OUR ROUND-UP OF RECENT LEGAL developments this month reflects those issues hitting the headlines. We ask 'what next?' for commercial tenants affected by the recent floods, and discuss plans to increase market transparency during offer periods. Change may also be afoot in the telecoms markets and, in the longer term, for Irish alternative dispute resolution (ADR). A Labour Court decision on employment references is welcomed, and we review the registration requirements for occupational pension schemes.
FLOOD DAMAGE TO COMMERCIAL PREMISES
Recent flash-flooding has affected commercial premises across the country. Landlords and tenants left with premises that are unfit for occupation are asking ‘What next?’
The first thing to do is to check the terms of the lease to see who is responsible for repair of the premises. This is usually the tenant. However, most modern commercial leases exclude from the tenant’s repairing obligation liability for risks covered by the landlord’s insurance policy. Damage caused by storm and flooding will almost certainly be included. However, a landlord often reserves the right to vary the list of insured risks, so the tenant should always check the current policy details.
If flooding is covered by the landlord’s insurance policy, the lease should oblige the landlord to apply the insurance proceeds towards repairing the premises. However, the landlord’s obligation to repair the premises is typically subject to the following conditions having been satisfied:
- the premises are damaged to such an extent as to render them unfit for occupation or use;
- payment of the insurance money is not refused due to an act of the tenant;
- the landlord obtains the necessary planning permissions and consents to repair; and
- the necessary labour and materials to repair the premises are available.
Often a lease will specify a time frame for the repair works. In addition, modern commercial leases will usually grant the tenant a ‘rent and service charge holiday’ while the premises is unfit for occupation and use. A lease will generally provide a maximum period for the suspension of rent and service charges and this is usually linked to the period of cover for such loss under the landlord’s insurance policy.
If the premises is not repaired within the specified period, the lease may allow the landlord and/or the tenant to terminate the lease.
A landlord’s insurance policy will not cover:
- a tenant’s loss of profit while the premises is unfit for occupation; or
- a tenant’s property and goods.
In the event of flood damage, a tenant should review its own insurance policy to determine what loss is covered.
LABOUR COURT OVERTURNS CONTROVERSIAL REFERENCE DECISION
The Labour Court recently overturned a controversial Equality Tribunal decision that the requirement for a job applicant to provide two references discriminated against foreign nationals on the grounds of race.
The decision had been criticised by employers and commentators alike. It was said that, in these days of e-mail and widespread internet access, it should not be any more difficult for a foreign national to obtain a second reference than an Irish person. The Equality Officer, in making the decision, provided no reasons as to why the two-reference policy would disproportionately affect a foreign national as compared to an Irish person. No statistical or other evidence was proffered in this regard.
While it is important for employers to be sensitive to the needs of foreign nationals during the job application process, this does not mean that they must abandon tried-and-tested methods in getting the best person for the job. Once the process is fair and transparent a prudent employer should not encounter problems. Employers must also be willing to be flexible about requirements imposed on prospective employees for providing references. For example, consideration should be given to the possibility of accepting a character reference rather than employment references in certain circumstances, eg in relation to foreign candidates, or indeed younger candidates who may not have gained any prior work experience.
DISCLOSURE OF DEALINGS AND INTERESTS IN DERIVATIVES AND OPTIONS
Recognising that derivative positions are increasingly being taken by potential bidders, and by speculators such as hedge funds, in respect of a target company’s or a bidder company’s securities prior to or during a takeover, the Irish Takeover Panel has proposed changes to the Takeover Rules (the Rules). The Panel wants to increase market transparency and allow markets to understand why the prices of bidder companies’ or target companies’ securities are increasing or decreasing.
The proposed changes include:
- introduction of a definition of ‘dealing’;
- introduction of the concept of an ‘interest in a relevant security’ in place of ownership or control; and
- the expansion of the definition of ‘relevant securities’.
The Rules currently require disclosure of dealings during an offer period by persons owning or controlling 1% or more of relevant securities (excluding options and derivatives). This will be amended to require disclosure of all dealings in any relevant securities where a person is interested in 1% or more of relevant securities of the target company or the bidder company, including derivatives and options.
A new Rule would determine when a person has an interest in a relevant security. Essentially, a person would be deemed to have such an interest if they have a long position in that security. The emphasis on long positions is because it is in connection with these that de facto control and influence becomes relevant. However, when the 1% threshold has been reached, all dealings, including short positions, must then be disclosed.
Comments on the proposed new rules were invited up to 30 September 2008 (see ‘Online resources’).
LAW REFORM COMMISSION WANTS A STATUTORY ADR FRAMEWORK
The Law Reform Commission (LRC) wants mediation and conciliation placed on a statutory basis. In a recent consultation paper on ADR, the LRC recognises that mediation and conciliation should be considered as part of a fully integrated civil justice system.
