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HTML VERSION OF JUDGMENT
LORD JUSTICE LLOYD:
This is the judgment of the Court.
Introduction
On August 15, 1975, these six appellants were each convicted, by the unanimous verdict of a jury, on 21 counts of murder. On March 30, 1976, they applied for leave to appeal. The principal ground of appeal was that the judge, Bridge J. as he then was, had displayed excessive hostility to the appellant's case, and had given so clear an indication of his view of the facts and the witnesses as to deprive the jury of the chance to form an independent opinion. The application was dismissed. In January 1987 the Home Secretary referred the case back to the Court of Appeal under section 17(1)(a) of the Criminal Appeal Act 1968 , as a result of certain fresh evidence which had come to light since the original trial. There were two reasons for the Home Secretary's decision. In the first place there was fresh scientific evidence commissioned by the Home Office as a result of a programme in the "World in Action" series featured by Granada T.V. on October 28, 1985. Secondly there was fresh evidence of an inquiry; carried out by the Devon and Cornwall police in 1987, following allegations by a former police officer that he had seen the appellants being ill treated while at the police station. The hearing took place over many days in the autumn of 1987. On January 28, 1988, the appeals were dismissed.
On August 29, 1990, the case was referred back by the Home Secretary for the second time, as a result of further fresh evidence which had become available since the hearing by the Court of Appeal in 1987.
On February 25, 1991, Mr. Graham Boal Q.C. indicated that the Director of Public Prosecutions, as respondent to the appeals, would not be resisting the appeals, but would give all such assistance as the Court might require. The court decided that it would hear the appeals in the ordinary way. It would not be right, we said, that we should give our secret blessing to a view formed by the Crown Prosecution Service on evidence which had not yet been made public, and much of which we had not yet seen ourselves. The hearing took place on March 4, 1991, and lasted nine working days. At the conclusion of the hearing we announced that the appeals would be allowed, and that we would give our reasons at a later date, which we now do.
We start by setting the scene. We can do this briefly, since the facts were fully stated in the previous judgment of the Court in January 1988. We do not repeat the facts in the same detail. But without some account of the background the rest of the judgment would not be easily intelligible. Next we shall summarise the issues at the trial in 1974 and the issues at the Court of Appeal hearing in 1987. We shall then consider the fresh evidence in the present appeal, dealing first with the scientific issue, and secondly with the issue relating to the reliability of police evidence. Finally we shall give our conclusion on the two main issues, with a brief consideration of the proper approach of the Court of Appeal in fresh evidence cases, and the role of the prosecution.
Background
From New Street Station to Heysham - Thursday November 21, 1974
During 1974 the IRA mounted a campaign of bombing in the Midlands. It culminated on Thursday November 21, 1974, when explosions occurred at two public houses, the "Mulberry Bush" and the "Tavern in the Town," near New Street station, Birmingham. In all 21 people were killed, and 162 injured. The previous week, on November 14, 1974, James McDade, an active member of the Birmingham IRA, was killed when a bomb which he was planting at the Coventry telephone exchange exploded prematurely.
Five of the six appellants - all except Callaghan - decided to attend McDade's funeral in Belfast, if they could find enough money for the fare. They arranged to meet at New Street station on the evening of November 21, 1974. All except Hill said they intended to catch the 6.55 p.m. train to Heysham, via Crewe, where they would catch the night ferry. Power was the first to arrive at the station. It was about 6.40 p.m. McIlkenny, Hunter, Walker and Callaghan arrived just before 7.0 p.m. They were in fact in time to catch the 6.55 p.m. train, since it left late that night. Instead they caught the next train, which left at 7.55 p.m. Hill said that he did not arrive at the station until about 7.45 p.m. Callaghan said that he had come along to see the others off. While at the station Hunter made two telephone calls to Belfast. He made a further telephone call when changing trains at Crewe.
At 8.11 p.m. there was a telephone warning to the Birmingham Post and Mail that the bombs had been planted. At 8.18 p.m. the first bomb exploded at the Mulberry Bush, in the Rotunda, a short walk from New Street station. A few minutes later the second bomb exploded at the Tavern in the Town, about 300 yards away. A third bomb, planted at Barclays Bank, Hagley Road, failed to explode. Hagley Road is about two miles from New Street station. The explosive at Hagley Road was packed in two white plastic bags. It was later shown that the bombs at the Mulberry Bush and the Tavern in the Town were of similar construction to the bomb at Hagley Road, and indeed to all the other bombs during the 1974 campaign. It was the view of the explosives expert that all the bombs had been manufactured by the same team.
The five men travelled together on the train. They passed the time playing cards. The train arrived at Heysham on time at 10.45 p.m. The police already knew from the booking clerk at New Street station that a group of men with Irish accents had bought tickets for Belfast earlier in the evening. They got in touch with the British Transport police at Heysham. The message was to look out for a group of six Irish men coming from Birmingham. The ticket collector noticed a group of four such men, with consecutively numbered tickets. They were Power, Hunter, McIlkenny and Walker. Hill had gone on ahead, and was already on board the ferry. All five were interviewed briefly at the station. They were then taken to Morecambe police station for testing.
Morecambe police station - Friday November 22, 1974
On arrival at Morecambe police station, all five appellants were seen by Chief Superintendent Ibison of the Lancashire police. He arranged for them to be examined by Dr. Frank Skuse, from the Home Office Forensic Science Laboratory at Chorley. We will return later to the tests which Dr. Skuse carried out. According to his evidence at the trial, the tests showed that Power and Hill had been in recent contact with high explosive. Dr. Skuse was 99 per cent. certain of his results. He was less certain about Walker. The tests on Hunter and McIlkenny were negative.
Meanwhile a contingent of police had arrived from the West Midlands to take over the investigation. Detective Superintendent Reade was in charge. There was a dispute at the trial as to when the interviewing started and when some of the interviews took place, if they took place at all. For the purposes of this narrative, it is convenient to go by the police timing.
According to the police, the first interview was with Power. It started at 9.30 a.m. The interviewing officers were D.S. Watson and D.C. French. Power confessed almost at once, when told of Dr. Skuse's findings. After a short interval he made a statement under caution, which he signed at 12.55 p.m. According to the police all five appellants had had their clothes changed before the interviewing started. Power's trousers and underpants were fouled with his own excreta. According to Power his clothes were changed much later. He fouled his trousers as a result of police brutality.
The next interviews started at 10.45 a.m. Hunter was interviewed briefly by Superintendent Reade and D.I. Moore, from 10.45 to 11.05 a.m. Hill was interviewed by D.S. Bennett and D.C. Brand from 10.45 to 12.00 midday and again from 1.25 p.m. to 2.30 p.m. They were joined by D.I. Moore at 11.15 a.m. Walker was interviewed by D.S. Kelly and D.C. Sutcliffe from 10.55 a.m. to 12.35 p.m. They were joined by Superintendent Reade at 12.15 p.m. None of the appellants made any admissions during these interviews.
Meanwhile a second contingent of police had arrived from the West Midlands, consisting of D.S. Morris, D.S. Millichamp, D.C. Woodwiss and D.C Bell. They were briefed by Superintendent Reade at 12.00 midday. Between 12.30 p.m. and 1.30 p.m. D.S. Morris and D.C. Woodwiss interviewed McIlkenny. They were joined by Superintendent Reade at 1.20 p.m. McIlkenny denied that any such interview took place. According to the officers, including Superintendent Reade, D.C. Woodwiss took a contemporaneous note throughout the interview. Superintendent Reade subsequently copied the part of the note covering his presence into his own notebook. D.C. Woodwiss's contemporaneous note (together with a very large number of other documents in the case) have been subjected to scientific analysis by a method known as electrostatic document analysis, or ESDA. We shall describe the method of analysis at a later stage. It is sufficient to note here that it was as a result of this analysis of the contemporaneous note of McIlkenny's interview on November 22 that the Home Secretary referred the case back to the court on August 29, 1990.
At 3.00 p.m. on November 22, 1974 Superintendent Reade told the appellants they they would be arrested and taken back to Birmingham by car. They arrived back at about 7.30 p.m. At the end of the first day's interviews, only Power had confessed.
Queen's Road Police Station - Saturday November 23, 1974
Interviewing started soon after 10.00 a.m. on November 23. McIlkenny was interviewed by the same team, that is to say D.S. Morris and D.C. Woodwiss between 10.10 a.m. and 11.20 a.m. They were joined by Sgt. Langford at 11.10 a.m. It was in the course of this interview that McIlkenny confessed. Between 11.20 a.m. and 12.05 p.m. he made a written statement under caution.
Walker was interviewed by the same team as before between 11.15 a.m. and 12.15 p.m., and again between 1.30 p.m. and 2.00 p.m. Superintendent Reade joined them between 1.30 p.m. and 1.45 p.m. Walker made a written statement under caution between 2.00 p.m. and 3.10 p.m., which amounted to a confession. Hunter was interviewed by D.S. Millichamp and D.C. Bell between 10.15 a.m. and 12.30 p.m., from 2.00 p.m. to 4.30 p.m. and from 5.10 p.m. to 7.00 p.m. They were joined by Superintendent Reade at 6.20 p.m. Hunter never signed a written confession. But according to the police he said:
"This was never meant to be. I had made the phone calls, everything. Just never meant to be. I don't know why I had anything to do with. Please God forgive me."
Hill was interviewed by the same team as before, that is to say D.I. Moore, D.S. Bennett and D.C. Brand. The interview lasted, with a short break, from 11.15 a.m. to 1.10 p.m. Like Hunter he never signed a written confession. But the police say he confessed in the first half of the interview, and, when shown McIlkenny's statement under caution in the second half of the interview, replied; "He's told you the truth there, I never thought he'd make a statement."
According to the police, D.C. Brand took a contemporaneous note of the interviews with Hill in his notebook.
Finally, Callaghan. He was arrested at his home late on Friday night. He was seen by D.C.I. Powell, D.S. Higgins and D.C. Buxton at Queen's Road. For some unknown reason he was then taken to Sutton Coldfield police station. He was tested for nitroglycerine at 11.20 a.m., and found to be negative. He was seen again very briefly between 11.55 a.m. and 12.05 p.m. At 2.55 p.m. he was seen by a fresh team consisting of D.S. Hornby, D.S. Bryant and D.C. Davies. At the outset of the interview he said he wished to confess. He made a written statement under caution between 3.05 p.m. and 4.30 p.m.
Sunday November 24, 1974
At 10.00 a.m. on Sunday morning Callaghan was taken back from Sutton Coldfield to Queen's Road. There was an interview at 11.30 a.m. with D.S. Bennett and D.S. Ball. They had not seen him before. They asked him what rank he was in the IRA. According to the police, Callaghan replied that he was a Lieutenant, that Walker was a Brigadier, that Hunter was a Captain, and the others Lieutenants. Callaghan agreed in his evidence at the trial that he had given the ranks of all the appellants.
Meanwhile Hill had been seen again by D.S. Bunn and D.C. Matthews at 10.15 a.m. According to the police he implicated Murray and Sheehan, who were subsequently charged and convicted on the same indictment of conspiracy to cause explosions. At 11.00 a.m. Power told D.S. Watson and D.C. French that he had nothing further to say. Lastly, at 12.10 p.m. Hunter was seen again by D.S. Millichamp and D.C. Bell. On being shown Callaghan's statement, he said according to the police: "He is as much to blame as I am - why couldn't he keep his mouth shut?"
A little later he said: "We've honoured Jamie (meaning McDade) and people will never forget us." When he was shown photographs in a Sunday newspaper of the scene at the explosions he said; "This was never meant to be. It has all gone wrong."
That concluded the interviews. The appellants were charged at 2.00 p.m., or thereabouts, and taken to the central lock - up at 3.15 p.m. Before leaving Queen's Road they were photographed. The photographs show little if any sign of injury. The appellants were taken to court on Monday morning, and brought up one by one. The usher saw them; so did a court reporter and a solicitor who was attending on another client. None of them saw any sign of injury on the appellants, save the usher, who saw a bruise under Walker's eye.
From court, the appellants were remanded to Winson Green prison. On arrival at the prison, the appellants were very seriously assaulted. The judge described the incident as quite outrageous. Fourteen prison officers were subsequently charged with assault. They were tried in the summer of 1976. All were acquitted.
The issues at the trial in 1975
The prosecution case at the trial rested on two main pillars. First there was the evidence of Dr. Skuse that Power and Hill had both been in recent contact with nitroglycerine. Secondly there was the evidence of the police officers as to the written confessions of Power, McIlkenny, Walker and Callaghan, and the oral admissions of Hunter and Hill. In addition there was a great deal of circumstantial evidence, including the evidence of witnesses who were entirely independent of the police. Further, if the police officers were to be believed, then all five appellants lied as to their purpose in visiting Ireland. When first interviewed, they told the police - all except Walker - that they were visiting various relations, none of whom was expecting them. In some cases they had not seen these relations for years. Walker had not been to Belfast for over 20 years. He said he was going for the trip with McIlkenny, to visit McIlkenny's mother. But as the judge himself said, when dealing with these background matters near the start of his summing - up:
"These matters do not go beyond raising suspicion; strong suspicion perhaps, but these matters, if they do show motive, opportunity and an intention to make a getaway, still fall a long way short of anything that anyone could possibly regard as proof that any one of these six men participated in the planning or the placing of the explosive devices at the Mulberry Bush or the Tavern."
The judge left the jury in no doubt that the two "absolutely critical" issues in the case were the scientific evidence of Dr. Skuse and the police evidence of interviews with all six appellants.
As to the first, the appellants called Dr. Black. His evidence was that the tests carried out by Dr. Skuse at the police station were not "specific" for nitroglycerine. In any event his results should have been confirmed by subsequent tests in the laboratory. With one exception, the subsequent tests all proved negative. As we shall see, the judge made no secret of his preference for Dr. Skuse's evidence.
As to the second critical issue, the appellant's case was that their confessions, written or oral, were beaten out of them by a sustained campaign of police violence between November 22 and 24, both at Morecambe, and at Queen's Road police stations. The difficulty with that explanation was that there were no signs of injury on the appellant's faces when they appeared in court on the morning of November 25, except for the bruise under Walker's eye. Moreover, if D.C.I. Rawsthorne was to be believed, the appellants were stripped, in accordance with usual practice when they were taken to the central lock - up on Sunday afternoon. The purpose was not to examine their bodies, but to search their clothes. D.C.I. Rawsthorne said that he would have seen any sign of severe bruising on their bodies. However that particular piece of evidence did not go very far, as the judge pointed out. The only importance of the evidence was that the appellants denied being stripped at all. Finally there was the evidence of the appellant's own solicitors, who did not notice any serious injuries, at any rate compared to the much more serious injuries inflicted after their arrival at Winson Green prison.
These, very briefly, were the main issues at the trial. The judge's first task was to rule whether the confessions were voluntary. If not, they would have been excluded altogether. The judge heard the evidence of the police officers, the appellants and the independent witnesses. At the end of a five day hearing - the trial within a trial - the judge ruled that the confessions were voluntary. He was satisfied that they were not obtained by violence, or the threat of violence. Having regard to the absence of any apparent injury on the Monday morning, his ruling was not surprising.
All the evidence was then heard again in the presence of the jury. It was the jury's task to determine the truth of the confessions. Again the judge did not attempt to conceal his own views. In particular he was very critical of the evidence of Dr. Harwood, a doctor called by the appellants, who saw them in the afternoon of Monday November 25, 1974. His view was that the bruising which he saw was at least 12 hours old, which would mean that the injuries were inflicted before the appellants arrived at Winson Green prison.
But the judge also made it clear throughout the summing - up that it was for the jury, and not for him, to determine where the truth lay, not only as to the allegations of police violence, but also as to the scientific evidence of contamination with nitroglycerine.
The jury retired at 3.33 p.m. on August 13, 1975. They returned at 12.28 p.m. on August 15, 1975. After taking the verdicts, the judge described the evidence in the case as the clearest and most overwhelming that he had ever heard.
The issues before the Court of Appeal on March 30, 1976
As already mentioned, the main argument on the application for leave to appeal related to the fairness of the summing - up. There was no complaint that the oral and written confessions were inadmissible. Nor was there any application to call fresh evidence on the scientific issue.
Once an application for leave to appeal is dismissed, the Court of Appeal is functus officio . There is no right to a second appeal. The only way in which a case can be brought back before the Court of Appeal is by reference from the Home Secretary under section 17(1)( a ) of the Criminal Appeal Act 1968 . Matters would therefore have rested with the refusal of leave to appeal in 1976, had it not been for the interest taken in the case by Granada television, the publication of Chris Mullin's book Error of Judgment in 1986, and the support of senior churchmen, and other influential figures, who continued to believe in the appellant's innocence.
The issues before the Court of Appeal in 1987
There were, as we have said, two reasons for referring the case back to the Court of Appeal. The first was the fresh scientific evidence commissioned by the Home Office. We will consider the nature of this evidence when we come to deal with the fresh scientific evidence in the present appeal.
The second reason was the allegation by former police officer Thomas Clarke that he had witnessed intimidation of the appellants at Queen's Road police station, and seen signs of injury. Mr. Clarke gave evidence at the hearing in 1987. He was on duty from 9.30 p.m. on Friday evening until 5.30 a.m. on Saturday morning, and again the following night. On the Friday night he noticed very few signs of physical injury, despite the treatment which the appellants say they received at Morecambe. He went on to say that on two or three occasions during the night, two police officers pointed their guns through the hatches of the cell doors. The same happened again on the Saturday night. The difficulty with that evidence was that none of the appellants ever complained at the trial that guns were pointed at them through the cell doors at Queen's Road. The explanation may therefore be that Mr. Clarke had heard something which Hunter said happened, not on the Friday or Saturday night, at Queen's Road, but on Sunday night at the central lock - up. Another difficulty is that Mr. Clarke claims to have seen the sixth man, i.e. Callaghan, with marks on his face, as if he had been in an accident. But Callaghan never complained of more than a slap in the face. In the course of cross - examination Mr. Clarke agreed that he may have told a colleague in 1976 that the appellants were "treated with kid gloves" while at Queen's Road. In 1977 Mr. Clarke was dismissed from the police force after being convicted and sentenced to three months' imprisonment on a charge of theft. In 1986 he made an unsuccessful attempt to sell his story to the Daily Mirror. It is not altogether surprising that the Court of Appeal rejected his evidence as worthless.
Another witness who gave evidence at the 1987 hearing was W.P.C. Lynas. The difficulty with her evidence was that she told one story under oath in the witness box on Wednesday, November 4, and a completely different story when she was recalled to give further evidence on Monday, November 9. On November 4 she said that she could see no sign of physical injury on any of the appellants when she went off duty at 7.00 p.m. on the Saturday night. Nor had she noticed any misconduct on the part of the police, other than swearing and pushing the appellants "as I would treat my children if they had been naughty ..." Her evidence five days later was very different. When asked why she had changed her evidence, she replied that the main reason was that she had seen a programme on television about bullying in the Army.
The only fresh evidence as to events at Morecambe came from Mr. William Bailey, a cleaner. He said that on the Monday morning he noticed streaks of blood on the walls of one of the cells. Here the difficulty was that he did not mention his discovery to Chris Mullin in the course of an extended interview in late 1986. Of course he may have remembered it later. But that was not the reason he gave.
There was other fresh evidence designed to show that the appellants may have been ill - treated by the police, as they allege. But the court was unpersuaded. Having read all the fresh evidence at the 1987 hearing, we are not surprised. Neither Mr. Mansfield nor Lord Gifford have attempted to resurrect the argument before us. The ground on which they now seek to show that the written and oral confessions are not to be believed is very different. We will come to it in due course.
Fresh Evidence - The Scientific Issue
The Griess Test at the Trial
We now come to the fresh evidence which has become available since the hearing in 1987. In order to put the fresh scientific evidence in context, it is necessary to go back to the beginning again, and describe the tests performed by Dr. Skuse at Morecambe. Science had moved on since 1974. In those days there were five tests available to show recent contact with high explosive. Three of the tests were designed to detect the presence of nitroglycerine: the other two the presence of ammonium nitrate, with which nitroglycerine is commonly combined to form gelignite.
The first of the three tests is the Griess test. The Griess test is a simple colour test, used to detect the presence of nitrite. When the Griess reagent is added to a solution containing nitrite, it changes to a pink colour. It is important to notice that the Griess reagent does not react with nitroglycerine itself. It is first necessary to release the nitrite ions from the nitroglycerine. This is done by treating the nitroglycerine with caustic soda. If the Griess reagent is then added, it will produce the characteristic pink colour within ten seconds.
How then was the Griess test carried out in practice? Dr. Skuse took four swabs from each of the appellants, one from each hand, and one from beneath the fingernails on each hand. Having extracted the swabs in ether, and divided the extract into three small porcelain bowls, he added caustic soda and Griess reagent to the first bowl. If he got a pink colour within ten seconds he knew that he had the presence of nitrite. But he then had to eliminate the possibility of free nitrite from some other, innocent, source. This he did by adding Griess reagent to the second bowl, without first having added caustic soda. If he got no pink colour in the second bowl, he was 99 per cent. certain that the presence of nitrite in the first bowl was due to nitroglycerine.
The great advantage of the Griess test is its convenience. It can be carried out on the spot. Its disadvantage, as we shall see, is that it is not specific. In other words, there are other substances which may yield a positive reaction to the Griess test, depending on the conditions. Of these the most likely is nitrocellulose. This disadvantage explains why the Griess test has now fallen into disuse. On the Griess test as carried out by Dr. Skuse, Power's right hand proved positive. So did Hill's right hand. All other swabs were negative.
The second of the three tests for nitroglycerine is by means of thin layer chromatography, or TLC. Unlike the first test, it can only be carried out in the laboratory. It is a test for nitroglycerine itself, not for nitrite. It is more sensitive than the Griess test. We need not describe it further, since the results were all negative, including the swabs from Power's and Hill's right hands which had proved positive on the Griess test.
The third test is by means of gas chromatography/mass spectrometry, or GCMS. It is even more sensitive than TLC, and is said to be a thousand times more sensitive than the Griess test. Dr. Skuse did not have the GCMS equipment at Chorley. It was necessary for him to take his samples to the Home Office Central Research Establishment at Aldermaston. This he did on November 27, 1974. The equipment was operated by Dr. Janet Drayton. The particular piece of equipment had only arrived the previous year. All the results were negative, except sample FS17 corresponding to Hill's left hand. Dr. Drayton did not give evidence at the trial. Indeed there was very little consideration of the GCMS results at all. Dr. Skuse said he regarded the positive result on Hill's left hand as confirming his Griess result. Instead of being 99 per cent. certain, he was now 100 per cent. certain. He did not regard the negative GCMS results on Power's and Hill's right hands as undermining or invalidating the previous positive Griess results, even though, as we have seen, the GCMS is a thousand times more sensitive than the Griess test.
Dr. Black, on the other hand, did not regard the Griess test as being specific for nitroglycerine. It was a preliminary sorting test - no more. A positive result should be followed by a confirmatory test. A possible source of contamination on the hands of the appellants was old nitrocellulose from contact with a wooden surface on the train, or a public house bar top. Unfortunately Dr. Black had conducted no experiments to prove his theory. As for GCMS. Dr. Black was not able to develop his arguments very far, since the points which he wished to make had not been put to Dr. Skuse. In particular, he was about to give evidence, which might have been important, about certain graphs or traces produced by the GCMS equipment. But Dr. Skuse had not been asked about the traces. So they were never produced, and the point was allowed to drop. In Dr. Black's view the GCMS result in relation to FS17 did not prove conclusively the presence of nitroglycerine on Hill's left hand.
The judge did not attempt to explain the difference in view between Dr. Skuse and Dr. Black.
"As I have already said, this is such a complicated subject that I am not going to try and reproduce the technical difference on this issue. If I start trying to explain to you the mysteries of gas chromatography and mass spectrometry, what you see and what you do not see with the oscilloscope, and what is meant by atomic units and blips, and so on. I should be getting hopelessly out of my depth and. I suspect, out of yours too, members of the jury. There it is. Was the result described by Dr. Skuse about this scientific question as obtained from the GCMS test by him using the Hill swab from the left hand, or was it not? Alternatively, viewed from another angle, is it as complex as that?"
The judge went on to suggest how the jury should approach the scientific evidence.
"Members of the jury the resolution of scientific argument of this sort is difficult, particularly difficult for a jury of lay people, and I say once again that I am not going to try and go into the technicalities in detail because I would be in grave danger of misleading you. The only way that you can resolve these differences is by your impression of the witnesses. Use any technical knowledge that you have, but I suspect that in the end you will judge it primarily by your impression of the witnesses, and secondly perhaps by a comparison of their relative experience."
The judge then drew attention to Dr. Skuse's experience, Dr. Black's relative inexperience, the absence of any text book authority in favour of Dr. Black's theory, and his failure to carry out any experiments. He continued:
"I have read the transcript of Dr. Black's evidence and I discover that there is a point when I asked him a question. I said to him, 'Dr. Black, is this conclusion of yours based on anything other than your own theorising?'' and he said, 'Oh my Lord, to talk about theorising is rather unfair is it not?' Is it? If Dr. Black was not theorising, what was he doing?
Please do not think I am seeking to pre - empt your decision on this very important issue. You may see it differently from me. I am afraid that I have made my views on this issue between Dr. Skuse and Dr. Black pretty plain, and that is why it is right that I should emphasise once again what I said at the beginning of my summing - up, namely, that any issue of fact - and an issue of scientific fact is just as much an issue as an issue between a police officer and a defendant as to what was said - is a matter for your decision and not for mine, and if you think that in what I have been saying I have been talking rubbish, just disregard everything I have said and arrive at your own independent conclusions."
The judge concluded;
"Of course, if in forming your own judgment on this matter you prefer Dr. Black's view to Dr. Skuse's view, then you will obviously conclude that the forensic evidence of Dr. Skuse is of no value. Indeed Dr. Black's theory logically seems to imply not only that Dr. Skuse's theories were of no value, but that Dr. Skuse has been spending and must have spent much of his professional life wasting his time because, if Dr. Black is right, the Griess test was not worth carrying out ... Do you think that Dr. Skuse has been wasting most of his professional time? It is a matter entirely for you."
We will postpone consideration of the fourth and fifth tests for the detection of ammonium nitrate, until we have seen how the main scientific issue developed in the Court of Appeal in 1987.
The Griess Test in the Court of Appeal - 1987
In April 1985 Granada television commissioned Dr. Brian Caddy of the University of Strathclyde and Mr. Baldock of Bericon Services Ltd., Nottingham, to carry out tests to confirm Dr. Black's theory that nitrocellulose could give a positive reaction to the Griess test, depending on the conditions. They reported on May 30 and June 10, 1985. Using 1 per cent. caustic soda, they found that a number of nitrocellulose - coated objects in everyday use gave a positive reaction to the Griess reagent at room temperature, including in particular certain brands of playing cards. These findings prompted the Home Office to commission an investigation by Dr. Whistance and Dr. Fereday at the Central Research Establishment at Aldermaston. Their first report dated February 1986 confirms Dr. Caddy's findings. But, as the report points out, the detection level for nitroglycerine is much lower than for nitrocellulose, when the two compounds are tested under the same conditions. This means that if Dr. Skuse used, as was at first thought, a solution of 1 per cent. caustic soda at room temperature the positive results which he obtained could have been due to contact with nitrocellulose, especially if he used ethanol as a solvent. But if, as he claimed at the 1987 hearing, he used a much weaker solution of 0.1 per cent. caustic soda at sub - ambient temperatures without the use of ethanol as a solvent, then nitrocellulose could be excluded. Under those conditions the test becomes specific for nitroglycerine.
As a consequence, much time was taken up at the hearing in investigating the exact procedure followed by Dr. Skuse in 1974. There were pointers either way. In the event the Court of Appeal held that, as there was so much doubt as to his procedures, and in particular as to the strength of the caustic soda which he used, they could not safely regard his tests as being specific for nitroglycerine.
The Court of Appeal was, if we may say so, plainly right. Subsequent evidence has shown (indeed Dr. Whistance and Dr. Fereday had already shown) that Dr. Skuse cannot have used 0.1 per cent. caustic soda to detect nitroglycerine, as he said, because if he had the appellant's hands would have been dripping with nitroglycerine when they joined the train at Birmingham. Although a weak solution of caustic soda increases the specificity of the Griess test, it reduces its sensitivity. Indeed it was Dr. Skuse's case that he deliberately sacrificed one for the other. Dr. Whistance and Dr. Fereday found that with a solution of caustic soda as weak as 0.1 per cent., the detection limit was 500 micrograms. On the surface of the hand the quantity of nitroglycerine required to produce a positive reaction is considerably greater, due to the inefficiency of swabbing. Dr. Lloyd, to whom we will return later, has shown that the minimum amount of nitroglycerine detectable on a hand is 5 milligrams. But nitroglycerine on the hand decays very rapidly. If swabbing started at 5.50 a.m., as Dr. Skuse said, then the time which had elapsed since the appellants caught the train was 10 hours. During that time the nitroglycerine would have depleted by a factor of 10 - 3 . Accordingly the amount of nitroglycerine on the appellant's hands at Birmingham must have been a minimum of 5 grams, which corresponds to about 1 oz of gelignite. This is, as Dr. Lloyd points out, an absurdity.
So either Dr. Skuse cannot have used a solution of caustic soda as weak as 0.1 per cent., in which case his test was not specific for nitroglycerine, or, if he did, there must be some other explanation for his positive results. As we shall see, Dr. Lloyd has now hit on another explanation almost, it would seem, by chance. But we must first complete our account of the Griess test in the Court of Appeal.
Having held that Dr. Skuse's test could not be regarded as specific for nitroglycerine there remained the question what else, if not nitroglycerine, could have given the positive result which he saw. By the time the case reached the Court of Appeal the only other contender was nitrocellulose. How might the appellants have come into contact with nitrocellulose? Nitrocellulose - coated surfaces on the train were effectively ruled out by the first Aldermaston report; nitrocellulose varnish is not used in trains. So, also was contact with bar counters. That left only the playing cards. Dr. Caddy's experiments had shown that nitrocellulose traces could be transferred to the hands from certain brands of playing cards. The appellants called evidence in support of this theory. But it was rejected by the Court of Appeal for two reasons. The first reason was that any trace of nitrocellulose picked up from the cards would not have lasted long enough. The first Aldermaston report showed that such traces would have disappeared within three hours of the appellants ceasing to play cards. Secondly, the pack of cards which the appellants used has been tested for nitroglycerine by TLC. It proved negative. If the cards had been coated with nitrocellulose, it would have shown up on the TLC test, even though the laboratory was looking for nitroglycerine, not nitrocellulose. There was a possibility that the nitrocellulose coating on the cards, if any, would have remained intact, since the cards were washed in ether, and nitrocellulose is not soluble in ether. But this explanation was rejected as remote and theoretical.
Finally, the court drew attention to the inherent improbability of two of the players picking up nitrocellulose traces on their hands from the cards, and not the other three, including Hunter, the owner of the cards.
For all these reasons the court inferred that the cards were not coated with nitrocellulose, and therefore concluded that contact with nitrocellulose was not the explanation of the positive results found by Dr. Skuse. The Court was driven back to the only other alternative then being canvassed, namely nitroglycerine.
Two other things should be noted at this stage. First, the Court did not base its decision on the scientific issue on the absence of a possible source of nitrocellulose contamination. It based its decision, as we shall see later, on the positive result of the GCMS test. The court only stated its conclusion on the nitrocellulose theory for the sake of completeness. Secondly, the nitrocellulose theory has not been resurrected before us. The appellant's case before us rests on a quite different explanation.
Griess Test Before Us
In July 1990, Sir John May published an interim report on the Maguire case. This led to a fresh review of the scientific evidence in the present case. The review was undertaken by a team of scientists at the Forensic Science Laboratory at Birmingham, under the leadership of Dr. Scaplehorn. Their report is dated September 13, 1990. One of Dr. Scaplehorn's team was Dr. Lloyd, a leading expert in the explosives field. In the course of work which he has carried out since September 1990 in another connection, Dr. Lloyd has discovered the presence of nitrite in an ordinary laboratory detergent, which can persist in a porcelain bowl after it has been cleaned so as to give a positive result to a Griess test. If this is indeed the explanation of Dr. Skuse's results, it is difficult to see why it did not occur to any of the scientists before. Dr. Lloyd has tested a number of different soaps and detergents. In addition to the laboratory detergent, he obtained strongly positive results from Sainsbury's wire wool scouring pad soap, another brand of liquid toilet soap, and a laboratory glasswear cleaner. Dr. Lloyd assumes that nitrite is included in these soaps and detergents as an anti - corrosive additive. Many other ordinary soaps and detergents which he tested contained no nitrite.
An obvious objection to the theory that Dr. Skuse's results may have been due to nitrite contamination from the soap used by Dr. Skuse to clean his porcelain bowls is that although some of his results were positive, most were negative. Dr. Lloyd meets this difficulty by another series of experiments designed to show that the persistence of nitrite in the bowl depends critically on the number of times the bowl is rinsed. If it is rinsed twice, he gets a strong positive. If it is rinsed five times he gets a negative.
The evidence was that Dr. Skuse washed his bowls with soap. If, to illustrate the point, he rinsed the first bowl twice, and the second bowl five times, he would get nitrite contamination in the first bowl but not in the second. This would have led Dr. Skuse to infer the presence of nitroglycerine. Having listed the other factors which might affect the persistence of nitrite contamination in the bowl, Dr. Lloyd concluded:
"Any slight variation in these factors is liable to erratically switch the response between negative and positive. There is, hence, a clear possibility that bowls washed in such soaps will give at random a response attributable to nitroglycerine."
There are two other considerations which lend weight to Dr. Lloyd's explanation. Dr. Skuse gave evidence that in the course of carrying out his tests at Morecambe, he met with an unexpected difficulty. It was his practice, as we have said, to wash his bowls with soap after each test so as to make sure that a positive response on one test would not contaminate the next test. Having washed the bowls, he would then test them. If he did not get a "blank" he would wash them again. After getting a positive result from Hill's right hand, he duly washed the bowls. But he found to his surprise that he was unable to get a blank. We quote his evidence:
"When I had finished testing Mr. Hill, which would be in the region of 7.35 a.m., I began to get ready to receive the next gentleman and I could not get blank tests from my dishes. I tried once; I tried twice; and I was not happy. So I stopped the job."
Dr. Skuse thought that the trouble might have been due to the ether which he was using. So he sent for a fresh supply of ether. When he got back to his laboratory he tested the ether. But there was nothing amiss. He was left without any explanation of why he had had difficulty in obtaining a blank. It did not occur to him (or if it did, he did not say) that the cause of the difficulty might cast doubt on his earlier positive identification of nitroglycerine in the case of Power and Hill.
Dr. Lloyd's theory now provides an explanation of why Dr. Skuse had so much difficulty in obtaining a blank. In laymen's terms, the harder he washed the bowls, the more likely they were to become contaminated. There is, of course, no evidence that the soap which Dr. Skuse used contained a nitrite additive. Indeed there was some contemporary evidence that he was not using soap at all, but Vim, which gives a low Griess response. But the possibility cannot be ruled out.
The second factor which lends weight to Dr. Lloyd's theory is this. One of the questions which Dr. Skuse was asked at the 1987 hearing was why, if TLC is more sensitive than the Griess test, he got a negative result in the laboratory on Power's and Hill's right hands, after a positive result in the police station. Although the Griess test is no longer in use, the better view has always been that it was no more than a preliminary screening test subject to confirmation by some other test. When Dr. Skuse got a negative result on TLC. he should have questioned his earlier positive Griess results. His only explanation at the 1987 hearing was that the nitroglycerine might have evaporated before he got back to the laboratory. Now, of course, a simpler explanation has been suggested. If his positive results at the police station were due to nitrite contamination from the soap he was using, one would not expect the result to be confirmed by TLC. For TLC is a test for nitroglycerine, not nitrite. It would also explain why Power's right hand was positive but not his left hand, nor the swabs from beneath his finger nails.
Another piece of evidence which has emerged since the last hearing is the statement of Dr. Bamford. On the night of the bombing he was called out to swab and test all the passengers on the Liverpool - Belfast boat. Two of the passengers were found to be positive on the Griess test, and were taken away for questioning. It transpired that they had been handling some form of shiny adhesive tape. Dr. Bamford was given a piece of the tape to test. He obtained a similar reaction.
Dr. Bamford's most recent statement is dated October 19, 1987, just before the last hearing in the Court of Appeal. It is not clear why it was not made available to the appellants until November 1990. Moreover one would have expected Dr. Bamford to have discussed his results with Dr. Skuse, since they were both based at Chorley. Dr. Lloyd has since tested 38 brands of self - adhesive tape, mainly from the mid - 1970s. Fourteen were shiny tapes of the kind described by Dr. Bamford. Dr. Lloyd has been unable to confirm Dr. Bamford's results. They must therefore remain something of a mystery.
Dr. Bamford's statement is important because is shows that even in 1974 the Griess test should only have been regarded as a screening test.
At the hearing before us. Dr. Lloyd was unable to give evidence due to ill - health. So evidence was given on his behalf by Dr. Scaplehorn, the head of the team. As a consequence, Dr. Lloyd was not cross - examined. Nor was Dr. Scaplehorn cross - examined, in an adversary sense, by the Crown, since the report was accepted by the Crown as accurate, and indeed had been provided by the Crown in the first place. It may be that, if Dr. Lloyd had been rigorously cross - examined, his conclusions could have been shaken. So far as we are concerned, however, we see no ground for not accepting his conclusions, supported as they were by Dr. Scaplehorn, at their face value. If that is right, then Dr. Skuse's evidence at the trial based on his Griess tests is now shown to be unreliable. There is no satisfactory evidence that Power or Hill had nitroglycerine contamination on their right hands. That leaves only Hill's left hand.
GCMS Test at the Trial
The GCMS test consists of two separate stages, carried out in two separate pieces of connected equipment. The extract for testing is first injected into a gas chromatographic column, which is filled with particles of refined earth. The extract is carried through the column by a solvent into a mass spectrometer. Different substances take different times to pass through the column. On the day in question nitroglycerine took 4.2 minutes.
When the extract reaches the mass spectrometer, it is irradiated with energised electrons. Fragments of different atomic mass are produced, characteristic of the substance or substances comprising the extract. For nitroglycerine the three most abundant ions are 30, 46 and 76. 46 is the predominant mass. 30 and 76 are less intense. Thus the intensity of 76 is only 9 per cent. of the intensity of 46. As the nitroglycerine passes into the mass spectrometer, one can read off the masses on an oscilloscope. For a unique identification one would want to see all three masses emerging at 4.2 minutes. But on the day in question, the multiple ion detector was set to show 46, and not 30 or 76. The reason for this was that the extract was extremely small. By setting the multiple ion detector to pick up 46, and not the other masses, it increased the sensitivity to that mass, and so made it easier to observe any signal on the oscilloscope at the correct retention time. As already stated, Dr. Drayton who operated the GCMS equipment at Aldermaston was not called to give evidence at the trial. But Dr. Skuse said that they both saw a small increase in 46 at the correct retention time of 4.2 minutes. This was enough to make Dr. Skuse 100 per cent. certain that Hill's left hand was contaminated with nitroglycerine. The fact that a subsequent Griess test on the same sample proved negative did not concern him, since the Griess test is much less sensitive.
GCMS in the Court of Appeal - 1987
Whereas, at the trial, the GCMS result on Hill's left hand was treated as peripheral, presumably because Dr. Skuse was so sure of his Griess results, or perhaps because the GCMS test was likely to prove difficult for the layman to understand, at the 1987 hearing it moved centre stage. Dr. Drayton was called. She proved to be a very impressive witness. We can confirm this, having heard her give evidence ourselves. When the sample from Hill's left hand - FS17 - was injected she said she saw a very small increase or peak on 46 at 4.2 minutes. She was referred to a letter which she wrote to the Director of the Forensic Science Laboratory at Chorley dated December 3, 1974, in which she set out her results in tabular form. In three cases, from another investigation, she detected nitroglycerine. In two of those three cases she added the comment "large increase in 46." In the other case she found a small increase in 46. In the case of FS17, she reported "possible nitroglycerine present", and added "very small increase in M/E46". We quote a short passage from her evidence - in - chief.
"And when you wrote your letter of 3rd December, your interpretation of that which you recorded was 'possible ng present';
A. Yes.
Q. Why did you qualify it in that way?
A. I qualified it with the word 'possible' mainly because the peak at 46 was very small.
Q. Any other reason?
A.No.
Q. Was that combined reading of 46 at 4.2 minutes consistent with anything else that you were aware of?
A. Detecting the 46 mass at 4.2 minutes was, as far as I am aware, only consistent with nitroglycerine."
In her written statement she had said;
"It is extremely unlikely that there is another compound which has the same retention (under the set conditions) and has an abundant ion at mass 46."
Alternative explanations were suggested by Dr. Caddy and others at the 1987 hearing. One suggestion was that the sample may not in fact have emerged from the G.C column at 4.2 minutes. Another suggestion was that a fragment of nitroglycerine might have become trapped in the G.C. column, from a previous run, and then been dislodged, by chance, at precisely the correct retention time. As to the latter suggestion, the Court of Appeal agreed with Dr. Drayton that it was not worthy of sensible rational consideration. As to the former, Dr. Drayton said that if there had been any doubt as to the retention time, she would have run the sample again. In the light of Dr. Drayton's evidence, and in the absence of any alternative explanation for the peak on 46 at 4.2 minutes, the Court of Appeal found that the presence of nitroglycerine on Hill's left hand, for which there could be no innocent explanation, was proved beyond reasonable doubt. Mr. Mansfield made clear that it was not part of his case before us that the Court of Appeal misunderstood Dr. Drayton's evidence.
GCMS Before Us
In opening the appeal before us Mr. Mansfield indicated that he would not be calling Dr. Drayton. He was content to rely on Dr. Scaplehorn. Since the decision of the Court of Appeal in 1988 was clearly based on their acceptance of Dr. Drayton's evidence, it seemed to us that we ought to hear from Dr. Drayton direct. So it was arranged that she would be called by the respondent.
Dr. Scaplehorn's evidence was that the significance of the peak seen by Dr. Drayton was rather limited. In the first place the response was very weak. In the second place Dr. Drayton was not able to say that mass 46 was the preponderant ion, since the multiple ion detection screen was set to detect one ion only. Other compounds exhibit a weak ion at 46. A peak at 46 is of limited significance unless it is shown to be the preponderant ion. It is only conclusive if the other ions are 30 and 76.
Dr. Lloyd conducted a series of experiments to see what other substances might account for the increase in 46 seen by Dr. Drayton. Unfortunately, the GCMS equipment used by Dr. Drayton has now been superseded. Science, as she said in evidence, has moved on in 16 years. It was found impossible to reproduce the conditions under which she tested FS17. But one of the swabs tested by Dr. Lloyd proved crucial. It was taken from the hand of a smoker, although that was not in itself of any significance. He clearly had not been handling explosives. Yet it showed a distinct peak on 46 at about the same retention time as nitroglycerine. Dr. Lloyd is unable to say what the substance was which produced the peak. A typical swab contains a myriad of different substances. But there it was, for all to see, in the chromatogram included among our papers.
Dr. Drayton was naturally asked whether she disagreed with the conclusions reached by Dr. Scaplehorn and Dr. Lloyd as a result of their recent work. She said she did not. In 1987 she had regarded it as extremely unlikely that any substance other than nitroglycerine could produce a peak on 46 at 4.2 minutes. In the light of the fresh evidence she has now modified her view. There is something else, which has not yet been specifically identified, which is capable of producing a similar response. In her letter of December 3, 1974 she reported the possible presence of nitroglycerine in FS17. She now accepts that what she saw may equally have been due to something else. The court would like to express its admiration for the way in which Dr. Drayton gave this evidence.
Another development since the last hearing is the discovery of a small orange cardboard box containing a number of ultra - violet charts or traces produced by the mass spectrometer on November 27, 1974, recording some of the samples run on that day. It seems extraordinary that the box, which might have contained vital evidence, was not discovered before. As it happens the charts are of no real significant, since the chart for FS17, if it ever existed, is missing.
But, two of the charts are so - called background charts. They show a slight increase on 46, even though no sample was being run at the time. In opening the appeal, Mr. Mansfield submitted, on the strength of these background charts, that a peak may have been present all day, and that Dr. Drayton may, as he put it, have "miss - seen" the background peak when reporting on FS17. But this point was not put to Dr. Drayton in cross - examination. Indeed Mr. Mansfield did not cross - examine Dr. Drayton at all. Dr. Drayton told us that she would never have tested a sample without being sure, as she said, that the system was clean. It was her machine. We accept without hesitation what she said. In the end the point was not pressed.
Ammonium Nitrate
Lastly we return to the fourth and fifth tests carried out by Dr. Skuse. These were, it will be remembered, designed to detect the presence of ammonium nitrate, a constituent of gelignite. We need only mention the fourth and fifth tests for this reason, that they were the sole basis for Dr. Skuse's evidence that Walker could have been in contact with commercial explosive. Walker was negative on all other tests.
There are two tests for ammonium nitrate, one for ammonium, the other for nitrate. According to Dr. Scaplehorn, the presence of ammonium ions is of no significance. As for nitrate ions, there is some doubt as to which of two tests Dr. Skuse carried out. But according to Dr. Lloyd, neither test was capable of distinguishing between nitrate and nitrite. Since nitrite is commonly found (it was found on five out of 38 swabs taken at random) Dr. Lloyd's view is that the test for nitrate should be disregarded.
Once again we emphasis that neither Dr. Scaplehorn nor Dr. Lloyd have been cross - examined. But once again we see no reason not to accept their conclusion, supported as it was by Dr. Drayton. As a consequence there is now no satisfactory evidence that Hill's left hand was contaminated with nitroglycerine, nor that any of the appellants were contaminated with ammonium nitrate. That disposes of the scientific evidence on which the prosecution case at the trial was based.
Lastly we should mention that Dr. Skuse himself wrote to the court prior to the hearing saying that he might have relevant evidence to give. The Crown Prosecution Service gave him every opportunity to indicate what he might want to say, and took great pains to furnish him with all the material he required. We have looked through a large bundle of correspondence passing between him and the Crown Prosecution Service. It contains nothing which we ought to receive in evidence under section 23 of the Criminal Appeal Act 1968 .
Through his solicitor, he has furnished us with two statements of Dr. Toseland, of Guy's Hospital, President of the British Academy of Forensic Science in 1988 - 1989. The first statement is dated just before the last hearing in the Court of Appeal. The other is dated February 28, 1991. In the latter, Dr. Toseland makes two points. They both relate to the detection level for nitroglycerine with 0.1 per cent. of caustic soda. Neither side sought to tender Dr. Toseland's statements as fresh evidence before us. So it was not necessary for us to decide whether to receive these statements. We did not feel competent to assess the statements ourselves, without help. In any event they related to only one aspect of the scientific evidence.
Fresh Evidence - The Police Issue
We now come to the second of the two pillars on which the prosecution case at the trial rested. On March 20, 1990, the Home Office wrote to the Chief Constable of West Midlands asking for his comments on ten questions which had been raised by the solicitors acting for the appellants. On the following day, March 21, the chief constable wrote to Mr. Evans, Chief Constable of the Devon and Cornwall Police, asking him to carry out a further investigation. On March 26, Mr. Evans appointed three senior officers to help him, including Chief Superintendent Essery. All three officers had been involved in the 1987 enquiry. Mr. Evans did not confine himself to the 10 questions, later increased to 12 questions, raised by the Home Office. His investigation covered every possible aspect of the case, and was of quite extraordinary thoroughness.
One of the first decisions which Mr. Essery took was to submit virtually all important documents in the case to electrostatic document analysis, or ESDA. Included among these documents was the contemporaneous note made by D.C. Woodwiss of the interview with McIlkenny at 12.30 on Friday, November 22. (We shall refer to this interview as the first interview although there was some brief questioning by Superintendent Ibison at 5.50 a.m. when he took McIlkenny to see Dr. Skuse). The ESDA test showed, or appeared to show, that the note cannot have been contemporaneous. Since all the officers present at the interview, including Superintendent Reade, swore at the trial that the note was contemporaneous, they were asked to comment. Superintendent Reade was seen on August 21, 1990. The interview was taped. Towards the end of the interview he was asked to comment on the result of the ESDA test on the notes of McIlkenny's first interview. He could give no satisfactory explanation. We quote some passages from the interview.
"A. What you are suggesting in effect is that the thing has been re - written?
Q. That is correct Mr. Reade.
A. Well not to my knowledge.
Q. Do you understand the implication?
A. I understand the implications, what I am saying to you is I have no knowledge of those notes being rewritten and I cannot explain it but I can see reasons for it and I can see explanations for it if we can both, if we've got somebody, an expert went through it, I can see a way it can be done and it could be done quite accidentally.
Q. But you are unable to offer me an explanation?
A. I can't, I can't."
And a little later, when given another opportunity to explain, he said;
"No I can't not at this stage. I'll give it a lot of thought when I can sit down and listen and study this. I will probably be able to, but not at this stage."
Mr. Evans reported to the Home Secretary on August 27.
It was Superintendent Reade's inability to explain the ESDA test of the McIlkenny interview, and the refusal by D.S. Morris and D.C. Woodwiss to answer any questions, which led the Home Secretary to refer the case back to the Court of Appeal. We quote from his letter dated August 29, 1990.
"It appears to the Home Secretary that these developments raise questions about the reliability of evidence given at the trial by the police officers who conducted the investigation and, therefore, constitute a new fact which might affect the safety or reliability of the convictions of the six men. In these circumstances the Home Secretary considers that the Court of Appeal should have the opportunity to consider whether the six men's convictions should be regarded as unsafe or unsatisfactory."
Although the reference back to us was on the single ground which we have just mentioned, the appellants were not confined to that ground: see Chard (1984) 78 Cr.App.R. 106 . Mr. Mansfield was entitled to develop other grounds, as for example in relation to the scientific evidence. It will be seen, however, that the ground on which the case has been referred back to us has nothing to do with the allegation of police brutality which formed the principal ground of appeal in 1987. We repeat that while Mr. Mansfield has not abandoned those allegations, he has not developed them before us, or indeed relied on them in any way.
The Investigation by Mr. Evans - 1990
Once the Home Secretary had referred the case back, the Director became respondent to the appeals. There was a meeting with the Director on September 4, when it was decided to submit the original documents to further detailed examination by Dr. Baxendale at the Home Office Forensic Science Laboratory, Birmingham. Other areas for investigation were the so - called Reade schedule, a document which surfaced just before the 1987 hearing, and the failure to keep custody records both at Morecambe and at Queen's Road.
A very large number of documents, including all the relevant police notebooks, were submitted to Dr. Baxendale on September 17. His report is dated December 11. Meanwhile Mr. Evans and his team had identified the 25 police officers whom they wished to interview, including those they had already interviewed in August. They prepared lists of over seven thousand questions, and individual questionnaires for each officer. Interviewing started on January 14, 1991. D.S. Morris, D.C. Woodwiss and D.C. Langford declined to answer any questions on the advice of their solicitors. Other police officers said they would deal with the questionnaires by furnishing a written statement. We have seen those statements. In the main the police officers sought to rely on the evidence they had given at the original trial, and on their answers at the earlier investigation by the Devon & Cornwall Police in 1987. Superintendent Reade was the last to be interviewed. He had told Mr. Evans the previous August that he would be visiting relations in Australia at Christmas. He has since returned. He was interviewed at Melbourne over a total of 10 hours on February 14 and 15, 1991. We have seen the transcript. He co - operated fully. He answered or attempted to answer all Mr. Evans' questions. But he was still unable to give any satisfactory explanation for the "contemporaneous" note of the first McIlkenny interview. We now take each of the three main areas of Mr. Evans' investigation in turn.
ESDA - the MeIlkenny Interview
When something is written on a sheet of paper, an imprint or indentation will normally be found on the sheet immediately below. Depending on the pressure of the writer, this imprint may be carried through to a third or fourth sheet. The purpose of ESDA is to make it easy to read the imprint on the sheet below. The sheet in question is placed on a metal plate, and covered with a very thin film. The plate is given an electrostatic charge, and sprinkled with a fine powder. The effect is that the indentations show up black on the ESDA foil, and the writing on the sheet itself shows up white. The foil may be photographed for subsequent reference. The imprint from the sheet above, and occasionally from the sheet above that, can be read by the naked and untutored eye. In addition to ESDA. Dr. Baxendale also examined the paper on which the notes of the McIlkenny interview were written, as well as the ink.
The interview occupies 10 pages. It started at 12.30 and finished at 1.30. It was signed at the bottom of page 10 by D.S. Morris and D.C. Woodwiss, and countersigned by Superintendent Reade. Superintendent Reade added the date, November 20, 1974 (an obvious but curious error) and the time, 1.35. On page 11 D.C. Woodwiss has added a note of McIlkenny's arrest at 3.00 p.m. the same afternoon, when D.S. Morris and D.C. Woodwiss told him that he would be taken to Birmingham for further enquiries. Near the top of page 7, D.C. Woodwiss records the arrival of Superintendent Reade, who then took over the interviewing for the next four pages, that is to say pages 7 - 10. It will be remembered that Superintendent Reade's evidence was that he joined the interview at 1.20 p.m. D.C. Woodwiss said at the trial that he took his notes on a pad of paper which he was given at Morecambe, since he had left his own notebook behind in Birmingham.
Dr. Baxendale's findings on the paper and ink can be summarised as follows.
(1) Pages 1 - 6 and page 11 all come from the same pad. Pages 7 - 10 come from a different pad. The dimensions are very slightly different, and the striations along the top edge are different.
(2) Pages 1 - 11 are written with a black ballpoint pen. But on pages 7 - 10 the ink is more heavily deposited. Dr. Baxendale concludes that they were written with a different pen.
(3) Neither of the two pads used for pages 1 - 11 were of the same paper as the standard pads issued to the Lancashire Constabulary in 1974.
But much more important then these findings is what was revealed on the ESDA foils. Pages 2 - 6 all bear the imprint of the previous pages 1 - 5, as one would expect, but page 7 does not bear the imprint of page 6. On the contrary; page 11 bears a partial imprint from page 6, and more important still, an imprint from the top of page 7, ending with the words "we then leave room 1.30 p.m." The inference is inevitable that the notes of the interview originally ended at the top of page 7. The original page 7 was then torn up, a new page 7 substituted, and pages 8 - 10 added, recording the part of the interview in which Superintendent Reade was said to be present.
There is a further fact which points in the same direction. There was a subsequent interview with McIlkenny, also recorded by D.C. Woodwiss, on pages 12 - 19. It lasted one hour and 10 minutes. The required speed of writing works out at 60 characters per minute. At the first interview, lasting one hour, the required speed of writing works out at 96 characters per minute. But if the interview had ended, not at page 10, but at page 7, the required speed of writing would work out at almost exactly the same as the second interview, namely 61 characters per minute.
Nobody has been able to think of an honest explanation for the result of the ESDA test of the first McIlkenny interview. At best, the officers were lying when they told the court that D.C. Woodwiss was noting the interview continuously from 12.30 to 1.30. At worst they must have put their heads together to fabricate the part of the interview at which Superintendent Reade was said to be present, or perhaps even the whole of the interview.
A curious fact is that McIlkenny did not make any admissions during his first interview. What purpose then could the police have had in fabricating the interview? Perhaps we shall never know. But in the absence of an honest explanation for the "contemporaneous" notes, the impact on the trial of this new evidence must have been very great, all the more so since McIlkenny was steadfastly denying that any such interview ever took place at all. McIlkenny said that the only interview which he had on November 22 was much shorter, and much earlier.
We turn now to the second interview at 10.10 a.m. on Saturday November 23. It is recorded on pages 12 - 19. The interview finished at 11.20 a.m., when the officers took a statement. The statement was finished at 12.05 p.m. when the notes were signed by D.S. Morris, D.C. Woodwiss and D.C. Langford. Pages 12 - 16 are from the same pad as pages 1 - 6 and 11. Each bears the imprint of the preceding page. Page 17, however, is from a different pad and so are pages 18 - 19. So four different pads were used in all for the two interviews. The ink on page 17 is also different. It was at the foot of page 17 that McIlkenny confessed. If the interview was being noted continuously, one would have expected page 17 to bear the imprint of page 16. But it does not. It bears the imprint of a different page 16. Since the existing page 16 bears the imprint of page 15, it looks as though the officer started on a rewrite of page 16, and then, for some reason, tore it up. Similarly one would have expected page 18 to bear the imprint of page 17. But it does not. It bears the imprint of an earlier version of page 18, which has since been torn up. It is possible that page 17 was the last page of the pad. But bearing in mind that it is on different paper from any other page in either interview, it looks as though it has been rewritten at some stage. On any view the second interview cannot have been noted contemporaneously as the officers insisted.
Police Notebooks
Dr. Baxendale conducted a minute examination of Superintendent Reade's notebook, and the notebooks of the other officers concerned. He has shown that in many cases the marginal notes in Superintendent Reade's notebook are entered in a different ink, and therefore at a different time from the text. These marginal notes record the time when he wrote up the various interviews. Sometimes the time of an interview has been inserted subsequently in the text itself. The same is true of some of the other officers' notebooks. Mr. Mansfield relies on this evidence to support an argument that the interviews may not have been noted up at the times stated by the officers in evidence. Indeed he argued that the notebooks may not have been written up until sometime in 1975, when the officers were making their statements.
In this connection there is a significant mistake which appears to have been made on three different occasions in three different notebooks. On two occasions the mistake was made by D.I. Moore. In D.C. French's notebook, at page 52, there is a note of an interview in another investigation which took place on October 29, 1974. The note was countersigned by D.I. Moore on October 31, 1974. But the oval rubber stamp over which his signature is written bears the date, subsequently altered in ink, February 3, 1975. In D.C Watson's notebook at page 36, D.I. Moore has countersigned the note of an interview with Power on November 22, 1974, with the date "22nd November 75" subsequently changed to "74." In D.S. Millichamp's notebook at page 10, the note of his arrival at Morecambe police station is headed "Friday 22nd November 1975" subsequently changed to 1974.
There is a further perplexing feature. Superintendent Reade's evidence was that he copied that part of McIlkenny's first interview at which he was present into his own notebook. Why he should have done this, at 2.00 p.m. on November 22, when he presumably had much else to do, is not clear. At the trial he said he did it because he found it difficult to read D.C Woodwiss's handwriting. Putting that on one side, at the bottom of page 8 of D.C. Woodwiss's note of the interview, it reads;
"Hunter says that you all met yesterday and that you and Walker were together , that you met last night at New and were all going to Belfast together for various reasons, it that true?"
When Superintendent Reade transcribed that passage into his notebook at p. 66 he wrote;
"Hunter says that you met last night at New Street and were all going to Belfast together for various reasons. Is this true?"
It will be seen that Superintendent Reade has left part of the sentence out. Yet another version appears in Superintendent Reade's pre - trial statement dated January 20, 1975.
"Hunter says that you all met yesterday and that you and Walker work together, that you met last night at New Street, and were all going to Belfast together for various reasons. Is that true?"
At the trial he said he was refreshing his memory from his notebook. Yet his evidence corresponded to his statement.
A similar problem arises in relation to his interview with Hunter at 10.45 a.m. on November 22. In his notebook at page 47 appears the following passage.
"Last night something like between 15 and 20 people were killed in Birmingham by two bomb explosions. You have already told me that you have been friendly with a known IRA man who blew himself to pieces whilst carrying a bomb, I mean McDade."
His statement is based on his notebook, and so was his evidence. Yet when D.I. Moore gave evidence about the same interview, refreshing his memory from the same notebook, his evidence was as follows:
"What we are concerned with is that last night something like between 15 and 20 people were killed in Birmingham by two bomb explosions. You and others left Birmingham shortly before these explosions . You have already told me that you have been friendly with a known IRA man, who blew himself to pieces whilst carrying a bomb, I mean McDade."
From D.I. Moore's evidence it is clear that the second sentence ending with the word "explosions" has dropped out from Superintendent Reade's notebook. This suggests that Superintendent Reade's notebook, as we have it, is not the original composition. It must have been copied from some now missing source, which then resurfaced in the course of D.I. Moore's evidence.
It may be said that none of this really matters; that in the real world police officers making up their notebooks after an interview, as they did in 1974, must have made some preliminary rough notes. Even if their notebooks were not made up until much later, perhaps in 1975, it does not necessarily mean that their evidence cannot be relied on. The difficulty, however, is that this is not what the officers said at the trial.
Reade Schedule
Unlike the McIlkenny interview and the police notebooks, the Reade schedule was the subject of extensive evidence and argument at the previous hearing in the Court of Appeal. The document came to light in the course of the earlier investigation by the Devon and Cornwall police in 1987. It consists of seven pages divided into large squares. Each page has seven columns headed across the top "date" "time" "officers" "prisoners" "place" "reference" "knowledge of." There are 27 entries down the left hand margin starting at 3.15 a.m. on November 22 and ending at 3.15 p.m. on November 24. The document is in Superintendent Reade's handwriting. It contains many additions and corrections, also in Superintendent Reade's handwriting.
Superintendent Reade says he cannot remember what was the purpose of the document. He has given a number of different explanations, the most recent of which is that it was prepared for the use of counsel at the trial. It is quite clear to us, from internal evidence, that that explanation cannot be correct. Equally it cannot have been prepared before the interviewing began. It is much more likely to have been prepared shortly after the interviewing was completed. What then was its purpose? At the 1987 hearing Mr. Mansfield put it to Mr. Reade that the purpose was to enable him to decide during which interview, each of the appellants should be said to have confessed.
"[Lord Chief Justice]: So this was a blue print for a completely false case to be put forward by the police witness at the trial?
[Mr. Mansfield]: That is right."
At 3.05 p.m. on Saturday November 23 there was an interview with Callaghan. In the column headed "officers" it reads "D.S. Hornby and crew" the letters "D.C." have been crossed out. On the last page, beneath the last entry, appear the words "Davies and Bryant will be OK." It was suggested by Mr. Mansfield that Superintendent Reade had to "square up" something with the two officers before entering their names in the schedule, and that is why he wrote "DS Hornby and crew." Superintendent Reade replied:
"Not at all. As I have said to you previously you are suggesting to me I was picking the names out of a hat to interview prisoners fictitiously. That, as I have said before, is preposterous. I could not do that sort of thing.
[Lord Justice Stephen Brown]: Is the suggestion, Mr. Mansfield, that this witness instructed two other officers to make a false allegation of a false confession.
[Mr. Mansfield]: My Lord it does not write it all out.
[Lord Chief Justice]: This is the master perjury plan?
[Mr. Mansfield]: Yes."
There remains the most puzzling entry of all. At 3.40 p.m. on Saturday November 23 there is recorded an interview with Hill. Under the "officers" column there appears D.I. Moore, D.S. Bennett, D.C. Brand. "D.C. Bennett leaves room 4.30 to 4.40 p.m. gets information re Callaghan's statement." In the reference column there is a question mark. Subsequently the entire entry has been scratched out, and the word "out" underlined three times appears in the "prisoners" column. Hill's evidence at the trial was that there was indeed an interview in the afternoon of November 23, at just about the time of the interview which has been crossed out in the Reade schedule.
Mr. Mansfield's explanation of the crossing out is that there was no need for the interview, once it had been decided that Hill should confess in the course of the morning interview, on being shown McIlkenny's statement.
Superintendent Reade was asked about the crossing out of the Hill interview, just as he was asked about the first McIlkenny interview, at the resumed interview with Mr. Evans in February 1991. But he could think of no explanation other than that he must have been misinformed.
The Court of Appeal heard Superintendent Reade give evidence in 1987. They were certain that he did not seek to deceive them. Whatever else it might be, they said, the Reade schedule was not a blue print for perjury. Having seen Superintendent Reade the court did not think him capable of organising or carrying through such a huge and complicated conspiracy. We are now three years on. We know now that Superintendent Reade, whether or not he is capable of organising a conspiracy, is at least capable of deceiving the court with regard to the McIlkenny interview.
We are not persuaded that the many alterations in the Reade schedule, and in particular the adjustments to the timing of interviews, had the sinister implication for which Mr. Mansfield contended, if, as we think likely, the schedule was prepared in the week or so following the completion of the interviewing. It is equally consistent with Superintendent Reade working out, on incomplete information, exactly what had happened, and when. But the crossing out of the Hill interview is much more difficult to explain. In the absence of any explanation from Superintendent Reade, it must cast additional doubt on the honesty and reliability of his evidence. It is highly reprehensible for a police officer to deceive the court. But it is another thing to be capable of organising a widespread conspiracy of deceit. We need not go further than say, that on the evidence now before us, Superintendent Reade deceived the court. We do not think we should go further than that, without having heard Superintendent Reade, and the other officers alleged to be party to the conspiracy.
Custody Records
Another area of fresh evidence since the 1987 hearing is the absence of properly completed charge sheets and custody records, particularly at Queen's Road. The records were only made up just before the appellants were transferred to the central lock - up. It is not clear who gave the order that custody records should not be kept in the ordinary way. Certainly the decision was taken at a high level. Whoever took the decision, Mr. Mansfield argued that it allowed Superintendent Reade a free hand to weave his intricate web of deceit. We attach little weight to that argument in isolation. It was further suggested that D.S. Higgins' signature on Callaghan's custody record was a forgery. But the evidence about that was inconclusive, so we say no more about it.
The Role of the Court of Appeal
Since the present appeal has given rise to much public discussion as to the powers and duties of the Court of Appeal (Criminal Division), and since the Home Secretary has set up a Royal Commission to investigate and report, it may be helpful if we set out our understanding of the present state of the law.
(1) The Court of Appeal (Criminal Division) is the creature of statute. Our powers are derived from, and confined to, those contained in the Supreme Court Act 1981 , the Criminal Appeal Act 1968 and the Criminal Justice Act 1988 . We have no inherent jurisdiction apart from statute: see Jefferies (1968) 52 Cr.App.R. 654, [1969] 1 Q.B. 120 , Collins (1969) 54 Cr.App.R. 19, [1970] 1 Q.B. 710 and D.P.P. v. Shannon (1974) 59 Cr.App.R. 250, [1975] A.C. 717 . Thus we have no power to conduct an open - ended investigation into an alleged miscarriage of justice, even if we were equipped to do so. Our function is to hear criminal appeals, neither more nor less.
(2) Just as we have no powers other than those conferred on us by Parliament, so we are guided by Parliament in the exercise of those powers. Thus by section 2(1) of the 1968 Act we are directed to allow an appeal against conviction if, but only if, (a) we think that the conviction is unsafe or unsatisfactory; (b) there has been a wrong decision on a question of law or, (c) there has been a material irregularity. In all other cases we are obliged to dismiss the appeal. Where we allow an appeal, we are directed by section 2(2) to quash the conviction. Where we quash the conviction, the order operates, by virtue of section 2(3) as a direction to the trial court to enter a verdict of acquittal, except where a retrial is ordered under section 7 of the Act. Nothing in section 2 of the Act, or anywhere else obliges or entitles us to say whether we think that the appellant is innocent. This is a point of great constitutional importance. The task of deciding whether a man is guilty falls on the jury. We are concerned solely with the question whether the verdict of the jury can stand.
(3) Rightly or wrongly (we think rightly) trial by jury is the foundation of our criminal justice system. Under jury trial juries not only find the facts; they also apply the law. Since they are not experts in the law, they are directed on the relevant law by the judge. But the task of applying the law to the facts, and so reaching a verdict, belongs to the jury, and the jury alone. The primacy of the jury in the English criminal justice system explains why, historically, the Court of Appeal had so limited a function. Until 1907, there was no Court of Criminal Appeal at all. If, before then, a point of law arose in the course of a trial, the judge could "reserve" the point, if he thought fit, for consideration by the Court for Crown Cases Reserved. In the event of the point being decided in favour of the accused, the conviction would be quashed. But there was no right of appeal as such. The Criminal Appeal Act 1907 created the right of appeal for the first time. It also enabled the Court of Criminal Appeal to receive fresh evidence. There was no power to order a retrial, except by way of the writ of venire de novo. But that writ only issued when the trial had been a nullity. There was no general power to order a retrial until the Criminal Appeal Act 1964 , and then only in fresh evidence cases. The power has since been greatly extended.
(4) The primacy of the jury in the criminal justice system is well illustrated by the difference between the Criminal and Civil Divisions of the Court of Appeal. Like the Criminal Division, the Civil Division is also a creature of statute. But its powers are much wider. A civil appeal is by way of re - hearing of the whole case. So the court is concerned with fact as well as law. It is true the court does not re - hear the witnesses. But it reads their evidence. It follows that in a civil case the Court of Appeal may take a different view of the facts from the court below. In a criminal case this is not possible. Since justice is as much concerned with the conviction of the guilty as the acquittal of the innocent, and the task of convicting the guilty belongs constitutionally to the jury, not to us, the role of the Criminal Division of the Court of Appeal is necessarily limited. Hence it is true to say that whereas the Civil Division of the Court of Appeal has appellate jurisdiction in the full sense, the Criminal Division is perhaps more accurately described as a court of review. In the 1907 Act there was a power to set aside a verdict if the court thought it unreasonable, or that it could not be supported having regard to the evidence. This power was very narrowly construed. The wording has now been changed. We have power to upset the verdict of a jury' on a question of fact if we think a conviction unsafe or unsatisfactory under all the circumstances of the case. These words were substituted by section 4 of the Criminal Appeal Act 1966 . We shall return to their meaning later.
(5) Another feature of our law, which goes hand in hand with trial by jury, is the adversarial nature of criminal proceedings. Clearly a jury cannot embark on a judicial investigation. So the material must be placed before the jury. It is sometimes said that the adversarial system leaves too much power in the hands of the police. But that criticism has been met, at least in part, by the creation of the Crown Prosecution Service. The great advantage of the adversarial system is that it enables the defendant to test the prosecution case in open court. Once there is sufficient evidence to commit a defendant for trial, the prosecution has to prove the case against him by calling witnesses to give oral testimony in the presence of the jury. We doubt whether there is a better way of exposing the weaknesses in the prosecution case, whether the witness be a policeman, a scientist or a bystander, than by cross - examination.
(6) A disadvantage of the adversarial system may be that the parties are not evenly matched in resources. As we have seen, one reason why the judge expressed his preference for Dr. Skuse was that Dr. Black had carried out no experiments to prove his theory. Experiments presumably cost money. Whether Dr. Black could have carried out any experiments within the limitations of legal aid, or the time available, we do not know. But the inequality of resources is ameliorated by the obligation on the part of the prosecution to make available all material which may prove helpful to the defence. The later history of the present appeal shows how well the prosecution can perform that obligation.
(7) No system is better than its human input. Like any other system of justice the adversarial system may be abused. The evidence adduced may be inadequate. Expert evidence may not have been properly researched or there may have been a deliberate attempt to undermine the system by giving false evidence. If there is a conflict of evidence there is no way of ensuring the jury will always get it right. This is particularly so where there is a conflict of expert evidence, such as there was here. No human system can expect to be perfect.
(8) Just as the adversarial system prevails at the trial, so also it prevails in the Court of Appeal. It is for the appellants to raise the issues which they wish to lay before the court. Those issues are set out in the grounds of appeal. It will be remembered that at the initial application for leave to appeal, virtually the only issue before the court was the fairness of the summing - up. If the appellants had insisted on raising other issues, they could have done so. The same applied when the case was referred back to the Court in 1987. A number of distinguished scientists were called on both sides. But as we have seen, the scientific issues before the court in 1987 were not the same as they are now. Thus nobody suggested in 1987 that Dr. Skuse's results could have been due to nitrite contamination from the soap he was using to clean his bowls. Nobody knew that Dr. Drayton would modify her view in the light of later scientific research. Nobody knew that the "contemporaneous" notes taken by D.C. Woodwiss of the two McIlkenny interviews were written on four different pads of paper. So the issues were very different.
(9) For an adversarial system to work, there must be an adversary. One of our difficulties in the present appeal has been that we have listened to the fresh evidence of Dr. Scaplehorn and Dr. Baxendale, without the benefit of hearing any cross - examination. We say at once, and as emphatically as we can, that this is no criticism of the Director or Mr. Boal. They have acted with perfect propriety. The concluding paragraphs of the Farquharson Committee's Report on The Role of Prosecuting Counsel , May 1986 ( Archbold 43rd ed. para. 4 - 47a ) deals with prosecution counsel's function in the Court of Appeal in this way:
"If prosecution counsel has formed the view that the appeal should succeed he should acquaint the Court with the view and explain the reasons for it. If the court disagrees with him counsel is entitled to adhere to his view and is not obliged to conduct the appeal in a way which conflicts with his own judgment. At the same time it remains counsel's duty to give assistance to the court if requested to do so."
Mr. Boal and the DPP had a number of very difficult decisions to take in the abnormal circumstances of the present appeal. Having decided that they could not support the scientific evidence on which the prosecution was based, or the police evidence, it was their duty to say so. They have since given us every possible assistance. But the effect of their decision was, inevitably, that we have not heard the other side put, if indeed there is another side.
(10) This has led us to consider whether some other system might be devised in the very exceptional class of case, of which this is one, where fresh evidence comes to light long after the conviction. In the ordinary case, not depending on fresh evidence, there is no difficulty. Nor is there any difficulty in fresh evidence cases, where the fresh evidence is discovered soon after the trial. If the evidence is incredible, or inadmissible, or would not afford a ground for allowing the appeal, we decline to receive it. If the fresh evidence surmounts that preliminary hurdle, we first quash the conviction, if we think it unsafe or unsatisfactory, and then order a retrial under section 7 of the Act, if the interests of justice so require. Where new evidence is conclusive, we quash the conviction without ordering a retrial: see Flower & Others (1965) 50 Cr.App.R. 22, [1966] 1 Q.B. 146 . There is a view, put forward notably by Lord Devlin in The Judge , that we should always quash a conviction where fresh evidence has been received, since a conviction is bound to be unsafe, or at least unsatisfactory, where it has not been based on all the evidence. But this view did not find favour with the House of Lords in Stafford and Luvaglio v. D.P.P. (1973) 58 Cr.App.R. 256, [1974] A.C. 878 .
The difficulty in fresh evidence cases arises where a retrial is no longer practicable, as in the present case. The difficulty becomes acute when there is no contest. For we then have to make up our own minds whether the convictions are unsafe or unsatisfactory without having the benefit of hearing the evidence tested by cross - examination. Where a retrial is still possible, the quashing of the conviction is, as it were, only the first half of a two stage process. Where a retrial is no longer possible, it is the end of the road. This is not the occasion to offer a solution to the difficulty ourselves. No doubt all these problems will be reviewed by the Royal Commission.
The Prosecution Case in the Present Appeal
In making submissions before us, Mr. Boal had two distinct, and in a sense contradictory purposes. In the first place he was concerned to explain why it was that the DPP had decided not to oppose the appeals. In the second place he was concerned to submit that even if the convictions are unsatisfactory, as he conceded, they are not necessarily unsafe. In the first connection he was making points in support of the appeals. In the second connection he was emphasising the strengths of the prosecution case. He pointed out, correctly, that the words unsafe or unsatisfactory are disjunctive. He referred us to a number of reported cases (there must be many more unreported cases) from which it appears that in allowing appeals the court sometimes uses one word, sometimes the other, and most frequently both together. It was said that we might discern a pattern. But if so we failed. Lord Devlin suggests a possible distinction at p. 158 of his book, assuming the words are not tautologous. It has never been argued in any reported case that the words bear different meanings, save, in passing, by Mr. Hazan Q.C. in the course of his argument in reply in Stafford and Luvaglio v. D.P.P. (see [1974] A.C. at p. 888 ). In Graham (1975) 61 Cr.App.R. 292 the court contemplated that a conviction might be unsatisfactory without being unsafe, but the circumstances were very special. It has never been decided by any court that there is a difference in meaning, and we could see no purpose in Mr. Boal advancing the argument that there is such a difference in the present case.
But the second part of Mr. Boal's argument served a different purpose, and one of great importance. He pointed out, again correctly, that it is for the court to decide whether we think the convictions safe and satisfactory, not the Director. In reaching our decision, we must take all the circumstances into account, as section 2(1)( a ) of the Act requires: This means that we must consider not only the weaknesses of the prosecution case, but also its strengths. We have already indicated some of the strengths. They are most clearly set out in the previous decision of this court. We do not repeat what was then said. It is sufficient for us to draw attention to some of the points relating to two of the appellants by way of illustration, concentrating on those points which are independent of police evidence. We do so first in relation to Walker, and then in relation to Callaghan.
The Prosecution Case Against Walker
The case against Walker depends primarily on his confession. His statement under caution was taken between 2.00 p.m. and 3.10 p.m. on Saturday November 23, and signed in eight places. He said he planted his bomb at the Tavern in the Town with Hunter. His explanation for signing the confession is that he had been subjected to continuous police brutality from 7.30 a.m. on Friday November 22, and had in particular received a heavy blow in the face on the car journey from Morecambe to Queen's Road, which knocked him unconscious. P.C. Coles, the driver, says he photographed Walker about midday on Sunday November 24. Walker said it was on Saturday. Whichever it was, the photograph shows no sign of injury, other than a small mark below the eye, which Walker told his solicitor happened when he fell. (Walker said in evidence that he thought his solicitor was a policeman). As already mentioned, Mr. Mansfield does not rely on Walker's injuries to explain his confession.
As to the circumstances in which Walker signed his confession, he said:
"I signed a statement under caution which had been prepared for me and brought into the room, having been made by the police. I was in such a state, having been subjected to brutality, that Sutcliffe had to hold my hand while I wrote the caption."
In other words Walker was saying that the statement was placed before him, already completed, for his signature. But there are difficulties about that. Walker's statement under caution was examined by Dr. Baxendale. There is a change of ink half way through. Walker's signature appears in one colour ink at the commencement of the statement, when be countersigned the caution, and in a different colour ink thereafter. This suggests that the statement cannot have been complete when it was put before him. He said further that his hand was badly swollen, so much so that D.S. Sutcliffe had to hold his hand while he wrote the caption. But Dr. Baxendale could see no sign of this. If Dr. Baxendale is right, it would appear that Walker must have lied as to the circumstances in which his statement under caution was written.
In the course of his interview with D.S. Kelly on Saturday November 23, Walker drew a rough sketch plan of his movements on November 21. The plan became exhibit 109 at the trial. The plan has the words "Old square" written on it, (spelt "Old Sqoird") and the time "6.50." It also has an X which marks the spot where, according to the police account, Walker said he placed his bomb. When Walker gave evidence, he denied writing the words "Old Square" or placing the X. Dr. Baxendale was asked to compare the writing on the plan with another specimen of Walker's writing. He said that there was conclusive handwriting evidence to show that Walker wrote the plan. "The possibility" he said "of another person being the writer can be excluded."
At the trial within the trial Walker said that he knew McDade, but did not know that he was a member of the IRA until well after he had blown himself up. He was asked about his co - defendant Kelly, who lived at 22 Lime Grove, Birmingham. He said he had been there once in the summer or autumn of the previous year. He never mentioned anything about any black bag. Kelly's defence at the trial, which the jury accepted, was that he had infiltrated the IRA in order to become a police informer. On being interviewed, Kelly described an occasion in August 1974 when Sheehan and Walker had arrived at his house, and asked him to keep a dark blue carrier bag, and a plastic carrier bag. In them there was an automatic pistol, three to four hundred rounds of ammunition and about 100 detonators. When Sheehan was interviewed, he confirmed that he took some guns, ammunition and detonators to Kelly's house, and that Murray and Walker were with him. None of that was at that stage evidence against Walker. But when Detective Chief Superintendent Robinson was called, he was cross - examined by Mr. Jowitt on behalf of Kelly, to elicit the circumstances in which Kelly was arrested. Mr. Robinson's evidence was that on Tuesday November 26, he interviewed Walker at Winson Green Prison, at Walker's urgent request. According to Mr. Robinson, Mr. Walker said that he could point out the house where some detonators and ammunition had been taken. Detective Superintendent Crawford was then recalled at Mr. Jowitt's request to say that on Thursday November 28, the day on which Walker was due to appear again in court, he took Walker by car accompanied by D.S. Langford, with P.C. Cole as driver. Walker pointed out 22 Lime Grove as the house in question. The house was searched, and in due course Kelly was arrested. Detective Superintendent Crawford said that until they had the information from Walker on November 26, they knew nothing at all about Kelly.
This evidence which was, as we say, not led by the prosecution, but elicited on behalf of Kelly, put Walker in some difficulty, not least because it was unlikely that Walker would have volunteered to help the police if he had been treated by them in the way he said. So it was put to Mr. Robinson that the interview on November 26, in Winson Green prison at Walker's request had never taken place at all. Mr. Robinson said that it had.
When Walker came to give evidence himself, his explanation was as follows. There was an afternoon, he said, in May or June 1974 when he met McDade, whom he knew. McDade had with him a black cloth bag. He said it contained two wirelesses, and some cigarette lighters. They were prizes for a raffle. He asked Walker to keep the bag, which he did. He put it in his wardrobe. He never looked inside. The next evening Sheehan came for the bag. He had been asked to collect it by Murray. Sheehan gave Walker a lift in his van. On the way they called at 22 Lime Grove, where Sheehan spoke to Kelly. Sheehan asked Walker to bring him the bag from the car, which he did. That was Walker's explanation of how he came to be involved with the bag. He still had to explain how the police came to know about Kelly. He denied altogether having told Mr. Robinson on November 26, and he denied that he had gone by car to 22 Lime Grove on November 28, to point out the house. He said that he had told the police about the bag in the course of his interview on November 23.
But again there are difficulties. Why, if he never looked inside the bag, and thought that it contained prizes for a raffle, did he tell the police at all? Walker's answer to that was that he knew by then that McDade was a member of the IRA. Then why, if the police knew about the bag on November 23, did they do nothing about it until November 29? Why if Walker was told by Sheehan, as he says, about a fortnight after the black bag incident, that the bag did indeed contain two guns and some ammunition did he not at once realise that McDade was a member of the IRA? Yet in answer to Mr. Jowitt he said he did not realise that McDade was a member of the IRA until he picked up a leaflet at the Crossways public house on Wednesday November 20, 1974. The leaflet, which became exhibit 124, was found at Walker's home. It reads:
"Funeral Lieut. James McDade ... died on active service 14.11.74
The Irish Republican movement in England wish to state that on Thursday 21st November at 3.30 p.m. the remains of their comrade Lieutenant James McDade will be escorted from Coventry mortuary to Birmingham airport and flown to Belfast ...
We the Irish Republican movement consider that it is the duty of all Irish people in England to be present at Coventry mortuary, where a Roman Catholic priest will officiate ...
Support us in our struggle for which many have died."
It was put to Walker that he was going to the funeral because he was a member of the IRA.
"Q. You have not told us why you were going to this funeral?
A. I was just going for no reason.
Q. No reason?
A. No.
Q. One does not generally go to a funeral without a reason. Just think. What was your reason for going to this funeral?
A. No reason at all I was just going to a funeral.
Q. How often do you go to a funeral in Belfast for no reason?
A. This is the first time, Sir I have never been to Belfast.
Q. You were, were you not, an active supporter of the IRA.
A. No Sir.
Q. It was part of your role as an active supporter to go to this funeral was it not?
A. No Sir."
He was asked about an account book which he kept, which records the payment of £1 to "J. McDade" on May 15, 1974. He was asked if it was the James McDade. Walker said no, and that it must be another man of the same name. Later, in cross - examination by another counsel, he changed that answer.
In addition to Walker's own evidence about the McDade bag, there was independent evidence from Mrs. Wickett, his neighbour, and her son Paul Wickett. They gave evidence about two separate occasions. On the first occasion Mrs. Wickett saw Walker and two other men get out of a car at about 1.00 a.m. at night, and carry two plastic bags, like sand or cement bags, into Walker's house. On the second occasion Paul Wickett witnessed a similar incident also at night. It was the same night as an earlier explosion at the Rotunda. There could of course be an innocent explanation for these two incidents. But both were denied by Walker.
Then there was Mr. Watt, a fellow employee of Walker, who said that Walker had drawn him a sketch of how a bomb circuit works. On the afternoon of November 21 Walker told him not to go out for a drink that night. On previous occasions when Walker had told him not to go out, there had been an explosion. Then there was Mr. McEleavey. According to him, Walker had said, with reference to the death of McDade, "when the light comes on you run like hell." Finally, Paul Wickett again, who said he saw Walker carrying what looked like a heavy bag on the afternoon of November 21. Yet when Walker arrived at Heysham he had little more than a change of clothes.
The Prosecution Case Against Callaghan.
As with Walker, the case against Callaghan rests primarily on his written statement under caution. He confessed almost at once when seen by D.S. Hornby, D.C. Bryant and D.C. Davies at 2.55 p.m. on Saturday November 23. As with Walker, his statement under caution is in two colours of ink. Some of Callaghan's signatures are in black ink. Some in blue. Unlike the other appellants, Callaghan does not allege police brutality, other than a single slap in the face. Part of what appears in his statement is, he said, true; part he made up for the benefit of the police, and part the police made up themselves. He signed the statement under caution, implicating Hunter in the bombing of the Mulberry Bush, because he felt threatened. On the Sunday, he was seen again, when he told the police that Walker was a Brigadier in the IRA, Hunter a Captain and the others all Lieutenants. This was not a police invention, since Callaghan admitted in evidence that he had given their ranks, but said that he had picked those ranks at random, and that they were not in fact members of the IRA.
Our Approach
We now come to the last chapter. There is House of Lords authority, binding on us, as to the approach we should adopt: see Stafford and Luvaglio v.DPP ( supra ). It was summarised by the Court of Appeal in the 1988 judgment in this case as follows:
"Although the court may choose to test its views by asking itself what the original jury might have concluded, the question which in the end we have to decide is whether in our judgment, in all the circumstances of the case including both the verdict of the jury at trial upon the evidence they heard and the fresh evidence before this court that we have heard, the convictions were safe and satisfactory. If so the convictions must stand. If not the convictions must be quashed."
A Court comprising Lord Lane C.J., Russell J. and Taylor J. had previously applied the same test in Mycock , December 5, 1985. Since 1988, the same test has been applied by differently consitituted courts, with Lord Lane presiding, in Armstrong (The Guildford Four), October 19, 1989, Khan , February 23, 1990 and, most recently, Edwards January 16, 1991. In each case the convictions were quashed. So there is no doubt as to the test we must apply. Indeed it was common ground between the parties. Thus we start by asking ourselves what sort of impact the fresh evidence would have had on the trial, as a step towards answering the essential question, whether we think that in all the circumstances the convictions are unsafe or unsatisfactory.
Conclusion
It was the jury's duty at the trial to reach verdicts on the evidence before them. There can be no doubt that on the evidence at the trial the case against these appellants was convincing. But equally there is no doubt that the case, as left to the jury, depended heavily on the scientific evidence of Dr. Skuse and the police evidence of their interviews with the appellants. They were the two critical matters for the jury to consider.
Mr. Mansfield submits that the scientific evidence of Dr. Skuse can now be seen, in retrospect, to have been irrelevant and inadmissible. He further submits that the written confessions and admissions of the appellants were inadmissible, since they were obtained by wrongful reliance by the police (he does not suggest impropriety in this context) on the findings of Dr. Skuse. We reject these submissions.
But the question remains whether, in the light of what we now know, the convictions are unsafe or unsatisfactory.
So far as the scientific evidence is concerned, Dr. Skuse's findings are now in doubt. So far as the police evidence is concerned, the fresh evidence shows, in the absence of any explanation, that Superintendent Reade, D.S. Morris, D.C. Woodwiss and D.C. Langford were at least guilty of deceiving the court.
At the trial the appellants relied on various inconsistencies between the four written confessions so as to show that the confessions were not genuine, or that the police evidence as to the circumstances surrounding the confessions was not to be believed. If the confessions had been shown to be unreliable, then the prosecution case would very probably have failed. This was the ground on which the Court of Appeal quashed the convictions in Lattimore (the Confait case) (1975) 62 Cr.App.R. 53 . We do not mention the inconsistencies in any detail. By way of example, Walker said he went with Hunter to place his bomb in the Tavern in the Town. Callaghan said he went with Hunter to place his bomb in the Mulberry Bush. So Hunter was in two places at once. There were also inconsistencies with the facts as now known. Thus Power said he placed his bomb by the juke box in the Mulberry Bush. The evidence of the explosives expert showed that that could not be right. Callaghan said he placed his bomb outside the Mulberry Bush. Again that could not be right. They all refer to placing their bombs in white plastic bags or "parcels." It was suggested that this may have been because the police already knew that the Hagley Road bomb was contained in two white plastic bags. But the evidence of the explosives expert is that the bombs were placed in something more substantial than plastic bags, because of the discovery at the seat of both explosions of D shackles, such as are found in the handles of a case. There were also certain curious omissions. In none of the statements do the appellants describe the way in which the bombs were primed. The judge went through these inconsistencies with the jury. He suggested for their consideration that the appellants might be telling the truth in their statements, but not the whole truth.
What then would the impact of the fresh evidence have been? One possibility is that the jury felt no doubt in accepting the police evidence at the trial. If so then the addition of the fresh evidence and in particular the evidence as to the McIlkenny interview, might well have caused them doubt. Another possibility, much pressed by Mr. Mansfield in the course of his argument, is that the jury may have already been in doubt whether to accept the police evidence, by reason of the inconsistencies in the written confessions, or for some other reason. If so the scientific evidence, confidently expressed by Dr. Skuse, may well have carried the day. Either way the impact on the jury of the fresh evidence would have been considerable.
For our part, we would say that in the light of the fresh scientific evidence, which at least throws grave doubt on Dr. Skuse's evidence, if it does not destroy it altogether, these convictions are both unsafe and unsatisfactory. If we put the scientific evidence on one side, the fresh investigation carried out by the Devon & Cornwall Constabulary renders the police evidence at the trial so unreliable, that again we would say that the convictions are both unsafe and unsatisfactory. Adding the two together, our conclusion was inevitable. It was for these reasons that we allowed the appeals. |
MR. JUSTICE WATERHOUSE
This appeal against sentence, by leave of the single judge, raises short points about the making of a confiscation order under the Drug Trafficking Offences Act 1986, and the propriety of an order in respect of the costs of the prosecution.
The circumstances are that on August 3, 1990, in the Crown Court at Guildford, the appellant pleaded guilty to two drugs offences. The first was of conspiracy to supply cannabis resin, for which he received a sentence of 18 months' imprisonment. The second offence was possession of cannabis resin, in respect of which no separate penalty was imposed. However, exercising his powers under the Act of 1986, the sentencing judge made a confiscation order in the sum of £5,535, to be paid on or before August 3, 1991, with a provision that the appellant should serve six months' imprisonment in default of payment. The appellant was ordered also to contribute £200 towards the costs of the prosecution, and there were additional directions about the destruction of the drugs and drug trafficking equipment.
To complete the picture it is necessary to say that there was a co-defendant, who pleaded guilty to the conspiracy and to a separate offence of possession of cannabis resin. He was regarded as a junior partner, and he received a sentence of nine months' imprisonment for his role in the conspiracy. There was no separate penalty for the possession of cannabis resin. In his case the confiscation order was in a sum of £287, payable by August 10, 1990, with 14 days' imprisonment in default of payment. The costs order was the same as that in respect of this appellant.
