provides that:
The Minister may, with the consent of the Minister for Finance, make regulations: (a) providing for the imposition of charges for in-patient services in specified circumstances on persons who are not persons with full eligibility or on specified classes of such persons, and (b) specifying the amounts of the charges or the limits to the amounts of the charges to be so made.
It is clear from a consideration of the provisions of s. 53(2) that the Minister is not thereby empowered to make regulations providing for the imposition of charges for in-patient services on persons who are persons with full eligibility.
The power thereby conferred is to make regulations for the imposition of charges on persons who are not persons with full eligibility or on specified classes of such persons viz. persons who are not persons with full eligibility.
S. 56(2) provides that:
A health board shall make available out-patient services without charge for persons with full eligibility and for persons with limited liability.
Such ‘out-patient services’ are defined in s. 56(1) of the Act, which provides that:
For the purposes of this section ‘out-patient services’ means institutional services other than in-patient services provided at, or by persons attached to, a hospital or home and institutional services provided at a laboratory, clinic, health centre or similar premises.
By virtue of the terms of s. 52(1) and s. 56(1) of the Health Act, 1970, a health board is under a statutory obligation to provide ‘in-patient services and ‘out-patient’ services for persons with full eligibility and persons with limited liability.
With regard to ‘in-patient’ services there is contained in s. 53(1) a statutory prohibition against making charges for such services save as provided in s. 53(2) and in respect of ‘out-patient’ services the obligation implied by s. 56(2), is to make such services available without charge.
S. 72 of the Health Act, 1970 however provided that:
(1) The Minister may make regulations applicable to all health boards or to one or more than one health board regarding the manner in which and the extent to which *443 the board or boards shall make available services under this Act and generally in relation to the administration of those services.
(2) Regulations under this section may provide for any service under this Act being made available only to a particular class of the persons who have eligibility for that service .
(Italics supplied)
S. 45 of the Health Act, 1970 defines the categories of persons having full eligibility and provides that:
(1) A person in either of the following categories shall have full eligibility for the services under this part: (a) adult persons unable without undue hardship to arrange general practitioner medical and surgical services for themselves and their dependants (b) dependants of the persons referred in paragraph (a)
S. 45 further provides that:
(3) The Minister, may, with the consent of the Minister for Finance, by regulations specify a class or classes of persons who shall be deemed to be within the categories mentioned in sub.s. (1) (of s. 45)
(4) A draft of regulations which it is proposed to make under this Section shall be laid before each House of the Oireachtas and the regulations shall not be made until a resolution approving of the draft has been passed by each House.
S. 46 of the Health Act, 1970 defines the categories of persons having limited eligibility for the services provided by the Act, and provides that:
(1) A person in any of the following categories who is without full eligibility shall have limited liability for the services under this part
(a) persons insured under the Social Welfare Act 1952;
(b) adult persons whose yearly means are less than £1200;
(c) adult persons whose yearly means are, in the opinion of the Chief Executive Officer of the appropriate health board, derived wholly or mainly from farming, if the rateable valuation of the farm or farms concerned (including the holdings thereon) is not more than £60;
(d) dependants of persons referred to in par. (a) (b) & (c).
(3) The Minister may, with the consent of the Minister for Finance, by regulations substitute for ss(1) and (2) other provisions in defining such manner as he thinks fit categories or persons with limited liability.
S.4 provides that:
A draft of regulations which it is proposed to make under sub-s. (3) shall be laid before each House of the Oireachtas, and the regulations shall not be made until a resolution approving of the draft has been passed by each House.
I have set forth the relevant portions of ss. 45 and 46 of the Act, dealing with the categories of persons having full eligibility and limited eligibility because it is clear from a consideration of such sections that while, in the case of full eligibility, the Minister was empowered, with the consent of the Minister for Finance, to make regulations specifying a class or classes of persons to be deemed as being within the categories mentioned in sub. s. (1) of s. 45 it gave him no power to limit that category, and in the case of limited eligibility, the Minister was empowered, with the consent of the Minister for Finance, by regulations to substitute for s. 46 (1) and (2) other provisions defining in such manner as he thinks fit *444 categories of persons with limited eligibility. In either case however a resolution approving of a draft of any such regulations had to be passed by each house of the Oireachtas and no such regulation could be made until such resolutions had been passed.
