Ireland | 01 October 2010

Outsourcing is a key strategic decision for businesses, enabling more efficient operation through a focus on core areas, while leveraging the capabilities and scale of specialist service providers to effectively operate non-core areas. The economic downturn has increased the pressure on businesses, in Ireland and globally, large-scale corporations and SMEs, to maximise competitiveness while controlling the cost base. Outsourcing can be a valuable method of achieving this balance. As outsourcing transactions move further up the value chain, in-house counsel have a key role to play, both at the strategic decision stage in evaluating risks and identifying key issues, and then in implementing the decision to outsource by co-ordinating the procurement and contract negotiation process in conjunction with internal stakeholders and external advisors. This article offers an overviewof key trends and future developments in the Irish outsourcing market, together with some useful guidelines to assist in-house counsel and their organisations, both to effectively manage the outsourcing process and to achieve successful long-term outsourcing relationships.

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Ireland | 01 September 2010

Ireland was initially slow to realise the potential of alternative dispute resolution (ADR) to deliver meaningful and cost-effective outcomes for commercial enterprises involved in disputes. Things changed dramatically with the inception of the Commercial List of the High Court (known colloquially as the Commercial Court) in 2004, which built into its procedural rules a facility to adjourn Commercial Court proceedings, allowing the parties time to consider whether the issues in dispute ought to be referred to a process of mediation, conciliation or arbitration.

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Public Sector | 01 July 2010

The long-awaited revisions to the Medical Device Directive 93/42/EEC (MDD) and the Directive for Active Implantable Medical Devices 90/385/EEC (AIMD) were adopted by the European Parliament on 29 March 2007. These amendments are contained in Medical Device Directive 2007/47/EC (the 2007 Directive), which was published in the Official Journal of the EU on the 21 September 2007. The genesis of the changes stemmed from a 2001 review of the MDD. [Continue Reading]

Ireland | 01 June 2010

The internet promised a revolution in retailing. ‘One-click’ shopping was heralded as the ultimate in ease and comfort for savvy shoppers. While this remains largely true, increasingly the online retailing experience is characterised by a myriad of terms and conditions (T&Cs), privacy policies, order confirmation e-mails and delivery status notifications that need to be either accepted or responded to when concluding an online transaction. Compliance with regulatory obligations is driving most of these processes and this article sets out a summary of what those primary regulatory obligations are. It will also briefly consider whether a creative implementation of future regulatory requirements by the Irish legislature could be used as a tool to promote Ireland as an intellectual property and e-commerce hub.

Primary Legislation

In addition to domestic consumer rights legislation, EU-based internet retailers need to ensure that their websites and T&Cs comply with three main pieces of legislation:

  1. the Distance Selling Regulations;
  2. the E-Commerce Directive; and
  3. the Unfair Commercial Practices Directive.

Distance Selling Regulations

The EC (Protection of Consumers in Respect of Contracts Made by Means of Distance Communication) Regulations 2001 (the 2001 Regulations) came into effect in Ireland on 15 May 2001. The 2001 Regulations apply to most forms of distance contracts and the main provisions applicable to internet retailers are as follows.

Prior information

To ensure that an internet retailer can enforce it’s T&Cs against a consumer, certain information must be supplied to the consumer before the contract is concluded (this is normally achieved by way of a pop-up, splash page or e-mail). This prior information includes, but is not limited to:

  1. the identity and address of the supplier;
  2. the price and delivery costs, including all taxes;
  3. the existence of a right of cancellation;
  4. the period for which the offer or the price remains valid; and
  5. where appropriate, the minimum duration of the contract.

Written confirmation

In addition, unless the consumer receives confirmation in writing, or in some other accessible durable medium, of the prior information outlined above, the distance contract will not be enforceable against a consumer.

Right of cancellation

The 2001 Regulations introduced a seven-day ‘cooling off’ period for consumers. A consumer has seven working days in which to cancel the distance contract without cause and the only cost payable is the direct cost of returning the goods. This right does not apply to services or goods that are immediately performed or consumed. The T&Cs should expressly provide that the notice of cancellation must be in writing and that the consumer must actually return the goods if it is exercising its cooling off rights, as neither of these points are covered by the 2001 Regulations.

If the consumer is not informed of this cooling off right, the cooling off period is extended by up to three months.

E-Commerce Directive

Directive 2001/31/EC (the E-Commerce Directive) was transposed into Irish law by the EC (Directive 2001/31/EC) Regulations 2003 (SI No 68 of 2003).

Prior information requirements

The main impact of the E-Commerce Directive was that it imposed further prior information requirements (the most important of which are outlined below) over and above those set out in the Distance Selling Regulations.