In view of the limited issues in the appeal it is unnecessary to go into any great detail about the underlying facts of the case. It is sufficient to say that the appellant was arrested outside his home address in Camberley on March 9, 1990. It appeared on investigation that he had on him 893 milligrams of cannabis resin and a rolled cigarette. When he was interviewed he made full admissions about his activities at a factory in supplying various employees with cannabis resin, using the co-defendant as his agent. He named his supplier and said that he would buy two ounces for between £160 and £180, cut it into small quantities and then resell it for £200 to about four people at the factory.
The co-defendant was arrested on the same date. He was found to be in possession of 103 milligrams of cannabis resin in a plant pot at his home, and he showed police officers a further amount of 693 milligrams hidden under a carpet. His wallet contained £1200 and he made full admissions about buying the drug from the appellant and taking orders from others for him, usually from the same people each week.
On the date of the hearing before the court below the appellant and his advisers were served with a document in which was set out an assessment of his means. The document contained, as Appendix A, an assessment of the cash that he had derived from the supply of drugs and, as Appendix B, an assessment of his realisable assets. As far as the assessment of his cash received from drug supplying is concerned, no criticism has been made of the figures placed before the court below. The calculation was based upon a period of 41 weeks: the total money received for a weekly amount of one and a half ounces over that period was said to be 41 X £135, giving a total of £5,535.
Criticism on behalf of the appellant in this Court has been directed at the assessment of the realisable assets of the appellant. It must be said that it is unlikely that, at the time of the hearing before the court below, the sentencing judge had had the advantage of seeing a full report of the judgment delivered by Lord Lane C.J. in Dickens on April 11, 1990, now reported in (1990) 12 CrAppR (S) 191.
The difficulty facing the court below, and, in particular, the appellant, was that the figures put as the value of his realisable assets were unknown to the appellant until the day of the hearing. The core of the assessment was a valuation of the house, formerly a council house, which he owned jointly with his wife. The gross value of that house was put at £76,000 on the basis of a statement made by the appellant in May 1989 in support of an application for a bank loan and the appellant was not given any opportunity effectively to challenge that figure, despite the lapse of time and the circumstances in which he had put forward the figure.
When the learned judge came to make his calculation of the amount of the confiscation order he accepted the figures set out in Appendix B. The calculation proceeded, therefore, on the following basis. The purchase price of the council house on December 19, 1988 was shown as £53,000 less the beneficial discount of £19,080, giving an actual purchase price of £33,920. More importantly, the value of the house at the date of the hearing was put at £76,000 (its suggested value in May 1989, 15 months earlier). The information before the court was that if the house was sold before the 19th December 1990, that is, before the lapse of two years from the date of purchase, a repayment to the council would have to be made of £12,720, although the repayment to the council would be halved if the property was sold in the following year. Thus, the realisable value of the house was assessed at £63,280 at the date of the hearing.
The judge had before him details also of mortgage loans amounting to £50,035.61 as at April 1990. The equity in the property was therefore calculated to be £13,244.39, making the value of the appellant's half share £6,622.20. It is clear that the judge accepted that assessment and, on that footing, felt able to make a confiscation order equivalent to the total amount of cash derived by the appellant from the supply of cannabis resin, together with the costs order of £200.
In proceeding on the basis of current values the court correctly followed the mode of assessment set out in section 5 of the Drug Trafficking Offences Act 1986. In particular subsection (3) of that section provides: "For the purposes of sections 3 and 4 of this Act the amount that might be realised at the time a confiscation order is made against the defendant is-(a) the total of the values at that time of all the realisable property held by the defendant, less (b) where there are obligations having priority at that time, the total amounts payable in pursuance of such obligations...." (See also subs. (4).)
In the event it was put to the court that the valuation of £76,000 was too high bearing in mind the recession in the property market and the depressed state of house sales. It was suggested that, without a contemporary valuation, the house ought not to be valued at more than £69,000, which was put as an informal figure. Indeed, a professional valuation obtained immediately after the hearing disclosed that a proper valuation as at that date would only be £65,000. It was submitted further that the valuation given by the appellant himself in support of an application for a bank loan was too insecure a basis in any event on which to value the property many months later.
This Court has now been provided with a professional valuation made on April 26, 1991 which suggests that the realisable value of the house is £61,000, if it were to be sold today. It is clear, therefore, that due to the unfortunate timing in the court below and the absence of a real opportunity for the court to be provided with accurate up-to-date figures, the judge unwittingly proceeded on the basis of an inflated valuation of the appellant's house. It is obvious that a court must be provided with accurate contemporary information if a fair order is to be made. If a confiscation order is based upon an erroneous and over-optimistic valuation, then injustice and hardship are likely to result. A court must also have in mind that estimation of the values of real property is not a wholly precise science and that some safety margin for possible error must be allowed.
Looking now at the reality of the appellant's financial position, as this Court must, on the basis of correct figures at the date of the hearing, that is August 3, 1990, we are satisfied that it would have been quite unsafe to assess the value of the house owned jointly by the appellant and his wife at more than £65,000. Applying the deductions presented to the judge below, but deducting also a sensible sum in respect of the anticipated costs of the sale of the house, which we put at £2,000, the residual equity in the house was no more than about £245. Such a net equity is much less than would be sufficient to provide a margin for error in the calculation and it would not, in our judgment, justify the making of a confiscation order. Nor, in our view, would it justify the making of a costs order in a case in which the appellant was sentenced to immediate imprisonment and had no other known realisable assets.
In the light of the information before this Court, therefore, the appeal must be allowed to the extent that the confiscation order must be quashed, and also the order against this appellant in respect of the costs of the prosecution. |
LORD JUSTICE NOLAN:
This is an appeal by the Crown prosecution Service against a decision of the justices for the County of Hertford sitting as a magistrates' court at Hatfield, whereby the prosecution was ordered to pay the sum of £1,548·4347 to the defendants by way of costs. The magistrates made the order in reliance upon the powers conferred on them by s.19 of the prosecution of Offences Act 1985 and the regulations made thereunder. The prosecution contends, firstly, that the circumstances of the present case fall outside the scope of those powers, and that consequently the magistrates had no right to make any order for costs against it, and, secondly, that, in any event, the magistrates were not entitled on the facts before them to make the order which they did. The first of these contentions was not advanced before the magistrates, but forms the basis of the first of the questions which they put to us, and we shall deal with it accordingly. The matter arose in this way.
On 12 September 1989 Chief Inspector Padget of the Hertfordshire Constabulary preferred informations against the defendants alleging that on or about 12 May 1989 the first respondent used on a road, and the second respondent permitted to be so used, a goods vehicle for which a platings certificate had been issued when the second axle weight of the vehicle exceeded the permitted weight shown in the certificate, contrary to reg 80 of the Road Vehicles (Construction and Use) Regulations 1986, SI 1986/1078, and s.40(5) of the Road Traffic Act 1972. The witness statement which was put forward to support the information specified the gross weight and the front axle weight of the vehicle, but not the second axle weight. On 3 October 1989 the prosecution received the relevant papers for review from the police and appears at that stage to have taken over the conduct of the proceedings. The defendants were summonsed to appear before the magistrates on 23 October 1989. Before that date, they had both entered written pleas of guilty, but both added riders to their pleas suggesting that the weighbridge upon which the police had tested the vehicle was not suitable for measuring separate axle weights. In view of the riders, the magistrates rightly refused to accept the written pleas of guilty, and the case was adjourned to 13 November 1989 so as to enable the defendants to clarify their pleas. No such clarification was received by that date, but at the request of the prosecution representative the court adjourned the case again, this time until 4 December 1989, for trial by way of written statements.
On 4 December 1989 the case was further adjourned until 11 December at the request of the solicitor for the respondent company, to enable it to be legally represented. On the latter date a yet further adjournment until 8 January 1990 was granted at the request of the solicitors for the defendants so as to enable them to make written representations to the prosecution concerning the accuracy of the weighbridge. Before this last adjournment was requested, a discussion had taken place in court between the respondent's solicitor, the prosecution representative and the magistrates, in the course of which the chairman of the bench commented that from what had been said about the prosecution evidence the summonses appeared to be referring to the wrong axle.
On 13 December 1989 the defendants' solicitor wrote a long letter to the prosecution taking up the chairman's point as well as amplifying the proposition that the weighbridge was unsuitable for measuring axle weights, and reinforcing that proposition with an expert's report. On 4 January 1990 the prosecution received a memorandum from the police officer who had investigated the matter in which that officer, in effect, accepted the expert's view that the weighbridge which had been used was unsuitable, and recommended that it would be wiser to discontinue the prosecution. On 5 January 1990 the prosecution sent a notice of discontinuance to the clerk to the justices. It was sent by first class post and was received on 8 January, apparently before the court sat on that day.
Section 23(3) of the Prosecution of Offences Act 1985 provides that, where such a notice is given during the preliminary stages of proceedings, the proceedings 'shall be discontinued with effect from the giving of that notice but may be revived by notice given by the accused under subsection (7) below'. The reason given in the notice, in accordance with s.23(5), for the prosecution not wanting the proceedings to continue was 'insufficient evidence'.
The defendants' solicitor learnt that the proceedings were to be discontinued in the course of a telephone conversation with officers of the prosecution on 5 January 1990. On the same day he informed both the prosecution and the justices' clerks' office that an application would be made on 8 January 1990 for costs against the prosecution.
The prosecution had also written to the defendants' solicitor on 5 January to inform him, in accordance with s.23(6), of the notice sent under sub-s (3) and of the defendants' right to require the proceedings to be continued. This letter had not been received by the defendants' solicitor at the time of the hearing on 8 January 1990, and the defendants did not exercise their right to require the proceedings to be continued.
That is the background against which the application for costs against the prosecution was heard by the magistrates on 8 January 1990. I take first the question whether they had jurisdiction to deal with it.
Section 19 of the Prosecution of Offences Act 1985 provides, so far as relevant, as follows:
'(1) The Lord Chancellor may by regulations make provision empowering magistrates' courts, the Crown Court and the Court of Appeal, in any case where the court is satisfied that one party to criminal proceedings has incurred costs as a result of an unnecessary or improper act or omission by, or on behalf of, another party to the proceedings, to make an order as to the payment of those costs.
(2) Regulations made under subsection (1) above may, in particular—(a) allow the making of such an order at any time during the proceedings … '
The regulations made pursuant to that section are the Costs in Criminal Cases (General) Regulations 1986, SI 1986/1335. Regulation 3 provides:
'(1) Subject to the provisions of this regulation, where at any time during criminal proceedings—(a) a magistrates' court, (b) the Crown Court, or (c) the Court of Appeal is satisfied that costs have been incurred in respect of the proceedings by one of the parties as a result of an unnecessary or improper act or omission by, or on behalf of, another party to the proceedings, the court may, after hearing the parties, order that all or part of the costs so incurred by that party shall be paid to him by the other party.
(2) Before making an order under paragraph (1), the court shall take into account any other order as to costs (including any legal aid order) which has been made in respect of the proceedings.
(3) An order made under paragraph (1) shall specify the amount of costs to be paid in pursuance of the order.
(4) Where an order under paragraph (1) has been made, the court may take that order into account when making any other order as to costs in respect of the proceedings … '
The first contention of the prosecution can be summarised in the form of the simple propositions that (1) the magistrates only had power to award costs under reg 3(1) 'where at any time during criminal proceedings' they were satisfied that costs had been incurred as a result of an unnecessary or improper act or omission, (2) by virtue of s.23(3) the proceedings in the present case were discontinued with effect from the giving of the notice of discontinuance to the magistrates, which occurred before the defendants' application for costs was made, and (3) therefore the magistrates had no power to order costs against the prosecution under reg 3 or at all. In putting forward this contention on behalf of the prosecution, Mr Field invited us to contrast the provisions of s.19(1) and (2)(a) with those of s.16 which provide for the award of costs out of central funds. Express provision is made by s.16(1)(a) for the award of costs in a case where an information is not proceeded with; and sub-ss (6) and (10) make it clear that in such a case the award of costs is not limited to costs incurred in the proceedings, but may include all costs incurred 'in or about the defence'. Mr Field submitted that, if the defendant wished to pursue a claim for costs against the prosecution in a case where the proceedings had been discontinued, his only means of doing so was to give notice under s.23(7) that he wished the proceedings to continue.
If the first contention of the prosecution were right the results would be startling. In the first place, it is clear that before the passing of the 1985 Act there was no material difference between the procedure for awarding costs out of central funds and that for awarding costs against the prosecution in cases in which an information had not been proceeded with: see s.12 of the Costs in Criminal Cases Act 1973. The language of s.19 of the 1985 Act does not suggest that Parliament intended to impose a procedural restriction upon the magistrates' powers such as that for which the prosecution contends. Secondly, if the prosecution has caused costs to be incurred by an unnecessary or improper act or omission then it would be strange indeed if, by giving notice of discontinuance under s.23(3), it could put the defendant at the disadvantage of having to revive the proceedings in order to claim costs against it. I note in this connection that although the prosecutor is obliged under s.23(5) to inform the justices' clerk of his reasons for not wanting the proceedings to continue he is under no such obligation in relation to the defendant (see sub-s (6)), though his reasons may very well have a bearing on his liability for costs. It is also worth noting that the pro-forma letter which was sent by the prosecution to the defendants on 5 January 1990, informing them pursuant to sub-s (6) of their right to require the proceedings to be continued, contained the sentence: 'It is however, unnecessary to apply for the proceedings to be continued in order to apply for your costs.' Mr Field says that this is true in relation to a claim for costs under s.16, but the fact remains that it is wholly inconsistent with the contention of the prosecution in relation to s.19.
Finally, and perhaps most cogently of all, it is inconceivable that Parliament should have intended the power to award costs to be exercisable only during the course of the proceedings in respect of which the award is to be made. A final order for costs can only be made after the proceedings have been concluded. Regulation 3(1) is not happily worded but must be construed as providing for a final costs order to be made in the normal way because it authorises an award of costs incurred 'in respect of the proceedings', a phrase which must include the whole of the proceedings, and requires the court to hear the parties before making the order. It is only after hearing the parties that the court can be 'satisfied' that an award should be made.
The purpose and effect of s.19(2)(a) and reg 3(1) seem to me to have been not to vary the normal procedure by which a final order of costs is made at the end of the proceedings—that is to say after they have been ended by a verdict, or by a notice of discontinuance—but to give the court power to make an interim order of costs while the proceedings are still in progress. In short, the result of a notice of discontinuance in my judgment is to bring the proceedings to an end in the same way as a verdict would have brought them to an end but to leave the normal jurisdiction of the court in the matter of costs unaltered. The somewhat broader provisions in s.16 upon which Mr Field has sought to rely by way of contrast are, I think, designed simply to allow the defendant to be reimbursed out of central funds for costs other than those incurred in court proceedings. I conclude, therefore, that the first contention of the prosecution fails.
I can deal with the second contention of the prosecution more shortly. Mr Field submitted that on the evidence before the magistrates no reasonable bench could have awarded costs against the prosecution. The erroneous reference to the second axle in the information could have been corrected by an amendment, with the leave of the court, and did not in itself cause any expense or disadvantage to the defendants. As regards the unsuitability of the weighbridge for measuring separate axle weights, the prosecution had acted fairly and properly in discontinuing the proceedings as soon as the police accepted the report of the defendants' expert. The prosecution did not merit the censure implicit in the magistrates' finding that the failure to discontinue the proceedings at an earlier stage amounted to an improper omission.
I do not accept these submissions. The magistrates based their opinion firstly upon the failure of the prosecution to review the prosecution file when it was passed to them on 3 October 1989. In my judgment, they were entitled to regard this as an important factor. Had the file been reviewed, the discrepancy between the reference to the second axle in the information and the lack of any corresponding reference in the supporting evidence of the weights would have been immediately apparent, and would or should have prompted further inquiries from the police. The fact that the error in the information might have been cured by an amendment does nothing to excuse the original omission. Secondly, the magistrates criticised the failure of the prosecution to take account of the doubts expressed by the defendants about the suitability of the weighbridge when they tendered their written pleas. The magistrates say, with justification, that the prosecution should have reviewed the case thoroughly before the matter came back before the court on 13 November 1989, and was adjourned for trial on 4 December. Thirdly, the magistrates point to the renewed doubts about the weighbridge evidence which were expressed by the defendants' solicitor at the hearing on 11 December, which, of course, was also the date upon which the chairman drew attention to the error in the information. No action whatever was taken upon the chairman's remarks, and the notice of discontinuance was only sent off three days before the hearing fixed for 8 January 1990. The prosecution was discontinued because the defendants had demonstrated, at considerable expense, that it was based on insufficient evidence.
In these circumstances, it seems to me impossible to maintain that there were no grounds upon which the magistrates could reasonably conclude that there had been an improper omission on the part of the appellant. I would add in this connection that the word 'improper' in this context does not necessarily connote some grave impropriety. Used, as it is, in conjunction with the word 'unnecessary', it is in my judgment intended to cover an act or omission which would not have occurred if the party concerned had conducted his case properly.
I would for these reasons give an affirmative answer to both questions in the case stated and would dismiss the appeal.
JUSTICE ROCH:
I agree. On the second question in the case stated, the costs that were awarded to the defendants by the magistrates seem to me to have been costs incurred by the defendants, in preparing to defend the proceedings brought by the Crown Prosecution Service (the prosecution), which included the obtaining of an expert's report to the effect that the weighbridge to which the defendants' vehicle was taken by the police would not give accurate readings whilst being used as an axle weigher, that is to say whilst being used in the way the police had used it. That assertion by the defendants' expert was accepted by the police because they arranged to have that particular weighbridge removed from the list of available weighbridges.
That point was raised by both defendants in their written pleas of guilty under the heading 'Mitigating Circumstances', which led the magistrates on 23 October 1989 to treat their written guilty pleas as equivocal. Thereafter the prosecution did nothing to discover whether or not the defendants' assertion that the weighbridge was unreliable as an axle weigher was correct until after they had received the defendants' solicitors' letter of 13 December 1989, which included with it a copy of the expert's report. It was 19 December 1989 before the prosecution started to investigate whether the weighbridge was reliable. It should have been clear to the prosecution that if the weighbridge was not reliable as an axle weigher they would have no prospect of establishing beyond reasonable doubt the charges brought against the defendants.
The facts were, in my judgment, such that the justices were entitled to say that they were satisfied that the defendants had incurred costs as a result of an unnecessary or improper omission by the prosecution. I do not consider the conclusion reached by the magistrates to be so unreasonable as to warrant this court reversing the order that they made.
With regard to the first question raised in the case stated, namely whether the justices had jurisdiction or power to make an order for costs, the notice of discontinuance having been given to the clerk to the magistrates before the order for costs was made, the matter, in my judgment, turns on the effect of a notice of discontinuance.
Section 23(3) of the Prosecution of Offences Act 1985 provides:
'Where, at any time during the preliminary stages of the proceedings, the Director gives notice under this section to the clerk of the court that he does not want the proceedings to continue, they shall be discontinued with effect from the giving of that notice but may be revived by notice given by the accused under subsection (7) below.'
Section 23(7) provides:
'Where the Director has given notice under subsection (3) above, the accused shall, if he wants the proceedings to continue, give notice to that effect to the clerk of the court within the prescribed period; and where notice is so given the proceedings shall continue as if no notice had been given by the Director under subsection (3) above.'
Section 23(9) provides:
'The discontinuance of any proceedings by virtue of this section shall not prevent the institution of fresh proceedings in respect of the same offence.'
It would seem that the power that an accused person has to give notice that he wishes the proceedings to continue by s.23(7) was given to enable an accused person either to clear his name by demonstrating before the magistrates that he was not guilty of the offence charged, or to obtain an acquittal so that he would not be at risk of having to face fresh proceedings in respect of the same alleged offence. It is, in my opinion, most unlikely that Parliament intended that an accused person should have to give written notice within 35 days of the prosecutor's notice of discontinuance and revive the whole of the proceedings simply to make an application to the magistrates for costs.
The prosecution concede that a notice under s.23(7) of the 1985 Act is not required where the accused person wishes to apply to the magistrates for costs from central funds. It is accepted that, despite the notice of discontinuance, the magistrates still have jurisdiction under s.16(1) of the 1985 Act to make an order in favour of the accused for a payment to be made out of central funds in respect of his costs, that is to say a 'defendant's costs order'. It is said that the notice of discontinuance means that the information laid before the justices charging the accused with an offence is simply not being proceeded with within the terms of s.16(1)(a). Thus the prosecution accept that a notice of discontinuance does not render the magistrates court functus officio for all purposes.
However, it is argued that the position in relation to cost orders inter partes which are covered by s.19 of the 1985 Act is different. Section 19(1) of the 1985 Act reads:
'The Lord Chancellor may by regulations make provision empowering magistrates' courts … in any case where the court is satisfied that one party to criminal proceedings has incurred costs as a result of an unnecessary or improper act or omission by, or on behalf of, another party to the proceedings, to make an order as to the payment of those costs.'
Regulations have been made by the Lord Chancellor, namely the Costs in Criminal Cases (General) Regulations 1986, SI 1986/1335. The regulation relevant to this issue is reg 3(1). That reads:
'Subject to the provisions of this regulation, where at any time during criminal proceedings—(a) a magistrates' court … is satisfied that costs have been incurred in respect of the proceedings by one of the parties as a result of an unnecessary or improper act or omission by, or on behalf of, another party to the proceedings, the court may, after hearing the parties, order that all or part of the costs so incurred by that party shall be paid to him by the other party.'
Counsel for the prosecution relies on the words in that regulation 'at any time during criminal proceedings'. Counsel says that that means that an application for costs under s.19 can only be made 'during the criminal proceedings', and cannot therefore be made after a notice of discontinuance has been given because the criminal proceedings are 'discontinued with effect from the giving of that notice', under s.23(4).
Mr Coker for the defendants argues that those words delimit the time during which the unnecessary or improper act or omission and the incurring of costs as a result thereof must occur.
I prefer the reading of that regulation advanced by Mr Coker. It is to be noticed that para (2) of reg 3 requires the court before making an order under para (1) of the regulation to take into account any other order as to costs including any legal aid order which has been made in respect of the proceedings. That regulation contemplates that the court may be making or may have made orders for costs out of central funds or legal aid orders prior to or at the same time as the court is considering an application for costs under s.19(1).
It is important, in my judgment, to look at the law as it stood prior to the passing of the 1985 Act. In R v Bolton Justices, ex p Wildish (1983) 147 JP 309 a Divisional Court consisting of Griffiths L.J. and McCullough J. decided that, where an information had been withdrawn, an application for costs to be paid by the prosecutor to the accused could be made to a magistrates' court for the same area as that in which the information was laid either on the date on which the proceedings were withdrawn or at a later date. Consequently, where the magistrates had refused to entertain such an application, an order of mandamus would be issued directing them to hear such an application. If it has been the intention of Parliament in the Act or in the statutory instrument made under the Act to change the law on this point, I would have expected it to have been done expressly, either by it being provided in s.23 of the 1985 Act or in the Magistrates' Courts (Discontinuance of Proceedings) Rules 1986, SI 1986/367, that a counter-notice by the accused was required to enable him to make an application for costs under s.19, or by s.19 or the regulations made under that section being in terms which made it clear that no application for costs under that section could be made once the proceedings had been discontinued.
The conclusion that I have reached as to the effect of a notice of discontinuance by the prosecutor under s.23(3) of the 1985 Act is that the magistrates cease to be able to hear the substance of the matter which has been discontinued but they still have jurisdiction to entertain and decide applications for costs both under s.16 and under s.19 of the 1985 Act. It is to be observed that this conclusion will not necessarily always favour the accused person. There may be circumstances where it will be open to the prosecutor following the notice of discontinuance to make application under s.19(1) of the 1985 Act for an order of costs against the accused person.
For those reasons and for the reasons given by Nolan L.J., I would answer both questions in the case stated in the affirmative and dismiss the appeal. |
JISCBAILII_CASE_TORT
JISCBAILII_CASE_CONTRACT
Parliamentary
Archives,
HL/PO/JU/18/249
Smith (Respondent)
v.
Eric S. Bush (a firm)
(Appellants)
JUDGMENT
Die Jovis 20° Aprilis 1989
Upon Report from the Appellate Committee to
whom was
referred the Cause Smith against Eric S. Bush (a firm),
That
the Committee had heard Counsel on Monday the 6th, Tuesday
the
7th, Wednesday the 8th, Thursday the 9th, Monday the
13th,
Tuesday the 14th, Wednesday the 15th and Thursday the
16th
days of February last, upon the Petition and Appeal of Eric
S.
Bush (a firm) of 2A Upper King Street, Norwich, praying
that
the matter of the Order set forth in the Schedule
thereto,
namely an Order of Her Majesty's Court of Appeal of the
13th
day of March 1987, might be reviewed before Her Majesty
the
Queen in Her Court of Parliament and that the said Order
might
be reversed, varied or altered or that the Petitioners
might
have such other relief in the premises as to Her Majesty
the
Queen in Her Court of Parliament might seem meet; as upon
the
case of Jean Patricia Smith lodged in answer to the
said
Appeal; and due consideration had this day of what was
offered
on either side in this Cause:
It is Ordered and Adjudged, by
the Lords Spiritual and
Temporal in the Court of Parliament of Her
Majesty the Queen
assembled, That the said Order of Her Majesty's
Court of
Appeal (Civil Division) of the 13th day of March
1987
complained of in the said Appeal be, and the same is
hereby,
Affirmed and that the said Petition and Appeal be,
and the
same is hereby, dismissed this House: And it is
further
Ordered, That the Appellants do pay or cause to be
paid to the
said Respondent the Costs incurred by her in respect
of the
said Appeal, the amount thereof to be certified by the
Clerk
of the Parliaments if not agreed between the parties.
Cler: Parliamentor:
Judgment:
20.4.89
HOUSE OF LORDS
SMITH (A.P.)
(RESPONDENT)
v.
ERIC S. BUSH (A FIRM)
(APPELLANTS)
HARRIS
(A.P.) AND ANOTHER (A.P.)
(APPELLANTS)
v.
WYRE FOREST DISTRICT COUNCIL AND
ANOTHER
(RESPONDENTS)
Lord Keith
of Kinkel
Lord Brandon of Oakbrook
Lord Templeman
Lord
Griffiths
Lord Jauncey of Tullichettle
LORD
KEITH OF KINKEL
My
Lords,
My Lords, I have had the
opportunity of considering in draft
the speeches to be delivered
by my noble and learned friends Lord
Templeman, Lord Griffiths and
Lord Jauncey of Tullichettle. I
agree with them, and for the
reasons they give would allow the
appeal in Harris v. Wyre
Forest District Council and dismiss that
in Smith v. Eric
S. Bush.
LORD
BRANDON OF OAKBROOK
My
Lords,
For the reasons set out in the
speeches to be delivered by
my noble and learned friends, Lord
Templeman, Lord Griffiths and
Lord Jauncey of Tullichettle, I
would allow the appeal in Harris v.
Wyre Forest District
Council and dismiss the appeal in Smith v.
Eric. S. Bush (a
firm).
- 1 -
LORD
TEMPLEMAN
My Lords,
These appeals involve
consideration of three questions. The
first question is whether a
valuer instructed by a building society
or other mortgagee to
value a house, knowing that his valuation
will probably be relied
upon by the prospective purchaser and
mortgagor of the house, owes
to the purchaser in tort a duty to
exercise reasonable skill and
care in carrying out the valuation
unless the valuer disclaims
liability. If so, the second question is
whether a disclaimer of
liability by or on behalf of the valuer is a
notice which purports
to exclude liability for negligence within the
Unfair Contract
Terms Act 1977 and is therefore ineffective unless
it satisfies
the requirement of reasonableness. If so, the third
question is
whether, in the absence of special circumstances, it is
fair and
reasonable for the valuer to rely on the notice excluding
liability.
In Harris v. Wyre Forest
District Council, [1988] Q.B. 835
the first appeal now under
consideration, Mr. and Mrs. Harris
wished to purchase 74, George
Street, Kidderminster, and needed a
mortgage. They applied to the
council. By section 43 of the
Housing (Financial Provisions) Act
1958 (as amended by section 37
of the Local Government Act 1974),
the council were authorised to
advance money to any persons for
the purpose of acquiring a
house, provided that:
"(2) . . . the local
authority . . . shall satisfy themselves
that the house ... to be
acquired is ... or will be made
in all respects fit for human
habitation. . . 3(e) The advance
shall not be made except after a
valuation duly made on
behalf of the local authority ..."
Mr. and Mrs. Harris signed the
application form supplied by
the council and that form contained
the following declaration and
notice:
"I/We enclose herewith
valuation fee and administration fee
£22. I/We understand
that this fee is not returnable even if
the council do not
eventually make an advance and that the
valuation is confidential
and is intended soley for the
benefit of Wyre Forest District
Council in determining what
advance, if any, may be made on the
security and that no
responsibility whatsoever is implied or
accepted by the
council for the value or condition of the property
by reason
of such inspection and report. (You are advised for
your
own protection to instruct your own surveyor/architect
to
inspect the property). I/We agree that the valuation report
is
the property of the council and that I/we cannot require
its
production."
The council decided to carry out
their own valuation and for that
purpose instructed their
employee, the second respondent, Mr. Lee.
After receiving Mr.
Lee's valuation, the council made a written
offer to advance
£8,505 to Mr. and Mrs. Harris to be secured on a
mortgage of
the house and subject to their undertaking to carry
out within 12
months the works detailed in the schedule to the
offer. The
schedule was in these terms:
- 2 -
"Essential
repairs
"1. Obtain report for
district council from Midlands
Electricity Board regarding
electrics and carry out
any recommendations. 2. Make good mortar
fillets to
extension."
Mr. and Mrs. Harris assumed from
the council's offer that, as was
the case, the house had been
valued at £8,505 at the least, and
that the valuer had not
found serious defects and they therefore
accepted the offer and
entered into a contract to purchase the
house for £9,000.
Three years later, Mr. and Mrs. Harris
discovered that the house
was defective; one builder quoted
£13,000 to carry out work
to make the house safe. Another
builder refused to tender for the
work which he regarded as
impractical and unsafe. The damages
suffered by Mr. and Mrs.
Smith, including interest up to the date
of trial, were agreed at
£12,000. The trial judge was
satisfied that Mr. Lee did not
exercise reasonable skill and care
and that the council, as his
employer, were vicariously liable for
Mr. Lee's failure and he
therefore ordered the council to pay
£12,000. The Court of
Appeal allowed the appeal of the
council on the grounds that by
the notice contained in the
application form signed by Mr. and
Mrs. Harris the council had
avoided incurring liability. Mr. and
Mrs. Harris now appeal.
In Smith v. Eric S. Bush (a
firm) [1988] Q.B. 743, the
second appeal now under
consideration, Mrs. Smith wished to
purchase 242, Silver Road,
Norwich, and needed a mortgage. She
applied to the Abbey National
Building Society. By section 25 of
the Building Societies Act
1962, now section 13 of the Building
Societies Act 1986, the Abbey
National was bound to obtain "a
written report prepared and
signed by a competent and prudent
person who is experienced in the
matters relevant to the
determination of the value" of the
house, dealing with the value of
the house and with any matter
likely to affect the value of the
house. Mrs. Smith paid to the
Abbey National an inspection fee
of £36.89 and signed the
application form which contained the
following declaration and
notice:
"I accept that the society
will provide me with a copy of
the report and mortgage valuation
which the society will
obtain in relation to this application. I
understand that the
society is not the agent of the surveyor or
firm of
surveyors and that I am making no agreement with
the
surveyor or firm of surveyors. I understand that neither
the
society nor the surveyor or the firm of surveyors
will
warrant, represent or give any assurance to me that
the
statements, conclusions and opinions expressed or implied
in
the report and mortgage evaluation will be accurate or
valid
and the surveyor's report will be supplied without
any
acceptance of responsibility on their part to me."
The Abbey National instructed the
appellant firm, Eric S.
Bush, to carry out the valuation. The
appellants valued the house
at £16,500 and the report
contained the following paragraph:
- 3 -
"11. Repairs recommended as a
condition of mortgage: No
essential repairs are required. We noted
a number of items
of disrepair in the building which we have taken
into
account in our valuation, but which are not considered to
be
essential for mortgage purposes."
'
A copy of the report was
supplied to Mrs. Smith by the Abbey
National.
In reliance on the report, Mrs.
Smith accepted an advance
of £3,500 from the Abbey National
and entered into a contract to
purchase the house for £18,000.
Eighteen months later, bricks
from the chimneys collapsed and fell
through the roof into the loft
and the main bedroom and ceilings
on the first floor. The
collapse was due to the fact that two
chimney breasts had been
removed from the first floor, leaving the
chimney breasts in the
loft and the chimneys unsupported. Mr.
Cannell, who carried out
the inspection for the appellants and was
a chartered surveyor
had observed the removal of the first floor
chimney breasts but
had not checked to see that the chimneys above
were adequately
supported.
The trial judge was satisfied that
Mr. Cannell had not
exercised reasonable skill and care, that the
appellants were
liable for his negligence to Mrs. Smith and
awarded her £4,379.97
damages including interest. The judge
ignored the notice contained
in the application and signed by Mrs.
Smith whereby the Abbey
National disclaimed liability on the part
of the appellant firm.
The Court of Appeal (Dillon and Glidewell
L.JJ. and Sir Edward
Eveleigh) held that the disclaimer was not
fair and reasonable and
was ineffective under the Unfair Contract
Terms Act 1977; they
accordingly affirmed the award of damages
made by the judge.
The appellants now appeal.
As I have indicated therefore, the
three questions involved
in these appeals are, firstly, whether
the council's valuer was
liable to Mr. and Mrs. Harris in
negligence and whether the
appellants were liable to Mrs. Smith in
negligence; secondly,
whether, if negligence applies, the notices
excluding liability fall
within the ambit of the Unfair Contract
Terms Act 1977, and,
thirdly, whether it is fair and reasonable
for the valuers to rely on
the notices.
Section 1(1) of the Act of 1977
defines "negligence" as the
breach:
"(a) of any
obligation, arising from the express or implied
terms of a
contract, to take reasonable care or
exercise reasonable skill in
the performance of the
contract;
"(b) of any common law
duty to take reasonable care or
exercise reasonable skill ..."
Section 2 of the Act provides
that:
"(1) A person cannot by
reference to any contract term or
to a notice . . . exclude or
restrict his liability for death or
personal injury resulting from
negligence.
- 4 -
"(2) In the case of other
loss or damage, a person cannot so
exclude or restrict his
liability for negligence except in so
far as the term or notice
satisfies the requirement of
reasonableness."
The common law imposes on a person
who contracts to
carry out an operation an obligation to exercise
reasonable skill
and care. A plumber who mends a burst pipe is
liable for his
incompetence or negligence whether or not he has
been expressly
required to be careful. The law implies a term in
the contract
which requires the plumber to exercise reasonable
skill and care in
his calling. The common law also imposes on a
person who carries
out an operation an obligation to exercise
reasonable skill and care
where there is no contract. Where the
relationship between the
operator and a person who suffers injury
or damage is sufficiently
proximate and where the operator should
have foreseen that
carelessness on his part might cause harm to
the injured person,
the operator is liable in the tort of
negligence.
Manufacturers and providers of
services and others seek to
protect themselves against liability
for negligence by imposing
terms in contracts or by giving notice
that they will not accept
liability in contract in tort. Consumers
who have need of
manufactured articles and services are not in a
position to bargain.
The Unfair Contract Terms Act 1977 prohibits
any person
excluding or restricting liability for death or
personal injury
resulting from negligence. The Act also contains a
prohibition
against the exclusion or restriction of liability for
negligence which
results in loss or damage unless the terms of
exclusion or the
notice of exclusion satisfies the requirements of
reasonableness.
These two appeals are based on
allegations of negligence in
circumstances which are akin to
contract. Mr. and Mrs. Harris
paid £22 to the council for a
valuation. The council employed,
and therefore paid, Mr. Lee, for
whose services as a valuer the
council are vicariously liable.
Mrs. Smith paid £36.89 to the
Abbey National for a report
and valuation and the Abbey National
paid the appellants for the
report and valuation. In each case the
valuer knew or ought to
have known that the purchaser would only
contract to purchase the
house if the valuation was satisfactory
and that the purchaser
might suffer injury or damage or both if
the valuer did not
exercise reasonable skill and care. In these
circumstances I would
expect the law to impose on the valuer a
duty owed to the
purchaser to exercise reasonable skill and care in
carrying out
the valuation.
In Cann v. Willson (1888)
39 Ch.D. 39, approved by this
House in Hedley Byrne & Co.
Ltd. v. Heller & Partners Ltd. [1964]
A.C. 465, a valuer
instructed by a mortgagor sent his report to
the mortgagee who
made an advance in reliance on the valuation.
The valuer was held
liable in the tort of negligence to the
mortgagee for failing to
carry out the valuation with reasonable
care and skill.
A valuer who values property as a
security for a mortgage
is liable either in contract or in tort to
the mortgagee for any
failure on the part of the valuer to
exercise reasonable skill and
care in the valuation. The valuer is
liable in contract if he
receives instructions from and is paid by
the mortgagee. The
- 5 -
valuer is liable in tort if he
receives instructions from and is paid
by the mortgagor but knows
that the valuation is for the purpose
of a mortgage and will be
relied upon by the mortgagee.
In Odder v. Westbourne Park
Building Society (1955) 165
E.G. 261, a purchaser paid a
survey fee to a building society, the
survey was carried out by
the chairman of the building society and
in the result the
purchaser purchased the house for £4,000 with
the help of an
advance of £3,000. There were serious defects and
the house
was unsaleable. There was a disclaimer of liability for
negligence
for the survey in the mortgage offer but Harman J.
held that the
disclaimer:
"did no more than to state
what the legal position would be
even if it were not there but it
did emphasise the matter
and took much of the sting out of the
plaintiff's allegation,
which was to the effect that once the
building society had
had a survey made and were willing to lend
money,
everything was all right and that she would not
have
entered on the transaction if they had not kept silent
about
the defects or been negligent in not discovering them.
In
view of the warning in the proposal form that grievance, if
it
were one, lost any of its justification."
Since 1955 a good deal of water
has passed under the
negligence bridge.
In Candler v. Crane, Christmas
& Co. [1951] 2 K.B. 164, the
accountants of a company
showed their draft accounts to and
discussed them with an investor
who, in reliance on the accounts,
subscribed for shares in the
company. Denning L.J., whose
dissenting judgment was subsequently
approved in the Hedley Byrne
case [1964] AC 465, found
that the accountants owed a duty to
the investor to exercise
reasonable skill and care in preparing the
draft accounts. Denning
L.J. said, at p. 176:
"If the matter were free from
authority, I should have said
that they clearly did owe a duty of
care to him. They
were professional accountants who prepared and
put before
him these accounts, knowing that he was going to be
guided
by them in making an investment in the company. On the
face
of those accounts he did make the investment, whereas
if the
accounts had been carefully prepared, he would not
have made the
investment at all. The result is that he has
lost his money."
Denning L.J., at p. 178-179
rejected the argument that:
"a duty to take care can only
arise where the result of a
failure to take care will cause
physical damage to persons
or property. ... I can understand that
in some cases of
financial loss there may not be a sufficiently
proximate
relationship to give rise to a duty of care; but, if
once the
duty exists, I cannot think that liability depends on
the
nature of the damage."
The duty of professional men "is
not merely a duty to use
care in their reports. They have also a
duty to use care in their
work which results in their reports."
(p. 179). The duty of an
- 6 -
accountant is owed "to any
third person to whom they themselves
show the accounts, or to whom
they know their employer is going
to show the accounts, so as to
induce him to invest money or take
some other action on them. But
I do not think the duty can be
extended still further so as to
include strangers of whom they
have heard nothing and to whom
their employer, without their
knowledge, may choose to show their
accounts." (pp. 180-181).
"The test of proximity in
these cases is: did the accountants know
that the accounts were
required for submission to the plaintiff and
use by him?" (p.
181).
Subject to the effect of any
disclaimer of liability, these
considerations appear to apply to
the valuers in the present
appeals.
In the Hedley Byrne case
[1964] AC 465, a bank which
supplied a reference for a customer
was held to owe a duty of
care to a stranger who relied on the
reference but the bank
escaped liability because in the reference
the bank expressly
disclaimed liability. Lord Reid said, at p.
486:
"A reasonable man, knowing
that he was being trusted or
that his skill and judgment were
being relied on, would, I
think, have three courses open to him.
He could keep silent
or decline to give the information or advice
sought; or he
could give an answer with a clear qualification that
he
accepted no responsibility for it or that it was given
without
that reflection or inquiry which a careful answer
would require;
or he could simply answer without any such
qualification. If he
chooses to adopt the last course he
must, I think, be held to have
accepted some responsibility
for his answer being given carefully,
or to have accepted a
relationship with the inquirer which
requires him to exercise
such care as the circumstances require."
Lord Devlin, at p. 515 rejected
the argument that the
maker of a careless statement is only under
a duty to be careful
if the duty, which is contractual or
fiduciary or, arises from the
relationship of proximity, causes
physical damage to the person or
property of the plaintiff. Lord
Devlin also said, at pp. 528-529
that:
"the categories of special
relationships which may give rise
to a duty to take care in word
as well as in deed are not
limited to contractual relationships or
to relationships of
fiduciary duty, but include also relationships
which . . . are
'equivalent to contract,' that is, where there is
an
assumption of responsibility in circumstances in which, but
for
the absence of consideration, there would be a
contract."
In the present appeals, the
relationship between the valuer
and the purchaser is "akin to
contract." The valuer knows that
the consideration which he
receives derives from the purchaser and
is passed on by the
mortgagee, and the valuer also knows that the
valuation will
determine whether or not the purchaser buys the
house.
- 7 -
In Ministry of Housing and
Local Government v. Sharp [1970]
2 Q.B. 223, the local
authority was held liable to the Ministry
because of the failure
of an employee of the authority to exercise
reasonable skill and
care in searching for entries in the local land
charges register.
The search certificate prepared by the clerk
negligently failed to
record a charge of £1828 11s.5d. in favour of
the Ministry.
Lord Denning M.R., at p. 268 rejected the
argument:
"that a duty to use due care
(where there was no contract)
only arose when there was
a voluntary assumption of
responsibility . . . Lord Reid
in Hedley Byrne's case [1964]
A.C. 465, 487 and ...
Lord Devlin, at p. 529 ... used
those words because of the
special circumstances of that
case (where the bank disclaimed
responsibility). But they
did not in any way mean to limit
the general principle. In
my opinion the duty to use due care
in a statement arises,
not from any voluntary assumption
of responsibility, but
from the fact that the person making it
knows, or ought to
know, that others, being his neighbours in this
regard, would
act on the face of the statement being accurate."
Salmon L.J. said, at p. 279:
"I do not accept that, in all
cases, the obligation to take
reasonable care necessarily depends
on the voluntary
assumption of responsibility. Even if it did, I
am far from
satisfied that the council did not voluntarily
assume
responsibility in the present case. On the contrary,
it
seems to me that they certainly chose to undertake the
duty
of searching the register and preparing the certificate.
There was
nothing to compel them to discharge this duty
through their
servant."
In the present proceedings by Mr.
and Mrs. Harris, the
council accepted the application form and the
valuation fee and
chose to conduct their duty of valuing the house
through Mr. Lee.
In the case of Mrs. Smith the appellant first
accepted the
valuation fee derived from Mrs. Smith and undertook
the duty of
preparing a report which they knew would be shown to
and relied
upon by Mrs. Smith.
Mr. Ashworth on behalf of the
council relied on the decision
of the Court of Appeal of Northern
Ireland in Curran v. Northern
Ireland Co-ownership Housing
Association Ltd.) (1986) 8 N.I.J.B. 1.
On a preliminary issue
the court held that a mortgagee of a house
owed no duty of care to
the purchaser in respect of a valuation.
The purchaser's action
against the valuer remains to be
determined. Gibson L.J., at p.
14, said that in the Hedley Byrne
type of case:
"there must be an assumption
of responsibility in
circumstances in which, but for the absence
of
consideration, there would be a contract. Responsibility
can
only attach if the defendant's actions implied a
voluntary
undertaking to assume responsibility."
I agree that by obtaining and
disclosing a valuation, a mortgagee
does not assume
responsibility to the purchaser for that valuation.
- 8 -
But in my opinion the valuer
assumes responsibility to both
mortgagee and purchaser by agreeing
to carry out a valuation for
mortgage purposes knowing that the
valuation fee has been paid by
the purchaser and knowing that the
valuation will probably be
relied upon by the purchaser in order
to decide whether or not to
enter into a contract to purchase the
house. The valuer can
escape the responsibility to exercise
reasonable skill and care by
an express exclusion clause, provided
the exclusion clause does not
fall foul of the Unfair Contract
Terms Act 1977. The Court of
Appeal also decided in Curran's
case that a local authority which
provides a house-owner with a
grant to carry out works of
extension to his house might owe a
duty of care to a subsequent
purchaser of the house to ensure that
the works of extension are
carried in a manner free from defect;
this House reversed the
Court of Appeal on this point [1987] 1
A.C. 718 but the speech of
my noble and learned friend, Lord
Bridge of Harwich, dealt with
the ambit of Anns v. Merton
London Borough Council [1978] A.C.
728, and not with the duty
of care which arises when the
proximity between tortfeasor and
victim is akin to contract.
It was submitted by Mr. Ashworth,
on behalf of the council,
that the valuation was prepared in
fulfilment of the statutory duty
imposed on the council by section
43 of the Housing (Financial
Provisions) Act 1958. Similarly the
valuation obtained by the
Abbey National was essential to enable
them to fulfil their
statutory duty imposed by the Building
Societies Act 1962. But in
Candler v. Crane, Christmas &
Co. [1951] 2 K.B. 164, the draft
accounts were prepared for
the company which was compelled by
statute to produce accounts.
In the present appeals, the
statutory duty of the council to
value the house did not in my
opinion prevent the council coming
under a contractual or tortious
duty to Mr. and Mrs. Harris who
were cognisant of the valuation
and relied on the valuation. The
contractual duty of a valuer to
value a house for the Abbey
National did not prevent the valuer
coming under a tortious duty
to Mrs. Smith who was furnished with
a report of the valuer and
relied on the report.
In general I am of the opinion
that in the absence of a
disclaimer of liability the valuer who
values a house for the
purpose of a mortgage, knowing that the
mortgagee will rely and
the mortgagor will probably rely on the
valuation, knowing that
the purchaser mortgagor has in effect paid
for the valuation, is
under a duty to exercise reasonable skill
and care and that duty is
owed to both parties to the mortgage for
which the valuation is
made. Indeed, in both the appeals now under
consideration the
existence of such a dual duty is tacitly
accepted and acknowledged
because notices excluding liability for
breach of the duty owed to
the purchaser were drafted by the
mortgagee and imposed on the
purchaser. In these circumstances it
is necessary to consider the
second question which arises in these
appeals, namely, whether the
disclaimers of liability are notices
which fall within the Unfair
Contract Terms Act 1977.
In Harris v. Wyre Forest
District Council [1988] Q.B. 835,
the Court of Appeal (Kerr
and Nourse L.JJ. and Caufield J.)
accepted an argument that the
Act of 1977 did not apply because
the council by their express
disclaimer refused to obtain a
- 9 -
valuation save on terms that the
valuer would not be under any
obligation to Mr. and Mrs. Harris to
take reasonable care or
exercise reasonable skill. The council did
not exclude liability for
negligence but excluded negligence so
that the valuer and the
council never came under a duty of care to
Mr. and Mrs. Harris
and could not be guilty of negligence. This
construction would not
give effect to the manifest intention of
the Act but would
emasculate the Act. The construction would
provide no control
over standard form exclusion clauses which
individual members of
the public are obliged to accept. A party to
a contract or a
tortfeasor could opt out of the Act of 1977 by
declining in the
words of Nourse L.J., at p. 845, to recognise
"their own
answerability to the plaintiff." Caulfield J.
said, at p. 850, that
the Act "can only be relevant where
there is on the facts a
potential liability." But no one
intends to commit a tort and
therefore any notice which excludes
liability is a notice which
excludes a potential liability. Kerr
L.J., at p. 853, sought to
confine the Act to "situations
where the existence of a duty of
care is not open to doubt"
or where there is "an inescapable duty
of care." I can
find nothing in the Act of 1977 or in the general
law to identify
or support this distinction. In the result the Court
of Appeal
held that the Act does not apply to "negligent
misstatements
where a disclaimer has prevented a duty of care
from coming into
existence;" per Nourse L.J., at p. 848. My
Lords this
confuses the valuer's report with the work which the
valuer
carries out in order to make his report. The valuer owed a
duty to
exercise reasonable skill and care in his inspection and
valuation.
If he had been careful in his work, he would not have
made a
"negligent misstatement" in his report.
Section 11(3) of the Act of 1977
provides that in considering
whether it is fair and reasonable to
allow reliance on a notice
which excludes liability in tort,
account must be taken of:
"all the circumstances
obtaining when the liability arose or
(but for the notice) would
have arisen."
Section 13(1) of the Act prevents
the exclusion of any right
or remedy and (to that extent) section
2 also prevents the
exclusion of liability:
"by reference to ...
notices which exclude . . . the
relevant obligation or
duty."
Nourse L.J. dismissed section
11(3) as "peripheral" and made no
comment on section
13(1). In my opinion both these provisions
support the view that
the Act of 1977 requires that all exclusion
notices which would in
common law provide a defence to an action
for negligence must
satisfy the requirement of reasonableness.
The answer to the second question
involved in these appeals
is that the disclaimer of liability made
by the council on its own
behalf in the Harris case and by
the Abbey National on behalf of
the appellants in the Smith
case, constitute notices which fall
within the Unfair Contract
Terms Act 1977 and must satisfy the
requirement of reasonableness.
The third question is whether in
relation to each exclusion
clause it is, in the words of section
11(3) of the Act of 1977:
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"fair and reasonable to allow
reliance on it, having regard
to all the circumstances obtaining
when the liability arose
or (but for the notice) would have
arisen."
The liability of the council for
the breach by Mr. Lee of his
duty of care to Mr. and Mrs. Harris
arose as soon as Mr. and Mrs.
Harris, in reliance on the valuation
of £8,505, bought the house
for £9,000. The liability
of the appellants for the breach of their
duty of care to Mrs.
Smith in their valuation arose as soon as
Mrs. Smith, on reliance
of the valuation of £16,500, bought the
house for £18,000.
The damages will include the difference
between the market value
of the house on the day when it was
purchased and the purchase
price which was in fact paid by the
purchaser in reliance on the
valuation.
Both the present appeals involve
typical house purchases. In
considering whether the exclusion
clause may be relied upon in
each case, the general pattern of
house purchases and the extent
of the work and liability accepted
by the valuer must be borne in
mind.
Each year one million houses may
be bought and sold.
Apart from exceptional cases the procedure is
always the same.
The vendor and the purchaser agree a price but
the purchaser
cannot enter into a contract unless and until a
mortgagee,
typically a building society, offers to advance the
whole or part of
the purchase price. A mortgage of 80 per cent, or
more of the
purchase price is not unusual. Thus, if the vendor and
the
purchaser agree a price of £50,000 and the purchaser can
find
£10,000, the purchaser then applies to a building
society for a loan
of £40,000. The purchaser pays the
building society a valuation
fee and the building society
instructs a valuer who is paid by the
building society. If the
valuer reports to the building society that
the house is good
security for £40,000, the building society offers
to advance
£40,000 and the purchaser contracts to purchase the
house
for £50,000. The purchaser, who is offered £40,000 on
the
security of the house, rightly assumes that a qualified valuer
has
valued the house at not less than £40,000.
At the date when the purchaser
pays the valuation fee, the
date when the valuation is made and at
the date when the
purchaser is offered an advance, the sale may
never take, place.
The amount offered by way of advance may not be
enough, the
purchaser may change his mind, or the vendor may
increase his
price and sell elsewhere. For many reasons a sale may
go off,
and in that case, the purchaser has paid his valuation fee
without
result and must pay a second valuation fee when he finds
another
house and goes through the same procedure. The building
society
which is anxious to attract borrowers and the purchaser
who has
no money to waste on valuation fees, do not encourage or
pay for
detailed surveys. Moreover, the vendor may not be willing
to
suffer the inconvenience of a detailed survey on behalf of
a
purchaser who has not contracted to purchase and may
exploit
minor items of disrepair disclosed by a detailed survey in
order to
obtain a reduction in the price.
The valuer is and, in my opinion,
must be a professional
person, typically a chartered surveyor in
general practice, who, by
training and experience and exercising
reasonable skill and care,
- 11 -
will recognise defects and be able
to assess value. The valuer will
value the house after taking into
consideration major defects which
are, or ought to be obvious to
him, in the course of a visual
inspection of so much of the
exterior and interior of the house as
may be accessible to him
without undue difficulty. This appears
to be the position as
agreed between experts in the decided cases
which have been
discussed in the course of the present appeal. In
Roberts v. J.
Hampson & Co. [1988] 2 E.G.L.R. 181, Ian Kennedy
J., after
hearing expert evidence, came to the following
conclusions
concerning a valuation commissioned by the Halifax
Building
Society. I have no doubt the case is of general
application. The
judge, referring to the Halifax Building Society
valuation, as
described in the literature and as described by expert
evidence,
said, at p. 185:
"It is a valuation and not a
survey, but any valuation is
necessarily governed by condition.
The inspection is, of
necessity, a limited one. Both the expert
surveyors who
gave evidence before me agreed that with a house of
this
size they would allow about half-an-hour for their
inspection
on site. That time does not admit of moving furniture,
or
of lifting carpets, especially where they are nailed down.
In
my judgment, it must be accepted that where a
surveyor
undertakes a scheme valuation it is understood that he
is
making a limited appraisal only. It is, however, an
appraisal
by a skilled professional man. It is inherent in any
standard
fee work that some cases will colloquially be 'winners'
and
others 'losers,' from the professional man's point of
view.
The fact that in an individual case he may need to spend
two
or three times as long as he would have expected, or
as the fee
structure would have contemplated, is something
which he must
accept. His duty to take reasonable care in
providing a valuation
remains the root of his obligation. In
an extreme case ... a
surveyor might refuse to value on
the agreed fee basis, though any
surveyor who too often
refused to take the rough with the smooth
would not
improve his reputation. If, in a particular case, the
proper
valuation of a £19,000 house needs two hours' work,
that is
what the surveyor must devote to it. The second aspect
of
the problem concerns moving furniture and lifting carpets.
Here
again, as it seems to me, the position that the law
adopts is
simple. If a surveyor misses a defect because its
signs are
hidden, that is a risk that his client must accept.
But if there
is specific ground for suspicion and the trail of
suspicion leads
behind furniture or under carpets, the
surveyor must take
reasonable steps to follow the trail until
he has all the
information which it is reasonable for him to
have before making
his valuation."
In his reference to "a scheme
valuation" the judge was alluding to
the practice of charging
scale fees to purchasers and paying scale
fees to valuers.
The valuer will not be liable
merely because his valuation
may prove to be in excess of the
amount which the purchaser
might realise on a sale of the house.
The valuer will only be
liable if other qualified valuers, who
cannot be expected to be
harsh on their fellow professionals,
consider that, taking into
consideration the nature of the work
for which the valuer is paid
- 12 -
and the object of that work,
nevertheless he has been guilty of an
error which an average
valuer, in the same circumstances, would
not have made and as a
result of that error, the house was worth
materially less than the
amount of the valuation upon which the
mortgagee and the purchaser
both relied. The valuer accepts the
liability to the building
society which can insist on the valuer
accepting liability. The
building society seeks to exclude the
liability of the valuer to
the purchaser who is not in a position to
insist on anything. The
duty of care which the valuer owes to the
building society is
exactly the same as the duty of care which he
owes to the
purchaser. The valuer is more willing to accept the
liability to
the building society than to the purchaser because it is
the
purchaser who is vulnerable. If the valuation is worthless
the
building society can still insist that the purchaser shall
repay the
advance and interest. So, in practice, the damages which
the
valuer may be called upon to pay to the building society and
the
chances of the valuer being expected to pay, are less than
the
corresponding liability to the purchaser. But this does not
make it
more reasonable for the valuer to be able to rely on an
exclusion
clause which is an example of a standard form exemption
clause
operating in favour of the supplier of services and against
the
individual consumer.
Mr. Hague, who has great
experience in this field, urged on
behalf of the valuers in this
appeal and on behalf of valuers
generally, that it is fair and
reasonable for a valuer to rely on an
exclusion clause,
particularly an exclusion clause which is set forth
so plainly in
building society literature. The principal reasons
urged by Mr.
Hague are as follows:
(1) The exclusion clause is
clear and understandable
and reiterated and is
forcefully drawn to the attention of
the purchaser.
The purchaser's solicitors
should reinforce the
warning and should urge the purchaser to
appreciate that he
cannot rely on a mortgage valuation and
should obtain and
pay for his own survey.
If valuers cannot disclaim
liability they will be
faced by more claims from
purchasers some of which will
be unmeritorious but difficult
and expensive to resist.
A valuer will become more
cautious, take more
time and produce more gloomy
reports which will make
house transactions more difficult.
If a duty of care cannot be
disclaimed the cost of
negligence insurance for valuers
and therefore the cost of
valuation fees to the public will
be increased.
Mr. Hague also submitted that
there was no contract
between a valuer and a purchaser and that,
so far as the
purchaser was concerned, the valuation was
"gratuitous," and the
valuer should not be forced to
accept a liability he was unwilling
to undertake. My Lords, all
these submissions are, in my view,
inconsistent with the ambit and
thrust of the Act of 1977. The
valuer is a professional man who
offers his services for reward.
He is paid for those services. The
valuer knows that 90 per cent.
- 13 -
of purchasers in fact rely on a
mortgage valuation and do not
commission their own survey. There
is great pressure on a
purchaser to rely on the mortgage
valuation. Many purchasers
cannot afford a second valuation. If a
purchaser obtains a second
valuation the sale may go off and then
both valuation fees will be
wasted. Moreover, he knows that
mortgagees, such as building
societies and the council, in the
present case, are trustworthy and
that they appoint careful and
competent valuers and he trusts the
professional man so appointed.
Finally, the valuer knows full well
that failure on his part to
exercise reasonable skill and care may
be disastrous to the
purchaser. If, in reliance on a valuation, the
purchaser contracts
to buy for £50,000 a house valued and
mortgaged for £40,000
but, in fact worth nothing and needing
thousands more to be spent
on it, the purchaser stands to lose his
home and to remain in debt
to the building society for up to
£40,000.
In Yianni v. Edwin Evans &
Sons [1982] 1 Q.B. 438, Mr. and
Mrs. Yianni decided that if
the Halifax Building Society would
agree to advance £12,000,
they would buy a house for £15,000,
otherwise they would let
the house go as they had no money apart
from £3,000. The
house was valued by a valuer on behalf of the
Halifax at £12,000,
an advance of this amount was offered and
accepted and the house
was bought and mortgaged. Mr. and Mrs.
Yianni then discovered that
the house needed repairs amounting to
£18,000. Park J., at
p. 445, found on evidence largely derived
from the chief surveyor
to the Abbey National, that the proportion
of purchasers who have
an independent survey is less than 15 per
cent.; that purchasers
rely on the building society valuation;
purchasers trust the
building societies; each purchaser knows that
he has paid a fee
for someone on behalf of the society to look at
the house.
"the intending mortgagor
feels that the building society,
whom he trusts, must employ for
the valuation and survey
competent qualified surveyors; and, if
the building society
acts upon its surveyor's report, then there
can be no good
reason why he should not also himself act upon it.
The
consequence is that if, after inspection by the
building
society's surveyor, an offer to make an advance is
made,
the applicant assumes that the building society has
satisfied
itself that the house is valuable enough to provide
suitable
security for a loan and decides to proceed by accepting
the
society's offer. So, if Mr. Yianni had had an
independent
survey, he would have been exceptional in the
experience of
the building societies and of those employed to
carry out
surveys and valuations for them."
Park J., following the Hedley
Byrne case [1964] AC 465,
concluded at pp. 454-455, that a
duty of care by the valuers to
Mr. and Mrs. Yianni would arise if
the valuers knew that their
valuation:
"in so far as it stated that
the property provided adequate
security for an advance of £12,000,
would be passed on to
the plaintiffs, who, notwithstanding the
building society's
literature and the service of the notice under
section 30 of
the Building Societies Act 1962, in the
defendants'
reasonable contemplation would place reliance upon
its
- 14 -
correctness in making their
decision to buy the house and
mortgage it to the building society.
. . . These defendants
are surveyors and valuers. It is their
profession and
occupation to survey and make valuations of houses
and
other property. They make reports about the condition
of
property they have surveyed. Their duty is not merely to
use
care in their reports, they have also a duty to use care
in their
work which results in their reports ....
Accordingly, the building
society's offer of £12,000, when
passed on to the
plaintiffs, confirmed to them that 1,
Seymour Road was
sufficiently valuable to cause the building
society to advance on
its security 80 per cent, of the
purchase price. Since that was
also the building society's
view the plaintiffs' belief was not
unreasonable."
In Yianni's case [1982]
Q.B. 438, there was no exclusion of
liability on behalf of the
valuer. The evidence and the findings of
Park J., which I have set
out, support the view that it is unfair
and unreasonable for a
valuer to rely on an exclusion clause
directed against a purchaser
in the circumstances of the present
appeals.
Mr. Hague referred to a new Abbey
National proposal
resulting from a consideration of Yianni's
case. The purchaser is
offered the choice between a valuation
without liability on the
valuer and a report which, as Mr. Hague
agreed, did not involve
any more work for the valuer but accepted
that the valuer was
under a duty to exercise reasonable skill and
care. The fee
charged for the report as compared with the fee
charged for the
valuation represents an increase of £100 for
a house worth
£20,000, and £150 for a house worth
£100,000, and £200 for a
house worth £200,000.
On a million houses, this would represent
increases of income to
be divided between valuers, insurers and
building societies, of
about £150m. It is hardly surprising that few
purchasers
have chosen the report instead of the valuation. Any
increase in
fees, alleged to be justified by the decision of this
House in
these appeals, will no doubt be monitored by the
appropriate
authorities.
It is open to Parliament to
provide that members of ail
professions or members of one
profession providing services in the
normal course of the exercise
of their profession for reward shall
be entitled to exclude or
limit their liability for failure to
exercise reasonable skill and
care. In the absence of any such
provision valuers are not, in my
opinion, entitled to rely on a
general exclusion of the common law
duty of care owed to
purchasers of houses by valuers to exercise
reasonable skill and
care in valuing houses for mortgage purposes.
In the Green Paper "Conveyancing
by Authorised
Practitioners" see Cmnd. 572, the Government
propose to allow
building societies, banks and other authorised
practitioners to
provide conveyancing services to the public by
employed
professional lawyers. The Green Paper includes the
following
relevant passages:
"3.10 There will inevitably
be claims of financial loss
arising out of the provision of
conveyancing services. A bad
mistake can result in a purchaser
acquiring a property which
- 15 -
is worth considerably less than he
paid for it - because, for
example, the conveyancer overlooked a
restriction on use or
the planning of a new motorway. The
practitioner will be
required to have adequate professional
indemnity insurance
or other appropriate arrangements to meet such
claims."
Annex paragraph 12:
"An authorised practitioner
must not contractually limit its
liability for damage suffered by
the client as a result of
negligence on its part."
The Government thus recognises the
need to preserve the
duty of a professional lawyer to exercise
reasonable skill and care
so that the purchaser of a house may not
be disastrously affected
by a defect of title or an encumbrance.
In the same way, it
seems to me there is need to preserve the duty
of a professional
valuer to exercise reasonable skill and care so
that a purchaser of
a house may not be disastrously affected by a
defect in the
structure of the house.
The public are exhorted to
purchase their homes and cannot
find houses to rent. A typical
London suburban house, constructed
in the 1930s for less than
£1,000 is now bought for more than
£150,000 with money
largely borrowed at high rates of interest
and repayable over a
period of a quarter of a century. In these
circumstances it is not
fair and reasonable for building societies
and valuers to agree
together to impose on purchasers the risk of
loss arising as a
result of incompetence or carelessness on the part
of valuers. I
agree with the speech of my noble and learned
friend, Lord
Griffiths, and with his warning that different
considerations may
apply where homes are not concerned.
In the instant case of Harris
v. Wyre Forest District
Council, I would allow the appeal of
Mrs. and Mrs. Harris, restore
the order of the trial judge and
order the costs of Mr. and Mrs.
Harris to be borne by the council.
In the case of Smith v. Eric S.
Bush, I would dismiss the
appeal with costs.
LORD GRIFFITHS
My Lords,
These appeals were heard together
because they both raise
the same two problems. The first is
whether the law places a
duty of care upon a professional valuer
of real property which he
owes to the purchaser of the property
although he has been
instructed to value the property by a
prospective mortgagee and
not by the purchaser. The second problem
concerns the
construction and application of the Unfair Contract
Terms Act
1977.
Smith v. Eric S. Bush (a firm)
I shall deal with this appeal
first because its facts are
similar to hundreds of thousands of
house purchases that take
- 16 -
place every year. It concerns the
purchase of a house at the
lower end of the market with the
assistance of finance provided
by a building society. The
purchaser applies for finance to the
building society. The
building society is required by statute to
obtain a valuation of
the property before it advances any money
(see section 13 of the
Building Societies Act 1986). This
requirement is to protect the
depositors who entrust their savings
to the building society. The
building society therefore requires the
purchaser to pay a
valuation fee to cover or, at least, to defray
the cost of
obtaining a valuation. This is a modest sum and
certainly much
less than the cost of a full structural survey, in
the present
case it was £36.89. If the purchaser pays the
valuation fee,
the building society instructs a valuer who inspects
the property
and prepares a report for the building society giving
his
valuation of the property. The inspection carried out is a
visual
one designed to reveal any obvious defects in the property
which
must be taken into account when comparing the value of
the
property with other similar properties in the neighbourhood. If
the
valuation shows that the property provides adequate security
for
the loan, the building society will lend the. money necessary
for
the purchaser to go ahead, but prior to its repeal by the
Building
Societies Act 1986 would send to the purchaser a
statutory notice
pursuant to section 30 of the Building Societies
Act 1962 to make
clear that by making the loan it did not
warrant that the purchase
price of the property was reasonable.
The building society may either
instruct an independent firm
of surveyors to make the valuation or
use one of its own
employees. In the present case, the building
society instructed the
appellants, an independent firm of
surveyors. I will consider
whether it makes any difference if an
"in-house" valuer is
instructed when I come to deal with
the other appeal. The
building society may or may not send a copy
of the valuer's report
to the purchaser. In this case the building
society was the Abbey
National and they did send a copy of the
report to the purchaser,
Mrs. Smith. I understand that this is now
common practice among
building societies. The report, however,
contained in red lettering
and in the clearest terms a disclaimer
of liability for the accuracy
of the report covering both the
building society and the valuer.
Again, I understand that it is
common practice for other building
societies to incorporate such a
disclaimer of liability.
Mrs. Smith did not obtain a
structural survey of the
property. She relied upon the valuer's
report to reveal any
obvious serious defects in the house she was
purchasing. It is
common ground that she was behaving in the same
way as the
vast majority of purchasers of modest houses. They do
not go to
the expense of obtaining their own structural survey,
they rely on
the valuation to reveal any obvious serious defects
and take a
chance that there are no hidden defects that might be
revealed by
a more detailed structural survey.
The valuer's report said "the
property has been modernised
to a fair standard ... no essential
repairs are required" and it
valued the property at £16,500.
If reasonable skill and care had
been employed when the inspection
took place, it would have
revealed that as a result of removing
the chimney breasts in the
rooms the chimneys had been left
dangerously unsupported.
Unaware of this defect and relying on the
valuer's report, Mrs,
- 17 -
Smith bought the house for £18,000
with the assistance of a loan
of £3,500 from the building
society.
After she had been living in the
house for about 18 months,
one of the chimney flues collapsed and
crashed through the
bedroom ceiling and floor causing damage for
which Mrs. Smith
was awarded £4,379.97 against the surveyors
who had carried out
the valuation.
Mr. Hague, on behalf of the
surveyors, conceded that on the
facts of this case the surveyors
owed a duty of care to Mrs.
Smith unless they were protected by
the disclaimer of liability.
He made this concession, he said,
because the surveyors knew that
their report was going to be shown
to Mrs. Smith and that Mrs.
Smith would, in all probability, rely
upon it, which two factors
would create the necessary proximity to
found the duty of care.
He submitted, however, that if the
surveyor did not know that his
report would be shown to the
purchaser, no duty of care would
arise and that the decision in
Yianni v. Edwin Evans & Sons [1982]
Q.B. 438 was
wrongly decided. I shall defer consideration of this
question to
the second appeal for it does not arise on the facts of
the
present case. Suffice it to say, for the moment, that on the
facts
of the present case it is my view that the concession made
by Mr.
Hague is correct.
At common law, whether the duty to
exercise reasonable
care and skill is founded in contract or tort,
a party is as a
general rule free, by the use of appropriate
wording, to exclude
liability for negligence in discharge of the
duty. The disclaimer of
liability in the present case is prominent
and clearly worded and
on the authority of Hedley Byrne &
Co. Ltd. v. Heller & Partners
Ltd. [1964] AC 465,
in so far as the common law is concerned
effective to exclude the
surveyors' liability for negligence. The
question then is whether
the Unfair Contract Terms Act 1977 bites
upon such a disclaimer.
In my view it does.
The Court of Appeal, however,
accepted an argument based
upon the definition of negligence
contained in section 1(1) of the
Act of 1977 which provides:
"For the purposes of this
part of this Act, 'negligence'
means the breach - (a) of
any obligation, arising from the
express or implied terms of a
contract, to take reasonable
care or exercise reasonable skill in
the performance of the
contract; (b) of any common law duty
to take reasonable
care or exercise reasonable skill (but not any
stricter duty);
(c) of the common duty of care imposed by
the Occupiers'
Liability Act 1957 or the Occupiers' Liability Act
(Northern
Ireland) 1957."
They held that, as the disclaimer
of liability would at common law
have prevented any duty to take
reasonable care arising between
the parties, the Act had no
application. In my view this
construction fails to give due weight
to the provisions of two
further sections of the Act. Section
11(3) provides:
"In relation to a notice (not
being a notice having
contractual effect), the requirement of
reasonableness under
this Act is that it should be fair and
reasonable to allow
- 18 -
reliance on it, having regard to
all the circumstances
obtaining when the liability arose or (but
for the notice)
would have arisen."
And section 13(1):
"To the extent that this part
of this Act prevents the
exclusion or restriction of any liability
it also prevents - (a)
making the liability or its
enforcement subject to restrictive
or onerous conditions; (b)
excluding or restricting any right
or remedy in respect of the
liability, or subjecting a person
to any prejudice in consequence
of his purusing any such
right or remedy; (c) excluding or
restricting rules of
evidence or procedure; and (to that extent)
sections 2 and 5
to 7 also prevent excluding or restricting
liability by
reference to terms and notices which exclude or
restrict the
relevant obligation or duty."
I read these provisions as
introducing a "but for" test in relation
to the notice
excluding liability. They indicate that the existence
of the
common law duty to take reasonable care, referred to in
section
1(1)(b), is to be judged by considering whether it would
exist
"but for" the notice excluding liability. The result of
taking
the notice into account when assessing the existence of a
duty of
care would result in removing all liability for negligent
mis-
statements from the protection of the Act. It is permissible
to
have regard to the second report of the Law Commission
on
Exemption Clauses (Law. Com. No. 69) which is the genesis of
the
Unfair Contract Terms Act 1977 as an aid to the construction
of
the Act. Paragraph 127 of that report reads:
"Our recommendations in this
part of the report are
intended to apply to exclusions of
liability for negligence
where the liability is incurred in the
course of a person's
business. We consider that they should apply
even in cases
where the person seeking to rely on the exemption
clause
was under no legal obligation (such as a
contractual
obligation) to carry out the activities. This means
that, for
example, conditions attached to a licence to enter on
to
land, and disclaimers of liability made where information
or
advice is given, should be subject to control . . . . "
I have no reason to think that
Parliament did not intend to follow
this advice and the wording of
the Act is, in my opinion, apt to
give effect to that intention.
This view of the construction of the
Act is also supported by the
judgment of Slade L.J. in Phillips
Products Ltd. v. Hyland
(Note) [1987] 1 WLR 659, when he
rejected a similar
argument in relation to the construction of a
contractual term
excluding negligence.
Finally, the question is whether
the exclusion of liability
contained in the disclaimer satisfies
the requirement of
reasonableness provided by section 2(2) of the
Act of 1977. The
meaning of reasonableness and the burden of proof
are both dealt
with in section 11(3) which provides:
"In relation to a notice (not
being a notice having
contractual effect), the requirement of
reasonableness under
this Act is that it should be fair and
reasonable to allow
- 19 -
reliance on it, having regard to
all the circumstances
obtaining when the liability arose or (but
for the notice)
would have arisen."
It is clear, then, that the burden
is upon the surveyor to establish
that in all the circumstances it
is fair and reasonable that he
should be allowed to rely upon his
disclaimer of liability.
I believe that it is impossible to
draw up an exhaustive list
of the factors that must be taken into
account when a judge is
faced with this very difficult decision.
Nevertheless, the following
matters should, in my view, always be
considered.
Were the parties of equal
bargaining power. If the court
is dealing with a
one-off situation between parties of equal
bargaining
power the requirement of reasonableness would be more
easily
discharged than in a case such as the present where
the
disclaimer is imposed upon the purchaser who has
no effective
power to object.
In the case of advice
would it have been reasonably
practicable to obtain the
advice from an alternative source taking
into account
considerations of costs and time. In the present case
it is
urged on behalf of the surveyor that it would have been easy
for
the purchaser to have obtained his own report on the condition
of
the house, to which the purchaser replies, that he would then
be
required to pay twice for the same advice and that
people
buying at the bottom end of the market, many of whom
will be
young first-time buyers, are likely to be
under considerable
financial pressure without the money
to go paying twice for the
same service.
How difficult is the task
being undertaken for which
liability is being
excluded. When a very difficult or dangerous
undertaking
is involved there may be a high risk of failure which
would
certainly be a pointer towards the reasonableness
of
excluding liability as a condition of doing the work. A
valuation,
on the other hand, should present no
difficulty if the work is
undertaken with reasonable
skill and care. It is only defects which
are observable by
a careful visual examination that have to be
taken
into account and I cannot see that it places
any
unreasonable burden on the valuer to require
him to accept
responsibility for the fairly elementary
degree of skill and care
involved in observing,
following-up and reporting on such defects.
Surely it is
work at the lower end of the surveyor's field
of
professional expertise.
4. What are the practical
consequences of the decision on
the question of reasonableness.
This must involve the sums of
money potentially at stake and the
ability of the parties to bear
the loss involved, which, in its
turn, raises the question of
insurance. There was once a time when
it was considered
improper even to mention the possible existence
of insurance cover
in a lawsuit. But those days are long past.
Everyone knows that
all prudent, professional men carry insurance,
and the availability
and cost of insurance must be a relevant
factor when considering
which of two parties should be required to
bear the risk of a loss.
We are dealing in this case with a loss
which will be limited to
the value of a modest house and against
which it can be expected
- 20 -
that the surveyor will be insured.
Bearing the loss will be unlikely
to cause significant hardship if
it has to be borne by the surveyor
but it is, on the other hand,
quite possible that it will be a
financial catastrophe for the
purchaser who may be left with a
valueless house and no money to
buy another. If the law in these
circumstances denies the surveyor
the right to exclude his liability,
it may result in a few more
claims but I do not think so poorly of
the surveyor's profession
as to believe that the floodgates will be
opened. There may be
some increase in surveyors' insurance
premiums which will be
passed on to the public, but I cannot think
that it will be
anything approaching the figures involved in the
difference
between the Abbey National's offer of a valuation
without
liability and a valuation with liability discussed in the
speech
of my noble and learned friend, Lord Templeman. The
result of
denying a surveyor, in the circumstances of this case, the
right
to exclude liability, will result in distributing the risk of
his
negligence among all house purchasers through an increase in
his
fees to cover insurance, rather than allowing the whole of the
risk
to fall upon the one unfortunate purchaser.
I would not, however, wish it to
be thought that I would
consider it unreasonable for professional
men in all circumstances
to seek to exclude or limit their
liability for negligence.
Sometimes breathtaking sums of money may
turn on professional
advice against which it would be impossible
for the adviser to
obtain adequate insurance cover and which would
ruin him if he
were to be held personally liable. In these
circumstances it may
indeed be reasonable to give the advice upon
a basis of no liability
or possibly of liability limited to the
extent of the adviser's
insurance cover.
In addition to the foregoing four
factors, which will always
have to be considered, there is in this
case the additional feature
that the surveyor is only employed in
the first place because the
purchaser wishes to buy the house and
the purchaser in fact
provides or contributes to the surveyor's
fees. No one has argued
that if the purchaser had employed and
paid the surveyor himself,
it would have been reasonable for the
surveyor to exclude liability
for negligence, and the present
situation is not far removed from
that of a direct contract
between the surveyor and the purchaser.
The evaluation of the
foregoing matters leads me to the clear
conclusion that it would
not be fair and reasonable for the
surveyor to be permitted to
exclude liability in the circumstances
of this case. I would
therefore dismiss this appeal.
It must, however, be remembered
that this is a decision in
respect of a dwelling house of modest
value in which it is widely
recognised by surveyors that
purchasers are in fact relying on their
care and skill. It will
obviously be of general application in
broadly similar
circumstances. But I expressly reserve my position
in respect of
valuations of quite different types of property for
mortgage
purposes, such as industrial property, large blocks of
flats or
very expensive houses. In such cases it may well be that
the
general expectation of the behaviour of the purchaser is
quite
different. With very large sums of money at stake prudence
would
seem to demand that the purchaser obtain his own
structural
survey to guide him in his purchase and, in such
circumstances
with very much larger sums of money at stake, it may
be
reasonable for the surveyors valuing on behalf of those who
are
- 21 -
providing the finance either to
exclude or limit their liability to
the purchaser.
Harris
and Another v. Wyre Forest District Council and Another
The Housing (Financial Provisions)
Act 1958 (as amended by
the Local Government Act 1974) gave power
to local authorities to
lend money for house purchase. Section 43
of the Act of 1958
provided, inter alia, that before making the
loan the local
authority had to satisfy themselves that the house
was, or would
after repair, be fit for human habitation. The local
authority
were also required to secure the loan by way of a
mortgage on
the property and only to make the loan after they had
obtained a
valuation of the property made on their behalf.
The appellants, Mr. and Mrs.
Harris, two young first-time
buyers, applied to the first
respondents, Wyre Forest District
Council, for a loan to enable
them to purchase a small old house
in Kidderminster. The asking
price of the house was £9,450. Mr.
and Mrs. Harris completed
an application form to the council
seeking a loan of £8,950.
The application form contained the
following paragraphs:
"To be read carefully and
signed personally by all applicants
"I/we enclose herewith
valuation fee & administration fee
£22.00. I/we
understand that this fee is not returnable even
if the council do
not eventually make an advance and that
the valuation is
confidential and is intended solely for the
information of Wyre
Forest District Council in determining
what advance, if any, may
be made on the security and that
no responsibility whatsoever is
implied or accepted by the
council for the value or condition of
the property by reason
of such inspection and report. (You are
advised for your
own protection to instruct your own
surveyor/architect to
inspect the property). "I/we agree that
the valuation report
is the property of the council and that I/we
cannot require
its production."
When the council had received
their application and their
cheque for £22, they instructed
the second respondent, Mr. Lee, a
valuation surveyor in the
council's employment, to inspect and
value the house. Mr. Lee
inspected the house and prepared a
report in which he valued the
property at the asking price of
£9,450 and under the head
"Essential Repairs" he entered "Obtain
report for
district council from M.E.B. [Midland Electricity Board]
regarding
electrics and carry out any recommendations" and "Make
good
mortar fillets to extension." We were told that the entry
in
respect of the electrical installation is one that is standard
in all
councils' reports and it would seem the only other
essential repair
was a minor matter relating to mortar fillets in
the extension.
No other defects of any sort were noted on the
report.
This report was not shown to Mr.
and Mrs. Harris, but
having received the report, the council made
them an offer of a
loan of £8,505 secured by a mortgage on
the property on condition
that they undertook to carry out the
electrical work and the
repair of the mortar fillets in the
extension as recommended by
the valuer to the satisfaction of the
council. The Harrises
accepted the offer and bought the house for
£9,000.
- 22 -
Unfortunately, Mr. Lee had failed
to report that the house
had suffered from serious settlement
which required inspection by
a structural engineer. When the
Harrises tried to sell the house
three years later, the
prospective purchaser also applied to the
council for a loan and
Mr. Lee was again sent to inspect the
house. On this occasion he
reported the settlement and
recommended that a structural
engineer's report should be obtained
before any loan was made. In
due course, a structural engineer's
report revealed that the house
was in a dangerous and unstable
condition and that the cost of
repairs would be many thousands of
pounds. In fact, damages,
subject to liability, were agreed at
£12,000. Obviously, had
Mr. Lee reported in his first report in
the same terms as he did
in his second report, the Harrises would
never have bought the
house. The judge held that Mr. Lee was
negligent in the making of
his first report and there is no appeal
from that finding of fact.
For the reasons that I have
already given, the disclaimer of
liability must be disregarded
when considering whether the council
or Mr. Lee owed any duty of
care to Mr. and Mrs. Harris. Mr.
Ashworth has submitted that they
did not because there was no
voluntary assumption of
responsibility on their part in respect of
Mr. Lee's inspection
and report. He submits that Yianni v. Edwin
Evans & Sons
[1982] Q.B. 438 was wrongly decided. That case was
the first of a
number of decisions, at first instance, in which
surveyors
instructed by mortgagees have been held liable to
purchasers for
negligent valuations. The facts were that the
plaintiffs, who
wished to buy a house at a price of £15,000,
applied to a
building society for a mortgage. The building society
engaged a
firm of valuers to value the property for which the
plaintiffs had
to pay. There was no disclaimer of liability
although the mortgage
application form advised the plaintiffs to
obtain an independent
survey. They did not do so because of the
cost involved. The
surveyors valued the property at £15,000 and
assessed it as
suitable for maximum lending. The building society
offered the
plaintiffs a maximum loan of £12,000 with which they
purchased
the property. There was serious damage to the house
caused by
subsidence which should have been discovered by the
surveyors at
the time of their inspection and it was admitted that
the
surveyors had been negligent.
In that case there was no
disclaimer of liability and the
valuer's report was not shown to
the purchaser. Ignoring the
disclaimer of liability, the facts are
virtually indistinguishable from
the present case unless it can be
said that the fact that Mr. Lee
was an in-house valuer can make a
difference when considering the
existence of his duty of care to
the purchaser. Park J. said, at p.
454:
"... I conclude that, in this
case, the duty of care would
arise if, on the evidence, I am
satisfied that the defendants
knew that their valuation of 1,
Seymour Road, in so far as
it stated that the property provided
adequate security for an
advance of £12,000, would be passed
on to the plaintiffs,
who ... in the defendants' reasonable
contemplation would
place reliance upon its correctness in making
their decision
to buy the house and mortgage it to the building
society."
- 23 -
Finding both these conditions
satisfied, Park J. held the surveyors
to be liable.
Mr. Ashworth drew attention to the
doubts expressed about
the correctness of this decision by Kerr
L.J., in the course of his
judgment in the Court of Appeal, and
submitted, on the authority
of Hedley Byrne & Co. Ltd. v.
Heller & Partners Ltd. [1964] A.C.
465 that it was
essential to found liability for a negligent mis-
statement that
there had been "a voluntary assumption of
responsibility"
on the part of the person giving the advice. I do
not accept this
submission and I do not think that voluntary
assumption of
responsibility is a helpful or realistic test for
liability. It is
true that reference is made in a number of the
speeches in Hedley
Byrne to the assumption of responsibility as a
test of
liability but it must be remembered that those speeches
were made
in the context of a case in which the central issue was
whether a
duty of care could arise when there had been an
express disclaimer
of responsibility for the accuracy of the advice.
Obviously, if an
adviser expressly assumes responsibility for his
advice, a duty of
care will arise, but such is extremely unlikely in
the ordinary
course of events. The House of Lords approved a
duty of care being
imposed on the facts in Cann v. Willson (1888)
39 ChD 39
and in Candler v. Crane, Christmas & Co. [1951] 2
K.B.
164. But if the surveyor in Cann v. Willson or the
accountant
in Candler v. Crane, Christmas & Co. had actually
been
asked if he was voluntarily assuming responsibility for his
advice
to the mortgagee or the purchaser of the shares, I have
little
doubt he would have replied, "Certainly not. My
responsibility
is limited to the person who employs me." The
phrase
"assumption of responsibility" can only have any
real
meaning if it is understood as referring to the circumstances
in
which the law will deem the maker of the statement to
have
assumed responsibility to the person who acts upon the
advice.
In Ministry of Housing and
Local Government v. Sharp [1970]
2 Q.B. 223, both Lord Denning
M.R. and Salmon L.J. rejected the
argument that a voluntary
assumption of responsibility was the sole
criterion for imposing a
duty of care for the negligent preparation
of a search certificate
in the local land charges register.
The essential distinction between
the present case and the
situation being considered in Hedley
Byrne [1964] AC 465 and in
the two earlier cases, is that in
those cases the advice was being
given with the intention of
persuading the recipient to act upon it.
In the present case, the
purpose of providing the report is to
advise the mortgagee but it
is given in circumstances in which it
is highly probable that the
purchaser will in fact act on its
contents, although that was not
the primary purpose of the report.
I have had considerable doubts
whether it is wise to increase the
scope of the duty for negligent
advice beyond the person directly
intended by the giver of the
advice to act upon it to those whom
he knows may do so. Certainly
in the field of the law of
mortgagor and mortgagee there is
authority that points in the
other direction. In Odder v.
Westbourne Park Building Society
(1955) 165 E.G. 261, Harman
J. held that a building society owed
no duty of care to purchasers
in respect of the valuation report
for mortgage purposes prepared
by the chairman of the society.
From the tenor of the short report
it appears that Harman J.
regarded it as unthinkable that a
mortgagee could owe a duty of
- 24 -
care to the mortgagor in respect
of any action taken by the
mortgagee for the purpose of appraising
the value of the property.
In Curran v. Northern Ireland
Co-ownership Housing Association
Ltd. (1986) 8 N.I.J.B. 1, the
Court of Appeal in Northern Ireland
held that the Northern Ireland
Housing Executive, which had lent
money on mortgage pursuant to
powers contained in the Housing
Act (Northern Ireland) 1971, owed
no duty of care to their
mortgagor in respect of the valuation of
the property. The claim
against the executive had been struck out
by the judge on the
ground that the pleadings disclosed no cause
of action. For the
purpose of the appeal, the following facts were
assumed, that (1)
the executive had instructed an independent
valuer to prepare a
valuation of the property; (2) the valuation
had been negligently
prepared; (3) the executive had
negligently instructed an
incompetent valuer; (4) the valuer's
report would not be shown to
the purchaser; (5) the purchaser knew
that the executive would not
lend money without a valuation to
justify the loan; (6) the
executive knew that the purchaser would
assume that the valuation
showed that the property was worth at
least as much as the figure
which the executive was willing to
advance on mortgage, and that
the purchaser would rely on the
valuation to that extent. Gibson
L.J. based his judgment on the
absence of any acceptance of
responsibility on the part of the
executive. In the course of his
judgment he said, at p. 14:
"Responsibility can only
attach if the defendant's act
implied a voluntary undertaking to
assume responsibility.
Were it otherwise a person who offered to
an expert any
object for sale, making it clear that he was unaware
of its
value and that he was relying on the other to pay a
proper
price, could sue the other should he later discover that
he
had not received the full value even though the purchaser
had
made no representation that he was doing any more
than look after
his own interests. Nor can any class of
persons who to the
knowledge of another habitually fail to
take precautions for their
own protection in a business
relationship cast upon another
without his consent an
obligation to exercise care for their
protection in such
transaction so as to protect them from their
own lack of
ordinary business prudence. Generally, a mortgage
contract
in itself imports no obligation on the part of a
mortgagee
to use care in protecting the interests of a mortgagor.
. . .
Gibson L.J. said, at p. 21:
"But in so far as the facts
of this case are clearly within
the area of contemplation in the
Hedley Byrne case, I have
no doubt that the condition
precedent to liability is that the
executive should have indicated
to the plaintiffs, or so acted
as to mislead them into believing,
that the executive was
accepting responsibility for its opinion."
Commenting on Yianni v. Edwin
Evans & Sons [1982] Q.B.
438, Kerr L.J. in his judgment in
the Court of Appeal in the
present case [1988] Q.B. 835, 851-852,
said:
"But its inherent
jurisprudential weakness in any ordinary
situation is clear.
Suppose that A approaches B with a
request for a loan to be
secured on a property or chattel -
- 25 -
such as a painting - which A is
proposing to acquire. A
knows that for the purpose of considering
whether or not to
make the requested loan, and of its amount, B is
bound to
make some assessment of the value of the security which
is
offered, possibly on the basis of some expert inspection
and
formal valuation. Then assume that B knows that in
all
probability A will not have had any independent advice
or
valuation and is also unlikely to commission anything of
the
kind as a check on B's valuation. B also knows, of
course,
that any figure which he may then put forward to A by
way
of a proposed loan on the basis of the offered security
will
necessarily be seen to reflect B's estimate of the
minimum
value of the offered security. Suppose that A then
accepts
B's offer and acquires the property or chattel with
the
assistance of B's loan and in reliance - at least in part -
on
B's willingness to advance the amount of the loan as
an
indication of the value of the property or chattel. Given
those
facts and no more, I do not think that B can properly
be regarded
as having assumed, or as being subjected to,
any duty of care
towards A in his valuation of the security.
Even in the absence of
any disclaimer of responsibility I do
not think that the
principles stated in Hedley Byrne & Co.
Ltd. v. Heller &
Partners Ltd. [1964] AC 465 support the
contrary conclusion.
B has not been asked for advice or
information but merely for a
loan. His valuation was
carried out for his own commercial
purposes. If it was
done carelessly, with the result that the
valuation and loan
were excessive, I do not think that A can have
any ground
for complaint. And if B made a small service charge
for
investigating A's request for a loan, I doubt whether
the
position would be different; certainly not if he were also
to
add a disclaimer of responsibility and a warning that A
should
carry out his own valuation."
Kerr L.J., however, added:
"It may be, but I agree that
we should not decide this
general question on the present appeal,
that the particular
circumstances of purchasers of houses with the
assistance of
loans from building societies or local authorities
are capable
of leading to a different analysis and conclusion."