The LRC considers that a statutory framework should clearly define what is meant by mediation and conciliation. It should also set out their key principles, including their voluntary nature, the ability of the parties to control the process, the need for confidentiality and the need for transparency. Importantly, the LRC proposes that a court should be able to enforce an agreement made through mediation or conciliation.
The current role of the Commercial Court in encouraging the uptake of mediation is endorsed. However, given the €1m jurisdictional threshold for entry into the Commercial List, ADR must also be promoted for the resolution of commercial disputes in small and medium-sized businesses. The LRC notes that one of the most effective mechanisms for reducing and resolving commercial conflict is to incorporate ADR clauses into commercial contracts and corporate governing policies, and it also recommends the early consideration of mediation in resolving shareholder disputes.
The LRC explores the potential of ADR in providing non-monetary redress in medical negligence claims, including a provision whereby medical practitioners may make an apology and explanation without these being viewed as an admission of liability. The proposals cover the application of ADR to other specific areas, including commercial and property disputes, consumer claims, industrial relations disputes and family law.
ADR processes have emerged in response to a desire on the part of parties to a dispute to resolve issues by agreement rather than by a court decision and because of delays and inefficiencies in the court process. In providing a framework for ADR, the LRC’s proposals recognise that ADR processes must maintain the flexibility and efficiencies that have made it an attractive alternative to resolution of disputes through the court process.
The LRC invites submissions on the consultation paper by 31 October 2008 (see ‘Online resources’).
OCCUPATIONAL PENSION SCHEME REGISTRATION REQUIREMENTS
Pension trustees must register their schemes or face fines. The Pensions Board keeps a register of occupational pension schemes to enhance members’ confidence. The Pensions Act 1990 requires trustees of occupational pension schemes to register their schemes with the Pensions Board within a year of commencement. Failure to do so is an offence, attracting on-the-spot fines of €2,000 per trustee.
The Revenue Commissioners and the Pensions Board operate a combined approval/registration procedure. The trustees or the pension broker for the scheme complete a form (which may be ordered from the Pensions Board website – www.pensionsboard.ie) and send it to the Retirement Benefits District of the Revenue Commissioners along with a copy of the trust deed and rules. If the scheme is approved, Revenue forwards a copy of the form to the Pensions Board for registration.
The 1990 Act also requires that trustees notify the Pensions Board of changes to the scheme within one year of them occurring. Changes that must be notified include alterations to:
- the scheme name;
- renewal date;
- employer; or
- trustees.
The trustees should notify the Pensions Board of any changes in membership when paying the annual registration fee.
The fee, payable to the Pensions Board, is calculated on the basis of the number of active members.
- Where there are fewer than 500 members, the fee is €9.50 per member.
- There is a flat fee of €4,750 for schemes with between 501 and 1,000 members.
- Where there are more than 1,001 members, the fee is €4.75 per member.
Fees are not payable in respect of ‘death benefit only’, ‘frozen’ or ‘additional voluntary contribution’ schemes.
COMREG REVIEW OF THE LEASED LINES MARKETS
The Commission for Communications Regulation (ComReg) continues its review of the competitiveness of national telecoms markets with the recent publication of an analysis of the leased lines markets. Leased lines are fixed and permanent telecommunications connections.
In 2004 ComReg found eircom had significant market power (SMP) in three Irish leased lines markets. It proposed a set of remedies designed to address the lack of competition. However, these were not finalised. Since then, the European Commission has reviewed markets that were susceptible to advance regulation. As a result, ComReg has reconsidered its analysis and now proposes the following findings:
- there are separate markets for trunk segments and the terminating segments of leased lines;
- the market for trunk segments is national in scope and will not be further differentiated by bandwidth. This market is considered competitive and no operator has SMP; and
- competition is limited in the market for terminating segments. This is due to eircom’s market share of close to 80%, as well as barriers to entry such as sunk costs (costs that cannot be recovered once they have been incurred) and economies of scale.
As a result, eircom should be designated as having SMP in the terminating segments market. ComReg therefore proposes a number of remedies, including:
- obliging eircom to allow third parties access to and use of specific network facilities;
- introducing increased transparency in costs and products/service;
- obliging eircom not to discriminate; and
- price control.
ComReg sought comments on the proposals by 17 September 2008 (see ‘Online resources’).
Online Resources
The Irish Takeover Panel’s consultation paper on disclosure of dealings and interests in derivatives and options is available to view online at:
www.irishtakeoverpanel.ie/loaddoc.php?filename=/consultation_papers/ConsultationPaperJS.pdf
The Law Reform Commission’s consultation paper on alternative dispute resolution is available online at:
www.lawreform.ie/publications/Consultpapers.htm
The Commission for Communications Regulation’s proposals for the leased lines markets are available at:
www.comreg.ie/_fileupload/publications/ComReg6863.pdf
By John Larkin, partner, William Fry. E-mail This e-mail address is being protected from spambots. You need JavaScript enabled to view it .