Property rights of creditors and the public interest

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The proposed Personal Insolvency Bill envisages that the rights of creditors, both secured and unsecured, will be written down under certain prescribed circumstances. For the purposes of authorising out-of-court settlements, debtors are classified into three groups:
Debtors with unsecured debts of up to €20,000, debtors with unsecured debts of more than €20,001 and, finally, debtors with debts of between €20,001 and €3m, at least one of which is secured. The draft Bill proposes to offer protection to debtors through the granting of debt relief certificates, the making of debt settlement arrangements and the making of personal insolvency arrangements respectively. In each category, the draft Bill proposes to offer equivalent protection to creditors insofar as a creditor who is unhappy with a proposed write-down of debt may challenge it in court on the ground, inter alia, that the arrangement unfairly prejudices his or her interests. In addition, debt settlement arrangements and personal insolvency arrangements require the support of at least 65% in value of creditors voting at the creditors’ meeting and, additionally in the case of personal insolvency arrangements, at least 75% in value of secured creditors and 55% in value of unsecured creditors approve.
In each category, a write-down of debts will affect the property rights of creditors and so in considering the constitutionality of the proposed Bill, account will have to be taken of the constitutional guarantee of private property. In addition, it is possible that a write-down of debt, insofar as this affects rights and liabilities, might be considered to be an administration of justice, in which case account also needs to be taken of Articles 34 and 37 of the Constitution.
Article 43
1.1° The State acknowledges that man, in virtue of his rational being, has the natural right, antecedent to positive law, to the private ownership of external goods.

1.2° The State accordingly guarantees to pass no law attempting to abolish the right of private ownership or the general right to transfer, bequeath, and inherit property.

2.1° The State recognises, however, that the exercise of the rights mentioned in the foregoing provisions of this Article ought, in civil society, to be regulated by the principles of social justice.

2.2° The State, accordingly, may as occasion requires delimit by law the exercise of the said rights with a view to reconciling their exercise with the exigencies of the common good.

Article 40.3.2°
The State shall, in particular, by its laws protect as best it may from unjust attack and, in the case of injustice done, vindicate the life, person, good name, and property rights of every citizen.
There would appear to be a common perception that the Irish Constitution offers extensive protection to property rights. In fact, as a reading of the constitutional text reveals, the Constitution takes a very balanced approach to the protection of property rights, permitting their qualification in appropriate cases and it is interesting to note that a majority of the cases in which the constitutional guarantee of property was invoked were unsuccessful.
In Shirley v. O’Gorman, 31 January 2006, HC, Peart J indicated that it is only where the State is pursuing a social justice principle that it may as occasion requires delimit the exercise of property rights with a view to reconciling their exercise with the exigencies of the common good. In many cases, the exigencies of the common good have been cited, on occasions like a mantra, to defeat any constitutional challenge. In this way the courts have justified restrictions on the use of gaming machines;2 limitations on land use in the interests of protecting national monuments;3 the compulsory acquisition of bogland;4 the regulation and control of banking business;5 residential property tax;6 the freezing of bank accounts operated on behalf of unlawful organisations;7 the superlevy regime on milk production;8 restrictions on the granting of casual trading licences;9 statutory powers to investigate the control of companies;10 statutory powers to assess taxpayers and to recover unpaid taxes;11 an extra-statutory scheme of compensation for owners of diseased cattle;12 statutory regulation of the liability of joint tortfeasors;13 statutory powers to forfeit property derived from criminal activities;14 restrictions on land user in the interests of the safety of air travel;15 and the retention by Gardaí of property seized, following a lawful arrest, for the purpose of a criminal prosecution either at home or abroad.16

The caselaw on property rights identifies a number of factors that will be taken into account in determining whether a restriction of property rights amounts to an ‘unjust attack’ contrary to Article 40.3.2.

Presumption of constitutionality – In the Shirley case, Peart J said: “Until some point of absolute extremity is reached where legislation is patently and manifestly not in pursuit of any possible common good exigency, the Court should abstain from interfering with the role of the legislature in deciding what measures are needed.” This presumption is especially strong in relation to financial crisis – see J and J Haire & Co. Ltd. v. Minister for Health and Children [2009] IEHC 562. This involved a challenge to legislation reducing fees charged by pharmacists under the GMS scheme by 24%. Regulations operated prospectively. In the course of his judgment, McMahon J said that the legislation and regulations were a proportionate and well-tailored response to an exceptional situation. Indeed, even at the height of the Celtic Tiger, the Supreme Court accepted that property rights could be abrogated or abolished by law in the interests of the common good if that was objectively justified “in the interest of avoiding an extreme financial crisis or a fundamental disequilibrium in public finances.” (Note, though, that the measures would have to be objectively justified.)
Other constitutional provisions - A restriction on property rights that is justified by other constitutional provisions will also, by definition, be constitutionally valid. Article 45.2.iv indicates that in relation to policy on the control of credit, the constant and predominant aim for the Oireachtas shall be the welfare of the people as a whole. Though the provisions of Article 45 are expressly stated not to be cognizable by the courts, it is arguable that the State might be able to rely on this Article in order to rebut a constitutional challenge to legislation. Inviolability of dwelling refers only to physical interference
Doctrine of proportionality - The phrase ‘as occasion requires’ in Article 40.3.2 introduced the doctrine of proportionality which focuses on the way in which constitutional rights are restricted – “constitutional rights should be interfered with, restricted or delimited as little as is necessary for the attainment of the desired social justice objective.”
“The objective of the impugned provision must be of sufficient importance to warrant over-riding a constitutionally protected right. It must relate to concerns pressing and substantial in a free and democratic society. The means chosen must pass a proportionality test. They must:
a) be rationally connected to the objective and not be arbitrary, unfair or based on irrational considerations;