I have come to the conclusion that
Yianni [1982] Q.B. 438
was correctly decided. I have
already given my view that the
voluntary assumption of
responsibility is unlikely to be a helpful or
realistic test in
most cases. I therefore return to the question in
what
circumstances should the law deem those who give advice to
have
assumed responsibility to the person who acts upon the advice
or,
in other words, in what circumstances should a duty of care be
owed
by the adviser to those who act upon his advice? I would
answer -
only if it is foreseeable that if the advice is negligent
the
recipient is likely to suffer damage, that there is a
sufficiently
proximate relationship between the parties and that it
is just and
reasonable to impose the liability. In the case of a
surveyor
valuing a small house for a building society or local
authority,
the application of these three criteria leads to the
conclusion
that he owes a duty of care to the purchaser. If the
valuation is
negligent and is relied upon damage in the form of
economic loss
to the purchaser is obviously foreseeable. The
- 26 -
necessary proximity arises from
the surveyor's knowledge that the
overwhelming probability is that
the purchaser will rely upon his
valuation, the evidence was that
surveyors knew that approximately
90 per cent. of purchasers did
so, and the fact that the surveyor
only obtains the work because
the purchaser is willing to pay his
fee. It is just and reasonable
that the duty should be imposed for
the advice is given in a
professional as opposed to a social context
and liability for
breach of the duty will be limited both as to its
extent and
amount. The extent of the liability is limited to the
purchaser of
the house - I would not extend it to subsequent
purchasers. The
amount of the liability cannot be very great
because it relates to
a modest house. There is no question here
of creating a liability
of indeterminate amount to an indeterminate
class. I would
certainly wish to stress that in cases where the
advice has not
been given for the specific purpose of the recipient
acting upon
it, it should only be in cases when the adviser knows
that there
is a high degree of probability that some other
identifiable
person will act upon the advice that a duty of care
should be
imposed. It would impose an intolerable burden upon
those who give
advice in a professional or commercial context if
they were to owe
a duty not only to those to whom they give the
advice but to any
other person who might choose to act upon it.
I accept that the mere fact of a
contract between
mortgagor and mortgagee will not of itself in all
cases be
sufficent to found a duty of care. But I do not accept
the view
of the Court of Appeal in Curran v. Northern Ireland
Co-ownership
Housing Association Ltd. (1986) 8 N.I.J.B. 1 that
a mortgagee who
accepts a fee to obtain a valuation of a small
house owes no duty
of care to the mortgagor in the selection of
the valuer to whom
he entrusts the work. In my opinion, the
mortgagee in such a
case, knowing that the mortgagor will rely
upon the valuation,
owes a duty to the mortgagor to take
reasonable care to employ a
reasonably competent valuer. Provided
he does this the mortgagee
will not be held liable for the
negligence of the independent valuer
who acts as an independent
contractor.
I have already pointed out that
the only real distinction
between the present case and the case of
Yianni [1982] Q.B. 438,
is that the valuation was carried
out by an in-house valuer. In my
opinion this can make no
difference. The valuer is discharging the
duties of a professional
man whether he is employed by the
mortgagee or acting on his own
account or is employed by 'a firm
of independent surveyors. The
essence of the case against him is
that he as a professional man
realised that the purchaser was
relying upon him to exercise
proper skill and judgment in his
profession and that it was
reasonable and fair that the purchaser
should do so. Mr. Lee was
in breach of his duty of care to the
Harrises and the local
authority, as his employers, are vicariously
liable for that
negligence.
For reasons that are essentially
the same as those I
considered in the other appeal, I would hold
that it is not
reasonable to allow the local authority or Mr. Lee
to rely upon
the exclusion of liability. Accordingly, I would
allow this appeal.
- 27 -
LORD
JAUNCEY OF TULLICHETTLE
My Lords,
These two appeals raise the
important issue of the extent to
which a valuer instructed by a
mortgagee owes a duty of care to
a potential mortgagor whom he
knows will be shown in some shape
or form the results of his
valuation prior to purchasing the
property in question.
Smith v. Eric S. Bush (a firm)
(I) Mrs. Smith applied to the
Abbey National Building Society
for a mortgage to enable her to
purchase a house. The building
society in pursuance of its
statutory duty under section 25 of the
Building Societies Act 1962
(now section 13 of the Building
Societies Act 1986) instructed the
appellants, a firm of surveyors
and valuers to prepare a written
report as to the value of the
house. Mrs. Smith paid to the
building society a fee in respect of
this report. Mrs. Smith's
application to the building society
contained a disclaimer of
liability by them on behalf of the
appellants, which disclaimer
she acknowledged. Thereafter the
building society sent to Mrs.
Smith a copy of the report and
informed her that her application
had been accepted. Both the
copy report and the letter drew
attention to the fact that the
report was not to be taken as a
structural survey. The report
stated that the surveyor had made
the report without any
acceptance of responsibility to Mrs. Smith
and the letter advised
her to obtain independent professional
advice. Thereafter, without
obtaining an independent valuation,
Mrs. Smith purchased the house
which later proved to be
structurally defective to a material
extent. The surveyor, who was
a member of the appellant firm,
was found to be negligent in
failing to discover and report upon
the defect. He was at all
material times aware that his report
would be shown to Mrs. Smith,
that she would be likely to place
reliance upon it in deciding
whether to buy the house and that his
fee derived from a payment
by her to the building society.
Three questions arise, namely:-
Whether in the absence of
the disclaimers of liability the
appellants owed a duty to Mrs.
Smith;
If so, whether the disclaimers
fell within the ambit of the
Unfair Contract Terms Act 1977; and
If they did, whether they
satisfied the requirements of
reasonableness.
Since Hedley Byrne & Co.
Ltd. v. Heller & Partners Ltd.
[1964] AC 465, it has
been beyond doubt that in certain
circumstances A may be liable to
B in tort in respect of a
negligent statement causing economic
loss to B. In considering
whether such circumstances exist in the
present case I propose,
before looking at Hedley Byrne &
Co. Ltd. v. Heller & Partners
Ltd. to look at two earlier
cases. In Cann v. Willson (1888) 39
Ch. D. 39 an intending
mortgagor, at the request of the solicitor
of an intending
mortgagee, applied to a firm of valuers for a
valuation of the
property in question. The valuers sent the
valuation, which
subsequently turned out to be wholly inept, to the
- 28 -
mortgagee's solicitors knowing
that it was required for the purpose
of an advance. When the
mortgagor defaulted the property was
found to be worth far less
than the valuation whereby the
mortgagee suffered loss. In an
action by the mortgagees against
the valuer Chitty J. said, at p.
42:-
"In this case the document
called a valuation was
sent by the defendants direct to the agents
of the
plaintiff for the purpose of inducing the plaintiff and
his
co-trustee to lay out the trust money on
mortgage. It seems to me
that the defendants
knowingly placed themselves in that position,
and in
point of law incurred a duty towards him to use
reasonable
care in the preparation of the document
called a valuation."
In Candler v. Crane, Christmas
& Co. [1951] 2 K.B. 164
accountants were in the course of
preparing the accounts of a
company. They were instructed to press
on and complete them so
that they might be shown to the plaintiff
who, they were
informed, was a potential investor. A clerk of the
accountants
prepared the accounts and at the request of the
company discussed
these with the plaintiff who, relying thereon,
invested money in
the company. In the event the accounts gave a
wholly misleading
picture of the state of the company and the
plaintiff sustained
loss. In a dissenting judgment which was
subsequently approved in
Medley Byrne & Co. Ltd v. Heller &
Partners Ltd. [1964] A.C.
465, Denning L.J., after suggesting
that professional persons such
as accountants, surveyors and
valuers, might in certain
circumstances owe a duty apart from
contract to use care in their
reports and in the work from which
they resulted said, at pp. 180-
181:
"Secondly, to whom do these
professional people owe
this duty? I will take accountants, but
the same
reasoning applies to the others. They owe the duty,
of
course, to their employer or client; and also I
think to any third
person to whom they themselves
show the accounts, or to whom they
know their
employer is going to show the accounts, so as to
induce
him to invest money or take some other action
on them. But I do
not think the duty can be
extended still further so as to include
strangers of
whom they have heard nothing and to whom
their
employer without their knowledge may choose to show
their
accounts. Once the accountants have handed
their accounts to their
employer they are not, as a
rule, responsible for what he does
with them without
their knowledge or consent. . . The test of
proximity
in these cases is: did the accountants know that
the
accounts were required for submission to the plaintiff
and
use by him? That appears from the case of
Langridge v. Levy
[(1837) 2 M. & W. 519] as extended
by Cleasby, B. in George
v. Skivington; [(1869) L.R. 5
Ex. 1, 5] and from the decision
of that good judge,
Chitty, J., in Cann v. Willson, [(1888)
39 Ch. D. 39]
which is directly in point."
Denning L. J. said, at p. 183:
- 29 -
"It will be noticed that I
have confined the duty to
cases where the accountant prepares his
accounts and
makes his report for the guidance of the very
person
in the very transaction in question. That is sufficient
for
the decision of this case. I can well understand
that it would be
going too far to make an accountant
liable to any person in the
land who chooses to rely
on the accounts in matters of business,
for that would
expose him to 'liability in an indeterminate
amount
for an indeterminate time to an indeterminate class':
see
Ultramares Corporation v. Touche [(1951) 255
N.Y. Rep. 170]
per Cardozo, C.J."
In Hedley Byrne & Co. Ltd
v. Heller & Partners Ltd. [1964]
A.C. 465, bankers who
were asked about the financial stability of
one of their customers
gave favourable references but stipulated
that these were "without
responsibility." The plaintiffs on whose
behalf the
information had been sought relied on the references
and thereby
suffered loss. They sued the bank. Lord Reid said,
at p. 486:
"A reasonable man, knowing
that he was being trusted
or that his skill and judgment were
being relied on,
would, I think, have three courses open to him.
He
could keep silent or decline to give the information
or
advice sought: or he could give an answer with a
clear
qualification that he accepted no responsibility
for it or that it
was given without that reflection or
inquiry which a careful
answer would require: or he
could simply answer without any such
qualification.
If he chooses to adopt the last course he must,
I
think, be held to have accepted some responsibility
for his
answer being given carefully, or to have
accepted a relationship
with the inquirer which
requires him to exercise such care as
the
circumstances require."
Lord Reid said, at p. 487 with
reference to Candler v.
Crane, Christmas & Co [1951] 2
K.B. 164: "This seems to me to
be a typical case of agreeing
to assume responsibility." Lord
Morris of Borth-y-Gest said,
at pp. 494-495:
"My Lords, it seems to me
that if A assumes a
responsibility to B to tender him deliberate
advice, there
could be a liability if the advice is negligently
given. I say
'could be' because the ordinary courtesies and
exchanges of
life would become impossible if it were sought to
attach
legal obligation to every kindly and friendly act ....
Quite
apart, however, from employment or contract there may
be
circumstances in which a duty to exercise care will arise if
a
service is voluntarily undertaken."
He further stated, at p. 497:
"Leaving aside cases where
there is some contractual or
fudiciary relationship, there may be
many situations in which
one person voluntarily or gratuitously
undertakes to do
something for another person and becomes under a
duty to
exercise reasonable care. I have given illustrations. But
- 30 -
apart from cases where there is
some direct dealing there
may be cases where one person issues a
document which
should be the result of an exercise of the skill
and judgment
required by him in his calling and where he knows
and
intends that its accuracy will be relied upon by another."
He further stated at pp. 502-503:
"My Lords, I consider that it
follows and that it should now
be regarded as settled that if
someone possessed of a
special skill undertakes, quite
irrespective of contract, to
apply that skill for the assistance
of another person who
relies upon such skill, a duty of care will
arise. The fact
that the service is to be given by means of or by
the
instrumentality of words can make no difference.
Furthermore,
if in a sphere in which a person is so placed
that others could
reasonably rely upon his judgment or his
skill or upon his ability
to make careful inquiry, a person
takes it upon himself to give
information or advice to, or
allows his information or advice to
be passed on to, another
person who, as he knows or should know,
will place reliance
upon it, then a duty of care will arise."
Lord Devlin, after posing the
question, at p. 525 "is the
relationship between the parties
in this case such that it can be
brought within a category giving
rise to a special duty?" referred
to a number of cases and
continued at pp. 528-529:
"I think, therefore, that
there is ample authority to justify
your Lordships in saying now
that the categories of special
relationships which may give rise
to a duty to take care in
word as well as in deed are not limited
to contractual
relationships or to relationships of fiduciary
duty, but
include also relationships which in the words of Lord
Shaw
in Nocton v. Lord Ashburton [(1914) AC 932, 972]
are
'equivalent to contract,' that is, where there is
an
assumption of responsibility in circumstances which, but
for
the absence of consideration, there would be a contract.
Where
there is an express undertaking, an express warranty
as distinct
from mere representation, there can be little
difficulty. The
difficulty arises in discerning those cases in
which the
undertaking is to be implied. In this respect the
absence of
consideration is not irrelevant. Payment for
information or advice
is very good evidence that it is being
relied upon and that the
informer or adviser knows that it
is. ... "I do not
understand any of your Lordships to hold
that it is a
responsibility imposed by law upon certain types
of persons or in
certain sorts of situations. It is a
responsibility that is
voluntarily accepted or undertaken,
either generally where a
general relationship, such as that
of solicitor and client or
banker and customer, is created,
or specifically in relation to a
particular transaction. In the
present case the appellants were
not, as in Woods v. Martins
Bank Ltd [[1959] 1 Q.B. 55] the
customers or potential
customers of the bank. Responsibility can
attach only to
the single act, that is, the giving of the
reference, and only
if the doing of that act implied a voluntary
undertaking to
assume responsibility."
Lord Devlin summarised his
conclusions at p. 530:
- 31 -
"I shall therefore content
myself with the proposition that
wherever there is a relationship
equivalent to contract,
there is a duty of care. Such a
relationship may be either
general or particular. Examples of a
general relationship
are those of solicitor and client and of
banker and customer
.... Where, as in the present case, what is
relied on is a
particular relationship created ad hoc, it will be
necessary
to examine the particular facts to see whether there is
an
express or implied undertaking of responsibility. I regard
this
proposition as an application of the general conception
of
proximity."
There are a number of references
in the speeches in Hedley
Byrne & Co. Ltd. v. Heller &
Partners Ltd. to voluntary
assumption of responsibility.
Although in that case the respondent
bankers gave the financial
reference without payment, I do not
understand that "voluntary"
was intended to be equiparated with
"gratuitous." Rather
does it refer to a situation in which the
individual concerned,
albeit under no obligation in law to assume
responsibility,
elected so to do. This is, I think, made clear by
Lord Devlin's
reference to the responsibility voluntarily undertaken
by a
solicitor to his client.
Here the building society had a
statutory duty under section
25 of the Building Societies Act 1962
to satisfy itself as to the
adequacy of the security of any
advance to be made and for that
purpose to obtain "a written
report prepared and signed by a
competent and prudent person who
is experienced in the matters
relevant to the determination of the
value". In pursuance of that
duty the building society
instructed the appellants who, by
accepting these instructions,
not only entered into contractual
relations with the building
society but also came under a duty in
tort to it to exercise
reasonable care in carrying out their survey
and preparing their
report. To that extent they were in no
different position to that
of any other professional person who has
accepted instructions to
act on behalf of a client. However there
were certain other
factors present which must be taken into
account. In the first
place, the appellants were aware that their
report would be made
available to Mrs. Smith. In the second
place they were aware that
she would probably rely upon the
contents of the report in
deciding whether or not to proceed with
the purchase of the house
and that she would be unlikely to obtain
an independent valuation.
In the third place they knew that she
had at the time of the
mortgage application paid to the building
society an inspection
fee which would be used to defray their fee.
In these
circumstances would the appellants in the absence of
disclaimers
of responsibility have owed a duty of care to Mrs.
Smith?
In each of the three cases to
which I have referred there
was direct contact between the
negligent provider of information
on the one hand and the
plaintiff or his agent on the other. In
Cann v. Willson
(1888) 39 Ch. D. 39, the sole purpose of the
valuation was to
enable the intending mortgagor to obtain a
mortgage over the
property value. In Candler v. Crane, Chrismas
& Co.
[1951] 2 K.B. 164, although the accounts were prepared for
the
benefit of the company, the discussion between the
accountants'
clerk and the plaintiff was for the sole purpose of
- 32 -
enabling the latter to decide
whether or not to invest in the
company. Chitty J. and Denning
L.J. referred to the valuation
being sent and the accounts being
shown and discussed for the
purpose of inducing the plaintiff to
do something. In Hedley Byrne
& Co. Ltd. v. Heller &
Partners Ltd. [1964] AC 465, the
information was provided to
satisfy the inquiry made on behalf of
the plaintiff. In the
present case there was no direct contact
between the appellants
and Mrs. Smith and their sole purpose in
preparing their report
was to enable the building society to fulfil
its statutory
obligation. There are thus points of important
distinction between
the facts of this case and those of the other
three. However, that
does not necessarily mean that a different
result must follow. The
question must always be whether the
particular facts disclose that
there is a sufficiently proximate
relationship between the
provider of information and the person
who has acted on that
information to his detriment, such that the
former owes a duty of
care to the latter.
It is tempting to say that in this
case the relationship
between Mrs. Smith and the appellants was,
in the words of Lord
Shaw of Dunfermline quoted by Lord Devlin in
Hedley Byrne & Co.
Ltd. v. Heller & Partners Ltd.,
"equivalent to contract" inasmuch
as she paid for the
appellants' report. However, I do not think
that Lord Devlin, when
he used those words, had in mind the sort
of tripartite situation
which obtained here, but rather was he
considering a situation
where the provider and receiver of
information were in contact
with one another either directly or
through their agents, and
where, but for the lack of payment, a
contract would have existed
between them. In the present case a
contract existed between the
building society and the appellants
who carried out their
inspection and produced their report in
pursuance of that
contract. There was accordingly no room for a
contract between
Mrs. Smith and the appellants. I prefer to
approach the matter by
asking whether the facts disclose that the
appellants in
inspecting and reporting must, but for the
disclaimers, by reason
of the proximate relationship between them,
be deemed to have
assumed responsibility towards Mrs. Smith as
well as to the
building society who instructed them.
There can be only an affirmative
answer to this question.
The four critical facts are that the
appellants knew from the
outset:
That the report would be shown to
Mrs. Smith;
That Mrs. Smith would
probably rely on the valuation
contained therein in
deciding whether to buy the house
without obtaining
an independent valuation;
That if, in these
circumstances, the valuation was, having
regard to the
actual condition of the house, excessive Mrs.
Smith would be
likely to suffer loss; and
(4) That she had paid to
the building society a sum to
defray the appellants'
fee.
In the light of this knowledge the
appellants could have
declined to act for the building society,
but they chose to proceed.
In these circumstances they must be
taken not only to have
- 33 -
assumed contractual obligations
towards the building society but
delictual obligations towards
Mrs. Smith, whereby they became
under a duty towards her to carry
out their work with reasonable
care and skill. It is critical to
this conclusion that the appellants
knew that Mrs. Smith would be
likely to rely on the valuation
without obtaining independent
advice. In both Candler v. Crane,
Christmas & Co.
[1951] 2 K.B. 164 and Hedley Byrne & Co Ltd.
v. Heller &
Partners Ltd. [1964] AC 465 the provider of the
information
was the obvious and most easily available, if not the
only
available, source of that information. It would not be
difficult
therefore to conclude that the person who sought such
information
was likely to rely upon it. In the case of an intending
mortgagor
the position is very different since, financial
considerations
apart, there is likely to be available to him a wide
choice of
sources of information, to wit, independent valuers to
whom he can
resort, in addition to the valuer acting for the
mortgagee. I
would not therefore conclude that the mere fact
that a mortgagee's
valuer knows that his valuation will be shown
to an intending
mortgagor of itself imposes upon him a duty of
care to the
mortgagor. Knowledge, actual or implied, of the
mortgagor's likely
reliance upon the valuation must be brought
home to him. Such
knowledge may be fairly readily implied in
relation to a potential
mortgagor seeking to enter the lower end
of the housing market but
non constat that such ready implication
would arise in the case of
a purchase of an expensive property
whether residential or
commercial. Mr. Hague for the appellants
conceded that if there
had been no disclaimer they must fail. For
the reasons which I
have just given I consider that this concession
was rightly made.
I would only add three further
matters in relation to this
part of the case. In the first place
the duty of care owed by the
appellants to Mrs. Smith resulted
from the proximate relationship
between them arising in the
circumstances hereinbefore described.
Such duty of care was
accordingly limited to Mrs. Smith and would
not extend to
"strangers" (to use the words of Denning L.J. in
Candler
v. Crane Christmas & Co. [1951] 2 K.B. 164, 180) who
might
subsequently derive a real interest in the house from her.
In the
second place the fact that A is prepared to lend money to
B on the
security of property owned by or to be acquired by him
cannot per
se impose upon A any duty of care to B. Much more
is required.
Were it otherwise a loan by A to B on the security
of property,
real or personal, would ipso facto amount to a
warranty by A that
the property was worth at least the sum lent.
In the third place
the sum sought by Mrs. Smith as a mortgage
was relatively small
and represented only a small proportion of the
purchase price. The
house with all its defects was worth
substantially more than that
sum, and had the report merely stated
that the house was adequate
security for that sum, Mrs. Smith
would have had no complaint.
However, the report contained a
"mortgage valuation" of
the house, which valuation wholly failed to
reflect the structural
defect. It is that valuation of which Mrs.
Smith is entitled to
complain.
(II) The next question is whether
the disclaimers by and on
behalf of the appellants fall within the
ambit of the Unfair
Contracts Act 1977. In Hedley Byrne &
Co. Ltd. v. Heller &
Partners Ltd. [1964] AC 465, it was
held that the disclaimer of
- 34 -
responsibility made by the
defendant bankers when giving the
reference negatived any
assumption by them of a duty of care
towards the plaintiff. If the
circumstances of this case had arisen
before 1977 there can be no
doubt that the disclaimers would have
been effective to negative
such an assumption of responsibility.
Has the Act of 1977 altered
the position? The relevant statutory
provisions are sections 2(2),
11(3) and 13(1):
"2(2). In the case of other
loss or damage, a person cannot
so exclude or restrict his
liability for negligence except in
so far as the term or notice
satisfies the requirement of
reasonableness. . . .
"11(3) In relation to a
notice (not being a notice having
contractual effect), the
requirement of reasonableness under
this Act is that it should be
fair and reasonable to allow
reliance on it, having regard to all
the circumstances
obtaining when the liability arose or (but for
the notice)
would have arisen ....
"13(1) To the extent that
this Part of this Act prevents the
exclusion or restriction of any
liability it also prevents - (a)
making the liability or
its enforcement subject to restrictive
or onerous conditions; (b)
excluding or restricting any right
or remedy in respect of the
liability, or subjecting a person
to any prejudice in consequence
of his pursuing any such
right or remedy; (e) excluding or
restricting rules of
evidence or procedure; and (to that extent)
sections 2 and 5
to 7 also prevent excluding or restricting
liability by
reference to terms and notices which exclude or
restrict the
relevant obligation or duty."
In the other appeal, Harris v.
Wyre Forest District Council
[1988] Q.B. 835, the Court of
Appeal held that the Act of 1977
did not apply. Nourse L.J. at p.
848, accepted the defendant's
argument that a notice which
prevented a duty of care from
coming into existence was not one
upon which section 2(2) bit.
Kerr L.J., said at p.
"For these reasons I agree
with the judgments of Nourse
L.J. and Caulfield J. that the
effect of the Unfair Contract
Terms Act 1977 on the disclaimer of
responsibility and
warning is of no relevance to the present case.
One never
reaches that issue, since it arises only if the
existence of a
duty of care and a breach of it have first been
established."
Mr. Ashworth in the Harris
appeal supported the reasoning
of the Court of Appeal and argued
that the Act only applied to a
disclaimer which operated after a
breach of duty had occurred.
Mr. Hague in this appeal adopted Mr.
Ashworth's argument.
My Lords, with all respect to the
judges of the Court of
Appeal, I think that they have overlooked
the importance of
section 13(1). The words "liability for
negligence" in section 2(2)
must be read together with
section 13(1) which states that the
former section prevents the
exclusion of liability by notices "which
exclude or restrict
the relevant obligation or duty." These words
are unambiguous
and are entirely appropriate to cover a disclaimer
which prevents
a duty coming into existence. It follows that the
- 35 -
disclaimers here given are subject
to the provisions of the Act and
will therefore only be effective
if they satisfy the requirement of
reasonableness.
,(II) I have had the advantage of
reading in draft the speech of
my noble and learned friend Lord
Griffiths, and I gratefully adopt
his reasons for concluding that
the disclaimers did not satisfy the
statutory requirement of
reasonableness. I cannot usefully add
anything to what he has said
upon this matter.
For the foregoing reasons I would
dismiss this appeal.
Harris v. Wyre Forest District Council and
Another
Mr. and Mrs. Harris, two young
people who were at the
time contemplating matrimony, applied to
the council for a
mortgage over a house which they wished to buy.
At the time,
local authorities were empowered by section 43 (as
amended) of
the Housing (Financial Provisions) Act 1958 (as
amended by section
37 of the Local Government Act 1974), to
advance money up to a
sum not exceeding the value of the security
for house purchase.
Before making an advance the local authority
was required to
satisfy itself that the house was or would be made
in all respects
fit for human habitation and have a valuation
made.
The Harrises submitted their
application form together with
a "valuation fee and
administration fee" of £22. The form
contained an
acknowledgment that the council accepted no
responsibility for the
value or condition of the house by reason of
the inspection
report. The council instructed the second
respondent, Mr. Lee, a
valuer in their employment, to inspect the
house and report. Mr.
Lee valued the house at the asking price of
£9,450,
recommended that the maximum loan should be 90 per
cent, of the
value and under the heading of "Essential Repairs"
stated
"Obtain report for district council from M.E.B.
[Midland
Electricity Board] regarding electrics and carry out
any
recommendations. Make good mortar fillets to extension."
Mr.
Lee's report was not shown to the Harrises but they
were
subsequently offered, by the council, an advance of £8,505
on
condition, inter alia, that they carried out the essential
repairs
above referred to. Relying on this offer and without
obtaining
other advice as to value, the Harrises bought the
house.
Unfortunately there were present serious structural defects
in the
house which Mr. Lee had not referred to and which
materially
reduced its value. As a result of the defects the
Harrises
suffered loss.
The foregoing is a summary of the
relevant facts and I turn
to examine in more detail those facts
which determine whether or
not Mr. Lee owed a duty of care to the
Harrises. He knew that
the report would not be sent to the
Harrises but that they would
be told the amount of any advance and
would be told of any
repairs which he considered to be essential.
He also knew that
the Harrises were likely to be first-time buyers
of modest means.
There is no finding by the judge that he was
aware that the
Harrises were likely to rely on his valuation in
buying the house
and that they were unlikely to obtain independent
advice.
However, after referring to the position of a valuer
acting for a
building society, Schiemann J. in [1987] 1 E.G.L.R.
231, 236 said:
- 36 -
"Such a valuer has been held
to be liable to the mortgagor
in the Yianni case and I see
nothing on the grounds of
policy or in the subsequent case law
which should prevent
me from following that decision."
In Yianni v. Edwin Evans &
Sons [1982] 1 Q.B. 438, the
plaintiffs applied to a building
society for a mortgage and paid a
fee for the statutory valuation.
The building society instructed
the defendant surveyors to value
the property and on receipt of
their valuation offered to the
plaintiffs a loan of 80 per cent. of
the asking price of the
house. The defendants' report was not
made available to the
plaintiffs. The application form advised the
plaintiffs to obtain
an independent survey and with the offer of
the loan the
plaintiffs received a notice under section 30 of the
Building
Societies Act 1962 indicating that an advance by the
building
society did not imply that the purchase price was
reasonable.
Consequent upon the offer, the plaintiffs bought the
house without
obtaining an independent valuation. Some time
later, structural
defects were discovered which the defendants
admitted that they
should have found on their inspection. The
plaintiffs successfully
sued the defendants for negligence.
However, the facts in that
case differed in one material aspect
from those in the present in
that there was there unchallenged
evidence from the chief surveyor
of a very large building society
that no more than 15 per cent. of
persons applying to a building
society for a mortgage instructed
independent surveys. Park J.
concluded that the defendant
surveyors, who had regularly carried
out valuations for the
building society, were aware that their
figure of valuation would
be passed on to the plaintiffs and were
aware that the plaintiffs
would rely upon it when they decided to
accept the offer of the
building society. In the absence of such a
specific finding of
awareness in the present case I do not think
that it can
necessarily be assumed that the experience of a local
authority
valuation surveyor must be the same as that of an
independent
surveyor regularly acting on behalf of a large building
society.
The only other relevant piece of evidence in the extracts
from the
transcript is the following question by the judge to Mr.
Lee and
the answer thereto:
"Q. You did know that if the
list of essential repairs was
passed on to the mortgagor he would
take the view that
these were, in your eyes, the essential
repairs?
"A. That is right . . . . "
My Lords, I have found this case
very much more difficult
than that of Smith v. Eric S. Bush
[1988] Q.B. 743. I do not find
it easy to infer from such findings
as were made by Schiemann J.
and from the question and answer
above quoted that Mr. Lee was
aware that the Harrises would be
likely to buy on reliance on his
valuation without obtaining
further advice. However, I understand
that your Lordships do not
share this difficulty and in these
circumstances I do not feel
disposed to dissent from the majority
view. I therefore conclude,
albeit with hesitation, that Mr. Lee
would, but for the terms of
the disclaimer in the application form,
have owed a duty of care
to the Harrises. In that situation the
second and third question
which I posed in the Smith v. Eric S.
Bush appeal would
arise and would fall to be answered in the same
way as in that
appeal. It therefore follows that this appeal should
be allowed.
- 37 - |
JISCBAILII_CASE_TORT JISCBAILII_CASE_CONTRACT JISCBAILII_CASE_ENGLISH_LEGAL_SYSTEM
The Law Reports (Appeal Cases)
[1990] 2 AC 605
[HOUSE OF LORDS]
CAPARO INDUSTRIES PLC. RESPONDENTS AND DICKMAN AND OTHERS APPELLANTS
1989 Nov. 16, 20, 22, 23, 27, 28;
1990 Feb. 8 Lord Bridge of Harwich , Lord Roskill , Lord Ackner , Lord Oliver of Aylmerton and Lord Jauncey of Tullichettle
Their Lordships took time for consideration.
8 February 1990. LORD BRIDGE OF HARWICH. My Lords, the appellants are a well known firm of chartered accountants. At all times material to this appeal, they were the auditors of a public limited company, Fidelity Plc. (“Fidelity”), which carried on business as manufacturers and vendors of electrical equipment of various kinds and whose shares were quoted on the London Stock Exchange. On 22 May 1984 the directors of Fidelity announced the results for the year ended 31 March 1984. These revealed that profits for the year fell well short of the figure which had been predicted, and this resulted in a dramatic drop in the quoted price of the shares which had stood at 143p per share on 1 March 1984 and which, by the beginning of June 1984, had fallen to 63p. Fidelity's accounts for the year to 31 March 1984 had been audited by the appellants and had been approved by the directors on the day before the results were announced. On 12 June 1984 they were issued to the shareholders, with notice of the annual general meeting, which took place on 4 July 1984 and at which the auditor's report was read and the accounts were adopted.
Following the announcement of the result, the respondents Caparo Industries Plc. (“Caparo”) began to purchase shares of Fidelity in the market. On 8 June 1984 they purchased 100,000 shares but they were not registered as members of Fidelity until after 12 June 1984 when the accounts were sent to shareholders although they had been registered in respect of at least some of the shares which they purchased by the date of the annual general meeting, which they did not attend. On 12 June 1984, they purchased a further 50,000 shares, and by 6 July 1984 they had increased their holding in Fidelity to 29.9 per cent. of the issued capital. On 4 September 1984 they made a bid for the remainder at 120p per share, that offer being increased to 125p per share on 24 September 1984. The offer was declared unconditional on 23 October 1984, and two days later Caparo announced that it had acquired 91.8 per cent. of the issued shares and proposed to acquire the balance compulsorily, which it subsequently did.
The action in which this appeal arises is one in which Caparo alleges that the purchases of shares which took place after 12 June 1984 and the subsequent bid were all made in reliance upon the accounts and that those accounts were inaccurate and misleading in a number of respects and in particular in overvaluing stock and underproviding for after-sales credits, with the result that an apparent pre-tax profit of some £1.3m. should in fact have been shown as a loss of over £400,000. Had the true facts been known, it is alleged, Caparo would not have made a bid at the price paid or indeed at all. Caparo accordingly commenced proceedings on 24 July 1985 against two of the persons who were directors at the material time, claiming that the overvaluations were made fraudulently, and against the appellants, claiming that they were negligent in certifying, as they did, that the accounts showed a true and fair view of Fidelity's position at the date to which they related. The substance of the allegation against the appellants is contained in paragraph 16 of the statement of claim which is in the following terms:
“Touche Ross, as auditors of Fidelity carrying out their functions as auditors and certifiers of the accounts in April and May 1984, owed a duty of care to investors and potential investors, and in particular to Caparo, in respect of the audit and certification of the accounts. In support of that duty of care Caparo will rely upon the following matters: (1) Touche Ross knew or ought to have known (a) that in early March 1984 a press release had been issued stating that profits for the financial year would fall significantly short of £2.2m., (b) that Fidelity's share price fell from 143p per share on 1 March 1984 to 75p per share on 2 April 1984, (c) that Fidelity required financial assistance. (2) Touche Ross therefore ought to have foreseen that Fidelity was vulnerable to a take-over bid and that persons such as Caparo might well rely on the accounts for the purpose of deciding whether to take over Fidelity and might well suffer loss if the accounts were inaccurate.”
On 6 July 1987, Sir Neil Lawson, sitting as judge in chambers, made an order for the trial of a preliminary issue, as follows:
“Whether on the facts set out in paragraphs 4 and 6 and in sub-paragraphs (1) and (2) of paragraph 16 of the statement of claim herein, the third defendants, Touche Ross & Co., owed a duty of care to the plaintiffs, Caparo Industries Plc., (a) as potential investors in Fidelity Plc.; or (b) as shareholders in Fidelity Plc. from 8 June 1984 and/or from 12 June 1984; in respect of the audit of the accounts of Fidelity Plc. for the year ended 31 March 1984 published on 12 June 1984.”
Paragraphs 4 and 6 of the statement of claim are those paragraphs in which are set out the purchases of shares by Caparo to which I have referred and in which it is claimed that the purchases made after 12 June 1984 were made in reliance upon the information contained in the accounts. There is, however, one correction to be made. Paragraph 4 alleges that the accounts were issued on 12 June 1984 “to shareholders, including Caparo” but it is now accepted that at that date Caparo, although a purchaser of shares, had not been registered as a shareholder in Fidelity's register of members.
On the trial of this preliminary issue Sir Neil Lawson, sitting as a judge of the Queen's Bench Division [1988] B.C.L.C. 387, held (i) that the appellants owed no duty at common law to Caparo as investors and (ii) that, whilst auditors might owe statutory duties to shareholders as a class, there was no common law duty to individual shareholders such as would enable an individual shareholder to recover damages for loss sustained by him in acting in reliance upon the audited accounts.
Caparo appealed to the Court of Appeal [1989] Q.B. 653 which, by a majority (O'Connor L.J. dissenting) allowed the appeal holding that, whilst there was no relationship between an auditor and a potential investor sufficiently proximate to give rise to a duty of care at common law, there was such a relationship with individual shareholders, so that an individual shareholder who suffered loss by acting in reliance on negligently prepared accounts, whether by selling or retaining his shares or by purchasing additional shares, was entitled to recover in tort. From that decision the appellants now appeal to your Lordships' House with the leave of the Court of Appeal, and the respondents cross-appeal against the rejection by the Court of Appeal of their claim that the appellants owed them a duty of care as potential investors.
In determining the existence and scope of the duty of care which one person may owe to another in the infinitely varied circumstances of human relationships there has for long been a tension between two different approaches. Traditionally the law finds the existence of the duty in different specific situations each exhibiting its own particular characteristics. In this way the law has identified a wide variety of duty situations, all falling within the ambit of the tort of negligence, but sufficiently distinct to require separate definition of the essential ingredients by which the existence of the duty is to be recognised. Commenting upon the outcome of this traditional approach, Lord Atkin, in his seminal speech in Donoghue v. Stevenson [1932] AC 562, 579–580, observed:
“The result is that the courts have been engaged upon an elaborate classification of duties as they exist in respect of property, whether real or personal, with further divisions as to ownership, occupation or control, and distinctions based on the particular relations of the one side or the other, whether manufacturer, salesman or landlord, customer, tenant, stranger, and so on. In this way it can be ascertained at any time whether the law recognises a duty, but only where the case can be referred to some particular species which has been examined and classified. And yet the duty which is common to all the cases where liability is established must logically be based upon some element common to the cases where it is found to exist.”
It is this last sentence which signifies the introduction of the more modern approach of seeking a single general principle which may be applied in all circumstances to determine the existence of a duty of care. Yet Lord Atkin himself sounds the appropriate note of caution by adding, at p. 580:
“To seek a complete logical definition of the general principle is probably to go beyond the function of the judge, for the more general the definition the more likely it is to omit essentials or to introduce non-essentials.”
Lord Reid gave a large impetus to the modern approach in Dorset Yacht Co. Ltd. v. Home Office [1970] AC 1004, 1026–1027, where he said:
“In later years there has been a steady trend towards regarding the law of negligence as depending on principle so that, when a new point emerges, one should ask not whether it is covered by authority but whether recognised principles apply to it. Donoghue v. Stevenson [1932] AC 562 may be regarded as a milestone, and the well known passage in Lord Atkin's speech should I think be regarded as a statement of principle. It is not to be treated as if it were a statutory definition. It will require qualification in new circumstances. But I think that the time has come when we can and should say that it ought to apply unless there is some justification or valid explanation for its exclusion.”
The most comprehensive attempt to articulate a single general principle is reached in the well known passage from the speech of Lord Wilberforce in Anns v. Merton London Borough Council [1978] AC 728, 751–752:
“Through the trilogy of cases in this House — Donoghue v. Stevenson [1932] AC 562, Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465, and Dorset Yacht Co. Ltd. v. Home Office [1970] AC 1004, the position has now been reached that in order to establish that a duty of care arises in a particular situation, it is not necessary to bring the facts of that situation within those of previous situations in which a duty of care has been held to exist. Rather the question has to be approached in two stages. First one has to ask whether, as between the alleged wrongdoer and the person who has suffered damage there is a sufficient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter — in which case a prima facie duty of care arises. Secondly, if the first question is answered affirmatively, it is necessary to consider whether there are any considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed or the damages to which a breach of it may give rise: see Dorset Yacht case [1970] AC 1004 per Lord Reid at p. 1027.”
But since the Anns case a series of decisions of the Privy Council and of your Lordships' House, notably in judgments and speeches delivered by Lord Keith of Kinkel, have emphasised the inability of any single general principle to provide a practical test which can be applied to every situation to determine whether a duty of care is owed and, if so, what is its scope: see Governors of Peabody Donation Fund v. Sir Lindsay Parkinson & Co. Ltd. [1985] AC 210, 239f–241c; Yuen Kun Yeu v. Attorney-General of Hong Kong [1988] A.C. 175, 190e–194f; Rowling v. Takaro Properties Ltd. [1988] AC 473, 501d–g; Hill v. Chief Constable of West Yorkshire [1989] AC 53, 60b–d. What emerges is that, in addition to the foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care are that there should exist between the party owing the duty and the party to whom it is owed a relationship characterised by the law as one of “proximity” or “neighbourhood” and that the situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope upon the one party for the benefit of the other. But it is implicit in the passages referred to that the concepts of proximity and fairness embodied in these additional ingredients are not susceptible of any such precise definition as would be necessary to give them utility as practical tests, but amount in effect to little more than convenient labels to attach to the features of different specific situations which, on a detailed examination of all the circumstances, the law recognises pragmatically as giving rise to a duty of care of a given scope. Whilst recognising, of course, the importance of the underlying general principles common to the whole field of negligence, I think the law has now moved in the direction of attaching greater significance to the more traditional categorisation of distinct and recognisable situations as guides to the existence, the scope and the limits of the varied duties of care which the law imposes. We must now, I think, recognise the wisdom of the words of Brennan J. in the High Court of Australia in Sutherland Shire Council v. Heyman (1985) 60 A.L.R. 1, 43–44, where he said:
“It is preferable, in my view, that the law should develop novel categories of negligence incrementally and by analogy with established categories, rather than by a massive extension of a prima facie duty of care restrained only by indefinable ‘considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed.’”
One of the most important distinctions always to be observed lies in the law's essentially different approach to the different kinds of damage which one party may have suffered in consequence of the acts or omissions of another. It is one thing to owe a duty of care to avoid causing injury to the person or property of others. It is quite another to avoid causing others to suffer purely economic loss. A graphic illustration of the distinction is embodied in the proposition that:
“In case of a wrong done to a chattel the common law does not recognise a person whose only rights are a contractual right to have the use or services of the chattel for purposes of making profits or gains without possession of or property in the chattel. Such a person cannot claim for injury done to his contractual right:” see Elliott Steam Tug Co. Ltd. v. Shipping Controller [1922] 1 K.B. 127, 139 per Scrutton L.J.
The proposition derives from Cattle v. Stockton Waterworks Co. (1875) L.R. 10 Q.B. 453. It has recently been reaffirmed in Candlewood Navigation Corporation Ltd. v. Mitsui O.S.K. Lines Ltd. [1986] AC 1 and Leigh & Sillavan Ltd. v. Aliakmon Shipping Co. Ltd. [1986] AC 785. In the former case Lord Fraser of Tullybelton, delivering the judgment of the Privy Council, said, at p. 25:
“Their Lordships consider that some limit or control mechanism has to be imposed upon the liability of a wrongdoer towards those who have suffered economic damage in consequence of his negligence. The need for such a limit has been repeatedly asserted in the cases, from Cattle's case, L.R. 10 Q.B. 453, to Caltex [Oil (Australia) Pty. Ltd. v. Dredge “Willemstad”(1976)], 136 C.L.R. 529, and their Lordships are not aware that a view to the contrary has ever been judicially expressed.”
The damage which may be caused by the negligently spoken or written word will normally be confined to economic loss sustained by those who rely on the accuracy of the information or advice they receive as a basis for action. The question what, if any, duty is owed by the maker of a statement to exercise due care to ensure its accuracy arises typically in relation to statements made by a person in the exercise of his calling or profession. In advising the client who employs him the professional man owes a duty to exercise that standard of skill and care appropriate to his professional status and will be liable both in contract and in tort for all losses which his client may suffer by reason of any breach of that duty. But the possibility of any duty of care being owed to third parties with whom the professional man was in no contractual relationship was for long denied because of the wrong turning taken by the law in Le Lievre v. Gould [1893] 1 QB 491 in overruling Cann v. Willson (1888) 39 Ch D. 39. In Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164, Denning L.J., in his dissenting judgment, made a valiant attempt to correct the error. But it was not until the decision of this House in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 that the law was once more set upon the right path.
Consistently with the traditional approach it is to these authorities and to subsequent decisions directly relevant to this relatively narrow corner of the field that we should look to determine the essential characteristics of a situation giving rise, independently of any contractual or fiduciary relationship, to a duty of care owed by one party to another to ensure that the accuracy of any statement which the one party makes and on which the other party may foreseeably rely to his economic detriment.
In Cann v. Willson, 39 Ch D 39 mortgagees advanced money in reliance on a valuation of the mortgaged property supplied to them by a valuer employed by the mortgagor. On the mortgagor's default, the property, having been negligently undervalued, proved insufficient to cover the mortgage loan. The mortgagees recovered their loss from the valuer. In his judgment, Chitty J. said, at pp. 42–43:
“In this case the document called a valuation was sent by the defendants direct to the agents of the plaintiff for the purpose of inducing the plaintiff and his co-trustee to lay out the trust money on mortgage. It seems to me that the defendants knowingly placed themselves in that position, and in point of law incurred a duty towards him to use reasonable care in the preparation of the document called a valuation.”
In Candler v. Crane, Christmas & Co. Ltd. [1951] 2 K.B. 164 the plaintiff invested money in a limited company in reliance on accounts of the company prepared by the company's accountants at the request of the managing director, which were shown to the plaintiff and discussed with him by the accountants in the knowledge that he was interested as a potential investor in the company. The accounts were inaccurate and misleading and the plaintiff, having invested in the company in reliance upon them, lost his money. Denning L.J., in his dissenting judgment, held the plaintiff entitled to recover damages for the accountants' negligence.
In Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 bankers were asked about the financial stability of a customer of the bank. They gave a favourable reference, albeit with a disclaimer of responsibility. The circumstances of the inquiry made it clear to the bankers that the party on whose behalf the inquiry was made wanted to know if they could safely extend credit to the bank's customer in a substantial sum. Acting on the reference given, the plaintiffs extended credit to the bank's customer who in due course defaulted. Although the House held that the bankers were protected by the disclaimer of responsibility, the case provided the opportunity to review the law, which led to the reinstatement of Cann v. Willson, the overruling of the majority decision in the Candler case and the approbation of the dissenting judgment of Denning L.J. in that case.
The most recent decision of the House, which is very much in point, is that of the two appeals heard together of Smith v. Eric S. Bush and Harris v. Wyre Forest District Council [1990] 1 AC 831. The plaintiffs in both cases were house purchasers who purchased in reliance on valuations of the properties made by surveyors acting for and on the instructions of the mortgagees proposing to advance money to the plaintiffs to enable them to effect their purchases. In both cases the surveyors' fees were paid by the plaintiffs and in both cases it turned out that the inspections and valuations had been negligently carried out and that the property was seriously defective so that the plaintiffs suffered financial loss. In the case of Smith the mortgagees were a building society, the surveyors who carried out the inspection and valuation were a firm employed by the building society and their report was shown to the plaintiff. In the case of Harris the mortgagees were the local authority who employed a member of their own staff to carry out the inspection and valuation. His report was not shown to the plaintiff, but the plaintiff rightly assumed from the local authority's offer of a mortgage loan that the property had been professionally valued as worth at least the amount of the loan. In both cases the terms agreed between the plaintiff and the mortgagee purported to exclude any liability on the part of the mortgagee or the surveyor for the accuracy of the mortgage valuation. The House held that in both cases the surveyor making the inspection and valuation owed a duty of care to the plaintiff house purchaser and that the contractual clauses purporting to exclude liability were struck down by section 2(2) and section 11(3) of the Unfair Contract Terms Act 1977.
The salient feature of all these cases is that the defendant giving advice or information was fully aware of the nature of the transaction which the plaintiff had in contemplation, knew that the advice or information would be communicated to him directly or indirectly and knew that it was very likely that the plaintiff would rely on that advice or information in deciding whether or not to engage in the transaction in contemplation. In these circumstances the defendant could clearly be expected, subject always to the effect of any disclaimer of responsibility, specifically to anticipate that the plaintiff would rely on the advice or information given by the defendant for the very purpose for which he did in the event rely on it. So also the plaintiff, subject again to the effect of any disclaimer, would in that situation reasonably suppose that he was entitled to rely on the advice or information communicated to him for the very purpose for which he required it. The situation is entirely different where a statement is put into more or less general circulation and may foreseeably be relied on by strangers to the maker of the statement for any one of a variety of different purposes which the maker of the statement has no specific reason to anticipate. To hold the maker of the statement to be under a duty of care in respect of the accuracy of the statement to all and sundry for any purpose for which they may choose to rely on it is not only to subject him, in the classic words of Cardozo C.J. to “liability in an indeterminate amount for an indeterminate time to an indeterminate class:” see Ultramares Corporation v. Touche (1931) 174 N.E. 441, 444; it is also to confer on the world at large a quite unwarranted entitlement to appropriate for their own purposes the benefit of the expert knowledge or professional expertise attributed to the maker of the statement. Hence, looking only at the circumstances of these decided cases where a duty of care in respect of negligent statements has been held to exist, I should expect to find that the “limit or control mechanism … imposed upon the liability of a wrongdoer towards those who have suffered economic damage in consequence of his negligence” *Reporter"s noteCandlewood Navigation Corporation Ltd v Mitsui OSKLines Ltd [1986] AC 1, 25 * rested in the necessity to prove, in this category of the tort of negligence, as an essential ingredient of the “proximity” between the plaintiff and the defendant, that the defendant knew that his statement would be communicated to the plaintiff, either as an individual or as a member of an identifiable class, specifically in connection with a particular transaction or transactions of a particular kind (e.g. in a prospectus inviting investment) and that the plaintiff would be very likely to rely on it for the purpose of deciding whether or not to enter upon that transaction or upon a transaction of that kind.
I find this expectation fully supported by the dissenting judgment of Denning L.J. in Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164, 179, 180–181, 182–184 in the following passages:
“Let me now be constructive and suggest the circumstances in which I say that a duty to use care in statement does exist apart from a contract in that behalf. First, what persons are under such duty? My answer is those persons such as accountants, surveyors, valuers and analysts, whose profession and occupation it is to examine books, accounts, and other things, and to make reports on which other people — other than their clients — rely in the ordinary course of business.”
“Secondly, to whom do these professional people owe this duty? I will take accountants, but the same reasoning applies to the others. They owe the duty, of course, to their employer or client; and also I think to any third person to whom they themselves show the accounts, or to whom they know their employer is going to show the accounts, so as to induce him to invest money or take some other action on them. But I do not think the duty can be extended still further so as to include strangers of whom they have heard nothing and to whom their employer without their knowledge may choose to show their accounts. Once the accountants have handed their accounts to their employer they are not, as a rule, responsible for what he does with them without their knowledge or consent …. The test of proximity in these cases is: did the accountants know that the accounts were required for submission to the plaintiff and use by him?”
“Thirdly, to what transactions does the duty of care extend? It extends, I think, only to those transactions for which the accountants knew their accounts were required. For instance, in the present case it extends to the original investment of £2,000. which the plaintiff made in reliance on the accounts, because the accountants knew that the accounts were required for his guidance in making that investment; but it does not extend to the subsequent £200. which he made after he had been two months with the company. This distinction, that the duty only extends to the very transaction in mind at the time, is implicit in the decided cases …. It will be noticed that I have confined the duty to cases where the accountant prepares his accounts and makes his report for the guidance of the very person in the very transaction in question. That is sufficient for the decision of this case. I can well understand that it would be going too far to make an accountant liable to any person in the land who chooses to rely on the accounts in matters of business, for that would expose him to ‘liability in an indeterminate amount for an indeterminate time to an indeterminate class’: see Ultramares Corporation v. Touche, per Cardozo C.J. Whether he would be liable if he prepared his accounts for the guidance of a specific class of persons in a specific class of transactions, I do not say. I should have thought he might be, just as the analyst and lift inspector would be liable in the instances I have given earlier. It is perhaps worth mentioning that Parliament has intervened to make the professional man liable for negligent reports given for the purposes of a prospectus: see sections 40 and 43 of the Companies Act 1948. That is an instance of liability for reports made for the guidance of a specific class of persons — investors, in a specific class of transactions — applying for shares. That enactment does not help, one way or the other, to show what result the common law would have reached in the absence of such provisions; but it does show what result it ought to reach. My conclusion is that a duty to use care in statement is recognised by English law, and that its recognition does not create any dangerous precedent when it is remembered that it is limited in respect of the persons by whom and to whom it is owed and the transactions to which it applies.”
It seems to me that this masterly analysis, if I may say so with respect, requires little, if any, amplification or modification in the light of later authority and is particularly apt to point the way to the right conclusion in the present appeal.
Some of the speeches in the Hedley Byrne case derive a duty of care in relation to negligent statements from a voluntary assumption of responsibility on the part of the maker of the statements. In his speech in Smith v. Eric S. Bush [1990] 1 AC 831, 862, Lord Griffiths emphatically rejected the view that this was the true ground of liability and concluded that:
“The phrase ‘assumption of responsibility’ can only have any real meaning if it is understood as referring to the circumstances in which the law will deem the maker of the statement to have assumed responsibility to the person who acts upon the advice.”
I do not think that in the context of the present appeal anything turns upon the difference between these two approaches.
These considerations amply justify the conclusion that auditors of a public company's accounts owe no duty of care to members of the public at large who rely upon the accounts in deciding to buy shares in the company. If a duty of care were owed so widely, it is difficult to see any reason why it should not equally extend to all who rely on the accounts in relation to other dealings with a company as lenders or merchants extending credit to the company. A claim that such a duty was owed by auditors to a bank lending to a company was emphatically and convincingly rejected by Millett J. in Al Saudi Banque v. Clarke Pixley [1990] Ch. 313. The only support for an unlimited duty of care owed by auditors for the accuracy of their accounts to all who may foreseeably rely upon them is to be found in some jurisdictions in the United States of America where there are striking differences in the law in different states. In this jurisdiction I have no doubt that the creation of such an unlimited duty would be a legislative step which it would be for Parliament, not the courts, to take.
The main submissions for Caparo are that the necessary nexus of proximity between it and the appellants giving rise to a duty of care stems (1) from the pleaded circumstances indicating the vulnerability of Fidelity to a take-over bid and from the consequent probability that another company, such as Caparo, would rely on the audited accounts in deciding to launch a take-over bid, or (2) from the circumstance that Caparo was already a shareholder in Fidelity when it decided to launch its take-over bid in reliance on the accounts. In relation to the first of these two submissions, Caparo applied, in the course of the hearing, for leave to amend paragraph 16(2) of the statement of claim by adding the words “or alternatively that it was highly probable that such persons would rely on the accounts for that purpose.”
The case which gives most assistance to Caparo in support of this submission is Scott Group Ltd. v. McFarlane [1978] 1 N.Z.L.R. 553. The audited consolidated accounts of a New Zealand public company and its subsidiaries overstated the assets of the group because of an admitted accounting error. Under the relevant New Zealand legislation its accounts were, as in England, accessible to the public. The circumstances of the group's affairs were such as to make it highly probable that it would atttract a take-over bid. The plaintiffs made such a bid successfully and when the accounting error was discovered claimed from the auditors in respect of the shortfall in the assets. Quilliam J. held that the auditors owed the plaintiffs no duty of care. The majority of the New Zealand Court of Appeal (Woodhouse and Cooke JJ.) held that the duty of care arose from the probability that the company would attract a take-over bid and the bidder would rely on the audited accounts, although Cooke J. held that the shortfall in the assets below that erroneously shown in the accounts did not amount to a loss recoverable in tort. Richmond P. held that no duty of care was owed. He said, at p. 566:
“All the speeches in Hedley Byrne seem to me to recognise the need for a ‘special’ relationship: a relationship which can properly be treated as giving rise to a special duty to use care in statement. The question in any given case is whether the nature of the relationship is such that one party can fairly be held to have assumed a responsibility to the other as regards the reliability of the advice or information. I do not think that such a relationship should be found to exist unless, at least, the maker of the statement was, or ought to have been, aware that his advice or information would in fact be made available to and be relied on by a particular person or class of persons for the purposes of a particular transaction or type of transaction. I would especially emphasise that to my mind it does not seem reasonable to attribute an assumption of responsibility unless the maker of the statement ought in all the circumstances, both in preparing himself for what he said and in saying it, to have directed his mind, and to have been able to direct his mind, to some particular and specific purpose for which he was aware that his advice or information would be relied on. In many situations that purpose will be obvious. But the annual accounts of a company can be relied on in all sorts of ways and for many purposes.”
I agree with this reasoning, which seems to me to be entirely in line with the principles to be derived from the authorities to which I have earlier referred and not to require modification in any respect which is relevant for present purposes by reference to anything said in this House in Smith v. Eric S. Bush [1990] 1 AC 831. I should in any event be extremely reluctant to hold that the question whether or not an auditor owes a duty of care to an investor buying shares in a public company depends on the degree of probability that the shares will prove attractive either en bloc to a take-over bidder or piecemeal to individual investors. It would be equally wrong, in my opinion, to hold an auditor under a duty of care to anyone who might lend money to a company by reason only that it was foreseeable as highly probable that the company would borrow money at some time in the year following publication of its audited accounts and that lenders might rely on those accounts in deciding to lend. I am content to assume the high probability of a take-over bid in reliance on the accounts which the proposed amendment of the statement of claim would assert but I do not think it assists Caparo's case.
The only other English authority to which I need refer in this context in JEB Fasteners Ltd. v. Marks, Bloom & Co. [1981] 3 All E.R. 289, a decision at first instance of Woolf J. This was another case where the plaintiffs, who had made a successful take-over bid for a company in reliance on audited accounts which had been negligently prepared, sued the accountants for damages. Woolf J. held that the auditors owed the plaintiffs a duty of care in the preparation of the accounts. He relied on both the Anns case [1978] AC 728 and Scott Group Ltd. v. McFarlane [1978] 1 N.Z.L.R. 553, in reaching the conclusion that the duty could be derived from foreseeability alone. For the reasons already indicated, I do not agree with this. It may well be, however, that the particular facts in the JEB case were sufficient to establish a basis on which the necessary ingredient of proximity to found a duty of care could be derived from the actual knowledge on the part of the auditors of the specific purpose for which the plaintiffs intended to use the accounts.
The position of auditors in relation to the shareholders of a public limited liability company arising from the relevant provisions of the Companies Act 1985 is accurately summarised in the judgment of Bingham L.J. in the Court of Appeal [1989] Q.B. 653, 680–681:
“The members, or shareholders, of the company are its owners. But they are too numerous, and in most cases too unskilled, to undertake the day to day management of that which they own. So responsibility for day to day management of the company is delegated to directors. The shareholders, despite their overall powers of control, are in most companies for most of the time investors and little more. But it would of course be unsatisfactory and open to abuse if the shareholders received no report on the financial stewardship of their investment save from those to whom the stewardship had been entrusted. So provision is made for the company in general meeting to appoint an auditor (section 384 of the Companies Act 1985), whose duty is to investigate and form an opinion on the adequacy of the company's accounting records and returns and the correspondence between the company's accounting records and returns and its accounts: section 237. The auditor has then to report to the company's members (among other things) whether in his opinion the company's accounts give a true and fair view of the company's financial position: section 236. In carrying out his investigation and in forming his opinion the auditor necessarily works very closely with the directors and officers of the company. He receives his remuneration from the company. He naturally, and rightly, regards the company as his client. But he is employed by the company to exercise his professional skill and judgment for the purpose of giving the shareholders an independent report on the reliability of the company's accounts and thus on their investment. ‘No doubt he is acting antagonistically to the directors in the sense that he is appointed by the shareholders to be a check upon them:’ In re Kingston Cotton Mill Co. [1896] 1 Ch 6, 11, per Vaughan Williams J. The auditor's report must be read before the company in general meeting and must be open to inspection by any member of the company: section 241. It is attached to and forms part of the company's accounts: sections 238(3) and 239. A copy of the company's accounts, including the auditor's report, must be sent to every member: section 240. Any member of the company, even if not entitled to have a copy of the accounts sent to him, is entitled to be furnished with a copy of the company's last accounts on demand and without charge: section 246.”
No doubt these provisions establish a relationship between the auditors and the shareholders of a company on which the shareholder is entitled to rely for the protection of his interest. But the crucial question concerns the extent of the shareholder's interest which the auditor has a duty to protect. The shareholders of a company have a collective interest in the company's proper management and in so far as a negligent failure of the auditor to report accurately on the state of the company's finances deprives the shareholders of the opportunity to exercise their powers in general meeting to call the directors to book and to ensure that errors in management are corrected, the shareholders ought to be entitled to a remedy. But in practice no problem arises in this regard since the interest of the shareholders in the proper management of the company's affairs is indistinguishable from the interest of the company itself and any loss suffered by the shareholders, e.g. by the negligent failure of the auditor to discover and expose a misappropriation of funds by a director of the company, will be recouped by a claim against the auditors in the name of the company, not by individual shareholders.
I find it difficult to visualise a situation arising in the real world in which the individual shareholder could claim to have sustained a loss in respect of his existing shareholding referable to the negligence of the auditor which could not be recouped by the company. But on this part of the case your Lordships were much pressed with the argument that such a loss might occur by a negligent undervaluation of the company's assets in the auditor's report relied on by the individual shareholder in deciding to sell his shares at an undervalue. The argument then runs thus. The shareholder, qua shareholder, is entitled to rely on the auditor's report as the basis of his investment decision to sell his existing shareholding. If he sells at an undervalue he is entitled to recover the loss from the auditor. There can be no distinction in law between the shareholder's investment decision to sell the shares he has or to buy additional shares. It follows, therefore, that the scope of the duty of care owed to him by the auditor extends to cover any loss sustained consequent on the purchase of additional shares in reliance on the auditor's negligent report.
I believe this argument to be fallacious. Assuming without deciding that a claim by a shareholder to recover a loss suffered by selling his shares at an undervalue attributable to an undervaluation of the company's assets in the auditor's report could be sustained at all, it would not be by reason of any reliance by the shareholder on the auditor's report in deciding to sell; the loss would be referable to the depreciatory effect of the report on the market value of the shares before ever the decision of the shareholder to sell was taken. A claim to recoup a loss alleged to flow from the purchase of overvalued shares, on the other hand, can only be sustained on the basis of the purchaser's reliance on the report. The specious equation of “investment decisions” to sell or to buy as giving rise to parallel claims thus appears to me to be untenable. Moreover, the loss in the case of the sale would be of a loss of part of the value of the shareholder's existing holding, which, assuming a duty of care owed to individual shareholders, it might sensibly lie within the scope of the auditor's duty to protect. A loss, on the other hand, resulting from the purchase of additional shares would result from a wholly independent transaction having no connection with the existing shareholding.
I believe it is this last distinction which is of critical importance and which demonstrates the unsoundness of the conclusion reached by the majority of the Court of Appeal. It is never sufficient to ask simply whether A owes B a duty of care. It is always necessary to determine the scope of the duty by reference to the kind of damage from which A must take care to save B harmless. “The question is always whether the defendant was under a duty to avoid or prevent that damage, but the actual nature of the damage suffered is relevant to the existence and extent of any duty to avoid or prevent it:” see Sutherland Shire Council v. Heyman, 60 A.L.R. 1, 48, per Brennan J. Assuming for the purpose of the argument that the relationship between the auditor of a company and individual shareholders is of sufficient proximity to give rise to a duty of care, I do not understand how the scope of that duty can possibly extend beyond the protection of any individual shareholder from losses in the value of the shares which he holds. As a purchaser of additional shares in reliance on the auditor's report, he stands in no different position from any other investing member of the public to whom the auditor owes no duty.
I would allow the appeal and dismiss the cross-appeal.
LORD ROSKILL. My Lords, I have had the advantage of reading in draft the speeches prepared by three of your Lordships. I agree with them and would allow the appeal and dismiss the cross-appeal for the reasons there given. I only add some observations of my own out of respect for the two Lords Justices from whom your Lordships are differing and because of the importance of this case in relation to the vexed question of the extent of liability of professional men, especially accountants, for putting into circulation allegedly incorrect statements whether oral or in writing which are claimed to have been negligently made or prepared and which have been acted on by a third party to that third party's detriment.
That liability for such negligence if established can exist has been made clear ever since the decision of this House in Hedley Byrne & Co. v. Heller & Partners Ltd. [1964] AC 465 in which the well known dissenting judgment of Denning L.J. in Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164 was held to have stated the law correctly. Thenceforth it was clear that such a duty of care could be owed by a professional man to third parties in cases where there was no contractual relationship between them, a view of the law long denied as the result of a succession of late 19th century cases of which this House then took the opportunity of disapproving.
But subsequent attempts to define both the duty and its scope have created more problems than the decisions have solved. My noble and learned friends have traced the evolution of the decisions from Anns v. Merton London Borough Council [1977] A.C. 728 until and including the most recent decisions of your Lordships' House in Smith v. Eric S. Bush [1990] 1 AC 831. I agree with your Lordships that it has now to be accepted that there is no simple formula or touchstone to which recourse can be had in order to provide in every case a ready answer to the questions whether, given certain facts, the law will or will not impose liability for negligence or in cases where such liability can be shown to exist, determine the extent of that liability. Phrases such as “foreseeability,” “proximity,” “neighbourhood,” “just and reasonable,” “fairness,” “voluntary acceptance of risk,” or “voluntary assumption of responsibility” will be found used from time to time in the different cases. But, as your Lordships have said, such phrases are not precise definitions. At best they are but labels or phrases descriptive of the very different factual situations which can exist in particular cases and which must be carefully examined in each case before it can be pragmatically determined whether a duty of care exists and, if so, what is the scope and extent of that duty. If this conclusion involves a return to the traditional categorisation of cases as pointing to the existence and scope of any duty of care, as my noble and learned friend Lord Bridge of Harwich, suggests, I think this is infinitely preferable to recourse to somewhat wide generalisations which leave their practical application matters of difficulty and uncertainty. This conclusion finds strong support from the judgment of Brennan J. in Sutherland Shire Council v. Heyman, 60 A.L.R. 1, 43–44 in the High Court of Australia in the passage cited by my noble and learned friends.
My Lords, I confess that like my noble and learned friend, Lord Griffiths, in Smith v. Eric S. Bush [1990] 1 AC 831, 862, I find considerable difficulty in phrases such as “voluntary assumption of responsibility” unless they are to be explained as meaning no more than the existence of circumstances in which the law will impose a liability upon a person making the allegedly negligent statement to the person to whom that statement is made; in which case the phrase does not help to determine in what circumstances the law will impose that liability or indeed, its scope. The submission that there is a virtually unlimited and unrestricted duty of care in relation to the performance of an auditor's statutory duty to certify a company's accounts, a duty extending to anyone who may use those accounts for any purpose such as investing in the company or lending the company money, seems to me untenable. No doubt it can be said to be foreseeable that those accounts may find their way into the hands of persons who may use them for such purposes or indeed other purposes and lose money as a result. But to impose a liability in those circumstances is to hold, contrary to all the recent authorities, that foreseeability alone is sufficient, and to ignore the statutory duty which enjoins the preparation of and certification of those accounts.
I think that before the existence and scope of any liability can be determined, it is necessary first to determine for what purposes and in what circumstances the information in question is to be given. If a would-be investor or predator commissions a report which he will use, and which the maker of the report knows he will use, as a basis for his decision whether or not to invest or whether or not to make a bid, it may not be difficult to conclude that if the report is negligently prepared and as a result a decision is taken in reliance upon it and financial losses then follow, a liability will be imposed upon the maker of that report. But I venture to echo the caution expressed by my noble and learned friend, Lord Oliver of Aylmerton, that because different cases may display certain common features, they are necessarily all cases in which the same consequences regarding liability or the scope of liability will follow. Moreover, there may be cases in which the circumstances in which the report was commissioned justify the inclusion of and reliance upon a disclaimer such as succeeded in the Hedley Byrne case but by reason of subsequent statutory provisions failed in Smith v. Eric S. Bush.
My Lords it is for these reasons, in addition to those given by my noble and learned friends, that, as already stated, I would allow this appeal and dismiss the cross-appeal.
LORD ACKNER. My Lords, I have had the advantage of reading the speeches of Lord Bridge of Harwich, Lord Roskill, Lord Oliver of Aylmerton and Lord Jauncey of Tullichettle and for the reasons they give I, too, would allow this appeal and dismiss the cross-appeal.
LORD OLIVER OF AYLMERTON. My Lords, this appeal, having come to this House on a preliminary point, involves the making of a number of assumptions of fact which might or might not be substantiated at the trial of the action. To begin with, it is to be assumed against the appellants that they showed a lack of reasonable care in certifying that the accounts of Fidelity for the year ended 31 March 1984 gave a true and fair view of Fidelity's position. It is also to be assumed that, when they certified the accounts, the appellants knew or would, if they had thought about it, have known that Fidelity was vulnerable to take-over bids, that a potential bidder would be likely to rely upon the accuracy of the accounts in making his bid and that investors in the market generally, whether or not already members of Fidelity, would also be likely to or might well rely upon the accounts in deciding to purchase shares in that company.
Your Lordships are not, however, either required or entitled to make any assumption that the purpose of the certification was anything other than that of fulfilling the statutory duty of carrying out the annual audit with a view to the circulation of the accounts to persons who were either registered shareholders or debenture-holders of Fidelity and the subsequent laying of the accounts before the annual general meeting of that company.
Thus, if and so far as the purpose for which the audit was carried out is a relevant consideration in determining the extent of any general duty in tort owed by the appellants to persons other than the company which is their immediate employer, that purpose was simply that of fulfilling the statutory requirements of the Companies Act 1985. That, in turn, raises the question — and it is one which lies at the threshold of the inquiry upon which your Lordships are invited to embark — of what is the purpose behind the legislative requirement for the carrying out of an annual audit and the circulation of the accounts. For whose protection were these provisions enacted and what object were they intended to achieve?
My Lords, the primary purpose of the statutory requirement that a company's accounts shall be audited annually is almost self-evident. The structure of the corporate trading entity, at least in the case of public companies whose shares are dealt with on an authorised Stock Exchange, involves the concept of a more or less widely distributed holding of shares rendering the personal involvement of each individual shareholder in the day-to-day management of the enterprise impracticable, with the result that management is necessarily separated from ownership. The management is confided to a board of directors which operates in a fiduciary capacity and is answerable to and removable by the shareholders who can act, if they act at all, only collectively and only through the medium of a general meeting. Hence the legislative provisions requiring the board annually to give an account of its stewardship to a general meeting of the shareholders. This is the only occasion in each year upon which the general body of shareholders is given the opportunity to consider, to criticise and to comment upon the conduct by the board of the company's affairs, to vote upon the directors' recommendation as to dividends, to approve or disapprove the directors' remuneration and, if thought desirable, to remove and replace all or any of the directors. It is the auditors' function to ensure, so far as possible, that the financial information as to the company's affairs prepared by the directors accurately reflects the company's position in order, first, to protect the company itself from the consequences of undetected errors or, possibly, wrongdoing (by, for instance, declaring dividends out of capital) and, secondly, to provide shareholders with reliable intelligence for the purpose of enabling them to scrutinise the conduct of the company's affairs and to exercise their collective powers to reward or control or remove those to whom that conduct has been confided.
The requirement of the appointment of auditors and annual audit of the accounts, now contained in sections 235 to 246 of the Companies Act 1985, was first introduced by the Companies Act 1879 (25 & 26 Vict.c. 76) in relation to companies carrying on the business of banking and was extended to companies generally by the Companies Act 1900. Section 23 of that Act required the auditors to make a report to the shareholders on the company's balance sheet laid before the company in general meeting, stating whether the balance sheet exhibited a true and correct view of the state of the company's affairs. By the same section, the report was required to be read before the company in general meeting. Section 19 of the Companies Act 1907 substituted a new section 23 which, whilst repeating the requirement that the auditors' report should be read before the company in general meeting, added a requirement that it should be open to inspection by any shareholder, who was entitled, on payment of the fee, to be furnished with a copy of the balance sheet and report. The new section also made it an offence for any officer of the company to be party to issuing, circulating or publishing any copy of the balance sheet which did not either append or contain a reference to the auditors' report. The matter was carried one stage further by section 130 of the Companies Act 1929 (consolidating provisions contained in sections 39 and 41 of the Companies Act 1928) which required the annual balance sheet and auditors' report of a public company to be sent not less than seven days before the date of the meeting to every member of the company entitled to receive notice of the meeting and entitled any member of the company and any debenture holder to be furnished on demand and without charge with a copy of the last balance sheet and the auditors' report. Finally, for relevant purposes, section 158 of the Companies Act 1948 required the accounts and report to be sent to every member of the company and to every debenture holder not less than 21 days before the general meeting before which the accounts are to be laid.
Thus the history of the legislation is one of an increasing availability of information regarding the financial affairs of the company to those having an interest in its progress and stability. It cannot fairly be said that the purpose of making such information available is solely to assist those interested in attending general meetings of the company to an informed supervision and appraisal of the stewardship of the company's directors, for the requirement to supply audited accounts to, for instance, preference shareholders having no right to vote at general meetings and to debenture holders cannot easily be attributed to any such purpose. Nevertheless, I do not, for my part, discern in the legislation any departure from what appears to me to be the original, central and primary purpose of these provisions, that is to say, the informed exercise by those interested in the property of the company, whether as proprietors of shares in the company or as the holders of rights secured by a debenture trust deed, of such powers as are vested in them by virtue of their respective proprietary interests.
It is argued on behalf of the respondent that there is to be discerned in the legislation an additional or wider commercial purpose, namely that of enabling those to whom the accounts are addressed and circulated, to make informed investment decisions, for instance, by determining whether to dispose of their shares in the market or whether to apply any funds which they are individually able to command in seeking to purchase the shares of other shareholders. Of course, the provision of any information about the business and affairs of a trading company, whether it be contained in annual accounts or obtained from other sources, is capable of serving such a purpose just as it is capable of serving as the basis for the giving of financial advice to others, for arriving at a market price, for determining whether to extend credit to the company, or for the writing of financial articles in the press. Indeed, it is readily foreseeable by anyone who gives the matter any thought that it might well be relied on to a greater or less extent for all or any of such purposes. It is, of course, equally foreseeable that potential investors having no proprietary interest in the company might well avail themselves of the information contained in a company's accounts published in the newspapers or culled from an inspection of the documents to be filed annually with the Registrar of Companies (which includes the audited accounts) in determining whether or not to acquire shares in the company. I find it difficult to believe, however, that the legislature, in enacting provisions clearly aimed primarily at the protection of the company and its informed control by the body of its proprietors, can have been inspired also by consideration for the public at large and investors in the market in particular.
The question is, I think, one of some importance when one comes to consider the existence of that essential relationship between the appellants and the respondent to which, in any discussion of the ingredients of the tort of negligence, there is accorded the description “proximity,” for it is now clear from a series of decisions in this House that, at least so far as concerns the law of the United Kingdom, the duty of care in tort depends not solely upon the existence of the essential ingredient of the foreseeability of damage to the plaintiff but upon its coincidence with a further ingredient to which has been attached the label “proximity” and which was described by Lord Atkin in the course of his speech in Donoghue v. Stevenson [1932] AC 562, 581 as:
“such close and direct relations that the act complained of directly affects a person whom the person alleged to be bound to take care would know would be directly affected by his careless act.”
It must be remembered, however, that Lord Atkin was using these words in the context of loss caused by physical damage where the existence of the nexus between the careless defendant and the injured plaintiff can rarely give rise to any difficulty. To adopt the words of Bingham L.J. in the instant case [1989] Q.B. 653, 686:
“It is enough that the plaintiff chances to be (out of the whole world) the person with whom the defendant collided or who purchased the offending ginger beer.”
The extension of the concept of negligence since the decision of this House in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 to cover cases of pure economic loss not resulting from physical damage has given rise to a considerable and as yet unsolved difficulty of definition. The opportunities for the infliction of pecuniary loss from the imperfect performance of everyday tasks upon the proper performance of which people rely for regulating their affairs are illimitable and the effects are far reaching. A defective bottle of ginger beer may injure a single consumer but the damage stops there. A single statement may be repeated endlessly with or without the permission of its author and may be relied upon in a different way by many different people. Thus the postulate of a simple duty to avoid any harm that is, with hindsight, reasonably capable of being foreseen becomes untenable without the imposition of some intelligible limits to keep the law of negligence within the bounds of common sense and practicality. Those limits have been found by the requirement of what has been called a “relationship of proximity” between plaintiff and defendant and by the imposition of a further requirement that the attachment of liability for harm which has occurred be “just and reasonable.” But although the cases in which the courts have imposed or withheld liability are capable of an approximate categorisation, one looks in vain for some common denominator by which the existence of the essential relationship can be tested. Indeed it is difficult to resist a conclusion that what have been treated as three separate requirements are, at least in most cases, in fact merely facets of the same thing, for in some cases the degree of foreseeability is such that it is from that alone that the requisite proximity can be deduced, whilst in others the absence of that essential relationship can most rationally be attributed simply to the court's view that it would not be fair and reasonable to hold the defendant responsible. “Proximity” is, no doubt, a convenient expression so long as it is realised that it is no more than a label which embraces not a definable concept but merely a description of circumstances from which, pragmatically, the courts conclude that a duty of care exists.
There are, of course, cases where, in any ordinary meaning of the words, a relationship of proximity (in the literal sense of “closeness”) exists but where the law, whilst recognising the fact of the relationship, nevertheless denies a remedy to the injured party on the ground of public policy. Rondel v. Worsley [1969] 1 AC 191 was such a case, as was Hill v. Chief Constable of West Yorkshire [1989] AC 53, so far as concerns the alternative ground of that decision. But such cases do nothing to assist in the identification of those features from which the law will deduce the essential relationship on which liability depends and, for my part, I think that it has to be recognised that to search for any single formula which will serve as a general test of liability is to pursue a will-o'-the wisp. The fact is that once one discards, as it is now clear that one must, the concept of foreseeability of harm as the single exclusive test — even a prima facie test — of the existence of the duty of care, the attempt to state some general principle which will determine liability in an infinite variety of circumstances serves not to clarify the law but merely to bedevil its development in a way which corresponds with practicality and common sense. In Sutherland Shire Council v. Heyman, 60 A.L.R. 1, 43–44, Brennan J. in the course of a penetrating analysis, observed:
“Of course, if foreseeability of injury to another were the exhaustive criterion of a prima facie duty to act to prevent the occurrence of that injury, it would be essential to introduce some kind of restrictive qualification — perhaps a qualification of the kind stated in the second stage of the general proposition in Anns [1978] AC 728. I am unable to accept that approach. It is preferable, in my view, that the law should develop novel categories of negligence incrementally and by analogy with established categories, rather than by a massive extension of a prima facie duty of care restrained only by indefinable ‘considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed.’”
The same approach is, I think, reflected in that passage in the speech of Lord Devlin in the Hedley Byrne case [1964] AC 465, 524–525 in which he considered the impact of Donoghue v. Stevenson on the facts of that case and in which he analysed and described the method by which the law develops:
“In his celebrated speech in that case Lord Atkin did two things. He stated what he described as a ‘general conception’ and from that conception he formulated a specific proposition of law. In between he gave a warning ‘against the danger of stating propositions of law in wider terms than is necessary, lest essential factors be omitted in the wider survey and the inherent adaptability of English law be unduly restricted.’
“What Lord Atkin called a ‘general conception of relations giving rise to a duty of care’ is now often referred to as the principle of proximity. You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. In the eyes of the law your neighbour is a person who is so closely and directly affected by your act that you ought reasonably to have him in contemplation as being so affected when you are directing your mind to the acts or omissions which are called in question ….
“Now, it is not, in my opinion, a sensible application of what Lord Atkin was saying for a judge to be invited on the facts of any particular case to say whether or not there was ‘proximity’ between the plaintiff and the defendant. That would be a misuse of a general conception and it is not the way in which English law develops. What Lord Atkin did was to use his general conception to open up a category of cases giving rise to a special duty. It was already clear that the law recognised the existence of such a duty in the category of articles that were dangerous in themselves. What Donoghue v. Stevenson did may be described either as the widening of an old category or as the creation of a new and similar one. The general conception can be used to produce other categories in the same way. An existing category grows as instances of its application multiply until the time comes when the cell divides ….
“In my opinion, the appellants in their argument tried to press Donoghue v. Stevenson too hard. They asked whether the principle of proximity should not apply as well to words as to deeds. I think it should, but as it is only a general conception it does not get them very far. Then they take the specific proposition laid down by Donoghue v. Stevenson and try to apply it literally to a certificate or a banker's reference. That will not do, for a general conception cannot be applied to pieces of paper in the same way as to articles of commerce or to writers in the same way as to manufacturers.
An inquiry into the possibilities of intermediate examination of a certificate will not be fruitful. The real value of Donoghue v. Stevenson to the argument in this case is that it shows how the law can be developed to solve particular problems. Is the relationship between the parties in this case such that it can be brought within a category giving rise to a special duty? As always in English law, the first step in such an inquiry is to see how far the authorities have gone, for new categories in the law do not spring into existence overnight.”
Perhaps, therefore, the most that can be attempted is a broad categorisation of the decided cases according to the type of situation in which liability has been established in the past in order to found an argument by analogy. Thus, for instance, cases can be classified according to whether what is complained of is the failure to prevent the infliction of damage by the act of the third party (such as Dorset Yacht Co. Ltd. v. Home Office [1970] AC 1004, P. Perl (Exporters) Ltd. v. Camden London Borough Council [1984] QB 342, Smith v. Littlewoods Organisation Ltd. [1987] AC 241 and, indeed, Anns v. Merton London Borough Council [1978] AC 728 itself), in failure to perform properly a statutory duty claimed to have been imposed for the protection of the plaintiff either as a member of a class or as a member of the public (such as the Anns case, Ministry of Housing and Local Government v. Sharp [1970] 2 Q.B. 223, Yuen Kun Yeu v. Attorney-General of Hong Kong [1988] A.C. 175) or in the making by the defendant of some statement or advice which has been communicated, directly or indirectly, to the plaintiff and upon which he has relied. Such categories are not, of course, exhaustive. Sometimes they overlap as in the Anns case, and there are cases which do not readily fit into easily definable categories (such as Ross v. Caunters [1980] Ch. 297). Nevertheless, it is, I think, permissible to regard negligent statements or advice as a separate category displaying common features from which it is possible to find at least guidelines by which a test for the existence of the relationship which is essential to ground liability can be deduced.
The damage which may be occasioned by the spoken or written word is not inherent. It lies always in the reliance by somebody upon the accuracy of that which the word communicates and the loss or damage consequential upon that person having adopted a course of action upon the faith of it. In general, it may be said that when any serious statement, whether it takes the form of a statement of fact or of advice, is published or communicated, it is foreseeable that the person who reads or receives it is likely to accept it as accurate and to act accordingly. It is equally foreseeable that if it is inaccurate in a material particular the recipient who acts upon it may suffer a detriment which, if the statement had been accurate, he would not have undergone. But it is now clear that mere foreseeability is not of itself sufficient to ground liability unless by reason of the circumstances it itself constitutes also the element of proximity (as in the case of direct physical damage) or unless it is accompanied by other circumstances from which that element may be deduced. One must, however, be careful about seeking to find any general principle which will serve as a touchstone for all cases, for even within the limited category of what, for the sake of convenience, I may refer to as “the negligent statement cases,” circumstances may differ infinitely and, in a swiftly developing field of law, there can be no necessary assumption that those features which have served in one case to create the relationship between the plaintiff and the defendant on which liability depends will necessarily be determinative of liability in the different circumstances of another case. There are, for instance, at least four and possibly more situations in which damage or loss may arise from reliance upon the spoken or written word and it must not be assumed that because they display common features of reliance and foreseeability they are necessarily in all respects analogous. To begin with, reliance upon a careless statement may give rise to direct physical injury which may be caused either to the person who acts on the faith of the statement or to a third person. One has only to consider, for instance, the chemist's assistant who mis-labels a dangerous medicine, a medical man who gives negligent telephonic advice to a parent with regard the treatment of a sick child, or an architect who negligently instructs a bricklayer to remove the keystone of an archway (as in Clayton v. Woodman & Sons (Builders) Ltd. [1962] 2 Q.B. 533). In such cases it is not easy to divorce foreseeability simpliciter and the proximity which flows from the virtual inevitability of damage if the advice is followed. Again, economic loss may be inflicted upon a third party as a result of the act of the recipient of the advice or information carried out in reliance upon it (as, for instance, the testator in Ross v. Caunters [1980] Ch. 297 or the purchaser in Ministry of Housing and Local Government v. Sharp [1970] 2 Q.B. 223, both cases which give rise to certain difficulties of analysis). For present purposes, however, it is necessary to consider only those cases of economic damage suffered directly by a recipient of the statement or advice as a result of his personally having acted in reliance upon it.
In his dissenting judgment in Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164, Denning L.J. suggested three conditions for the creation of a duty of care in tort in such cases. First, the advice must be given by one whose profession it is to give advice upon which others rely in the ordinary course of business, such as accountants, surveyors, valuers and the like: p. 179. Secondly, it must be known to the adviser that the advice would be communicated to the plaintiff in order to induce him to adopt a particular course of action: p. 180. Thirdly, the advice must be relied upon for the purpose of the particular transaction for which it was known to the advisers that the advice was required: p. 182. It is plain, however, from other passages in his judgment, that Denning L.J. did not consider these conditions as necessarily exhaustive criteria of the existence of a duty and the speeches in this House in the Hedley Byrne case [1964] AC 465, where his judgment was approved, indicate a number of directions in which such criteria are to be extended. To begin with, Lord Reid, at p. 486, would not have confined liability to statements made or advice given in the exercise of a profession involving the giving of such advice but would have extended it to:
“all those relationships where it is plain that the party seeking information or advice was trusting the other to exercise such a degree of care as the circumstances required, where it was reasonable for him to do that, and where the other gave the information or advice when he knew or ought to have known that the inquirer was relying on him.”
Lord Morris of Borth-y-Gest, with whom Lord Hodson agreed, whilst initially, at p. 502, referring to persons “possessed of a special skill” nevertheless went on to state the conditions in which a duty of care might arise in very much wider terms, at p. 503:
“Furthermore, if in a sphere in which a person is so placed that others could reasonably rely upon his judgment or his skill or upon his ability to make careful inquiry, a person takes it upon himself to give information or advice to, or allows his information or advice to be passed on to, another person who, as he knows or should know, will place reliance upon it, then a duty of care will arise.”
Nonetheless, the subsequent decision of the Privy Council in Mutual Life and Citizens' Assurance Co. Ltd. v. Evatt [1971] AC 793, from which Lord Reid and Lord Morris dissented, would have confined the duty of care to cases where the advice relied upon was given in the course of a business or profession involving the giving of advice of the kind in question. For present purposes, it is unnecessary to attempt a resolution of the difference of opinion arising from the Mutual Life case, since there is no question here but that the certifying of the accounts was something done in the course of the ordinary business of the appellants.
Leaving this on one side, however, it is not easy to cull from the speeches in the Hedley Byrne case [1964] AC 465 any clear attempt to define or classify the circumstances which give rise to the relationship of proximity on which the action depends and indeed Lord Hodson, at p. 514, expressly stated (and I respectfully agree) that he did not think it possible to catalogue the special features which must be found to exist before the duty of care will arise in the given case. Lord Devlin, at p. 530, is to the same effect. The nearest that one gets to the establishment of a criterion for the creation of a duty in the case of a negligent statement is the emphasis to be found in all the speeches upon “the voluntary assumption of responsibility” by the defendant. This is a convenient phrase but it is clear that it was not intended to be a test for the existence of the duty for, on analysis, it means no more than that the act of the defendant in making the statement or tendering the advice was voluntary and that the law attributes to it an assumption of responsibility if the statement or advice is inaccurate and is acted upon. It tells us nothing about the circumstances from which such attribution arises.
The point that is, as it seems to me, significant in the present context, is the unanimous approval in this House of the judgment of Denning L.J. in Candler's case [1951] 2 K.B. 164, 181 in which he expressed the test of proximity in these words: “did the accountants know that the accounts were required for submission to the plaintiff and use by him?” In so far as this might be said to imply that the plaintiff must be specifically identified as the ultimate recipient and that the precise purpose for which the accounts were required must be known to the defendant before the necessary relationship can be created, Denning L.J.'s formulation was expanded in the Hedley Byrne case, where it is clear that, but for an effective disclaimer, liability would have attached. The respondents there were not aware of the actual identity of the advertising firm for which the credit reference was required nor of its precise purpose, save that it was required in anticipation of the placing of advertising contracts. Furthermore, it is clear that “knowledge” on the part of the respondents embraced not only actual knowledge but such knowledge as would be attributed to a reasonable person placed as the respondents were placed. What can be deduced from the Hedley Byrne case, therefore, is that the necessary relationship between the maker of a statement or giver of advice (“the adviser”) and the recipient who acts in reliance upon it (“the advisee”) may typically be held to exist where (1) the advice is required for a purpose, whether particularly specified or generally described, which is made known, either actually or inferentially, to the adviser at the time when the advice is given; (2) the adviser knows, either actually or inferentially, that his advice will be communicated to the advisee, either specifically or as a member of an ascertainable class, in order that it should be used by the advisee for that purpose; (3) it is known either actually or inferentially, that the advice so communicated is likely to be acted upon by the advisee for that purpose without independent inquiry, and (4) it is so acted upon by the advisee to his detriment. That is not, of course, to suggest that these conditions are either conclusive or exclusive, but merely that the actual decision in the case does not warrant any broader propositions.
Those propositions are, I think, in accord with the two United States authorities which were referred to in the course of the speeches in the Hedley Byrne decision. In Glanzer v. Shepard (1922) 135 N.E. 275, where a public weigher negligently certified an overweight so that the purchaser of the goods paid too much for them, the identity of the recipient of the certificate was known, the purpose of the certificate was known, and the certificate was issued for the very purpose of enabling the price of the goods to be ascertained and with the knowledge that it would be acted upon by the recipient for that purpose. In Ultramares Corporation v. Touche, 174 N.E. 441, on the other hand — a case much nearer to the present — the action failed. There auditors, although aware generally that the certified accounts of the company would be shown to others by the company as the basis of financial dealings generally “according to the needs of the occasion,” were unaware of the company's specific purpose of obtaining financial help from the plaintiff.
The most recent authority on negligent misstatement in this House — the two appeals in Smith v. Eric S. Bush and Harris v. Wyre Forest District Council [1990] 1 AC 831 which were heard together — does not, I think, justify any broader proposition than that already set out, save that they make it clear that the absence of a positive intention that the advice shall be acted upon by anyone other than the immediate recipient — indeed an expressed intention that it shall not be acted upon by anyone else — cannot prevail against actual or presumed knowledge that it is in fact likely to be relied upon in a particular transaction without independent verification. Both appeals were concerned with surveyors' certificates issued to mortgagees in connection with the proposed purchases for which the mortgagees were contemplating making advances. In each case there was an express disclaimer of responsibility, but in each case it was known to the surveyor that the substance of the report (in the sense of what was important to a purchaser) — that is to say whether or not any repairs to the property were considered essential — would be made known by the mortgagee to the purchaser, the plaintiff in the action, and would be likely to be acted upon by him in entering into a contract to purchase the property. In so far as the case was concerned with the effects of the disclaimer, it does not require consideration in the present context, but there are important passages in the speeches in this House bearing upon the questions which arise on this appeal and indicative of the features which, in that case, led their Lordships to conclude that the necessary relationship of proximity existed between the surveyors and the purchasers of the respective properties. Lord Templeman deduced the relationship from a combination of factors. He said, at pp. 847–848:
“I agree that by obtaining and disclosing a valuation, a mortgagee does not assume responsibility to the purchaser for that valuation. But in my opinion the valuer assumes responsibility to both mortgagee and purchaser by agreeing to carry out a valuation for mortgage purposes knowing that the valuation fee has been paid by the purchaser and knowing that the valuation will probably be relied upon by the purchaser in order to decide whether or not to enter into a contract to purchase the house …. In general I am of the opinion that in the absence of a disclaimer of liability the valuer who values a house for the purpose of a mortgage, knowing that the mortgagee will rely and the mortgagor will probably rely on the valuation, knowing that the purchaser mortgagor has in effect paid for the valuation, is under a duty to exercise reasonable skill and care and that duty is owed to both parties to the mortgage for which the valuation is made.”