No such resolution appears to have been required in respect of regulations made pursuant to the provisions of s. 72(1) and (2) of the Act.
Article 6 (2) of the Health Services Regulations (SI No. 105 of 1971) made by the Minister for Health with the consent of the Minister for Finance provided that:
Subject to sub article (3) the following persons shall be the persons for whom services shall be made available under s. 52(1), 56(2), 62(1), or 63(1) of the Act:
(a) persons with full eligibility;
(b) any person insured under the Act of 1952, in respect of whom in the relevant period an employment contribution is paid, payable or credited in accordance with the provisions of the Act of 1952 or the regulations made thereunder;
(c) any person who is, on the relevant date, a voluntary contributor in respect of whom not less than twenty-four voluntary contributions have been paid for the contribution year before the relevant date or not less than seventy two voluntary contributions have been paid for the three contribution years before the relevant date;
(d) any persons mentioned in s. 46(1)(b) or (c) of the Act;
(e) dependants of the persons mentioned in paragraphs (b) to (d).
The Health Services (Limited Eligibility) Regulations 1979 (SI 110 of 1979) substituted for the provisions of s. 46(1) and (2) of the Health Act, 1970, the following subsection:
A person who is without full eligibility shall have limited eligibility for services under this part.
Sub. article (3) provides that:
The class of persons entitled to avail themselves of services under s. 52 or s. 56(2) of the Act shall not include persons who require treatment for injuries in a road traffic accident except where it is established to the satisfaction of the Chief Executive Officer of the health board that the applicant for such services has not received or is not entitled to receive damages, or compensation in the nature of damages, from another person in respect of the injuries.
It is admitted by all parties to these proceedings that were it not for the provisions of this sub-article that the infant plaintiff would have been entitled free of charge to the services provided pursuant to the provisions of s. 52 and 56(2) of the Health Act, 1970, he being a person of full eligibility as defined in s. 45 (1) of the Health Act, 1970.
This regulation was made by the Minister in purported exercise of the powers conferred on him by s. 72 and in particular sub-s. 2 thereof, and it is submitted on behalf of the defendant that (i) S. 72 is invalid having regard to the provisions of the Constitution; (ii) Article 6 sub-article 3 of the Health Services Regulations 1971 is invalid having regard to the provisions of the Constitution; and (iii) The Minister for Health acted ultra vires in making the said article.
*445
The effect of this particular regulation is to deprive a person, otherwise eligible, who requires treatment for injuries received in a road traffic accident of services under s. 52 and s. 56(2) of the Health Act, 1970 except where it is established to the satisfaction of the Chief Executive Officer of the health board that he has not received or not entitled to receive damages or compensation in the nature of damages, from another person in respect of the injuries.
The power conferred on the Minister by s. 72(1) of the Health Act, 1970 is to make regulations which may provide for any service under the Act being made available only to a particular class of the persons who have eligibility for that service.
Since the making of the Health Services (Limited Eligibility) Regulation 1979 (S.I. 110 of 1979), all persons have either full eligibility or limited eligibility for the services provided pursuant to the provisions of s. 52 and 56(2) of the Health Act, 1970 with the exception of persons requiring treatment for injuries in a road traffic accident, and who have not established to the satisfaction of the Chief Executive Officer of the relevant health board that they have not received or are not entitled to receive damages or compensation in the nature of damages from another person in respect of the injuries.
This latter class was deprived of entitlement to such services by the provisions of Article 6(3) of the Health Services Regulation 1971 and the first question I have to consider is whether the Minister for Health acted ultra vires in making the said sub-article. This question must however be considered in conjunction with the question as to whether or not the provisions of the sub-article are invalid having regard to the provisions of the Constitution because no Minister has, or could be given, power to make regulations which are invalid having regard to such provisions.