Businesses operating online must provide the following information to users of their websites in a manner that is ‘easily, directly and permanently accessible’:

  1. name, geographic address and contact details (including a contact e-mail address);
  2. how the user can register its choice in relation to direct marketing;
  3. where the provider is registered in a public register, is subject to an authorisation scheme or is a member of a regulated profession, relevant details should be provided to visitors to the website;
  4. VAT number, if applicable;
  5. details of the technical steps followed to conclude the contract online; and
  6. the manner in which errors can be identified and corrected prior to placing orders.

The E-Commerce Directive also requires that the applicable T&Cs must be made available to customers in a way that can be stored and reproduced.

Unfair Commercial Practices Directive

The EU Unfair Commercial Practices Directive (Directive 2005/28/EC) of 11 May 2005 was implemented in Ireland by the Consumer Protection Act (CPA) 2007. CPA 2007 has entered fully into force, with the exception of ss48-49 dealing with surcharges on certain payment methods.

This legislation introduces a range of measures to encourage compliance with consumer law through self regulation and various enforcement mechanisms that are available to the National Consumer Agency.

CPA 2007 deals with a range of commercial practices, which will be deemed to be unfair if they satisfy the following criteria:

  1. they are contrary to the requirements of professional diligence;
  2. they are likely to impair consumer choice; and
  3. the practices cause the average consumer to make a decision that they would not otherwise have made.

Under CPA 2007 there are three distinct types of unfair commercial practice, namely misleading, aggressive and prohibited practices.

Regulatory Enforcement

Why the need to refocus on the regulatory obligations? A recent study by the European Commission of websites selling electronic goods has found that more than half of the websites studied failed to comply with the consumer protection laws outlined in this article. The main issues arising from the study were:

  • consumers were not told of the seven-day cooling off period;
  • failure to provide full contact details of the service or goods provider;
  • failure to provide full information on the legal right to a refund, replacement or repair of a faulty product; and
  • failure to provide full details of the costs of the product, including delivery and tax costs.

Given that the issue is now making waves at Commission level, it is likely that domestic authorities will start to pay closer attention to the websites of companies located in their jurisdictions, and will seek to sanction and censure any companies whose websites or T&Cs are non compliant. Website operators should take the time to review their websites and T&Cs with their advisers to ensure that they adhere to the consumer legislation outlined above.

Opportunities for Ireland

Much of the legislation discussed has been introduced to ensure that existing consumer protection laws extend to online transactions and also to provide purchasers with effective remedies against online retailers that are located in jurisdictions far removed from the purchaser. While consumer protection will always remain a social priority, a balance needs to be struck against the increasingly complex regulatory regime faced by online retailers (particularly those based in the EU).

Traditionally, a favourable tax regime was one of the most important factors in deciding which jurisdiction to establish a technology business. However, it is likely that internet companies will now consider the relevant regulatory regime as equally important. It is a stated objective of the Irish government to develop a ‘smart economy’, and attract new internet and digital businesses to Ireland. The government should remember that any steps to create a favourable regulatory regime in Ireland for e-commerce, either by way of domestic initiatives or the sympathetic implementation of directives, could help to give Ireland a competitive advantage in attracting internet businesses and creating the smart economy that is strived for.

Ireland | 01 May 2010

There have been several significant developments concerning examinerships in the Irish jurisdication recently. In Re Vantive Holdings & ors [2009], the criteria laid down in Vantive Holdings’ applications for the appointment of an examiner have raised the evidential bar significantly. Applicants now have to ensure that they are armed with a very credible Independent Accountant’s Report, based on reliable projections and assumptions, before the High Court will consider exercising its discretion to appoint an examiner. In Missford Ltd t/a Residence Members Club [2010], Kelly J made it clear that the use of money deducted by way of VAT and PAYE or Pay Related Social Insurance (PRSI) as working capital was a major factor in influencing the court not to exercise its discretion in favour of appointing an examiner.

More recently, judgments of the Supreme Court and the High Court in Linen Supply of Ireland Ltd v Companies Acts [2010] have clarified how certain provisions of the Companies (Amendment) Act 1990 (the 1990 Act) are to be interpreted in so far as leases are concerned.

Repudiation of leases

The law in relation to the repudiation or disclaimer of contracts (including leases), in the context of examinership, is governed by s20 and s9 (s9 brings in s290 of the Companies Act 1963) of the 1990 Act.