Lord Griffiths at p. 862, rejected the voluntary “assumption of responsibility” as a helpful formula for testing the existence of a duty of care observing that the phrase:
“can only have any real meaning if it is understood as referring to the circumstances in which the law will deem the maker of the statement to have assumed responsibility to the person who acts upon the advice.”
He continued, at pp. 862, 864–865:
“The essential distinction between the present case and the situation being considered in Hedley Byrne [1964] AC 465 and in the two earlier cases, is that in those cases the advice was being given with the intention of persuading the recipient to act upon it. In the present case, the purpose of providing the report is to advise the mortgagee but it is given in circumstances in which it is highly probable that the purchaser will in fact act on its contents, although that was not the primary purpose of the report. I have had considerable doubts whether it is wise to increase the scope of the duty for negligent advice beyond the person directly intended by the giver of the advice to act upon it to those whom he knows may do so.”
“I therefore return to the question in what circumstances should the law deem those who give advice to have assumed responsibility to the person who acts upon the advice or, in other words, in what circumstances should a duty of care be owed by the adviser to those who act upon his advice? I would answer — only if it is foreseeable that if the advice is negligent the recipient is likely to suffer damage, that there is a sufficiently proximate relationship between the parties and that it is just and reasonable to impose the liability. In the case of a surveyor valuing a small house for a building society or local authority, the application of these three criteria leads to the conclusion that he owes a duty of care to the purchaser. If the valuation is negligent and is relied upon damage in the form of economic loss to the purchaser is obviously foreseeable. The necessary proximity arises from the surveyor's knowledge that the overwhelming probability is that the purchaser will rely upon his valuation, the evidence was that surveyors knew that approximately 90 per cent. of purchasers did so, and the fact that the surveyor only obtains the work because the purchaser is willing to pay his fee. It is just and reasonable that the duty should be imposed for the advice is given in a professional as opposed to a social context and liability for breach of the duty will be limited both as to its extent and amount. The extent of the liability is limited to the purchaser of the house — I would not extend it to subsequent purchasers. The amount of the liability cannot be very great because it relates to a modest house. There is no question here of creating a liability of indeterminate amount to an indeterminate class. I would certainly wish to stress that in cases where the advice has not been given for the specific purpose of the recipient acting upon it, it should only be in cases when the adviser knows that there is a high degree of probability that some other identifiable person will act upon the advice that a duty of care should be imposed. It would impose an intolerable burden upon those who give advice in a professional or commercial context if they were to owe a duty not only to those to whom they give the advice but to any other person who might choose to act upon it.”
Finally, in relation to the Smith appeal, Lord Jauncey of Tullichettle observed, at p. 871–872:
“The four critical facts are that the appellants knew from the outset: (1) that the report would be shown to Mrs. Smith; (2) that Mrs. Smith would probably rely on the valuation contained therein in deciding whether to buy the house without obtaining an independent valuation; (3) that if, in these circumstances, the valuation was, having regard to the actual condition of the house, excessive, Mrs. Smith would be likely to suffer loss; and (4) that she had paid the building society a sum to defray the appellants' fee. In the light of this knowledge the appellants could have declined to act for the building society, but they chose to proceed. In these circumstances they must be taken not only to have assumed contractual obligations towards the building society but delictual obligations towards Mrs. Smith, whereby they became under a duty towards her to carry out their work with reasonable care and skill. It is critical to this conclusion that the appellants knew that Mrs. Smith would be likely to rely on the valuation without obtaining independent advice. In both Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164 and Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465, the provider of the information was the obvious and most easily available, if not the only available, source of that information. It would not be difficult therefore to conclude that the person who sought such information was likely to rely upon it. In the case of an intending mortgagor the position is very different since, financial considerations apart, there is likely to be available to him a wide choice of sources of information, to wit, independent valuers to whom he can resort, in addition to the valuer acting for the mortgagee. I would not therefore conclude that the mere fact that a mortgagee's valuer knows that his valuation will be shown to an intending mortgagor of itself imposes upon him a duty of care to the mortgagor. Knowledge, actual or implied, of the mortgagor's likely reliance upon the valuation must be brought home to him. Such knowledge may be fairly readily implied in relation to a potential mortgagor seeking to enter the lower end of the housing market but non constat that such ready implication would arise in the case of a purchase of an expensive property whether residential or commercial.”
Thus Smith v. Eric S. Bush [1990] 1 AC 831, although establishing beyond doubt that the law may attribute an assumption of responsibility quite regardless of the expressed intentions of the adviser, provides no support for the proposition that the relationship of proximity is to be extended beyond circumstances in which advice is tendered for the purpose of the particular transaction or type of transaction and the adviser knows or ought to know that it will be relied upon by a particular person or class of persons in connection with that transaction. The judgment of Millett J. in the recent case of Al Saudi Banque v. Clarke Pixley [1990] Ch. 313 (decided after the decision of the Court of Appeal in the instant case) contains an analysis of the decision of this House in Smith v. Eric S. Bush and concludes — and I agree — that it established a more stringent test of the requirements for proximity than that which had been applied by the Court of Appeal in the instant case. At p. 335–336 of his judgment, Millett J. gives what I find a helpful analysis of that case and of the features which distinguished it from the Hedley Byrne case and from the instant case:
“In each of the cases considered by the House of Lords, therefore, there was a tripartite transaction in which the valuation could realistically be regarded as provided by the valuer to the purchaser. In each of the cases the valuation was given to the mortgagee with the intention of being acted on by him in a specific transaction known to the valuer, viz: the making of a mortgage offer in connection with a specific transaction of house purchase, and in the knowledge that the valuation or the gist of the valuation would be communicated to the purchaser and would in all probability be relied upon by him in deciding whether to go ahead with the very transaction for which the mortgage offer was sought. This was a much more restricted context in which to found a duty of care than was present in the Caparo case, for there was in contemplation not only a particular and identified recipient of the information to whom the defendant knew that it would be communicated, but a particular and known purpose for which he could foresee that it would be relied on.
“In Hedley Byrne [1964] AC 465 and the cases which followed it, the statement was made directly to the plaintiff with the intention that the plaintiff should act upon it. The JEB Fasteners case [1983] 1 All E.R. 583 can be supported only on the basis that the statement was impliedly confirmed directly to the plaintiff without any such intention, but with a particular transaction in contemplation, and it was foreseeable that the plaintiff would rely upon it in that transaction. In Caparo's case [1989] Q.B. 653 it was made to the plaintiff without any such intention and without any particular transaction in contemplation, but it was foreseeable that the plaintiff might rely upon it in some unknown future transaction. In Smith v. Eric S. Bush [1990] 1 AC 831 it was made to a third party with the intention that he should act upon it in a known and contemplated transaction, but in the knowledge that it would be communicated to the plaintiff and would almost certainly be relied upon by him in connection with a transaction without which the transaction of the third party could not proceed.”
My Lords, no decision of this House has gone further than Smith v. Eric S. Bush, but your Lordships are asked by the respondents to widen the area of responsibility even beyond the limits to which it was extended by the Court of Appeal in this case and to find a relationship of proximity between the adviser and third parties to whose attention the advice may come in circumstances in which the reliance said to have given rise to the loss is strictly unrelated either to the intended recipient or to the purpose for which the advice was required. My Lords, I discern no pressing reason of policy which would require such an extension and there seems to me to be powerful reasons against it. As Lord Reid observed in the course of his speech in Hedley Byrne [1964] AC 465, 483, words can be broadcast with or without the consent or foresight of the speaker or writer; and in his speech in the same case, Lord Pearce drew attention to the necessity for the imposition of some discernible limits to liability in such cases. He said, at p. 534:
“The reason for some divergence between the law of negligence in word and that of negligence in act is clear. Negligence in word creates problems different from those of negligence in act. Words are more volatile than deeds. They travel fast and far afield. They are used without being expended and take effect in combination with innumerable facts and other words. Yet they are dangerous and can cause vast financial damage. How far they are relied on unchecked … must in many cases be a matter of doubt and difficulty. If the mere hearing or reading of words were held to create proximity, there might be no limit to the persons to whom the speaker or writer could be liable.”
As I have already mentioned, it is almost always foreseeable that someone, somewhere and in some circumstances, may choose to alter his position upon the faith of the accuracy of a statement or report which comes to his attention and it is always foreseeable that a report — even a confidential report — may come to be communicated to persons other than the original or intended recipient. To apply as a test of liability only the foreseeability of possible damage without some further control would be to create a liability wholly indefinite in area, duration and amount and would open up a limitless vista of uninsurable risk for the professional man.
On the basis of the pleaded case, as amended, it has to be assumed that the appellants, as experienced accountants, were aware or should have been aware that Fidelity's results made it vulnerable to take-over bids and that they knew or ought to have known that a potential bidder might well rely upon the published accounts in determining whether to acquire shares in the market and to make a bid. It is not, however, suggested that the appellants, in certifying the accounts, or Parliament, in providing for such certification, did so for the purpose of assisting those who might be minded to profit from dealings in the company's shares. The respondents, whilst accepting that it is no part of the purpose of the preparation, certification and publication of the accounts of a public company to provide information for the guidance of predators in the market, nevertheless argue that the appellants' knowledge that predators might well rely upon the accounts for this purpose sufficiently establishes between them and potential bidders that relationship of “proximity” which founds liability. On the face of it, this submission appears to equate “proximity” with mere foreseeability and to rely upon the very misinterpretation of the effect of the decision of this House in the Anns case [1978] AC 728 which was decisively rejected in the Governors of Peabody Donation Fund v. Sir Lindsay Parkinson & Co. Ltd. [1985] AC 210 and in Yuen Kun Yeu v. Attorney-General of Hong Kong [1988] A.C. 175. Your Lordships have been referred, however, to three authorities, one from New Zealand and two from the United Kingdom, which do undoubtedly support the respondents' contention.
In Scott Group Ltd. v. McFarlane [1978] N.Z.L.R. 553, the defendants were the auditors of a company which had been successfully taken over in reliance upon certified consolidated accounts in which, as a result of double-counting, the assets were overstated. It was admitted that the failure of the defendants to discover the discrepancy was due to negligence. In the Supreme Court of New Zealand, Quilliam J. dismissed the plaintiffs' claim on the ground that the appellants, though careless, owed them no duty of care. An appeal to the Court of Appeal failed but the court was divided as to the reasons. Richmond P. held that the appeal failed for the same reason as that stated by the trial judge. Woodhouse J. would have allowed the appeal. Cooke J., on the other hand, whilst concurring with Woodhouse J. that the respondents did in fact owe a duty of care to the appellants, held that the appeal failed because they had failed to show any recoverable loss.
The more restrictive view was expressed by Richmond P. in the following terms, at pp. 566–567:
“The question in any given case is whether the nature of the relationship is such that one party can fairly be held to have assumed a responsibility to the other as regards the reliability of the advice or information. I do not think that such a relationship should be found to exist unless, at least, the maker of the statement was, or ought to have been, aware that his advice or information would in fact be made available to and be relied on by a particular person or class of persons for the purposes of a particular transaction or type of transaction. I would especially emphasise that to my mind it does not seem reasonable to attribute an assumption of responsibility unless the maker of the statement ought in all the circumstances, both in preparing himself for what he said and in saying it, to have directed his mind, and to have been able to direct his mind, to some particular and specific purpose for which he was aware that his advice or information would be relied on. In many situations that purpose will be obvious. But the annual accounts of a company can be relied on in all sorts of ways and for many purposes. It would be going too far to treat accountants as assuming a responsibility towards all persons dealing with the company or its members, in reliance to some greater or lesser degree on the accuracy of the accounts, merely because it was reasonably foreseeable, in a general way, that a transaction of the kind in which the plaintiff happened to become involved might indeed take place. The relationship between the parties would, I think, be too general and not sufficiently ‘special’ to come within the principles underlying the decision in Hedley Byrne. As I have said, I believe it to be essential to the existence of a ‘special relationship’ that the maker of the statement was or should have been aware that his advice was required for use in a specific type of contemplated transaction. This requirement has not always required emphasis in the course of judicial discussion as to the nature of a special relationship. Probably this is because in most cases the purpose for which the information was required was, on the facts, quite obvious. But certainly this particular point was made very clear indeed in Denning L.J.'s judgment in Candler v. Crane, Christmas & Co. I would think that it must almost inevitably follow, once the maker of the statement is aware of a specific purpose for which his information will be used, that he will also have in direct contemplation a specific person or class of persons, even though unidentified by name.”
The New Zealand Companies Act 1955 contained provisions relating to the auditors' report which is similar in substance to those contained in the United Kingdom legislation but with this variation, that the “true and fair view” which group accounts are certified to give are qualified by the words “so far as concerns members of the company.” In relation to these provisions, Richmond P. observed, at p. 568:
“The provisions of the Act to which I have just referred are aimed essentially at the protection of the members of the company and of course the auditors, whose contract of employment is with the company itself, are under a contractual duty of care to the company. These provisions do not encourage me to take the view that there is any reason why the auditors of a public company should thereby come under a common law duty of care to third persons dealing with the company or its members on the faith of their audit certificate, such liability being in some way based on a much wider principle than would apply, for example, in the case of auditors certifying the accounts of a private company. Like Quilliam J., I can also see no reason to differentiate between auditors as such and a firm of chartered accountants employed to prepare the accounts of the company. The only point which has given me some concern, so far as the statutory provisions are concerned, is the requirement of section 133(1) whereby a copy of the balance sheet and auditors' report is required to be annexed to the annual return and thus becomes available to the public under section 9(1) of the Act. But on reflection, this only means that the auditor of the accounts of a public company knows that the accounts and his report will become available to the public generally and, consequently, may be relied on by one or more members of the public, to some greater or lesser degree, as the basis of some business transaction. It is not suggested, however, that the Companies Act imposes any statutory duty of care as between auditors and members of the public who rely on the accounts. In the case of a company whose shares are listed on the Stock Exchange the auditor will also know that under the Stock Exchange rules a copy of the accounts must be made available. He knows, too, that shareholders will receive copies of the accounts and that the company itself may well make copies available to business institutions and individuals for various purposes. In the end all these matters merely add up to the fact that the auditor of a public company will necessarily have in his contemplation the possibility that the accounts may be relied on in all sorts of ways by persons other than the company and its members. This, as I have said, is not sufficient to bring about a ‘special relationship.’”
Both Woodhouse and Cooke JJ., who favoured a wider view of responsibility, based themselves upon an interpretation of the speech of Lord Wilberforce in the Anns case [1978] AC 728 which required, as the first stage of the two-stage inquiry to which he there referred, no more than a consideration of whether harm was foreseeable, thus equating the “proximate relationship” as comprehending foresight and nothing more. This is made quite clear from the following passage in the judgment of Woodhouse J., at p. 574:
“In this regard it will be noticed that although the first part of the inquiry outlined by Lord Wilberforce is to ask whether ‘there is a sufficient relationship of proximity’ in order to decide whether there is a prima facie duty of care, he would test the sufficiency of proximity simply by the reasonable contemplation of likely harm. And, with respect, I do not think that there is any need for or any sound reason in favour of a more restrictive approach. The issue has been made increasingly complex by the successive and varying formulas that have been used in an effort to confine the general area of responsibility, in particular for negligent words or in respect of purely economic losses. At this initial stage at least it should be possible to remove some degree of uncertainty — in my opinion it is done by the comprehensible and straightforward test of foreseeability.”
Woodhouse J., again emphasised foreseeability as the relevant test for the creation of the relationship of proximity in his judgment where he said, at p. 575:
“Although an audit is undertaken on behalf of the members of a public company it must be within the reasonable contemplation of any auditor that confidence in its ability to handle its commercial arrangements would depend upon the authenticity of its accounts — a confidence that would disappear if reliance could not be put upon the audit report. So I think that when auditors deliberately undertake to provide their formal report upon the accounts of a public company they must be taken to have accepted not merely a direct responsbility to the shareholders but a further duty to those persons whom they can reasonably foresee will need to use and rely upon them when dealing with the company or its members in significant matters affecting the company assets and business. An example, no doubt, would be the banker asked to make substantial advances on the security of the company undertaking. On the other hand, there would seem to be formidable difficulties for a plaintiff who attempted to prove that an auditor should have foreseen the plaintiff's likely reliance upon some newspaper or a Stock Exchange reference to a company's accounts. However, it is sufficient for present purposes to restrict consideration to a take over offer related, as so frequently is the position, to the value of shareholders' funds. In such a situation the need to rely upon audited accounts is, I think, quite obvious. As a matter of commercial reality I think the auditor and offeror are in a relationship of close proximity.”
Cooke J. was to the same effect. At p. 583 he adopted, as the first step of Lord Wilberforce's two-stage approach, the formulation which equates the relationship of proximity with foreseeability, although at an earlier stage of his judgment he seemed to be disposed to regard the essential relationship as arising not simply from the foreseeability that a member of the public might rely on the accounts as a basis of some transaction but, for a reason which I confess I do not fully understand, from the foreseeability that some member of the public might rely on the accounts for the making of a take-over bid. He said, at p. 581:
“The learned judge in the Supreme Court was disposed to regard the requirement of filing audited accounts, which are available for public inspection, as not imposed by Parliament for the purpose of enabling people to deal confidently in reliance on the accuracy of the accounts. He thought it much more likely that the purpose was to enable a proper supervision to be exercised over the activities of companies, and to enable those concerned to ensure that the companies were not trading illegally or dishonestly. With respect, I am unable to agree with him on that point. The statutory requirements regarding the filing of financial information stem, I think, from the view that those dealing with or investing in a limited liability company have a legitimate interest in being afforded reasonable access to relevant information; and that this interest has to be balanced against the wish for confidentiality naturally entertained by family companies and the like which do not appeal to the public for funds …. I would agree, though, that the provisions are probably not aimed, or at least not primarily, at protecting purchasers of shares in the market.”
Thus the majority of the Court of Appeal favoured a more extensive view of the circumstances from which the essential relationship between plaintiff and defendant may be inferred in a negligent statement case than had yet emerged from any decision in the United Kingdom.
Now, of course, any decision of the Court of Appeal of New Zealand is entitled to the very greatest respect, but it has to be observed that the majority view was based upon an interpretation of Lord Wilberforce's observations in the Anns case [1978] AC 728, 751–752 which has since been severely qualified by subsequent decisions of this House.
The Scott Group case [1978] N.Z.L.R. 553 has, however, since been referred to and accepted in two cases decided in the United Kingdom. In JEB Fasteners Ltd. v. Marks Bloom & Co. [1981] 3 All E.R. 289, the plaintiffs who had acquired the shares of the company as a result of a take-over, claimed damages against the company's auditors who, it was claimed, had been negligent in certifying the accounts. Woolf J. dismissed the claim on the ground that the plaintiffs failed to show the causative connection between reliance on the erroneous accounts and the take-over and his decision was subsequently affirmed by the Court of Appeal [1983] 1 All E.R. 583. In the course of his judgment, however, Woolf J. made the following observation with regard to the auditors' liability [1981] 3 All E.R. 289, 296–297:
“Without laying down any principle which is intended to be of general application, on the basis of the authorities which I have cited, the appropriate test for establishing whether a duty of care exists appears in this case to be whether the defendants knew or reasonably should have foreseen at the time the accounts were audited that a person might rely on those accounts for the purpose of deciding whether or not to take over the company and therefore could suffer loss if the accounts were inaccurate. Such an approach does place a limitation on those entitled to contend that there has been a breach of duty owed to them. First of all, they must have relied on the accounts and, second, they must have done so in circumstances where the auditors either knew that they would or ought to have known that they might. If the situation is one where it would not be reasonable for the accounts to be relied on, then, in the absence of express knowledge, the auditor would be under no duty. This places a limit on the circumstances in which the audited accounts can be relied on and the period for which they can be relied on. The longer the period which elapses prior to the accounts being relied on, from the date on which the auditor gave his certificate, the more difficult it will be to establish that the auditor ought to have foreseen that his certificate would, in those circumstances, be relied on.”
Now although he disclaimed any intention of laying down a general principle, it is clear that Woolf J., like Woodhouse and Cooke JJ., was interpreting Lord Wilberforce's two-stage approach in the Anns case as establishing a test of proximity which depended on the foreseeability of harm alone and that he regarded the limits of liability as being set not by the need for any relationship other than such as might be inferred from such foreseeability but by the factual difficulties likely to be encountered in establishing foreseeability in cases in which the reliance essential to the cause of action was separated in time from the statement or advice relied upon. In the light, therefore, of the observations of Lord Keith of Kinkel in the Peabody case [1985] AC 210 and in the Yuen Kun Yeu case [1988] A.C. 175, this case provides no very convincing authority for the respondents' proposition, although, as Bingham L.J. observed in the instant case, the facts were such as to justify a finding of a relationship of proximity without any extension of the criteria suggested by Denning L.J. in his judgment in Candler's case [1951] 2 K.B. 164.
The third case upon which the respondents rely is the decision of the Outer House of the Court of Session in Twomax Ltd. v. Dickson, McFarlane & Robinson, 1982 S.C. 113, the facts in which have a broad similarity to those in the JEB Fasteners case and in the instant case. The court was concerned with three separate claims from investors (one of whom was a company and two of whom were individuals) who had acquired shares in a private company which, shortly after the investments were made, went into receivership and was subsequently wound up. All three investors claimed that their respective investments were made on the faith of the company's audited accounts which had been negligently prepared and certified by the defenders, the company's auditors, in the course of their statutory audit. The Lord Ordinary (Lord Stewart), at pp. 122–124, having contrasted the limitations appearing from the speeches of Lord Morris and Lord Hodson in the Hedley Byrne case with the broader formulation of general principle in the speech of Lord Wilberforce in the Anns case, accepted the latter as governing the proper approach to the question of whether or not the essential relationship between pursuers and defenders was established in a negligent statement case and followed the guidance of the majority judgments of the New Zealand Court of Appeal in the Scott Group case, save that he could not draw any sensible distinction between the case of the corporate pursuer, which had acquired the controlling interest, and that of the individual minority investors. He thus, by implication, rejected the suggestion that a potential bidder in the market is in some special position as compared with other investors such as to create between him and the auditors carrying out their statutory duties, a special relationship which does not arise in the case of an investor concerned to acquire only a minority interest. And this, with respect, must be correct, for there can be no logical distinction according to whether an investor is likely to acquire many shares or only a few. Such distinction as there is lies only in the scale of the potential loss which may be little or great according to the magnitude of the investment. Indeed, as he pointed out, it could legitimately be said that the smaller the investment the greater the likelihood of the investor accepting the audited accounts as the basis for his action without making any independent investigation. In the result, Lord Stewart held that the knowledge to be imputed to the defenders that there would or might well be potential investors in the market who would be interested in purchasing existing shares or subscribing for new shares and who might be influenced by the accounts was sufficient to create between them and such investors the relationship of proximity which gave rise to an enforceable duty of care.
This case, therefore, falls into the same category as the other two cases. All three were based upon the view of Lord Wilberforce's exposition in the Anns case [1978] AC 728 which would result in foreseeability and proximity being treated as synonymous — a view which this House (and, indeed, Lord Wilberforce himself in McLoughlin v. O'Brian [1983] 1 AC 410) has now decisively rejected. That, of course, does not conclude the question for it would still be open to your Lordships to find in the circumstances of this case that a special relationship existed between the auditor conducting an annual audit in pursuance of his statutory duty and every potential investor in the market or, indeed, any other person who might do business with the company without relying solely upon the foreseeability of potential damage to such person. Just as, for instance, in Smith v. Eric S. Bush [1990] 1 AC 831, one of the factors giving rise to the relationship in that case was the circumstance that the plaintiff was the person who paid for the report upon which the reliance was placed, so here it might be said that a special relationship was to be found in the nature and extent of the statutory duties which the auditor is called upon to fulfil.
For my part, however, I can see nothing in the statutory duties of a company's auditor to suggest that they were intended by Parliament to protect the interests of investors in the market and I see no reason in policy or in principle why it should be either desirable or appropriate that the ambit of the special relationship required to give rise to liability in cases such as the present should be extended beyond those limits which are deducible from the cases of Hedley Byrne and Smith v. Eric S. Bush. Those limits appear to me to be correctly and admirably stated in the passages from the judgment of Richmond P. in the Scott Group case to which I have already referred. In particular, I see no reason why any special relationship should be held to arise simply from the circumstance that the affairs of the company are such as to render it susceptible to the attention of predators in the market who may be interested in acquiring all or the majority of the shares rather than merely a parcel of shares by way of addition to a portfolio. It follows that I would dismiss the respondents' cross-appeal.
I turn, therefore, to the question raised by the appellants' appeal. The Court of Appeal, whilst rejecting unanimously the respondents' contention that the appellants owed them a duty of care simply as potential investors in the market, nevertheless by a majority allowed their claim that a similar duty was owed to them in their capacity as shareholders from the date when they first became registered in respect of shares which they had purchased. Now it cannot be nor is it claimed that this event created for the appellants any new or greater risk of harm in relation to a certification which had already taken place; nor can it be claimed that it brought about some change in the quality or extent of the respondents' reliance upon the (ex hypothesi) inaccurate information which they had previously received and digested. The only difference in their position before registration and their position afterwards was that, as registered shareholders, they now had the statutory right to receive the accounts on which they had already relied in acquiring their original shares and to receive notice of and attend the annual general meeting of Fidelity at which the accounts were to be read and, if thought fit, approved and passed. This change of position seems, on the face of it, less than momentous and in fact they did not trouble to appoint a representative to attend the meeting on their behalf. If a distinction is to be found at all, therefore, it can only be that the nature and purpose of the statutory provisions governing the appointment and duties of auditors and the certification and publication to shareholders and others of the accounts have the effect of creating, between the auditors and individual shareholders, as potential investors in that capacity, that special relationship of proximity which is required to give rise to the duty of care and which does not exist between the auditors and the investing public generally.
Now if it be right, as, for my part, I believe that it is and as the Court of Appeal has held, that no relationship of proximity and thus no duty of care exists between auditors and the investing public generally in relation to the statutory audit — I say nothing, of course, about a case where accounts are audited specifically for the purpose of submission to a potential investor — the attribution of such a duty arising from the receipt of exactly the same information by a person who happens to be the registered holder of a share in the company whose accounts are in question produces entirely capricious results. O'Connor L.J. [1989] Q.B. 653, 715, in his dissenting judgment, instanced the case of a shareholder who, having purchased further shares at an overvalue on the basis of the accounts, shows the accounts to a friend who has no existing shareholding but proceeds to make a similar purchase. Each receives exactly the same information; each relies upon it in exactly the same way and for the same purpose; and the loss sustained in both cases is identical and is equally foreseeable. Yet liability is said to exist in the one case but not in the other. One has indeed only to consider the circumstances of the instant case which must ultimately result in drawing a distinction between the loss sustained as a result of the initial purchase of shares (irrecoverable) and that sustained as a result of purchases made after the first registration (recoverable) although all purchases were made in reliance upon exactly the same information.
So unreasonable a distinction must call in question the analysis which leads to it. The majority in the Court of Appeal deduced the relationship from what Bingham L.J. described, at p. 684D, as “the degree of closeness between the parties.” It was pointed out that although the auditors are appointed and paid by the company that is the result of the vote of the shareholders in general meeting and their remuneration is paid out of funds which might otherwise be available for distribution to shareholders by way of dividend. Their duty is to report to the shareholders whether the accounts give a true and fair view of the company's financial position and their report is sent to each shareholder as an identifiable individual. Thus, it was said, the relationship, although not a contractual one, was very close to being contractual and was moreover one in which a lack of care would be likely directly to affect the very person whose interest the auditor is engaged to protect, should that person choose to rely upon the accounts for the purpose of making or disposing of an investment. My Lords, of course I see the force of this, but, as I have already suggested, “proximity” in cases such as this is an expression used not necessarily as indicating literally “closeness” in a physical or metaphorical sense but merely as a convenient label to describe circumstances from which the law will attribute a duty of care. It has to be borne in mind that the duty of care is inseparable from the damage which the plaintiff claims to have suffered from its breach. It is not a duty to take care in the abstract but a duty to avoid causing to the particular plaintiff damage of the particular kind which he has in fact sustained. I cannot improve on the analysis which is to be found in the judgment of Brennan J. in the High Court of Australia in the Shire of Sutherland case, 60 A.L.R. 1 to which I have already referred. After citing the speech of Viscount Simonds in The Wagon Mound [1961] AC 388, 425, where he observed that it was vain to isolate the liability from its context and to say that B is or is not liable and then to ask for what damage he is liable, Brennan J. continued, at p. 48:
“The corollary is that a postulated duty of care must be stated in reference to the kind of damage that a plaintiff has suffered and in reference to the plaintiff or a class of which the plaintiff is a member. I venture to repeat what I said in John Pfeiffer Pty. Ltd. v. Canny (1981) 148 C.L.R. 218, 241–242: ‘His duty of care is a thing written on the wind unless damage is caused by the breach of that duty; there is no actionable negligence unless duty, breach and consequential damage coincide … for the purposes of determining liability in a given case, each element can be defined only in terms of the others.’ It is impermissible to postulate a duty of care to avoid one kind of damage — say, personal injury — and, finding the defendant guilty of failing to discharge that duty, to hold him liable for the damage actually suffered that is of another independent kind — say, economic loss. Not only may the respective duties differ in what is required to discharge them; the duties may be owed to different persons or classes of persons. That is not to say that a plaintiff who suffers damage of some kind will succeed or fail in an action to recover damages according to his classification of the damage he suffered. The question is always whether the defendant was under a duty to avoid or prevent that damage, but the actual nature of the damage suffered is relevant to the existence and extent of any duty to avoid or prevent it.”
In seeking to ascertain whether there should be imposed on the adviser a duty to avoid the occurrence of the kind of damage which the advisee claims to have suffered it is not, I think, sufficient to ask simply whether there existed a “closeness” between them in the sense that the advisee had a legal entitlement to receive the information upon the basis of which he has acted or in the sense that the information was intended to serve his interest or to protect him. One must, I think, go further and ask, in what capacity was his interest to be served and from what was he intended to be protected? A company's annual accounts are capable of being utilised for a number of purposes and if one thinks about it it is entirely foreseeable that they may be so employed. But many of such purposes have absolutely no connection with the recipient's status or capacity, whether as a shareholder, voting or non-voting, or as a debenture-holder. Before it can be concluded that the duty is imposed to protect the recipient against harm which he suffers by reason of the particular use that he chooses to make of the information which he receives, one must, I think, first ascertain the purpose for which the information is required to be given. Indeed the paradigmatic Donoghue v. Stevenson case of a manufactured article requires, as an essential ingredient of liability, that the article has been used by the consumer in the manner in which it was intended to be used: see Grant v. Australian Knitting Mills Ltd. [1936] AC 85, 104 and Junior Books Ltd. v. Veitchi Co. Ltd. [1983] 1 AC 520, 549, 552. I entirely follow that if the conclusion is reached that the very purpose of providing the information is to serve as the basis for making investment decisions or giving investment advice, it is not difficult then to conclude also that the duty imposed upon the adviser extends to protecting the recipient against loss occasioned by an unfortunate investment decision which is based on carelessly inaccurate information. Bingham L.J. did, indeed, conclude that the provision of guidance for the making of investment decisions was one of the purposes to be discerned in the statutory provisions. He observed [1989] Q.B. 653, 681–682:
“… I think these provisions also reflect a wider and more commercial intention. The growth and development of limited liability companies over a relatively very short period have been phenomenal. Their proliferation and expansion have depended on their acceptance by the investing public as an advantageous and (on the whole) reliable medium of investment. The statutory requirements that companies account to their members and that auditors express an independent opinion to shareholders on the truth and accuracy of company accounts are in my view designed (in part at least) to fortify confidence in the holding of shares as a medium of investment by enabling shareholders to make informed investment decisions. There are obvious reasons, both economic and social, why this end should be regarded as desirable.”
How far he regarded this as an essential feature of the relationship of proximity which he held to exist between the appellants and the respondents as shareholders is not, however, entirely clear, for he attributed the same intention to the legislature in relation to investors generally. He said, at p. 682:
“The publication of accounts must limit, if it cannot eliminate, the scope for rumour-inspired speculation and thus promote an informed and orderly market. It enables prospective investors, like shareholders, to make informed decisions. For such prospective investors the independent opinion of the auditor has the same significance as for existing shareholders.”
As I have already indicated, I am not, for my part, able to share this view of the intention of the legislature. I do not believe and I see no grounds for believing that, in enacting the statutory provisions, Parliament had in mind the provision of information for the assistance of purchasers of shares or debentures in the market, whether they be already the holders of shares or other securities or persons having no previous proprietary interest in the company. It is unnecessary to decide the point on this appeal, but I can see more force in the contention that one purpose of providing the statutory information might be to enable the recipient to exercise whatever rights he has in relation to his proprietary interest by virtue of which he receives it, by way, for instance, of disposing of that interest. I can, however, see no ground for supposing that the legislature was intending to foster a market for the existing holders of shares or debentures by providing information for the purpose of enabling them to acquire such securities from other holders who might be minded to sell.
For my part, I think that the position as regards the auditor's statutory duty was correctly summarised by O'Connor L.J. in his dissenting judgment when he said, at p. 714:
“The statutory duty owed by auditors to shareholders is, I think, a duty owed to them as a body. I appreciate that it is difficult to see how the over-statement of the accounts can cause damage to the shareholders as a body; it will be the underlying reasons for the over-statement which cause damage, for example fraudulent abstraction of assets by directors or servants, but such loss is recoverable by the company. I am anxious to limit the present case to deciding whether the statutory duty operates to protect the individual shareholder as a potential buyer of further shares. If I am wrong in thinking that under the statute no duty is owed to shareholders as individuals, then I think the duty must be confined to transactions in which the shareholder can only participate because he is a shareholder. The Companies Act 1985 imposes a duty to shareholders as a class and the duty should not extend to an individual save as a member of the class in respect of some class activity. Buying shares in a company is not such an activity.”
In my judgment, accordingly, the purpose for which the auditors' certificate is made and published is that of providing those entitled to receive the report with information to enable them to exercise in conjunction those powers which their respective proprietary interests confer upon them and not for the purposes of individual speculation with a view to profit. The same considerations as limit the existence of a duty of care also, in my judgment, limit the scope of the duty and I agree with O'Connor L.J. that the duty of care is one owed to the shareholders as a body and not to individual shareholders.
To widen the scope of the duty to include loss caused to an individual by reliance upon the accounts for a purpose for which they were not supplied and were not intended would be to extend it beyond the limits which are so far deducible from the decisions of this House. It is not, as I think, an extension which either logic requires or policy dictates and I, for my part, am not prepared to follow the majority of the Court of Appeal in making it. In relation to the purchase of shares of other shareholders in a company, whether in the open market or as a result of an offer made to all or a majority of the existing shareholders, I can see no sensible distinction, so far as a duty of care is concerned, between a potential purchaser who is, vis-à-vis the company, a total outsider and one who is already the holder of one or more shares. I accordingly agree with what has already fallen from my noble and learned friend, Lord Bridge of Harwich, and with the speech to be delivered by my noble and learned friend, Lord Jauncey of Tullichettle, which I have had the advantage of reading, and I, too, would allow the appeal and dismiss the cross-appeal.
LORD JAUNCEY OF TULLICHETTLE. My Lords, it no longer requires a detailed citation of authority to vouch the well-established proposition that a negligent statement may, in certain circumstances, render the maker thereof liable for economic loss occasioned thereby to another. It is sufficient to mention Cann v. Willson (1888) 39 Ch D. 39, the dissenting judgment of Denning L.J. in Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164, and two cases in this House, Hedley Byrne & Co. Ltd v. Heller & Partners Ltd. [1964] AC 465 and Smith v. Eric S. Bush [1990] 1 AC 831. Whether liability exists in any particular case will depend upon whether the maker of the statement owes a duty of care to the person who has suffered loss. In this connection I cannot do better than quote the words of Lord Keith of Kinkel in Governors of Peabody Donation Fund v. Sir Lindsay Parkinson & Co. Ltd. [1985] AC 210, 240–241:
“The true question in each case is whether the particular defendant owed to the particular plaintiff a duty of care having the scope which is contended for, and whether he was in breach of that duty with consequent loss to the plaintiff. A relationship of proximity in Lord Atkin's sense must exist before any duty of care can arise, but the scope of the duty must depend on all the circumstances of the case …. So in determining whether or not a duty of care of particular scope was incumbent upon a defendant it is material to take into consideration whether it is just and reasonable that it should be so.”
The relationship of proximity to which Lord Keith referred is not one which is created solely by the foreseeability of harm resulting from carelessness in the statement, but is one in which some further ingredient importing proximity is present. Thus in Hill v. Chief Constable of West Yorkshire [1989] AC 53, 60 Lord Keith said:
“It has been said almost too frequently to require repetition that foreseeability of likely harm is not in itself a sufficient test of liability in negligence. Some further ingredient is invariably needed to establish the requisite proximity of relationship between plaintiff and defendant, and all the circumstances of the case must be carefully considered and analysed in order to ascertain whether such ingredient is present.”
Once foreseeability of likely harm from a careless statement has been established, it becomes necessary to examine the circumstances in and the purposes for which the statement was made in order to determine whether there are also present the further ingredients necessary to establish the requisite proximity of relationship between the maker of the statement and the person who has acted upon it. As Bingham L.J. observed in the present case, the concept of proximity is somewhat elusive, extending as it does beyond mere physical proximity. It might be described as the circumstances in which the law considers it proper that a duty of care should be imposed on one person towards another. If in any given circumstances a relation of proximity is found to exist, consideration must still be given to the scope of the duty which arises therefrom. In the case of physical proximity, few problems will arise, but where there exists a duty of care in relation to the making of statements, written or oral, problems may arise if those statements are capable of being used for more than one purpose. It is not disputed in the present case that economic loss to the plaintiff as a shareholder was foreseeable by the auditors as a result of any failure on their part to exercise reasonable care in the conduct of the audit. What is disputed is whether the auditors owed any duty to individual shareholders, and if so, what was the scope of that duty.
Before examining the circumstances in this case which may be relevant to the existence of a relationship of proximity, it is helpful to look in a little more detail at the four cases dealing with negligent statements to which I have already referred. In Cann v. Willson, 39 Ch D 39, valuers instructed by an intending mortgagor sent the valuation to solicitors acting for an intending mortgagee knowing that it was hoped thereby to induce the mortgagee to make a loan. Chitty J. held that in the circumstances the valuers owed a duty of care to the mortgagee. In Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164, the accountants were aware that the accounts were to be shown by their employer to the plaintiff who was a potential investor, and indeed their clerk discussed those accounts with him. Denning L.J., in suggesting the circumstances in which a duty to use care in a statement by professional persons would exist apart from contract, posed three questions: first, what persons are under such duty? Secondly, to whom do those professional people owe this duty? And thirdly, to what transactions does the duty of care extend? In relation to the second question, he said, at pp. 180–181:
“I will take accountants, but the same reasoning applies to the others. They owe the duty, of course, to their employer or client; and also I think to any third person to whom they themselves show the accounts, or to whom they know their employer is going to show the accounts, so as to induce him to invest money or take some other action on them. But I do not think the duty can be extended still further so as to include strangers of whom they have heard nothing and to whom their employer without their knowledge may choose to show their accounts. Once the accountants have handed their accounts to their employer they are not, as a rule, responsible for what he does with them without their knowledge or consent …. But excluding such cases as those, there are some cases — of which the present is one — where the accountants know all the time, even before they present their accounts, that their employer requires the accounts to show to a third person so as to induce him to act on them: and then they themselves, or their employers, present the accounts to him for the purpose. In such cases I am of opinion that the accountants owe a duty of care to the third person. The test of proximity in these cases is: did the accountants know that the accounts were required for submission to the plaintiff and use by him?”
In relation to the third question, he said, at pp. 182–183, 183–184:
“[The duty of care] extends, I think, only to those transactions for which the accountants knew their accounts were required. For instance, in the present case it extends to the original investment of £2,000 which the plaintiff made in reliance on the accounts, because the accountants knew that the accounts were required for his guidance in making that investment; but it does not extend to the subsequent £200 which he made after he had been two months with the company. This distinction, that the duty only extends to the very transaction in mind at the time, is implicit in the decided cases”
“It will be noticed that I have confined the duty to cases where the accountant prepares his accounts and makes his report for the guidance of the very person in the very transaction in question. That is sufficient for the decision of this case. I can well understand that it would be going too far to make an accountant liable to any person in the land who chooses to rely on the accounts in matters of business, for that would expose him to ‘liability in an indeterminate amount for an indeterminate time to an indeterminate class’: see Ultramares Corporation v. Touche, per Cardozo C.J. Whether he would be liable if he prepared his accounts for the guidance of a specific class of persons in a specific class of transactions, I do not say.”
Denning L.J. clearly considered that the scope of any duty of care was limited to the precise transaction for which the accountants knew that the accounts were to be used. In Hedley Byrne [1964] AC 465, a company's bankers were asked by the plaintiffs' bankers whether the company “would be good for an advertising contract of £8,000 to £9,000.” The company's bankers answered the question in the affirmative but, “without responsibility on the part of the bank.” When the company failed, the plaintiffs sought to recover damages from the bankers for negligence in making the statement. The action failed because of the express disclaimer of responsibility, but this House, after detailed review of authority, held that a negligent statement, oral or written, could give rise to an action of damages for economic loss apart from any contractual or fiduciary relationship subsisting between the parties. In the context of this case, Hedley Byrne is perhaps most important for its approval of the dissenting judgment of Denning L.J. in Candler v. Crane, Christmas & Co. After setting out the facts in Candler, Lord Reid said [1964] AC 465, 487:
“This seems to me to be a typical case of agreeing to assume a responsibility: [the accountants] knew why the plaintiff wanted to see the accounts and why their employers, the company, wanted them to be shown to him, and agreed to show them to him without even a suggestion that he should not rely on them.”
Lord Reid is again there emphasising the fact that the maker of the statement was aware of the purpose for which the accounts were required to be seen. Finally, in Smith v. Eric S. Bush [1990] 1 AC 831, the plaintiff applied for a mortgage to a building society which in pursuance of its statutory duty under the Building Societies Act 1962 instructed independent surveyors to prepare a written report as to the value of the house in question. The plaintiff paid to the building society a fee in respect of this report, and subsequently a copy thereof was provided to her. Without obtaining an independent valuation, the plaintiff bought the house which later turned out to be structurally defective. The surveyor was found to have been negligent in failing to discover the defect. This House held that, notwithstanding the presence of an exclusion clause in his report, he was thereby in breach of a duty of care owed to the plaintiff. It is clear from the speeches which were delivered that the facts which created the proximate relationship between the surveyor and the plaintiff were that the former knew that the valuation had been paid for by the plaintiff and would be shown to and probably relied upon by her in deciding whether or not to buy the house. Thus, Lord Templeman said, at p. 847:
“I agree that by obtaining and disclosing a valuation, a mortgagee does not assume responsibility to the purchaser for that valuation. But in my opinion the valuer assumes responsibility to both mortgagee and purchaser by agreeing to carry out a valuation for mortgage purposes knowing that the valuation fee has been paid by the purchaser and knowing that the valuation will probably be relied upon by the purchaser in order to decide whether or not to enter into a contract to purchase the house.”
Lord Templeman undoubtedly considered that one of the necessary ingredients of the relationship of proximity was the fact that the valuer knew of the particular transaction for the purposes of which reliance would probably be placed on his report.
Lord Griffiths, after setting out three criteria for the imposition of a duty of care on an adviser, namely, foreseeability of damage, proximity of relationship and reasonableness continued, at p. 865:
“The necessary proximity arises from the surveyor's knowledge that the overwhelming probability is that the purchaser will rely upon his valuation, the evidence was that surveyors knew that approximately 90 per cent. of purchasers did so, and the fact that the surveyor only obtains the work because the purchaser is willing to pay his fee. It is just and reasonable that the duty should be imposed for the advice is given in a professional as opposed to a social context and liability for breach of the duty will be limited both as to its extent and amount. The extent of the liability is limited to the purchaser of the house — I would not extend it to subsequent purchasers.”
Here Lord Griffiths is limiting the existence and scope of the duty of care to the very person and the very transaction which were in the contemplation of the surveyor at the material time.
My Lords, in each of these cases where a duty of care has been held to exist, the statement in question has, to the knowledge of its maker, been made available to the plaintiff for a particular purpose upon which he has relied. In the present case, the auditors, by accepting office, came under a statutory duty to make their report to the members of the company. The crucial issue is the purpose for which the report was made. To quote the words of Denning L.J. in the Candler case [1951] 2 K.B. 164, 183, what was the “very transaction” for which it was provided? To answer this question, it is necessary to look at the relevant provisions of Part VII of the Companies Act 1985.
Section 221 requires every company to cause accounting records to be kept which should be sufficient to show and explain the company's transactions, and should be such as (a) to disclose with reasonable accuracy the financial position of the company at the time, and (b) to enable the directors to ensure that any profit and loss account complies with the requirements of the Act. If a company's business involves dealing in goods, the accounting records require to contain statements of stock at the end of each financial year and all statements of stocktaking from which such statements of stock derive. Section 227 requires that the directors, by subsection (1) prepare a profit and loss account for the financial year in respect of each accounting reference period of the company and, by subsection (3), prepare a balance sheet as at the last day of the financial year. Section 228(2) is in the following terms:
“The balance sheet shall give a true and fair view of the state of affairs of the company as at the end of the financial year; and the profit and loss account shall give a true and fair view of the profit or loss of the company for the financial year.”
In terms of section 235 the directors are required to prepare a report “containing a fair review of the development of the business of the company and its subsidiaries during the financial year and of their position at the end of it,” and giving particulars of, inter alia, changes in asset values, directors' shareholdings and other interests and contributions for political and charitable purposes. Section 236 makes provision for an auditors' report in the following, inter alia, terms:
“(1) A company's auditors shall make a report to its members on the accounts examined by them, and on every balance sheet and profit and loss account, and on all group accounts, copies of which are to be laid before the company in general meeting during the auditors' tenure of office. (2) The auditors' report shall state — ( a) whether in the auditors' opinion the balance sheet and profit and loss account and (if it is a holding company submitting group accounts) the group accounts have been properly prepared in accordance with this Act; and ( b) without prejudice to the foregoing, whether in their opinion a true and fair view is given — (i) in the balance sheet, of the state of the company's affairs at the end of the financial year; (ii) in the profit and loss account (if not framed as a consolidated account), of the company's profit or loss for the financial year ….”
Section 237(1) defines auditors' duties as follows:
“It is the duty of the company's auditors, in preparing their report, to carry out such investigations as will enable them to form an opinion as to the following matters — ( a) whether proper accounting records have been kept by the company and proper returns adequate for their audit have been received from branches not visited by them, ( b) whether the company's balance sheet and (if not consolidated) its profit and loss account are in agreement with the accounting records and returns.”
Section 241 provides, inter alia:
“(1) In respect of each financial year of a company the directors shall lay before the company in general meeting copies of the accounts of the company for that year. (2) The auditors' report shall be read before the company in general meeting, and be open to the inspection of any member of the company. (3) In respect of each financial year the directors — ( a) shall deliver to the registrar of companies a copy of the accounts for the year ….”
The accounts of a company are defined by section 239 to include, inter alia, the company's profit and loss account and balance sheet, and the directors' and auditors' reports. In terms of section 240, a copy of the company's accounts must be sent to every member not less than 21 days before the date of the meeting referred to in section 241(1). Finally, section 245 imposes penalties on directors whose defective accounts are laid before the company or delivered to the Registrar of Companies.
Three matters emerge from the statutory provisions, namely: (1) that the responsibility for the preparation of accounts giving a true and fair view of the company's financial state is placed fairly and squarely on the shoulders of the directors; (2) that the role of the auditors is to provide an independent report to the members on the proper preparation of the balance sheet and profit and loss account, and as to whether those documents give a true and fair view respectively of the state of the company's affairs at the end of the financial year and of the company's profit and loss for that year. Their role is thus purely investigative rather than creative; (3) that the company's accounts, including the auditors' report, will be furnished to all members of the company as well as to debenture holders and any other persons entitled to receive notice of general meeting. The accounts will, of course, also be available to any member of the public who chooses to examine the company file in the office of the Registrar of Companies.
So much for the circumstances in which company accounts reach the members. Circumstances which render it inevitable that auditors will be aware that their reports will be seen and relied upon by the members. However, that does not answer the fundamental question of the purpose, and hence the very transactions, for which the annual accounts of a company are prepared and distributed to its members. Mr. Goldsmith, for the auditors, submitted that the principal purpose was to provide an account of the stewardship of the directors to the shareholders as a body, and not to provide individual investors, whether shareholders or members of the public, with comparative information. Mr. Bathurst, for Caparo, on the other hand, argued that the purpose was to enable shareholders to make such individual decisions as they wished in relation to the company, including decisions as to investment, they already being investors, and decisions as to voting in general meetings.
In the Court of Appeal [1989] Q.B. 653, 685d–690f Bingham L.J. concluded that the auditors had voluntarily assumed direct responsibility to individual shareholders to whom they owed a duty to exercise reasonable care in carrying out their audit. He further concluded that such duty was owed to a shareholder in respect of any loss sustained by him in selling, retaining, or buying shares in the company. Bingham L.J. referred to the approval by Cardozo C.J. in Ultramares Corporation v. Touche, 174 N.E. 441, 447 of an earlier statement that:
“‘negligent words are not actionable unless they are uttered directly, with knowledge or notice that they will be acted on, to one to whom the speaker is bound by some relation of duty, arising out of public calling, contract or otherwise, to act with care if he acts at all.’”
He then said, at p. 686:
“This formulation would not exclude the finding of a sufficiently proximate relationship in the present case if the words ‘will be acted upon’ are replaced, as in English law I think they should be, by ‘may be acted upon.’”
Taylor L.J. said, at p. 703g:
“once proximity to the shareholder is established, the auditor ought prima facie to be liable for any loss suffered in foreseeable reliance upon the report; …”
In my view these observations go too far. Possibility of reliance on a statement for an unspecified purpose will not impose a duty of care on the maker to the addressee. More is required. In Smith v. Eric S. Bush [1990] 1 AC 831 it was probable, if not highly probable, that the potential purchaser would rely on the valuer's report. This probable reliance was an essential ingredient in establishing proximity. Had it merely been a possibility that the purchaser would rely on the report I very much doubt whether this House would have decided that the valuer owed a duty of care to the purchaser. Furthermore, reliance, even if probable, thereby establishing proximity, does not establish a duty of care of unlimited scope. Regard must be had to the transaction or transactions for the purpose of which the statement was made. It is loss arising from such transaction or transactions rather than “any loss” to which the duty of care extends.
I do not understand that either Bingham L.J. or Taylor L.J., in reaching their conclusions, relied to any material extent upon the purpose for which accounts of a company, including the auditors' report, are provided to members or consequentially upon the transactions for which the members were expected to use them. O'Connor L.J., in a dissenting judgment, considered that the statutory duty owed by auditors to shareholders was owed to them as a body and not as individuals.
My Lords, Part VII of the Companies Act 1985 provides that the accounts of a company for each financial year shall be laid before the company's general meeting, that is to say before the members in general meeting. Copies of the accounts must be sent to the members at least 21 days in advance, and it is obvious that the reason for this is to enable the members to prepare themselves for attendance at and participation in the meeting. The annual general meeting provides the opportunity for members to question the stewardship of the company during the preceding year, to vote for or against election or re-election of directors, to approve or disapprove the appointment or re-appointment of auditors and to take other decisions affecting the company as a whole or themselves as members of a particular class of shareholders. There is nothing in Part VII which suggests that the accounts are prepared and sent to members for any purpose other than to enable them to exercise class rights in general meeting. I therefore conclude that the purpose of annual accounts, so far as members are concerned, is to enable them to question the past management of the company, to exercise their voting rights, if so advised, and to influence future policy and management. Advice to individual shareholders in relation to present or future investment in the company is no part of the statutory purpose of the preparation and distribution of the accounts. It follows that I am in agreement with the views of O'Connor L.J. as to the nature of the statutory duty owed by auditors to shareholders.
If the statutory accounts are prepared and distributed for certain limited purposes, can there nevertheless be imposed upon auditors an additional common law duty to individual shareholders who choose to use them for another purpose without the prior knowledge of the auditors? The answer must be no. Use for that other purpose would no longer be use for the “very transaction” which Denning L.J. in the Candler case [1951] 2 K.B. 164, 183 regarded as determinative of the scope of any duty of care. Only where the auditor was aware that the individual shareholder was likely to rely on the accounts for a particular purpose such as his present or future investment in or lending to the company would a duty of care arise. Such a situation does not obtain in the present case.
The Court of Appeal unanimously rejected a submission by Caparo that an auditor owed a duty to a potential investor who held no shares. In this House it was argued that the relationship of the unwelcome bidder in a potential takeover situation was nearly as proximate to the auditor as was the relationship of a shareholder to whom the report was directed. Since I have concluded that the auditor owed no duty to an individual shareholder, it follows that this argument must also fail. The fact that a company may at a time when the auditor is preparing his report be vulnerable to a take-over bid cannot per se create a relationship of proximity between the auditor and the ultimate successful bidder. Not only is the auditor under no statutory duty to such a bidder but he will have reason at the material time to know neither of his identity nor of the terms of his bid. In this context the recent case of Al Saudi Banque v. Clarke Pixley [1990] Ch. 313 is in point. There Millett J. held that the auditors of a company owed no duty of care to a bank which lent money to the company, regardless of whether the bank was an existing creditor or a potential one, because no sufficient proximity of relationship existed in either case between the auditor and the bank. I have no doubt that this case was correctly decided and I would only add that I am in entire agreement with the careful process of reasoning whereby the judge reached his decision.
It only remains to mention Twomax Ltd. v. Dickson, McFarlane & Robinson, 1982 S.C. 113 to which your Lordships were referred. The Lord Ordinary (Lord Stewart) held that auditors owed a duty of care to potential investors who were not shareholders by applying the test of whether the defenders knew or reasonably should have foreseen at the time the accounts were audited that a person might rely on those accounts for the purpose of deciding whether or not to take over the company, and therefore would suffer loss if the accounts were inaccurate. There were in that case no such findings in fact as would support the existence of a relationship of proximity between the auditor and the unknown potential investor. I therefore consider that the reasoning of the Lord Ordinary was unsound and that the decision cannot be supported.
For the foregoing reasons, I would allow the appeal.
Appeal allowed with costs.
Cross-appeal dismissed with costs.
Solicitors: Freshfields; Berwin Leighton.
C. T. B.
The permission for BAILII to publish the text of this judgment was granted by:
Incorporated Council of Law Reporting for England & Wales
Their assistance is gratefully acknowledged.
ICLR_VOTE_BATCH_4 |
JISCBAILII_CASE_INTELLECTUAL_PROPERTY
Parliamentary Archives
Date: 8 February 1990
Reckitt and Colman Products Limited
(trading as Colmans Of Norwich) (Original Respondents and Cross-Appellants)
v.
Borden Inc. and others (Original Appellants and Cross-Respondents)
Lord Bridge of Harwich
Lord Brandon of Oakbrook
Lord Oliver of Aylmerton
Lord Goff of Chieveley
Lord Jauncey of Tullichettle
JUDGMENT
LORD BRIDGE OF HARWICH
My Lords,
When plastic containers made in the shape, colour and size of natural lemons first appeared on the market in the United Kingdom as squeeze packs containing preserved lemon juice the respondents were astute enough to realise their potential and to buy up the businesses of the two companies who first marketed preserved lemon juice in this way. They thereby acquired a de facto monopoly which, by the periodical threat or institution of passing off actions over the years, they have succeeded in preserving ever since. This is the first such action to come to trial.
The idea of selling preserved lemon juice in a plastic container designed to look as nearly as possible like the real thing is such a simple, obvious and inherently attractive way of marketing the product that it seems to me utterly repugnant to the law's philosophy with respect to commercial monopolies to permit any trader to acquire a de jure monopoly in the container as such. But, as Mr. Robin Jacob Q.C., for the respondents, quite rightly pointed out, the order made by the trial judge in this case does not confer any such de jure monopoly because the injunction restrains the appellants from marketing their product "in any container so nearly resembling the plaintiffs' Jif lemon-shaped container as to be likely to deceive without making it clear to the ultimate purchaser that it is not of the goods of the plaintiff." [Emphasis added.] How then are the appellants, if they wish to sell their product in plastic containers of the shape, colour and size of natural lemons, to ensure that the buyer is not deceived? The answer, one would suppose, is by attaching a suitably distinctive label to the container. Yet here is the paradox: the trial judge found that a buyer reading the labels proposed to be attached to the appellants' Mark I, II or III containers would know at once that they did not contain Jif lemon juice and would not be deceived; but he also enjoined the appellants from selling their product in those containers because he found, to put it shortly, that housewives buying plastic lemons in supermarkets do not read the labels but assume that whatever they buy must be Jif. The result seems to be to give the respondents a de facto monopoly of the container as such which is just as effective as de jure monopoly. A trader selling plastic lemon juice would never be permitted to register a lemon as his trade mark, but the respondents have achieved the result indirectly that a container designed to look like a real lemon is to be treated, per se, as distinctive of their goods.
If I could find a way of avoiding this result, I would. But the difficulty is that the trial judge's findings of fact, however surprising they may seem, are not open to challenge. Given those findings, I am constrained by the reasoning in the speeches of my noble and learned friends, Lord Oliver of Aylmerton and Lord Jauncey of Tullichettle to accept that the judge's conclusion cannot be faulted in law.
With undisguised reluctance I agree with my noble and learned friends that the appeal should be dismissed.
LORD BRANDON OF OAKBROOK
My Lords,
I have had the advantage of reading in draft the speeches prepared by my noble and learned friends, Lord Oliver of Aylmerton and Lord Jauncey of Tullichettle. I agree with both speeches and for the reasons given in them I would dismiss the appeal.
LORD OLIVER OF AYLMERTON
My Lords,
The respondents to this appeal and their predecessors in business have for many years carried on business as manufacturers and suppliers of domestic and culinary products of various kinds, including preserved lemon juice. Shortly after the end of the Second World War such juice began to be sold in Italy in convenient plastic squeeze packs coloured and shaped like lemons and in 1933 a company called Edward Hack Ltd. began to market juice in similar packs in the United Kingdom. Shortly thereafter another company, Coldcrops Ltd., entered the market with lemon juice sold in similar containers. Litigation ensued, Edward Hack Ltd. claiming that Coldcrops Ltd. were passing off lemon juice as and for their produce. That action never came to trial because both businesses were acquired by the respondent who thereafter marketed juice in plastic lemon containers of the Hack design under the brand name "Jif." Since 1936, the respondents, using the brand name Jif, have commanded the market in lemon juice sold in this way, though other traders have sold and do sell such juice in bottles (as do the respondents themselves) and in yellow squeeze packs of various shapes and sizes. From time to time, traders have attempted to penetrate the United Kingdom market with squeeze packs coloured and shaped like lemons but they have not, in general succeeded in establishing themselves in the market with any degree of permanence save in two cases.
Until the 1970s the position of the respondents as substantially the only supplier in the United Kingdom of lemon juice packaged in this way was virtually unchallenged but between 1972 and 1982 a number of traders attempted to break into the market. In most cases, the sales achieved were minimal relatively to the total potential market, but one or two managed to achieve sales which were not insubstantial. In the latter part of 1977, however, the respondents adopted a policy of bringing or threatening to bring proceedings for passing off against traders seeking to market lemon juice in this way. All claims were disposed of without trial with the result that, with two exceptions, the respondents were, up to the commencement of the present actions, save for relatively brief periods, the only suppliers of lemon juice in facsimile lemon squeeze packs in the United Kingdom. The two exceptions were and are Parrish and Fenn Ltd. and Brandway (Supercook) Ltd. both of whom entered into compromise agreements with the respondents under which they were enabled to continue to supply the market with lemon juice under the brand-names "Lazy Lemon" and "Supercook" in plastic squeeze containers of lemon shape but very much larger in size than the natural fruit size which is the characteristic of the respondents' product. These products have achieved substantial sales which, for the years 1983 and 1986, amounted to some 1.2 m. units per annum constituting roughly 2/3 by volume of the sales of Jif lemon. It was, however, clear from evidence given before Walton J. in the action from which the present appeal arise first, that the purchasing public has come to associate the natural-size lemon squeeze pack with the respondents' lemon juice sold under the brand name Jif and, secondly, that there is, in a substantial body of the purchasing public, a brand loyalty in the sense that these purchasers desire not just lemon juice but Jif lemon juice.
The original basic presentation of the respondents' squeeze pack has remained unaltered. It consists of the plastic container of lemon shape and colour comparable in size with a small natural lemon and having a removable yellow cap at one end covering a nozzle through which the contents is propelled by squeezing. The size of the container is apt to contain 55 ml. of liquid. On one side of the body of the lemon there is embossed the word Jif but this is not picked out in a different colour and it is not, as Walton J. observed, so prominent as readily to catch the eye of the casual shopper. The product is offered for sale with a loose paper label of triangular shape which slips over the nozzle and is held in position by the cap. This label is green in colour, bears the mark "Jif" in yellow lettering and contains such information as the "sell-by" date and other statutory information.
The first and second appellants are connected companies, the second appellant, which is incorporated in Belgium, being the European subsidiary of the first, which is incorporated in the United States. The third appellant, also incorporated in the United States, is the agency through which the second appellant carries on its European marketing operations. The first appellant does not in fact exercise any control over the management of its subsidiary and is not directly concerned with any of the relevant events but was quite properly joined in the proceedings as a result of representations by its solicitors that it was in fact involved in the actions of which the respondents were complaining. It remained in the proceedings without protest but taking no separate part and no substantive relief was granted against it. Its interest in the appeal therefore lies solely in the question of costs, but it may, for present purposes, be treated as one with the second appellant and it will be convenient for narrative purposes to refer to any two or more of the appellants as "the appellants" and to the first and second appellants as "Borden" without differentiating between them. In the United States Borden has for many years carried on business as a manufacturer of food products, including preserved lemon juice, which it markets under the brand-name "ReaLemon." Somewhat surprisingly to English eyes that name is a registered trade mark in the United States. ReaLemon juice is there marketed in plastic squeeze containers of lemon colour but of a shape which more nearly resembles the familiar Mills hand grenade.
Borden sells substantial quantities of juice in Europe, where it is normally marketed in bottles; and it was with bottled lemon juice that Borden first attempted to break into the United Kingdom market in 1973. That launch appears to have been successful. By the end of 1980 ReaLemon, marketed in bottles of 250 ml. in size, accounted for some 23 per cent, of the total United Kingdom sales of lemon juice. Borden's presence in the market appears to have had an adverse effect on the sales of Jif juice in the plastic lemon containers and in 1979 the respondents sought to meet the increasing share of the lemon juice market represented by Borden's sales of bottled juice by launching a new 150 ml. bottle of Jif juice. In 1981 they replaced the 150 ml. bottle with a 250 ml. bottle, the same size as Bordens. There was clearly a contest for domination of the market and it was against this background that the appellants determined to do what they had not so far attempted on any substantial scale in Europe and to begin selling their juice in plastic squeeze containers in the United Kingdom market. The philosophy behind this was that, by reducing the respondents' share of the market represented by sales of the Jif plastic lemons (where, because of the small individual quantity sold in each container, the profit margin was substantially higher), their ability to cut their profit margin on bottle sales and so to compete with ReaLemon in that market would be reduced. It was the way in which they set about doing this that has led to these proceedings.
What the appellants did was to make preparations for the launch on the United Kingdom market of lemon juice to be sold in natural-size lemon-shaped plastic squeeze containers which would compete directly with Jif lemons. The history of the various steps taken to this end is admirably and fully set out in the judgment of Slade L.J. in the Court of Appeal where, having regard to the issue of fraud which was there raised, a meticulous investigation of the background facts was necessary. Walton J. had found that the appellants had acted fraudulently, but that finding was reversed in the Court of Appeal and the respondents' cross appeal against that decision has not been proceeded with. It is unnecessary therefore for the purposes of this appeal to repeat any of the detailed background history. It is sufficient for present purposes to say that between the summer of 1985 and the summer of 1986 the appellants produced three different versions of plastic lemon containers (referred to respectively as "Mark I," "Mark II" and "Mark III") which they proposed to launch on the market. They did not, however, undertake any prior advertising campaign with a view to familiarizing the public with their product in its new get-up. The Mark I container was slightly larger but broadly similar to the Jif lemon, save that it had a green cap in place of the yellow Jif cap and a small flat area on one side which enabled it to stand at an angle on a surface. It contained 73 ml. of juice and was adorned with a yellow leaf-shaped neck-label which was slipped over the nozzle and on which the word "ReaLemon" appeared in prominent green print. The Mark II was of the same size and similar design but was fitted with a red cap and adorned with a round neck-label consisting of a red tag which slipped over the nozzle and the rounded portion bearing the brand name ReaLemon in red against a yellow background fashioned to represent a lemon slice. Above "ReaLemon" there appeared a very small red shield bearing the name Borden in yellow lettering. The Mark III was slightly larger and contained 100 ml., had slightly different stippling, a smaller flat portion and some barely discernible ribs. It too had a red cap and a red and yellow label identical to the Mark II except for the designation of the contents.
In the summer of 1983 it came to the respondents' notice that the appellants were offering their juice in the Mark I get-up to certain supermarkets, and on 13 August 1985 they wrote protesting that the public sale by the appellants of juice in this form would constitute an actionable passing off and threatening proceedings. A reply having been received indicating a firm intention by the appellants to proceed with sales of the Mark I version, the respondents commenced proceedings and moved for an interim injunction. On 16 December 1985 the appellants gave an undertaking not to supply the lemon juice in the Mark I container and not to offer juice in any other lemon-resembling container without giving 28 days' prior notice of submitting samples.
Thereafter the appellants, having devised the Mark II and Mark III versions, gave the required 28 days' notice and submitted samples. That resulted in the commencement of a second action on 21 May 1986. An application for interim relief failed at first instance, but succeeded in the Court of Appeal, with the result that, at the date of the trial of both actions before Walton J. in May and June 1987, there had been no public sale of any of the three versions. The action was, therefore, entirely quia timet. After a trial lasting some 22 days, during the course of which he received a substantial body of direct evidence from consumers as well as evidence of the results of surveys conducted both by the respondents and the appellants, Walton J. held that the employment by the appellants of any of the three versions of their proposed get-up would constitute passing off, and he accordingly granted permanent injunctions in both actions restraining the appellants from selling lemon juice either in packaging corresponding to the Mark I, Mark II or Mark III versions, or in any container so nearly resembling the respondents' Jif lemon-shaped container as to be likely to deceive without making it clear to the ultimate purchaser that it is not of the respondents' manufacture. Walton J. also found as a fact, although this was strictly irrelevant to the result, that the appellants, in seeking to market a juice in the get-up proposed, were fraudulently intending to pass off their goods as the respondents' goods. The appellants appealed to the Court of Appeal which, on 21 April 1988, although reversing the trial judge's findings of fraud, nevertheless affirmed his decision that what was proposed by the appellants would constitute an actionable passing off. It is against that decision that the appellants now appeal with the leave of this House.
Although your Lordships were referred in the course of the argument to a large number of reported cases, this is not a branch of the law in which reference to other cases is of any real assistance except analogically. It has been observed more than once that the questions which arise are, in general, questions of fact. Neither the appellants nor the respondents contend that the principles of law are in any doubt. The law of passing off can be summarised in one short general proposition - no man may pass off his goods as those of another. More specifically, it may be expressed in terms of the elements which the plaintiff in such an action has to prove in order to succeed. These are three in number. First, he must establish a goodwill or reputation attached to the goods or services which he supplies in the mind of the purchasing public by association with the identifying "get-up" (whether it consists simply of a brand name or a trade description, or the individual features of labelling or packaging) under which his particular goods or services are offered to the public, such that the get-up is recognised by the public as distinctive specifically of the plaintiff's goods or services. Secondly, he must demonstrate a misrepresentation by the defendant to the public (whether or not intentional) leading or likely to lead the public to believe that goods or services offered by him are the goods or services of the plaintiff. Whether the public is aware of the plaintiff's identity as the manufacturer or supplier of the goods or services is immaterial, as long as they are identified with a particular source which is in fact the plaintiff. For example, if the public is accustomed to rely upon a particular brand name in purchasing goods of a particular description, it matters not at all that there is little or no public awareness of the identity of the proprietor of the brand name. Thirdly, he must demonstrate that he suffers or, in a quia timet action, that he is likely to suffer damage by reason of the erroneous belief engendered by the defendant's misrepresentation that the source of the defendant's goods or services is the same as the source of those offered by the plaintiff.
Thus the three issues in the instant case - leaving aside the issue of fraud which is now no longer material - were and are as follows:
(i) Have the respondents proved that the get-up under which their lemon juice has been sold since 1956 has become associated in the minds of substantial numbers of the purchasing public specifically and exclusively with the respondents' (or "Jif") lemon juice?
(ii) If the answer to that question is in the affirmative, does the get-up under which the appellants proposed to market their lemon juice in all or any of the Mark !, Mark II or Mark HI versions amount to a representation by the appellants that the juice which they sell is "Jif" lemon juice?
(iii) If the answer to that question is in the affirmative, is it, on a balance of probabilities, likely that, if the appellants are not restrained as they have been, a substantial number of members of the public will be misled into purchasing the defendants' lemon juice in the belief that it is the respondents' Jif juice?
Your Lordships have been able, as was Walton J. and as were the judges of the Court of Appeal, to see the appellants' and the respondents' products and, indeed, a number of other not wholly dissimilar products, including the "Lazy Lemon" and the "Supercook," side by side so as to make a direct comparison. I confess that it came as something of a surprise to me, as indeed I believe it did to others of your Lordships, that a housewife presented with a display of these products in close juxtaposition would be likely to pick up at least the Mark II or Mark III versions of the appellants' product in the belief that what she was buying was the respondents' Jif lemon juice. But it has to be borne in mind that, as the evidence at the trial established, the primary retail outlets for these products are supermarkets. They are not displayed in the supermarket in the way in which they have been shown to your Lordships. In the ordinary way, supermarkets do not carry a selection of different brands of preserved lemon juice, but would be likely to stock only one brand plus possibly one other sold under their own brand name or get-up. So that the goods are not ordinarily offered for sale in the artificial conditions in which they have been displayed in the court room or in the Committee Room of your Lordships' House, and the purchasing member of the public is reliant upon his own perception or recollection, unassisted by the opportunity of side-by-side comparison.
It is this, I think, which accounts for what at first may seem surprising findings of fact by Walton J., and it is, I think, material to say a few words about these findings which, it must be stressed, have not been attacked by the appellants and in respect of which it cannot be suggested that the judge did not have sufficient material to make them. Because of the quia timet nature of the proceedings there was, in the nature of things, little opportunity for either side to observe the reaction of the public to the appellants' products in normal market conditions and the evidence before the court was, inevitably, in the main the result of surveys carried out under somewhat artificial conditions. Judges accustomed to trying cases of this nature are rightly somewhat suspicious of evidence obtained in this way, for so much can depend upon the conditions in which surveys are conducted, the format of the questions posed and the manner in which they are asked. It is clear, however, that Walton J., who was a very experienced judge in this field, had well in mind the limitations and possible defects of such evidence, and he had before him not just the results of surveys conducted by market researchers on both sides but the vive voce evidence of a substantial number of the members of the public interviewed which he was able to observe tested in cross-examination. In particular, he had the evidence of the reaction of shoppers to the appellants' products when they were displayed experimentally in a co-operating supermarket. His findings, therefore, although they may appear at first sight a little surprising in the light of a close comparison and inspection of the products with their labels, are quite unassailable.
The principal findings are conveniently collected and quoted verbatim from the judgment of the judge (as reported in [1987] F.S.R. 303). In the following passage from the judgment of Slade L.J. in the Court of Appeal [1988] F.S.R. 601, 613:
"Having heard the evidence, the learned judge made these important findings of fact:
"(1) (at pp. 308-309): 'There would be no difficulty whatsoever in a careful shopper coming to the conclusion that neither the Mark I, II or III was a Jif lemon - it would merely be a question of her . . . reading the label'.
"(2) Nevertheless, (at p. 311): 'the evidence establishes beyond the slightest peradventure that the effect of the introduction of any of the defendants' lemons on to the market would be bound to result in many housewives purchasing them in the belief that they were obtaining the well known and liked Jif brand'.
"(3) (at p. 312): 'Jif is and has now for a long time been the only lemon-sized squeezy pack of lemon juice on the market. Since the plaintiff took over the concept from its original inventor in or about 1957 although from time to time there have been rival similar lemons on the market, all these have dropped away: Jif in this sense reigns supreme.'
"(4) (at p. 312): 'Jif as a brand name, that is to say, a specific make of lemon juice produced by one particular proprietor is well known among shoppers generally.'
"(3) (at p. 312): 'Shoppers generally are well aware of the existence of various other brands of lemon juice.'
"(6) (at p. 312): 'The crucial point of reference for a shopper who wishes to purchase a Jif squeezy lemon is the lemon shape itself. Virtually no, if any, attention is paid to the label which that lemon bears. This is easily understood, for the shopper has no need to read the label, or pay any attention to it, in order to obtain the goods that she requires. . Moreoever, the evidence is that most people, when they get the lemon home, take off the label, which performs no useful function and is easily detachable, so that it is not consciously thereafter any part of the purchased product.'
"(7) (at pp. 512-313): 'Lemons are purchased by consumers who use only a small quantity of lemon juice: anybody with a requirement for a larger quantity buys a bottle, which is better value. The result is that purchases, though made steadily, are made at some little interval, during the whole of this interval, the product which has been used consists of an unadorned squeeze pack lemon. This fact of course reinforces the position that when the consumer goes forth to purchase another such lemon, the starting point of the reference is the unadorned lemon, and not the lemon plus label.'
"(8) (at p. 513): 'Now, paying proper attention to all these matters, and placing myself in the position of the shopper in relation to whom all these matters apply as part of his or her shopping knowledge and habits, I really have no hesitation in coming to the conclusion that there is bound to be confusion in the shopper's mind in relation to all three marks of the defendants' lemons. None of them is really sufficiently distinctive, nor are the labels such as to impinge sufficiently forcefully upon the shopper's attention, as to call immediately to mind that the item is not a Jif lemon: it would be supposed by a very large number of shoppers -probably, on any attempted arithmetical calculation running into millions - that each of the defendants' lemons was no more than an immaterial variant of the Jif lemon.'"
Additionally, the judge found [1987] F.S.R. 303, 309 - as your Lordships were able to see from personal observation - that
"the embossing of the word Jif on the true Jif lemons, is far from being easily legible, and certainly would not be seen by a glance at the shelf on which they were displayed, as any true surface graphics can be seen."
He added:
"we are dealing here with something extra, something added on, which may - or may not - present itself to the housewife as something which catches her eye. Even if it does - and there cannot in fact even be any guarantee that a label of the type here in question will stay on the produce - it is not something, at any rate in the case of a Jif lemon, to which she has in the past been accustomed to refer when purchasing. Accordingly, unless the labels were to be something utterly novel .... the housewife would not pay any attention thereto."
As regards shopping habits, he observed [1987] F.S.R. 303, 312:
"But the question is not whether the judge himself would be deceived by the defendants' get-up; the question is whether, in the light of all the admissible evidence, the judge is persuaded that an ordinary average shopper, shopping in the places in which the article is available for purchase, and under the usual conditions under which a purchase is likely to be made, is likely to be deceived . . . one is typically dealing with a shopper in a supermarket, in something of a hurry, accustomed to selecting between the various brands where there is such a choice, but increasingly having to choose in relation to a wide range of items between the supermarket's 'own brand' and one other brand, and no more."
Finally, as regards the appellants' use of the word "ReaLemon" as an identification of the product, he said, at p. 313:
"the defendants have chosen to continue to use the word 'ReaLemon,' I presume as a kind of quasi trade mark. The word certainly cannot possibly become distinctive of their lemon juice save (if at all) under exceptional conditions. However this may be, the defendants' own research has conclusively established that the 'brand awareness' of 'ReaLemon' among shoppers is something of the order of 1 per cent of shoppers. In other words, to the vast majority of shoppers, 'ReaLemon' spelled out in this way means nothing more or less than 'real lemon' and is perceived as such and not as a brand."
Upon these findings, it is difficult, at least at first impression, to fault the conclusion at which both the judge and the Court of Appeal arrived, that the proposed use by the appellants of any of their Mark I, Mark II or Mark HI versions would constitute an actionable passing off in respect of which injunctive relief could properly be granted. The appellants contend, however, that that conclusion was reached by means of a number of material misdirections, through which the undoubted principles of law were wrongly applied to the facts found.
Their primary attack starts from the judge's initial finding that, at least so far as the Mark II and Mark III versions are concerned, there would be no difficulty whatever in a careful shopper who read the appellants' labels coming to the conclusion that that which the appellants were offering in their lemon-shaped containers was not the respondents' Jif juice. It is pointed out that what the respondents pleaded in their statement of claim was the association of Jif juice with their particular get-up consisting of the lemon-coloured, lemon-sized, lemon-shape container and the neck-label. Taken as a whole, a side-by-side visual comparison would clearly dispel any possibility of confusion between the two products, although a purchaser would undoubtedly notice a correspondence in the idea of marketing lemon juice in a lemon-coloured, lemon-size, lemon-shaped container. Thus, it is argued, the respondents' claim rests upon the fact found by the judge that, in the marketing conditions in which these products are sold, the neck-label claimed as part of the respondents' particular get-up is of no significance, and that the crucial point of reference for the shopper requiring Jif juice is the natural lemon-shape and size which had for many years, with only immaterial exceptions, been utilised solely by the respondents in the context of this particular trade. From this, it is argued, a number of legal consequences flow which the courts below failed to appreciate and which, had they done so, would have led them to a different conclusion.
The first is that what the respondents are seeking to protect is not a trade goodwill associated with the get-up of the product which they sell but the very product itself. There is not and cannot be any proprietary right in an idea nor can a trader claim a monopoly in the manufacture or sale of a non-patented article or, in the absence of a registered design, in the configurations of shape in which an article is manufactured. What the respondents are seeking to do, it is said, is to separate the article sold from the label under which it is sold, treat the article itself as its own trademark and, by protecting a claim to monopoly in the mark, to establishing in the manufacture and sale of the article itself a monopoly which the law does not permit.
The argument, so attractively put by Lord Alexander of Weedon, starts from a principle which is common to both parties and which is neatly expressed in the following short passage from the judgment of Lord Cranworth in Farina v. Silverlock (1856) 6 De DM. & G. 214, 218:
"... I apprehend that the law is perfectly clear, that anyone, who has adopted a particular mode of designating his particular manufacture, has a right to say, not that other persons shall not sell exactly the same article, better or worse, or an article looking exactly like it, but that they shall not sell it in such a way as to steal (so to call it) his trade mark, and make purchasers believe that it is the manufacture to which that trade mark was originally applied."
So, it is said, the distinction between the manufactured article itself, which anyone is free to copy in the absence of patent protection, and the special trade insignia used to designate its trade origin, which the courts will protect, is clearly brought out in the speech of Lord Macnaghten in Weingarten Bros. v. Charles Bayer & Co (1903) 22 R.P.C. 341, 349. The article itself cannot, it is submitted, constitute the special insignia of its own origin. All that the law will protect are such capricious additions or features as may be attached to the article for the purpose of indicating origin - for instance, the embossed word "Jif" on the respondents' containers in the instant case, which serves no functional purpose.
Whether in fact the particular shape or configuration of the very object sold by a trader is incapable as a matter of law of protection in a case where it has become associated exclusively with his business is a proposition which is at least open to doubt. The decision of Buckley J. in R.J. Elliott & Co. Ltd. v. Hodgson (1902) 19 R.P.C. 318 suggests the contrary, although it has been doubted: see Cadbury Ltd. v. Ulmer G.m.b.h. [1988] F.S.R. 383. It is clear at least from the decision of this House in William Edge & Sons Ltd. v. William Niccolls & Sons Ltd. [1911] AC 693 that where the article sold is conjoined with an object which, whilst serving the functional purpose of enabling the article to be more effectively employed, is of a shape or configuration which has become specifically identified with a particular manufacturer, the latter may be entitled to protection against the deceptive use in conjunction with similar articles of objects fashioned in the same or a closely similar shape.
I find it, however, unnecessary to pursue the question further for there is, to my mind, a fallacy in the argument which begins by identifying the contents with the container and is summarised in the central proposition that "you cannot claim a monopoly in selling plastic lemons." Well, of course you cannot any more than you can claim a monopoly in the sale of dimpled bottles. The deception alleged lies not in the sale of the plastic lemons or the dimpled bottles, but in the sale of lemon juice or whisky, as the case may be, in containers so fashioned as to suggest that the juice or the whisky emanates from the source with which the containers of those particular configurations have become associated in the public mind: see John Haig & Co. Ltd. v. Fourth Blending Co. Ltd. (1933) 70 R.P.C. 239. It is, no doubt, true that the plastic lemon-shaped container serves, as indeed does a bottle of any design, a functional purpose in the sale of lemon juice. Apart from being a container simpliciter, it is a convenient size; it is capable of convenient use by squeezing; and it is so designed as conveniently to suggest the nature of its contents without the necessity for further labelling or other identification. But those purposes are capable of being and indeed are served by a variety of distinctive containers of configurations other than those of a lemon-sized lemon. Neither the appellants nor the respondents are in the business of selling plastic lemons. Both are makers and vendors of lemon juice and the only question is whether the respondents, having acquired a public reputation for Jif juice by selling it for many years in containers of a particular shape and design which, on the evidence, has become associated with their produce, can legitimately complain of the sale by the appellants of similar produce in containers of similar, though not identical, size, shape and colouring.
So 1, for my part, would reject the suggestion that the plastic lemon container is an object in itself rather than part of the get-up under which the respondents' produce is sold. But it is argued that that is not the end of the matter, for the get-up which is protected is not just a plastic lemon-shaped container, but the container plus the respondents' labelling, and it is not open to the respondents to argue that, though the labels themselves could not, fairly regarded, possibly be confused, a part, albeit perhaps a dominant part, of the get-up can, as it were, be separated and made the subject matter of protection in its own right. I confess that 1 do not see why not, given that the respondents establish a right to the protection of their get-up as a whole. The question is whether what the appellants are doing constitutes a misrepresentation that their juice is Jif juice, and whether that results from the similarity of their get-up to the whole of the respondents' get-up or to only the most striking part of it is wholly immaterial if - and of course this is critical - it is once established as a matter of fact that what they are doing constitutes a misrepresentation which effectively deceives the public into an erroneous belief regarding the source of the product.
Then it is said - and again there is no disagreement as to this - that the mere fact that the produce of the appellants and that of the respondents may be confused by members of the public is not of itself sufficient. There is no "property" in the accepted sense of the word in a get-up. Confusion resulting from the lawful right of another trader to employ as indicative of the nature of his goods terms which are common to the trade gives rise to no cause of action. The application by a trader to his goods of an accepted trade description or of ordinary English terms may give rise to confusion. It probably will do so where previously another trader was the only person in the market dealing in those goods, for a public which knows only of A will be prone to assume that any similar goods emanate from A. But there can be no cause of action in passing off simply because there will have been no misrepresentation. So the application to the defendants' goods of ordinary English terms such as "cellular clothing" (Cellular Clothing Co. v. Maxton and Murray (1899) 16 R.P.C. 397) or, "Office Cleaning" (Office Cleaning Services Ltd. v. Westminster Window and General Cleaners Ltd. (1946) 63 R.P.C. 39) or the use of descriptive expressions or slogans in general use such as "Chicago Pizza" (My Kinda Town Ltd. v. Soll [1983] R.P.C. 407) cannot entitle a plaintiff to relief simply because he has used the same or similar terms as descriptive of his own goods and has been the only person previously to employ that description.
All this is accepted by the respondents. The appellants, however, starting from this undoubted base, argue that what the respondents are asking the court to protect is no more than the use by them of a descriptive term, embodied in a plastic lemon instead of expressed verbally, which is common to the trade. They pray in aid a whole host of previously decided cases by way of analogy. J.B. Williams Co. v. H. Bronnley & Co. Ltd. (1909) 26 R.P.C 763, for instance, was a case where the plaintiffs had adopted a type of container for shaving soap which closely resembled in shape, size and colouring other containers whose salient features were widely used and already familiar in the trade. Not surprisingly, they failed in their claim for passing off. But these cases establish no fresh principle of law, and are really of very little assistance.
Every case depends upon its own peculiar fact. For instance, even a purely descriptive term consisting of perfectly ordinary English words may, by a course of dealing over many years, become so associated with a particular trader that it acquires a secondary meaning such that it may properly be said to be descriptive of that trader's goods and of his goods alone, as in Reddaway v. Banham [1896] AC 199. In the instant case, what is said is that there was nothing particularly original in marketing lemon juice in plastic containers made to resemble lemons. The respondents were not the first to think of it even though they have managed over the past 30 years to establish a virtual monopoly in the United Kingdom. It is, in fact, a selling device widely employed outside the United Kingdom. It is a natural, convenient and familiar technique - familiar at least to those acquainted with retail marketing methods in Europe and the United States. If and so far as this particular selling device has become associated in the mind of the purchasing public with the respondents' Jif lemon juice, that is simply because the respondents have been the only people in the market selling lemon juice in this particular format. Because there has been in fact a monopoly of this sale of this particular article, the public is led to make erroneous assumption that a similar article brought to the market for the first time must emanate from the same source. This has been referred to in the argument as "the monopoly assumption." The likelihood of confusion was admitted by the appellants themselves in the course of their evidence, but it is argued that the erroneous public belief which causes the product to be confused arises simply from the existing monopoly and not from any deception by the appellants in making use of what they claim to be a normal, ordinary and generally available selling technique.
The difficulty about this argument is that it starts by assuming the only basis upon which it can succeed, that is to say, that the selling device which the appellants wish to adopt is ordinary and generally available or, as it is expressed in some of the cases, "common to the trade:" see e. g. Payton & Co. Ltd. v. Snelling, Lampard & Co. Ltd. (1900) 17 R.P.C. 48. In one sense, the monopoly assumption is the basis of every passing off action.
The deceit practised on the public when one traders adopts a get-up associated with another succeeds only because the latter has previously been the only trader using that particular get-up. But the so called "monopoly assumption" demonstrates nothing in itself. As a defence to passing off claim it can succeed only if that which is claimed by the plaintiff as distinctive of his goods and his goods alone consists of something either so ordinary or in such common use that it would be unreasonable that he should claim it as applicable solely to his goods, as for instance where it consists simply of a description of the goods sold. Here the mere fact that he has previously been the only trader dealing in goods of that type and so described may lead members of the public to believe that all such goods must emanate from him simply because they know of no other. To succeed in such a case he must demonstrate more than simply the sole use of the descriptive term. He must demonstrate that it has become so closely associated with his goods as to acquire the secondary meaning not simply of goods of that description but specifically of goods of which and he alone is the source. The principles are aptly expressed in the speech of Lord Herschell in Reddaway v. Banham [1896] AC 199, 210:
"The name of a person, or words forming part of the common stock of language, may become so far associated with the goods of a particular maker that it is capable of proof that the use of them by themselves without explanation or qualification by another manufacturer would deceive a purchaser into the belief that he was getting goods of A. when he was really getting the goods of B. In a case of this description the mere proof by the plaintiff that the defendant was using a name, word, or device which he had adopted to distinguish his goods would not entitle him to any relief. He could only obtain it by proving further that the defendant was using it under such circumstances or in such manner as to put off his goods as the goods of the plaintiff. If he could succeed in proving this I think he would, on well-established principles, be entitled to an injunction."
Again Lord Herschell observed, at p. 214-215:
"What right, it was asked, can an individual have to restrain another from using a common English word because he has chosen to employ it as his trade mark? I answer he has no such right; but he has a right to insist that it shall not be used without explanation or qualification if such a use would be an instrument of fraud."
In the instant case the submission that the device of selling lemon juice in a natural-size lemon-shaped squeeze pack is something that is "common to the trade" and therefore incapable of protection at the suit of a particular trader begs the essential question. If "common to the trade" means "in general use in the trade" then, so far at least as the United Kingdom is concerned, the evidence at the trial clearly established that the lemon-sized squeeze pack was not in general use. If, on the other hand, it means, as the appellants submit, "available for use by the trade" then it is so available only if it has not become so closely associated with the respondents goods as to render it use by the appellants deceptive; and that is the very question in issue. The trial judge here has found as a fact that the natural size squeeze pack in the form of a lemon has become so associated with Jif lemon juice that the introduction of the appellants' juice in any of the proposed get-ups will be bound to result in many housewives purchasing that juice in the belief that they are obtaining Jif juice. I cannot interpret that as anything other than a finding that the plastic lemon-shaped container has acquired, as it were, a secondary significance. It indicates not merely lemon juice but specifically Jif lemon juice.
There is, when one analyses it, nothing particularly surprising about the conclusion that the sale of a particular product in a container designed to resemble a natural fruit or indeed any other natural object may come to be associated with the trader as distinctive exclusively of his goods. If, for instance, a manufacturer of, say, washing-up liquid sold as "Lemon Brand" were to adopt as his squeeze pack a container so shaped as to resemble a lemon, the association of that lemon-shaped container exclusively with that particular brand of liquid would appear entirely natural, for what would be striking about it would be not simply the lemon shape but the absence of any readily intelligible reason for its assumption other than as indicating a particular manufacture. I suspect that the only reason why it is suggested that a similar association in this case ought to occasion surprise is that the container is indicative of the nature of the contents. There is, however, no reason why it should not also come to be treated as indicative also of the source of the contents.
In the end, the question comes down not to whether the respondents are entitled to a monopoly in the sale of lemon-juice in natural size lemon-shaped containers but whether the appellants, in deliberately adopting, out of all the many possible shapes of container, a container having the most immediately striking feature of the respondents' get-up, have taken sufficient steps to distinguish their product from that of the respondents. As Romer L.J. observed in Payton & Co. Ltd. v. Snelling, Lampard & Co. Ltd., (1900) 17 R.P.C. 48, 36:
"when one person has used certain leading features, though common to the trade, if another person is going to put goods on the market, having the same leading features, he should take extra care by the distinguishing features he is going to put on his goods, to see that the goods can be really distinguished ..."
I stress the words "to see that the goods can be really distinguished," for much has been made of the fact found by the judge and, indeed, readily observable by your Lordships that a careful shopper who read the labels attached respectively to the appellants and the respondents products would have no difficulty whatever in distinguishing them. Lord Alexander has submitted forcefully that the labels employed in connection with the Mark II and Mark HI versions are so essentially different that, fairly regarded, they are sufficient to avoid any possibility of confusion; and your Lordships' attention has been directed to a passage from the speech of Lord Halsbury L.C. in Schweppes Ltd. v. Gibbens (1903) 22 R.P.C 601, a case involving virtually identical bottles of soda water bearing labels which, seen from a distance, bore a strong resemblance to one another. Lord Halsbury L.C. said, at p. 606-607:
"The question which we have to determine is whether in selling the bottle a person is likely to be deceived by the resemblance of the one thing to the other; and if a person is so careless that he does not look, and does not, as I think Lord Macnaghton described it in another case, 'treat the label fairly,' but takes the bottle without sufficient consideration and without reading what is written very plainly indeed upon the face of the label on which the trader has placed his own name, then you certainly cannot say he is deceived - in fact he does not care which it is. That would be the true inference which I think a person would draw from conduct so described. The whole question in these cases is whether the thing - taken in its entirety, looking at the whole thing - is such that in the ordinary course of things a person with reasonable apprehension and with proper eyesight would be deceived. Looking at it in this way, it seems to me it is only necessary here to put the two things side by side to say that, if you do look and if you do treat the two labels fairly, no human being could be deceived."