The regulations, which contain the sub-article impugned, was made by the Minister for Health in pursuance of the powers given to him by section 72 of the Act, and it is submitted on behalf of the defendant that this section is unconstitutional on the grounds that (i) its terms are contrary to the provisions of Article 15.2 of Bunreacht na h-Eireann and (ii) it enables the Minister for Health to make regulations which would contravene the terms of Article 40 of Bunreacht na h-Eireann.
The power given by the section to the Minister for Health is to make regulations applicable to all or one or more than one of the health boards regarding the manner in which and the extent to which the board or boards shall make available services under the Act and generally in relation to the administration of these services, and in particular, to provide that any services under the Act be made available only to a particular class of the persons who have eligibility for that service.
Article 15.1 of the Constitution provides that:
The sole and exclusive power of making laws for the State is hereby vested in the Oireachtas: no other legislative authority has power to make laws for the State.
In the course of delivering the judgment of the Supreme Court in City View Press v An Chomhairle Oiliuna [1980] IR 381 O’Higgins CJ stated that: *446
The giving of powers to a designated Minister or subordinate body to make regulations or orders under a particular statute has been a feature of legislation for many years. The practice has obvious attractions in view of the complex, intricate and ever-changing situations which confront both the legislature and the executive in a modern State. Sometimes, as in this instance, the legislature, conscious of the danger of giving too much power to the regulation or order-making process, provides that any regulation or order which is made should be subject to annulment by either House of Parliament. This retains a measure of control, if not in Parliament as such, at least in the two Houses. Therefore, it is a safeguard. Nevertheless, the ultimate responsibility rests with the courts to ensure that constitutional safeguards remain, and that the exclusive authority of the National Parliament in the field of law-making is not eroded by a delegation of power which is neither contemplated or permitted by the Constitution. In discharging that responsibility, the courts will have regard to where and by what authority the law in question purports to have been made. In the view of this court, the test is whether that which is challenged as an authorised delegation of parliamentary power is more than a mere giving effect to principles and policies which are contained in the statute itself. If it be, then it is not authorised: for such would constitute a purported exercise of legislative power by an authority which is not permitted to do so under the Constitution. On the other hand, if it be within the permitted limits, if the law is laid down in the statute and details only are filled in or completed by the designated Minister or subordinate body — there is no unauthorised delegation of legislative power. (at 388).
It is submitted on behalf of the defendant that the powers given to the Minister for Health by s. 72(1) of the Act go beyond what may be delegated properly by the National Parliament, and are more than the powers necessary to give effect to the principles and the policies which are contained in the statute itself.
As the Health Act 1970, was enacted after the coming into force of the Constitution, the presumption of constitutionality operates in its favour.
As was stated in McDonald v Bord na gCon [1965] IR 217:
One practical effect of this presumption is that if in respect of any provision or provisions of the Act two or more constructions are reasonably open, one of which is constitutional and the other or others are unconstitutional, it must be presumed that the Oireachtas intended only the constitutional construction, and a court called upon to adjudicate upon the constitutionality of the statutory provision should uphold the constitutional construction. It is only when there is no construction reasonably open which is not repugnant to the Constitution that the provision should be held to be repugnant.
It must therefore be presumed that in relation to the provisions of s. 72(1) that the Oireachtas intended only a constitutional construction thereof, and that the powers conferred on the Minister were merely for the purpose of giving effect to principles and policies which are contained in the Act itself.
It is clear from the provisions of the Act already quoted that one of the purposes of the Act was to make available in-patient services and out-patient services as therein defined to persons with full eligibility and to persons with limited eligibility and to make it mandatory for health boards to make such services available.
The Act itself does not contain any provision with regard to the manner in which such services should be provided or any definition or description of ‘institutional services’ which words are, used in the definitions of ‘in-patient *447 services’ and ‘out-patient services’. These change from time to time and are matters which could reasonably be left by the Oireachtas to the Minister without any abrogation of its legislative authority.