b) impair the right as little as possible

c) be such that their effects on rights are proportional (properly related) to the objective.
In older caselaw, we find statements that irrational, absurd or excessive restrictions on property rights are unjust. This is now superseded by the doctrine of proportionality.
Retrospective provisions - Retrospective measures are prima facie unjust. However even if the proposed Bill interferes with creditors’ rights retrospectively, this could still be justified by the exigencies of the common good.
Inequitable distribution of cost of implementing social policy - On two occasions, the courts have held that the inequitable distribution of the cost of implementing social policy is prima facie unjust. Thus in Blake v. A.G. (1982), the Supreme Court struck down the Rent Restrictions Acts which, according to the Court, restricted the rights of one group of citizens for the benefit of another group and did so without having regard to the financial capacity of either group and without making provision for compensation. Similarly, in the Employment Equality Bill reference in 1996, the Supreme Court declared unconstitutional the statutory obligation imposed on employers to make reasonable accommodation for workers with disabilities. However it is also worth noting that in that case, the Court accepted that it would be proper for the State to insist that a person responsible for the creation of a social problem should pay for its resolution. In the present context, that would focus discussion on the extent, if any, to which creditors might be held responsible for the current difficulties faced by debtors.
Fair procedures - Penultimately, the provision of fair procedures for contesting the imposition of a restriction on property rights improves the chances of legislation passing constitutional muster and here it is worth recalling that the draft Bill does afford a disgruntled creditor the opportunity of going to court to challenge an agreement for writing down debt
Compensation – As a general principle, the absence of provision for compensation increases the risk of legislation affecting property rights being declared unconstitutional. In Re Article 26 and the Health Amendment (No.2) Bill 2004 [2005] 1 I.R. 105 at p.201 Murray CJ stated:-

“…where an Act of the Oireachtas interferes with a property right, the presence or absence of compensation is generally a material consideration when deciding whether that interference is justified pursuant to Article 43 or whether it constitutes an ‘unjust attack’ on those rights. In practice, substantial encroachment on rights, without compensation, will rarely be justified.”
It is in the nature of this legislation that the creditors will not be compensated for restriction of their rights. That said, cases like Dreher, Cafolla and Rooney do contain judicial statements accepting, explicitly or implicitly, that expropriation of property without compensation may sometimes be constitutional. A fortiori if one is dealing with a restriction on property rights as distinct from outright expropriation.
In the context of the proposed legislation, this raises the question of whether the financial crisis could be regarded as justifying the restriction of the property rights of creditors without compensation.
Finally, account needs to be taken of Arts.34 and 37 of the Constitution. These articles respectively provide that the administration of justice must generally be carried out by judges but that non-judicial personnel may exercise limited powers and functions of a judicial nature in civil matters. The proposed Bill provides for an Insolvency Service that will be entrusted with various powers and functions and so the question arises as to whether this is compatible with Arts.34 and 37. Given the difficulty in defining an administration of justice, one can only proceed tentatively here. On balance, I think the proposals would pass muster on this point. The relevant powers of the Insolvency Service are the power to determine applications for the grant of Debt Relief Certificates in the case of unsecured debts up to €20,000 and the power to process applications for protective certificates in relation to Debt Settlement Arrangements and Personal Insolvency Arrangements. Even if such functions could be regarded as constituting an administration of justice, it is certainly arguable that they are of a limited nature and that they should enjoy the protection of Article 37.

Gerry Whyte,

19 April 2012.

1 These are speaking notes for a presentation at the FLAC conference on personal insolvency and are not intended for subsequent citation.

2Cafolla v O’Malley [1985] IR 486.

3O’Callaghan v Commissioner of Public Works [1985] ILRM 364.

4O’Brien v Bord na Móna [1983] ILRM 314. See Coffey (1984) DULJ (ns) 152. In the High Court, Keane J held that the exigencies of the common good justified the permanent acquisition of such bogland, extending even beyond the time when the bogland would have been completely stripped of turf. While the Supreme Court upheld the legislation in question—the Turf Development Act 1946—it did not specifically deal with this point and it is surely arguable that an interference with property rights, even when in essence warranted by the common good, must not exceed the measure of that exigency. For an important decision on the statutory powers of local authorities to acquire land compulsorily, see Clinton v. An Bord Pleanála [2007] IESC 19; (2 May 2007) SC.

5PMPS v Attorney General [1983] IR 355, [1984] ILRM 88. See Whyte (1983) 5 DULJ (ns) 273.

6Madigan v Attorney General [1986] ILRM 136.

7Clancy v Ireland [1988] IR 326, [1989] ILRM 670.

8Lawlor v Minister for Agriculture [1990] 1 IR 356.

9Hand v Dublin Corporation [1991] 1 IR 409. In this case the Supreme Court assumed, without deciding, that the right to earn a livelihood, affected by the restrictions on the grant of casual trading licences contained in the Casual Trading Act 1980, was a property right.

10Chestvale Properties Ltd v Glackin [1992] ILRM 221.

11Deighan v Hearne [1990] 1 IR 499.

12Rooney v Minister for Agriculture and Food [1991] 2 IR 539; Grennan v Minister for Agriculture, Food and Forestry, 4 October 1995.

13Iarnród Éireann v Ireland [1996] 3 IR 321, [1996] 2 ILRM 500.

14Murphy v GM [2001] 4 IR 113.

15Liddy v Minister for Public Enterprise (4 February 2003) HC.

16 Brady v. Haughton (29 July 2005) SC

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