But, of course, statements such as this are made in the context of the particular facts under consideration. They cannot be treated as establishing a principle of law that there must always be assumed a literate and careful customer. The essence of the action for passing off is a deceit practiced upon the public and it can be no answer, in a case where it is demonstrable that the public has been or will be deceived, that they would not have been if they had been more careful, more literate or more perspicacious. Customers have to be taken as they are found. As Lord Blackburn observed in R. Johnston & Co. v. Archibald Orr Ewing & Co. (1882) 7 App.Cas. 219, 229:
"If the plaintiffs had proved that purchasers had actually been deceived by the use of the mark B and that the defendants after being told of this had persisted in using this mark B, the plaintiffs would surely have been entitled to an injunction to prevent the continued use of B; and it could be no answer that the purchasers, so deceived, were incautious; the loss to the plaintiffs of the custom of an incautious purchaser is as great a damage as the loss of that of a cautious one."
That was a case in which, when the plaintiffs' and the defendants' marks were placed side by side, the differences were clearly apparent. Nevertheless both were traders exporting produce to Eastern markets, where customers were likely to be illiterate and Lord Blackburn quoted with approval the speech of Lord Kingsdown in Leather Cloth Co. Ltd. v. American Leather Cloth Co. Ltd. (1863) 11 H.L.C. 523, 339, in the course of which he posed the question of "how far the defendants' trade mark bears such a resemblance to that of the plaintiffs, as to be calculated to deceive incautious purchasers." That, he said, was the question to be asked in that case. It is also the question to be asked in this case. It has, however, to be asked in every case against the background of the type of market in which the goods are sold, the manner in which they are sold, and the habits and characteristics of purchasers in that market. The law of passing off does not rest solely upon the deceit of those whom it is difficult to deceive.
In the instant case, side-by-side visual comparison does not in fact take place. Moreover the trial judge was satisfied of the fact that a substantial part of the purchasing public requires specifically Jif lemon juice, associates it with the lemon-shape, lemon-size container which is the dominant characteristic of the get-up and pays little or no attention to the label. It is no answer to say that the diversion of trade which he was satisfied would take place would be of relative short duration, since the public would ultimately become educated to the fact that there were two brands of lemon juice marketed in such containers and would then be likely to pay more attention to the labels to be sure that they got the brand which they required. His finding was that the diversion would be likely to run into millions of units. It inevitably follows from these finding that the appellants have not in fact sufficiently and effectively distinguished their goods from those of the respondents and it is not for the respondents or for the court to suggest what more they should do, although some suggestions were made by Slade L.J. in the course of his judgment in the Court of Appeal. In the light of the trial judge's finding, I see no escape from the proposition that the respondents were entitled to injunction which they obtained in the form in which it was granted.
It is pointed out that recent decisions of this House in, for instance, British Leyland Motor Corporation Ltd. v. Armstrong Patents Co. Ltd. [1986] A.C. 377 and In re Coca Cola Co. [1986] 1 W.L.R. 693 have stressed the suspicion with which this House regards any attempt to extend or perpetuate a monopoly and it is suggested again that, because it is not easy in the circumstances of this market effectively to distinguish the appellants' products for the respondents' except at considerable expense, the respondents are achieving, in effect, a perpetual monopoly in the sale of lemon juice in lemon-shaped squeeze packs. I do not accept at all that this is so, but in any event the principle that no man is entitled to steal another's trade by deceit is one of at least equal importance. The facts as found here establish that, unless the injunction is continued, that is what the appellants will be doing and it is not necessary for them to do so in order to establish their own competing business for there is nothing in the nature of the product sold which inherently requires it to be sold in the particular format which the appellants have chosen to adopt. I would dismiss the appeal.
LORD GOFF OF CHIEVELEY
My Lords,
I have had the advantage of reading in draft the speeches of my noble and learned friends, Lord Oliver of Aylmerton and Lord Jauncey of Tullichettle. I agree with both speeches and I, too, would dismiss the appeal.
LORD JAUNCEY OF TULLICHETTLE
My Lords,
This is an appeal in a passing off action relating to plastic lemons containing lemon juice. The relevant facts are fully set out in the speech of my noble and learned friend, Lord Oliver of Aylmerton, and I gratefully adopt his account thereof which absolves me from the necessity of condescending upon the background to this appeal. I propose to start by examining the nature of a passing off action.
General law applicable to passing off action
The basic underlying principle of such an action was stated in 1842 by Lord Langdale M.R. in Perry v. Truefitt (1842) 6 Beav. 66, 73 to be:
"A man is not to sell his own goods under the pretence that they are the goods of another man. . . "
Accordingly, a misrepresentation achieving such a result is actionable because it constitutes an invasion of proprietary rights vested in the plaintiff. However, it is a prerequisite of any successful passing off action that the plaintiff's goods have acquired a reputation in the market and are known by some distinguishing feature. It is also a prerequisite that the misrepresentation has deceived or is likely to deceive and that the plaintiff is likely to suffer damage by such deception. Mere confusion which does not lead to a sale is not sufficient. Thus, if a customer asks for a tin of black shoe polish without specifying any brand and is offered the product of A which he mistakenly believes to be that of B, he may be confused as to what he has got but he has not been deceived into getting it. Misrepresentation has played no part in his purchase.
There was for some time doubt as to the precise rights which were entitled to be protected by a passing off action but this was finally resolved in A. G. Spalding & Bros, v. A. W. Carnage Ltd. (1913) 32 R.P.C. 273, 284 where Lord Parker of Waddington, identified the right as: "property in the business or goodwill likely to be injured by the misrepresentation." More recently in Star Industrial Co. Ltd. v. Yap Kwee Kor [1976] F.S.R. 236, Lord Diplock, delivering the judgment of the Board, said, at p. 269:
"A passing off action is a remedy for the invasion of a right of property not in the mark, name or get-up improperly used, but in the business or goodwill likely to be injured by the misrepresentation made by passing off one person's goods as the goods of another. Goodwill, as the subject of proprietary rights, is incapable of subsisting by itself. It has no independent existence apart from the business to which it is attached."
However, it is not essential to the success of a passing off action that the defendant should misrepresent his goods as those of the plaintiff. It is sufficient that he misrepresents his goods in such a way that it is a reasonably foreseeable consequence of the misrepresentation that the plaintiff's business or goodwill will be damaged. Thus a misrepresentation by B that his inferior goods are of a superior quality, which is that of A's goods, whereby people buy B's goods instead of A's, is actionable. In Erven Warnink B.V. v. J. V. Townend & Sons (Hull) Ltd. [1980] R.P.C. 31, Lord Diplock, after pointing out that misrepresentation of one's goods as the goods of someone else was a species of wrong included in a wider genus rather than a separate genus, set out five essential characteristics of a passing off action in the following manner, at p. 93:
"My Lords, A.G. Spalding & Bros, v. A.W. Gamage Ltd. and the later cases make it possible to identify five characteristics which must be present in order to create a valid cause of action for passing off: (1) a misrepresentation, (2) made by a trader in the course of trade, (3) to prospective customers of his or ultimate consumers of goods or services supplied by him, (4) which is calculated to injure the business or goodwill of another trader (in the sense that this is a reasonably foreseeable consequence) and (5) which causes actual damage to a business or goodwill of the trader by whom the action is brought or (in a quia timet action) will probably do so."
These five characteristics cover both the case where A misrepresents his goods as being those of B and that where he misrepresents the quality of his own goods thereby purporting to render them competitive with those of B.
The fact that the proprietary right which is protected by the action is in the goodwill rather than in the get-up distinguishes the protection afforded by the common law to a trader from that afforded by statute to the registered holder of a trade mark who enjoys a permanent monopoly therein. Goodwill was defined by Lord Macnaughten in Inland Revenue Commissioners v. Muller & Co.'s Margarine Ltd. [1901] AC 217, 223, as "the benefit and advantage of the good name, reputation and connection of a business. It is the attractive force which brings in custom." Get-up is the badge of the plaintiff's goodwill, that which associates the goods with the plaintiff in the mind of the public. Any monopoly which a plaintiff may enjoy in get-up will only extend to those parts which are capricious and will not embrace ordinary matters which are in common use.
However, although the common law will protect goodwill against misrepresentation by recognising a monopoly in a particular get-up, it will not recognise a monopoly in the article itself. Thus A can compete with B by copying his goods provided that he does not do so in such a way as to suggest that his goods are those of B. Lawful competition will not be restricted by the common law.
In a case such as the present where what is in issue is whether the goods of A are likely to be passed off as those of B, a plaintiff, to succeed, must establish (1) that his goods have acquired a particular reputation among the public, (2) that persons wishing to buy his goods are likely to be misled into buying the goods of the defendant and (3) that he is likely to suffer damage thereby.
Judgments in courts below
My Lords, I shall refer to these judgments only briefly. I do so not out of any disrespect to the judges who delivered them but because of the more detailed analysis thereof contained in the speech of my noble and learned friend, Lord Oliver of Aylmerton -an analysis with which I am in complete agreement and to which I cannot usefully add.
After a hearing lasting 22 days, the late Walton J. granted injunctions in the two quia timet actions. After describing the four lemons in some detail, he concluded [1987] F.S.R. 303, 308 that:
"There would be no difficulty whatsoever in a careful shopper coming to the conclusion that neither the Mark I, II or III was a Jif lemon - it would merely be a question of . . . reading the label."
However, a very considerable body of evidence was led, which he considered to be all one way, and which satisfied him that it was established beyond peradventure that the introduction of the defendants' lemons into the market would be bound to result in many housewives purchasing them in the belief that they were obtaining the well known and liked Jif brand. Walton J. considered that the evidence established beyond all question the following factual matters, at pp. 312-313:
(1) "that Jif is and has now for a long time been the only lemon-shaped lemon-sized squeezy pack of lemon juice on the market. Since the plaintiff took over the concept from its original inventor in or about 1937 although from time to time there have been rival similar lemons on the market, all these have dropped away: Jif in this sense reigns supreme.
(2) "that Jif is a brand name, that is to say, a specific make of lemon juice produced by one particular proprietor, is well known among shoppers generally.
(3) "that shoppers generally are well aware of the existence of various other brands of lemon juice.
(4) "that the crucial point of reference for a shopper who wishes to purchase a Jiff squeezy lemon is the lemon shape itself. Virtually no, if any, attention is paid to the label which that lemon bears ... all that most people, when they get the lemon home, take off the label which performs no useful function and is easily detachable, so that it is not consciously thereafter any part of the purchased product.
(3) "that lemons are purchased by consumers who use only a small quantity of lemon juice: anybody with a requirement for a larger quantity buys a bottle, which is better value. The result is that purchases, though made steadily, are made at some little interval. During the whole of this interval, the product which has been used consists of an unadorned squeeze pack lemon. This fact of course reinforces the position that when the consumer goes forth to purchase another such lemon the starting point of the reference is the unadorned lemon, and not the lemon plus label."
In the light of these matters Walton J. concluded, at p. 313:
"placing myself in the position of a shopper in relation to whom all these matters apply as part of his or her shopping knowledge and habits, I have really no hesitation in coming to the conclusion that there is bound to be confusion in the shopper's mind in relation to all three marks of the defendants' lemons."
He further considered that to the vast majority of shoppers the word "ReaLemon" on the appellants' labels meant nothing more or less than "real lemon" and was perceived as such and not as a brand.
The Court of Appeal dismissed the appellants' appeal. Slade L.J. considered that the following four essential issues had emerged during the course of the argument [1988] F.S.R. 601, 613:
"(1) Have Colmans established that the particular get-up of Jif lemons has become associated in the minds of the public exclusively with their business? . . .
"(2) Did Suzy and Paterson fraudulently intend by the get-up of the Mark I, Mark II and Mark III lemons to induce members of the public to believe that their lemons were the products of the manufacturers of Jif lemons? . . .
"(3) Even if there was no such fraudulent intention, does the get-up of the defendants' Mark I, Mark II and Mark in lemons amount to a representation that their lemons are the products of the manufacturers of Jif lemons? . . .
"(4) Is it likely that a substantial number of members of the public would be misled by the get-up of the defendants' Mark I, Mark II and Mark III lemons into believing that their lemons are the products of the manufacturers of Jif?"
The second issue is no longer relevant for the purposes of this appeal. Slade L.J. with whom Glidewell and Bingham L.JJ. agreed, answered the questions in the first, third and fourth issues in the affirmative and dismissed the appeal. The Court of Appeal did not interfere with Walton J.'s finding in fact in relation to these three issues.
Arguments in this House
Faced with these formidable concurrent findings of fact, Lord Alexander for the appellants sought to traverse them by submitting that the courts below had erred in law in the conclusions which they drew from the facts. Lord Alexander relied strongly on the finding that no one looking at the whole get-up including the label of the appellants' lemons could, treating it fairly, mistake them for Jif lemons, and addressed a number of submissions designed to demonstrate that, as a matter of law, the labels on the lemons were an essential part of the get-up which had to be taken into account in determining whether purchasers were likely to be deceived. In particular, Lord Alexander argued (1) that there could be no monopoly in goods or containers; (2) that the monopoly assumption whereby customers assumed without reading labels or other indicia that all plastic lemons must be Jif lemons invalidated their evidence, and (3) and that it was impossible to acquire a secondary meaning in the shape of a plastic lemon. In the course of these submissions, a very large number of authorities were referred to. Lord Alexander did not seek to traverse the findings in fact relevant to the reputation of Jif lemons, thus the likelihood of deception is the only issue in this appeal and the importance to be attached to the labels is critical to that issue.
My Lords, the article which the respondents sell is lemon juice. The get-up in which they sell that article is a plastic lemon of approximately natural size embossed with the word "Jif" and having attached thereto a readily detachable paper label. The lemon juice thus sold has acquired a reputation in the market over a period of many years. I turn to the three above-mentioned arguments.
(1) No monopoly in goods or containers. In support of this proposition, reference was made to in In re Coca-Cola Co. [1986] 1 W.L.R. 693, an application under the Trade Marks Act 1938 for registration of a bottle as a trade mark. Lord Templeman said, at p. 698 C:
"A rival manufacturer must be free to sell any container or article of similar shape provided the container or article is labelled or packaged in a manner which avoids confusion as to the origin of the goods in the container or the origin of the article. The respondent registrar of trade marks has always taken the view that the function of trade mark legislation is to protect the mark but not the article which is marked. I agree."
In view of the different rights which are protected by the common law in a passing off action and by statute in an action under the Trade Marks Act 1938 I do not think that Lord Templeman's observations assist the appellants.
It was further argued that since a plastic lemon was a common shape which it was open to anyone in the trade to use, no monopoly therein could be acquired for the purpose of protection of goodwill. This argument, if successful, would exclude from the get-up of the respondents' lemon juice the shape and size of the plastic lemon, leaving only for consideration the embossed letters thereon and the label attached thereto. If these two matters alone fell to be considered it is clear that the appellants would succeed in this appeal. The starting point of the argument was Payton & Co. Ltd. v. Snelling, Lampard & Co. Ltd. (1894) 17 R.P.C. 48, which concerned the sale of coffee in circular enamel tins by both plaintiffs and defendants. Lindley M.R. said, at p. 32, that for the plaintiffs to succeed in the passing off action:
"They must make out that the defendant's goods are calculated to be mistaken for the plaintiffs', and, where, as in this case, the goods of the plaintiff and the goods of the defendant unquestionably resemble each other, but where the features where they resemble each other are common to the trade, what has the plaintiff to make out? He must make out not that the defendant's are like his by reason of those features which are common and to them other people, but he must make out that the defendant's are like his by reason of something peculiar to him, and by reason of the defendant having adopted some mark, or device, or label, or something of that kind, which distinguishes the plaintiffs' from other goods which have, like his, the features common to the trade."
In the event it was held that the plaintiffs failed in their actions and the judgments in the Court of Appeal were approved by this House ([1901] AC 308). In J.B. Williams Co. v. H. Bronnley & Co. Ltd. (1909) 26 R.P.C. 765, a passing off action in relation to boxes containing shaving sticks, Cozens-Hardy M.R. said, at p. 771
"If he takes a colour and a shape which are common to the trade the only distinctive feature is that which he has added to the common colour and the common shape, and unless he can establish that there is in the added matter such a similarity as is calculated to deceive, I think he must fail."
Farwell L.J. said, at p. 774:
"Speaking for myself I think it would be almost impossible for any trader to acquire a monopoly in anything in the nature of a box, or wrapper, which is common to the trade, however much he may use it, simply as such."
If the foregoing references to "common to the trade" meant "in common use in the trade," these dicta would avail the appellants little in view of the finding that Jif has, for a long time, been the only lemon sized squeezy pack of lemon juice on the market. However, the appellants referred to a dictum of Chitty J. in Burland v. Broxburn Oil Co. (1889) 6 R.P.C. 482, where, at p. 489, he equated the phrase "common to the trade" in section 74 of the Trade Marks Act 1883 to "open to the trade." On that basis, it was argued plastic lemons were open to the trade inasmuch as they were an obvious idea, were in use in Europe, and could have been made use by any trader, so minded, in England.
My Lords, it is not necessary to consider whether Chitty J.'s construction of the phrase "common to the trade" for the purposes of the Act of 1883 was correct or incorrect. However I have no doubt that his construction cannot be applied in a passing-off action. What emerges clearly from Payton & Co. Ltd. v. Snelling Lampard & Co. Ltd. 17 R.P.C. 48, and J.B. Williams Co. v. H. Bronnley & Co. Ltd. is that no one can claim a monopoly in the use of a container which is in common use. As Farwell L.J. said in J.B. Williams Co. v. H. Bronnley & Co. Ltd. 26 R.P.C 763, 774, after referring to the difficulty in acquiring a right to words which were merely descriptive of the article, "it is even more difficult to acquire a monopoly in mere wrappers or boxes which have been used for years in the trade and which are common to the trade." The rationale of this conclusion is not difficult to find. The common law leans away from monopoly rights and is unwilling to support the acquisition by individuals of such rights in commonplace articles. Thus a trader can only claim protection for such capricious additions to a commonly used container as distinguish his use of that container from the use of other traders. He may prevent a rival copying the label on his boxes or perhaps the distinctive combination of colours on his tins but he cannot stop him using ordinary boxes or tins simply because they happen to be of the same shape and size. This is entirely logical since where a container of common shape and size is used by different traders it is not the shape and size of the container which identifies the produce of a particular trader to the public but the capricious additions to the container by way of distinctive labelling or a combination of colour or graphic design. It was to such a situation that the judges of the Court of Appeal in Payton and J.B. Williams Co. were addressing themselves when they used the words "common to the trade." To extend those words to cover a case where one trader alone evolves and uses a container of a particularly distinctive and unusual shape, albeit other traders have the capability of achieving a similar result, would be both illegitimate and contrary to the principles whereby those cases were decided. In my view "common to the trade" in a passing off action means "in common use in the trade" from which it follows that plastic lemons cannot be disregarded as part of the get-up in this appeal.
(2) Monopoly assumption invalidates evidence. My Lords, if I had been asked to express my views on this matter without the aid of able argument and copious citation of authority but guided by common sense, I should have stated the following propositions:
(1) Where a trader has established a reputation for his goods in the market and where those goods are identified by a particular get-up which is peculiar to him, the public are likely to be motivated by his de facto monopoly in get-up to purchase the goods.
(2) If another trader seeks to imitate the get-up which the first trader uses, a successful passing-off action at the instance of the latter will necessarily recognise his de facto monopoly in that get-up.
(3) Where trader A enters the market to compete with trader B whose goods have acquired a reputation and are identified by a particular get-up it will be a question of degree to what extent trader A must differentiate his get-up from that of trader B in order to avoid deception. If B's goods have been in the market for a relatively short time with a get-up which is not particularly distinctive, the steps required to differentiate may not be very substantial. If, on the other hand, those goods have been in the market for a long time with a particularly distinctive get-up then A, seeking to market his goods with a similar get-up, will require to take far more drastic steps to inform the public that his goods are not those of B, since the public, having long become used to such a get-up as identifying the goods of B, are likely to be less mindful of differences in detail.
(4) If the monopoly assumption proposition is correct it could follow that the more commanding a position a trader had established in the market by reason of the reputation of his goods and the distinctive character of their get-up, the more difficult would it be for him to establish deception by an incoming trader with a similar get-up. Surely an anomalous result.
It was argued that the evidence of customers who, to use the language of Lord Macnaghton in an earlier case, did not treat the label fairly was not competent to prove deception. This proposition is undoubtedly correct in relation to customers who through lack of interest or idleness have deliberately disregarded distinct labelling of different brands of goods. However, I do not consider that it can be treated as a rule of universal application. There is ample authority for the view that you must take customers as you find them including the imprudent and the unwary: R. Johnston & Co. v. Archibald Orr-Ewing & Co. (1882) 7 App. Cas. 219, Lord Selborne L.C., at p. 223, Lord Blackburn, at p. 229; Powell v. Birmingham Vinegar Brewery Co. [1896] 2 Ch. 34, Lindley L.J., at p. 68. Furthermore, much will depend upon the part which the label plays in the overall get-up. In Schweppes Ltd. v. Gibbens (1903) 22 R.P.C. 601, the plaintiffs and defendants were manufacturers of soda water which they sold in embossed glass bottles labelled with chocolate coloured labels. The plaintiffs' labels bore the word "Schweppes' Soda Water" and those of the defendants "Gibbens' Soda Water." There was no evidence that anyone had been deceived by the defendants' get-up into thinking that he was purchasing the plaintiffs' goods. Warrington J. gave judgment for the defendant and the plaintiff's appeal was dismissed by the Court of Appeal, 22 R.P.C. 113, and by this House. Both Lord Halsbury L.C and Lord Lindley stressed the fact that if the whole get-up was looked at it was impossible for anyone to be deceived having regard to the differences between the defendants' and the plaintiffs' labels.
This case was much relied upon by the appellants but I do not consider that it assists them. In the first place, there was a complete lack of evidence as to deception. In the second place, the labels performed a much more important function than they do here. In the Schweppes case the containers were plain glass bottles and the labels performed the double function of (1) identifying the contents of the bottle, and (2) identifying the manufacturer. This is likely to be the function of any label which is fixed to a container such as a bottle or tin which is in common use. Indeed in such a case the label is likely to be the dominant feature of the get-up. In the case of a plastic lemon, however, the shape and colour of the container, which are the dominant features, identify the contents and the label serves only to identify the manufacturer or supplier. There is accordingly far less need for the customer to look at the label than there is in the case of a conventional container of whose contents he may be otherwise unaware or uncertain.
In Payton & Co. Ltd. v. Snelling, Lampard Co. Ltd., 17 R.P.C. 48, 33, Romer L.J. referred to the case:
"where a particular get-up of goods has been for a long time, for many years, on the market, so as to become identified in course of time with the plaintiffs' goods and with no others, so that that get-up almost of necessity is identified in the market or amongst the public as representing the plaintiffs' goods."
In such a situation if the label plays only an ancillary part in the get-up, I am not persuaded that there is any principle of law which requires that the evidence of customer witnesses who no longer find it necessary to examine the label should be disregarded. It must, in the end of the day, always be a question of fact and degree to what extent customers are genuinely deceived by the overall impression of the get-up. Slade L.J. said [1988] F.S.R. 601, 633:
"The judge was entitled on the evidence to form the conclusion that a substantial proportion of potential purchasers who were not indifferent to the manufacturing source of small plastic squeeze lemons would pay little or no attention to the label, because they would assume that they emanated from the manufacturer of Jif lemons, which had up to that time been the only product of that type on the market."
I entirely agree that the judge was so entitled and I am satisfied that in reaching this conclusion he in no way erred in law. Furthermore I am not persuaded by the appellants' argument that any of the four propositions which I stated above are unsound. It follows that the appellants' submissions relating to the monopoly assumption fails.
(3) No secondary meaning. The appellants submitted that the respondents' plastic lemon was merely the exemplification of the descriptive word "lemon." It was impossible to acquire a monopoly in the use of a word which accurately described the relevant goods, from which it followed that the appellants were not entitled to establish that the plastic lemon had acquired the secondary meaning of Jif lemon juice.
This submission goes too far for two reasons. In the first place there is no absolute principle of law which supports it. In Reddaway v. Banham [1896] AC 199, relief was granted to a plaintiff who manufactured belting under the descriptive name of "camel-hair" after a jury had found that these words had acquired the secondary meaning of belting manufactured by the plaintiff. In The Cellular Clothing Co. v. Maxton & Murray [1899] AC 326, the pursuers accurately described their fabric as cellular and sought to interdict the defenders from using this description in relation to any fabric made or supplied by them. The pursuers failed in the Court of Session and in this House. Lord Shand said, at pp. 340-341:
"But I confess I have always thought, and I still think, that it should be made almost impossible for anyone to obtain the exclusive right to the use of a word or term which is in ordinary use in our language and which is descriptive only -and, indeed, were it not for the decision in Reddaway's case [1896] AC 199, I should say this should be made altogether impossible . . . But where the plaintiffs' proof shows that the only representation by the defendants consists in the use of a term or terms which aptly and correctly describe the goods offered for sale, as in the present case, it must be a condition of the plaintiffs' success that they shall prove that these terms no longer mean what they say - or no longer mean only what they say - but have acquired the secondary and farther meaning that the particular goods are goods made by the plaintiffs, and, as I have already indicated, it is in my view difficult to conceive cases in which the facts will come up to this."
Lord Shand undoubtedly considered that it was extremely unlikely that the plaintiffs would be able to adduce satisfactory evidence of descriptive words having acquired a secondary meaning but he did not go so far as to say that it was impossible in law for such an event to occur. Lord Davey said, at p. 343:
"Then, that being so, what is the evidence upon which the pursuers rely for the purpose of showing that the word has acquired a secondary meaning, so that the mere simple use of the word is alone evidence of a misrepresentation by the defenders?"
In this passage Lord Davey clearly recognised that the acquisition of a secondary meaning was possible and he implicitly recognised the important distinction between a simple representation arising from the use of descriptive words which have acquired no secondary meaning and the misrepresentation which could arise where the words have acquired such a meaning. Once again, whether such a secondary meaning has been acquired must be a question of fact.
In the second place I do not consider that it is legitimate to equiparate a plastic lemon of natural shape and size, which is unique in the market, to a word in ordinary use. Indeed I can see no reason why a trader should not obtain protection for a get-up whose shape and colour ingeniously alluded to its contents but not for a phrase containing ordinary words which described them. I agree with Slade L.J. that the proper way to regard a plastic lemon is as a fanciful and attractive variant of the get-up of the ordinary plastic squeeze bottle lemon container and I can see no reason why the fact that this get-up is allusive of its contents should deprive it of protection to which it would otherwise be entitled.
The appellants advanced a subsidiary argument to the effect that the article here was a plastic lemon containing lemon juice and that get-up which forms part of the article cannot be protected. The common law, it was said, will not recognise a monopoly in the overall shape of an article of commerce. In this context the Court of Appeal had placed too much reliance on the "Dolly Blue" case, William Edge & Sons Ltd. v. William Nicholls & Sons Ltd. 28 R.P.C. 382. My Lords, even if the plastic lemon were part of the article I do not consider that the proposition is sound. In the Dolly Blue case the plaintiffs got up blues or tints in simple unmarked bags with a stick in them, which performed a function of utility when the bags were dipped in water. The defendants copied the plaintiffs' bags and sticks but labelled the bags with their name. This House held that upon the facts the defendants had taken insufficient steps to distinguish their goods from those of the plaintiffs. Lord Gorell said, at p. 394:
"I think, on the whole, when the undisputed facts of this case are considered, that the defendants have not, having regard to the nature of the goods and the persons to whom they are sold, sufficiently distinguished in appearance the goods sold by them from the goods sold by the plaintiffs. This view by no means suggests that the defendants are not at liberty to use a stick in the preparation of their goods, but, if they do so, they must sufficiently distinguish their goods by the form of the stick, or by other means, from those which are sold by the plaintiffs. ... I think the case turns entirely on a question of fact. If the plaintiffs were attempting to prevent the use of 'a stick,' I should agree with the decision of the Court of Appeal, and I think that that court regarded the disclaimer of counsel as an attempt to limit a claim which had not been and was not being effectively limited. But when it is admitted that the defendants have copied the appearance and arrangement of the plaintiffs' goods and distinguish theirs only by a label, and when it is perfectly possible to distinguish goods which contain similar elements of utility in many other ways, so that there should be no reasonable probability of a mistake, it seems to me that the label alone in the particular circumstances is not, for the reasons which I have given, sufficient."
British American Glass Co. Ltd. v. Winton Products (Blackpool) Ltd. [1962] R.P.C. 230, concerned the passing off of ornamental glass dogs. Pennycuick J. said, at p. 232:
"This is not really a passing off case as regards get-up in any way at all. It is not a question of getting-up; it is a question of the appearance of the actual article sold. The plaintiff company must, therefore, show that the trade or public on seeing the dogs of this configuration and shape will understand that the dogs are dogs of the plaintiff company's manufacture."
In this statement the learned judge was clearly recognising that the shape and configuration of the article could be protected against deception.
In my view these two cases are merely examples of the general principle that no man may sell his goods under the pretence that they are the goods of another. This principle applies as well to the goods themselves as to their get-up. "A" markets a ratchet screwdriver with a distinctively shaped handle. The screwdriver has acquired a reputation for reliability and utility and is generally recognised by the public as being the product of "A" because of its handle. "A" would be entitled to protection against "B" if the latter sought to market a ratchet screwdriver with a similarly shaped handle without taking sufficient steps to see that the public were not misled into thinking that his product was that of "A". It is important to remember that such protection does not confer on "A" a monopoly in the sale of ratchet screwdrivers nor even in the sale of such screwdrivers with similarly distinctive handles if other appropriate means can be found of distinguishing the two products. Once again it will be a question of fact whether the distinguishing features are sufficient to avoid deception.
In the end of the day this is a very simple case notwithstanding the able and attractive arguments addressed to your Lordships and the plethora of authority referred to. It is not in dispute that the respondents have acquired over many years a reputation in the market for their lemon juice got up in plastic lemons. There is abundant evidence that customers would be deceived if any of the three Marks of the appellants' lemons were put on the market in their present form. No reason in law has been made out why this evidence should not have been accepted. The respondents have accordingly established the facts necessary to succeed. The decisions in the courts below and in this House do not have the effect of conferring on the respondents a monopoly right to sell lemon juice in plastic lemons. They merely decide that on the facts as found the appellants in seeking to enter the plastic lemon market have not taken adequate steps to differentiate their get-up from that of the respondents so that consumers will not be deceived.
For the foregoing reasons I would dismiss the appeal. |
JISCBAILII_CASE_PROPERTY
Parliamentary
Archives,
HL/PO/JU/18/250
Abbey
National Building Society (Respondents) v. Cann and
others
(A.P.) (Appellants)
JUDGMENT
Die Jovis 29° Martis 1990
Upon Report from the Appellate Committee to
whom was
referred the Cause Abbey National Building Society
against
Cann and others (A.P.), That the Committee had heard
Counsel
on Wednesday the 31st day of January, as well as on
Thursday
the 1st, Monday the 5th, Tuesday the 6th and Wednesday
the 7th
days of February last, upon the Petition and Appeal of
Daisy
Winifred Cann and Abraham Samuel Cann of 7, Hill View,
South
Lodge Avenue, Mitcham, Surrey praying that the matter of
the
Order set forth in the Schedule thereto, namely an Order
of
Her Majesty's Court of Appeal of the 3rd day of March
1989,
might be reviewed before Her Majesty the Queen in Her Court
of
Parliament and that the said Order might be reversed, varied
or
altered or that the Petitioners might have such other
relief in
the premises as to Her Majesty the Queen in Her
Court of
Parliament might seem meet; as upon the case of the
Abbey National
Building Society lodged in answer to the said
Appeal; and due
consideration had this day of what was offered
on either side in
this Cause:
It is Ordered and Adjudged, by
the Lords Spiritual and
Temporal in the Court of Parliament of Her
Majesty the Queen
assembled, That the said Order of Her Majesty's
Court of
Appeal (Civil Division) of the 3rd day of March
1989
complained of in the said Appeal be, and the same is
hereby,
Affirmed and that the said Petition and Appeal be,
and the
same is hereby, dismissed this House: And it is
further
Ordered, That the Costs of the said Respondents be
paid out of
the Legal Aid Fund pursuant to section 18 of the Legal
Aid Act
1988, such Order to be suspended for four weeks to allow
the
Legal Aid Board to object if they wish: And it is also
further
Ordered, That the Costs of the said Appellants be
taxed in
accordance with the Legal Aid Act 1988.
Cler: Parliamentor:
Judgment:
29.3.90
HOUSE OF LORDS
ABBEY NATIONAL BUILDING
SOCIETY
(RESPONDENTS)
v.
CANN AND OTHERS
(A.P.)
(APPELLANTS)
Lord Bridge of
Harwich
Lord Griffiths
Lord Ackner
Lord Oliver of
Aylmerton
Lord Jauncey of Tullichettle
LORD
BRIDGE OF HARWICH
My
Lords,
I have had the advantage of
reading in draft the speeches
of my noble and learned friends Lord
Oliver of Aylmerton and
Lord Jauncey of Tullichettle. I agree with
them that the appeal
should be dismissed and, subject to what
follows, I agree entirely
with their reasons for reaching that
conclusion.
The most important and most
difficult question which arises
for decision concerns the date at
which to determine, in relation
to the transfer or creation of a
legal estate in registered land,
what are the subsisting
overriding interests in the land to which
the estate transferred
or created will be subject. One might be
forgiven for starting
from the a priori assumption that on its true
construction the
Land Registration Act 1925 must be capable of
yielding a single
answer to that question in the sense that the
transferee or
chargee either takes subject to overriding
interests
subsisting at the date of transfer or creation of the
estate and
free of overriding interests created between that date
and the
date of registration or that he takes subject to
all overriding
interests subsisting at the date of registration.
But neither of
these single answers will do. As my noble and
learned friends
cogently demonstate, to adopt either answer and
apply it to all
overriding interests across the board would
produce at least one
conveyancing absurdity. Thus it would be a
conveyancing absurdity
that the purchaser of a legal estate should
take subject to the
rights under section 70(1)(g) of any
person who was not in
occupation at the date of purchase so that
the purchaser could
know nothing of his existence. But it would
equally be a
conveyancing absurdity that the purchaser should not
be subject,
pursuant to section 70(1)(i), to rights under
local land charges
arising between the date of his purchase and
the date of
registration which, by virtue of the statutes creating
them, bind
all interests for the time being subsisting in the
land.
I am entirely satified that it
must be right to avoid both
these conveyancing absurdities. But I
confess that I have
difficulty in finding any wholly
convincing and consistent
construction of the statute which
achieves this result. It seems to
me that it makes better sense of
the scheme of the Act in
relation to overriding interests if one
can regard the rule to be
applied to an overriding interest under
paragraph (g) of section
70(1), i.e. that it will only
affect the legal estate if it was
subsisting as such at the date
when the estate was tranferred or
created, as an example of the
general rule, and the contrary rule
to be applied under paragraph
(i) as the exception. This avoids
other conveyancing
absurdities which would arise if the transferor
of the legal
estate could, between the date of transfer and the
date of
registration, create new overriding interests, such as
profits a
prendre or easements under paragraph (a), rights of
fishing
or sporting under paragraph (j), or leases under
paragraph
(k), which would affect the estate in the hands
of the transferee.
One does not, of course, expect conveyancing
absurdities from the
pens of the skilled parliamentary draftsmen
who implemented Lord
Birkenhead's great scheme for the reform of
English real property
law embodied in the 1925 legislation, but
even they may have
occasionally expressed their complex
interlocking concepts in forms
of words which do not precisely fit
every case. If the choice is
between accepting a conveyancing
absurdity on the one hand and
straining or even modifying the
draftsman's language to avoid it on
the other hand, I have no
doubt that the latter alternative is to
be preferred. For the
present, however, I need do no more than
express my concurrence in
the opinion that a person not in actual
occupation of land at the
date when a legal estate in the land is
transferred or created
cannot substantiate a claim to an overriding
interest in the land
under section 70(1)(g) against the transferee or
chargee.
LORD GRIFFITHS
My Lords,
I have had the advantage of
reading in draft the speeches
to be delivered by my noble and
learned friends, Lord Oliver of
Aylmerton and Lord Jauncey of
Tullichettle. I agree with both of
them, and I too would dismiss
the appeal for the reasons which
they have given.
LORD ACKNER
My Lords,
I have had the advantage of
reading in draft the speeches
to be delivered by my noble and
learned friends, Lord Oliver of
Aylmerton and Lord Jauncey of
Tullichettle. I agree with both of
them, and I too would dismiss
the appeal for the reasons which
they have given.
- 2 -
LORD
OLIVER OF AYLMERTON
My Lords,
This appeal raises yet again what
has become a familiar
hazard for banks and building societies
advancing money on the
security of real property. The respondent
society is the proprietor
of a registered charge on property at 7,
Hillview, South Lodge
Avenue, Mitcham, Greater London, securing a
sum of £25,000
together with interest. The property is
leasehold and the title is
registered at H.M. Land Registry under
the provisions of the Land
Registration Acts 1925-1986. The
registered proprietor and the
chargor under the society's charge
is the son of the first appellant
and the charge was given by him
on the completion of his
purchase of the property on 13 August
1984 in order to enable him
to complete the purchase. The chargor
was registered as
proprietor of the property on 13 September 1984
simultaneously
with the registration of the society as proprietors
of the charge.
The chargor having defaulted in payment of
principal and interest,
the society sought to enforce their
security and on 5 August 1987
commenced proceedings for possession
of the property against the
chargor in the Croydon County Court.
In fact the chargor had
never lived in the property which had been
purchased by him for
the occupation of the first appellant, his
mother, and the second
appellant, the gentleman whom she
subsequently married. At all
material times since the completion
of the purchase they had
occupied the property as their home and
it was therefore
necessary to join them as defendants to the
proceedings. Their
defence was that they had an equitable interest
in the property
which took priority over the interest of the
society and was
binding on the society as an overriding interest
by virtue of their
occupation of the property having regard to the
provisions of
sections 23(1) and 70(1)(g) of the Land
Registration Act 1925.
It will be necessary in stating
the issues which arise for
decision on the appeal to trace in a
little detail the history of the
relationship between the chargor
and the first appellant and of the
events immediately leading up
to the acquisition of the property
subject to the society' charge,
but before I embark upon this, it
will be convenient to refer to
the relevant provisions of the Land
Registration Act 1925 upon
which the determination of the appeal
depends.
Since the appeal is concerned with
land which was, at all
material times, registered land, it is
unnecessary to refer to those
provisions which are concerned with
the first registration of land
not previously registered and one
can go straight to the provisions
relating to transfers of
registered titles which are contained in
Part III of the Act of
1925. Although, as was pointed out in City
of London Building
Society v. Flegg [1988] AC 54, 84, the
provisions of the
Land Registration Acts were designed to operate
in parallel and
consistently with the property legislation governing
unregistered
land, the powers of a registered proprietor to dispose
of or
create legal estates rests entirely upon statute. Section
69(4) of
the Act of 1925 provides: "The estate for the time being
vested
in the proprietor shall only be capable of being disposed of
or
dealt with by him in manner authorised by this Act." Section
18
enables the registered proprietor of a freehold estate to
transfer
the registered estate "in the prescribed manner" (that is
- 3 -
to say, prescribed, in the event,
by the Land Registration Rules
1925 (S.R. & O. 1925 No. 1093
(L. 28)). Subsection (1) of section
18 describes a number of
specific transactions (such as, for
instance, grants of leases or
rentcharges) which may be effected
by a registered proprietor and
subsection (4) refers in terms to
dispositions by way of charge.
It provides:
"The foregoing powers of
disposition shall (subject to the
express provisions of this Act
and of the Law of Property
Act, 1925, relating to mortgages) apply
to dispositions by
the registered proprietor by way of charge or
mortgage; but
no estate, other than a legal estate, shall be
capable of
being disposed of, or created under, this section."
Subsection (5) provides that the
term "transfer" or "disposition"
includes "any
disposition authorised as aforesaid."
Registration of dispositions made
by registered proprietors is
provided for in section 19
(freeholds) and section 22 (leaseholds).
So far as relevant,
section 19 provides:
"(1) The transfer of the
registered estate in the land or part
thereof shall be completed
by the registrar entering on the
register the transferee as the
proprietor of the estate
transferred, but until such entry is made
the transferor shall
be deemed to remain proprietor of the
registered estate; . .
Dispositions other than transfers
are provided for in subsection (2)
which similarly provides that
they shall be completed by
registration. Similar provisions
relating to transfers of registered
leasehold estates are
contained in section 22.
The governing principle of the Act
of 1925 is that the title
to land is to be regulated by and
ascertainable from the register
alone. It is recognised, however,
that there may be subsisting
rights of third parties affecting the
land such as would not, in
unregistered conveyancing, be deducible
from the abstracted
documents of title and which, though
ascertainable by enquiry, may
not have been protected by entry on
the register. The Act of
1925 therefore provides for a number of
"overriding interests" to
which the registered title is
made subject. Such interests are
defined in section 3(xvi) as:
"all the incumbrances,
interests, rights, and powers not
entered on the register but
subject to which registered
dispositions are by this Act to take
effect ..."
Under section 69(1) the estate in
registered land is deemed to
have vested in the proprietor without
any conveyance but subject
"to the overriding interests,
if any, including any mortgage
term or charge by way of legal
mortgage created by or
under the Law of Property Act 1925, or this
Act or
otherwise which has priority to the registered estate."
Section 70 contains a list of
miscellaneous overriding interests to
which registered land is
subject. Subsection (1) provides:
- 4 -
"All registered land shall,
unless under the provisions of this
Act the contrary is expressed
on the register, be deemed to
be subject to such of the following
overriding interests as
may be for the time being subsisting in
reference thereto,
and such interests shall not be treated as
incumbrances
within the meaning of this Act, (that is to say):
..."
There follows a list of diverse
rights, easements and liabilities of
which it is necessary to
mention only three, viz.:
"(g) The rights of
every person in actual occupation of the
land or in receipt of the
rents and profits thereof, save
where enquiry is made of such
person and the rights are not
disclosed; . . .
"(i) Rights under
local land charges unless and until
registered or protected on the
register in the prescribed
manner; . . .
"(k) Leases for any
term or interest not exceeding twenty-
one years, granted at a
rent without taking a fine; ..."
The effect of registration as
regards dispositions of freehold and
leasehold interests
respectively is set out in sections 20 and 23.
Section 20(1)
provides:
"In the case of a freehold
estate registered with an absolute
title, a disposition of the
registered land or of a legal
estate therein, including a lease
thereof, for valuable
consideration shall, when registered, confer
on the transferee
or grantee an estate in fee simple or the term
of years
absolute or other legal estate expressed to be created in
the
land dealt with, together with all rights, privileges,
and
appurtenances belonging or appurtenant thereto,
including
(subject to any entry to the contrary in the register)
the
appropriate rights and interests which would, under the Law
of
Property Act, 1925, have been transferred if the land had
not been
registered, subject -
(a) to the incumbrances and
other entries, if any,
appearing on the register; and
(b) unless the contrary is
expressed on the register, to
the overriding interests,
if any, affecting the
estate transferred or created,
but free from all other estates
and interests whatsoever . .
. "
The provisions of section 23(1)
are, for material purposes, similar
save that the disposition,
when registered, is deemed to vest in
the transferee or
underlessee "the estate transferred or created to
the extent
of the registered estate, or for the term created by
the subdemise
..."
The provisions regulating the
creation of charges on
registered land and the powers of chargees
are to be found in
sections 25-35 inclusive. Section 25(1)
specifically enables the
registered proprietor to charge the
registered land with payment of
money and section 26(1) provides:
- 5 -
"The charge shall be
completed by the registrar entering on
the register the person in
whose favour the charge is made
as the proprietor of the charge,
and the particulars of the
charge."
Under section 27 a registered
charge, if not made by demise or
sub-demise, takes effect as a
charge by way of legal mortgage, an
expression defined by
reference to the Law of Property Act, 1925,
so that the chargee is
to be treated as if a mortgage term by
demise or sub-demise were
vested in him. Subsection (3) provides
for the charge to take
effect from the date of delivery of the
deed, but subject to
estates or interests registered or noted on the
register before
registration of the charge. Under section 25(2),
the charge may be
in any form which sufficiently identifies the
land but there is an
express prohibition against any reference to
any unregistered
interests affecting the land which are not
overriding interests.
Section 28 provides for the implication into
charges of covenants
for payment of principal and interest. At
first sight its effect
might seem curious, for it provides in
subsection (1):
"Where a registered charge is
created on any land there
shall be implied on the part of the
person being proprietor
of such land at the time of the creation
of the charge . . .
(a) a covenant with the proprietor for
the time being of the
charge to pay. ..."
Since "proprietor" is
defined in section 3(xx) as "the registered
proprietor for
the time being of an estate in land or of a charge"
this
might be thought to lead to the conclusion that "the time of
the
creation of the charge" must mean the time when the charge
is
registered, since otherwise, in the normal case of the purchaser
of
land charging the estate on completion of his purchase, the
implied
covenant would be imposed on the vendor, who remains the
"proprietor"
until registration. Section 29 of the Act of 1925,
however, makes
it entirely clear that the creation of a charge is
not its
registration and that it cannot refer to anything but
execution of
the charge. That section provides:
"Subject to any entry to the
contrary on the register,
registered charges on the same land
shall as between
themselves rank according to the order in which
they are
entered on the register, and not according to the order
in
which they are created."
In fact, when reference is made to
section 37 of the Act of 1925
it can be seen that section 28
operates perfectly sensibly in the
case postulated of the
purchaser wishing to charge the land on
completion of his purchase
and contemporaneously with the
transfer to him by the registered
proprietor. Section 37 provides,
so far as material:
"(1) Where a person on whom
the right to be registered as
proprietor of registered land or of
a registered charge . . .
has been conferred by a disposition or
charge, in accordance
with this Act, desires to dispose of or
charge the land or to
deal with the charge before he is himself
registered as
proprietor, he may do so in the prescribed manner,
and
subject to the prescribed conditions.
- 6 -
"(2) Subject to the
provisions of this Act with regard to
registered dealings
for valuable consideration, a disposition
or charge so
made shall have the same effect as if the
person making it
were registered as proprietor."
So much for the statutory
provisions. I turn now to the
factual background of the appeal.
The first appellant, to whom it
will be convenient to refer as
"Mrs. Cann," lived with her first
husband in a house at
48, Warren Road, Mitcham, of which her
husband was the tenant.
They had two sons, George and Alan.
Mrs. Cann's husband died in
1962 and she succeeded to the
tenancy as his widow and was
entitled to the protection afforded
by the Rent Acts. In about
1970, her first husband's brother, the
second appellant, Mr.
Abraham Cann, came to live with her and
they have been together
ever since. Mrs. Cann married Mr.
Abraham Cann in 1987. In 1977
the landlord's agents approached
Mrs. Cann as the sitting tenant
with an offer to sell the freehold
of 48, Warren Road, for a sum
of £5,000, a price which was much
below the vacant
possession value of the property having regard to
her protected
tenancy. Neither she nor Mr. Abraham Cann had
the resources which
would have enabled them to purchase the
property, but George Cann
offered to raise a mortgage and
purchase it and on 3 May 1977 it
was conveyed into the joint
names of Mrs. Cann and George with the
aid of an endowment
mortgage covering the whole of the price.
George Cann assured
his mother that she would not need to pay any
rent any more and
that she would always have a roof over her head.
It seems that
Abraham Cann contributed a sum of £500 towards
the completion
of the transaction, which sum was expended in
defraying the legal
costs. Thereafter, Mr. and Mrs. Cann lived in
the property and
paid the outgoings until April 1979. For part of
that time George
Cann lived with them. In 1979, however, they came
across a
more attractive house, 30, Island Road, Mitcham. 48,
Warren
Road was accordingly sold for a sum of £20,500. 30,
Island Road,
was purchased in the name of George Cann alone for a
sum of
£26,500 of which £15,000 was, with Mrs. Cann's
knowledge and
acquiescence, raised on mortgage from the Nationwide
Building
Society. Her agreement to the house standing in the sole
name of
George was obtained and she signed a document dated 9
March
1979 by which she directed that course to be taken. She and
Mr.
Abraham Cann moved into the property and lived there
until
August 1984. George Cann also lived with them until 1982
when
he moved out to live with a lady whom he subsequently
married.
Mr. and Mrs. Cann made no contribution to the mortgage
but were
responsible for other outgoings and some repairs.
According to
Mrs. Cann's evidence, George told her: "I have
bought you a nice
house. This is always what you wanted."
In the summer of 1984, George Cann
was in financial
difficulties and told his mother that he could no
longer afford to
pay for two homes. He accordingly arranged to
sell 30, Island
Road, and to purchase instead a smaller leasehold
property at 7,
Hillview, Mitcham, at a price of £34,000. 30,
Island Road, was
sold for £45,000. Both transactions were
completed on 13 August
1984. It is necessary to set out the
sequence of the transaction
in a little detail. In May 1984,
George applied to the society for
a loan of £25,000 to be
secured on a mortgage of 7, Hillview,
stating that that property
was being purchased for his own sole
- 7 -
occupation. The society, having
inspected and approved the
property on 15 May, made a formal offer
of an advance of the
amount sought on 18 May and that was
accepted. Contracts for
the sale of 30, Island Road, and the
purchase of 7, Hillview, were
exchanged on 19 July 1984 with the
completion date for both
transactions fixed for 13 August. On 2
August 1984, Messrs. H.
C. L. Hanne & Co., George Cann's
solicitors, wrote to the society
asking for a cheque for the
mortgage advance to be provided
before 8 August and that was duly
dispatched to them on 6
August. Prior to 13 August George Cann
duly executed a legal
charge on the property in favour of the
society to secure the sum
advanced. Thus the solicitors were in a
position to complete the
purchase on the completion date subject
only to completion of the
sale of 30, Island Road, from which,
presumably, the balance of
the purchase price was to come.
It is Mrs. Cann's case that by
reason of her contribution to
the purchase of 48, Warren Road,
represented by her status as
sitting tenant and, more
particularly, by reason of the assurance
given to her by George
that she would always have a roof over
her head, she had, on or
immediately prior to completion, an
equitable interest in 7,
Hillview which takes priority to the
society's charge as an
overriding interest. She was, she claims, in
"actual
occupation" of the property and so had her rights
secured
against the society by virtue of section 70(1)(g)
of the Act of
1925. It is not disputed that she was certainly in
actual
occupation of the property on 13 September when both
George's
title to the property and the society's charge on it
were
registered, but the society relies on the decision of the
Court of
Appeal in Lloyds Bank Plc. v. Rosset [1989] Ch 350 as establishing
that the relevant date for ascertaining the
existence of an
overriding interest is not the date of
registration but the date of
completion of the purchase. Even on
that footing, however, Mrs.
Cann claims a priority because, so she
claims, she was in actual
occupation of the property prior to
actual completion of the
purchase. That claim was rejected by the
trial judge, who
inferred that the purchase and the charge were
completed by 9.00
a.m. on 13 August by which time it is common
ground that
nothing had occurred which could possibly support a
claim that she
was in actual occupation. The Court of Appeal
[1989] 2 F.L.R.
265, however, held that the inference drawn by the
judge was not
one which, having regard to the time taken to effect
telegraphic
transfers of money and to the normal hours of banking
business,
could legitimately be drawn and the leading judgment,
delivered by
Dillon L.J., contains a careful analysis of the
available evidence
and of the practical probabilities which is, I
think, very difficult
to fault and which has not been challenged
by the society. The
result of that analysis, which it is
unnecessary to consider in any
detail, is that actual completion
of the purchase of 7, Hillview and
the contemporaneous charge to
the society took place at or shortly
after 12.20 p.m. on 13
August. At that time the situation on the
ground was this: Mrs.
Cann herself was not in Mitcham, having
gone on 11 August to the
Netherlands on a holiday from which she
did not return until 18
August. Mr. Abraham Cann and George
Cann, however, had prepared to
move into the property and they
arrived there with a van
containing Mrs. Cann's furniture and
carpets at about 10.00 a.m.
At that time the vendor, Mr. Watson,
was still there loading a van
with his belongings, but he vacated
the house at about 11.45 a.m.
at which time carpet-layers went in
- 8 -
to lay Mrs. Cann's carpets and her
furniture began to be unloaded
and brought in. Thus there
was a period of about 35 minutes
prior to actual
completion during which there were on the
premises
chattels belonging to Mrs. Cann and persons unloading and
arranging
them on her behalf.
In the Court of Appeal Mrs. Cann's
claim failed because, in
the view of all members of the court, she
was aware that the
balance of the purchase price of 7, Hill View,
over and above the
net amount to be produced by the sale of 30,
Island Road, was
going to be raised by George Cann by mortgage of
the premises.
Having thus impliedly authorised him to raise this
amount on
mortgage she must necessarily have authorised him to
that extent
to create a charge to the society having priority to
her interest
and could not, as against the society, complain that
George had
exceeded a limitation on his authority of which the
society was
unaware. Dillon L.J., however, took the view that the
events
which took place between 11.45 a.m. and 12.20 p.m. on 13
August
did constitute actual occupation of the property by Mrs.
Cann
sufficient to enable her to claim an overriding interest,
a
proposition which was doubted by Ralph Gibson and Woolf L.JJ.
If, of course, the ground upon
which the Court of Appeal
rejected Mr. and Mrs. Cann's claim to
resist an order for
possession in the society's favour is correct,
it is strictly
unnecessary to determine any of the other points
which arise, but
since they have been fully argued and having
regard to the pending
appeal in Lloyds Bank Plc. v. Rosset
which immediately follows
this appeal, it is desirable that they
should be decided.
First in logical order is the
question of the appropriate date
for ascertaining the existence of
overriding interests under the
Land Registration Acts. Curiously
enough the point appears never
to have arisen directly for
decision in any reported case prior to
Rosset, save in one
case in 1985 in the Bristol County Court
which was decided on
appeal on a different point (Paddington
Building Society v.
Mendelsohn (1985) 50 P. & C.R. 244). In In re
Boyle's
Claim [1961] 1 W.L.R. 339, 344, Wilberforce J. expressed
the
view that the relevant date was the date of acquisition of
the
registered title, but the issue in that case was quite a
different
one and the point does not appear to have been argued.
That
case has, however, been used as the basis for statements in
a
number of leading conveyancing textbooks that that is the date
at
which occupation for the purposes of section 70(1)(g)
has to be
ascertained (see, e.g., Wolstenholme and Cherry's
Conveyancing
Statutes, 13th ed. (1972), vol. 6, p. 65; Emmet
on Title, 19th "ed.
(1986), para. 5-197). The question
arose directly in Rosset in
which the Court of Appeal
decided unanimously that the relevant
date was the date of
completion of the purchase and not that of
registration. Your
Lordships are now invited to overrule that
decision.
My Lords, the conclusion at which
the Court of Appeal
arrived makes good conveyancing sense and,
speaking for myself, I
should be extremely reluctant to overrule
it unless compulsively
driven to do so, the more so because it
produces a result which is
just, convenient and certain, as
opposed to one which is capable of
leading to manifest injustice
and absurdity. It has, I think, to be
acknowledged that the
interrelation between the provisions of
- 9 -
sections 3(xvi), 20 and 23, 37, 69
and 70(1) is not altogether easy
to understand, particularly in
relation to the position of a chargee
whose charge is created by a
purchaser of land who is not yet
himself the registered
proprietor. The solution propounded by the
trial judge and by
counsel for the bank in Rosset depends upon the
words
"affecting the estate transferred or created" in
sections
20(l)(b) and 23(l)(c) and construes them as
if there were added the
words "at the time at which it was
transferred or created," thus
excluding from the category of
interests affecting the estate the
rights of a person entering
into occupation after the transfer or
creation of the estate
effected by completion of the transaction.
It will be convenient
to refer to this as "the judge's construction."
This is an attractive solution
because it is, as Nicholls L.J.
observed in the course of his
judgment in Rosset, at p. 373, a
conveyancing absurdity
that, for instance, a mortgagee should,
after completion and after
having made all possible inquiries and
parted with his money, be
bound by the interest asserted by a
newly-arrived occupant coming
in between completion and the
registration of his charge. So far
as registered interests are
concerned the chargee can protect
himself by an official search
which will preserve his priority
over any further registered entries
during a priority period well
sufficient to enable him to have his
charge stamped and lodged for
registration: see rules 3 and 5 of
the Land Registration (Official
Searches) Rules 1981 (S.I. 1981 No.
1135). There is, however, no
similar protection against overriding
interests which are not
recorded on the register and whose
existence can be ascertained
only by inquiry and there is,
accordingly, good sense in so
construing sections 20(1) and 23(1) as
to preserve the priority of
the purchaser or chargee as from the
date of completion when both
are irrevocably committed to the
transaction, which only awaits
the formal step of registration in
order to vest the legal estate.
In Rosset, however, the
Court of Appeal found some
difficulty in accepting that the
solution could be found simply in
construing sections 20(1) and
23(1) in the manner suggested.
Nicholls L.J. pointed out, at p.
371, that it was common ground
that paragraph (a) of
section 20(1) (paragraph (b) of section 23(1)),
which
subjects the land transferred to entries appearing on the
register,
undoubtedly refers to entries so appearing at the date
of
registration. This appears to me to be beyond doubt. One
would,
therefore, expect that the paragraph subjecting the land
to
overriding interests would be related to the same date.
Nicholls
L.J. reached, in relation to overriding interests within
section
70(1)(g), the same result as that produced by the
judge's
construction but by reference to the words "for the
time being
subsisting" in section 70(1) and by holding that,
in relation to
paragraph (g) specifically, an interest was
not a subsisting interest
except in a case in which the claimant
was in occupation of the
land prior to and at the date of
completion of the purchase.
I share the difficulty that
Nicholls L.J. felt in accepting the
attractive solution of the
judge's construction and I agree with him
that the key to the
problem lies in the words of section 70(1)
rather than in the
reference to the interests affecting the estate
transferred or
created in sections 20(1) and 23(1). The Act of
1925 displays a
degree of circularity in its general definition of
what an
overriding interest is. Section 3(xvi) defines it as an
- 10 -
unregistered encumbrance "subject
to which registered dispositions
take effect," but when one
turns to inquire to what unregistered
encumbrances a disposition
is subject, sections 20(1) and 23(1)
merely specify that they are
"overriding interests if any, affecting
the estate
transferred or created." As a definition, therefore, this
is
a little less than satisfactory, for it simply means
"overriding
interests" are "overriding interests."
It does, however, involve this
consequence, that if the judge's
construction is correct, no interest
which does not affect the
estate or interest at the time when a
relevant disposition is
effected by transfer, grant or charge can be
an overriding
interest. That, of course, does not demonstrate that
the judge's
construction is erroneous, but it might be thought to
be a
surprising result when consideration is given to the remaining
words
in sections 20 and 23 and to the terms of sections 69 and
70.
I turn to those sections, because
the circularity of the
definition so far compels a reference to
other provisions of the
Act of 1925 in order to ascertain the
nature of the interests
which are to override. They are, to begin
with, not "minor
interests" (section 3(xv)), that is to
say, interests not capable of
being disposed of or created by
registered dispositions and interests
created by unregistered
dealings and subsisting only in equity.
Unless protected by
notice, caution, inhibition or restriction
entered on the
register, these will be overridden by registered
dispositions for
valuable consideration. Specifying what overriding
interests are
not does not, however, assist in determining what
they are and,
moreover, it is clear from Williams & Glyn's Bank
Ltd. v.
Boland [1981] AC 487 that a minor interest may become
an
overriding interest if the claimant is in actual occupation.
Section
69 is of some assistance in that it demonstrates that the
list of
miscellaneous overriding interests contained in section 70(1)
is
not exhaustive, since the legal estate is vested in the
registered
proprietor under this section subject to
"the overriding interests . .
. including any . . . charge by
way of legal mortgage created . .
. under . . . this Act or
otherwise which has priority to the
registered estate"
(subsection (1)).
Section 70(1) contains no
reference to a mortgage or charge as an
overriding interest, but
section 69(1) necessarily implies that it is
one so long as it has
priority to the registered estate.
When regard is had to the list of
overriding interests in
section 70(1) it is apparent that all of
them are interests which
can come into being at any time, and some
of them may arise
without any volition on the part of the
registered proprietor or
anyone else seized of an estate in the
land. A right of way or a
profit a prendre may be acquired by a
neighbouring landowner by
prescription. A third party may acquire
title to the land by
adverse possession. A local land charge may
be imposed on the
land at any time under a variety of different
statutes. A lease at
a rent for a term not exceeding 21 years may
be granted at any
time. Yet on the judge's construction, a
purchaser would, on
registration, take free from any such
interests arising after
completion of his purchase (in the sense
of payment of the price
against delivery of the executed transfer)
even though, if the land
were unregistered land, he would clearly
be subjected to them.
- 11 -
This
necessarily follows, if the judge's construction is right, from
the
words which immediately follow paragraph (b) of section
20(1)
(paragraph (c) of section 23(1)) - "but free
from all other estates
and interests" whatsoever . . ."
It also involves, I think, a conflict
between sections 20(1) and
23(1) on the one hand, and sections
69(1) and 70(1) on the other.
Section 69, as it seems to me, is
looking at the continuous
position of the registered proprietor and
providing that the legal
estate is deemed to be vested in him
subject to such overriding
interests as shall from time to time
subsist during his
proprietorship, whereas, if the judge's
construction is correct,
it is indeed subject to all such interests
but with the exception
of those which come into being between
the date when he took his
transfer and the date when he became
registered. Moreover it would
also follow that the effect of
registration of the transferee
would be to free him even from
overriding interests which he
himself had created in the interval
between completion and
registration.
That cannot, I think, have been
the intention of the
legislature and the difficulty can be
illustrated by a number of
examples. Section 70(1)(i)
specifies as overriding interests "rights
under local land
charges unless and until registered . . . ," etc.
This was
cited by Nicholls L.J. in the course of his judgment and
it is a
useful example. I pause to remark that the reference
to
"registration" here is clearly a reference to
registration under the
Act of 1925, a necessary step before
realisation of the charge.
Under the Land Charges Act 1925, and
until the Local Land
Charges Act 1975, local land charges required
to be registered in
the register of local land charges if they
were not to be void
against a purchaser for money or money's worth
of the legal
estate pursuant to section 15 of that Act. That
applied equally
whether the land affected by the charge was
registered or
unregistered. Now if we suppose a simple purchase of
the
freehold without the added complication of an advance
on
mortgage, the purchaser would take free from any local
land
charge which had arisen but had not been registered under
the
Land Charges Act prior to his acquisition of the legal estate,
and
that would be the case whether the land was registered
or
unregistered. Assuming a local land charge arising prior to
that
date but not then registered, there is nothing in section
70(1)(i)
which would or could have the effect of reviving
the charge
against the land if it were subsequently to be
registered in the
register of land charges for there could be no
"right under" the
charge once it had been avoided. But
suppose that the charge did
not even arise until the day after the
completion of the purchase
by delivery of the transfer or
conveyance and that it was then
immediately registered under the
Land Charges Act 1925. In the
case of unregistered land there is
no difficulty. The charge
attached to the land in the hands of the
purchaser as the estate
owner for the time being pursuant to the
statute imposing it. I
can see no reason why the purchaser of
registered land should be
in any different position simply because
his transfer had not yet
been registered. Thus, for instance, the
local authority was
enabled under section 144 of the
Highways Act 1959, to take steps
to alleviate a danger on land
adjoining the highway and to recover
the expenses of so doing from
the owner of the land for the time
being. Under section 264(1)
such expenses were a charge on the
premises "as from the date
of the completion of the works" and
such charges were
registrable under section 15(1) of the Land
- 12 -
Charges Act 1925. Let it be
assumed for the purposes of the
example that the work of the
appropriate character had been
undertaken by the authority on land
which was the subject matter
of a pending sale and that it was
completed after completion of
the sale but before the purchaser
was registered as proprietor.
Let it also be assumed that the
local authority's charge was duly
registered immediately under the
Land Charges Act 1925. In the
case of unregistered land there
would be no question but that the
charge attached to the land in
the hands of the purchaser as the
owner for the time being and I
cannot accept that the legislature
could have intended that the
purchaser of registered land should
take free from it as a result
of the accidental circumstance that
the work came to be completed
and the charge arose on a date
between completion of the purchase
and that of registration of the
purchaser as proprietor.
It is not difficult to think of
other examples of local land
charges coming into being after the
date of completion but before
registration of the purchaser as
proprietor, for instance, the
designation of the property
purchased as a listed building under
section 54(1) of the Town and
Country Planning Act 1971. That
section requires the list to be
deposited with the appropriate
borough or district council and
registered as a local land charge
under the Land Charges Act 1925.
Again, I cannot accept that
the effect of section 20(1) was that
the purchaser, prior to the
Local Land Charges Act 1975, held free
from the restriction which
is the consequence of listing because
of the circumstance that the
list was deposited on a date falling
between completion of the
purchase and registration. Another
example would be, for
instance, the issue of a certificate by the
Secretary of State under
section 19 of the Leasehold Reform Act
1967, which happened to
occur between completion of a purchase of
the freehold reversion
and the registration of the purchaser as
its proprietor.
Now I do not think that this
difficulty can be overcome by
reference to the fact that local
land charges, being imposed by
statute, are, as it were,
free-standing and attach to the land by
virtue of their own
statutory force so that section 20(1) and 23(1)
fall to be
construed as if the words "free from all other estates
and
interests" were followed by the words "other than
interests
conferred by local land charges." There appear to
me to be
insuperable difficulties about this as a matter of
construction.
I conclude, therefore, like
Nicholls L.J., that the relevant
date for determining the
existence of overriding interests which
will "affect the
estate transferred or created" is the date of
registration.
This does, of course, give rise to the theoretical
difficulty that
since a transferor remains the registered proprietor
until
registration of the transfer, it would be possible for him in
breach
of trust, to create overriding interests, for instance, by
grant
of an easement or of a lease, which would be binding on
the
transferee and against which the transferee would not be
protected
by an official search. That would, of course, equally be
the case
in a purchase of unregistered land where the purchaser
pays the
price in advance of receiving a conveyance. I cannot,
however,
find in the theoretical possibility of so improbable
event a context
for preferring the judge's construction.
- 13 -
The question remains, however,
whether the date of
registration is also the relevant date for
determining whether a
claimant to a right is in actual occupation.
It is to be noted that
it is not the actual occupation which gives
rise to the right or
determines its existence. Actual occupation
merely operates as
the trigger, as it were, for the treatment of
the right, whatever it
may be, as an overriding interest. Nor does
the additional quality
of the right as an overriding interest
alter the nature or quality of
the right itself. If it is an
equitable right it remains an equitable
right. As was observed in
Williams & Glyn's Bank Ltd. v. Boland
[1981] AC 487,
504, the purpose of section 70(1)(g) was to make
applicable to
registered land the same rule for the protection of
persons in
actual occupation as had been applied in the case of
unregistered
land in, for instance, Hunt v. Luck [1902] 1 Ch 428.
In
relation to legal rights it does nothing, for it is not easy
to
conceive of a legal right in the land which would not already
be
an overriding interest under some other head, as, for
instance,
paragraphs (a) or (k). Again, as regards
equitable rights in an
occupier which arise before completion and
are supported by
occupation at that date there is no difficulty. A
chargee who
advances money and so acquires an equitable charge
prior to the
creation of the occupier's right does not lose his
priority because
the occupier's right becomes an overriding
interest. That interest
remains what it always was, an interest
subject to the prior equity
of the chargee which, on registration,
is fortified by the legal
estate. Equally, a chargee advancing his
money after the creation
of the occupier's equitable right is, as
one would expect, subject
to such right.
The case which does give rise to
difficulty if the date of
registration is the relevant date for
determining whether there is a
claimant in actual occupation is
one in which the sequence of
events is that the right,
unaccompanied by occupation, is created
before completion and
before the chargee has advanced his money
and then subsequently
the claimant enters into actual occupation
after completion and
remains in occupation up to the date when
the registration of the
charge is effected. The chargee in that
event would have no
possibility of discovering the existence of the
claimant's
interest before advancing his money and taking his
charge, but
would nevertheless be subject, on registration, to the
claimant's
prior equitable interest which, ex hypothesi, would not
have been
subject to the charge at its creation.
This does indeed produce a
conveyancing absurdity and there
is, as Nicholls L.J. observed, an
internal context for supposing that
the legislature, in enacting
paragraph (g), must have been
contemplating an occupation
which preceded and existed at
completion of a transfer or
disposition. Not only was the sub-
paragraph clearly intended to
reflect the rule discussed in Hunt v.
Luck with regard to
unregistered conveyancing, but the reference
to enquiry and
failure to disclose cannot make any sense unless it
is related to
a period in which such enquiry could be other than
otiose. That
absurdity can, I think, be avoided only by the route
which the
Court of Appeal adopted and by referring the "actual
occupation"
in paragraph (g) to the date of completion of the
transaction
by transfer and payment of the purchase money.
Section 70(1)
refers to such interests "as may be for the time
being
subsisting" and in order to affect "the estate transferred
or
created" on registration such interests would no doubt
require to
- 14 -
be subsisting on that date. But I
see no insuperable difficulty in
holding that the actual
occupation required to support such an
interest as a subsisting
interest must exist at the date of
completion of the transaction
giving rise to the right to be
registered, for that is the only
date at which the enquiry referred
to in paragraph (g)
could, in practice, be made and be relevant. I
agree, therefore,
with the conclusion of the Court of Appeal in
Rosset that
it is at that moment that it falls to be determined
whether there
is an actual occupation for the purposes of
paragraph (g).
I do not think that I can improve upon Nicholls
L.J.'s analysis
when he said, in the course of his judgment in
Rosset, at
p. 374:
"If this is right, the pieces
of the jigsaw fit together
reasonably well. A purchaser or
mortgagee inspects and
inquires before completion, in the
established fashion. Or
he fails to do so, at his own risk. He
then completes the
transaction, taking an executed transfer or
mortgage.
Whether or not an overriding interest under paragraph
(g)
subsists so far as his freehold or mortgage is
concerned falls
to be determined at that moment. If an overriding
interest
does subsist, then his estate when registered takes
subject
to that interest. If it does not, then subsequent entry of
a
person into occupation before the transfer or mortgage has
been
registered, and 'completed' for the purposes of section
19, does
not have the consequence of creating an overriding
interest under
paragraph (g) in relation to that freehold or
mortgage."
If, then, the date at which it
falls to be considered whether
the claimant to an interest in the
land is in actual occupation is
the date of completion of the
purchase, what has next to be
determined is the nature, extent and
effect of the interest claimed
by him as an overriding interest. I
defer for the moment the
question whether the facts of the instant
case disclose that Mrs.
Cann was in actual occupation at the
relevant time. Up to the
moment of completion she had, of course,
a beneficial interest
under the trust for sale affecting 30,
Island Road in the hands of
her son, George. He was, I will
assume, also estopped by his
promise to keep a roof over her head
from denying her right as
against him to terminate her occupation
of the property without
her consent, although that estoppel
clearly could not have bound
the Nationwide Building Society,
whose charge had been effected
by George with her consent. But it
is difficult to see how she
could, at that stage, have acquired
any interest in 7, Hillview.
She was not a party to the contract
for the purchase of that
property which was entered into by George
alone. She assumed
and, indeed, may have been led to believe that
she would have an
interest in and the right to occupy that
property when George
acquired it, but at the stage prior to its
acquisition she had no
more than a personal right against him. As
against this, the
society, which had no notice, either actual or
constructive, of any
rights which Mrs. Cann might be minded to
claim, had entered
into an agreement to advance £25,000 on
the security of the first
legal charge on the property and that
agreement had become
binding and specifically enforceable against
George on 6 August
when the money was advanced at the request of
his solicitors. In
so far, therefore, as it is relevant to
consider the priority of
equities, the society, as an equitable
chargee for money actually
- 15 -
advanced, had an interest ranking
in priority to what, at that
stage, was merely Mrs. Cann's
expectation of an interest under a
trust for sale to be created if
and when the new property was
acquired. One can, perhaps, test it
in this way. If, prior to the
acquisition of 7, Hillview, George
Cann had been able to complete
the sale of 30, Island Road, and
had absconded with the proceeds,
financing the purchase of 7,
Hillview entirely by means of a
mortgage advance, could his mother
have claimed any interest in
that property? I should have thought
clearly not, save in so far
as she might be entitled to a right of
occupation by estoppel
based on his promise to accommodate her and
her having, in
reliance on that promise, vacated 30, Island Road
to enable that
sale to be completed.
It is argued, however, that
because the creation of a charge
on property in favour of the
society necessarily posits that the
chargor has acquired an
interest out of which the charge can be
created, there must
notionally be a point of time at which the
estate vested in him
free from the charge and in which the
estoppel affecting him could
be "fed" by the acquisition of the
legal estate so as to
become binding on and take priority over the
interest of the
chargee. This is a puzzling problem upon which it
is not easy to
reconcile the authorities.
The appellants rely upon the
decision of the Court of
Appeal in Church of England Building
Society v. Piskor [1954] Ch.
553, a case concerned with
unregistered conveyancing. The
sequence of events in that case was
that an agreement to
purchase leasehold property was entered into
in September 1946,
the purchaser being let into possession in the
following month on
part payment of the price. He proceeded to
grant a number of
weekly tenancies under which the tenants took
possession in
November. At that stage the contract remained
uncompleted and
the tenancies were, therefore, necessarily
equitable only. On 25
November 1946, completion took place and the
property was
assigned to the purchaser, being simultaneously
charged by him in
favour of the building society whose moneys had
enabled the
purchase to be completed. The charge contained the
usual
provision against leasing by the chargor. Default having
been
made in payment of principal and interest, the society
sought
possession against the tenants who argued that they had
acquired
tenancies by estoppel which was "fed" by the
acquisition of the
legal estate, thus converting their tenancies
into legal tenancies
binding on the society. The argument of the
society was that the
conveyance and the charge were in reality one
single transaction
with the result that the legal estate vested in
the purchaser was,
from the outset, subject to the society's
charge and so could not
be available to feed the estoppel free
from it. This argument was
rejected by the Court of Appeal. It was
held that, despite the
fact that the two documents were executed
contemporaneously, the
transaction necessarily involved
conveyancing steps which, in
contemplation of law, must be
regarded as taking place in a
defined order, so that there was a
"scintilla temporis" between the
purchaser's acquisition
of the legal estate and the creation of the
society's charge
during which the estoppel could be fed. Reliance
was also placed
on a recital in the charge that the legal estate
was "now
vested in the mortgagors" which precluded the society
from
denying that the estate had not already vested at the time
when
the charge was granted. This was, however, only a
- 16 -
subsidiary ground for the decision
which rested squarely upon the
acquisition of the estate out of
which the charge was granted as
an essential preliminary to the
charge.
On the other side of the line are
In re Connolly Brothers
Ltd. (No. 2) [1912] 2 Ch 25 and
Security Trust Co. v. Royal Bank
of Canada [1976] AC 503.
In the former, a company had granted
debentures creating a first
and floating charge on all the property
present and future of the
company and prohibiting the creation of
any charges ranking in
priority to or pari passu with the
debentures. Subsequently, the
company, being desirous of acquiring
further freehold property,
approached a Mrs. O'Reilly, who agreed
to advance the price but on
terms that the loan be secured by a
charge on the property. The
company then agreed to buy the
property. The contract was
completed on 31 March 1904 and Mrs.
O'Reilly was present at
completion. She drew a cheque in favour
of the company, which was
paid into its account, and, at the same
time, it drew a cheque for
the balance of the price in favour of
the vendor, the same
solicitor acting for all parties. The
conveyance was executed but
was retained, together with the other
title deeds, by the
solicitor on the vendor's behalf, and a few days
later, the
company executed a memorandum of deposit in her
favour. Warrington
J. held that her charge had priority over the
charge created by
the debentures and his decision was upheld by
the Court of Appeal,
Cozens-Hardy M.R. remarking, at p. 31:
"we should be shutting our
eyes to the real transaction if
we were to hold that the
unencumbered fee simple in the
property was ever in the company so
that it became subject
to the charge of the debenture holders."
The reasoning, both of the Master
of the Rolls and of Buckley
L.J., seems to have been that, since
Mrs. O'Reilly had a
contractual right to the security at the time
when she advanced
the money, she necessarily had priority over the
debentures. But
that is, of course, always the case when a lender
advances money
on the understanding that he will get a security.
In re Connolly was cited in
Piskor's but was distinguished by
Sir Raymond Evershed M.R. on the
ground that it involved a
question of equitable priorities. So it
did but I respectfully
question whether this can be a valid ground
of distinction. The
debentures in In re Connolly's were
duly registered and Mrs.
O'Reilly clearly had constructive notice
of their terms. The
question was whether there was ever property
upon which those
terms could operate and the fact that both the
charge in the
debentures and Mrs. O'Reilly's charge under her
contract and the
memorandum of deposit were equitable only was
entirely
immaterial. The question in issue was whether the
company's
legal estate, without the existence of which her charge
could
never have taken effect, existed at any point of time free
from
her charge so that the prior interest of the debenture
holders
could attach. No other analysis of the decision is
possible save
that the court considered the transaction consisting
of the
conveyance, the advance and the memorandum of deposit as
a
single transaction.
The more recent decision of the
Privy Council in Security
Trust Co. v. Royal Bank of Canada
[1976] AC 503, is equally
- 17 -
capable of analysis only on the
"single transaction" basis. The
facts were complicated
but reduced to their simplest terms
involved a contract for the
purchase by a company of certain real
estate on terms that a
certain proportion of the price should be
paid by a fixed date and
that the balance should be secured by
mortgage to the vendor. A
conveyance and mortgage were
executed and were held in escrow
pending payment of the agreed
proportion of the price. Default was
made in payment by the
fixed date but there was no rescission. The
purchaser then
created a debenture, creating a fixed charge on its
existing
property and a floating charge on future property. Under
that
debenture a receiver was appointed. Whether the sale
agreement
was then still on foot is open to doubt but the date
for
completion was extended in January 1971 by agreement with
the
receiver to 30 April of that year. On 30 April the contract
was
completed. The question which arose in the subsequent
liquidation
of the purchaser was whether the charge in the
debenture took
priority over the vendor's mortgage. In delivering
the judgment of
the Board, Lord Cross of Chelsea
contrasted Piskor and In re
Connolly observing,
at pp. 519-520:
"But the basic difference
between the two lines of cases is
that in cases such as In re
Connolly Brothers Ltd. (No. 2)
and this case the charge under
the debenture only bites on
property which is already fettered by
the agreement to give
the other charge, whereas on the facts of
Church of
England Building Society v. Piskor the tenancy
was created
out of an interest which was then unfettered by any
such
agreement."
Again, I respectfully question
whether this, although it records
accurately what the Court of
Appeal held in Piskor, really affords
a valid ground for
distinction. However one looks at it, the
interests of the tenant
in that case had to be legal interests in
order to gain any
priority and they could only be so by separating
the conveyance
and the charge and treating them as separate
transactions.
Although Romer L.J., in the course of his judgment,
touched on the
question of what the position would have been had
there been
evidence of some prior agreement to create the charge,
this was
never fully considered and the court never grasped the
nettle that
the transaction necessarily involved an enforceable
agreement for
the grant of a charge at the stage when the money
was advanced in
order to enable the conveyance to take place.
These three authorities were
carefully reviewed by Mustill
L.J. in the course of his judgment
in Lloyds Bank Plc. v. Rosset
[1989] Ch 350, at pp.
388-393. He concluded that it was difficult
to see how they could
live together. I agree. I do not, for my
part, consider that they
can be reconciled. In neither In re
Connolly nor the
Security Trust Co. case could the charge which
was given
priority have been created unless and until the legal
estate had
been obtained by the chargor. In both cases the
chargee had notice
of the existence of the charge which failed to
achieve priority.
Both necessarily rest therefore upon the
proposition that, at
least where there is a prior agreement to
grant the charge on the
legal estate when obtained, the
transactions of acquiring the
legal estate and granting the charge
are, in law as in reality,
one indivisible transaction. It may be
possible to justify the
actual decision in Piskor on the subsidiary
- 18 -
ground there advanced of an
estoppel by deed, but I do not, for
myself, see how it is possible
to uphold the principal ground for
the decision except by
rejecting the ratio of In re Connolly, and
the Security
Trust Co. case.
One is therefore presented with a
stark choice between
them. Of course, as a matter of legal theory,
a person cannot
charge a legal estate that he does not have, so
that there is an
attractive legal logic in the ratio in Piskor.
Nevertheless, I
cannot help feeling that it flies in the face of
reality. The
reality is that, in the vast majority of cases, the
acquisition of
the legal estate and the charge are not only
precisely simultaneous
but indissolubly bound together. The
acquisition of the legal
estate is entirely dependent upon the
provision of funds which will
have been provided before the
conveyance can take effect and
which are provided only against an
agreement that the estate will
be charged to secure them. Indeed,
in many, if not most, cases
of building society mortgages, there
will have been, as there was
in this case, a formal offer of
acceptance of an advance which
will ripen into a specifically
enforceable agreement immediately
the funds are advanced which
will normally be a day or more
before completion. In many, if not
most, cases, the charge itself
will have been executed before the
execution, let alone the
exchange, of the conveyance or transfer
of the property. This is
given particular point in the case of
registered land where the
vesting of the estate is made to depend
upon registration, for it
may well be that the transfer and the
charge will be lodged for
registration on different days so that
the charge, when registered,
may actually take effect from a date
prior in time to the date
from which the registration of the
transfer takes effect (see
section 27(3) of the Act of 1925 and
the Land Registration Rules
1925 (S.R. & O 1925 No. 1093),
rule 83(2)). Indeed, under rule 81
of the Rules of 1925, the
registrar is entitled to register the
charge even before
registration of the transfer to the chargor if
he is satisfied
that both are entitled to be registered. The reality
is that the
purchaser of land who relies upon a building society or
bank loan
for the completion of his purchase never in fact
acquires anything
but an equity of redemption, for the land is,
from the very
inception, charged with the amount of the loan
without which it
could never have been transferred at all and it
was never intended
that it should be otherwise. The "scintilla
temporis" is
no more than a legal artifice and, for my part, I
would adopt the
reasoning of the Court of Appeal in In re
Connolly Brothers Ltd
(No. 2). [1912] 2 Ch 25 and of Harman J.
in
Coventry Permanent Economic Building Society v. Jones [1951]
1
All E.R. 901 and hold that Piskor's case was wrongly decided.
It
follows, in my judgment, that Mrs. Cann can derive no
assistance
from this line of argument.
I have, up to this point, been
content to assume that the
facts of the instant case justify the
proposition which found favour
with Dillon L.J., that she was in
actual occupation of the property
at the material time. This is,
of course, essentially a question of
fact, but there is the
serious question of what, in law, can amount
to "actual
occupation" for the purposes of section 70(1)(g).
In
Williams & Glyn's Bank Ltd. v. Boland [1981] AC 487, 504, Lord
Wilberforce observed that these words should be
interpreted for
what they are, that is to say, ordinary words of
plain English.
But even plain English may contain a variety of
shades of
- 19 -
meaning. At the date of completion
Mrs. Cann was not personally
even in England, leave alone in
personal occupation of the
property, and the trial judge held that
the acts done by Mr.
Abraham Cann and Mr. George Cann amounted to
"no more than the taking of
preparatory steps leading to the
assumption of actual residential
occupation on or after
completion, whatever the moment of the day
when
completion took place ..."
For my part, I am content to
accept this as a finding of fact
which was amply justified by the
evidence before him, and I share
the reservations expressed by
Ralph Gibson and Woolf L.JJ. in the
Court of Appeal. It is,
perhaps, dangerous to suggest any test for
what is essentially a
question of fact, for "occupation" is a
concept which
may have different connotations according to the
nature and
purpose of the property which is claimed to be
occupied. It does
not necessarily, I think, involve the personal
presence of the
person claiming to occupy. A caretaker or the
representative of a
company can occupy, I should have thought, on
behalf of his
employer. On the other hand, it does, in my
judgment, involve some
degree of permanence and continuity which
would rule out mere
fleeting presence. A prospective tenant or
purchaser who is
allowed, as a matter of indulgence, to go into
property in order
to plan decorations or measure for furnishings
would not, in
ordinary parlance, be said to be occupying it, even
though he
might be there for hours at a time. Of course, in the
instant
case, there was, no doubt, on the part of the persons
involved in
moving Mrs. Cann's belongings, an intention that they
would remain
there and would render the premises suitable for her
ultimate use
as a residential occupier. Like the trial judge,
however, I am
unable to accept that acts of this preparatory
character carried
out by courtesy of the vendor prior to
completion can constitute
"actual occupation" for the purposes of
section
70(1)(g). Accordingly, all other considerations apart,
Mrs.
Cann fails, in my judgment, to establish the necessary
condition
for the assertion of an overriding interest.
The view that I have formed
renders it strictly unnecessary
to consider the ground upon which
Mrs. Cann's claim failed in the
Court of Appeal. What was said was
that, despite her initial
evidence (in her affidavit) that she did
not know of her son's
intention to raise any of the money required
for the purchase on
mortgage, nevertheless her oral evidence
before the judge disclosed
that she was well aware that there was
a shortfall which would
have to be met from somewhere. Her own
account of the matter
was that his reason for selling was that he
was in financial
difficulties, so that she must have known that he
was not going to
be able to meet it out of his own resources.
Dillon L.J. (with
whom on this point, the other two members of the
court agreed)
inferred that "she left it to George Cann to
raise the balance,"
from which he further inferred that
George Cann had authority to
raise that sum from the society.
There was no finding to this
effect by the judge, but I think, for
my part, that it is a
necessary conclusion once it is accepted, as
it has to be, that she
knew that there was a shortfall of some
£4,000 apart from
conveyancing costs, that George Cann was
going to raise it, and
that he was in financial difficulties. It
is said that there was no
evidence that he was going to raise it
on the security of this
- 20 -
property. There might, for
instance, be other property available
to him. He might obtain an
unsecured loan. In the circumstances
of his known lack of
resources, however, this is fanciful and in my
judgment the court
was entitled to draw the inference that it did
draw. If that is
right, it follows that George Cann was permitted
by her to raise
money on the security of the property without any
limitation on
his authority being communicated to the society.
She is not,
therefore, in a position to complain, as against the
lender, that
too much was raised and even if, contrary to the view
which I have
formed, she had been able to establish an interest in
the property
which would otherwise prevail against the society, the
circumstances
to which I have alluded would preclude her from
relying upon it as
prevailing over the society's interest for the
reasons given in
the judgment of Dillon L.J. in the Court of
Appeal. For all these
reasons, I would accordingly dismiss the
appeal.
LORD JAUNCEY OF TULLICHETTLE
My Lords,
The facts in this appeal and the
relevant statutory
provisions are set out in detail in the speech
of my noble and
learned friend Lord Oliver of Aylmerton. I
gratefully adopt his
narrative and as a result thereof I shall
only require to refer to
such facts and statutory provisions as
are particularly relevant to
what I have to say.
The first appellant (Mrs. Cann)
contends that she had an
equitable interest in 7, Hillview which
commenced on 20 July 1984
when a specifically enforceable contract
for the purchase of that
house was entered into and which
subsisted at the date of
completion of the various transactions on
13 August 1984 and
thereafter. That equitable interest, was, by
virtue of her actual
occupation, an overriding interest for the
purposes of the Land
Registration Act 1925, to which the mortgage
in favour of the
society, when registered, was subjected. Mr.
Aylen for the
appellants began his submissions with a detailed
analysis of the
relevant provisions of the Land Registration Act
1925 and placed
reliance upon: (i) section 23(1) which so far as
relevant is in the
following terms:
"In the case of a leasehold
estate registered with an
absolute title, a disposition (including
a subdemise thereof)
for valuable consideration shall, when
registered, be deemed
to vest in the transferee or underlessee the
estate
transferred or created to the extent of the registered
estate
. . . but subject as follows:
. . .
(c) Unless the contrary
is expressed on the register, to
the overriding interests, if any,
affecting the estate
transferred or created
(ii) section 70(1) which provides,
inter alia:
- 21 -
"All registered land shall,
unless under the provisions of this Act
the contrary is expressed
on the register, be deemed to be subject
to such of the following
overriding interests as may be for the
time being subsisting in
reference thereto, and such interests shall
not be treated as
incumbrances within the meaning of this Act,
(that is to say):
. . .
(g) The rights of every
person in actual occupation of the
land or in receipt of the rents
and profits thereof,
save where inquiry is made of such person and
the
rights are not disclosed;
. . .
(i) Rights under local
land charges unless and until
registered or protected on the
register in the
prescribed manner;
(j) Rights of fishing
and sporting, seignorial and manorial
rights of all descriptions
(until extinguished), and
franchises;
(k) Leases for any term
or interest not exceeding twenty-
one years, granted at a rent
without taking a fine;. .
.
"
It is to be noted that these
provisions neither alter the scope or
the character nor define the
nature of the rights to which they
apply. Rights of a limited
nature remain so limited albeit a
registered disposition may be
subject thereto. In these
circumstances I consider that the first
matter to be examined in
this appeal is the nature of the rights
possessed by the parties.
As a result of the various
transactions to which my noble
and learned friend has already
referred Mrs. Cann had, prior to its
sale in August 1984, an
equitable interest in 30, Island Road. On
its sale she ceased to
have any further interest in that house but
acquired rights
against her son George Cann in relation to the
proceeds of sale.
On completion of the purchase of 7, Hillview
she once again
acquired an equitable interest in that house. Since
that interest
derived from George Cann it followed that she could
acquire no
equitable interest in the house prior to his acquisition
of an
equitable interest therein on completion, nor could she
acquire an
interest greater than he acquired. Mr. Aylen argued
that the
equitable interest which Mrs. Cann took on completion
had priority
over the equitable interest which the society took at
that time.
This argument necessarily presupposed that there was a
moment of
time when George Cann had a right to the
unincumbered leasehold
estate whereby he could grant to Mrs.
Cann an interest which took
priority over that of the society as
mortgagees. Mr. Munby
countered that argument by submitting
that the two transactions of
purchasing 7, Hillview and borrowing
money from the society must
be looked at as one and that in
reality George Cann never acquired
more than the equity of
redemption in 7, Hillview from which it
followed that any
equitable interest acquired by Mrs. Cann could
only be carved out
of this limited interest.
- 22 -
In order to consider these
arguments it is necessary to look
at a number of authorities. In
re Connolly Brothers Ltd. (No. 2)
[1912] 2 Ch 25. a company
issued debentures creating a floating
charge over all their
property present and future and subject to a
condition that it
should not be in a position to create any other
mortgage or charge
in priority to the debenture. Thereafter the
company bought a
property after borrowing a sum of £1,000 for
that purpose
from a Mrs. O'Reilly. It was a condition of that
loan that Mrs.