Section 20 provides:

  1. where proposals for a compromise or scheme of arrangement are to be formulated in relation to a company, the company may, subject to the approval of the court, affirm or repudiate any contract under which some element of performance (other than payment) remains to be rendered both by the company and the other contracting party or parties;
  2. any person who suffers loss or damage as a result of such repudiation shall stand as an unsecured creditor for the amount of such loss or damage;
  3. to facilitate the formulation, consideration or confirmation of a scheme of arrangement, the court may hold a hearing and make an order determining the amount of any such loss or damage, and the amount so determined shall be due by the company to the creditor as a judgment debt; [and]

  1. where the court approves the affirmation or repudiation of a contract under the section, it may, in giving such approval, make such orders as it thinks fit for the purposes of giving full effect to its approval, including orders as to notice to, or declaring the rights of, any party affected by such affirmation or repudiation.’

Section 9 affords a less direct means to disclaim a lease, allowing an examiner to apply to court for an order that the examiner shall have all or any of the powers that they would have if they were a liquidator appointed by the court. This opens up the possibility of a section 290 disclaimer application. However, in Fate Park Ltd & ors v Companies Acts [2009], the court held that an examiner will only be given the powers of an official liquidator if an order has made pursuant to s9(1), vesting in the examiner some or all of the functions or powers vested in, or exercisable by, the directors. Therefore, it is not a stand-alone order.

In Linen Supply, the Supreme Court had to rule on an appeal by the company against the decision of the High Court that it was not possible to repudiate a lease under s20. The High Court was of the view that s25(b) of the 1990 Act was inconsistent with the proposition that a company could repudiate a lease under s20 of the 1990 Act. Section 25(b) essentially states that an examiner’s proposals shall not allow for a reduction in rent that falls to be paid after the compromise or scheme of arrangement would take effect.

The majority of the Supreme Court (Hardiman J dissenting) held that the company could repudiate a lease pursuant to s20 of the 1990 Act. In doing so, the court accepted that:

  1. leases fall within the definition of ‘contract’ as contained within s20;
  2. s25(b) of the 1990 Act applies to situations where a scheme of arrangement has already been formulated and did not prohibit the repudiation of a lease pursuant to s20, prior to the formulation of such a scheme; and
  3. positive and negative covenants contained in commercial leases relating to user, repair or quiet enjoyment, are sufficient to constitute the non-monetary element of performance that is required to be outstanding on behalf of both parties to invoke the jurisdiction of s20. (This is where Hardiman J dissented, saying that he accepted that a lease is a ‘contract’ for the purposes of the section, but that covenants of quiet enjoyment or insurance are not obligations requiring to be performed by both landlord and tenant.)

Impairment of sums payable to landlords in respect of loss of rent and/or delapidations post-repudiation

Following on from the Supreme Court decision in Linen Supply, the High Court permitted the company to repudiate several leases entered into by the company and the examiner-formulated proposals that were opposed by numerous landlord creditors. Their main objection was that the damages due to them should not be subject to impairment under the 1990 Act and that the court had no jurisdiction to confirm the scheme that makes provision for impairment of the sums due by way of future rent.

The parties had agreed the sums due in respect of loss or rent and/or dilapidations that arose in the event of the court making an order pursuant to s20, permitting a repudiation. There were five leases involved and the damages figures ranged from €500,000 to €1.1m approximately. (These figures do not include loss of rent during the course of the examinership, as the court directed it should be paid in full.)

The landlords complained that under the scheme, they would only receive 30% of the figure agreed as the damages that follow the repudiation of the leases. They argued that a scheme is only intended to apply to debts due at the date of presentation of the petition (none, in the case of these landlords). They contended that post-petition liabilities (including a judgment debt against the company following its repudiation of a lease) can only be written down if there is express statutory authority to this affect (there is none).

McGovern J held that the landlords were prospective creditors at the date of commencement of the examinership. While they also argued that their claim was not a claim for unpaid rent, but for damages arising on the repudiation of their leases, in McGovern J’s view this did not alter their status as prospective creditors. He held that the intent of the legislation was clear to the effect that a court could appoint an examiner who may present a scheme that impairs the rights of a creditor, including a prospective creditor.

conclusion

Leases may now be disclaimed on application and the resulting damages can be impaired under a scheme of arrangement.

These decisions make life easier for the examiner and the company once court protection is granted. Whether the decision is fair to landlords is another matter entirely, particularly where they have repayment obligations to their own funders based on a certain income stream.

Ireland | 01 April 2010

Up to 5% of a firm’s annual turnover may be lost through fraud in the workplace and, according to a recent survey, at least 70% of that fraud is perpetrated by employees. What may surprise many is that most corporate fraud is not billion-euro embezzlement by top directors, but is committed by ordinary workers who never imagine that their actions could be seen as fraud. [Continue Reading]

Ireland | 01 March 2010

Several high-profile data security breaches have made the headlines in recent times involving the loss of personal information relating to hundreds, if not thousands, of individuals. In many cases the information was stored on unencrypted laptops that were either lost or stolen.

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