It is a reasonable interpretation of s. 72(1) that the power given to the Minister to make regulations regarding the manner in which and the extent to which the the board or boards shall make available services under the Act related to matters such as this, and that these regulations are merely for the purpose of giving effect to the policies contained in the Act.
That being so, the provisions of s. 72(1) are not invalid having regard to the provisions of the Constitution.
S. 72(2) of the Act provides that regulations may be made for any service under this Act being made available to a particular class of the persons who have eligibility for that service. This section must be read in conjunction with ss. 52(1) and 56(2) of the Act.
The combined effect of these three subsections is that a health board is obliged to make available to persons with full eligibility and to persons with limited eligibility in-patient and out-patient services but the legislature granted to the Minister for Health the power to exclude from the benefit of such services a particular class of the persons having eligibility for these services.
It is submitted on behalf of the defendant that the granting of such power to the Minister was an abrogation by the legislature of its legislative power and was contrary to the provisions of Article 15.1 of the Constitution and was contrary to the provisions of Article 40.1 of the Constitution in that it enabled him to differentiate between citizens without due regard to differences of capacity, physical and moral, and of social function.
It is clear, however, that the Act contemplated that the services under ss. 52(1) and 56(1) might be made available only to a particular class of the persons who had eligibility for these services, and having regard to the decision of the Supreme Court in East Donegal Co-operative v Attorney General [1970] IR 317, I am satisfied that it is within the competence of the Oireachtas to vest the power of deciding what class of the persons who had eligibility for the services were entitled to avail of same. The powers given to the Minister, however, cast upon him the duty of acting fairly and judicially in accordance with the principles of constitutional justice, and they do not give him an absolute or an unqualified or an arbitrary power.
As the power given to the Minister for Health is the power to differentiate between classes of the persons eligible for the services and not as between individuals, it appears to me that the provisions of Article 40.1 of the Constitution have no application. If it did, different considerations would undoubtedly apply because as stated by Walsh J when delivering the judgment of the Court in East Donegal Co-operative v The Attorney General [1970] IR 317
The constitutional right of the Oireachtas in its legislation to take account of differences of social function and differences of capacity, physical and moral, does not extend to delegating that power to members of the Executive, to the conclusion of the Oireachtas, in order to decide as between individuals (all of whom are by the *448 terms of an Act, bound by it) which of them shall be exempted from the application of the Act. (at 350).
I am satisfied that the provisions of s. 72(2) of the Act are not invalid having regard to the provisions of the Constitution.
The obligation on the Minister for Health in making a regulation providing that any service under the Act be made available only to a particular class of the persons who have eligibility for that service is to act fairly and judicially in accordance with the principles of constitutional justice, and the principles and policy of the Act.
The effect of the regulation made by him is to exclude from the benefit of the Act only persons who require treatment for injuries received in a road traffic accident, and who have not received damages or are not entitled to receive damages from another person in respect of the injuries.
These latter qualifications must under the regulation be established to the satisfaction of the Chief Executive Officer of the Health Board. His role however is purely an administrative function in the execution of which he is bound to act judicially, and which is subject to review by the court should he fail to so act. The challenge to the Article on this particular ground must fail.
I am satisfied that in making Article 6 sub-article (3) the Minister for Health acted in accordance with the principles of constitutional justice. The class of persons deprived of the right to avail of the services provided by ss. 51(1) and 56(2) of the Act either had or were entitled to receive as part of their damages from another person the cost of such services and that other person was obliged by law to be insured in respect of such damages.
Consequently I will make an Order on the issues that:
1. The provisions of s. 72(1) and (2) of the Health Act, 1970 are not invalid having regard to the provisions of the Constitution.
2. The provisions of Article 6(2) of the Health Services Regulations 1971 (SI 105 of 1971) are not invalid having regard to the provisions of the Constitution.
3. The Minister for Health acted intra vires in making the said Regulation.
4. The defendant had the necessary locus standi to raise the foregoing issues.