O'Reilly should have a charge upon the property
purchased. It was
held that the company only acquired the equity
of redemption in
the property with the result that Mrs. O'Reilly
was entitled to
priority over the debenture holders. Warrington J.
said, at pp.
28-29:
'It must be borne in mind that
these debentures and the
trust deed, so far as this after-acquired
property is
concerned, amount to nothing more than a contract by
the
company to give to the debenture holders a security upon
this
particular item of property by its description as
appearing in the
conveyance, but only on such interest as
the company may in fact
acquire in that and their other
after-acquired property. Now, in
my judgment, the company
on the facts of this case never acquired
as against Mrs
O'Reilly any interest in this property at all,
except subject
to the obligation of giving to her a charge for the
amount
of the purchase-money which she so advanced."
In dismissing the appeal Sir
Herbert Cozens-Hardy M.R. said, at p.
31:
"Did the company as between
themselves and Mrs. O'Reilly
ever become the absolute owners of
the property? Or was
not the bargain that Mrs. O'Reilly was to
have a first
charge, and the company was only to get the
property
subject thereto? In my opinion we should be shutting
our
eyes to the real transaction if we were to hold that
the
unencumbered fee simple in the property was ever in
the
company so that it became subject to the charge of
the
debenture holders."
In Coventry Permanent Economic
Building Society v. Jones
[1951] 1 All E.R. 901 the first
defendant successfully bid for a
house at auction. On the
following day she agreed to let the
ground floor to two tenants.
Thereafter she borrowed a sum of
money from the plaintiffs to
enable her to complete the purchase.
On the date of completion she
granted a mortgage to the
plaintiffs which excluded her right to
grant leases. It was argued
for the tenants that a tenancy by
estoppel had been created
before the completion of the conveyance
to the first defendant
and that there must be predicated a
scintilla temporis between the
conveyance to her and the
mortgage by her into which the tenancy
by estoppel could be
inserted so as to precede the mortgage. In
dismissing this
argument Barman J. said, at p 903:
"The question is whether I
must assume the scintilla
temporis and assume that because of the
obligations of the
landlord she must be held to have defrauded her
mortgagee
by creating a tenancy which is good against the society
- 23 -
although it was not willing to
lend the money except on the
footing that she had no such right. I
do not see why I need
postulate this. The whole transaction was
one transaction.
The vendor would not sell without without
receiving his
purchase money, and the mortgagee would not provide
the
purchase money without receiving the term of years. The
money,
in fact, went straight - as is the universal practice
- from the
mortgagee to the vendor, and not until it was in
the vendor's
hands would a legal state be created either in
favour of the
landlord or of the mortgagee. It seems to me
that the whole thing
is one transaction in substance, and I
am not constrained to
introduce an artificiality so as to
affect the rights of the
building society. Consequently, I
reject the argument that the
doctrine of estoppel must have
created in the tenants an estate in
priority to that of the
building society. The grantor of the
so-called tenancy would
never have acquired the estate which she
did acquire but
for that mortgage money, and it would not be
right,
therefore, to introduce a fiction in the manner suggested."
In re Connolly was followed
by the Privy Council in Security
Trust Co. v. Royal Bank of
Canada [1976] AC 503. In that case
the contract of sale
provided for payment of part of the price in
cash and the balance
by a mortgage granted in favour of the
vendor. After the contract
but before completion the purchaser
granted a debenture charging
all his property present and future
and providing for a fixed
first charge on all his present freehold
property. In a
competition between the mortgagee and the
debenture holder it was
held that the mortgagee had priority.
Delivering the advice of the
Board Lord Cross of Chelsea said, at
p. 518:
Their Lordships turn now to
consider what were the
relative priorities of this charge and the
appellant's
mortgage apart from any question of registration under
the
Registration of Records Act. As they see it the mortgage
was
entitled to priority. The respondent's charge was a
charge on
Fisher's interest under the contract and could
give the respondent
no greater interest than Fisher had.
Fisher could not obtain a
conveyance of the lands free from
the obligation to grant back the
mortgage to the appellant.
He had no right to obtain an
unencumbered fee simple and
the charge on his interest which he
created in favour of the
respondent only gave the respondent
rights which were
subject to the prior rights of the appellant.
The case is
exactly parallel to In re Connolly Brothers Ltd.
(No. 2)
[1912] 2 Ch 25."
Although in that case the contract
of sale required that a
mortgage be granted in favour of the
vendor Lord Cross obviously
considered that this in no way
distinguished it from In re Connolly
where the obligation
to grant the mortgage was not a term of the
contract of sale.
These three cases ail support the contentions of
the society.
Mr. Aylen however relied strongly
on Church of England
Building Society v. Piskor [1954] Ch.
553 where the Court of
Appeal declined to treat as one individual
transaction the purchase
- 24 -
of leasehold premises and the
granting of a mortgage to a lender
who had provided a substantial
part of the purchase price. The
relevant facts may be summarised
as follows:
In September 1946 the defendants
agreed to purchase
leasehold premises having in August 1946 made
application for an
advance on mortgage. Having paid part of the
purchase price the
purchasers were allowed by the vendors to take
possession. In
early November they granted weekly tenancies of
part of the
premises. At the end of November the purchase was
completed by
an assignment of the lease to the purchasers and at
the same time
they granted a mortgage to secure the sum which had
been paid
by the plaintiffs direct to the vendor. The mortgage
contained a
recital that the borrower was the estate owner. There
was
evidence that if the money had not been advanced for
the
plaintiffs the vendors would not have delivered the
assignment.
Sir Raymond Evershed M.R. said, at
p. 558:
"From what I have said, it is
clear that as between the
mortgagors and Captain Hamilton (and I
will henceforth
speak of Captain Hamilton, treating him and Miss
Hunnex as
equivalent) there was created a tenancy by estoppel.
So
much is not contested, although the facts about the creation
of
that tenancy are somewhat vague. If, then, the
mortgagors acquired
a legal estate before the legal charge
took effect, for however
short a time, then the estoppel
would, as it is said, be fed and
the plaintiffs' claim must
necessarily be defeated."
After commenting that the
conclusion of Harman J. in
Coventry Permanent Economic Building
Society v. Jones "that the
whole thing LwasJ one
transaction in substance" might be justified
on its facts he
stated, at p. 561:
"at any rate in a case such
as the present, the transaction,
although it may fairly be said to
be one in substance, still
cannot be said in the eyes of the law
to be one and
indivisible. The claim of the plaintiffs to a title
paramount
rests essentially upon their having obtained a legal
estate,
and this they can only have done by virtue of the
legal
charge on which they sue; and if for some moment of time
the
legal estate was vested in the mortgagors and was
therefore
capable of being subjected by them to the charge
upon which the
mortgagees rely - if that is right, then it
seems inevitable that
the estoppel, which was involved in
the tenancy created in favour
of Captain Hamilton,
necessarily is fed by the legal estate in the
hands of the
mortgagors; in other words, I am not satisfied, with
all
respect to Harman J., that if the language which I have
read
was meant to lay down a general proposition covering
all cases of
this kind, it was correct. It is no doubt true
to say that in one
sense the transaction was one
transaction; but it is equally true
to say that it consists
necessarily of certain defined steps which
must take place
in a certain defined order, if the result intended
is
eventually to be achieved. That seems to me not
an
artificiality, but a necessary result of the law and of
the
conveyancing practice which was involved."
- 25 -
Later the Master of the
Rolls referred to the facts of In re
Connolly
and after opining that the question between Mrs. O'Reilly
and the
debenture holders was a question of equitable priorities
said, at
p. 563:
"It is true that Sir H.
Cozens-Hardy M.R. in his judgment
said: 'In my opinion we should
be shutting our eyes to the
real transaction if we were to hold
that the unencumbered
fee simple in the property was ever in the
company so that
it became subject to the charge of the debenture
holders.'
But I do not think that that language, appropriate to a
case
of competing equities, can be used to justify the view
that
there is one transaction - one, that is, not only in
substance
but in law one and indivisible - in a case such as
the
present."
Romer
L.J. said, at pp. 564-565:
"The mortgage of the
purchased property cannot have any
operation in law (whatever
rights it may give rise to in
equity or by estoppel) unless and
until the purchaser is in a
position to vest a legal term in the
property, as security, in
the mortgagee, and he is not and cannot
be in a position to
do this until he himself has acquired from the
vendor the
legal estate out of which the mortgage term is capable
of
being created. From this it follows that the execution
and
delivery of the conveyance (if the property is freehold) or
of
the assignment (in the case of a leasehold) by the vendor
to the
purchaser must of necessity constitute an essential
preliminary to
the vesting in the mortgagee of a subsidiary
interest in the
property. . . the fact remains that the
purchasers could not have
given the society the legal charge
which the society required
unless, at the time when the
charge was executed, the purchasers
were the owners of the
legal interest in the property charged.
That this was
recognised by the society itself is sufficiently
shown by the
fact that there appears in the schedule to the charge
the
statement that the premises were then (that is to say, at
the
moment of the delivery of the charge) vested in the
mortgagors - a
circumstance of evidence upon which
Danckwerts J. relied in
Woolwich Equitable Building Society
v. Marshall [1952] Ch.
1. I agree with Danckwerts J. that
the plaintiffs, having inserted
that statement in the charge,
cannot very well complain if the
statement is regarded as
true. Even without this element, however,
I should still
regard the legal interest in the purchased premises
as having
become vested in the purchasers prior to the execution
of
the charge for, as I say, unless this sequence of interests
is
observed, the charge would have been wholly ineffective in
law
to achieve its immediate purpose. I agree with Mr.
Alcock's
submission that a composite transaction cannot be
regarded as
being one transaction, unless it is not only one
but one and
indivisible; and that two transactions, each
possessing a legal
individuality of its own, do not coalesce
into one merely because
they are dependent on each other."
Romer L.J. concluded his judgment,
at p. 566, by hypothesising
that after the creation of the
tenancies but prior to completion of
the sale the purchasers had
bound themselves to give to the
- 26 -
plaintiffs a charge upon the
property when assigned to secure the
advance in which event he
considered that:
"the legal estate which
passed to the purchasers, subject to
the equity in favour of the
plaintiffs arising from the
agreement, would have sufficed to feed
the estoppel in
favour of the tenants. As, however, there is no
evidence of
such an agreement having been entered into, whether
before
or after the tenancies were granted, the point does
not
arise, and I express no concluded opinion upon it."
It must be noted that Romer L.J.
expressed no views as to what
would have been the position if the
undertaking to the plaintiffs
had preceded the grant of the
tenancies. In any event feeding the
estoppel in favour of the
tenants would merely confer on them as
against the purchasers such
rights as they, the purchasers, were in
a position to confer.
In Security Trust Company v.
Royal Bank of Canada [1976]
A.C. 503 Lord Cross sought to
reconcile the decisions in In re
Connolly Brothers Ltd. (No. 2)
[1912] 2 Ch 25 and Church of
England Building Society v.
Piskor [1954] Ch. 553 in the following
passage, at pp.
519-520:
"But Romer L.J. in
distinguishing In re Connolly Brothers
Ltd. (No. 2) was
careful to point out (see [1954] Ch. 553,
566) that there was no
evidence to show that the purchasers
had prior to granting the
tenancy entered into any binding
contract with the plaintiff
building society to grant it a
morgage on completion in
consideration of its advancing
some of the purchase price. If
there had been such an
agreement then the rights of the parties
might well have
been different, although as the tenancy was
undoubtedly
subsequently clothed with the legal estate an
agreement to
grant a mortgage, even though made before the grant
of the
equitable tenancy to him, would presumably not have
bound
the tenant unless he had notice of it. Furthermore, the
fact
that the plaintiff building society had not inspected the
property
or inquired as to the rights of any person in
occupation might
also have been relevant. But the basic
difference between the two
lines of cases is that in cases
such as In re Connolly Brothers
Ltd. (No. 2) and this case
the charge under the debenture only
bites on property which
is already fettered by the agreement to
give the other
charge, whereas on the facts of Church of
England Building
Society v. Piskor the tenancy was created out
of an interest
which was then unfettered by any such agreement."
I have difficulty in understanding
the second sentence in the
foregoing passage because just as the
tenancy was subsequently
clothed with the legal estate or, as
Romer L.J. put it, the legal
estate passing to the purchaser would
have fed the estoppel in
favour of the tenants, so would the
mortgage in favour of the
plaintiffs have been clothed with the
legal estate. If the
agreement to grant the mortgage preceded the
granting of the
tenancy then I should have thought that when both
equitable
interests were clothed with the legal estate the prior
equitable
interest would prevail.
- 27 -
Both Sir Raymond Evershed M.R. and
Romer L.J. treated
Piskor as a case involving legal
interests alone and on this basis
the Master of the Rolls was able
to distinguish In re Connolly.
Furthermore the court
appeared to proceed upon the basis that the
only interest of the
mortgagees which required to be considered
was that which they
acquired by virtue of the execution of the
charge in their favour
after the legal estate had vested in the
purchaser. This, in my
view was to ignore the interest which they
must have acquired when
they handed over the purchase price to
enable completion to take
place. It would be quite unrealistic to
assume that the money was
made available unconditionally and
that only at or immediately
after the moment of completion did
the question of the execution
of a charge in their favour arise.
In Lloyds Bank Plc v. Rosset
[1989] Ch 350, 389 Mustill
L.J. carefully analysed the three
decisions in In re Connolly,
Piskor and the Security
Trust Co. case and confessed to finding it
hard to see how
they could stand together. I share his difficulty.
It would have
been possible for the Privy Council in the Security
Trust Co.
case to have distinguished that case from In re Connolly
on
the basis that in terms of the contract of sale the purchaser
could
never acquire from the vendor more than the equity of
redemption.
In the event Lord Cross drew no distinction between
the two case
and sought instead to distinguish Piskor. In each of
the
three cases the purchaser was dependent upon the loan.
It is of course correct as a
matter of strict legal analysis
that a purchaser of property
cannot grant a mortgage over it until
the legal estate has vested
in him. The question however is
whether having borrowed money in
order to complete the purchase
against an undertaking to grant
security for the loan over the
property the purchaser is, for a
moment of time, in a position to
deal with the legal estate as
though the mortgagee had no interest
therein. In re Connolly,
Coventry Permanent Economic Building
Society v. Jones [19195]
1 All E.R. 901 and the Security Trust
Co. case say that he
is not in such a position recognising, in my
view, the realities
of the situation. Piskor say that he is, thereby
ignoring
any interest which the mortgagee may have prior to
completion of
the purchase. Nevertheless in each of the four
cases the purchase
was dependent upon the loan and I find it
impossible to see any
material distinction between the
circumstances obtaining in the
three former cases and those
obtaining in Piskor. In my
view a purchaser who can only
complete the transaction by
borrowing money for the security of
which he is contractually
bound to grant a mortgage to the lender
eo instante with the
execution of the conveyance in his favour
cannot in reality ever
be said to have acquired even for a scintilla
temporis the
unencumbered fee simple or leasehold interest in land
whereby he
could grant interests having priority over the mortgage
or the
estoppel in favour of prior grantees could be fed with
similar
results. Since no one can grant what he does not have it
follows
that such a purchaser could never grant an interest which
was not
subject to the limitations on his own interest. In so far
as
Piskor decided that such a purchaser could be vested for
a
moment of time in the unencumbered freehold or leasehold
estate
with the consequences to which I have just referred, I
consider
that it was wrongly decided. Conversely I consider that
the
decision of Harman J. in the Coventry Permanent
Economic
Building Society case was correct.
- 28 -
I would only add a further word
about Piskor in relation to
the recital in the mortgage
that the property "is now vested in
the mortgagors free from
incumbrances for the unexpired residue
of the term". Romer
L.J., at p. 565, considered this to be a
matter of some importance
and referred to a dictum of
Danckwerts J. in Woolwich Equitable
Building Society v. Marshall
[1952] Ch. 1 where the judge
said, at p. 9:
"It seems to me that a
mortgagee, who has inserted in the
deed under which he acquires
title a statement that the
mortgagor is 'the estate owner in
respect of the property'
which is being mortgaged or charged to
the morgagee,
cannot object if that statement is taken to be
true.
Therefore, it seems to me that the irresistible inference
is
that I must assume that to be the position, even if
the
transfer by the vendors to the purchaser bore the same date
as
the charge. In fact, the trasfer must have been
executed at a time
earlier than that at which the charge to
the society was executed;
so that there was a time in which
it would be correct to say that
the mortgagor had become
the estate owner, i.e., the legal owner
of the fee simple of
the property subsequently charged by him to
the society to
secure the amount of his loan."
My Lords I think that Romer L.J.
and Danckwerts J. read too
much into these recitals. In my view
they amount to no more
than an acknowledgment by the mortgagor
that he is the person
who is able to grant a valid legal charge
over the property in
question.
In the present case George Cann
borrowed money from
society in order to complete the purchase of
7, Hillview and in
return granted to them a mortgage. The mortgage
was executed
by George Cann prior to 13 August 1984 when the
purchase was
completed. It follows that as a matter of reality
George Cann
was never vested in the unencumbered leasehold and was
therefore
never in a position to grant to Mrs. Cann an interest in
7,
Hillview which prevailed over that of the society. The
interests
that Mrs. Cann took in 7, Hillview could only be carved
out of
George Cann's equity of redemption. In reaching this
conclusion it
is unnecessary to consider whether or not Mrs. Cann
was aware
that George Cann would require to borrow money in order
to
finance the purchase of 7, Hillview.
That is sufficient for the
disposal of this appeal but in
deference to the able arguments
addressed to your Lordships on
the relevant date for the
determination of the subsistence of an
overriding interest for the
purposes of section 23(1)(b) and section
70(1)(g) of
the Act of 1925, and in view of the general importance
of this
question I propose to say a few words thereanent. I should
at the
outset explain that I am in entire agreement with the
analysis and
reasoning of my noble and learned friend Lord Oliver
of Aylmerton
on this matter and that anything that I may say
must be treated as
merely supplementary thereto.
Mrs. Cann claimed to have an
overriding interest in 7,
Hillview by virtue of (1) her notional
contribution to the purchase
of 48, Warren Road, (2) George Cann's
undertaking that she would
always have a roof over her head and
(3) her occupation of the
- 29 -
premises on the date of the
conveyance to George or in any event
on the date of registration
of George Cann's title to the premises.
Mrs. Cann's primary
submission was that the tempus inspiciendum
for the ascertainment
of her overriding interest was the date of
registration whereas
the society submitted that it was the date of
completion of the
relevant transaction. The point is almost devoid
of authority and
until the recent case of Lloyds Bank Plc v.
Rosset [1989] Ch 350 had been considered only once in the county
court case of
Paddington Building Society v. Mendelsohn, 50 P &
C.R.
244 in which Judge McCarraher in the Bristol county court
held
that actual occupation at the date of the mortgage was
necessary
to found an overriding interest. On appeal to a court of
two
judges the decision of the trial judge was upheld on another
ground,
Browne-Wilkinson L.J. observing that it was undesirable for
a
two-judge court to adjudicate upon so important a point if the
appeal
could be otherwise disposed of. It is true that in In re
Boyle's
Claim [1961] 1 W.L.R. 339 Wilberforce J. expressed
the
view that the relevant date was that of registration. However
the
issue in that case was whether a claimant was entitled
to
compensation for rectification of the register by the removal
from
his title of land belonging to a neighbour, the land being
subject
to overriding interests. The issue was thus far removed
from that
which is raised in this appeal and the present point
does not
appear to have been argued.
In Rosset the trial judge
faced with the obvious
conveyancing absurdity of construing
section 70(1)(g) in a way
which could give to someone
moving into occupation after
completion of a transfer or mortgage
an interest taking effect in
priority to the completed transaction
essayed a construction of
section 20(l)(b) which avoided
this. He concluded (see [1989] Ch.
350, 371) that section 20(1)(b)
fell to be construed as though it
read "subject . . . (b)
. . ." to the overriding interests, if any,
affecting the
estate transferred or created at the time it is
transferred or
created." Thus only those overriding interests
which
subsisted at the date of completion would be effective
against the
transferee or mortgagee, any interests coming into
existence
between completion and registration being ineffective.
The Court
of Appeal saw difficulties in the judge's construction
of section
20(l)(b) and approached the problem in a rather
different way.
Nicholls L.J., considered at p. 372, that the
natural construction of
section 20(1) was that both paragraphs (a)
and (b) focused on the
position at the time of
registration, although He recognised the
conveyancing absurdity to
which I have already referred. However
he felt unable to accept
the conclusion of the trial judge because
that would result in the
transferee or mortgagee taking "free from
all overriding
interests, whatever their nature, which came into
being after the
execution of the transfer or mortgage ..." (p.
373). He went
on to say
"I am not persuaded that
section 20(1)(b) was intended to
have the effect that a
purchaser or a mortgagee should take
free from local land charges
coming into being after
execution of the transfer or mortgage."
He
said, at p. 374:
"Consistently with
conveyancing sense and the underlying
conveyancing principle which
is being carried forward into
- 30 -
paragraph (g), it seems to
me that paragraph (g) is
concerned with persons who are in
actual occupation of the
land at the time when the estate or
interest which is said
to be subject to the rights of the occupant
was created.
For example, on completion of a purchase or a
mortgage in
the usual way. This is so despite the need for a
further
step to be taken (registration) before the legal estate
will
be acquired by the purchaser or mortgagee. In line with
this
is the exception provided for in paragraph (g).
Explicitly,
the rights of an occupant are not protected if
enquiry is made of
him and the rights are not disclosed.
That exception, implicitly,
contemplates an inquiry by or on
behalf of the person whose estate
or interest is said to be
subject to the rights of the occupant
and, again implicitly,
an inquiry made before he acquired his
estate or interest.
Otherwise the provision makes no sort of
sense. If this is
right, the pieces of the jigsaw fit together
reasonably well.
A purchaser or mortgagee inspects and inquires
before
completion, in the established fashion. Or he fails to do
so,
at his own risk. He then completes the transaction, taking
an
executed transfer or mortgage. Whether or not an
overriding
interest under paragraph (g) subsists so far as his
freehold
or mortgage is concerned falls to be determined at
that moment. If
an overriding interest does subsist, then
his estate when
registered takes subject to that interest. If
it does not, then
subsequent entry of a person into
occupation before the transfer
or mortgage has been
registered, and "completed" for the
purposes of section 19,
does not have the consequence of creating
an overriding
interest under paragraph (g) in relation to
that freehold or
mortgage."
If I understand Nicholls L.J.
correctly he is there saying
that one must look at the date of
execution of the mortgage to
see whether an overriding interest of
the type described in section
70(1)(g) subsists and is protected
by occupation and that if such
interest still subsists at the date
of registration it will fall within
the ambit of section 20(l)(b).
By this line of reasoning he was
able to avoid the conveyancing
absurdity to which he earlier
referred and also the problem of
post-completion land charges.
My Lords I have sympathy with the
courts below in their
quest for the true meaning of section
20(1)(b). I agree with
Nicholls L.J. that it is implicit in
section 70(l)(g) that the inquiry
as to actual occupation
is one which is capable of being made
before completion of the
mortgage or other transfer. Inquiry
about occupation which
commenced after completion would be
futile because by then the
transferee or mortgagee would be
committed and the die cast.
However whichever of the two
constructions of section 20(1)(b)
referred to in Rosset is correct
there will be anomalies.
Nicholls L.J.'s approach to section
70(1)(g) does not avoid
the problem of the transferor of land
creating overriding
interests under section 70(1)(j) and (k) between
the
date of completion of a mortgage and the registration thereof
by
granting sporting rights or leases for less than 21 years.
Conversely
it would be an odd result if a land charge resulting
from the
listing of a building of special architectural interest or
from
the incurring of expense of a highway authority should not
bind
the transferee or mortgagee.
- 31 -
During the course of argument I
was attracted by Mr.
Munby's submissions that section 15(1) of the
Land Charges Act
1925 provided an answer to Nicholls L.J's
difficulty. The whole of
that Act was repealed by the Local Land
Charges Act 1975 but
that does not affect the matter as Nicholls
L.J. was considering
the position as at the time when the Land
Registration Act 1925
was enacted. In terms of that subsection a
local land charge is
"void as against a purchaser
for money or money's worth of
a legal estate in the land affected
thereby, unless registered
in a appropriate register before the
completion of the
purchase."
"Purchaser" is defined
to include a mortgagee or lessee. Thus, it
was argued, a local
land charge created prior to the execution of
a mortgage but not
registered in the appropriate register until a
later date would
have been void as against a mortgagee. That
being the position it
might be thought to follow that a local land
charge arising
between the creation and registration of a mortgage
would also
have been void under section 15(1) against the
mortgagee and could
not therefore be an overriding interest within
the meaning of
section 70(1)(i). Thus the problem which concerned
Nicholls L.5.
could never arise. However on further consideration
I have come to
the conclusion that the submission is unsound.
Under the 1925 legislation a local
land charge was capable
of registration in two different
registers, namely, the appropriate
local register under the Land
Charges Act 1925 and the Land
Registry under the Land Registration
Act 1925. Registration in
the local register was required for the
purposes of section 15 and
such registration by virtue of section
198 of the Law of Property
Act 1925 constituted actual notice of
the charge to all persons for
all relevant purposes. Registration
in the Land Registry was
required before a local land charge
affecting registered land could
be realised. Subject to the
foregoing provisions a local land
charge was good against the
owner of land for the time being.
Section 15 was dealing with a
situation where the local land
charge had been created prior to
the completion of sale or
mortgage. In the case of registered land
completion of the
purchase or mortgage of the legal estate could
only take place on
registration of the relevant disposition
(section 20(1) of the Land
Registration Act 1925). Accordingly a
local land charge created
before or after execution of a
disposition of registered land but
registered in the local
register before registration of the
disposition in the Land
Registry would not have been void under
section 15 and could thus
constitute an overriding interest under
section 70(1)(i) of
the Land Registration Act 1925 if registration
under that act were
the relevant date.
It therefore follows that section
15(1) of the Land Charges
Act 1925 does not resolve the problems
which concerned Nicholls
L.J. and I am satisfied that it cannot
have been the intention of
the legislature that local land charges
imposed on registered land
between the execution and registration
of a disposition should be
ineffective against the disponee. It
may well be that charges of a
non-financial nature such as listing
of a building could be
reimposed on the land after registration of
the disposition but this
could not happen in the case of a
financial charge which had once
arisen. I therefore conclude that
Nicholls L.J. was correct (1) in
- 32 -
taking the date of registration as
the relevant date for
determining the existence of overriding
interests which will effect
the estate transferred or created for
the purposes of sections
20(1)(b) and 23(1)(c) and
(2) in his approach to the construction of
section 70(1)(g).
"I do not feel that I can usefully add anything
further to
what has already been said on this matter by my noble
and learned
friend Lord Oliver of Aylmerton.
For
the foregoing reasons I would dismiss the appeal.
- 33 - |
JISCBAILII_CASE_PROPERTY
HOUSE OF LORDS
[1990] UKHL 14
Date: 29 March 90
Before:
Lord Bridge of Harwich
Lord Griffiths
Lord Ackner
Lord Oliver of Aylmerton
Lord Jauncey of Tullichettle
- - - - - - - - - - - - -
Between:
LLOYDS BANK PLC (APPELLANTS)
v.
ROSSET AND ANOTHER (RESPONDENTS)
- - - - - - - - - - - - -
- - - - - - - - - - - - -
Judgment
LORD BRIDGE OF HARWICH
My Lords,
The subject matter of this dispute is Vincent Farmhouse, Manston Road, Thanet ("the property"). The property is registered land which the first respondent, Mr. Rosset, contracted to purchase on 23 November 1982 and which was conveyed to him on 17 December 1982. On the same date Mr. Rosset executed a legal charge on the property in favour of the appellant, Lloyds Bank Plc. ("the bank") to secure an overdraft on his current account with the bank. The bank's charge was registered on 7 February 1983. The bank initially agreed to allow Mr. Rosset to borrow up to £15,000, but later raised this limit to £18,000. The limit was in due course exceeded, the bank's demand for repayment was not met and the bank instituted proceedings in the Thanet County Court for possession of the property in July 1984 against both respondents. Mr. and Mrs. Rosset, who had initially occupied the property as their matrimonial home, had by this time parted. Mr. Rosset, who was no longer residing in the property, did not resist the bank's claim. Mrs. Rosset, however, alleged by way of defence to the bank's claim and by way of counterclaim against her husband that she had been entitled, since the date when her husband contracted to purchase the property, to a beneficial interest in the property under a constructive trust which qualified as an overriding interest under section 70(l)(g) of the Land Registration Act 1925 because she was in actual occupation of the property both on 17 December 1982 and 7 February 1983, whichever was the relevant date to be considered in determining the existence of the overriding interest to which she alleged the bank's charge was subject.
At the trial Judge Scarlett found that Mrs. Rosset was entitled as against her husband to a beneficial interest in the property in an amount to be determined at a future hearing. He held that, on the true construction of the Land Registration Act, the proprietor of a legal charge takes subject to overriding interests which are subsisting on the date of creation, as opposed to the date of registration, of the charge. He accordingly asked himself whether Mrs. Rosset was in actual occupation of the property on 17 December 1982 and, finding that she was not, concluded that her equitable interest was not protected as an overriding interest by section 70(l)(g) so as to prevail against the bank's legal charge. He gave judgment for possession in favour of the bank. Mrs. Rosset appealed, but Mr. Rosset has taken no further part in the proceedings.
The Court of Appeal unanimously affirmed the judge's decision that the relevant date on which Mrs. Rosset had to show that she was in actual occupation in order to establish an overriding interest which would prevail against the bank was 17 December 1982, the date of creation of the bank's charge. But they differed on the facts as to whether she was in actual occupation on that date. Purchas and Nicholls L.JJ. held that she was; Mustill L.J. held that she was not. The bank now appeals by leave of your Lordships' House against the majority decision of the Court of Appeal in Mrs. Rosset's favour.
The important question arising under the Land Registration Act as to the relevant date on which to ascertain whether an interest in registered land is protected by actual occupation so as to prevail under section 70(i)(g) against the holder of a legal estate has now been resolved by your Lordships' decision in Abbey National Building Society v. Cann in favour of the view that it is the date when the estate is transferred or created, not the date when it is registered.
The primary ground of the bank's appeal challenges the judge's finding, which was also unanimously affirmed by the Court of Appeal, that Mrs. Rosset had by the date of completion acquired a beneficial interest in the property.
The Rossets were married in 1972. There are two children of the marriage, a daughter born in 1972 and a son born in 1981. From 1976 until the events giving rise to the present dispute, the parties were living in premises which had been built as an extension to a bungalow in Broadstairs which was the home of Mrs. Rosset's parents, Mr. and Mrs. Gardner. Mr. Rosset had borne the cost of building the extension, but it was occupied on the terms of an agreement between the Rossets and the Gardners which provided that, on the Rossets vacating the extension, each should be paid a fixed sum by Mr. and Mrs. Gardner. Mrs. Rosset's father had insisted on his daughter being joined in the agreement in this way.
Mr. Rosset is a Swiss national. He was working in 1982 as a courier conducting coach parties of tourists on the continent of Europe and was away from home a great deal. Some time before 1982 he became entitled to a substantial sum of money under a trust fund established by his grandmother in Switzerland. In 1982 the Rossets were looking for a new home to be bought with Mr. Rosset's inheritance. It was Mrs. Rosset who first found the property. It had been unoccupied for seven or eight years and required substantial work to render it suitable for occupation. Mrs. Rosset took her husband to see it. He liked it and made an offer to purchase it for the asking price of £57,500. This was accepted on 3 August 1982 subject to contract.
On 25 October 1982 Mr. Rosset opened an account at the Broadstairs branch of the bank. He saw the manager and told him that he was intending to buy the property with money he had inherited in Switzerland. On 2 November Mr. Rosset received a payment of £70,200 from Switzerland of which £59,200 was paid into his account with the bank. On 23 November contracts for the purchase of the property were exchanged. On 14 December Mr. Rosset saw the bank manager and asked to be allowed to overdraw on his current account up to £15,000 to meet the cost of the works of renovation which were needed to be undertaken to the property. The manager asked whether the property was to be acquired in joint names. Mr. Rosset replied that the property was to be acquired in his sole name because his wife and children were living with her parents. The manager agreed the overdraft and Mr. Rosset signed the bank's form of charge which was then sent to Mr. Rosset's solicitor to be dated on completion and registered on behalf of the bank. Completion took place on 17 December with funds drawn from the account which required an initial overdraft of £2,267. Mrs. Rosset knew nothing of the charge to the bank or the overdraft.
Meanwhile Mr. and Mrs. Rosset had been let into possession of the property by the vendors even before the exchange of contracts. The builder employed by them, a Mr. Griffin, commenced work on 7 November 1982. It was originally hoped that the house would be ready for the Rossets to move in before Christmas, but this proved in the event to be impossible. Eventually the Rossets moved in about the middle of February 1983 when the work was substantially complete. By this time Mr. Rosset's overdraft had risen to. over £18,000 and the bank refused to extend further credit. Most of the additional funds drawn from the account had been expended in paying for the renovation works. Both the purchase price of the property and the cost of the works of renovation were paid by Mr. Rosset alone and Mrs. Rosset made no financial contribution to the acquisition of the property.
The case pleaded and carefully particularised by Mrs. Rosset in support of her claim to an equitable interest in the property was that it had been expressly agreed between her and her husband in conversations before November 1982 that the property was to be jointly owned and that in reliance on this agreement she had made a significant contribution in kind to the acquisition of the property by the work she had personally undertaken in the course of the renovation of the property which was sufficient to give rise to a constructive trust in her favour.
There was a conflict of evidence between Mr. and Mrs. Rosset on the vital issue raised by this pleading. The question the judge had to determine was whether he could find that before the contract to acquire the property was concluded they had entered into an agreement, made an arrangement, reached an understanding, or formed a common intention that the beneficial interest in the property would be jointly owned. I do not think it is of importance which of these alternative expressions one uses. Spouses living in amity will not normally think it necessary to formulate or define their respective interests in property in any precise way. The expectation of parties to every happy marriage is that they will share the practical benefits of occupying the matrimonial home whoever owns it. But this is something quite distinct from sharing the beneficial interest in the property asset which the matrimonial home represents. These considerations give rise to special difficulties for judges who are called on to resolve a dispute between spouses who have parted and are at arm's length as to what their common intention or understanding with respect to interests in property was at a time when they were still living as a united family and acquiring a matrimonial home in the expectation of living in it together indefinitely.
Since Mr. Rosset was providing the whole purchase price of the property and the whole cost of its renovation, Mrs. Rosset would, I think, in any event have encountered formidable difficulty in establishing her claim to joint benficial ownership. The claim as pleaded and as presented in evidence was, by necessary implication, to an equal share in the equity. But to sustain this it was necessary to show that it was Mr. Rosset's intention to make an immediate gift to his wife of half the value of a property acquired for £57,500 and improved at a further cost of some £15,000. What made it doubly difficult for Mrs. Rosset to establish her case was the circumstance, which was never in dispute, that Mr. Rosset's uncle, who was trustee of his Swiss inheritance, would not release the funds for the purchase of the property except on terms that it was to be acquired in Mr. Rosset's sole name. If Mr. and Mrs. Rosset had ever thought about it, they must have realised that the creation of a trust giving Mrs. Rosset a half share, or indeed any other substantial share, in the beneficial ownership of the property would have been nothing less than a subterfuge to circumvent the stipulation which the Swiss trustee insisted on as a condition of releasing the funds to enable the property to be acquired.
In these circumstances, it would have required very cogent evidence to establish that it was the Rossets' common intention to defeat the evident purpose of the Swiss trustee's restriction by acquiring the property in Mr. Rosset's name alone but to treat it nevertheless as beneficially owned jointly by both spouses. I doubt whether the evidence would have sustained a finding to that effect. But the judge made no such finding. On the contrary, his judgment on this point amounts to a clear rejection of Mrs. Rosset's pleaded case. He said:
"The decision to transfer the property into the name of the first defendant alone was a disappointment to the second defendant, but I am satisfied that she genuinely believed that the first defendant would hold the property in his name as something which was a joint venture, to be shared between them as the family home and that the reason for it being held by the first defendant alone was to ensure that the first defendant's uncle would sanction the export of trust funds from Switzerland to England for the purchase. As so often happens the defendants did not pursue their discussion to the extent of defining precisely what their respective interests in the property should be. It was settled that the property should be transferred into the name of the first defendant alone to achieve the provision of funds from Switzerland, but in the period from August 1982 to the 23 November 1982 when the contracts were exchanged, the defendants did not decide whether the second defendant should have any interest in the property. On one occasion the second defendant heard the first defendant say to her parents that he had put the house in their joint names, but she knew that he could not do that and treated what he said as an expression of what he would like to do. In these circumstances I am satisfied that the outcome of the discussions between the parties as to the name into which the property should be transferred did not exclude the possibility that the second defendant should have a beneficial interest in the property."
I have emphasised the critical finding in this passage from the judgment.
Even if there had been the clearest oral agreement between Mr. and Mrs. Rosset that Mr. Rosset was to hold the property in trust for them both as tenants in common, this would, of course, have been ineffective since a valid declaration of trust by way of gift of a beneficial interest in land is required by section 53(1) of the Law of Property Act 1925 to be in writing. But if Mrs. Rosset had, as pleaded, altered her position in reliance on the agreement this could have given rise to an enforceable interest in her favour by way either of a constructive trust or of a proprietary estoppel.
Having rejected the contention that there had been any concluded agreement, arrangement or any common intention formed before contracts for the purchase of the property were exchanged on 23 November 1982 that Mrs. Rosset should have any beneficial interest, the judge concentrated his attention on Mrs. Rosset's activities in connection with the renovation works as a possible basis from which to infer such a common intention. He described what she did up to the date of completion as follows:
"Up to 17 December 1982 the second defendant's contribution to the venture was: (1) to urge on the builders and to attempt to co-ordinate their work, until her husband insisted that he alone should give instructions; (2) to go to builders' merchants and obtain material required by the builders . . . and to deliver the materials to the site. This was of some importance because Mr. Griffin and his employees did not know the Thanet area; (3) to assist her husband in planning the renovation and decoration of the house. In this, she had some skill over and above that acquired by most housewives. She was a skilled painter and decorator who enjoyed wallpapering and decorating, and, as her husband acknowledged, she had good ideas about this work. In connection with this, she advised on the position of electric plugs and radiators and planned the design of the large breakfast room and the small kitchen of the house; (4) to carry out the wallpapering of Natasha's bedroom and her own bedroom, after preparing the surfaces of the walls and clearing up the rooms concerned before the papering began; (5) to begin the preparation of the surfaces of the walls of her son's bedroom, the Den, the upstairs lavatory and the downstairs washroom for papering. All this wallpapering was completed after 17 December 1982 but by 31 December 1982; (6) to assist in arranging the insurance of the house by the Minster Insurance Co. Ltd. home cover policy, in force from 3 November 1982; (7) to assist in arranging a crime prevention survey on 23 November 1982; (8) to assist in arranging the installation of burglar alarms described in a specification dated 3 December 1982."
Later the judge said:
"I am satisfied that in 1982 the common intention expressed by the defendants in conversation between themselves was that Vincent Farmhouse should be purchased in the name of the first defendant alone, because funds would not be made available from the first defendant's family trust in Switzerland unless the purchase was made only in his name. In addition, however, it was their common intention that the renovation of the house should be a joint venture, after which the house was to become a family home to be shared by the defendants and their children."
I pause to observe that neither a common intention by spouses that a house is to be renovated as a "joint venture" nor a common intention that the house is to be shared by parents and children as the family home throws any light on their intentions with respect to the beneficial ownership of the property.
Reverting to Mrs. Rosset's activity in connection with the renovation of the property the judge said:
"It is plain that she made every effort to make the house fit for occupation before Christmas 1982 and spent all the time she could at Vincent Farmhouse in between taking Natasha to school and fetching her from school. . . . Obviously the extent of the work which the defendant did in preparation, clearing up before painting and decorating, and the painting and decorating itself, was valuable. ... In the result, having considered: (1) the semi-derelict condition of Vincent Farmhouse in November 1982, (2) the absence of the first defendant abroad for 10 days in November and early December 1982, (3) the second defendant's special skills in painting and decorating over and above those of the average housewife and her indirect contribution to reducing the cost of renovation of the farmhouse by carrying out certain painting and decorating herself, (4) the time she spent at the farmhouse from 4 November 1982 attempting to coordinate the work of the builders and her work in ordering and delivering materials to the site for the builders, and (5) the conversations between the parties concerning into whose name the property was to be transferred and the nature of the joint venture and the purpose of purchasing Vincent Farmhouse;
I am satisfied that prior to 17 December 1982 there was a common intention between the defendants that the second defendant should have a beneficial interest in the property under a constructive trust and that she did act to her detriment on the faith of such a common intention. Some, but not all, of her work at the farmhouse prior to 17 December 1982 falls into the category of work upon which she could not reasonably have been expected to embark unless she was to have an interest in the house, namely the work to which she brought the special skills of painting and decorating and her work in ordering and delivering materials to the site for the builders in attempting to co-ordinate her work. These actions by the second defendant must have reduced the cost of renovating the farmhouse and thus indirectly contributed to the acquisition of the property, albeit to a small extent."
At the very end of his judgment the judge pointed out that he had made no finding as to the extent of Mrs. Rosset's beneficial interest in the property. He indicated that he would hear counsel as to what directions should be given for the determination of this issue at a later date. He concluded his judgment with the sentence:
"An area which the court would wish to explore is the extent to which the qualifying conduct of the second defendant reduced the cost of the renovation of the farmhouse and its buildings."
It is clear from these passages in the judgment that the judge based his inference of a common intention that Mrs. Rosset should have a beneficial interest in the property under a constructive trust essentially on what Mrs. Rosset did in and about assisting in the renovation of the property between the beginning of November 1982 and the date of completion on 17 December 1982. Yet by itself this activity, it seems to me, could not possibly justify any such inference. It was common ground that Mrs. Rosset was extremely anxious that the new matrimonial home should be ready for occupation before Christmas if possible. In these circumstances it would seem the most natural thing in the world for any wife, in the absence of her husband abroad, to spend all the time she could spare and to employ any skills she might have, such as the ability to decorate a room, in doing all she could to accelerate progress of the work quite irrespective of any expectation she might have of enjoying a beneficial interest in the property. The judge's view that some of this work was work "upon which she could not reasonably have been expected to embark unless she was to have an interest in the house" seems to me, with respect, quite untenable. The impression that the judge may have thought that the share of the equity to which he held Mrs. Rosset to be entitled had been "earned" by her work in connection with the renovation is emphasised by his reference in the concluding sentence of his judgment to the extent to which her "qualifying contribution" reduced the cost of the renovation.
On any view the monetary value of Mrs. Rosset's work expressed as a contribution to a property acquired at a cost exceeding £70,000 must have been so trifling as to be almost de minimis. I should myself have had considerable doubt whether Mrs. Rosset's contribution to the work of renovation was sufficient to support a claim to a constructive trust in the absence of writing to satisfy the requirements of section 51 of the Law of Property Act even if her husband's intention to make a gift to her of half or any other share in the equity of the property had been clearly established or if he had clearly represented to her that that was what he intended. But here the conversations with her husband on which Mrs. Rosset relied, all of which took place before November 1982, were incapable of lending support to the conclusion of a constructive trust in the light of the judge's finding that by that date there had been no decision that she was to have any interest in the property. The finding that the discussions "did not exclude the possibility" that she should have an interest does not seem to me to add anything of significance.
These considerations lead me to the conclusion that the judge's finding that Mr. Rosset held the property as constructive trustee for himself his wife cannot be supported and it is on this short ground that I would allow the appeal. In the course of the argument your Lordships had the benefit of elaborate submissions as to the test to be applied to determine the circumstances in which the sole legal proprietor of a dwelling house can properly be held to have become a constructive trustee of a share in the beneficial interest in the house for the benefit of the partner with whom he or she has cohabited in the house as their shared home. Having in this case reached a conclusion on the facts which, although at variance with the views of the courts below, does not seem to depend on any nice legal distinction and with which, I understand, all your Lordships agree, I cannot help doubting whether it would contribute anything to the illumination of the law if I were to attempt an elaborate and exhaustive analysis of the relevant law to add to the many already to be found in the authorities to which our attention was directed in the course of the argument. I do, however, draw attention to one critical distinction which any judge required to resolve a dispute between former partners as to the beneficial interest in the home they formerly shared should always have in the forefront of his mind.
The first and fundamental question which must always be resolved is whether, independently of any inference to be drawn from the conduct of the parties in the course of sharing the house as their home and managing their joint affairs, there has at any time prior to acquisition, or exceptionally at some later date, been any agreement, arrangement or understanding reached between them that the property is to be shared beneficially. The finding of an agreement or arrangement to share in this sense can only, I think, be based on evidence of express discussions between the partners, however imperfectly remembered and however imprecise their terms may have been. Once a finding to this effect is made it will only be necessary for the partner asserting a claim to a beneficial interest against the partner entitled to the legal estate to show that he or she has acted to his or her detriment or significantly altered his or her position in reliance on the agreement in order to give rise to a constructive trust or a proprietary estoppel.
In sharp contrast with this situation is the very different one where there is no evidence to support a finding of an agreement or arrangement to share, however reasonable it might have been for the parties to reach such an arrangement if they had applied their minds to the question, and where the court must rely entirely on the conduct of the parties both as the basis from which to infer a common intention to share the property beneficially and as the conduct relied on to give rise to a constructive trust. In this situation direct contributions to the purchase price by the partner who is not the legal owner, whether initially or by payment of mortgage instalments, will readily justify the inference necessary to the creation of a constructive trust. But, as I read the authorities, it is at least extremely doubtful whether anything less will do.
The leading cases in your Lordships' House are Pettitt v. Pettitt [1970] AC 777 and Gissing v. Gissing [1971] AC 886. Both demonstrate situations in the second category to which I have referred and their Lordships discuss at great length the difficulties to which these situations give rise. The effect of these two decisions is very helpfully analysed in the judgment of Lord MacDermott L.C.J. in McFarlane v. McFarlane [1972] N.I. 79.
Outstanding examples on the other hand of cases giving rise to situations in the first category are Eves v. Eves [1975] 1 WLR 1338 and Grant v. Edwards [1986] Ch 638. In both these cases, where the parties who had cohabited were unmarried, the female partner had been clearly led by the male partner to believe, when they set up home together, that the property would belong to them jointly. In Eves the male partner had told the female partner that the only reason why the property was to be acquired in his name alone was because she was under 21 and that, but for her age, he would have had the house put into their joint names. He admitted in evidence that this was simply an "excuse." Similarly in Grant v. Edwards the female partner was told by the male partner that the only reason for not acquiring the property in joint names was because she was involved in divorce proceedings and that, if the property were acquired jointly, this might operate to her prejudice in those proceedings. As Nourse L.J. put it, at p. 649:
"Just as in Eves v. Eves [1975] 1 WLR 1338, these facts appear to me to raise a clear inference that there was an understanding between the plaintiff and the defendant, or a common intention, that the plaintiff was to have some sort of proprietary interest in the house; otherwise no excuse for not putting her name on to the title would have been needed."
The subsequent conduct of the female partner in each of these cases, which the court rightly held sufficient to give rise to a constructive trust or proprietary estoppel supporting her claim to an interest in the property, fell far short of such conduct as would by itself have supported the claim in the absence of an express representation by the male partner that she was to have such an interest. It is significant to note that the share to which the female partners in Eves and Grant v. Edwards were held entitled were one quarter and one half respectively. In no sense could these shares have been regarded as proportionate to what the judge in the instant case described as a "qualifying contribution" in terms of the indirect contributions to the acquisition or enhancement of the value of the houses made by the female partners.
I cannot help thinking that the judge in the instant case would not have fallen into error if he had kept clearly in mind the distinction between the effect of evidence on the one hand which was capable of establishing an express agreement or an express representation that Mrs. Rosset was to have an interest in the property and evidence on the other hand of conduct alone as a basis for an inference of the necessary common intention.
If Mrs. Rosset had become entitled to a beneficial interest in the property prior to completion it might have been necessary to examine a variant of the question regarding priorities which your Lordships have just considered in Abbey National Building Society v. Cann and, subject to that question, to decide whether, as a matter of fact, she was in "actual occupation" of the property on 17 December 1982. Since these questions have now become academic, I do not think any useful purpose would be served by going into them.
For the reasons I have indicated I would allow the appeal, set aside the order of the Court of Appeal and, as between Mrs. Rosset and the bank, restore the order of the trial judge.
LORD GRIFFITHS
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Bridge of Harwich. I agree with it and, for the reasons he gives, I would allow the appeal.
LORD ACKNER
My Lords,
I have had the advantage of reading in draft the speech delivered by my noble and learned friend Lord Bridge of Harwich. I agree with it and would allow the appeal for the reasons which he has given.
LORD OLIVER OF AYLMERTON
My Lords,
I have had the advantage of reading in draft the speech delivered by my noble and learned friend Lord Bridge of Harwich. I agree with it and would allow the appeal for the reasons which he has given.
LORD JAUNCEY OF TULLICHETTLE
My Lords,
I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Bridge of Harwich. I agree with it, and for the reasons which he has given I too would allow the appeal.
Lloyds Bank plc (Appellants) v. Rosset and others
(Respondents)
JUDGMENT
Die Jovis 29° Martii 1990
Upon Report from the Appellate Committee to whom was referred the Cause Lloyds Bank plc against Rosset and another, That the Committee had heard Counsel on Monday the 12th, Tuesday the 13th, Wednesday the 14th and Thursday the 15th days of February last, upon the Petition and Appeal of Lloyds Bank plc of 71, Lombard Street, London EC3P 3BS praying that the matter of the Order set forth in the Schedule thereto, namely an Order of Her Majesty's Court of Appeal of the 13th day of May 1988, as amended on the 15th day of June 1988, might be reviewed before Her Majesty the Queen in Her Court of Parliament and that the said Order might be reversed, varied or altered or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen in Her Court of Parliament might seem meet; as upon the case of the Second Respondent Diana Irene Rosset lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal of the 13th day of May 1988, as amended on the 15th day of June 1988, complained of in the said Appeal be, and the same is hereby, Set Aside, save as to costs, and that the Order of His Honour Judge Scarlett of the 22nd day of May 1987 as between the Appellants and the Second Respondent be, and the same is hereby Restored: And it is further Ordered, That the Appellants do pay or cause to be paid to the said Second Respondent the Costs incurred by her in respect of the said Appeal to this House, the amount of such last-mentioned Costs to be certified by the Clerk of the Parliaments if not agreed between the parties: And it is also further Ordered, That the Cause be, and the same is hereby, remitted back to the Queen's Bench Division of the High Court of Justice to do therein as shall be just and consistent with this Judgment.
Die Martis 8 Maii 1990
Upon further Report from the Appellate Committee to whom was again referred the Cause Lloyds Bank plc against Rosset and others, That the Committee had heard Counsel on Thursday the 3rd day of May last on a question of Costs:
It is Ordered, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That so much of the Order of the 29th day of March last which provided for the payment of Costs in this House be, and the same is hereby, Vacated: And it is further Ordered, That the Appellants do pay or cause to be paid to the said Second Respondent the Costs incurred by her in respect of the said Appeal to this House without prejudice to the rights of the Appellants against the First Respondent, the amount thereof to be certified by the Clerk of the Parliaments if not agreed between the parties.
Cler: Parliamentor: |
JISCBAILII_CASE_PROPERTY
Parliamentary
Archives,
HL/PO/JU/18/250
Lloyds
Bank plc (Appellants) v. Rosset and others
(Respondents)
JUDGMENT
Die Jovis 29° Martii 1990
Upon Report from the Appellate Committee to
whom was
referred the Cause Lloyds Bank plc against Rosset and
another,
That the Committee had heard Counsel on Monday the
12th,
Tuesday the 13th, Wednesday the 14th and Thursday the
15th
days of February last, upon the Petition and Appeal of
Lloyds
Bank plc of 71, Lombard Street, London EC3P 3BS praying
that
the matter of the Order set forth in the Schedule
thereto,
namely an Order of Her Majesty's Court of Appeal of the
13th
day of May 1988, as amended on the 15th day of June
1988,
might be reviewed before Her Majesty the Queen in Her Court
of
Parliament and that the said Order might be reversed, varied
or
altered or that the Petitioners might have such other
relief in
the premises as to Her Majesty the Queen in Her
Court of
Parliament might seem meet; as upon the case of the
Second
Respondent Diana Irene Rosset lodged in answer to the
said Appeal;
and due consideration had this day of what was
offered on either
side in this Cause:
It is Ordered and Adjudged, by
the Lords Spiritual and
Temporal in the Court of Parliament of Her
Majesty the Queen
assembled, That the said Order of Her Majesty's
Court of
Appeal of the 13th day of May 1988, as amended on the
15th
day of June 1988, complained of in the said Appeal be,
and
the same is hereby, Set Aside, save as to costs, and
that the
Order of His Honour Judge Scarlett of the 22nd day of May
1987
as between the Appellants and the Second Respondent be,
and
the same is hereby Restored: And it is further
Ordered,
That the Appellants do pay or cause to be paid to
the said
Second Respondent the Costs incurred by her in respect of
the
said Appeal to this House, the amount of such
last-mentioned
Costs to be certified by the Clerk of the
Parliaments if not
agreed between the parties: And it is also
further Ordered,
That the Cause be, and the same is hereby,
remitted back to
the Queen's Bench Division of the High Court of
Justice to do
therein as shall be just and consistent with this
Judgment.
Die Martis 8° Maii 1990
Upon further Report from the Appellate
Committee to whom
was again referred the Cause Lloyds Bank plc
against Rosset
and others, That the Committee had heard Counsel on
Thursday
the 3rd day of May last on a question of Costs:
Judgment: 29.3.90
HOUSE OF LORDS
LLOYDS BANK PLC
(APPELLANTS)
v.
ROSSET AND ANOTHER
(RESPONDENTS)
Lord Bridge of Harwich
Lord
Griffiths
Lord Ackner
Lord Oliver of Aylmerton
Lord Jauncey
of Tullichettle
LORD
BRIDGE OF HARWICH
My Lords,
The subject matter of this dispute
is Vincent Farmhouse,
Manston Road, Thanet ("the property").
The property is registered
land which the first respondent, Mr.
Rosset, contracted to purchase
on 23 November 1982 and which was
conveyed to him on 17
December 1982. On the same date Mr. Rosset
executed a legal
charge on the property in favour of the
appellant, Lloyds Bank
Plc. ("the bank") to secure an
overdraft on his current account
with the bank. The bank's charge
was registered on 7 February
1983. The bank initially agreed to
allow Mr. Rosset to borrow up
to £15,000, but later raised
this limit to £18,000. The limit was
in due course exceeded,
the bank's demand for repayment was not
met and the bank
instituted proceedings in the Thanet County
Court for possession
of the property in July 1984 against both
respondents. Mr. and
Mrs. Rosset, who had initially occupied the
property as their
matrimonial home, had by this time parted. Mr.
Rosset, who was no
longer residing in the property, did not resist
the bank's claim.
Mrs. Rosset, however, alleged by way of
defence to the bank's
claim and by way of counterclaim against
her husband that she had
been entitled, since the date when her
husband contracted to
purchase the property, to a beneficial
interest in the property
under a constructive trust which qualified
as an overriding
interest under section 70(1)(g) of the Land
Registration
Act 1925 because she was in actual occupation of the
property both
on 17 December 1982 and 7 February 1983,
whichever was the
relevant date to be considered in determining
the existence of the
overriding interest to which she alleged the
bank's charge was
subject.
At the trial Judge Scarlett found
that Mrs. Rosset was
entitled as against her husband to a
beneficial interest in the
property in an amount to be determined
at a future hearing. He
held that, on the true construction of the
Land Registration Act,
the proprietor of a legal charge takes
subject to overriding
interests which are subsisting on the date
of creation, as opposed
to the date of registration, of the
charge. He accordingly asked
himself whether Mrs. Rosset was in
actual occupation of the
property on 17 December 1982 and, finding
that she was not,
concluded that her equitable interest was not
protected as an
overriding interest by section 70(1)(g) so
as to prevail against the
bank's legal charge. He gave judgment
for possession in favour of
the bank. Mrs. Rosset appealed, but
Mr. Rosset has taken no
further part in the proceedings.
The Court of Appeal unanimously
affirmed the judge's
decision that the relevant date on which Mrs.
Rosset had to show
that she was in actual occupation in order to
establish an
overriding interest which would prevail against the
bank was 17
December 1982, the date of creation of the bank's
charge. But
they differed on the facts as to whether she was in
actual
occupation on that date. Purchas and Nicholls L.JJ. held
that she
was; Mustill L.J. held that she was not. The bank now
appeals
by leave of your Lordships' House against the majority
decision of
the Court of Appeal in Mrs. Rosset's favour.
The important question arising
under the Land Registration
Act as to the relevant date on which
to ascertain whether an
interest in registered land is protected
by actual occupation so as
to prevail under section 70(1)(g)
against the holder of a legal
estate has now been resolved by your
Lordships' decision in Abbey
National Building Society v. Cann
in favour of the view that it is
the date when the estate is
transferred or created, not the date
when it is registered.
The primary ground of the bank's
appeal challenges the
judge's finding, which was also unanimously
affirmed by the Court
of Appeal, that Mrs. Rosset had by the date
of completion
acquired a beneficial interest in the property.
The Rossets were married in 1972.
There are two children
of the marriage, a daughter born in 1972
and a son born in 1981.
From 1976 until the events giving rise to
the present dispute, the
parties were living in premises which had
been built as an
extension to a bungalow in Broadstairs which was
the home of
Mrs. Rosset's parents, Mr. and Mrs. Gardner. Mr.
Rosset had
borne the cost of building the extension, but it was
occupied on
the terms of an agreement between the Rossets and the
Gardners
which provided that, on the Rossets vacating the
extension, each
should be paid a fixed sum by Mr. and Mrs.
Gardner. Mrs.
Rosset's father had insisted on his daughter being
joined in the
agreement in this way.
Mr. Rosset is a Swiss national. He
was working in 1982 as
a courier conducting coach parties of
tourists on the continent of
Europe and was away from home a great
deal. Some time before
1982 he became entitled to a substantial
sum of money under a
trust fund established by his grandmother in
Switzerland. In 1982
the Rossets were looking for a new home to be
bought with Mr.
Rosset's inheritance. It was Mrs. Rosset who first
found the
property. It had been unoccupied for seven or eight
years and
required substantial work to render it suitable for
occupation.
Mrs. Rosset took her husband to see it. He liked it
and made an
offer to purchase it for the asking price of £57,500.
This was
accepted on 3 August 1982 subject to contract.
- 2 -
On 25 October 1982 Mr. Rosset
opened an account at the
Broadstairs branch of the bank. He saw
the manager and told him
that he was intending to buy the property
with money he had
inherited in Switzerland. On 2 November Mr.
Rosset received a
payment of £70,200 from Switzerland of
which £59,200 was paid
into his account with the bank. On 23
November contracts for
the purchase of the property were
exchanged. On 14 December
Mr. Rosset saw the bank manager and
asked to be allowed to
overdraw on his current account up to
£15,000 to meet the cost
of the works of renovation which
were needed to be undertaken to
the property. The manager asked
whether the property was to be
acquired in joint names. Mr. Rosset
replied that the property was
to be acquired in his sole name
because his wife and children were
living with her parents. The
manager agreed the overdraft and
Mr. Rosset signed the bank's form
of charge which was then sent
to Mr. Rosset's solicitor to be
dated on completion and registered
on behalf of the bank.
Completion took place on 17 December
with funds drawn from the
account which required an initial
overdraft of £2,267. Mrs.
Rosset knew nothing of the charge to
the bank or the overdraft.
Meanwhile Mr. and Mrs. Rosset had
been let into possession
of the property by the vendors even
before the exchange of
contracts. The builder employed by them, a
Mr. Griffin,
commenced work on 7 November 1982. It was originally
hoped
that the house would be ready for the Rossets to move in
before
Christmas, but this proved in the event to be
impossible.
Eventually the Rossets moved in about the middle of
February
1983 when the work was substantially complete. By this
time Mr.
Rosset's overdraft had risen to. over £18,000 and
the bank refused
to extend further credit. Most of the additional
funds drawn from
the account had been expended in paying for the
renovation works.
Both the purchase price of the property and the
cost of the works
of renovation were paid by Mr. Rosset alone and
Mrs. Rosset made
no financial contribution to the acquisition of
the property.
The case pleaded and carefully
particularised by Mrs. Rosset
in support of her claim to an
equitable interest in the property
was that it had been expressly
agreed between her and her
husband in conversations before
November 1982 that the property
was to be jointly owned and that
in reliance on this agreement she
had made a significant
contribution in kind to the acquisition of
the property by the
work she had personally undertaken in the
course of the renovation
of the property which was sufficient to
give rise to a
constructive trust in her favour.
There was a conflict of evidence
between Mr. and Mrs.
Rosset on the vital issue raised by this
pleading. The question the
judge had to determine was whether he
could find that before the
contract to acquire the property was
concluded they had entered
into an agreement, made an arrangement,
reached an
understanding, or formed a common intention that the
beneficial
interest in the property would be jointly owned. I do
not think it
is of importance which of these alternative
expressions one uses.
Spouses living in amity will not normally
think it necessary to
formulate or define their respective
interests in property in any
precise way. The expectation of
parties to every happy marriage
is that they will share the
practical benefits of occupying the
matrimonial home whoever owns
it. But this is something quite
- 3 -
distinct from sharing the
beneficial interest in the property asset
which the matrimonial
home represents. These considerations give
rise to special
difficulties for judges who are called on to resolve
a dispute
between spouses who have parted and are at arm's
length as to what
their common intention or understanding with
respect to interests
in property was at a time when they were
still living as a united
family and acquiring a matrimonial home in
the expectation of
living in it together indefinitely.
Since Mr. Rosset was providing the
whole purchase price of
the property and the whole cost of its
renovation, Mrs. Rosset
would, I think, in any event have
encountered formidable difficulty
in establishing her claim to
joint benficial ownership. The claim
as pleaded and as presented
in evidence was, by necessary
implication, to an equal share in
the equity. But to sustain this it
was necessary to show that it
was Mr. Rosset's intention to make
an immediate gift to his wife
of half the value of a property
acquired for £57,500 and
improved at a further cost of some
£15,000. What made it
doubly difficult for Mrs. Rosset to
establish her case was the
circumstance, which was never in
dispute, that Mr. Rosset's uncle,
who was trustee of his Swiss
inheritance, would not release the
funds for the purchase of the
property except on terms that it was
to be acquired in Mr.
Rosset's sole name. If Mr. and Mrs. Rosset
had ever thought
about it, they must have realised that the
creation of a trust
giving Mrs. Rosset a half share, or indeed any
other substantial
share, in the beneficial ownership of the
property would have been
nothing less than a subterfuge to
circumvent the stipulation which
the Swiss trustee insisted on as
a condition of releasing the funds
to enable the property to be
acquired.
In these circumstances, it would
have required very cogent
evidence to establish that it was the
Rossets' common intention to
defeat the evident purpose of the
Swiss trustee's restriction by
acquiring the property in Mr.
Rosset's name alone but to treat it
nevertheless as beneficially
owned jointly by both spouses. I doubt
whether the evidence would
have sustained a finding to that
effect. But the judge made no
such finding. On the contrary, his
judgment on this point amounts
to a clear rejection of Mrs.
Rosset's pleaded case. He said:
"The decision to transfer the
property into the name of the
first defendant alone was a
disappointment to the second
defendant, but I am satisfied that
she genuinely believed
that the first defendant would hold the
property in his name
as something which was a joint venture, to be
shared
between them as the family home and that the reason for
it
being held by the first defendant alone was to ensure that
the
first defendant's uncle would sanction the export of
trust funds
from Switzerland to England for the purchase.
As so often happens
the defendants did not pursue their
discussion to the extent of
defining precisely what their
respective interests in the property
should be. It was
settled that the property should be transferred
into the
name of the first defendant alone to achieve the
provision
of funds from Switzerland, but in the period from
August
1982 to the 23 November 1982 when the contracts
were
exchanged, the defendants did not decide whether the
second
defendant should have any interest in the property.' On
one
- 4 -
occasion the second defendant
heard the first defendant say
to her parents that he had put the
house in their joint
names, but she knew that he could not do that
and treated
what he said as an expression of what he would like to
do.
In these circumstances I am satisfied that the outcome of
the
discussions between the parties as to the name into
which the
property should be transferred did not exclude the
possibility
that the second defendant should have a
beneficial interest in the
property."
I have emphasised the
critical finding in this passage from the
judgment.
Even if there had been the
clearest oral agreement between
Mr. and Mrs. Rosset that Mr.
Rosset was to hold the property in
trust for them both as tenants
in common, this would, of course,
have been ineffective since a
valid declaration of trust by way of
gift of a beneficial interest
in land is required by section 53(1) of
the Law of Property Act
1925 to be in writing. But if Mrs.
Rosset had, as pleaded, altered
her position in reliance on the
agreement this could have given
rise to an enforceable interest in
her favour by way either of a
constructive trust or of a
proprietary estoppel.
Having rejected the contention
that there had been any
concluded agreement, arrangement or any
common intention formed
before contracts for the purchase of the
property were exchanged
on 23 November 1982 that Mrs. Rosset
should have any beneficial
interest, the judge concentrated his
attention on Mrs. Rosset's
activities in connection with the
renovation works as a possible
basis from which to infer such a
common intention. He described
what she did up to the date of
completion as follows:
"Up to 17 December 1982 the
second defendant's
contribution to the venture was: (1) to urge on
the builders
and to attempt to co-ordinate their work, until her
husband
insisted that he alone should give instructions; (2) to go
to
builders' merchants and obtain material required by
the
builders . . . and to deliver the materials to the site.
This
was of some importance because Mr. Griffin and his
employees
did not know the Thanet area; (3) to assist her
husband in
planning the renovation and decoration of the
house. In this, she
had some skill over and above that
acquired by most housewives.
She was a skilled painter and
decorator who enjoyed wallpapering
and decorating, and, as
her husband acknowledged, she had good
ideas about this
work. In connection with this, she advised on the
position
of electric plugs and radiators and planned the design of
the
large breakfast room and the small kitchen of the house;
(4)
to carry out the wallpapering of Natasha's bedroom and
her own
bedroom, after preparing the surfaces of the walls
and clearing up
the rooms concerned before the papering
began; (5) to begin the
preparation of the surfaces of the
walls of her son's bedroom, the
Den, the upstairs lavatory
and the downstairs washroom for
papering. All this
wallpapering was completed after 17 December
1982 but by
31 December 1982; (6) to assist in arranging the
insurance
of the house by the Minster Insurance Co. Ltd. home
cover
policy, in force from 3 November 1982; (7) to assist in
- 5 -
arranging a crime prevention
survey on 23 November 1982;
(8) to assist in arranging the
installation of burglar alarms
described in a specification dated
3 December 1982."
Later the judge said:
"I am satisfied that in 1982
the common intention expressed
by the defendants in conversation
between themselves was
that Vincent Farmhouse should be purchased
in the name of
the first defendant alone, because funds would not
be made
available from the first defendant's family trust
in
Switzerland unless the purchase was made only in his name.
In
addition, however, it was their common intention that the
renovation
of the house should be a joint venture, after
which the house was
to become a family home to be shared
by the defendants and their
children."
I pause to observe that neither a
common intention by spouses
that a house is to be renovated as a
"joint venture" nor a common
intention that the house is
to be shared by parents and children as
the family home throws any
light on their intentions with respect
to the beneficial ownership
of the property.
Reverting to Mrs. Rosset's
activity in connection with the
renovation of the property
the judge said:
"It is plain that she made
every effort to make the house
fit for occupation before Christmas
1982 and spent all the
time she could at Vincent Farmhouse in
between taking
Natasha to school and fetching her from school. . .
.
Obviously the extent of the work which the defendant did
in
preparation, clearing up before painting and decorating,
and
the painting and decorating itself, was valuable. ... In
the
result, having considered: (1) the semi-derelict condition
of
Vincent Farmhouse in November 1982, (2) the absence of
the
first defendant abroad for 10 days in November and
early
December 1982, (3) the second defendant's special skills
in
painting and decorating over and above those of the
average
housewife and her indirect contribution to reducing the
cost
of renovation of the farmhouse by carrying out
certain
painting and decorating herself, (4) the time she spent
at
the farmhouse from 4 November 1982 attempting to co-
ordinate
the work of the builders and her work in ordering
and delivering
materials to the site for the builders, and (5)
the conversations
between the parties concerning into whose
name the property was to
be transferred and the nature of
the joint venture and the purpose
of purchasing Vincent
Farmhouse;
I am satisfied that prior to 17
December 1982 there was a
common intention between the defendants
that the second
defendant should have a beneficial interest in the
property
under a constructive trust and that she did act to
her
detriment on the faith of such a common intention. Some,
but
not all, of her work at the farmhouse prior to 17
December 1982
falls into the category of work upon which
she could not
reasonably have been expected to embark
unless she was to have an
interest in the house, namely the
work to which she brought the
special skills of painting and
- 6 -
decorating and her work in
ordering and delivering materials
to the site for the builders in
attempting to co-ordinate her
work. These actions by the second
defendant must have
reduced the cost of renovating the farmhouse
and thus
indirectly contributed to the acquisition of the
property,
albeit to a small extent."
At the very end of his judgment
the judge pointed out that
he had made no finding as to the extent
of Mrs. Rosset's
beneficial interest in the property. He indicated
that he would
hear counsel as to what directions should be given
for the
determination of this issue at a later date. He concluded
his
judgment with the sentence:
"An area which the court
would wish to explore is the
extent to which the qualifying
conduct of the second
defendant reduced the cost of the renovation
of the
farmhouse and its buildings."
It is clear from these passages in
the judgment that the
judge based his inference of a common
intention that Mrs. Rosset
should have a beneficial interest in
the property under a
constructive trust essentially on what Mrs.
Rosset did in and about
assisting in the renovation of the
property between the beginning
of November 1982 and the date of
completion on 17 December
1982. Yet by itself this activity, it
seems to me, could not
possibly justify any such inference. It was
common ground that
Mrs. Rosset was extremely anxious that the new
matrimonial home
should be ready for occupation before Christmas
if possible. In
these circumstances it would seem the most natural
thing in the
world for any wife, in the absence of her husband
abroad, to spend
all the time she could spare and to employ any
skills she might
have, such as the ability to decorate a room, in
doing all she
could to accelerate progress of the work quite
irrespective of any
expectation she might have of enjoying a
beneficial interest in the
property. The judge's view that some of
this work was work
"upon which she could not reasonably have
been expected to
embark unless she was to have an interest in the
house" seems to
me, with respect, quite untenable. The
impression that the judge
may have thought that the share of the
equity to which he held
Mrs. Rosset to be entitled had been
"earned" by her work in
connection with the renovation
is emphasised by his reference in
the concluding sentence of his
judgment to the extent to which
her "qualifying contribution"
reduced the cost of the renovation.
On any view the monetary value of
Mrs. Rosset's work
expressed as a contribution to a property
acquired at a cost
exceeding £70,000 must have been so
trifling as to be almost de
minimis. I should myself have had
considerable doubt whether
Mrs. Rosset's contribution to the work
of renovation was sufficient
to support a claim to a constructive
trust in the absence of
writing to satisfy the requirements of
section 51 of the Law of
Property Act even if her husband's
intention to make a gift to her
of half or any other share in the
equity of the property had been
clearly established or if he had
clearly represented to her that
that was what he intended. But
here the conversations with her
husband on which Mrs. Rosset
relied, all of which took place
before November 1982, were
incapable of lending support to the
conclusion of a constructive
trust in the light of the judge's
- 7 -
finding that by that date there
had been no decision that she was
to have any interest in the
property. The finding that the
discussions "did not exclude
the possibility" that she should have an
interest does not
seem to me to add anything of significance.
These considerations lead me to
the conclusion that the
judge's finding that Mr. Rosset held the
property as constructive
trustee for himself his wife cannot be
supported and it is on this
short ground that I would allow the
appeal. In the course of the
argument your Lordships had the
benefit of elaborate submissions
as to the test to be applied to
determine the circumstances in
which the sole legal proprietor of
a dwelling house can properly be
held to have become a
constructive trustee of a share in the
beneficial interest in the
house for the benefit of the partner with
whom he or she has
cohabited in the house as their shared home.
Having in this case
reached a conclusion on the facts which,
although at variance with
the views of the courts below, does not
seem to depend on any nice
legal distinction and with which, I
understand, all your Lordships
agree, I cannot help doubting
whether it would contribute anything
to the illumination of the law
if I were to attempt an elaborate
and exhaustive analysis of the
relevant law to add to the many
already to be found in the
authorities to which our attention was
directed in the course of
the argument. I do, however, draw
attention to one critical
distinction which any judge required to
resolve a dispute between
former partners as to the beneficial
interest in the home they
formerly shared should always have in
the forefront of his mind.
The first and fundamental question
which must always be
resolved is whether, independently of any
inference to be drawn
from the conduct of the parties in the
course of sharing the house
as their home and managing their joint
affairs, there has at any
time prior to acquisition, or
exceptionally at some later date, been
any agreement, arrangement
or understanding reached between
them that the property is to be
shared beneficially. The finding
of an agreement or arrangement to
share in this sense can only, I
think, be based on evidence of
express discussions between the
partners, however imperfectly
remembered and however imprecise
their terms may have been. Once a
finding to this effect is made
it will only be necessary for the
partner asserting a claim to a
beneficial interest against the
partner entitled to the legal estate
to show that he or she has
acted to his or her detriment or
significantly altered his or her
position in reliance on the
agreement in order to give rise to a
constructive trust or a
proprietary estoppel.
In sharp contrast with this
situation is the very different
one where there is no evidence to
support a finding of an
agreement or arrangement to share, however
reasonable it might
have been for the parties to reach such an
arrangement if they
had applied their minds to the question, and
where the court must
rely entirely on the conduct of the parties
both as the basis from
which to infer a common intention to share
the property
beneficially and as the conduct relied on to give
rise to a
constructive trust. In this situation direct
contributions to the
purchase price by the partner who is not the
legal owner, whether
initially or by payment of mortgage
instalments, will readily justify
the inference necessary to the
creation of a constructive trust.
But, as I read the authorities,
it is at least extremely doubtful
whether anything less will do.
- 8 -
The leading cases in your
Lordships' House are Pettitt v.
Pettitt [1970] AC 777 and
Gissing v. Gissing [1971] AC 886.
Both demonstrate
situations in the second category to which I have
referred and
their Lordships discuss at great length the difficulties
to which
these situations give rise. The effect of these two
decisions is
very helpfully analysed in the judgment of Lord
MacDermott L.C.J.
in McFarlane v. McFarlane [1972] N.I. 79.
Outstanding examples on the other
hand of cases giving rise
to situations in the first category are
Eves v. Eves [1975] 1
W.L.R. 1338 and Grant v. Edwards
[1986] Ch 638. In both these
cases, where the parties who had
cohabited were unmarried, the
female partner had been clearly led
by the male partner to
believe, when they set up home together,
that the property would
belong to them jointly. In Eves the
male partner had told the
female partner that the only reason why
the property was to be
acquired in his name alone was because she
was under 21 and
that, but for her age, he would have had the
house put into their
joint names. He admitted in evidence that
this was simply an
"excuse." Similarly in Grant v.
Edwards the female partner was
told by the male partner that
the only reason for not acquiring
the property in joint names was
because she was involved in
divorce proceedings and that, if the
property were acquired jointly,
this might operate to her
prejudice in those proceedings. As
Nourse L.J. put it, at p. 649:
"Just as in Eves v. Eves
[1975] 1 WLR 1338, these facts
appear to me to raise a clear
inference that there was an
understanding between the plaintiff
and the defendant, or a
common intention, that the plaintiff was
to have some sort
of proprietary interest in the house; otherwise
no excuse for
not putting her name on to the title would have
been
needed."
The subsequent conduct of the
female partner in each of these
cases, which the court rightly
held sufficient to give rise to a
constructive trust or
proprietary estoppel supporting her claim to
an interest in the
property, fell far short of such conduct as would
by itself have
supported the claim in the absence of an express
representation by
the male partner that she was to have such an
interest. It is
significant to note that the share to which the
female partners in
Eves and Grant v. Edwards were held entitled
were
one quarter and one half respectively. In no sense could
these
shares have been regarded as proportionate to what the
judge in
the instant case described as a "qualifying contribution"
in
terms of the indirect contributions to the acquisition
or
enhancement of the value of the houses made by the
female
partners.
I cannot help thinking that the
judge in the instant case
would not have fallen into error if he
had kept clearly in mind the
distinction between the effect of
evidence on the one hand which
was capable of establishing an
express agreement or an express
representation that Mrs. Rosset
was to have an interest in the
property and evidence on the other
hand of conduct alone as a
basis for an inference of the necessary
common intention.
- 9 -
If Mrs. Rosset had become entitled
to a beneficial interest
in the property prior to completion it
might have been necessary
to examine a variant of the question
regarding priorities which
your Lordships have just considered in
Abbey National Building
Society v. Cann and, subject to
that question, to decide whether,
as a matter of fact, she was in
"actual occupation" of the
property on 17 December 1982.
Since these questions have now
become academic, I do not think any
useful purpose would be
served by going into them.
For the reasons I have indicated I
would allow the appeal,
set aside the order of the Court of Appeal
and, as between Mrs.
Rosset and the bank, restore the order of the
trial judge.
LORD GRIFFITHS
My Lords,
I have had the advantage of
reading in draft the speech of
my noble and learned friend, Lord
Bridge of Harwich. I agree
with it and, for the reasons he gives,
I would allow the appeal.
LORD ACKNER
My Lords,
I have had the advantage of
reading in draft the speech
delivered by my noble and learned
friend Lord Bridge of Harwich.
I agree with it and would allow the
appeal for the reasons which
he has given.
LORD OLIVER OF AYLMERTON
My Lords,
I have had the advantage of
reading in draft the speech
delivered by my noble and learned
friend Lord Bridge of Harwich.
I agree with it and would allow the
appeal for the reasons which
he has given.
LORD
JAUNCEY OF TULLICHETTLE
My Lords,
I have had the advantage of
reading in draft the speech
prepared by my noble and learned
friend Lord Bridge of Harwich.
I agree with it, and for the
reasons which he has given I too
would allow the appeal.
- 10 - |
JISCBAILII_CASE_CONSTITUTIONAL
Parliamentary
Archives,
HL/PO/JU/18/250
Regina v. Dairy Produce Quota
Tribunal for England and Wales
(Respondents) ex parte Caswell
(A.P.) and another (A.P.)
(trading as Mr. A. R. and Mrs. E. E.
Caswell) (Appellants)
JUDGMENT
Die Jovis 17° Maii 1990
Upon Report from the Appellate Committee to
whom was
referred the Cause Regina against Dairy Produce Quota
Tribunal
for England and Wales ex parte Caswell (A.P.) and
another
(A.P.) (trading as Mr. A. R. and Mrs. E. E. Caswell), That
the
Committee had heard Counsel on Monday the 26th and Tuesday
the
27th days of March last, upon the Petition and Appeal
of
Albert Raymond Caswell and Eirys Edwina Caswell, of
Berthylwyd,
Llangynin, St. Clears, Dyfed, praying that the
matter of the Order
set forth in the Schedule thereto, namely
an Order of Her
Majesty's Court of Appeal of the 26th day of
May 1989, might be
reviewed before Her Majesty the Queen in
Her Court of Parliament
and that the said Order might be
reversed, varied or altered or
that the Petitioners might have
such other relief in the premises
as to Her Majesty the Queen
in Her Court of Parliament might seem
meet; as upon the case
of the Dairy Produce Quota Tribunal for
England and Wales
lodged in answer to the said Appeal; and due
consideration had
this day of what was offered on either side in
this Cause:
It is Ordered and Adjudged, by
the Lords Spiritual and
Temporal in the Court of Parliament of Her
Majesty the Queen
assembled, That the said Order of Her Majesty's
Court of
Appeal (Civil Division) of the 26th day of May 1989
complained
of in the said Appeal be, and the same is hereby,
Affirmed and
that the said Petition and Appeal be, and the
same is hereby,
dismissed this House: And it is further Ordered,
That the
Costs of the said Appellants in respect of -the said
Appeal be
taxed in accordance with the Legal Aid Act 1988.
Cler: Parliamentor:
Judgment:
17.5.90
HOUSE OF LORDS
REGINA
v.
DAIRY PRODUCE QUOTA TRIBUNAL FOR
ENGLAND AND WALES
(RESPONDENTS)
EX PARTE CASWELL (A.P.) AND
ANOTHER (A.P.)
(TRADING AS MR. A. R. AND MRS. E. E. CASWELL)
(APPELLANTS)
Lord Bridge of Harwich
Lord
Griffiths
Lord Ackner
Lord Goff of Chieveley
Lord Lowry
LORD
BRIDGE OF HARWICH
My
Lords,
I have had the advantage of
reading in draft the speech of
my noble and learned friend Lord
Goff of Chieveley. I agree with
it and for the reasons he gives I
would dismiss the appeal.
LORD
GRIFFITHS
My Lords,
I have had the advantage of
reading in draft the speech
prepared by my noble and learned
friend, Lord Goff of Chieveley.
I agree with it and, for the
reasons he gives, I would dismiss this
appeal.
LORD
ACKNER
My
Lords,
I agree that, for the reasons
given by my noble and learned
friend Lord Goff of Chieveley, this
appeal be dismissed.
LORD
GOFF OF CHIEVELEY
My Lords,
There is before your Lordships'
House an appeal from a
decision of the Court of Appeal dated 20
May 1989, by which they
dismissed an appeal from a decision of
Popplewell J. dated 25
November 1988 refusing the appellants
substantive relief by way of
judicial review on the ground that
there had been undue delay on
the part of the appellants and that,
if substantive relief were
granted, there would be detriment to
good administration.
The matter has arisen as follows.
The appellants are dairy
farmers, who farm in partnership two
farms in Dyfed, called
Berthlwyd and Pantdwfn. They sell milk
wholesale to the Milk
Marketing Board. The present case is
concerned only with
Pantdwfn. As from 1 April 1984, the sale of
milk wholesale
became subject to a "wholesale quota"
allocated to each milk
producer under the Dairy Produce Quotas
Regulations 1984 (1984
S.I. No. 1047) ("the Regulations"),
which were made to give effect
to E.E.C. Regulations (Council
Regulation (E.E.C.) No. 856/84
(Official Journal No. L. 90, 1
April 1984, p. 10), Council
Regulation (E.E.C.) No. 857/84
(Official Journal No. L. 90, 1 April
1984, p. 13) and Commission
Regulation (E.E.C.) No. 1371/84
(Official Journal No. L. 132, 18
March 1984, p. 11). Under the
Regulations, milk producers became
eligible to be awarded
"primary wholesale quota" and
"secondary wholesale quota: see
regulation 2 and paragraphs 9
and 10 of Schedule 2." The former
was allocated on the basis
of milk production during the reference
year, which was 1983. The
latter was allocated on the ground of
insufficient primary
wholesale quota, being based either on the
fact that 1983 was an
unrepresentative reference year, so enabling
1981 or 1982 to be
selected in its place, or on the extent of a
producer's investment
for dairy farming. An exceptional hardship
claim could, however,
be made where (inter alia) a producer had
before 2 April 1984
entered into a transaction or made an
arrangement, the reasonably
expected outcome of which was a
wholesale delivery of dairy
produce in respect of which wholesale
quota was not otherwise
capable of being allocated. Exceptional
hardship claims were made
by a significant number of milk
producers, constituting about 11
per cent, of producers.
Under the Regulations, a Dairy
Produce Quota Tribunal
("D.P.Q.T.") was established:
regulation 6. D.P.Q.T. adjudicated on
applications for primary and
secondary wholesale dairy produce
quotas (on appeal from local
panels), and it had sole jurisdiction
over exceptional hardship
claims. It is still in being, though it
completed the bulk of its
work in 1984 and 1985.
The appellants were allocated
primary and secondary
wholesale quotas in respect of Berthlwyd.
However, there was no
milk production at Pantdwfn during the
reference year (1983) or in
earlier years, and so wholesale quota
could only be awarded in
respect of Pantdwfn on the basis of
exceptional hardship. The
appellants therefore made a claim on
that basis, which was
determined by D.P.Q.T. in February 1985. At
the hearing before
the tribunal, the appellants were asked how
many cows they would
be able to milk at the end of March 1985 (the
end of the first
- 2 -
quota year). Milking had not then
commenced, but the appellants
estimated that by the end of March
1985 they would be able to
milk about 70 cows. The chairman of the
tribunal then indicated
that quota would be awarded only for that
number on the basis of
exceptional hardship, although the housing
and facilities at
Pantdwfn could carry a dairy herd of 150 cows.
He also Indicated
to the appellants that there was a possibility
of making a further
application (an indication which proved to be
incorrect).
The decision of D.P.Q.T. was
posted to the appellants on 20
February 1985. It determined the
quantity of dairy produce
justified by the appellants' claim for
wholesale quota in respect of
Pantdwfn on the ground of
exceptional hardship as 318,500 litres
per annum, being the
expected produce from 70 dairy cows at a
specified average
yield. The appellants then consulted Mr.
Goronwy Evans, a local
non-legal expert In milk marketing
matters. He advised them that
there was nothing they could do
at that time. They then consulted
the European Commission, from
which they received a reply in very
general terms. It was not
until May 1987 that they first became
aware of the remedy of
judicial review, as the result of an
article in the "Farming Press."
A local solicitor was
then consulted. He frankly admitted that he
knew nothing about
judicial review, but promptly referred the
appellants to their
present solicitors. Within a week, they
submitted an application
for legal aid; it was not however until 5
October 1987, after
considerable correspondence, that legal aid was
granted to the
appellants. Within two days the appellants attended
a conference
with counsel, who forthwith settled the necessary
documents for an
application for leave to apply for judicial review,
which were
engrossed on 15 October 1987. The respondents to the
application,
D.P.Q.T., were notified on 19 October. On 21 October
Mann J.
granted the appellants leave to apply, observing however
that
the appellants would have to deal with the matter of delay at
the
hearing.
The application came on for
hearing before Popplewell J. on
23 November 1988. After a hearing
lasting half a day, he dealt
with the substantive issue in an ex
tempore judgment in which,
after reviewing the relevant
Regulations, he concluded that
D.P.Q.T. had erred in law in making
an award based upon the
limited number of cows which the
appellants would have on
Pantdwfn farm at the end of March 1985,
without regard to the
future. There has been no appeal from that
decision. Popplewell
J. then heard argument on the question of
delay. On 25
November he delivered a second judgment in which he
held that,
by reason of the delay which had occurred, no order of
mandamus
or certiorari should be made, and that the relief granted
should be
limited to a declaration giving effect to his
interpretation of the
Regulations and stating that D.P.Q.T. had
erred in law. The
appellants then appealed against the judge's
refusal of substantive
relief. On 26 May 1989 the Court of Appeal
dismissed their
appeal, the sole judgment being delivered by Lloyd
L.J., with
whom Kerr and Butler-Sloss L.JJ. agreed [1989] 1 W.L.R.
1089.
The appellants now appeal to their Lordships' House, with
leave of
the Court of Appeal.
I turn first to the relevant
legislative provisions relating to
delay in matters of judicial
review. These are to be found in
R.S.C., Ord. 53, r. 4, and in
section 31 of the Supreme Court Act
1981. Ord. 53, r. 4, provides
as follows:
- 3 -
"(1) An application for leave
to apply for judicial
review shall be made promptly and in any
event within
three months from the date when grounds for
the
application first arose unless the court considers that
there
is good reason for extending the period within which
the
application shall be made. (2) Where the relief sought is
an
order of certiorari in respect of any judgment,
order,
conviction or other proceeding, the date when grounds
for
the application first arose shall be taken to be the date
of
that judgment, order, conviction or proceeding. (3)
The
preceding paragraphs are without prejudice to any
statutory
provision which has the effect of limiting the time
within
which an application for judicial review may be made."
Section 31 of the Act of 1981
provides (so far as relevant)
as follows:
.
"(6) Where the High Court
considers that there has been
undue delay in making an application
for judicial review, the
court may refuse to grant - (a)
leave for the making of the
application, or (b) any relief
sought on the application, if it
considers that the granting of
the relief sought would be
likely to cause substantial hardship
to, or substantially
prejudice the rights of, any person or would
be detrimental
to good administration. (7) Subsection (6) is
without
prejudice to any enactment or rule of court which has
the
effect of limiting the time within which an application
for
judicial review may be made."
When Order 53 was redrawn in 1977,
rule 4(1) then provided
that, where there had been undue delay in
making an application
for judicial review, the court might refuse
to grant leave for the
making of the application, or any relief
sought on the application,
"if, in the opinion of the
court, the granting of the relief
sought would be likely to cause
substantial hardship to, or
substantially prejudice the rights of,
any person or would be
detrimental to good administration."
Rule 4(2) then
provided that, for an order of certiorari to remove
any proceeding
for the purpose of quashing it, the relevant period
for the
purpose of paragraph (1) was three months after the date
of the
relevant proceeding. In 1980, however, that rule was
replaced by
the present rule, save only that rule 4(1) referred to
"An
application for judicial review . . . ." Following
critical
comment by the. Court of Appeal in Reg. v.
Stratford-on-Avon
District Council, Ex parte Jackson [1985] 1
W.L.R. 1319, in which
it was held that those words must be read as
referring to an
application for leave to apply for judicial
review, the rule was
amended to give express effect to that
interpretation. Despite the
change in Ord. 53, r. 4, made in 1980,
section 31(6) of the
Supreme Court Act 1981 mirrored the old rule
4, which had by
then been replaced. In 1985, clause 43 of the
Administration of
Justice Bill of that year contained a provision
which would have
repealed section 31(6) of the Act of 1981; but
the clause was
abandoned for other reasons, and the proposed
repeal fell with it.
- 4 -
In the result, the courts have
been left with the task of
giving effect to two provisions
relating to delay, which at first
sight are not easy to reconcile.
First, in Ord. 53, r. 4(1), undue
delay is defined, whereas in
section 31(6) it is not. Second, rule
4(1) applies only to
applications for leave to apply for judicial
review, whereas
section 31(6) applies both to applications for leave
to apply and
to applications for substantive relief. Third, rule 4(1)
looks to
the existence of good reason for extending the specified
period,
whereas section 31(6) looks to certain effects of delay as
grounds
for refusing leave, or substantive relief, as the case may
be. A
further twist is provided by the fact that rule 4(1) and (2)
are
expressed to be without prejudice to any statutory provision
which
has the effect of limiting the time within which an
application
for judicial review may be made; and that section 31(6)
is
expressed to be without prejudice to any enactment or rule of
court
which had that effect. These two provisions were said by
Lloyd
L.J., in the Court of Appeal, to produce a circulus
inextricabilis
[1989] 1 W.L.R. 1089, 1094F.
The relationship between Ord. 53,
r. 4, and section 31(6)
was considered by the Court of Appeal in
Reg. v. Stratford-on
Avon District Council, Ex parte Jackson
[1985] 1 W.L.R. 1319 (to
which I have already referred) with
particular reference to the
meaning of the expression "undue
delay." It was there submitted
that, where good reason had
been held to exist for the failure to
act promptly as required by
Ord. 53, r. 4(1), and the time for
applying for leave had
therefore been extended, the effect of
section 31(7) was that in
such circumstances there was no power
to refuse either leave to
apply or substantive relief under section
31(6) on the ground of
undue delay, because an extension of time
under Ord. 53, r. 4,
itself negatives the existence of undue delay.
That submission was
rejected by the Court of Appeal. Ackner
L.J., who delivered the
judgment of the court, said, at p. 1325:
'This is not an easy point to
resolve, but we have concluded
that whenever there is a failure to
act promptly or within
three months there is 'undue delay.'
Accordingly, even
though the court may be satisfied in the light
of all the
circumstances, including the particular position of
the
applicant, that there is good reason for that
failure,
nevertheless the delay, viewed objectively, remains
'undue
delay.' The court therefore still retains a discretion
to
refuse to grant leave for the making of the application or
the
relief sought on the substantive application on the
grounds of
undue delay if it considers that the granting of
the relief sought
would be likely to cause substantial
hardship to, or substantially
prejudice the rights of, any
person or would be detrimental to
good administration."
With this conclusion, I
respectfully agree. First, when
section 31(6) and (7) refer to "an
application for judicial review,"
those words must be read as
referring, where appropriate, to an
application for leave to apply
for judicial review. Next, as I read
rule 4(1), the effect of the
rule is to limit the time within which
an application for
leave to apply for judicial review may be made
in accordance with
its terms, i.e. promptly and in any event within
three months. The
court has however power to grant leave to
apply despite the fact
that an application is late, if it considers
that there is good
reason to exercise that power; this it does by
- 5 -
extending the period. This, as I
understand it, is the reasoning
upon which the Court of Appeal
reached its conclusion in Reg. v.
Stratford-on-Avon District
Council, Ex parte Jackson.
Furthermore, the combined effect of
section 31(7) and of rule 4(1)
is that there is undue delay for
the purposes of section 31(6)
whenever the application for leave
to apply is not made promptly
and in any event within three months
from the relevant date.
It follows that, when an
application for leave to apply is
not made promptly and in any
event within three months, the
court may refuse leave on the
ground of delay unless it considers
that there is good reason for
extending the period; but, even if it
considers that there is such
good reason, it may still refuse leave
(or, where leave has been
granted, substantive relief) if in its
opinion the granting of the
relief sought would be likely to cause
hardship or prejudice (as
specified in section 31(6)) or would be
detrimental to good
administration. I imagine that, on an ex parte
application for
leave to apply before a single judge, the question
most likely to
be considered by him, if there has been such delay,
is whether
there is good reason for extending the period under rule
4(1).
Questions of hardship or prejudice, or detriment, under
section
31(6) are, I imagine, unlikely to arise on an ex parte
application,
when the necessary material would in all probability
not be
available to the judge. Such questions could arise on a
contested
application for leave to apply, as indeed they did in
Reg. v.
Stratford-on-Avon District Council, Ex parte Jackson; but
even
then, as in that case, it may be thought better to grant
leave
where there is considered to be good reason to extend the
period
under rule 4(1), leaving questions arising under section 31(6)
to
be explored in depth on the hearing of the substantive
application.
In this way, I believe, sensible
effect can be given to these
two provisions, without doing
violence to the language of either.
Unlike the Court of Appeal, I
do not consider that rule 4(3) and
section 31(7) lead to a
circulus inextricabilis, because 31(6) does
not limit "the
time within which an application for judicial review
may be made"
(the words used in rule 4(3)). Section 31(6) simply
contains
particular grounds for refusing leave or substantive relief,
not
referred to in rule 4(1), to which the court is bound to give
effect,
independently of any rule of court.
Accordingly, in the present case,
the fact that the single
judge had granted leave to the appellants
to apply for judicial
review despite the lapse (long before) of
three months from the
date when the ground for their application
first arose, did not
preclude the court from subsequently refusing
substantive relief on
the ground of undue delay in the exercise of
its discretion under
section 31(6). This was the approach adopted
by both courts
below, applying (as they were bound to do) the
decision of the
Court of Appeal in Reg. v Stratford-on-Avon
District Council, Ex
parte Jackson [1985] 1 W.L.R. 1319.
Before your Lordships Mr.
Gordon for the appellants submitted that
the principles stated in
Ex parte Jackson were erroneous;
but, for the reasons I have
already given, I am unable to accept
that submission.
It follows that there is no doubt
that, in the present case,
there was undue delay within section
31(6). No suggestion has
been made that substantial hardship or
substantial prejudice were
- 6 -
likely to be caused by the grant
of the relief sought. The only
questions which remained on the
appeal were (1) whether the
Court of Appeal should reject the
judge's conclusion that the grant
of such relief would be
detrimental to good administration; and (2)
If not, whether it
should interfere with the judge's exercise of his
discretion to
refuse such relief. The Court of Appeal decided
against the
appellants on both of these points.
On the question of detriment to
good administration, the
judge reviewed with care the evidence
before him. This consisted
of an affidavit sworn by Mr. Newton,
who was secretary of
D.P.Q.T. until September 1988, and two
affidavits submitted by the
appellants in answer to that
affidavit, one sworn by Mr. May of
the legal department of the
National Farmers' Union, and the
other by Mr. Collinson, a partner
In the solicitors acting for the
appellants. It appeared from the
evidence that the essence of the
quota system is that there is a
finite amount of milk quota
available, so that a quota given to
one producer is not available to
others. In fact, about 4,000
exceptional hardship appeals were
heard by D.P.Q.T. Of these,
about 600 were successful, additional
quota being granted; so
about 3,400 producers failed in their
applications for additional
quota on this ground. In a large number
of these latter cases, the
end of the final quota year was stated
to be the major
consideration. Next, the fact that judicial review
was the remedy
available to a milk purchaser aggrieved by a
decision of D.P.Q.T.
must have become well known at least after
September 1985, when
the first hearing of an application for
judicial review in such a
case received wide publicity in the dairy
trade. Consideration was
given to the possibility of other
producers seeking judicial
review of adverse decisions of D.P.Q.T.
if the appellants'
application for substantive relief was successful.
It was accepted
that sufficient provision had been made to deal
with the
appellants' claim for extra quota. But, in Mr. Newton's
opinion, a
small but administratively substantial number of milk
producers
could be encouraged to make applications for judicial
review
relying on the same point as the appellants, or a variation
of it;
and that could mean re-opening the quota for the year 1984-
85,
and for each succeeding year. Further allocations of quota
could
only be made at the expense of all other producers whose
quotas
would have to be reduced accordingly. Mr. Collinson, in
his
affidavit, questioned whether other milk producers would be
likely
to follow the appellants' lead and seek judicial review or
whether,
if they did so, they would obtain leave to apply after
such a long
delay.
Having reviewed the evidence, the
judge expressed his
conclusion on this point in the following
passage in his judgment:
"It is obvious that if there
are a number of applications the
problem of re-opening these
claims, going back now three
years, is going to be very great. It
arises out of events in
1985. The evidential problems are
self-evident, leaving
aside the question of being able fairly to
deal with claims
now in relation to matters in 1985. I think there
is likely
to be a very real problem in relation to a number of
cases.
I do not think the number of cases is de minimis. I
have
concluded that the fact that hitherto there have been
only
these two applications is not a matter which is of very
great
help in determining what the effect will be of the
- 7 -
particular decision in this case.
I have come to the
clearest view that there will be a detriment to
good
administration if this application were granted."
The judge's conclusion, on the
evidence before him, that
there was likely to be a very real
problem in relation to a number
of cases, was a finding of fact
with which I can see no reason to
interfere. Once that conclusion
was reached, it seems to me
inevitable that to grant the relief
sought in the present case would
cause detriment to good
administration. As Lloyd L.J. pointed out
in his judgment [1989] 1
W.L.R. 1089, 1099, two things emerged
from the evidence with
sufficient clarity: first that, if the
appellants' application for
substantive relief were to be successful,
there would be a
significant number of further applications, and
second that, if a
significant number of applications were granted,
then all previous
years back to 1984 would have to be re-opened.
These facts
disclose, in my opinion, precisely the type of situation
which
Parliament was minded to exclude by the provision in
section 31(6)
relating to detriment to good administration. Lord
Diplock pointed
out in O'Reilly v. Mackman [1983] 2 AC 237,
280-281,
that:
"The public interest in good
administration requires that
public authorities and third parties
should not be kept in
suspense as to the legal validity of a
decision the authority
has reached in purported exercise of
decision-making powers
for any longer period than is absolutely
necessary in fairness
to the person affected by the decision."
I do not consider that it would be
wise to attempt to formulate
any precise definition or description
of what constitutes detriment
to good adminsitration. This is
because applications for judicial
review may occur in many
different situations, and the need for
finality may be greater in
one context than in another. But it is
of importance to observe
that section 31(6) recognises that there
is an interest in good
administration independently of hardship, or
prejudice to the
rights of third parties, and that the harm suffered
by the
applicant by reason of the decision which has been
impugned is a
matter which can be taken into account by the
court when deciding
whether or not to exercise its discretion under
section 31(6) to
refuse the relief sought by the applicant. In
asking the question
whether the grant of such relief would be
detrimental to good
administration, the court is at that stage
looking at the interest
in good administration independently of
matters such as these. In
the present context, that interest lies
essentially in a regular
flow of consistent decisions, made and
published with reasonable
dispatch; in citizens knowing where they
stand, and how they can
order their affairs in the light of the
relevant decision. Matters
of particular importance, apart from
the length of time itself,
will be the extent of the effect of the
relevant decision, and the
impact which would be felt if it were
to be re-opened. In the
present case, the court was concerned
with a decision to allocate
part of a finite amount of quota, and
with circumstances in which
a re-opening of the decision would
lead to other applications to
re-open similar decisions which, if
successful, would lead to
re-opening the allocation of quota over a
number of years. To me
it is plain, as it was to the judge and to
the Court of Appeal,
that to grant the appellants the relief they
sought in the present
case, after such a lapse of time had
- 8 -
occurred, would be detrimental to
good administration. It is, in
my opinion, unnecessary to deal
expressly with the detailed
arguments advanced by Mr. Gordon on
behalf of the appellants on
this point. They were substantially
the same as the arguments
canvassed by him before the Court of
Appeal, which considered
and dismissed each argument seriatim.
None of them, in my
opinion, made any impact upon the essential
matters, which I have
indentified.
Finally, I can, like the Court of
Appeal, see no basis for
interfering with the judge's exercise of
his discretion. The judge
took into account the relevant factors,
including in particular the
financial hardship suffered by the
appellants by reason of the
erroneous approach adopted by
D.P.Q.T., and in particular the
imposition upon them of
substantial superlevy in the years 1986-87
and 1987-88. He then
balanced the various factors and, as he
said, came down firmly
against the view of the applicant. I can
perceive no error here
which would justify interference with the
judge's conclusion.
For these reasons, I would dismiss
the appeal.
LORD LOWRY
My Lords,
I have had the advantage of
reading in draft the speech of
my noble and learned friend, Lord
Goff of Chieveley. I agree
with it and, for the reasons which he
gives, I, too, would dismiss
this appeal.
- 9 - |
HOUSE OF LORDS
Date: 07.06.1990
HAMPSON
(APPELLANT)
v.
DEPARTMENT OF EDUCATION AND SCIENCE
(RESPONDENTS)
Lord Bridgeof Harwich
Lord Griffiths
Lord Ackner
Lord Lowry
LORD BRIDGE OF HARWICH
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend Lord Lowry. I agree with it and for the reasons he gives I would allow the appeal and remit the case to an industrial tribunal for rehearing.
LORD GRIFFITHS
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Lowry. I agree with it and for the reasons he gives I, too, would allow the appeal.
LORD ACKNER
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Lowry. I agree with it and for the reasons he gives, I would allow the appeal.
(a) in the terms on which it is prepared to confer on him that authorisation or qualification; or
(b) by refusing, or deliberately omitting to grant, his application for it; or
(c) by withdrawing it from him or varying the terms on which he holds it.
(2) In this section-
(a) 'authorisation or qualification' includes recognition, registration, enrolment, approval and certification;
(b) 'confer' includes renew or extend."
Section 41
"41(1) Nothing in Parts II to IV shall render unlawful any act of discrimination done-
(a) in pursuance of any enactment or Order in Council; or
(b) in pursuance of any instrument made under any enactment by a Minister of the Crown; or
(c) in order to comply with any condition or requirement imposed by a Minister of the Crown (whether before or after the passing of this Act) by virtue of any enactment.
References in this subsection to an enactment, Order in Council or instrument include an enactment, Order in Council or instrument passed or made after the passing of this Act.
(2) Nothing in Parts II to IV shall render unlawful any act whereby a person discriminates against another on the basis of that other's nationality or place of ordinary residence or the length of time for which he has been present or resident in or outside the United Kingdom or an area within the United Kingdom, if that act is done-(a) in pursuance of any arrangements made (whether before or after the passing of this Act) by or with the approval of, or for the time being approved by, a Minister of the Crown; or
(b) in order to comply with any condition imposed (whether before or after the passing of this Act) by a Minister of the Crown."
The appellant took a full-time two-year initial teacher training course at Grantham College of Education in Hong Kong from 1968 to 1970. She thereby became qualified to teach in Hong Kong and did so for eight years. She then took a further full-time one-year teacher training course at Northcote College of Education, also in Hong Kong, from 197S to 1979 and was awarded by the Hong Kong Education Department a Third Year Certificate with specialisation in the teaching of English. After teaching for another year, she was from 1980 to 1984 an inspector for the Education Department of Hong Kong. During this time she attended Birmingham University for the academic year 1981-82 and there obtained a Diploma in Special Education. In 1984 she came to this country and on 20 February 1985 she applied to the respondent to be recognised as qualified to teach in state schools in England and Wales.
In order to be thus recognised, she needed notification from the Secretary of State that she was a qualified teacher (this is know as the grant of QT status) in accordance with Regulation 13 of and Schedule 5 to the Education (Teachers) Regulations 1982 (S.I. 1982 No. 106) ("the Regulations of 1982"). Regulation 13(1) provided:
"Save in the cases and circumstances specified in Schedule 4, no person shall be employed as a teacher at a school unless he is qualified therefor as mentioned in Schedule 5; and references in this Part to a qualified or unqualified teacher shall, subject to paragraph (2), be construed accordingly."
(Neither Schedule 4 nor paragraph (2) is relevant for present purposes.)
Schedule 5 is headed "Qualified Teachers" and, so far as material, provides:
"1(1) A person shall be qualified to be employed as a teacher at a school for the purpose of Regulation 13 (subject to paragraph (2) thereof) if either:
(a) the Secretary of State being satisfied that he is such a person as is mentioned in paragraph 2, on or after 8 April 1982 he has been notified in writing, by or on behalf of the Secretary of State, that he is a qualified teacher
2. In this paragraph the expression 'approved' means approved by the Secretary of State for the purposes of the sub-paragraph in which the expression occurs.
The persons referred to in paragraph l(l)(a) are any of the following persons:-
(a) a person who has successfully completed a course which-
(i) is for the degree of Bachelor of Education, the Certificate in Education, the Post-graduate Certificate in Education or a comparable academic award of, in each, case, either a university in the United Kingdom or of the Council for National Academic Awards, and
(ii) is approved as a course for the initial training of teachers in schools;
(b) a person who-
(i) has successfully completed a course (whether within or outside the United Kingdom) approved as comparable to a course within subparagraph (a), and
(ii) unless he so completed the course before 1 September 1984, has attained in mathematics and in English the standard required to attain in the subject in question either a grade C in the examination for the General Certificate of Education at ordinary level or a grade 1 in the examination for the Certificate of Secondary Education,
…."
(Paragragh 2 lists four other categories, (c) to (f), which are not relevant either for their own sake or as an aid to the construction or understanding of the material provisions.) The Regulations of 1982 have now been replaced, but nothing turns on this.
The Secretary of State therefore had to decide whether he would approve the course of teacher training completed by the appellant as being "comparable to a course within [paragraph 2(a) of Schedule 5 to the Regulations of 1982]", in which case the appellant would be notified in writing under paragraph l(l)(a) that she was a qualified teacher. But he did not so approve the course and accordingly the appellant was not so notified. Instead she was informed by the respondent that her application was refused on the ground that the Hong Kong course was not comparable to a course within paragraph 2(a$ as it was not a three-year course or of a sufficiently high standard.
The appellant thereupon complained to an industrial tribunal that she had been discriminated against both directly under section l(l)(a) of the Act of 1976 on racial grounds and indirectly under section 1(1)(b), alleging that the Secretary of State had applied to her a requirement which was such that the proportion of persons of the appellant's racial group (which is widely defined in section 3 of the Act) who could comply with the requirement was considerably smaller than the proportion of other persons who could so comply and which was to her detriment. The tribunal dismissed the complaint of direct discrimination and that complaint has not been further pursued. On the complaint of indirect discrimination the tribunal found that the Secretary of State had not applied a "requirement or condition" within the meaning of section1(1)(b) but that in any event the appellant's complaint could not succeed because, even if a requirement or condition was applied, this was done in pursuance of an instrument, namely, the Regulations of. 1982, and the effect of section 41(l)(b) was to render lawful the respondent's discrimination; moreover, the "requirement or condition" was justifiable within the meaning of section l(l)(b)(ii).
On appeal the Employment Appeal Tribunal [1988] I.C.R. 278 held that the industrial tribunal was wrong in deciding that the requirement that the course be a three-year course was not a "requirement or condition", but upheld the decision that section 41(1)(b) applied and that in any event the requirement imposed was justifiable within the meaning of section l(l)(b)(ii).
On further appeal the Court of Appeal [1989] I.C.R. 179 held in favour of the appellant on the question of justifiability under section l(l)(b)(ii), but by a majority (Nourse and Parker L.JJ.; Balcombe L.J. dissenting) dismissed her appeal on the ground that section 41(l)(b) afforded a complete defence: the words "any act of discrimination done ... in pursuance of any instrument made under any enactment by a Minister of the Crown" did not restrict the availability of the defence in section 41(l)(b) to acts done in the necessary performance of an express obligation contained in an instrument but extended to discretionary acts of the Secretary of State in circumstances where he had a positive public duty to exercise his discretion. It was further held that the effect of the Regulations of 1982 was to charge the Secretary of State with the duty of deciding whether or not he should confer qualified teacher status on the appellant and that his decision plainly amounted to an act done by him "in pursuance of" an instrument, namely, the Regulations of 1982 and it accordingly followed that, if that act was discriminatory against the appellant, it was nevertheless rendered lawful by section 41(1)(b). I have gratefully based this summary on the reporter's headnote, which is to be found at pp. 179-180. Balcombe L.J., who dissented, was of the opinion that acts done "in pursuance of any instrument" were to be restricted to acts done in the necessary performance of an express obligation in the instrument and did not extend to acts done in the exercise of a power or discretion conferred by the instrument.
When the appeal came before your Lordships, argument was directed solely towards the meaning and effect of section 41. The respondent expressly did not seek to argue the meaning of the word "justifiable" in section l(l)(b)(ii) of the Act of 1976 and both sides accepted that, if the appellant succeeded, the case would have to go back to the industrial tribunal. What your Lordships are now concerned with is therefore a short point of construction.
Balcombe L.J., at p. 185F, framed the question clearly when, having summarised the respondent's point on section 41, he said:
"This argument, which succeeded below, is incontrovertible if the words 'in pursuance of any instrument' are apt in their context to include, not only acts done in necessary performance of an express obligation contained in the instrument ('the narrow construction') but also acts done in exercise of a power or discretion conferred by the instrument ('the wide construction'). Both constructions ate possible."
Then, having given a judicial example of each interpretation, he observed, at p. 186C:
"While, therefore, both constructions are possible, I accept that the wide construction is the more natural meaning of the words used. I turn, therefore, to consider whether there is anything in the context which leads to an indication that the narrow construction is here correct."
My Lords, I shall have occasion to refer again to the Lord Justice's judgment, with which on the section 41 point I completely agree. Indeed it is only the division of opinion in the Court of Appeal which makes me venture to put the matter in my own way. Before I do so, however, I wish to express my feelings of gratitude (which I am confident are shared by your Lordships) for the assistance which I have obtained from counsel on both sides in considering the problem.
Nourse L.J. said, at p. 195A:
"In one sense any act done by a body or authority which is the creature of statute can be said to be done 'in pursuance of, that is to say under or by virtue of, statute. Although it is obvious that an immunity provision cannot be construed as widely as that without defeating the object of the statute, it is still the case that in conventional legislative usage the expression 'in pursuance of is as apt to be related to an act done in exercise of a specific power as it is to one done in performance of a specific duty."
This observation (with which I respectfully agree) seems to recognise that what Balcombe L.J. described as the wide construction cannot be adopted "without defeating the object of the statute" and is also a reminder that an expression which is prima facie neutral must be looked at in both its immediate and its more remote context.
I have set out above the full text of section 41. It introduces over a wide field, namely the subject matter covered by Parts II to IV of the Act of 1976, as exceptions to the Act's general purpose of outlawing discrimination, five cases in which an act of discrimination shall not be unlawful and in each such case the relevant enactment, Order in Council, instrument, condition, requirement or arrangement may be either pre- or post-Act. In view of the wide sweep of these provisions, the exceptions ought therefore, I suggest, to be narrowly rather than widely construed where the language is susceptible of more than one meaning. The next point which strikes me is that the words "in pursuance of" occur in subsection (l)(a) and (b) and in subsection (2)(a). I take note, too, of the words "in order to comply with" in subsections (l)(c) and (2)(b) and the words "by virtue of" also in subsection (1)®. Even allowing for the variation of expression which may be attributed to the dictates of grammar or style, it seems to me that the phrase "in pursuance of", while not limited to describing an act which is done in order to comply with an enactment etc., is more limited in its meaning than "by virtue of", a phrase with which it could in a different context be synonymous. A dictionary is not by itself the most reliable guide to statutory interpretation, but it serves to remind us of the commonly accepted meaning of pursuance as pursuit, the action of following out a process or the action of proceeding in accordance with a plan, direction or order. In Dobush v. Greater Winnipeg Water District (1945) 2 W.W.R. 371, for example, it was held that "the phrase 'in pursuance of which imports a notion of obligation, is more restrictive than the phrase 'by reason of which is permissive." One tends by this route to arrive at such equivalent meanings as "in compliance with", "in execution of" and "as required by". The inference to be drawn is that, if the discriminatory act is specified in an enactment, Order or instrument, but not otherwise, it is done "in pursuance of" that enactment, Order or instrument and protected by section 41.
It is, however, the consideration of the wider context that demonstrates the need to adopt the narrow construction of the words "in pursuance of", since the wide construction is seen to be irreconcilable with the purpose and meaning of the Act of 1976. Mr. Sedley has most tellingly reviewed for your Lordships several provisions of the Act in order to establish that proposition and Balcombe L.J. accepted, as I now do, the thrust of his argument to the like effect in the Court of Appeal [1989] I.C.R. 179, 186D-187E. I would only summarise the main points:
1. The Act binds the Crown, which, apart from the prerogative, discharges its duties and exercises its powers by virtue of a multitude of statutes and regulations (see sections 75 and 76).
2. The acts not only of the Crown but of local authorities and a large number of statutory bodies, including the governing bodies of some (but not all) universities would achieve virtual immunity under the wide construction.
3. The most important weapons contained in Parts II and III of the Act would be irretrievably blunted and, indeed, would not make sense.
I need not for the present pursue this aspect of the argument, since Nourse L.J., as I have already noted, rejected the wide construction and Parker L.3. said, at pp. 200F-201B:
"It was however submitted by Mr. Sedley, and I quote from his skeleton argument:
'section 41 is limited to acts required to be done by or under statute and does not protect administratively chosen requirements or conditions which represent one of a variety of possible modes of doing those acts. If the chosen mode is the only one reasonably available for the necessary purpose it may be protected by the defence of justifiability not by section 41.'
There were, in the course of argument, some variations of this proposition but the substance remains unaltered, namely, that section 41 only protects acts done in necessary performance of an express obligation contained in an enactment or Order in Council in the case of ' section 41(l)(a) or an instrument in the case of subsection (l)(b). If this limited construction is not adopted it was submitted that there is no stopping place short of a construction which would cover in effect everything done by a body which owes its existence and powers to an enactment so long as what was done was intra vires and such a construction must be rejected both because it would render nugatory other provisions of the Act of 1976 and because it would offend against the principles enunciated in the House of Lords in Bradford Corporation v. Myers [1916] 1 A.C. 242.
I have no hesitation in accepting the submission that the construction mentioned above, referred to by Balcombe L.J. in his judgment, which I have had the opportunity to read in draft, as 'the wide construction' must be rejected. I agree that it is untenable on both the grounds mentioned above. The question which needs to be answered is therefore whether rejection of the wide construction compels acceptance of the very limited construction contended for."
I now turn briefly to section 51 of the Sex Discrimination Act 1975 which is in the following terms:
"(1) Nothing in Parts II to IV shall render unlawful any act done by a person if it was necessary for him to do it in order to comply with a requirement-fa) of an Act passed before this Act; or
(b) of an instrument made or approved (whether before or after the passing of this Act) by or under an Act passed before this Act.
(2) Where an Act passed after this Act re-enacts (with or without modification) a provision of an Act passed before this Act, subsection (1) shall apply to that provision as re-enacted as if it continued to be contained in an Act passed before this Act."
The appellant, relying on the White Paper Racial Discrimination (1975, Cmnd. 6234) and the long title and section 79(4) of the Act of 1976, contended that the intention to harmonise the Sex Discrimination Act with the Act of 1976 would pro tanto be defeated if section 41 of the latter Act did not receive an interpretation similar to that which must be accorded to section 51 of the former. The force of that argument is, however, negatived by the drafting differences and by the fact that section 51 refers only to pre-existing Acts and re-enacted provisions. Where Parliament's avowed object was to achieve harmonisation, the differences noted are all the more striking. I agree with the view of Nourse L.J. [19S9] I.C.R. 179, 195G that no argument of value for the appellant can be founded on section 51 and also with that of Parker L.J., at p. 201G, that section 41(l)(a) and (b) cannot be given the same meaning as section 41(l)(c) or section 51(1) of the Sex Discrimination Act. But these conclusions do not support the respondent's argument for a wide construction of the words "in pursuance of", particularly when one takes into account the wider field of exceptions created by section 41 which, if the respondent's argument were accepted, would greatly enlarge the gap between section 51 and section 41.
One of the respondent's arguments which seems to have commended itself to the majority in the Court of Appeal was that, even assuming the narrow construction to be the right one, the Secretary of State was indeed carrying out a duty imposed on him by the Regulations of 1982 of (1) considering the appellant's application, (2) deciding whether to approve or disapprove her course and (3) giving her notification or not, depending on whether or not he had approved the course. Therefore, it was said, the Secretary of State acted in pursuance of the Regulations, an instrument which he had made under section 27(1) of the Education Act 1980. Nourse L.J. said, at p. 195C:
"It cannot be doubted that his receipt of the applicant's application for qualified teacher status brought the Secretary of State under a specific duty either to approve or to disapprove her teacher training course within paragraph 2(b)(i) of Schedule 5 to the Regulations of 1982. Accordingly, the question previously supposed would only seem to arise if it can be said that the power to give or withhold approval gave the decision the status of an act done in exercise of a specific power. I do not think that it can. A power to give or withhold approval is not a power to give or withhold a decision. It is a power to choose between two decisions, one of which must be made. In substance it is not a power at all. It is a duty to do one or other of two things. Whichever it is that is done will be an act done in pursuance of the Regulations of 1982. On this analysis, confining myself to the terms of section 41, I am of the opinion that the disapproval of the applicant's teacher training course was an act of discrimination done in pursuance of an instrument - the Regulations of 1982 -made under an enactment - the Education Act 1980 - by a Minister of the Crown within section 41(1)(b) of the Race Relations Act 1976."
And Parker L.3. said, at p. 200C:
"Having made the Regulations which cast on him the duty to consider applications and in so doing the duty to consider and decide on certain matters, it is at first sight difficult to see how it could be contended that, when what he did was only to decide the very matters he was obliged to decide, he could be said to have been acting otherwise than in pursuance of the Regulations."
My Lords, I cannot accept this reasoning because it leaves out of account the alleged act of discrimination, which was to decide the appellant's application by reference to a test of acceptability of her teacher training course (in statutory language, "a requirement") which indirectly discriminated against her within the meaning of section l(l)(b)(i) and (iii) of the Act of 1976. That requirement was no doubt applied "in pursuance of" the Regulations of 1982 according to the wide construction, as defined by Balcombe L.J., but it was not so applied according to the narrow construction, under which the requirement must be found in the Regulations as, for example, is true of the courses described in paragraph 2(a)(i) of Schedule 5. On the other hand, the approval of a course as "comparable to a course within sub-paragraph (a)" involved the application of a requirement (whether established "or ad hoc) which was based on administrative practice and discretion and was not a requirement laid down by the Regulations.
Therefore the requirement of a course consisting of three consecutive years' training, assuming that it was discriminatory and also not justifiable under section 41(l)(b)(ii), was not protected by section 41 (1Kb).
There is a sound argument, based on public policy, for drawing the line in this way. I refer to the need and the opportunity for Parliamentary scrutiny. Balcombe L.J. put the matter aptly, at p. 188F:
"I can think of no construction of section 41 intermediate between the wide and the narrow construction which would meet the difficulties considered above, nor was any suggested. Further, there are sound policy reasons for the narrow construction. If an enactment, Order in Council or statutory instrument imposes requirements compliance with which may lead to racial discrimination, those requirements can be debated in Parliament and their justification considered there. Similarly if a Minister of the Crown imposes a condition or requirement compliance with which could lead to racial discrimination - see section 41(l)(c) of the Act of 1976 - he can be made answerable in Parliament for his action. If what is done is not necessary to comply with a statutory requirement, then there can be no valid reason why it should not have to be justified before an industrial tribunal."
And in Savjani v. Inland Revenue Commissioners [1981] Q.B. 458, where the Commissioners' insistence on the production by certain taxpayers of the long form of birth certificate to support a claim was alleged to be discriminatory, Lord Denning M.R. said, at p. 466:
"I can understand the difficulty of the Inland Revenue in dealing with the problem. To what extent should they insist on the production of birth certificates? There is a way out given by section 41(2) of the Race Relations Act 1976: 'Nothing . . . . shall render unlawful any act whereby a person discriminates against another ... if that act is done - (a) in pursuance of any arrangements made ... by or with the approval of . . . a Minister of the Crown ... • If the appropriate Minister of the Crown should think that arrangements should be made for insisting in certain circumstances on the production of a full birth certificate, that could be made perfectly lawful by an arrangement sanctioned by the Minister under section 41. It seems to me that that would be the right way to do it. The Minister should take responsibility for it. He can be asked questions in Parliament about it. That is the way in which the problem can be solved."
(See also per Templeman L.J. at p. 469A.) To adopt the Balcombe principle, if I may so describe it, will mean that racial discrimination is outlawed (or at least needs to be justified under section l(l)(b)(ii)) unless it has been sanctioned by Parliament, whereas, if the respondent's argument were correct, a wide and undefined area of discrimination would exist, immune from challenge save, in very exceptional circumstances, through the medium of judicial review.
The remedies of certiorari, mandamus and prohibition were expressly preserved by section 53(2) of the Act of 1976, despite the general limitation imposed by section 53(1), and, no doubt with a view to allaying any misgivings which might attend the prospect of such widespread immunity as acceptance of the respondent's argument would involve, Mr. Laws, citing Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation [1948] 1 KB 223 and Padfield v. Ministry of Agriculture, Fisheries and Food [1968] AC 997, suggested that judicial review was in any event available as a remedy for perversity and misuse of power. But this would in reality be very inadequate recompense for the loss of the right to complain to an industrial tribunal and the other remedies provided by the Act, because the immunity conferred by section 41 would inevitably preclude adjudication on every complaint of discrimination, except possibly in the rare circumstances envisaged by Mr. Laws.
Turning to the authorities, I have not a great deal to say. A number of cases have been opened and, although I cannot quite accept the equiparation of the words "in pursuance of" with the phrase "in order to comply with", I have found much wisdom in the observations on section 41 of Wood, J., who delivered the judgment of the Employment Appeal Tribunal in General Medical Council v. Goba [1988] I.C.R. 885 and in the course of that judgment successfully disposed of some marginally relevant decisions. Having regard to the different contexts in which the phrase "in pursuance of" occurs, there is little help to be derived from the cases which have been produced to your Lordships. Bradford Corporation v. Myers [1916] 1 A.C. 242 was cited at some length in the judgment of Parker L.J. and both sides have thought fit to rely on it at various stages of the litigation, but I cannot find in this interesting decision on the Public Authorities Protection Act 1893 any real help for either side. I have to say the same of Griffiths v. Smith [1941] A.C. 170, another Public Authorities Protection Act case, the reasoning of which I have found much easier to follow.
Another authority discussed was Ojutiku v. Manpower Services Commission [1982] I.C.R. 661 which reached the Court of Appeal without the section 41 argument being raised. That fact, however, cannot be called in aid by the present appellant. The decision turned on the meaning of the word "justifiable" in section l(l)(b)(ii) of the Act of 1976 and what was said in the Court of Appeal seems to me to merit the closest attention when the appellant's claim comes to be reconsidered. Beyond saying this I consider it inappropriate to discuss an issue which both sides expressly refrained from arguing before your Lordships.
To sum up, the majority in the Court of Appeal rejected the wide construction but did not come down in favour of the narrow construction or, indeed, of any specific alternative interpretation of the words "in pursuance of". They appear, however, to have held that the Secretary of State acted, as no doubt he did, in pursuance of the Regulations of 1982 when he discharged the duty of considering and the further duty of deciding the appellant's application: therefore, they held, his allegedly discriminatory act was protected by section 41(l)(b). It is this reasoning, my Lords, that did not commend itself to Balcombe L.J. and that I find myself unable to accept. In my view it disregards, and has to disregard, the fact that, in order to decide the application one way or the other, the Secretary of State had first to set up and apply a non-statutory criterion the setting up and application of which involved the exercise of his administrative discretion and led to the discriminatory act complained of.
What I would venture to describe as the fallacy of that approach can be recognised when one reflects that almost every discretionary decision, such as that which is involved in the appointment, promotion and dismissal of individuals in, say, local government, the police, the National Health Service and the public sector of the teaching profession, is taken against a statutory background which imposes a duty on someone, just as the Regulations of 1982 imposed a duty on the Secretary of State. It seems to me that to apply the reasoning of the majority here to the decisions I have mentioned would give them the protection of section 41 and thereby achieve results which no member of the Court of Appeal would be likely to have thought acceptable.
My Lords, for all the reasons which I have given, I would allow the appeal and remit the case to an industrial tribunal for rehearing.
Hampson (Appellant) v. Department of Education and Science (Respondents)
JUDGMENT
Die Jovis 7° Junii 1990
Upon Report from the Appellate Committee to whom was referred the Cause Hampson against Department of Education and Science, That the Committee had heard Counsel on Monday the 12th and Tuesday the 13th days of March last, upon the Petition and Appeal of Teresa Lee Ping Li Hampson of 17, Court House Road, Finchley, London N12 7PH, praying that the matter of the Order set forth in the Schedule thereto, namely an Order of Her Majesty's Court of Appeal of the 2nd day of December 1988, might be reviewed before Her Majesty the Queen in Her Court of Parliament and that the said Order might be reversed, varied or altered or that the Petitioner might have such other relief in the premises as to Her Majesty the Queen in Her Court of Parliament might seem meet; as upon the case of Her Majesty's Secretary of State for Education and Science lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal of the 2nd day of December 1988 complained of in the said Appeal be, and the same is hereby, Set Aside; That the Order of the Employment Appeal Tribunal of the 16th day of December 1987 and the decision of the Industrial Tribunal of the 24th day of November 1986 be, and the same are hereby, Set Aside; and That the Cause be remitted to a differently constituted Industrial Tribunal for rehearing on the issue of justifiability: And it is further Ordered, That the Respondents do pay or cause to be paid to the said Appellant the Costs incurred by her in the Court of Appeal and also the Costs incurred by her in respect of the said Appeal to this House, the amount of such last-mentioned Costs to be certified by the Clerk of the Parliaments.
Cler: Parliamentor: |
JISCBAILII_CASE_EMPLOYMENT
Parliamentary
Archives,
HL/PO/JU/18/250
James (Appellant)
v.
Eastleigh Borough Council
(Respondents)
JUDGMENT
Die Jovis 14° Junii 1990
Upon Report from the Appellate Committee to
whom was
referred the Cause James against Eastleigh Borough
Council,
That the Committee had heard Counsel on Wednesday the
28th and
Thursday the 29th days of March last, upon the Petition
and
Appeal of Peter James, of 21 Grosvenor Road, Chandlers
Ford,
Eastleigh, Hampshire, praying that the matter of the Order
set
forth in the Schedule thereto, namely an Order of
Her
Majesty's Court of Appeal of the 26th day of April 1989,
might
be reviewed before Her Majesty the Queen in Her Court
of
Parliament and that the said Order might be reversed, varied
or
altered or that the Petitioner might have such other relief
in the
premises as to Her Majesty the Queen in Her Court of
Parliament
might seem meet; as upon the case of Eastleigh
Borough Council
lodged in answer to the said Appeal; and due
consideration had
this day of what was offered on either side
in this Cause:
It is Ordered and Adjudged, by
the Lords Spiritual and
Temporal in the Court of Parliament of Her
Majesty the Queen
assembled, That the said Order of Her Majesty's
Court of
Appeal of the 26th day of April 1989 and the Order of
His
Honour Judge Martin Tucker Q.C. of the 28th day of
October
1987 complained of in the said Appeal be, and the same
are
hereby, Set Aside and that it be declared "that
the
respondents discriminated against the plaintiff on the
ground
of his sex contrary to sections 1(1) (a) and 29 of the
Sex
Discrimination Act 1975 by refusing to provide him
with
swimming facilities on the same terms as were normal in
the
case of women, in that men aged 60 to 65 (including
the
plaintiff) were charged for entry, whereas women aged 60 to
65
were admitted free." And it is further Ordered,
That there be
no Order as to costs. And it is also further
Ordered, That
the Cause be, and the same is hereby,
remitted back to the
Queen's Bench Division of the High Court of
Justice to do
therein as shall be just and consistent with this
Judgment.
Cler: Parliamentor
Judgment: 14.6.90
HOUSE OF LORDS
JAMES
(APPELLANT)
v.
EASTLEIGH BOROUGH
COUNCIL
(RESPONDENTS)
Lord Bridge of
Harwich
Lord
Griffiths
Lord
Ackner
Lord Goff of Chieveley
Lord Lowry
LORD
BRIDGE OF HARWICH
My Lords,
In November 1985 the plaintiff and
his wife were both aged
61. They went one day in that month to the
Fleming Park
Leisure Centre where there is a public swimming pool
operated by
the respondent council. Being of pensionable age the
plaintiff's
wife was admitted free. Not being of pensionable age
the
plaintiff had to pay 75p for admission. The plaintiff
brought
proceedings against the council claiming that they had
unlawfully
discriminated against him on the ground of his sex
contrary to
section l(l)(a) and section 29 of the Sex
Discrimination Act 1975.
The claim was heard by Judge Tucker Q.C.
in the Southampton
County Court who dismissed it. An appeal
against his judgment
was dismissed by the Court of Appeal (Sir
Nicolas Browne-
Wilkinson V.-C., Parker and Nourse LJJ.) [1990]
Q.B. 61. The
plaintiff now appeals by leave of your Lordships'
House.
At first glance this may seem to
be a very trivial matter.
But the truth is to the contrary. It is
an important test case
brought with the backing of the Equal
Opportunities Commission in
performance of their statutory
functions under the Act. The
phrase "pensionable age" is
a term of art derived from the
definition in section 27(1) of the
Social Security Act 1975 where it
means: "(a) in the
case of a man, the age of 65; and (b) in the
case of a
woman, the age of 60." In this sense it not only
governs the
age at which persons can first qualify for their state
pensions,
but is also used as the basis on which men and women
qualify for a
variety of concessions to the elderly such as free or
reduced
travel and free prescriptions under the National Health
Service.
The commission's purpose in this litigation is to establish
the
principle for which they contend that in any sphere of activity
in
which discrimination on the ground of sex is prohibited by the
Sex
Discrimination Act 1975 the practice of denying to men
between the
ages of 60 and 65 benefits which are offered to
women between
those ages is unlawful unless it is authorised by
other express
statutory provisions.
The provisions of the Sex
Discrimination Act 1975 which
have to be construed are the
following:
"1(1) A person discriminates
against a woman in any
circumstances relevant for the purposes of
any provision of
this Act if - (a) on the ground of her sex
he treats her less
favourably then he treats or would treat a man,
or (b) he
applies to her a requirement or condition which
he applies
or would apply equally to a man but - (i) which is such
that
the proportion of women who can comply with it
is
considerably smaller than the proportion of men who can
comply
with it, and (ii) which he cannot show to be
justifiable
irrespective of the sex of the person to whom it
is applied, and
(iii) which is to her detriment because she
cannot comply with it.
...
"2(1) Section 1, and the
provisions of Parts II and III
relating to sex discrimination
against women, are to be read
as applying equally to the treatment
of men, and for that
purpose shall have effect with such
modifications as are
requisite.
"5(3) A comparison of the
cases of persons of different sex
. . . under section 1(1) . . .
must be such that the relevant
circumstances in the one case are
the same, or not
materially different, in the other.
"29(1) It is unlawful for any
person concerned with the
provision (for payment or not) of goods,
facilities or services
to the public or a section of the public to
discriminate
against a woman who seeks to obtain or use those
goods,
facilities or services - ... (b) by refusing or
deliberately
omitting to provide her with goods, facilities or
services of
the like quality, in the like manner and on the like
terms as
are normal in his case in relation to male members of
the
public or (where she belongs to a section of the public)
to
male members of that section. (2) The following are
examples
of the facilities and services mentioned in
subsection (1) - (a)
access to and use of any place which
members of the public or a
section of the public are
permitted to enter ... (e)
facilities for entertainment,
recreation or refreshment ..."
The case for the plaintiff is that
the council were refusing
to provide him with facilities, viz.
admission to the swimming
pool, on the like terms as were normal
in relation to female
members of the public of the same age as
himself. This, it is
said, was a clear contravention of section
29(1) and section l(l)(a)
because in the same relevant
circumstances the council were
treating the plaintiff on the
ground of his sex less favourably than
they would treat a woman.
If he had been a woman aged 61, he
would have been admitted free.
Because he was a man aged 61
he was charged 75p for admission.
The main ground on which the
council sought to contest the
claim in the county court and the
ground on which they succeeded
there was that the relevant
"section of the public" which fell for
consideration
under section 29(1) was the section of the public
- 2 -
comprising persons of statutory
pensionable age. This ground was
rejected by the Court of Appeal.
Sir Nicolas Browne-Wilkinson V.-
C., delivering a judgment with
which Parker and Nourse L.JJ.
agreed, said, at p. 73:
"... it is not permissible
for a defendant in such a case
to seek to define the section of
the public to which it
offers services in terms which are
themselves discriminatory
in terms of gender. If this were not so
it would be lawful,
for example, to provide free travel for men
but not for
women on the ground that the facility of free travel
is only
being provided for a section of the public comprising
men.
Whatever else may be meant by a 'section of the public,'
in
my judgment it cannot mean a class defined by reference to
sex
or, under the Race Relations Act 1976, by reference to
race. ..."
This is clearly right and
this ground was not pursued by the
council before
your Lordships.
In the Court of Appeal the case
took an entirely new turn
and the court found in favour of the
council on a ground first
raised in argument by the court
themselves. It had been common
ground in the county court that the
concession offered by the
council to persons of pensionable age
was discriminatory in favour
of women and against men under
section 1 of the Sex
Discrimination Act 1975. But the Court of
Appeal held that the
council's less favourable treatment of a man
than a woman was
not "on the ground of his sex" and that
there had accordingly been
no direct discrimination contrary to
section l(l)(a). The condition
which the local authority
applied to persons resorting to their
swimming pool that in order
to qualify for free admission they
should be of pensionable age
was, as the court held, a condition
applied equally to men and
women. The condition, therefore,
would only amount to unlawful
discrimination under section 1(1)(b)
if the appellant could
show "(i) . . . that the proportion of men
who can comply
with it is considerably smaller than the proportion
of women who
can comply with it" and if the local authority
failed to show
the condition "(ii) . . . to be justifiable irrespective
of
the sex of the person to whom it is applied." The case for
the
appellant had not been pleaded or presented on this basis in
the
county court. The Court of Appeal, therefore, declined to
remit
the case to the county court and left it to the appellant
and the
Equal Opportunities Commission to bring fresh proceedings
based
on a fresh visit to the swimming pool if so advised.
In reaching these conclusions the
judgment of Sir Nicolas
Browne-Wilkinson V.-C. first sets the
scene in the following terms,
at p. 73:
"There is no suggestion that
the reason for the council
adopting its policy was a desire to
discriminate against men.
The council's reason for giving free
swimming to those of
pensionable age was to give benefits to those
whose
resources would be likely to have been reduced
by
retirement. The aim was to aid the needy, whether male
or
female, not to give preference to one sex over the
other.
Moreover the condition which had to be satisfied in order
to
qualify for free swimming did not refer expressly to sex at
- 3 -
all. The condition was simply that
the applicant had to be
of pensionable age. The undoubtedly
discriminatory effect
of that condition only emerges when one gets
to the next
question, i.e. at what age do men and women
become
pensionable? The question is whether the council's
policy
amounts to direct discrimination 'on the ground of his
sex'
within section l(l)(a) or indirect discrimination
within
section 1(1)(b) by reasons of the council having
imposed a
condition on men and women alike with which a
considerably
smaller proportion of men than women can comply."
The Vice-Chancellor summarised Mr.
Lester's submissions for the
appellant as follows, at p. 74:
"Mr. Lester, for the
plaintiff, forcefully submitted that
there is direct
discrimination in this case. He submitted
that discrimination is
'on the ground of sex within section
l(l)(a) if the sex of
the plaintiff is a substantial cause of
the less favourable
treatment. In this context, he says, the
correct question is 'what
would the position have been but
for the sex of the plaintiff?' If
the position would be
different if the plaintiff's sex were
different, that is direct
discrimination."
I hope I do justice to the
judgment if I recite only what seem to
me to be the two essential
passages, at pp. 74 and 75, rejecting
these submissions as
follows:
"In my judgment section
1(1)(a) is looking to the case where,
subjectively, the
defendant has treated the plaintiff less
favourably because of his
or her sex. What is relevant is
the defendant's reason for doing
an act, not the causative
effect of the act done by the defendant.
. . .
"There is a further objection
to Mr. Lester's construction of
the section. If there is direct
discrimination in every case
where there is a substantial
causative link between the
defendant's treatment and the detriment
suffered by the
plaintiff as a result of his sex I can see no room
for the
operation of subsection (l)(b). In every case in
which a
sexually neutral condition in fact operates differentially
and
detrimentally to one sex as opposed to the other,
the
imposition of such condition would be a substantial cause
of
detriment to the plaintiff by reason of his or her sex, i.e.
it
would fall within Mr. Lester's causation test and
therefore
constitute direct discrimination under subsection
(l)(a). This
plainly was not the intention of Parliament
which was
drawing a clear distinction between, on the one hand,
those
cases where the defendant expressly or covertly acts
by
reference to the sex of the plaintiff and, on the other,
those
cases where the defendant acted on the grounds not
expressly or
covertly related to sex but his actions have
caused a disparate
impact as between the sexes."
The fallacy, with all respect,
which underlies and vitiates
this reasoning is a failure to
recognise that the statutory
pensionable age, being fixed at 60
for women and 65 for men, is
itself a criterion which directly
discriminates between men and
women in that it treats women more
favourably than men "on the
-4-
ground of their sex." This
was readily conceded by Mr. Beloff and
is indeed self-evident. It
follows inevitably that any other
differential treatment of men
and women which adopts the same
criterion must equally involve
discrimination "on the ground of
sex." As Mr. Beloff was
again constrained to concede, the council
would certainly have
discriminated directly in favour of women and
against men on the
ground of their sex if they had expressly made
their
concession of free entry to the swimming pool available to
women
aged 60 and to men aged 65. He submits that the
availability of
the statutory concept of pensionable age in the
Social Security
Act 1975 to denote the criterion on which the
concession is based
and the fact that pensionable age, although
now discriminatory,
will not necessarily always remain so, enables
the council to
escape the charge of direct discrimination "on the
ground of
sex." But this simply will not do. The expression
"pensionable
age" is no more than a convenient shorthand
expression which
refers to the age of 60 in a woman and to the
age of 65 in a man.
In considering whether there has been
discrimination against a man
"on the ground of his sex" it cannot
possibly make any
difference whether the alleged discriminator
uses the shorthand
expression or spells out its full meaning.
The Court of Appeal's attempt to
escape from these
conclusions lies in construing the phrase "on
the ground of her sex"
in section l(l)(a) as referring
subjectively to the alleged
discriminator's "reason" for
doing the act complained of. As
already noted, the judgment had
earlier identified the council's
reason as "to give benefits
to those whose resources would be
likely to have been reduced by
retirement" and "to aid the needy,
whether male or
female." But to construe the phrase, "on the
ground of
her sex" as referring to the alleged discriminator's
reason
in this sense is directly contrary to a long line of
authority
confirmed by your Lordships' House in Reg. v.
Birmingham City
Council, Ex parte Equal Opportunities Commission
[1989]] A.C.
1155. In that case the council, as local
education authority, was
held to have discriminated against girls
under section l(l)(a). At
the council's independent,
single-sex grammar schools there were
more places available for
boys than girls. Consequently the
council were obliged to set a
higher pass mark for girls than boys
in the grammar school
entrance examination. In his speech,
expressing the unanimous
opinion of the House, Lord Goff of
Chieveley said, at pp.
1193-1194:
"The first argument advanced
by the council before your
Lordship's House was that there had not
been, in the
present case, less favourable treatment of the girls
on the
grounds of sex. Here two points were taken. It
was
submitted ... (2) that, if that burden had been discharged,
it
still had to be shown that there was less favourable
treatment on
grounds of sex, and that involved establishing
an intention or
motive on the part of the council to
discriminate against the
girls. In my opinion, neither of
these submissions is
well-founded. ... As to the second
point, it is, in my opinion,
contrary to the terms of the
statute. There is discrimination
under the statute if there
is less favourable treatment on the
ground of sex, in other
words if the relevant girl or girls would
have received the
same treatment as the boys but for their sex.
The
intention or motive of the defendant to discriminate, though
- 5 -
it may be relevant so far as
remedies are concerned ... is
not a necessary condition of
liability; it is perfectly possible
to envisage cases where the
defendant had no such motive,
and yet did in fact discriminate on
the ground of sex.
Indeed, as Mr. Lester pointed out in the course
of his
argument, if the council's submission were correct it
would
be a good defence for an employer to show that
he
discriminated against women not because he intended to do
so
but (for example) because of customer preference, or to
save
money, or even to avoid controversy. In the present
case, whatever
may have been the intention or motive of
the council, nevertheless
it is because of their sex that the
girls in question receive less
favourable treatment than the
boys, and so are the subject of
discrimination under the Act
of 1975. This is well established in
a long line of authority:
see, in particular, Jenkins v.
Kingsgate (Clothing
Productions) Ltd. [1981] 1 WLR 1485,
1494, per Browne-
Wilkinson J., and Ex parte Keating,
per Taylor J., at p. 475;
see also Ministry of Defence
v. Jeremiah [1980] Q.B. 87, 98
per Lord Denning M.R. I
can see no reason to depart from
this established view."
Lord Goff's test, it will be
observed, is not subjective, but
objective. Adopting it here the
question becomes: "Would the
plaintiff, a man of 61, have
received the same treatment as his
wife but for his sex?" An
affirmative answer is inescapable.
The judgment of the House in the
Reg v. Birmingham City
Council, Ex parte Equal Opportunities
Commission was delivered
after the instant case had been
argued in the Court of Appeal but
before they delivered their
judgment. They did not, therefore,
have the advantage of argument
as to the effect of the decision.
They sought to distinguish it.
But it is, in my opinion, quite
indistinguishable. It would not
have availed the Birmingham City
Council to say that the condition
for grammar school entry was to
have passed the entrance
examination because the pass mark was
set at different levels for
boys and girls and discriminated against
girls on the ground of
their sex. By precise parity of reasoning it
does not avail the
council in this case to say that the condition
for free admission
to the swimming pool is to have attained
pensionable age because
pensionable age is set at different levels
for men and women and
discriminates against men on the ground
of their sex. Similarly
the subjective reason for the differential
treatment in both cases
is quite irrelevant. The Birmingham City
Council had the best of
motives for discriminating as they did.
They could not otherwise
have matched the entry of boys and girls
to the grammar school
places available. The council in this case
had the best of motives
for discriminating as they did. They
wished to benefit "those
whose resources were likely to have been
reduced by retirement"
and "to aid the needy, whether male or
female." The
criterion of pensionable age was a convenient one to
apply because
it was readily verified by possession of a pension
book or a bus
pass. But the purity of the discriminator's
subjective motive,
intention or reason for discriminating cannot
save the criterion
applied from the objective taint of
discrimination on the ground
of sex.
The question of indirect
discrimination under section l(l)(b)
arises only where the
"requirement or condition" applied by the
- 6 -
alleged discriminator to a person
of one sex is applied by him
equally to a person of the other sex.
Pensionable age cannot be
regarded as a requirement or condition
which is applied equally to
persons of either sex precisely
because it is itself discriminatory
between the sexes. Whether or
not the proportion of men of
pensionable age resorting to the
council's swimming pool was
smaller than the proportion of women
of pensionable age was quite
irrelevant. Women were being treated
more favourably than men
because they attained the age to qualify
for free admission five
years earlier than men.
The Court of Appeal detected and
properly criticised the
error made by the trial judge in the
application of section 29 in
that he sought to define the "section
of the public" to whom
services were provided by the council
"in terms which are
themselves discriminatory in terms of
gender." But they fell into
the same error themselves in
making the comparisons necessary
under section 1. Section 5(3)
requires that in comparing the cases
of persons of different sex
under section 1(1) the relevant
circumstances must be the same.
Because pensionable age is itself
discriminatory it cannot be
treated as a relevant circumstance in
making a comparison for the
purpose of section 1 any more than
it can be used to define a
"section of the public" under section
29. It is only by
wrongly treating pensionable age as a relevant
circumstance under
section 5(3) that it is possible to arrive at the
conclusion that
the provision of facilities on favourable terms to
persons of
pensionable age does not involve direct discrimination
under
section 1(1)(a) but may involve indirect discrimination
under
section l(l)(b). On a proper application of section
5(3) the
relevant circumstance which was the same here for the
purpose of
comparing the treatment of the plaintiff and his wife
was that
they were both aged 61.
Statutory pensionable age is still
used in some other
statutory contexts, besides the Social Security
Act 1975, as the
basis of entitlement to enjoy certain other
benefits or concessions.
Thus, under travel concession schemes
established by local
authorities pursuant to section 93 of the
Transport Act 1985 men
over 65 and women over 60 are eligible to
receive concessions:
section 93(7)(a). Similarly by
regulation 7 of the National Health
Service (Charges for Drugs and
Appliances) Regulations 1980 (S.I.
1980 No. 1503) men over 65 and
women over 60 are exempt from
the charges imposed by the
Regulations. But it is impossible to
infer from these or any other
specific statutory provisions
requiring or authorising
discrimination in defined circumstances the
existence of a general
exception to the prohibition of sex
discrimination in the
provision of goods, facilities and services
imposed by section 29
of the Sex Discrimination Act 1975 such
that discrimination in
favour of women and against men between
the ages of 60 and 65 is
always permitted. In the absence of
express statutory authority
derived from some other enactment,
such discrimination is
prohibited.
I would accordingly allow the
appeal, set aside the order of
the courts below and declare that
the council discriminated against
the plaintiff on the ground of
his sex contrary to sections l(l)(a)
and 29 of the Sex
Discrimination Act 1975 by refusing to provide
him with swimming
facilities on the same terms as were normal in
the case of women,
in that men aged 60 to 65 (including the
- 7 -
plaintiff) were charged for entry,
whereas women aged 60 to 65
were admitted free. I would propose
that there should be no
order for the payment of costs.
LORD GRIFFITHS
My Lords,
I am unable to agree with the
majority of your Lordships
that this appeal should be allowed.
When the Eastleigh Borough
Council decided to allow free swimming
facilities to persons of
pensionable age they did not do so
because they wished women
over 60 to swim free because they were
women or to deny that
privilege to men until they were 65 because
they were men. The
council were following the very widespread and,
in my view,
wholly admirable practice of treating old age
pensioners with
generosity. The council were giving free swimming
to people
because they were pensioners not because they were
either men or
women.
When people are living on a
pension they are almost always
less well off than when in
employment and less able to afford
leisure and travel facilities
although they may have more time in
which to enjoy them. When the
Sex Discrimination Act 1975 was
before Parliament every member of
both Houses must have known
that it was an attractive feature of
our national life that those
who provided entertainment and travel
facilities gave generous
treatment to old age pensioners by
providing them free or at
concessionary rates. I cannot believe
that it was the intention of
Parliament that this benevolent
practice should be declared to be
unlawful - but such is the
result of your Lordships' decision.
I appreciate of course that
adopting pensionable age as the
criterion to judge whether a
person is living on a pension is to
adopt a broad brush approach.
But given that it is the intention
to give the concession to those
who are living on a pension and
thus of reduced means, it appears
to me to be the only practical
criterion to adopt. It would be
quite impossible to interrogate
every person as to whether they
were or were not living on a
pension or to apply some other form
of means test before
admitting them to the swimming pool. I
believe that against the
pattern of employment in this country,
and in particular the
pattern as it was in 1975, pensionable age
is a fair test to apply
to establish those who are likely to be
living on reduced incomes,
and that it is a fair assumption that
those of pensionable age are
living on pensions. Where I entirely
part company from your
Lordships is in the view that the council
used the words
"pensionable age" as "no more than a
convenient shorthand
expression which refers to the age of 60 in a
woman and to the
age of 65 in a man." This was not the reason
the council
referred to "pensionable age." In my view
the reference to
"pensionable age" carries with it the
unmistakable intention of the
council to give the free swimming
facilities to people because they
are pensioners and not because
they are men or women.
- 8 -
Suppose the council had resolved
to allow free swimming to
everyone living on a pension. That would
surely not be
discriminating on the "grounds of sex"
under section l(l)(a).
Suppose that the council had added
that it would accept proof of
pensionable age as sufficient proof
of living on a pension - would
that have converted their decision
to one on the "grounds of sex."
Again, I would have
thought the answer was manifestly not,
assuming of course that
such an assumption was reasonable.
Whether a person treats another
less favourably "on the
grounds of sex" is a question
that does not permit of much
refinement. It means did they do what
they did because she was
a woman (or a man). It is a question of
fact which has to be
answered by applying common sense to the
facts of the particular
case. I agree that the motive behind the
action is not
determinative although it may cast light on the
question - see in
particular the discussion of the question in the
judgment of Woolf
J. in Reg. v. Commission for Racial Equality,
Ex parte
Westminster City Council [1984] I.C.R. 770.
I was a party to the decision in
Reg. v. Birmingham City
Council, Ex parte Equal Opportunity
Commission [1989] AC 1155,
and agreed with the speech of
Lord Goff of Chieveley. But in
that speech I had read Lord Goff as
using intention and motive
interchangeably and had obviously
failed to appreciate the full
significance that would be attached
to a "but for" test. In the
Birmingham case no
one could doubt that it was because of their
sex that it was more
difficult for girls to get a place in a
grammar school than boys:
there were more places for boys than
there were for girls and that
was the end of it. So a "but for"
test in that case led
to the result that girls were being
discriminated against, and the
fact that the council were very
unhappy about the situation and
did not wish to discriminate did
not alter the fact that they were
discriminating. That case
establishes that the subjective motive
is not determinative in a
case of sex discrimination under section
1(1)(a). But on reflection
I do not think that a "but
for" test will in all cases answer the
question - was the
favourable treatment "on the grounds of sex."
Obviously imposing a retirement
age of 60 on women and 65
on men is discriminatory on the grounds
of sex. It will result in
women being less well off than men at
60. But what I do not
accept is that an attempt to redress the
result of that unfair act
of discrimination by offering free
facilities to those disadvantaged
by the earlier act of
discrimination is, itself, necessarily
discriminatory, "on
the grounds of sex." The question in this case
is did the
council refuse to give free swimming to the plaintiff
because he
was a man, to which I would answer, no, they refused
because he
was not an old age pensioner and therefore could
presumably afford
to pay 75p to swim.
The result of your Lordships'
decision will be that either
free facilities must be withdrawn
from those who can ill afford to
pay for them or, alternatively,
given free to those who can well
afford to pay for them. I
consider both alternatives regrettable.
I cannot believe that
Parliament intended such a result and I do
not believe that the
words "on the grounds of sex" compel such a
result.
- 9 -
Since writing this short speech I
have had the advantage of
reading the much fuller discussion of
the problem contained in the
speech of Lord Lowry. I agree
entirely with his reasoning and
conclusion.
I would dismiss this appeal.
LORD ACKNER
My Lords,
I so entirely agree with the views
expressed by my noble
and learned friends Lord Bridge of Harwich
and Lord Goff of
Chieveley in their speeches that I had not
intended to provide yet
another speech. However, in case it may be
thought that your
Lordships' decision involves such complex
reasoning as not to be
readily comprehensible to the senior
citizens of Eastleigh, two of
whom have generated this litigation,
I add this short contribution.
It is clear from the evidence
given in the county court by
the Assistant Manager of the Fleming
Park Leisure Centre, the
only witness called on behalf of the
respondent council, that Mr.
and Mrs. James, on seeking free
admission to the swimming pool,
would have been asked to provide
proof of their ages. Having
done so Mrs. James would have been let
in free but her husband
would have been required to pay the full
price of 75p, although
they were each aged 61. If Mr. James, as he
may well have
done, had asked why he was thus being treated
differently, i.e.
being discriminated against, he would have been
told that it was
the council's policy to allow free swimming to
women over the
age of 60 but in the case of men, that facility was
only available
after they had reached the age of 65.
The essential question raised by
this appeal is whether this
less favourable treatment received by
Mr James was, to quote the
important words of section l(l)(a)
of the Sex Discrimination Act
1975, "on the ground of his
sex" and therefore unlawful being
contrary to that
sub-section and section 29 of the Act.
The answer, in my respectful
submission is clearly in the
affirmative. It was common ground in
the courts below, and
indeed it was so accepted by Mr Beloff Q.C.
before your
Lordships, that the council's policy was
discriminatory. The
council was applying a gender determinative
formula for
entitlement to free swimming. You had to be a person
"who had
reached pensionable age" (60 for women and 65
for men). Such a
formula was inherently discriminatory. In the
county court no
evidence was given as to why the council had
decided on this
policy. This omission was in my view fully
justified because such
evidence would have been irrelevant. The
policy itself was crystal
clear - if you were a male you had,
vis-à-vis a female, a five-
year handicap. You had to
achieve the age of 65 before you were
allowed to swim free of
payment, but if you were a female you
qualified for free swimming
five years earlier. The reason why
this policy was adopted can in
no way affect or alter the fact
that the council had decided to
implement and had implemented a
- 10 -
policy by virtue of which men were
to be treated less favourably
than women, and were to be so
treated on the ground of, i.e.
because of, their sex.
There might have been many reasons
which had persuaded
the council to adopt this policy. The Court of
Appeal have
inferred that "the council's reason for giving
free swimming to
those of pensionable age was to give benefits to
those whose
resources would be likely to have been reduced by
retirement" (per
Sir Nicolas Browne-Wilkinson V.-C., [1990]
Q.B. 61, 73b) I am
quite prepared to make a similar assumption,
but the council's
motive for this discrimination is nothing to the
point (see the
decision of this House in Reg. v. Birmingham
City Council, Ex
parte Equal Opportunities Commission [1989]
A.C. 1153.)
My Lords, I am not troubled by the
suggested consequences
of your Lordships' decision. In the light
of the changed and
changing work practices between the sexes there
is much to be
said for linking benefits to actual age rather than
to state
pensionable age.
I, too, would allow this Appeal.
LORD GOFF OF CHIEVELEY
My Lords,
For the reasons given by my noble
and learned friend, Lord
Bridge of Harwich, I too would allow the
appeal. However, since
a passage in the speech which I delivered
in Reg. v. Birmingham
City Council, Ex parte Equal
Opportunities Commission [1989] A.C.
1155, 1192-1194, has been
referred to, I think it right to add a
few words of my own.
In the Court of Appeal in the
present case, Sir Nicolas
Browne-Wilkinson V.-C. approached the
matter as follows.
Referring to section l(l)(a) of the Sex
Discrimination Act 1975,
which is usually said to be concerned
with cases of "direct"
discrimination, he said [1990]
Q.B. 61, 74:
"In the case of direct
discrimination 'a person discriminates
against a [man] ... if on
the ground of [his] sex he treats
[him] less favourably . . . '
Those words indicate that one
is looking, not to the causative
link between the defendant's
behaviour and the detriment to the
plaintiff, but to the
reason why the defendant treated the
plaintiff less
favourably. The relevant question is 'did the
defendant act
on the ground of sex?' not 'did the less
favourable
treatment result from the defendant's actions?' Thus,
if the
overt basis for affording less favourable treatment was
sex
(e.g. an employer saying 'no women employees') that is
direct
discrimination. If the overt reason does not in terms
relate to
sex (e.g. in selection for redundancy, part-time
employees are the
first to go) that is not on the face of it
direct discrimination
since sex does not come into the overt
reason given for the
action. If, but only if, it is shown
- 11 -
that the overt reason is not the
true reason but there is a
covert reason why the employer adopted
those criteria (e.g.
to get rid of his female employees) will it
be direct
discrimination. In such a case the true reason for
the
policy is the desire to treat women less favourably than
men:
the employer is therefore acting on that ground."
On this approach, a defendant will
only have committed an action
of direct discrimination if either
his overt or his covert reason for
his action is the sex of
the complainant. So the question whether
or not there has been
direct discrimination can only be answered
by asking why
the defendant acted as he did. The Vice-Chancellor
however went on
to state that the defendant's intention or motive
may be relevant
for the purpose of ascertaining the defendant's
reason for his
behaviour. I will return to the use of these three
words -
intention, motive and reason - at a later stage.
In reaching this conclusion, the
Vice-Chancellor was
influenced primarily by the wording of the
subsection. He
considered that the words "on the ground of
sex" referred, in this
context, not to the causative link
between the defendant's
behaviour and detriment to the
complainant, but to the reason why
the defendant treated the
complainant less favourably. But he was
also influenced by his
understanding that, to read those words in
the subsection as
referring to a causative link, would so widen the
ambit of section
l(l)(a) as effectively to emasculate section
l(l)(b).
He said, at p. 75:
"There is a further objection
to Mr. Lester's construction of
the section. If there is direct
discrimination in every case
where there is a substantial
causative link between the
defendant's treatment and the detriment
suffered by the
plaintiff as a result of his sex I can see no room
for the
operation of subsection (l)(b). In every case in
which a
sexually neutral condition in fact operates differentially
and
detrimentally to one sex as opposed to the other,
the
imposition of such condition would be a substantial cause
of
detriment to the plaintiff by reason of his or her sex, i.e.
it
would fall within Mr. Lester's causation test and
therefore
constitute direct discrimination under subsection
(l)(a). This
plainly was not the intention of Parliament
which was
drawing a clear distinction between, on the one hand,
those
cases where the defendant expressly or covertly acts
by
reference to the sex of the plaintiff and, on the other,
those
cases where the defendant acted on grounds not
expressly or
covertly related to sex but his actions have
caused a disparate
impact as between the sexes."
I wish to state at once that I
find this latter part of the Vice-
Chancellor's reasoning
unpersuasive. We are concerned in the
present case with the
application of a requirement or condition -
pensionable age -
which is itself gender-based, since a person's
pensionable age
differs, depending upon his or her sex. Now I
have difficulty in
seeing how section l(l)(b) can sensibly apply in
the case
of such a requirement or condition. This is because two
of the
conditions for the application of section 1(1)(b) are that
the
requirement or condition in question is "such that the
proportion of
women who can comply with it is considerably smaller
than the
proportion of men who can comply with it," and that
it is to her
- 12 -
detriment because she cannot
comply with it. These conditions
appear to be irrelevant in the
case of a requirement or condition
which is itself gender-based.
They presuppose rather a
requirement or condition which is of
itself gender-neutral (such as
the physical height of persons in
the relevant group, or the nature
of their employment), in which
case it would be relevant to
enquire about the proportion of men
and women affected by it. It
follows, in my opinion, that where
the requirement or condition in
question is gender-based, the
question is whether or not there has
been direct discrimination
under section l(l)(a). I wish however to
point out that the
fact that such cases fall for consideration under
section l(l)(a),
rather than section l(l)(b), does not have the effect
of
emasculating the latter subsection, under which it may be
appropriate
to consider cases concerned with gender-neutral
requirements or
conditions, to which the conditions specified in the
subsection
can sensibly be applied.
I turn to that part of the
Vice-Chancellor's reasoning which
is based upon the wording of
section 1(1)(a). The problem in the
present case can be
reduced to the simple question - did the
defendant council, on the
ground of sex, treat the plaintiff less
favourably than it treated
or would treat a woman? As a matter
of impression, it seems
to me that, without doing any violence to
the words used in the
subsection, it can properly be said that, by
applying to the
plaintiff a gender-based criterion, unfavourable to
men, which it
has adopted as the basis for a concession of free
entry to its
swimming pool, it did on the ground of sex treat him
less
favourably than it treated women of the same age, and in
particular
Mrs. James. In other words, I do not read the words
"on the
ground of sex" as necessarily referring only to the reason
why
the defendant acted as he did, but as embracing cases in
which a
gender-based criterion is the basis upon which the
complainant has
been selected for the relevant treatment. Of
course, there may be
cases where the defendant's reason for his
action may bring the
case within the subsection, as when the
defendant is motivated by
an animus against persons of the
complainant's sex, or otherwise
selects the complainant for the
relevant treatment because of his
or her sex. But it does not
follow that the words "on the
ground of sex" refer only to cases
where the defendant's
reason for his action is the sex of the
complainant; and, in my
opinion, the application by the defendant
to the complainant of a
gender-based criterion which favours the
opposite sex is just as
much a case of unfavourable treatment on
the ground of sex. Such a
conclusion seems to me to be
consistent with the policy of the
Act, which is the active
promotion of equal treatment of men and
women. Indeed, the
present case is no different from one in which
the defendant
adopts a criterion which favours widows as against
widowers, on
the basis that the former are likely to be less well
off; or indeed,
as my noble and learned friend, Lord Bridge of
Harwich has
pointed out, a criterion which favours women between
the ages of
60 and 65, as against men between the same ages, on
the same
basis. It is plain to me that, in those cases, a man in
either
category who was so treated could properly say that he
was
treated less favourably on the ground of sex, and that the
fact
that the defendant had so treated him for a benign motive
(to
help women in the same category, because they are likely to
be
less well off) was irrelevant.
- 13 -
I fully appreciate that this
conclusion means that some
people, seeking to do practical good
for the best of motives, may
be inhibited in the sense that they
will be precluded from using
gender-based criteria to achieve
their purpose. This is the position
in which the council finds
itself in the present case. It is, I
understand, anxious to
assist, by means of a free concession,
elderly persons who are
retired and so are likely to be less well
off than those who are
still at work. For this purpose, it has for
practical reasons
adopted the criterion of pensionable age. Of
course, it by no
means follows that, because a person is of
pensionable age, he
will no longer be working, especially nowadays
when he can draw
his full pension when he is still in employment;
but no doubt
pensionable age is easily established by the
production of a
document, and, as a rough and ready test of
retirement, it is
reasonably acceptable. But the simple fact is
that, under section
1(1)(a) of the Act of 1975, which is concerned
actively to
promote equality of treatment of the two sexes, the
adoption for
this purpose of a gender-based criterion is unlawful;
and the task
of the council is to find some other reasonably
practical
criterion, which does not contravene the Act of 1975, by
which it
can achieve its laudable purpose.
Finally, I wish briefly to refer
to the use, in the present
context, of such words as intention,
motive, reason and purpose.
In the course of argument and in the
judgment of the Vice-
Chancellor, attention was focussed upon the
use of those words.
Indeed it has been suggested that, for the
purpose of identifying
the meaning of those words in the present
context, recourse
might usefully be had to the law of murder, and
in particular to
the speech of my noble and learned friend, Lord
Bridge of
Harwich, in Reg. v. Moloney [1985] AC 905, 914.
I must confess,
however, to being very dubious about the validity
of this
comparison. In the law of murder, which at present
requires
either an intention to kill or an intention to cause
grievous bodily
harm, the intention is related to a specific
consequence flowing
from the act of the accused; so that, in the
great majority of
cases, it is not difficult to focus upon the
relevant intention in
the sense of the immediate purpose of the
accused, by asking the
questions: did he mean to kill the victim,
or did he mean to cause
him really serious bodily harm? In this
way, intention can be
distinguished from motive because, although
motive is also
concerned with purpose (e.g. the accused killed his
victim in order
to get his money), it is here concerned with an
ulterior purpose,
i.e. the reason why he decided to kill. The law
of murder is, I
suppose, useful in the sense that it assists to
show how, in a
certain context, intention and motive can be
distinguished, although
the concept of purpose may be regarded as
relevant to both. But
the fact that the concept of purpose may be
relevant to both
demonstrates how easily they can be confused, and
how, without a
precise definition of the specific question under
consideration and
of the context in which it is being asked, it
may be possible to
use the terms interchangeably, at least in
ordinary speech, without
abuse of language. For it may be said of
a man who kills another
for his money either that he intended to
get the money or that
getting the money was his motive for
killing. It follows that, in a
legal context, if words such as
intention or motive are to be used
as a basis for decision, they
require the most careful handling, and
it also follows that their
use in one context may not be a safe
guide to their use in another
context.
- 14 -
For these reasons, I am reluctant
to have to conclude that
those who are concerned with the day to
day administration of
legislation such as the Sex Discrimination
Act 1975, who are
mainly those who sit on industrial tribunals,
should have to grapple
with such elusive concepts as these.
However, taking the case of
direct discrimination under section
l(l)(a) of the Act, I incline to
the opinion that, if it
were necessary to identify the requisite
intention of the
defendant, that intention is simply an intention to
perform the
relevant act of less favourable treatment. Whether or
not the
treatment is less favourable in the relevant sense, i.e. on
the
ground of sex, may derive either from the application of
a
gender-based criterion to the complainant, or from selection by
the
defendant of the complainant because of his or her sex; but,
in
either event, it is not saved from constituting
unlawful
discrimination by the fact that the defendant acted from
a benign
motive. However, in the majority of cases, I doubt if it
is
necessary to focus upon the intention or motive of the
defendant
in this way. This is because, as I see it, cases of
direct
discrimination under section l(l)(a) can be
considered by asking the
simple question: would the complainant
have received the same
treatment from the defendant but for his or
her sex? This simple
test possesses the double virtue that, on the
one hand, it embraces
both the case where the treatment derives
from the application of
a gender-based criterion, and the case
where it derives from the
selection of the complainant because of
his or her sex; and on the
other hand it avoids, in most cases at
least, complicated questions
relating to concepts such as
intention, motive, reason or purpose,
and the danger of confusion
arising from the misuse of those
elusive terms. I have to stress,
however, that the "but for" test
is not appropriate for
cases of indirect discrimination under section
l(l)(b),
because there may be indirect discrimination against
persons of
one sex under that subsection, although a
(proportionately
smaller) group of persons of the opposite sex is
adversely
affected in the same way.
I trust that the foregoing will
explain why I expressed
myself as I did, I fear too tersely, in
Reg. v. Birmingham City
Council, Ex parte Equal Opportunities
Commission [1989] A.C.
1155, 1193-1194. I wish to express my
gratitude to counsel for
the assistance which they have given to
your Lordships in the
present case, which has encouraged me to
ponder again and more
deeply upon the problem of construction of
section 1(1) of the Act
of 1975, and to express more fully the
reasons for the solution of
that problem which I myself favour.
LORD LOWRY
My Lords,
The facts of this appeal are
simple, but I confess to having
had some difficulty in deciding
it. I can discern in your Lordships'
speeches, which I have had
the advantage of reading in draft, two
- 15 -
logical and persuasive trains
of thought which lead to opposite
conclusions, and the
question is how to choose between them.
The case has been presented by the
plaintiff as an example
of direct discrimination, an apt and by
now customary description
of a breach of section l(l)(a) of
the Sex Discrimination Act 1975
which, as applied to men,
provides:
"A person discriminates
against a [man] in any circumstances
relevant for the purposes of
any provision of this Act if -
(a) on the ground of [his]
sex he treats [him] less favourably
than he treats or would treat
a [woman]."
There are two questions for
decision: (1) What, on its true
construction, does this provision
mean? (2) When the provision,
properly construed, is applied to
the facts, did the council
discriminate against the appellant
contrary to section l(l)(a)?
With a view to construction, the
crucial words are "on the
ground of his sex". Mr. Lester
for the appellant, submits that this
phrase means "due to his
sex" and does not involve any
consideration of the reason
which has led the alleged discriminator
to treat the man less
favourably than he treats or would treat a
woman. I shall call
this the causative construction and will
presently advert to it.
Mr. Beloff, for the council, contends for
what I shall call the
subjective construction, which involves
considering the reason why
the discriminator has treated the man
unfavourably. He submits
that this construction accords with the
plain meaning of the words
and the grammatical structure of the
sentence in which they occur.
I accept Mr. Beloff's construction
and I proceed to explain why I
do so.
On reading section l(l)(a),
it can be seen that the
discriminator does something to the
victim, that is, he treats him
in a certain fashion, to wit, less
favourably than he treats or
would treat a woman. And he treats
him in that fashion on a
certain ground, namely, on the
ground of his sex. These words, it
is scarcely necessary for
me to point out, constitute an adverbial
phrase modifying the
transitive verb "treats" in a clause of which
the
discriminator is the subject and the victim is the object.
While
anxious not to weary your Lordships with a grammatical
excursus,
the point I wish to make is that the ground on which
the
alleged discriminator treats the victim less favourably
is
inescapably linked to the subject and the verb; it is the
reason
which has caused him to act. The meaning of the vital
words, in
the sentence where they occur, cannot be expressed by
saying that
the victim receives treatment which on the ground of
(his) sex is
less favourable to him than to a person of the
opposite sex. The
structure of that sentence makes the words "on
the ground of his
sex" easily capable of meaning "due to
his sex" if the context so
requires or permits.
Mr. Beloff gave your Lordships a
definition of "ground" from
the Oxford English
Dictionary 2nd ed., vol vi, p. 876:
"a circumstance on which an
opinion, inference, argument,
statement or claim is founded, or
which has given rise to an
action, procedure or mental feeling; a
reason, motive.
Often with additional implication: A valid reason,
justifying
motive, or what is alleged as such."
- 16 -
Mr. Lester conceded that in
ordinary speech to ask on what
grounds a particular decision is
taken invites consideration of the
mental processes of the
decision-maker. And your Lordships are
only too familiar with the
use in a legal context of the word
"grounds" as
synonymous with reasons. It is also interesting to
note one
dictionary definition of "discriminate" as "to make
a
distinction, especially unjustly, on the grounds of race or
colour or
sex." As Mr. Beloff put it, section 1(1)(a)
refers to the activities
of the discriminator: the words "on
the ground of his sex" provide
the link between the alleged
discriminator and his less favourable
treatment of another. They
introduce a subjective element into
the analysis and pose here the
question "Was the sex of the
appellant a consideration in the
council's decision?" Putting it
another way, a "ground"
is a reason, in ordinary speech, for which
a person takes a
certain course. He knows what he is doing and
why he has decided
to do it. In the context of section l(l)(a) the
discriminator
knows that he is treating the victim less favourably
and he also
knows the ground on which he is doing so. In no case
are the
discriminator's thought processes immaterial.
In the Court of Appeal Sir
Nicolas Brown-Wilkinson V.-C.
said [1990] Q.B. 61, 71:
"As the facts of this case
demonstrate, there is no doubt
that the council's policy has a
discriminatory impact as
between men and women who are over the
age of 60 but
under ... 65. [Women] of that age enjoy the
concession:
men of the same age do not. But not all conduct having
a
discriminatory effect is unlawful: discriminatory behaviour
has
to fall within the statutory definition of discrimination
and to
have occurred in a context (e.g. in relation to
employment or the
provision of facilities) in which the Act
renders such
discrimination unlawful."
Then (I am simply dealing with
the construction point) he said, at
p. 74:
"Mr. Lester, for the
plaintiff, forcefully submitted that
there is direct
discrimination in this case. He submitted
that discrimination is
'on the ground of sex within section
l(l)(a) if the sex of
the plaintiff is a substantial cause of
the less favourable
treatment. In this context, he says, the
correct question is 'What
would the position have been but
for the sex of the plaintiff?' If
the position would be
different if the plaintiffs sex were
different, that is direct
discrimination.
"I do not accept that
construction of section 1. In
my judgment section 1(1)(a)
is looking to the case where,
subjectively, the defendant has
treated the plaintiff less
favourably because of his or her sex.
What is relevant is
the defendant's reason for doing an act, not
the causative
effect of the act done by the defendant. As Mr.
Towler
for the council pointed out, section 1(1) is
referring
throughout to the activities of the alleged
descriminator. In
the case of direct discrimination 'a person
discriminates
against a [man] . . . if on the ground of [his] sex
he treats
[him] less favourably . . . ' Those words indicate that
one
is looking, not to the causative link between the defendant's
- 17 -
behaviour and the detriment to the
plaintiff, but to the
reason why the defendant treated the
plaintiff less
favourably. The relevant question is 'did the
defendant act
on the ground of sex?' not 'did the less
favourable
treatment result from the defendant's actions?'"
I agree with and adopt those
observations of the Vice-Chancellor,
which I consider to be
entirely consistent with the decision
reached by your Lordships'
House in Birmingham City Council v.
Equal Opportunities
Commission [1989] AC 1155, on which Mr.
Lester has so
strongly relied and to which I must soon give my
attention.
While still on the construction
point, I might mention,
Armagh District Council v. Fair
Employment Agency [1983] N.I.
346, which was a decision of the
Court of Appeal in Northern
Ireland on the Fair Employment
(Northern Ireland) Act 1976.
Section 16(2) of the Act provided:
"For the purposes of this Act
a person discriminates against
another person on the ground of
religious belief or political
opinion if, on either of those
grounds, he treats that other
person less favourably in any
circumstances than he treats
or would treat any other person in
those circumstances. . .
."
The facts were concerned with the
appointment of a wages clerk
by a district council and do not
assist in the resolution of this
appeal, but perhaps I may be
permitted to refer to a passage in
my judgment where I said, at
pp. 354F-355:
"It must not be forgotten
that when the Act uses the word
'discrimination or 'discriminate'
it is referring to an
employer who makes a choice between one
candidate and
another on the ground of religious belief or
political opinion;
it is not speaking of an incidental
disadvantage which is due
to a difference between the religion of
the employer and of
the candidate but of a deliberate, intentional
action on the
part of the appointing body or individual.
"Here I must dispose of a
misleading argument which
was raised before the learned county
court judge but not
seriously pursued in this court. An action may
be deliberate
without being malicious. Most acts of discrimination
are
both, but the only essential quality is deliberation.
If a
Protestant employer does not engage a Roman
Catholic
applicant because he genuinely believes that the
applicant
will not be able to get on with Protestant fellow
workmen,
he is discriminating against the applicant on the ground
of
his religious belief, although that employer's motives may
be
above reproach. If women are allowed to stop work five
minutes
early in order to avoid being endangered when the
day's work ends,
it has been decided that the men in the
workforce are
discriminated against on the ground that they
are men. The
employer's decision to keep the men at work
longer, though reached
in good faith, was deliberately based
on the fact that they were
men.
"Accordingly, it can be
stated that, although malice
(while often present) is not
essential, deliberate intention to
differentiate on the ground of
religion, politics, sex, colour
- 18 -
or nationality (whatever is aimed
at by the legislation) is an
indispensable element in the concept
of discrimination. The
distinction is sometimes expressed as one
between motive
and intention. In Peake v. Automotive Products
Ltd. [1977]
Q.B. 780, the case about releasing women early
from their
work, Phillips J. stated, at p. 787: 'it seems
to us that
[counsel] is confusing the motive or the purpose of the
act
complained of with the factual nature of the act
itself.
Section 1(1)(a) requires one to look to see what in
fact is
done amounting to less favourable treatment and whether
it
is done to the man or the woman because he, is, a man or
a
woman. If so, it is of no relevance that it is done with
no
discriminatory motive.' This idea runs through all the
cases."
The Peake decision was
reversed on appeal [1978] Q.B. 233, but
has subsequently been
recognised as correct: Ministry of Defence
v. Jeremiah
[1980] Q.B. 87.
Section 66 of the Act deals with
the enforcement of claims
under Part III, which includes the
relevant section 29. Subsection
(3) provides:
"As respects an unlawful act
of discrimination falling within
section 1(1)(b) (or, where
this section is applied by section
65(1)(b), section
3(1)(b)) no award of damages shall be made
if the
respondent proves that the requirement or condition
in question
was not applied with the intention of treating
the claimant
unfavourably on the ground of his sex or
marital status as the
case may be."
Damages may be awarded in respect
of all acts of direct
discrimination and therefore, as Mr. Beloff
persuasively contends,
the subjective construction of section
1(1)(a) would be consistent
with the principle of making
damages available only in cases where
the discrimination has been
intentional.
As I have said, and as the
Vice-Chancellor stated in the
Court of Appeal, Mr. Lester espoused
the causative construction of
the vital words which, as he
submitted, has the virtue of
simplicity; it eliminates
consideration of the discriminator's mental
processes and of such
protean and slippery concepts as intention,
purpose, motive,
desire, animus, prejudice, malice and reason. The
basic difficulty
of this approach, I consider, is that one has to
disregard or
distort the phrase - "on the ground of his sex" in
order
to make it work. Counsel argued that the subjective
construction
"artificially confines the meaning of 'ground'". I
must
disagree: the subjective construction uses "ground"
in its natural
meaning, whereas the causative construction
suppresses the natural
meaning. The phrase "on the ground of"
does not mean "by reason
of"; moreover, "ground"
must certainly not be confused with
"intention".
Mr. Lester rightly submits that
the policy of the Act is to
discourage discrimination and promote
equality. But the Act
pursues that policy by means of the words
which Parliament has
used. Some inequality may be justified (see
section l(l)(b)(ii)) and
some is accepted (see sections
6(4) and 51 (now 51A as amended
by section 3 of the Employment Act
1989)). The phrase "on the
- 19 -
ground of his sex" does not,
as alleged, constitute an exception to
the policy and therefore
does not fall to be narrowly construed.
The words in question
constitute an ingredient of unlawful
discrimination contrary to
section 1(1)(a).
As I have said, the appellant
relies strongly on the
Birmingham case. The relevant
extracts from the speech of my
noble and learned friend, Lord Goff
of Chieveley have already
been cited by him and by my noble and
learned friend, Lord
Bridge of Harwich. Your Lordships will recall
that Lord Goff of
Chieveley said, p. 1194:
"There is discrimination
under the statute if there is less
favourable treatment on the
ground of sex, in other words if
the relevant girl or girls would
have received the same
treatment as the boys but for their sex.
The intention or
motive of the defendant to discriminate, though
it may be
relevant so far as remedies are concerned (see section
66(3)
of the Act of 1975), is not a necessary condition
of
liability; it is perfectly possible to envisage cases where
the
defendant had no such motive, and yet did in fact
discriminate
on the ground of sex. Indeed, as Mr. Lester
pointed out in the
course of his argument, if the council's
submission were correct
it would be a good defence for an
employer to show that he
discriminated against women not
because he intended to do so but
(for example) because of
customer preference, or to save money, or
even to avoid
controversy. In the present case, whatever may have
been
the intention or motive of the council, nevertheless it
is
because of their sex that the girls in question receive
less
favourable treatment than the boys, and so are the subject
of
discrimination under the Act of 1975. This is well
established in
a long line of authority: see, in particular,
Jenkins v.
Kingsgate (Clothing Productions) Ltd. [1981] 1
W.L.R. 1485,
1494, per Browne-Wilkinson J., and Ex parte
Keating, per
Taylor J., at p. 475; see also Ministry of
Defence v. Jeremiah
[1980] Q.B. 87, 98, per Lord Denning
M.R. I can see no
reason to depart from this established
view."
My Lords, as my noble and learned
friend said, the
Birmingham City Council did discriminate on the
ground of sex. I
have no difficulty in applying to the facts the
subjective
construction of section l(l)(a) and in
appreciating on the basis of
that construction that the council
treated the girls less favourably
on the ground of their sex. At
the qualifying stage many more
places in the Birmingham grammar
schools were available for boys
of the appropriate age than for
girls. The pupils concerned took a
test and their performance was
assessed in order to see which
pupils had qualified. Because there
were fewer places available
for girls, they had to achieve higher
marks than the boys and
accordingly the council, when considering
the performance of a girl
in the test, was obliged to demand from
her a higher mark than if
she had been a boy. In so doing the
council treated that girl less
favourably than it treated a boy
and did so on the ground of her
sex. Your Lordships followed a
well-trodden path in holding that
the mere fact that the council
had no prejudice against girls and
did not intend or desire to
place them at a disadvantage and acted
as it did from necessity
(the defence put up by the council) was
- 20 -
of no avail against the
established fact that the council
deliberately discriminated
against the girls in the way I have
described.
The appellant in this case,
however, has relied , in favour
of the causative construction, on
my noble and learned friend's
statement that there is
discrimination if the girls "would have
received the same
treatment as the boys but for their sex" and, to
a lesser
extent, on his further statement that "it is because of
their
sex that the girls in question receive less favourable
treatment
than the boys".
I feel that I would have no
difficulty in dealing with this
argument, but for the fact that it
has commended itself to the
majority of your Lordships, including
the author of the passage in
question. It is therefore with even
more than the usual measure
of respect that I make the
observations which follow. In their
context both of the statements
which I have extracted are
perfectly correct statements of fact,
but that does not mean that
they are a guide to the proper
construction of section l(l)(a),
which I have considered
above. The defence was not that the less
favourable treatment was
a purely undesigned and adventitious
consequence of the council's
policy. It would have had to be
admitted that the council, however
regretfully, knew it was
treating the girls less favourably than
the boys and that owing to
the shortage of school places it had
deliberately decided so to
treat them because they were girls. The
defence, based on
absence of intention and motive, was rightly
rejected and no other
defence was made or could have been made.
Whichever
construction of section l(l)(a) had been applied,
the council would
have lost, and no rival constructions of that
provision were
discussed. It is, I consider, worth noting that the
examples and
the cases which my noble and learned friend mentions
are
consistent with the subjective construction. If a men's
hairdresser
dismisses the only woman on his staff because the
customers
prefer to have their hair cut by a man, he may regret
losing her
but he treats her less favourably because she is a
woman, that is,
on the ground of her sex, having made a deliberate
decision to do
so. If the foreman dismisses an efficient and
co-operative black
road sweeper in order to avoid industrial
action by the remaining
(white) members of the squad, he treats
him less favourably on
racial grounds. If a decision is taken, for
reasons which may seem
in other respects valid and sensible, not
to employ a girl in a
group otherwise consisting entirely of men,
the employer has
treated that girl less favourably than he would
treat a man and he
has done so consciously on the ground (which he
considers to be a
proper ground) that she is a woman. In none
of these cases is a
defence provided by an excusable or even by a
worthy motive.
It can thus be seen that the
causative construction not only
gets rid of unessential and often
irrelevant mental ingredients,
such as malice, prejudice, desire
and motive, but also dispenses
with an essential ingredient,
namely, the ground on which the
discriminator acts. The
appellant's construction relieves the
complainant of the need to
prove anything except that A has done
an act which results in less
favourable treatment for B by reason
of B's sex, which reduces to
insignificance the words "on the
ground of". Thus the
causative test is too wide and is
grammatically unsound, because
it necessarily disregards the fact
- 21 -
that the less favourable treatment
is meted out to the victim on
the ground of the victim's
sex.
I now turn to an aspect of the
case which has caused me
greater difficulty, and that is the
question whether, by adopting a
gender based discriminatory
criterion as a test of free admission
to their swimming pool, the
council have inevitably put themselves
in the position of treating
men between 60 and 64 "less favourably
on the ground of their
sex". Without doubt the council have
treated men of that
age-group less favourably than they have
treated women of the same
age-group. But have they done so on
the ground of the men's sex?
There is a strong body of opinion in
favour of an affirmative
answer. Three of your Lordships have
adopted it and a number of
academic writers on the subject, who
know what they are talking
about, have taken the same view.
This view is variously expressed.
One way of putting it is
that the expression "persons who
have reached state pension age"
is just a shorthand
expression which denotes the age of 60 in a
woman and the age of
65 in a man. I hope it is not a mere
quibble to point out that
shorthand is normally a substitute for the
original expression and
not the original expression itself. Another
approach, mooted
during argument, is that the council might as
well have put up a
notice, "Admission 75p. Children under 3,
women over 60 and
men over 65 admitted free." The wording of
the second part of
such a notice would be openly discriminatory,
but another way of
describing that wording would be to call it a
spelling out of the
council's policy of granting free admission to
all persons who had
reached state pension age. The same might
be said of age-related
provisions about concessionary rail and bus
fares and free medical
prescriptions. Yet another, and also a
logical, theory is that, if
the council are bound to foresee that the
test which they have
adopted inevitably leads to the result that
men of the 60-64
age-group will receive from the council less
favourable treatment
than women of the same age-group, then the
council, without the
need of further proof, are incontrovertibly
shown to have
deliberately and knowingly treated those men
unfavourably on
the ground of their sex.
I can see the force of this point.
Indeed, when the hearing
concluded, it seemed to me likely to be
decisive. But I have
come away from that view because, in my
opinion, the
foreseeability, even the inevitability, of the result
as viewed or
viewable by an alleged discriminator does not provide
the
touchstone of liability: that is supplied by the ground on
which he
has acted and the foreseeability test, adopted by analogy
with the
criminal law as an indication of the intention of the
accused, is
not the appropriate test for deciding on what ground,
that is, for
what reason the person acted and, accordingly,
whether there has
been direct discrimination contrary to section
1(1)(a).
Here I adopt the convincing
argument of my noble and
learned friend, Lord Griffiths. The
council were providing free
swimming for a certain group of people
because they were of
pensionable age and not because they were men
and women of
specific but different ages. Therefore the council
did not use the
expression "persons who have reached the
state pension age" as a
convenient way of describing women
over 60 and men over 65.
The council refused to provide free
swimming for the appellant,
- 22 -
not because he was a man under 65,
but because he had not
reached the state pensionable age and
therefore could fairly be
expected to pay the normal charge of
75p. The distinction drawn
by the council depended on the presence
or absence of pensionable
status and not on sex. Apposite is Mr.
Beloff's suggestion that
the council's policy would not change,
even if the state pension
age were altered for either sex or for
both sexes.
There is no suggestion that the
council here were guilty of
bad faith in the shape of covert
discrimination. They were, it
seems, adopting a time-honoured and
rough and ready, if most
imperfect, means test which, right up to
the present, has
continued to commend itself to the Government and
to Parliament,
as the many statutory examples produced by learned
counsel to
your Lordships have shown. In saying this, I do not
indulge in a
vain attempt to defend the council by reference to
its worthy
motives. I am simply concerned to point out that when
primary
legislation permits, and subordinate legislation employs,
the age
differential of 60 for women and 65 for men, that
legislation
should not be taken as indicating an intention by
Parliament to
place men at a disadvantage on the ground that they
are men.
The conclusion I have come to
provides an explanation for
the reluctance of the appellant's very
able and experienced leading
counsel to accept the subjective
interpretation of the words "on
the ground of his sex"
and for his unswerving adherence to the
causative "but for"
test. If the subjective interpretation is
correct, the fact that a
discriminatory result is foreseeable does
not offer the appellant
a satisfactory solution of his problem,
because the foreseeable
result does not show on what ground the
alleged
discriminator acted. That involves a question of fact the
answer
to which will depend on what is proved or admitted and on
what may
be inferred from the evidence.
My Lords, there is just one other
point which I would
mention. The appellant's argument seemed to
infer that the
council's action, since it was not indirect
discrimination under
section 1(1)(b), must be caught by
section 1(1)(a) because it
involves less favourable
treatment of men and ought not to escape
entirely from the purview
of the Act. This suggested conclusion,
however, cannot prevail
over the meaning of section l(l)(a) if that
meaning is
clear. Furthermore, I would not, in the absence of
argument on
both sides, be prepared to accept that the Vice-
Chancellor was
wrong to contemplate the possibility of a claim of
indirect
discrimination on the present facts. The key words in
section
1(1)(b) are "[if] he applies to her a requirement
or
condition which he applies . . . equally to a man",
and not "...
which applies equally to a man". A
prospective employer may
apply equally to men and women
alike a height or strength
requirement which is sexually neutral,
but the overall result of
applying the requirement will be
predictable. It seems to me, so
far as the point has any
relevance, that it can be argued that the
council have applied
equally to men and women the requirement of
their having
reached state pension age, although the requirement
itself was
discriminatory. By parity of reasoning, I would also
need to be
convinced that the Vice-Chancellor acted inconsistently
when he
rejected the test of the judge in the county court and
yet held
section l(l)(b) to be relevant if relied upon. Your
Lordships
will already have noted that the appellant, whose cause
- 23 -
was promoted throughout by the
Equal Opportunities Commission,
expressly relied on section
l(l)(a) of the Act to the exclusion of
section 1(1)(b).
For the reasons contained in the
speech of my noble and
learned friend, Lord Griffiths and also for
those which I have
given, I would dismiss the appeal.
- 24 - |
JISCBAILII_CASE_CONSTITUTIONAL
Parliamentary
Archives,
HL/PO/JU/18/250
Regina v. Secretary of State
for Transport (Respondent) ex
parte Factortame Limited and others
(Appellants)
JUDGMENT
Die Jovis 26° Julii 1990
Upon Further Report from the
Appellate Committee to whom
was referred the Cause Secretary of
State for Transport
against Factortame Limited and others, That
the Committee had
heard Counsel on Monday the 17th, Tuesday the
18th, Wednesday
the 19th, Thursday the 20th, Monday the 24th,
Tuesday the
25th, Wednesday the 26th and Thursday the 27th days of
April
1989, upon the Petition and Appeal of Factortame Limited
and
others praying that the matter of the Orders set forth in
the
Schedule thereto, namely Orders of Her Majesty's Court
of
Appeal of the 16th and the 22nd days of March 1989, might
be
reviewed before Her Majesty the Queen in Her Court
of
Parliament and that the said Orders might be reversed,
varied
or altered or that the Petitioners might have such
other
relief in the premises as to Her Majesty the Queen in
Her
Court of Parliament might seem meet; as upon the case of
the
Secretary of State for Transport lodged in answer to the
said
Appeal; That by an Order of this House of the 18th day of
May
1989 the following questions were referred to the Court
of
Justice of the European Communities for a preliminary
ruling
under Article 177 of the Treaty establishing the
European
Economic Community:
1. "Where -
(i) a party before the national court claims
to
be entitled to rights under Community law
having direct effect in
national law ("the rights
claimed") ,
(ii) a national measure in clear terms will,
if
applied, automatically deprive that party of
the rights claimed,
(iii) there are serious arguments both for
and
against the existence of the rights claimed and
the
national court has sought a preliminary ruling
under Article 177
as to whether or not the rights
claimed exist,
(iv)
the national law presumes the national
measure in question
to be compatible with
Community law unless and until it is
declared
incompatible,
(v) the national court has no power to
give
interim protection to the rights claimed by
suspending the
application of the national measure
pending the preliminary
ruling,
Oral Judgment: 26.7.90
Reasons: 11.10.90
HOUSE OF LORDS
REGINA
SECRETARY OF STATE FOR
TRANSPORT
(RESPONDENT)
ex parte
FACTORTAME LIMITED
AND
OTHERS
(APPELLANTS)
Lord Bridge of
Harwich
Lord Brandon of Oakbrook
Lord Oliver of Aylmerton
Lord
Goff of Chieveley
Lord Jauncey of Tullichettle
LORD
BRIDGE OF HARWICH
My Lords,
When this appeal first came before
the House last year
[1990] 2 AC 85 your Lordships held that, as
a matter of English
law, the courts had no jurisdiction to grant
interim relief in terms
which would involve either overturning an
English statute in
advance of any decision by the European Court
of Justice that the
statute infringed Community law or granting an
injunction against
the Crown. It then became necessary to seek a
preliminary ruling
from the European Court of Justice as to
whether Community law
itself invested us with such jurisdiction.
In the speech I delivered
on that occasion, with which your
Lordships agreed, I explained the
reasons which led us to those
conclusions. It will be remembered
that, on that occasion, the
House never directed its attention to
the question how, if there
were jurisdiction to grant the relief
sought, discretion ought to
be exercised in deciding whether or not
relief should be granted.
In June of this year we received
the judgment of the
European Court of Justice (Case C-213/89)
replying to the
questions we had posed and affirming that we had
jurisdiction, in
the circumstances postulated, to grant interim
relief for the
protection of directly enforceable rights under
Community law and
that no limitation on our jurisdiction imposed
by any rule of
national law could stand as the sole obstacle to
preclude the grant
of such relief. In the light of this judgment
we were able to
conclude the hearing of the appeal in July and
unanimously decided
that relief should be granted in terms of the
orders which the
House then made, indicating that we would give
our reasons for
the decision later.
My noble and learned friend Lord
Goff of Chieveley, whose
speech I have had the advantage of
reading in draft, has given a
very full account of all the
relevant circumstances arising since
our decision last year in the
light of which our final disposal of
the appeal fell to be made. I
gratefully adopt this account. I
also agree with his exposition of
the principles applicable in
relation to the grant of interim
injunctive relief where the dispute
involves a conflict between
private and public interests and where
damages are not a remedy
available to either party, leading, in
the circumstances of this
case, to the conclusion that it was
appropriate to grant relief in
terms of the orders made by the
House. But I add some observations
of my own in view of the
importance of the subject matter.
Some public comments on the
decision of the European
Court of Justice, affirming the
jurisdiction of the courts of
member states to override national
legislation if necessary to
enable interim relief to be granted in
protection of rights under
Community law, have suggested that this
was a novel and
dangerous invasion by a Community institution of
the sovereignty
of the United Kingdom Parliament. But such
comments are based
on a misconception. If the supremacy within the
European
Community of Community law over the national law of
member
states was not always inherent in the E.E.C. Treaty (Cmnd.
5179-
II) it was certainly well established in the jurisprudence
of the
European Court of Justice long before the United Kingdom
joined
the Community. Thus, whatever limitation of its
sovereignty
Parliament accepted when it enacted the European
Communities
Act 1972 was entirely voluntary. Under the terms of
the Act of
1972 it has always been clear that it was the duty of a
United
Kingdom court, when delivering final judgment, to override
any
rule of national law found to be in conflict with any
directly
enforceable rule of Community law. Similarly, when
decisions of
the European Court of Justice have exposed areas of
United
Kingdom statute law which failed to implement Council
directives,
Parliament has always loyally accepted the obligation
to make
appropriate and prompt amendments. Thus there is nothing
in any
way novel in according supremacy to rules of Community law
in
those areas to which they apply and to insist that, in
the
protection of rights under Community law, national courts
must
not be inhibited by rules of national law from granting
interim
relief in appropriate cases is no more than a logical
recognition of
that supremacy.
Although affirming our
jurisdiction, the judgment of the
European Court of Justice does
not fetter our discretion to
determine whether an appropriate case
for the grant of interim
relief has been made out. While agreeing
with Lord Goff's
exposition of the general principles by which the
discretion should
be guided, I would wish to emphasise the salient
features of the
present case which, at the end of the argument,
left me in no
doubt that interim relief should be granted. A
decision to grant
or withold interim relief in the protection of
disputed rights at a
time when the merits of the dispute cannot be
finally resolved
must always involve an element of risk. If, in
the end, the
claimant succeeds in a case where interim relief has
been refused,
he will have suffered an injustice. If, in the end,
he fails in a
case where interim relief has been granted,
injustice will have
been done to the other party. The objective
which underlies the
- 2 -
principles by which the discretion
is to be guided must always be
to ensure that the court shall
choose the course which, in all the
circumstances, appears to
offer the best prospect that eventual
injustice will be avoided or
minimised. Questions as to the
adequacy of an alternative remedy
in damages to the party
claiming injunctive relief and of a
cross-undertaking in damages to
the party against whom the relief
is sought play a primary role in
assisting the court to determine
which course offers the best
prospect that injustice may be
avoided or minimised. But where,
as here, no alternative remedy
will be available to either party if
the final decision does not
accord with the interim decision,
choosing the course which will
minimise the risk presents
exceptional difficulty.
If the applicants were to succeed
after a refusal of interim
relief, the irreparable damage they
would have suffered would be
very great. That is now beyond
dispute. On the other hand, if
they failed after a grant of
interim relief, there would have been
a substantial detriment to
the public interest resulting from the
diversion of a very
significant part of the British quota of
controlled stocks of fish
from those who ought in law to enjoy it
to others having no right
to it. In either case, if the final
decision did not accord with
the interim decision, there would have
been an undoubted
injustice. But the injustices are so different in
kind that I find
it very difficult to weigh the one against the
other.
If the matter rested there, I
should be inclined to say, for
the reasons indicated by Lord Goff
of Chieveley, that the public
interest should prevail and interim
relief be refused. But the
matter does not rest there. Unlike the
ordinary case in which the
court must decide whether or not to
grant interlocutory relief at a
time when disputed issues of fact
remain unresolved, here the
relevant facts are all ascertained and
the only unresolved issues
are issues of law, albeit of Community
law. Now, although the
final decision of such issues is the
exclusive prerogative of the
European Court of Justice, that does
not mean that an English
court may not reach an informed opinion
as to how such issues are
likely to be resolved. In this case we
are now in a position to
derive much assistance in that task from
the decisions of the
European Court of Justice in Reg. v.
Ministry of Agriculture,
Fisheries and Food, Ex parte Agegate Ltd.
(Case C-3/87) [1990] 3
W.L.R. 226 and Reg. v. Ministry of
Agriculture, Fisheries and
Food, Ex parte Jaderow Ltd. (Case
C-216/87) [1990] 3 W.L.R. 265
and the interim decision of the
President in the proceedings
brought by the European Commission
against the United Kingdom
(Commission of the European
Communities v. United Kingdom
(Case 246/89 R)) to which Lord
Goff of Chieveley has referred.
In the circumstances I believe
that the most logical course in
seeking a decision least likely to
occasion injustice is to make the
best prediction we can of the
final outcome and to give to that
prediction decisive weight in
resolving the interlocutory issue.
It is now, I think, common ground
that the quota system
operated under the common fisheries policy,
in order to be
effective and to ensure that the quota of a member
state enures
to the benefit of its local fishing industry,
entitles the member
state to derogate from rights otherwise
exerciseable under
Community law to the extent necessary to ensure
that only fishing
- 3 -
vessels having a genuine economic
link with that industry may fish
against its quota. The narrow
ground on which the Secretary of
State resists the applicants'
claim is that the requirements of
section 14 of the Merchant
Shipping Act 1988 that at least 75 per
cent. of the beneficial
ownership of a British fishing vessel must
be vested in persons
resident and domiciled in the United Kingdom
is necessary to
ensure that the vessel has a genuine economic link
with the
British fishing industry. Before the decision of the
European
Court of Justice in Agegate that would have seemed to
me a
contention of some cogency. But in Agegate it was held
that
a licensing condition requiring 75 per cent. of the crew of a
vessel
fishing against the quota of a member state to be resident
within
the member state could not be justified on the ground that
it was
"irrelevant to the aim of the quota system" (p. 261).
I
confess that I find some difficulty in understanding the
reasoning
in the judgment which leads to this conclusion. But if a
residence
requirement relating to crew members cannot be justified
as
necessary to the maintenance of a genuine economic link with
the
local industry, it is difficult to see how residence or
domicile
requirements relating to beneficial owners could possibly
fare any
better.
The broader contention on behalf
of the Secretary of State
that member states have an unfettered
right to determine what
ships may fly their flag raises more
difficult issues. It would not
be appropriate in the context of
the present interlocutory decision
to enter upon a detailed
examination of the wide-ranging
arguments bearing upon those
issues. I believe the best indication
that we have of the prospect
of success of that contention is
found in the interlocutory
judgment of President Due in the case
brought by the Commission
against the United Kingdom. He
concluded that the contention was
of insufficient weight to
preclude him from granting an interim
order suspending the
application of the nationality requirements
of section 14 of the
Act of 1988 to nationals of other member
states. His reasoning
persuaded me that we should reach the same
conclusion in relation
to the residence and domicile requirements.
LORD BRANDON OF OAKBROOK
My Lords,
I have had the advantage of
reading in draft the speech
produced by my noble and learned
friend, Lord Goff of Chieveley,
and agree with it entirely.
LORD OLIVER OF AYLMERTON
My Lords,
have had the advantage of reading
in draft the speech of
my noble and learned friend, Lord Goff of
Chieveley. I agree
with it and, for the reasons given by my noble
friend, I, too,
would allow this appeal.
- 4 -
LORD
GOFF OF CHIEVELEY
My Lords,
This appeal was last before your
Lordships' House in May
1989. The subject matter of the
proceedings is an application by
the applicants for judicial
review, challenging the legality of
certain provisions of the
Merchant Shipping Act 1988, and the
Merchant Shipping
(Registration of Fishing Vessels) Regulations
1988 (S.I. 1988 No.
1926), on the ground that they contravene
provisions of European
law. The matter came before a Divisional
Court (Neill L.J. and
Hodgson J.), who requested a preliminary
ruling from the European
Court of Justice under article 177 of the
E.E.C. Treaty on the
questions necessary to enable them finally to
determine the
application. They then made an order for interim
relief in the
form of an order that in the meanwhile Part II of
the Act of 1988
and the Regulations be disapplied and the
Secretary of State for
Transport be restrained from enforcing the
same in respect of any
of the applicants and any vessel now
owned (in whole or in part),
managed, operated or chartered by
any of them so as to enable
registration of any such vessel under
the Merchant Shipping Act
1894 and/or the Sea Fishing Boats
(Scotland) Act 1886 to continue
in being. The Court of Appeal
allowed an appeal by the Secretary
of State from the interim
order of the Divisional Court. On appeal
by the applicants to
your Lordships' House [1990] 2 AC 85, it
was held by your
Lordships that, as a matter of English law, the
English courts had
no power to make such an order as that made by
the Divisional
Court. My noble and learned friend, Lord Bridge of
Harwich, said
of the order for interim relief, at pp. 142-143
"Any such order, unlike any
form of order for interim relief
known to the law, would
irreversibly determine in the
applicants' favour for a period of
some two years rights
which are necessarily uncertain until the
preliminary ruling
of the E.C.J. has been given. If the applicants
fail to
establish the rights they claim before the E.C.J., the
effect
of the interim relief granted will be to have conferred
upon
them rights directly contrary to Parliament's sovereign
will
and correspondingly to have deprived British fishing
vessels,
as defined by Parliament, of the enjoyment of a
substantial
proportion of the United Kingdom quota of stocks of
fish
protected by the common fisheries policy. I am clearly of
the
opinion that, as a matter of English law, the court has
no power
to make an order which has these consequences."
Your Lordships' House further held
that, in any event, there was
no jurisdiction in English law to
grant an interim injunction against
the Crown; this provided an
additional reason why the order made
by the Divisional Court could
not be supported. Your Lordships'
House however sought the
guidance of the European Court of
Justice on the question whether,
in a case such as the present,
European law overrides English law.
Accordingly the following
questions were referred to the court:
- 5 -
"1. Where - (i) a party
before the national court claims to
be entitled to rights under
Community law having direct
effect in national law ('the rights
claimed'), (ii) a national
measure in clear terms will, if
applied, automatically
deprive that party of the rights claimed,
(iii) there are
serious arguments both for and against the
existence of the
rights claimed and the national court has sought
a
preliminary ruling under article 177 as to whether or not
the
rights claimed exist, (iv) the national law presumes the
national
measure in question to be compatible with
Community law unless and
until it is declared incompatible,
(v) the national court has no
power to give interim
protection to the rights claimed by
suspending the
application of the national measure pending the
preliminary
ruling, (vi) if the preliminary ruling is in the event
in favour
of the rights claimed, the party entitled to those
rights is
likely to have suffered irremediable damage unless
given
such interim protection, does Community law either
(a)
oblige the national court to grant such interim protection
of
the rights claimed; or (b) give the court power to grant
such
interim protection of the rights claimed? 2. If
question l(a) is
answered in the negative and question 1(b)
in the affirmative,
what are the criteria to be applied in
deciding whether or not to
grant such interim protection of
the rights claimed?"
On 19 June 1990, in answer to
the questions so referred to it, the
Court ruled as follows (Case
C-213/89):
"Community law must be
interpreted as meaning that a
national court which, in a case
before it concerning
Community law, considers that the sole
obstacle which
precludes it from granting interim relief is a rule
of
national law must set aside that rule."
Following receipt of that ruling,
the applicants returned to
your Lordships' House on 25 June 1990
in order to pursue further
their appeal from the decision of the
Court of Appeal and to seek
interim relief pending the
determination by the European Court of
Justice of the matters
referred to it by the Divisional Court.
However, for reasons which
will appear, they sought interim relief
in a form different from
that ordered by the Divisional Court. On
9 July, shortly after the
conclusion of the hearing, your Lordships
announced the House's
decision to grant interim relief, and an
order was made by your
Lordships for an interim injuction in the
following terms:
"Pending final judgment or
further order herein the
Secretary of State whether by himself his
servants or agents
or otherwise howsoever be restrained from
withholding or
withdrawing registration in the register of british
fishing
vessels maintained by him pursuant to the Merchant
Shipping
(Registration of Fishing Vessels) Regulations 1988 in
respect
of any of the vessels specified in the first column of
the
schedule hereto by reason only of the following: (a)
legal
title or beneficial ownership of such vessel is vested
in
whole or in part in the person or persons listed against
its
name in the second column of the said schedule; and (b) (i)
in
the case of any natural person so listed, that person is
- 6 -
resident or domiciled in a member
state of the European
Economic Community other than the United
Kingdom; or (ii)
in the case of any company so listed, (aa) 25 per
cent. or
more of the shares or of any class of the shares of
that
company, or of any company owning shares in that company,
are
legally or beneficially owned by a person or persons
resident or
domiciled in a member state of the European
Economic Community
other than the United Kingdom or (bb)
25 per cent. or more of the
directors of that company, or
of any company holding shares in
that company, are resident
or domiciled in a member state of the
European Economic
Community other than the United Kingdom."
Provision was made for liberty to
apply. It was indicated that
your Lordships would publish at a
later date your reasons for
granting such interim relief. I now
set out the reasons which
caused me to agree that such relief
should be granted.
When your Lordships decided to
make the reference to the
European Court of Justice in this matter
in May 1989, my noble
and learned friend Lord Bridge of Harwich
delivered a speech with
which the remainder of your Lordships,
including myself, agreed.
In his speech on that occasion, my noble
and learned friend was
concerned primarily with the jurisdiction
of the English courts to
grant an interim injunction in a case
such as the present as a
matter of English law. Even so, he gave a
full account of the
background to the present appeal (including a
reference to, and
extensive quotation from, the judgment of Neill
L.J. in the
Divisional Court, and in particular his account of the
common
fisheries policy); and his consideration of the question
whether, as
a matter of English law, the court had jurisdiction in
the present
case to grant interim relief inevitably touched upon
the question
which your Lordships now have to address in the light
of the
ruling of the European Court of Justice. In these
circumstances,
it would be repetitious if I once again set out the
background to
present appeal: I shall only do so to the extent
necessary to set
in their context certain decisions of the
European Court of
Justice. Furthermore I wish to stress that, in
expressing my
reasons why in my opinion your Lordships should
grant interim
relief, I have no intention of departing from
anything contained in
the speech of my noble and learned friend,
with which I have
expressed my complete agreement.
The question which arose for
consideration by your
Lordships, following the ruling of the
European Court of Justice,
concerned the appropriateness of an
order for an interim injuction
in a case such as the present,
which is concerned with a challenge
to the lawfulness of an Act of
Parliament as being incompatible
with European law. This
inevitably raised for consideration the
principles to be applied
in the case of an application for such an
interim injunction, and
in particular the extent to which the
principles stated by your
Lordships' House in American Cyanamid
Co. v. Ethicon Ltd.
[1975] AC 396 are applicable in such a case,
a matter upon which
my noble and learned friend made some
observations in his speech
upon the first hearing of the appeal. I
have however to say at
once that your Lordships were not
concerned with the simple
question whether to interfere with the
exercise of discretion by
the Divisional Court in favour of granting
an injunction. This is
for three reasons. First, after the
- 7 -
Divisional Court made its order,
as I have already indicated,
circumstances occurred which rendered
an order in that form
inappropriate. The purpose of the order was
to continue in being
the registration of the applicants' fishing
vessels under the Act of
1894 and/or the Act of 1886. However,
during the period which
elapsed since the Divisional Court made
its order, the register
maintained under the Act of 1894 was
closed. It was for this
reason that the applicants sought an
injunction in a different form,
directed towards restraining the
Secretary of State from
withholding or withdrawing registration of
their vessels in the
register maintained under the Act of 1988 on
certain grounds
which, in the applicants' submission, were
incompatible with
European law - an injunction which your
Lordships decided to
grant. Second, important legal developments
had taken place since
the Divisional Court's order. Two judgments
were delivered by the
European Court of Justice concerning the
validity of certain
conditions imposed by the Secretary of State
on the grant of
licences to fishing vessels Reg. v. Ministry of
Agriculture,
Fisheries and Food, Ex parte Agegate Ltd. (Case
C-3/87) [1990] 3
W.L.R. 226 and Reg. v. Ministry of
Agriculture, Fisheries and
Food, Ex parte Jaderow Ltd. (Case
C-216/87) [1990] 3 W.L.R. 265,
and an interim order was made by
the President of the European
Court of Justice, on an application
by the European Commission,
regarding certain nationality
provisions in section 14 of the Act of
1988. The latter order was
of particular relevance to the
applicants' application for an
interim injunction in the present
case. Third, there had been
certain factual developments since
the last hearing before your
Lordships, which were the subject of
evidence. In these
circumstances, it was inevitable that your
Lordships' House should
consider the applicants' application de
novo, and that it should,
for that purpose, consider in some depth
the applicable
principles.
Before turning to those applicable
principles, I shall briefly
summarise the effect of the
intervening decisions of the European
Court and of its President.
The present appeal is, of course,
concerned with the question
whether certain provisions of the Act
of 1988 are compatible with
European law. The same is true of
the interim order of the
President, but not of the two decisions of
the court. Those
decisions, which I shall refer to as the Agegate
and
Jaderow cases, were concerned with the validity of
certain
conditions imposed upon the grant of licences for British
fishing
vessels. They are not, therefore, of such direct relevance
to the
present appeal as the President's interim order. They
have,
however, some bearing upon the present appeal, and I think
it
desirable to refer to them; and I propose to set them in
their
context, even though this may involve some repetition of
matters
already recorded in the speech of my noble and learned
friend,
Lord Bridge of Harwich.
Under the Sea Fish (Conservation)
Act 1967, as subsequently
amended, fishing vessels registered in
the United Kingdom are
required to have a licence. That Act was
supplemented by certain
legislation in 1983 - the British Fishing
Boats Act 1983, and the
British Fishing Boats Order (S.I. 1983 No.
482) and the Sea Fish
Licensing Order (S.I. 1983 No. 1206) of the
same year. This
legislation was passed in an attempt to meet the
situation created
during the previous two or three years by the
registration of
Spanish fishing vessels as British fishing
vessels, with a view to
- 8 -
acquiring the same rights to fish
in Community waters as those to
which British fishing vessels
beneficially owned by British nationals
were entitled. Such
registration was perceived as having the
effect of circumventing
restrictions imposed on Spanish registered
vessels under the
reciprocal fishing agreement concluded by the
European Community
with Spain in 1980 (following the Hague
resolution of 1976
(Council Regulation of 3 November 1976;
Official Journal 1981 No.
C 105/1), whereby certain member states
of the Community extended
their fishing limits in the Atlantic
Ocean 200 miles from the
coast); under the reciprocal fishing
agreement of 1980, a limited
number of Spanish fishing vessels
were permitted to fish only for
specified quantities of hake in
specified waters of member states.
It seems that the Spanish
fishing vessels saw this as a
substantial exclusion from fishing
grounds in deep waters
previously fished by them, and sought to
circumvent the
restriction by registering their vessels as British.
It was in
response to that move that the legislation of 1983 was
introduced,
under which a British registered fishing boat fishing
within
British fishing limits was required to have a crew consisting
of
at least 75 per cent. of European Community nationals.
In January 1983, the system of
national fish quotas was
introduced by Council Regulations
(E.E.C.) Nos. 170/83 and
172/83. The British authorities
experienced difficulty in monitoring
the catches of ex-Spanish
registered vessels, and concern about
their activities was being
expressed by British fishermen, especially
those based in the
western parts of the United Kingdom. This
concern was being
expressed against a background of continued
activity by British
registered fishing vessels with a largely Spanish
beneficial
ownership operating under British registration but mainly
from
Spain and with only tenuous links with the United Kingdom,
which
were believed to be making substantial inroads into the
fishing
opportunities allocated to the United Kingdom under the
common
fisheries policy in the light of this country's traditional
fishing
activities.
Accordingly, in December 1985, new
licensing conditions for
British fishing vessels were announced,
taking effect as from 1
January 1986. These related to crewing,
social security
contributions and operations. The crewing
conditions required that
at least 75 per cent. of the crew must be
British citizens, or
E.E.C. nationals (excluding, subject to
certain limited exceptions,
Greek nationals until 1 January 1988,
and Spanish or Portuguese
nationals until 1 January 1993)
ordinarily resident in the United
Kingdom, the Isle of Man or the
Channel Islands. The social
security conditions required the
skipper and all the crew to make
contributions to United Kingdom
national insurance, or equivalent
Isle of Man or Channel Islands
schemes. The operating conditions
provided as follows:
"The vessel must operate from
the United Kingdom, Isle of
Man or Channel Islands; without
prejudice to the generality
of this requirement a vessel will be
deemed to have been so
operating if, for each six-months period in
each calendar
year (i.e. January to June and July to December)
either:
(a) at least 50 per cent. by weight of the vessel's
landings
or trans-shipment of stocks to which this or any
other
licence in force at the relevant time relates have
been
landed and sold in the United Kingdom, Isle of Man or the
- 9 -
Channel Islands or trans-shipped
by way of sale within
British fishery limits; or (b) other
evidence is provided of
the vessel's presence in a United Kingdom,
Isle of Man or
Channel Islands port on at least four occasions at
intervals
of at least 15 days."
The validity of the crewing and
social security conditions was
challenged in the Agegate
case, and in addition the validity of the
operating conditions was
challenged in the Jaderow case. The
Advocate-General's
opinion in both cases was published in
November 1988, and so was
available at the time of the hearing
before the Divisional Court;
but the judgment of the European
Court of Justice in the two cases
was not delivered until 14
December 1989, and differed in certain
important respects from
the opinion of the Advocate-General. In
the Agegate case, the
court upheld the validity of the
social security condition; but in
respect of the crewing
condition, while upholding the condition in
so far as it required
75 per cent. of the crew to be nationals of
member states, the
court held that Community law precluded a
condition requiring 75
per cent. of the crew to reside ashore in
the United Kingdom. In
the Jaderow case, the court held that
Community law did not
preclude a member state, in authorising
one of its vessels to fish
against national quotas, from laying down
conditions designed to
ensure that the vessel had a real economic
link with that state if
that link concerned only the relation
between that vessel's
fishing operations and the population
dependent on fisheries and
related industries; and, on that basis,
the court broadly upheld
the validity of the operating conditions
imposed by the United
Kingdom. These two decisions are
significant in the context of the
present appeal, in that they
provide an indication of the nature
of the economic link which the
court is prepared to recognise for
these purposes, a link which
does not extend to include a
residence requirement imposed upon
75 per cent. of the vessel's
crew.
Meanwhile the United Kingdom
Government had come to the
conclusion that there was substantial
non-compliance with these
conditions. Furthermore, the number of
largely foreign beneficially
owned vessels on the United Kingdom
register continued to grow,
mainly through the acquisition by
Spanish interests of British
fishing vessels; Spanish interests
were also able to increase the
number of licences held by them by
acquiring vessels already
holding United Kingdom licences. As a
result, the problem was
considered at a more fundamental level, by
looking at the
arrangements for registration of United Kingdom
fishing vessels;
and it was decided to introduce fresh legislation
which, it was
thought, would bring United Kingdom fishing vessel
registration
requirements "broadly into line with
arrangements in a number of
other member states" (see the
first affidavit of Mr. Noble of the
Ministry of Agriculture,
Fisheries and Food) and to require fishing
vessels on the United
Kingdom register to be substantially owned
by British interests.
Hence the provisions of Part II of the Act of
1988.
The interim order of the President
(Case 246/89 R) related
to certain provisions of section 14 of the
Act of 1988. Other
provisions of that section formed the basis of
the applicants'
application for interim relief before your
Lordships' House, and I
think, it desirable that I should set out
the relevant parts of the
section. Section 14(0(2) and (7) provide
as follows:
- 10 -
.
. .
"(1) Subject to subsections
(3) and (4), a fishing vessel shall
only be eligible to be
registered as a British fishing vessel
if -
(a) the vessel is British-owned;
(b) the vessel is managed,
and its operations are
directed and controlled, from
within the United
Kingdom; and
(c) any charterer, manager or
operator of the vessel
is a qualified person or company.
"(2) For the purposes of
subsection (l)(a) a fishing vessel is
British owned if -
(a) the legal title to the
vessel is vested wholly in
one or more qualified persons or
companies; and
(b) the vessel is beneficially
owned -
(i) as to not less than the
relevant percentage
of the property in the vessel, by one or
more
qualified persons, or
(ii) wholly by a qualified company
or
companies, or
(iii) by one or more qualified
companies and,
as to not less than the relevant percentage of
the
remainder of the property in the vessel, by
one or more qualified
persons.
"(7) In this section -
"qualified company' means
a company which satisfies the
following conditions,
namely -
(a) it is incorporated in the
United Kingdom and has
its principal place of business there;
(b) at least the relevant
percentage of its shares
(taken as a whole), and of each
class of its shares, is
legally and beneficially owned
by one or more
qualified persons or companies; and
(c) at least the relevant
percentage of its directors
are qualified persons;
'qualified person' means -
(a) a person who is a
British citizen resident and
domiciled in the United
Kingdom, or
(b) a local authority in the
United Kingdom; and
- 11 -
'the relevant percentage' means 75
per cent. or such greater
percentage (which may be 100 per cent.)
as may for the
time being be prescribed."
The interim order of the President
(Case 246/89 R) was
made upon an application to him by the
European Commission.
The Commission brought an action under
article 169 of the Treaty
for a declaration that, by imposing the
nationality requirements
enshrined in section 13 and 14 of the Act
of 1988, the United
Kingdom had failed to fulfil its obligations
under articles 7, 52 and
221 of the Treaty. The Commission further
applied under article
186 of the Treaty and article 83 of the
Rules of Procedure for an
order requiring the United Kingdom to
suspend the application of
the nationality requirements enshrined
in section 14(l)(a) and (c) of
the Act, read in conjunction with
paragraphs (2) and (7) of the
section, as regards the nationals of
other member states and in
respect of fishing vessels which until
31 March 1989 were pursuing
a fishing activity under the British
flag and under a British fishing
licence. Under article 83(2) of
the Rules of Procedure, interim
measures such as those requested
may not be ordered unless there
are circumstances giving rise to
urgency and factual and legal
grounds establishing a prima facie
case for the measures applied
for.
The President granted the interim
order asked for by the
Commission. With regard to the issue
whether a prima facie case
had been established, he said:
"25. The United Kingdom
further considers that the
nationality requirements introduced by
the Act of 1988 are
justified by the present Community legislation
on fisheries;
that legislation, although it establishes a common
system, is
based on a principle of nationality for the purposes of
the
distribution of fishing quotas. Under article 5(2) of
Council
Regulation 170/83 it is for the member states to
determine
the detailed rules for the utilisation of the quotas
allocated
to them and thus to lay down the conditions which
the
vessels authorised to fish from these quotas must satisfy.
26.
It must be observed that the system of national quotas
established
by Council Regulation 170/83 constitutes, as the
United Kingdom
contends, a derogation from the principle of
equal access for
Community fishermen to fishing grounds
and the exploitation
thereof in waters coming within the
jurisdiction of the member
states, which is itself a specific
expression of the principle of
non-discrimination laid down in
article 40(3) of the E.E.C.
Treaty. 27. That derogation is
justified, according to the
recitals in the preamble to
Regulation No. 170/83, by the need, in
a situation where
there is a dearth of fishery resources, to
ensure a relative
stability in regard to fishing activities in
order to safeguard
the particular need of regions where local
populations are
especially dependent on fisheries and related
industries. 28.
The possibility cannot therefore be excluded that
in their
legislation concerning in particular the registration of
fishing
vessels and access to fishing activities the member
states
may be led to introduce requirements whose
compatibility
with Community law can be justified only by the
necessity
to attain the objectives of the Community system of
fishing
quotas. As the Commission itself has admitted in these
- 12 -
proceedings, such requirements may
be necessary in order to
ensure that there is a genuine link with
the fishing industry
of the member state against whose quota the
vessel may
fish. 29, However there is nothing which would
prima
facie warrant the conclusion that such requirements
may
derogate from the prohibition of discrimination on grounds
of
nationality contained in articles 52 and 221 of the E.E.C.
Treaty
regarding, respectively, the right of establishment
and the right
to participate in the capital of companies or
firms within the
meaning of article 58. 30. The rights
deriving from the
above-mentioned provisions of the Treaty
include not only the
rights of establishment and of
participation in the capital of
companies or firms but also
the right to pursue an economic
activity, as the case may
be through a company, under the
conditions laid down by
the legislation of the country of
establishment for its own
nationals. 31. These rights prima facie
also include the
right to incorporate and manage a company whose
object is
to operate a fishing vessel registered in the state
of
establishment under the same conditions as a company
controlled
by nationals of that state. 32. As regards the
United Kingdom's
first submission based on its obligations
under international law,
it is sufficient to note, at this
stage, that in this respect
nothing has been put forward
which at first sight could
necessitate any derogation from
the above-mentioned rights under
Community law in order to
ensure the effective exercise of British
jurisdiction and
control over the vessels in question. 33. It must
therefore
be held that, at the stage of these proceedings for
the
grant on interim relief, the application of the
main
proceedings does not appear to be without foundation and
that
the requirement of a prima facie is thus satisfied."
The President went on to hold that
sufficient urgency had also
been established; in particular, for
fishing vessels hitherto flying
the British flag, cessation of
their activities could cause serious
damage. As regards the
balance of interests he had this to say:
"39. Finally, as regards the
balance of interests, it is not
established that the interim
measures applied for may
jeopardise the objective pursued by the
British legislation at
issue, namely to ensure the existence of a
genuine link
between the vessels fishing against the British
quotas and
the British fishing industry. 40. It appears prima
facie
that the registration requirements laid down by the
new
legislation, other than those relating to nationality, and
the
measures adopted by the United Kingdom authorities in 1983
and
1986 would be sufficient to ensure the existence of such
a link.
The United Kingdom itself considers that the
'Anglo-Spanish
vessels', which do not have that link with the
United Kingdom,
will not be able to satisfy the aforesaid
requirements."
Following the President's order,
section 14 of the Act of
1988 was amended (by the Merchant
Shipping Act 1988
(Amendment) Order 1989 (S.I. 1989 No. 2006) with
effect from 2
November 1989 to give effect to his order until
after the final
determination of the issue which was the subject
of the
Commission's substantive application. In section 14(l)(a)
and (2),
- 13 -
the expression "Community-owned"
was substituted for "British-
owned"; in section
14(7)(a), the words "or another state of the
European
Community" were added after the words "United
Kingdom,"
and in (7)(c) the words "or a citizen of a Community
State"
were added after the words "British citizen." These
changes
have the effect that the nationality issue ceases to be
relevant
for the purposes of the present appeal, though the issue
is, your
Lordships were told, still being vigorously contested by the
United
Kingdom before the European Court of Justice on the
substantive
reference by the Divisional Court.
The applicants nevertheless
pursued their application for an
interim injunction before your
Lordships' House, but their
complaint was restricted to other
matters in section 14. They did
not object, for the purposes of
the present application, to the
requirement, in section 14(l)(b),
that a vessel should be managed
and its operations directed and
controlled from within the United
Kingdom; they stated that they
were able to comply with these
requirements. Their complaint was
directed towards the
requirements for domicile and
residence in the United Kingdom
contained in the definition of
"qualified person" in section 14(7),
which apply both to
beneficial owners of vessels and, in the case
of vessels
beneficially owned by companies, both to shareholders
and to
directors (under section 14(7)(b) and (c) respectively), with
the
effect that 75 per cent. of the relevant shareholders and
directors
are required to be resident and domiciled in the United
Kingdom.
This, they submitted, is contrary to the right of
establishment
under article 52 of the Treaty, and the right to
participate in
capital under article 221. In answer, the Secretary
of State
submitted that articles 52 and 221 of the Treaty cannot
be taken
to apply in their full rigour to the fisheries sector. If
these
articles, and article 7, were so to apply, it would be
impossible
to prevent fishing interests in one member state
registering
vessels in another member state in which event it
would be
impossible (inter alia) to prevent such vessels fishing
against
the quotas of the latter member state, to the detriment of
that
member state's fishing community and allied industries (who
were
intended to be protected by the quota system), and also to
prevent
Spanish vessels avoiding provisions of the Act of Accession
of
1985 (Act of Accession of Spain and Portugal, Official Journal
1985
No. L. 302).
It was further submitted by the
applicants that the effect
of the provisions relating to residence
and domicile in section 14,
whether or not coupled with the
nationality provisions, was to
render it impossible for many of
the applicants' vessels to register
as British fishing vessels on
the register now maintained under the
Act of 1988, with possibly
catastrophic financial results for their
owners. They relied upon
the conclusion of Neill L.J. in the
Divisional Court that he was
not persuaded on the evidence before
him that there were
identifiable persons or communities whose
activities or livelihood
were being so seriously damaged, or would
be so seriously damaged,
as to outweigh the very obvious and
immediate damage which would
be caused by these new provisions
if no interim relief were
granted to the applicants. They
submitted fresh evidence to your
Lordships as showing that such
damage was already being suffered;
and they referred to the fact
that, on the law as it stands at
present (Bourgoin S.A. v. Ministry
of Agriculture Fisheries and
Food [1986] Q.B. 716), the applicants
- 14 -
would have no remedy in damages
for Joss or damage suffered by
them by reason of the enforcement
against them of provisions of
the Act of 1988 if subsequently held
to be incompatible with
European law. Finally, it was stated that
the judgment of the
European Court of Justice on the substantive
reference from the
Divisional Court was expected in about a year's
time, and that it
would therefore be for no longer than that
period that interim
relief was required.
I turn now to the applicable
principles in cases in which an
interim injunction is sought, with
particular reference to a case
such as the present, in which the
public interest is involved.
The jurisdiction of courts to
grant interim injunctions is to
be found in section 37 of the
Supreme Court Act of 1981, under
which the court has power to
grant an injunction in all cases in
which it appears to it to be
just or convenient so to do, and has
power to do so on such terms
and conditions as it thinks fit.
Guidelines for the exercise of
the court's jurisdiction to grant
interim injunctions were laid
down by your Lordships' House in
American Cyanamid Co. v.
Ethicon Ltd. [1975] AC 396, in the
speech of Lord Diplock in
that case, with which. the remainder of
their Lordships concurred.
I use the word "guidelines" advisedly,
because I do not
read Lord Diplock's speech as intended to fetter
the broad
discretion conferred on the courts by section 37 of the
Supreme
Court Act 1981; on the contrary, a prime purpose of the
guidelines
established in the Cyanamid case was to remove a
fetter
which appeared to have been imposed in certain previous
cases,
viz. that a party seeking an interlocutory injunction had
to
establish a prima facie case for substantive relief. It is now
clear
that it is enough if he can show that there is a serious
case to be
tried. If he can establish that, then he has, so to
speak, crossed
the threshold; and the court can then address
itself to the question
whether it is just or convenient to grant
an injunction.
Nothing which I say is intended to
qualify the guidelines laid
down in Lord Diplock's speech. But,
before I turn to the question
of public interest, which lies at
the heart of the rival submissions
in the present case, I must
advert to the fact that Lord Diplock
approached the matter in two
stages. First, he considered the
relevance of the availability of
an adequate remedy in damages,
either to the plaintiff seeking the
injunction, or to the defendant
in the event that an injunction is
granted against him. As far as
the plaintiff is concerned, the
availability to him of such a remedy
will normally preclude the
grant to him of an interim injunction.
If that is not so, then the
court should consider whether, if an
injunction is granted against
the defendant, there will be an
adequate remedy in damages
available to him under the plaintiff's
undertaking in damages; if
so, there will be no reason on this
ground to refuse to grant the
plaintiff an interim injunction.
At this stage of the court's
consideration of the case (which
I will for convenience call the
first stage) many applications for
interim injunctions can well be
decided. But if there is doubt as
to the adequacy of either or
both of the respective remedies in
damages, then the court
proceeds to what is usually called the
balance of convenience, and
for that purpose will consider all the
circumstances of the case.
I will call this the second stage.
Again, I stress that I do not
wish to place any gloss upon what
- 15 -
Lord Diplock said about this
stage. I wish only to record his
statement that, at p. 408,
"It would be unwise to
attempt even to list all the various
matters which may need to be
taken into consideration in
deciding where the balance lies, let
alone to suggest the
relevant weight to be attached to them. These
will vary
from case to case"
and his further statement, at p.
409 (after referring to particular
factors), that "there may
be many other special factors to be
taken into consideration in
the particular circumstances of
individual cases."
I turn to consider the impact upon
these guidelines of the
public interest, with particular reference
to cases in which a
public authority is seeking to enforce the law
against some person,
and either the authority seeks an interim
injunction to restrain
that person from acting contrary to the
law, and that person
claims that no such injunction should be
granted on the ground
that the relevant law is, for some reason,
invalid; or that other
person seeks an interim injunction to
restrain the action of the
authority, on the same ground.
I take the first stage. This may
be affected in a number
of ways. For example, where the Crown is
seeking to enforce the
law, it may not be thought right to impose
upon the Crown the
usual undertaking in damages as a condition of
the grant of an
injunction: see F. Hoffmann-La Roche & Co.
A.G. v. Secretary of
state for Trade and Industry [1975] A.C.
295. Again, in this
country there is no general right to indemnity
by reason of
damage suffered through invalid administrative
action; in
particular, on the law as it now stands, there would be
no remedy
in damages available to the applicants in the present
case for loss
suffered by them by reason of the enforcement of the
Act of 1988
against them, if the relevant part of the Act should
prove to be
incompatible with European law (see Bourgoin S.A.
v. Ministry of
Agriculture, Fisheries and Food. Conversely, an
authority acting in
the public interest cannot normally be
protected by a remedy in
damages because it will itself have
suffered none. It follows that,
as a general rule, in cases of
this kind involving the public
interest, the problem cannot be
solved at the first stage, and it
will be necessary for the court
to proceed to the second stage,
concerned with the balance of
convenience.
Turning then to the balance of
convenience, it is necessary
in cases in which a party is a public
authority performing duties
to the public that "one must look
at the balance of convenience
more widely, and take into account
the interests of the public in
general to whom these duties are
owed": see Smith v. Inner
London Education Authority
[1978] 1 All E.R. 411, 422, per Browne
L.J., and see also
Sierbien v. Westminster City Council (1987) 86
L.G.R. 431.
Like Browne L.J., I incline to the opinion that this
can be
treated as one of the special factors referred to by Lord
Diplock
in the passage from his speech which I have quoted. In
this
context, particular stress should be placed upon the
importance of
upholding the law of the land, in the public interest,
bearing in
mind the need for stability in our society, and the duty
placed
upon certain authorities to enforce the law in the public
- 16 -
interest. This is of itseif an
important factor to be weighed in
the balance when assessing the
balance of convenience. So if a
public authority seeks to enforce
what is on its face the law of
the land, and the person against
whom such action is taken
challenges the validity of that law,
matters of considerable weight
have to be put into the balance to
outweigh the desirability of
enforcing, in the public interest,
what is on its face the law, and
so to justify the refusal of an
interim injunction in favour of the
authority, or to render it
just or convenient to restrain the
authority for the time being
from enforcing the law. This was
expressed in a number of
different ways by members of the
Appellate Committee in the
Hoffmann-La Roche case. Lord Reid
said, at p. 341 that
"it is for the person against
whom the interim injunction is
sought to show special reason why
justice requires that the
injunction should not be granted or
should only be granted
on terms."
Lord Morris of Borth-y-Gest, at
pp. 352-353, stressed that all
considerations appertaining to the
justice of the matter become
within the purview of the court; but
he also stated that, in a case
where the defendant attacks the
validity of what appears to be an
authentic law, the measure of
the strength of this attack must
inevitably call for some
consideration. Lord Diplock, at p. 367
asserted that prima facie
the Crown is entitled as of right to an
interim injunction to
enforce obedience to the law; and that
"To displace this right or to
fetter it by the imposition of
conditions it is for the defendant
to show a strong prima
facie case that the statutory instrument is
ultra vires."
Lord Cross of Chelsea did not
expressly address the point. Lord
Wilberforce, in a dissenting
speech, stressed, at p. 358, that, in
the last resort, the matter
is one for the discretion of the judge;
in particular, he rejected
a suggestion that the presumption of
validity of subordinate
legislation required the court to enforce
such legislation, by an
interlocutory injunction, against the party
who was calling the
validity of such legislation in question.
I myself am of the opinion that in
these cases, as in others,
the discretion conferred upon the court
cannot be fettered by a
rule; I respectfully doubt whether there
is any rule that, in cases
such as these, a party challenging the
validity of a law must - to
resist an application for an interim
injunction against him, or to
obtain an interim injunction
restraining the enforcement of the law
- show a strong prima facie
case that the law is invalid. It is
impossible to foresee what
cases may yet come before the courts;
I cannot dismiss from my
mind the possibility (no doubt remote)
that such a party may
suffer such serious and irreparable harm in
the event of the law
being enforced against him that it may be
just or convenient to
restrain its enforcement by an interim
injunction even though so
heavy a burden has not been discharged
by him. In the end, the
matter is one for the discretion of the
court, taking into account
all the circumstances of the case. Even
so, the court should not
restrain a public authority by interim
injunction from enforcing
an apparently authentic law unless it is
satisfied, having regard
to all the circumstances, that the
challenge to the validity of
the law is, prima facie, so firmly
based as to justify so
exceptional a course being taken.
- 17 -
With these principles in mind, I
come to the facts of the
present case. There can be no question of
the present application
being decided at the first stage of Lord
Diplock's approach, and it
is necessary to proceed at once to the
second stage.
Your Lordships heard submissions
from both parties about
the strength of the applicants' challenge
to the relevant provisions
of section 14 of the Act of 1988. It is
plain that the United
Kingdom will, before the European Court of
Justice, be resisting
most strongly arguments by the applicants
that any provision in
section 14 is incompatible with European
law, whether in respect
of nationality (despite the recent
decision of the President to
grant interim relief), or in respect
of domicile and residence of
beneficial owners, shareholders and
directors. It is unnecessary,
and perhaps undesirable, for your
Lordships now to analyse these
arguments. They are set out in
detail in the written observations
already submitted by the United
Kingdom and by the applicants to
the European Court of Justice on
the substantive reference by the
Divisional Court, copies of which
have been made available to your
Lordships. There are, however,
certain reasons which persuaded
me to conclude, for present
purposes, that, prima facie, the
applicants had strong grounds for
challenging the validity of the
provisions relating to residence
and domicile. First, a central
element in the argument of the
United Kingdom, in seeking to
uphold the validity of section 14,
is that articles 7, 52 and 221 of
the Treaty should not be
interpreted as affecting the nationality of
vessels, or the grant
of flags, in respect of which competence
remains in principle with
the member states. It has to be said,
however, that an argument on
these lines does not appear to have
found favour with the
President on the Commission's application
for interim relief.
Second, although in the Jaderow case [1990] 3
W.L.R. 265
the European Court accepted that a member state, in
authorising a
vessel to fish against national quotas, might lay down
conditions
designed to ensure that it had a real economic link with
the state
if that link concerned only the relation between that
vessel's
fishing operations and the populations dependent on
fisheries and
related industries, yet in the Agegate case [1990] 3
W.L.R.
226 the court rejected as invalid a condition requiring
residence
in the member state of 75 per cent. of the vessel's
crew. If such
a residence qualification is rejected in respect of
the crew, as a
condition of the grant of a vessel's licence, it may
well be
difficult to persuade the court to adopt a residence
qualification
relating to beneficial owners, or to 75 per cent. of
shareholders
in or directors of a company which beneficially owns
a vessel, as
a condition of registration of a fishing vessel under
the Act of
1988; a fortiori must the same be true of a condition
relating to
domicile. As to the final outcome on these issues
after
consideration by the court, your Lordships can of course
express
no opinion; but these two points alone led me to conclude
that the
applicants' challenge is, prima facie, a strong one.
It is on that basis that I turn to
consider the balance of
convenience a whole. I have already
referred to the view formed
by Neill L.J., when the matter was
before the Divisional Court,
that serious damage may be caused to
the applicants if no interim
relief is granted. Your Lordships
were furnished with up to date
evidence in the form of answers to
a questionnaire sent to owners
of 62 vessels during the recent
hearing. None of the answers to
- 18 -
the questionnaire was on oath; and
it was not in the circumstances
possible for the Secretary of
State to test the answers, or indeed
to check their accuracy.
However, no objection was made to this
material being placed
before your Lordships.
The answers to the questionnaire
were not complete.
However, from the answers received it was
possible to derive the
following basic information. All 62 vessels
ceased to be on the
United Kingdom register after the lapse of the
old register on 1
April 1989. 24 of the vessels have not fished
since their
registration lapsed; of the remainder, 33 have fished
but only
outside E.E.C. waters, in some cases for very short
periods and in
most cases after being laid up for a considerable
time. 24 vessels
have succeeded in obtaining registration under
the Act of 1988,
but always for special reasons, 14 of them
because shares in the
owning company had been sold to qualified
persons or companies.
30 owners have tried to sell their vessels,
but none of them has
received an acceptable offer. Many owners
claim to have suffered
damages to date of well over £100,000;
some fear imminent
bankruptcy.
Your Lordships also had the
benefit of a fourth affidavit
sworn by Mr. Noble of the Ministry
of Agriculture, Fisheries and
Food. Apart from specific comments
on particular vessels in the
ownership of the applicants, he
placed evidence before your
Lordships to the effect that, as a
result of the introduction of the
new register, a number of
British fishing vessels other than those
owned by Spanish
interests had been able to take up the
opportunities now available
to them, taking increased catches,
employing extra crew, investing
in new vessels to take advantage
of the new opportunities, and
generating increased activity onshore.
He considered that, if the
applicants' vessels returned to the
British fleet and resumed
their previous activities, the owners of
these British fishing
vessels would suffer serious losses; and he
anticipated that the
reintroduction of stiff quota restrictions would
be required.
However, even taking this evidence fully into
account, I have, on
all the material available to your Lordships,
formed the same
opinion as that formed by Neill L.J. in the
Divisional Court on
the material then before him, that there was
not sufficient to
outweigh the obvious and immediate damage
which would continue to
be caused if no interim relief were
granted to the applicants.
It was for these reasons that, in
agreement with the
remainder of your Lordships, I concluded that
the appeal should be
allowed and interim relief granted in the
terms of the order made.
LORD JAUNCEY OF TULLICHETTLE
My Lords,
I have had the advantage or
reading in draft the speech to
be delivered by my noble and
learned friend Lord Goff of
Chieveley. I agree with the conclusion
at which he has arrived
and I gratefully adopt his detailed
account of the circumstances
giving rise to the present appeal. It
is only because of the
- 19 -
importance and novelty of the
principal question to be considered
that I venture to add a few
observations thereanent.
The European Court of Justice has
ruled (Case C-213/89)
that
"Community law must be
interpreted as meaning that a
national court which, in a case
before it concerning
Community law, considers that the sole
obstacle which
precludes it from granting interim relief is a rule
of
national law must set aside that rule."
This House is accordingly now
faced with the wholly novel
situation of determining whether in
the circumstances of this
appeal interim relief against the
application of primary -legislation
should be granted to the
applicants, pending the decision of the
Court of Justice on the
reference by the Divisional Court of 10
March 1989. In reaching a
conclusion the following matters have
to be addressed, namely: (1)
the threshold which must be crossed
by the applicants before this
House will consider intervening, (2)
whether they have crossed
that threshold, and (3) if they have,
whether the balance of
convenience favours the granting of interim
relief.
(1) The threshold
When this appeal was last before
your Lordships' House
[1990] 2 AC 85 my noble and learned friend
Lord Bridge of
Harwich referred to the familiar situation in which
a plaintiff
seeks an interim injunction to protect a right when
the material
facts are in dispute and continued, at p. 139:
"In this situation the court
has a discretion to grant or
withhold interim relief which it
exercises in accordance with
the principles laid down by your
Lordships' House in
American Cyanamid Co. v. Ethicon Ltd.
[1975] AC 396. In
deciding on a balance of convenience whether
or not to
make an interim injunction the court is essentially
engaged
in an exercise of holding the ring."
American Cyanamid concerned
a claim for alleged
infringement of patent and an application for
interim injunction
was made upon contested facts. Lord Diplock
referred, at p. 407,
to:
"the supposed rule that the
court is not entitled to take any
account of the balance of
convenience unless it has first
been satisfied that if the case
went to trial upon no other
evidence than is before the court at
the hearing of the
application the plaintiff would be entitled to
judgment for a
permanent injunction in the same terms as the
interlocutory
injuction sought"
and continued:
"Your Lordships should in
my view take this opportunity of
declaring that there is no
such rule. The use of such
expressions as 'a
probability,' 'a prima facie case,' or 'a
. strong prima facie case' in
the context of the exercise of a
- 20 -
discretionary power to grant an
interlocutory injunction leads
to confusion as to the object
sought to be achieved by this
form of temporary relief. The court
no doubt must be
satisfied that the claim is not frivolous or
vexatious; in
other words, that there is a serious question to be
tried. It
is no part of the court's function at this stage of
the
litigation to try to resolve conflicts of evidence on
affidavit
as to facts on which the claims of either party
may
ultimately depend nor to decide difficult questions of
law
which call for detailed argument and mature
considerations.
These are matters to be dealt with at the trial."
As I understand it Lord Diplock in
that passage was saying that
the court must be satisfied that
there is a serious question to be
tried before it considers the
balance of convenience. Indeed this
must be so since it would be
quite wrong that a plaintiff should
obtain interim relief on the
basis of a claim which was groundless.
I agree that it is not the
function of the court to try to resolve
conflicts of evidence at
an interlocutory stage but I would demur
to any suggestion that in
no circumstances would it be appropriate
to decide questions of
law. If the only question at issue between
the parties is one of
law it may be possible in many cases to
decide this at the stage
of a contested application of an interim
injunction. For example,
where an employer seeks to enforce a
restrictive covenant in a
former employee's contract of
employment and the only defence is
that the covenant by reason
of its wide terms is unenforceable, it
would be wholly illogical to
grant to the employer an interim
injunction on the basis that there
was a serious question to be
tried when the question could at the
same time be resolved as
matter of law in favour of the
employee.
However, while the test of a
serious question to be tried is
appropriate to proceedings between
private parties where no
presumption favours the position of one
party as against the other
it does not follow that the same
considerations apply when primary
legislation and the public
interest are involved. Indeed, my noble
and learned friend Lord
Bridge of Harwich (Reg. v. Secretary of
State for Transport, Ex
parte Factortame Ltd). [1990] 2 A.C. 83,
140 remarked upon the
fundamental distinction between the
familiar situation and that
which arises in this appeal. In F.
Hoffmann-La Roche & Co.
A.G. v. Secretary of State for Trade
and Industry [1975] A.C. 295,
the Secretary of State having sought
by interim injuction to
enforce a statutory instrument approved
by both Houses of
Parliament the defenders maintained that the
instrument was ultra
vires. Lord Reid said, at p. 341, that
"it is for the person against
whom the interim injunction is
sought to show special reason why
justice requires that the
injunction should not be granted or
should only be granted
on terms"
and Lord Morris of Borth-y-Gest,
at p. 353, pointed out that the
measure of the strength of the
attack upon the statutory
instrument must inevitably call for some
consideration. Lord
Diplock said, at p. 366:
"All that can usefully be
said is that the presumption that
subordinate legislation is intra
vires prevails in the absence
- 21 -
of rebuttal, and that it cannot be
rebutted except by a
party to legal proceedings in a court of
competent
jurisdiction who has locus standi to challenge the
validity of
the subordinate legislation in question."
He
said, at p. 367:
"So in this type of law
enforcement action if the only
defence is an attack on the
validity of the statutory
instrument sought to be enforced the
ordinary position of
the parties as respects the grant of interim
injunctions is
reversed. The duty of the Crown to see that the
law
declared by the statutory instrument is obeyed is
not
suspended by the commencement of proceedings in which
the
validity of the instrument is challenged. Prima facie
the
Crown is entitled as of right to an interim injunction
to
enforce obedience to it. To displace this right or to fetter
it
by the imposition of conditions it is for the defendant to
show a
strong prima facie case that the statutory
instrument is ultra
vires."
These observations, in my view,
apply not only where a defendant
is seeking to resist an attempt
by the Crown to enforce secondary
legislation but also where a
plaintiff is seeking to restrict the
Crown in its operation of
such legislation. They must be equally
appropriate to a challenge
to primary legislation as they are to a
challenge to secondary
legislation. Indeed, when this appeal was
last before this House
Lord Bridge said, at p. 142
"In this situation the
difficulty which confronts the
applicants is that the presumption
that an Act of Parliament
is compatible with Community law unless
and until declared
to be incompatible must be at least as strong
as the
presumption that delegated legislation is valid unless
and
until declared invalid."
Given this presumption it follows
from the above observations of
Lord Diplock that it is for the
Crown to enforce the provisions of
the Act of 1988 and that
anyone, whether a plaintiff or defendant,
who seeks to challenge
the validity thereof must at least show a
strong prima facie case
of incompatibility with Community law. It
is the presumption in
favour of the legislation being challenged
which in my view makes
the American Cyanimid test of a serious
question to be
tried inappropriate in a case such as the present.
In expressing
this opinion I must emphasise that I am in no way
criticising the
appropriateness of the American Cyanimid test for
cases
where primary or secondary legislation is not being
challenged nor
am I suggesting that Lord Diplock's approach to the
balance of
convenience is not appropriate in this case.
My Lords, I have considered
anxiously whether other factors
such as relative hardship or
injustice should play any part in
determining the appropriate
threshold which an applicant for relief
in circumstances such as
the present should cross. Given the wide
discretion conferred upon
the courts by section 45 of the
Judicature Act 1925 I would not
wish to lay down any rules which
might unduly inhibit that
discretion in unforeseen circumstances in
the future. Suffice it
to say that as at present advised it would
only be in the most
exceptional circumstances that I can foresee
- 22 -
the threshold being lowered by
factors not directly related to the
invalidity of the legislation
under challenge. In the normal case
other factors would be
considered in relation to the balance of
convenience. If an
applicant seeking an injunction against primary
or secondary
legislation cannot show a strong prima facie ground
of challenge
it will in the absence of quite exceptional
circumstances avail
him nought that a refusal of an injunction
would result in greater
injustice to him should he succeed at trial
than would result to
the other party if the injunction was granted
and he failed at
trial.
I therefore conclude that the
applicants will only cross the
threshold if they demonstrate that
there is a strong prima facie
case that section 14 of the Act of
1988 is incompatible with
Community law, which failing that
exceptional circumstances exist
would justify lowering the
threshold.
(2) Have the applicants
crossed the threshold?
Section 14(1) provides that a
fishing vessel shall only be
eligible to be registered as a
British fishing vessel if inter alia
"the vessel is
British-owned." Section 14(2) provides that a fishing
vessel
is British-owned if the legal title is vested wholly in one or
more
qualified persons or companies and section 14(7) provides that
a
qualified company is one which is incorporated in the United
Kingdom
with 75 per cent. of the shares held by and 75 per cent.
of its
directors being qualified persons. Qualified person is defined
in
section 14(7) as "a person who is a British citizen resident
and
domiciled in the United Kingdom." It is to this latter
definition
that Mr. Vaughan confined his attack on the ground that
such a
restriction in ownership was incompatible with Community
law.
Since the appeal was last before
this House in 1989 certain
important events have taken place in
the European Court. On 4
August 1989 (Commission of the
European Communities v. United
Kingdom (Case 246/89 R) the
Commission sought a declaration that
the nationality requirements
of section 14 of the Act of 1988
constituted a failure by the
United Kingdom to fulfil certain of its
Treaty obligations. On 10
October 1989 the President of the
Court made the following Order:
"Pending delivery of the
judgment in the main proceedings,
the United Kingdom shall suspend
the application of the
nationality requirements laid down in
section 14(1)(a) and (c)
of the Merchant Shipping Act 1988, read
in conjunction with
paragraphs (2) and (7) of that section, as
regards the
nationals of other member states and in respect of
fishing
vessels which, until 31 March 1989, were pursuing a
fishing
activity under the British flag and under a British
fishing
licence; ..."
Effect was given to this order by
the Merchant Shipping Act 1988
(Amendment) Order 1989 which, in
relation to the fishing vessels
in question, amended section 14 by
substituting "Community-owned
for British-owned" in
subsection 1 and by amending the definition
of the qualified
person to read a person who is a British citizen or
a
national of a member state other than the United Kingdom and
in
either case resident and domiciled in the United Kingdom.
- 23 -
It will be noted that the
Commission did not seek to challenge the
residence and domicile
qualification which is now challenged by
Mr. Vaughan. On 14
December 1989 the European Court similarly
constituted gave
judgment in two cases which may for convenience
be called Agegate
and Jaderow [1990] 3 WLR 226 and 265).
Both cases
concerned the grant to British-registered fishing vessels
with
strong Spanish connections of fishing licences which contained
ere
wing conditions to the effect that: (1) at least 75 per cent. of
the
crew must be British citizens or E.E.C. nationals (excluding
until
1 January 1993 Spanish nationals), and (2) the skipper and all
the
crew must be making contributions to United Kingdom
national
insurance. In the course of the Agegate judgment
the following
observations on the quota system were made, at p.
261:
"24. It follows from the
foregoing that the aim of the
quotas is to assure to each member
state a share of the
Community's total allowable catch, determined
essentially on
the basis of the catches from which traditional
fishing
activities, the local populations dependent on fisheries
and
related industries of that member state benefited before
the
quota system was established. 25. In that context a
residence
requirement such as the one in point in this case
is irrelevant to
the aim of the quota system and cannot
therefore be justified by
that aim."
And the court ruled inter alia, at
p. 264:
"2. Community law precludes a
member state from
requiring, as a condition for authorising one of
its vessels to
fish against its quotas, that 75 per cent. of the
crew of the
vessel in question must reside ashore in that member
state.
3. Save in those cases where Council Regulation
(E.E.C.)
No. 1408/71 of the otherwise provides, Community law
does
not preclude a member state from requiring, as a
condition
for authorising one of its vessels to fish against its
quotas,
that the skipper and all the crew of the vessel must
be
making contributions to the social security scheme of
that
member state."
In the Jaderow judgment the
court recognised that the aim
of national quotas derived from the
common fisheries policy might
justify conditions designed to
ensure that there was a real
economic link between the vessel and
the member state in
question if the purpose of such conditions was
that the populations
dependent on fisheries and related industries
should benefit from
the question. The court ruled inter alia, at
p. 295 that
Community law as it now stands:
"(1) does not preclude a
member state, in authorising one
of its vessels to fish against
national quotas, from laying
down conditions designed to ensure
that the vessel has a
real economic link with that state if that
link concerns only
the relations between that vessel's fishing
operations and the
populations dependent on fisheries and related
industries; (2)
Does not preclude a member state, in authorising
one of its
vessels to fish against national quotas, from laying
down the
condition, in order to ensure that there is a real
economic
link as defined above, that the vessel is to operate
from
national ports, if that condition does not involve an
- 24 -
obligation for the vessel to
depart from a national port on
all its fishing trips; ..."
It is to my mind implicit in these
two decisions that the court did
not consider that residence and
domicile of a specified percentage
of the crew was justified as a
condition designed to ensure the
existence of a real economic link
between the vessel and the
member state. Had the court so
considered Agegate must have
been decided differently. If
residence of the crew is not relevant
to ensure the existent of a
real economic link between vessel and
member state what is the
position in relation to the residence of
shareholders and
directors of an owning company? The role of
this House is not to
give an answer to that question but rather to
assess the prospects
of the European Court giving an answer which
is favourable to the
applicants. Directors and shareholders are
further removed from
any link between a vessel and a member
state than are
members of the crew and the European Court
having decided that
residence of the latter is not relevant to
ensure the existence of
a real economic link there must at least
be a strong probability
that the court will take a similar view in
relation to the former.
Upon that assumption it would appear that
the applicants can show
a strong prima facie ground of challenge
to the relevant statutory
provision. However, there remains for
consideration the argument
of the Crown that Community law does
not affect the sovereign
right of a member state to lay down the
conditions for the grant
of its flag to ships. Customary
international law, as expressed in
article 5(1) of the Geneva
Convention on the High Seas, requires
that there should be a
genuine link between a vessel and the state
of her flag. Article
94 of the 1982 Convention of the Law on the
Sea sets out the
important legal and international obligations
incurred by a state in
relation to a vessel to whom the flag of
the state has been
granted. In the absence of any express
provision it should not be
presumed that the Treaty interferes
with the exercise by a
member state of its sovereign powers. I was
initially attracted by
these submissions and in some doubt as to
whether they should not
be given effect to. However on further
consideration of the
President's ruling of 10 October 1989 I have
come to the
conclusion that the applicants can show that they are
very likely
to be rejected by the European Court. In the context
of
legislative requirements introduced by member states to obtain
the
objective of the Community system of fishing quotas the
President
said:
"29. However there is nothing
which would prima facie
warrant the conclusion that such
requirements may derogate
from the prohibition of discrimination
on grounds of
nationality contained in articles 52 and 221 of the
E.E.C.
Treaty regarding, respectively, the right of
establishment
and the right to participate in the capital of
companies or
firms within the meaning of article 58. 30. The
rights
deriving from the above-mentioned provisions of the
Treaty
include not only the rights of establishment and
of
participation in the capital of companies or firms but also
the
right to pursue an economic activity, as the case may
be through a
company, under the conditions laid down by
the legislation of the
country of establishment for its own
nationals. 31. These rights
prima facie also include the
right to incorporate and manage a
company whose object is
- 25 -
to operate a fishing vessel
registered in the state of
establishment under the same conditions
as a company
controlled by nationals of state. 32. As regards the
United
Kingdom's first submission based on its obligations
under
international law, it is sufficient to note, at this stage,
that
in this respect nothing has been put forward which at
first
sight could necessitate any derogation from the
above-
mentioned rights under Community law in order to ensure
the
effective exercise of British jurisidiction and control
over the
vessels in question. 33. It must therefore be held
that, at the
stage of these proceedings for the grant of
interim relief, the
application in the main proceedings does
not appear to be without
foundation and that the
requirement of a prima facie case is thus
satisfied."
Given the foregoing observations
of the President it would appear
that the applicants have a strong
chance of successfully arguing
before the European Court that
international law does not justify
derogation from the prohibition
of discrimination on grounds of
nationality contained in articles
52 and 221 of the Treaty.
In all these circumstances
I consider that the applicants
have crossed the threshold in
relation to section 14 of the Act of
1988. It is
therefore unnecessary to consider whether such
exceptional
circumstances exist as will justify lowering that
threshold.
(3) Balance of
convenience
In Films Rover International
Ltd, v. Cannon Film Sales Ltd.
[1987] 1 W.L.R. 670 Hoffmann J.
in considering an application for
an interlocutory mandatory
injunction implicitly acknowledged that
there was a serious
question to be tried and said, at p. 680:
"The principal dilemma about
the grant of interlocutory
injunctions, whether prohibitory or
mandatory, is that there
is by definition a risk that the court
may make the 'wrong'
decision, in the sense of granting an
injunction to a party
who fails to establish his right at the
trial (or would fail if
there was a trial) or alternatively, in
failing to grant an
injunction to a party who succeeds (or would
succeed) at
trial. A fundamental principle is therefore that the
court
should take whichever course appears to carry the lower
risk
of injustice if it should turn out to have been 'wrong' in
the
sense I have described. The guidelines for the grant of
both
kinds of interlocutory injunctions are derived from
this
principle."
I find this approach of assistance
in the present case.
If the applicants are successful
in the end of the day but
are afforded no interim relief they
will, standing the law as laid
down in Bourgoin S.A. v.
Ministry of Agriculture and Fisheries and
Food [1986] Q.B.
716, suffer very severe and irrecoverable damage.
If they are
ultimately unsuccessful but are afforded interim relief
the loss
suffered by the British fishing industry as a whole and by
individual
members thereof during the period of interim relief will
be
relatively minor. Beyond this I cannot usefully add anything to
what
has already been said on this matter by my noble and
- 26 -
learned friend Lord Goff of
Chieveley. It follows that, the
applicants having crossed the
threshold, the balance of convenience
favours the granting to them
of interim relief.
- 27 - |
JISCBAILII_CASE_CONSTITUTIONAL JISCBAILII_CASE_NI_LEGAL_SYSTEM
The Law Reports (Appeal Cases)
[1991] 1 AC 603
[EUROPEAN COURT OF JUSTICE]
REGINA v. SECRETARY OF STATE FOR TRANSPORT, Ex parte FACTORTAME LTD. AND OTHERS (No. 2)
(Case C 213/89)
1990 April 5;
May 17;
June 19 President O. Due Presidents of Chambers Sir Gordon Slynn , C. N. Kakouris , F. A. Shockweiler and M. Zuleeg Judges C. F. Mancini , R. Joliet , J. C. Moitinho de Almeida , G. C. Rodríguez Iglesias , F. Grévisse and M. de Valacso Advocate General G. Tesauro
[HOUSE OF LORDS]
1990 July 2, 3, 4, 5, 9; 25;
Oct. 11 Lord Bridge of Harwich , Lord Brandon of Oakbrook , Lord Oliver of Aylmerton , Lord Goff of Chieveley and Lord Jauncey of Tullichettle
17 May. MR. ADVOCATE GENERAL TESAURO delivered the following opinion.
1. The reply which the Court of Justice is called upon to give to two questions referred to it by the House of Lords for a preliminary ruling in Reg. v. Secretary of State for Transport, Ex parte Factortame Ltd. [1990] 2 AC 85 will rank amongst those which help to define the context of relations between national courts and Community law. And, I would add, on a point of unquestionable importance.
The questions are clear. Pending a ruling by the Court of Justice on the interpretation of provisions of Community law having direct effect, and where United Kingdom law does not permit the national court to suspend, by way of interim relief, the application of the allegedly conflicting national measure and thus, provisionally, to acknowledge an individual's right claimed under Community law but denied by national law: (1) must (or may) the national court grant such relief on the basis of Community law? (2) if so, applying what criteria?
2. The dispute which gave rise to the reference for a preliminary ruling concerns a considerable number of companies operating in the fisheries sector, which are incorporated under the laws of the United Kingdom but represent Spanish interests. These undertakings contest the validity under Community law of a United Kingdom statute of 1988 (the Merchant Shipping Act 1988) which altered the requirements for registration in the register of fishing vessels, in particular as regards nationality and residence of the beneficial ownership, deliberately strengthening those requirements in the case of foreign interests (including Community interests). Relying on certain provisions of the E.E.C. Treaty having direct effect, Factortame Ltd. and others instituted proceedings for judicial review of the Act in question, seeking a declaration that the Act should not apply to them on the ground that such application would be contrary to Community law, an order prohibiting the authorities from treating the registration of the vessels under the old Act (the Merchant Shipping Act 1894) as having ceased, and interim relief pending final judgment.
3. At first instance, the Divisional Court of the Queen's Bench Division made a reference to the Court of Justice for a preliminary ruling on the interpretation of the provisions of Community law raised and, as an interim measure, ordered the Secretary of State for Transport not to apply the new Act to the applicants pending final judgment or further order of the court.
4. The Secretary of State for Transport appealed against the order for interim relief which was set aside by the Court of Appeal on the ground that United Kingdom courts do not have the power to suspend, by way of interim relief, the application of statutes or to grant an injunction against the Crown.
5. The House of Lords, before which the matter was brought, confirmed that as a matter of English law the courts have no power to suspend the application of an Act of Parliament on the ground of its alleged, but unproved, incompatibility with Community law, and referred to the Court of Justice for a preliminary ruling the questions mentioned above, in order essentially to ascertain whether that which is not permitted by English law is required or permitted by Community law.
6. It should be stated by way of a preliminary observation that the House of Lords acknowledges that it has the power and the duty to give preference over the conflicting national statute to a provision of the E.E.C. Treaty or a provision of secondary Community law having direct effect in the United Kingdom legal order, and that this is so when the conflict is immediately and readily discernible, either by virtue of an existing interpretation of the Community provision by the Court of Justice or by virtue of the fact that the provision itself is sufficiently “clear” in its content. The problem arose, however, because there was no certainty as to the interpretation of the Community provisions relevant to the circumstances, but rather there were “serious arguments both for and against the existence of the rights claimed,” which prompted the Divisional Court to ask the Court of Justice to give a preliminary ruling on the interpretation of those provisions. The questions raised form the subject matter of different proceedings (Case 221/89) which are separate from the present proceedings. Moreover, to complete the picture, I would recall that, as regards the alleged incompatibility with Community law of the same United Kingdom statute in point, the Commission of the European Communities brought proceedings under article 169 of the E.E.C. Treaty against the United Kingdom, but solely on the nationality aspects, likewise seeking, by way of an interim measure, the suspension of application of the Act. The Court of Justice has already made an order granting such a measure in Commission of the European Communities v. United Kingdom (Case 246/89 R) [1989] E.C.R. 3125, and the Act has also been amended in that respect.
7. As a further preliminary matter, I think it is appropriate to point out that the problem has arisen in the context of the special proceedings by way of application for judicial review provided for by English law which were brought by the parties concerned even before the new Act on the register of shipping entered into force. On this point both the House of Lords in its order for reference and the United Kingdom in its written observations have stressed that, had the question of a conflict with Community law arisen in the course of criminal or administrative proceedings brought against those same parties for contravention of the Act on the register of shipping, the national court could well have stayed the proceedings (and even any forfeiture proceedings in respect of vessels) pending the outcome of the request for a preliminary ruling by the Court of Justice on the interpretation of the relevant Community provisions. The consequences of the Court of Justice's ruling, whether favourable or unfavourable as regards the claim made by the parties concerned, would then have been applied to them retroactively. The House of Lords infers therefrom that, in such a case, “the prosecution or forefeiture proceedings would not be frustrated but suspended:” see the order for reference.
It is not wholly clear in what perspective attention was drawn to the difference between the situation in this case (proceedings for judicial review) and that which might have arisen in ordinary proceedings of a criminal or other type instituted following the contravention of the Act. What is true, it seems to me, is that, for present purposes, the difference is not of any great importance. The mere stay of proceedings as a result of a reference to the Court of Justice pursuant to article 177 of the E.E.C. Treaty is not an interim measure and does not satisfy any requirements of interim protection of the rights claimed. On the contrary, it unquestionably poses in more acute terms the very problem which necessitates interim protection: whether, if stayed, the proceedings may, precisely, be “frustrated” by the delay in giving final judgment.
Thus the question raised by the House of Lords is of importance in the same way and in the same terms with regard to both the procedural situations indicated to the Court of Justice. It would only be otherwise if, whatever the type of proceedings, the national court were entitled, where proceedings are stayed and a reference is made to the Court of Justice under article 177, also to grant an interim measure of the type requested by the applicants in this case and if, accordingly, it had the power provisionally to allow the ships to be registered on the basis of the old Act pending final judgment; as became clear also at the hearing, this is plainly precluded whether in judicial review proceedings or any other type of proceeding.
8. On the other hand, I attach importance to the fact, stressed by the national court, that in a situation such as the one now before the Court of Justice, that is to say in the absence of interim measures, the economic damage suffered by the applicants in the course of the proceedings would remain irreparable, an action for damages being precluded by settled national case law: see the order for reference. It follows that, even were an interpretative ruling to be given by the Court of Justice, upholding the arguments of the applicants, the subsequent judgment by the national court could not award compensation for the damage suffered and the proceedings might in any event be “frustrated.”
That is not to say that compensation for loss suffered is a decisive factor and constitutes a real alternative to interim protection, in view of the fact that, even were it provided for, it would not always and in any event be sufficient in itself to satisfy the requirement of interim protection, a requirement which arises precisely out of the inadequacy of monetary compensation from the point of view of the “utility” of the future judgment: see, for example, the order of the Court of Justice in Agricola Commerciale Olio S.r.l. v. Commission of the European Communities (Case 232/81 R) [1981] E.C.R. 2193, 2200, para. 9. Rather the fact that compensation for damages is precluded makes it by definition impossible to make good the losses suffered pending judgment in the proceedings.
9. The national court has specifically identified the principles of Community law whose interpretation by way of a preliminary ruling by the Court of Justice would enable it to resolve the problem, in one way or another: the direct effect of the Community provisions relied on, the obligation to provide direct and immediate protection of individual rights, the practical efficacy of judicial remedies, the obligation to refrain from applying national measures and/or practices which render the exercise of such rights and the protection afforded to them impossible.
Similarly, the formal obstacles to the exercise by the English courts of the power to grant interim protection in proceedings of the type in question have been made clear: the presumption of validity that attaches to a statute until a final determination is made, a process which may include a ruling by the Court of Justice, and the impossibility of granting an injunction against the Crown, an impossibility which moreover relates not only to interim measures but also to final determinations: see the observations by the United Kingdom.
10. The principles of Community law which the House of Lords has stated to be relevant and on whose interpretation its decision will depend are fundamental principles enshrined in numerous judgments of the Court of Justice. Those principles are, however, observed (and without difficulty) by the United Kingdom courts, with the sole reservation which constitutes at once the reason for and the subject of these proceedings. Are such principles also to be interpreted as meaning that the national court must (or may) grant an interim measure requiring the Crown to refrain from applying, during the proceedings on the substance of the case, a “measure” (in this case an Act of Parliament) in respect of which there is no certainty but merely a suspicion, however serious, that it is incompatible with Community law? In other words, do the obligations which Community law imposes on the national courts concerning the protection of rights conferred directly on individuals also include the requirement to order the suspension, by way of interim protection, of the application of a national law which is alleged to be in conflict with Community law?
11. In addition to a rapid survey of the relevant principles of Community law, which are well known to the national court, the reply to this question calls for an identification of the requirement which is at the origin and is also the raison d'être of interim protection, a concept long established in jurisprudence and in the legal systems of the member states.
12. The starting point for the appraisal of the problem is that, as is accepted in this case, directly effective Community provisions are involved in the now uncontested sense of measures immediately conferring on individuals enforceable legal rights which, as such, may be relied upon before national courts. It is scarcely necessary to emphasise that it is on that assumption that the questions have been referred to the Court of Justice for a preliminary ruling, irrespective of which Community provisions are involved and the correct interpretation thereof. In fact, it is not the interpretation of the individual E.E.C. Treaty provisions relied on by the applicants in the dispute before the national court which is requested in these proceedings (merely for the sake of clarity, I would remind the Court of Justice that articles 7, 52, 58 and 221 of the E.E.C. Treaty are involved), but rather the interpretation of the principles of Community law mentioned above. In other words, the Court of Justice is not requested to embark upon an examination of the substance of the provisions relied on by the applicants, which is the subject of other, and separate, proceedings for a preliminary ruling, which are, I repeat, also pending before the Court of Justice (Case 221/89), but rather to give a general reply with regard to the interim protection of rights claimed by individuals by virtue of directly effective Community provisions.
13. That being so, I would recall that provisions of Community law having direct effect “must be fully and uniformly applied in all the member states from the date of their entry into force and for so long as they continue in force” (among other authorities, see Amministrazione delle Finanze dello Stato v. Simmenthal S.p A. (Case 106/77) [1978] ECR 629, 643, para. 14, and Amministrazione delle Finanze dello Stato v. Ariete S.p A. (Case 811/79) [1980] E.C.R. 2545, 2552–2553, para. 5) and that “this consequence also concerns any national court whose task it is as an organ of a member state to protect, in a case within its jurisdiction, the rights conferred upon individuals by Community law:” see the judgment in the Simmenthal case, [1978] ECR 629, 643, para. 16. And again in that judgment the Court of Justice affirmed that, in view of the supremacy of Community law, the relevant provisions having direct effect “not only by their entry into force render automatically inapplicable any conflicting provision of current national law,” but also “preclude the valid adoption of new national legislative measures to the extent to which they would be incompatible with Community provisions:” see the judgment in the Simmenthal case, at p. 643, para. 17.
It is quite clear, therefore, that a Community provision having immediate effect within the member states confers enforceable legal rights on the individual from its entry into force and for so long as it continues in force, irrespective and even in spite of a prior or subsequent national provisions which might negate those same rights. I do not consider it useful, and even less so in this context, to enter into a sterile dialectical discussion on the theoretical basis of such a firmly established principle. What matters, in so far as is relevant in this case, is that the national court is obliged to afford judicial protection to the rights conferred by a Community provision as from the entry into force of that provision and for so long as it continues in force.
14. Equally beyond dispute, and in harmony with the principle of collaboration enshrined in article 5 of the E.E.C. Treaty, which is the real key to the interpretation of the whole system, is the fact that the methods and the machinery for protecting rights conferred on individuals by provisions of Community law are and remain, in the absence of a harmonised system of procedure, those provided by the domestic legal systems of the member states. That principle, which recurs in the Court of Justice's case law, is nevertheless based on a fundamental pre-condition, which is also derived from the second paragraph of article 5, namely that the methods and national procedures must be no less favourable than those applying to like remedies for the protection of rights founded on national provisions and must also not be such as to render impossible in practice “the exercise of rights which the national courts are obliged to protect” see Rewe-Zentralfinanz eG v. Landwirtschaftskammer für Saarland (Case 33/76) [1976] ECR 1989, 1997, para. 5; Comet B.V. v. Produktschap voor Siergewassen (Case 45/76) [1976] ECR 2043, 2053, paras. 15, 16; the Ariete case [1980] E.C.R. 2545, 2554, para. 12; Express Dairy Foods Ltd. v. Intervention Board for Agricultural Produce (Case 130/79) [1980] ECR 1887, 1900, para. 12; Amministrazione delle Finanze dello Stato v. Denkavit Italiana S.r.l. (Case 61/79) [1980] ECR 1205, 1226, para. 25; Hans Just I./S. v. Danish Ministry for Fiscal Affairs (Case 68/79) [1980] ECR 501, 522, para. 25; and Amministrazione delle Finanze dello Stato v. S.p A. San Giorgio (Case 199/82) [1983] ECR 3595.
Moreover, in its judgment in the Simmenthal case [1978] ECR 629, the Court of Justice had affirmed, at p. 644, para. 22:
“any provision of a national legal system and any legislative, administrative or judicial practice which might impair the effect- iveness of Community law by withholding from the national court having jurisdiction to apply such law the power to do everything necessary at the moment of its application to set aside national legislative provisions which might prevent Community rules from having full force and effect are incompatible with those requirements which are the very essence of Community law.”
(I would also cite Commission of the European Communities v. Hellenic Republic (Case 68/88), The Times, 28 October 1990, in which the Court of Justice re-affirms that “article 5 of the E.E.C. Treaty required member states to take all measures appropriate in order to guarantee the scope and effectiveness of Community law.”) In other words, the national court is to apply Community law either through the means provided for under the national legal system or, failing that, “of its own motion:” see the judgment in the Simmenthal case, at p. 644, para. 24.
15. It is therefore firmly established, in the light of the Court of Justice's well settled case law, which has moreover been pertinently cited by the House of Lords, that national courts are required to afford complete and effective judicial protection to individuals on whom enforceable rights are conferred under a directly effective Community provision, on condition that the Community provision governs the matter in question from the moment of its entry into force, and that from this it follows that any national provision or practice which precludes those courts from giving “full effect” to the Community provision is incompatible with Community law.
The emphasis of this point should not appear superfluous merely because it recurs in the Courts of Justice's case law, since it is precisely from this observation that I shall derive the reply which I propose that the Court of Justice should give in this case.
16. The problem which the national court has raised is a general one and is not new, even though, although it has been implicitly overcome by other courts (on more than one occasion on which a reference has been made to the Court of Justice in the context of an alleged conflict between a national provision (law or administrative act) and Community law, the national court without hesitation also granted interim measures, which in substance amounted to a provisional suspension of the application of the instrument in question: for example, a stay of execution of an expulsion order from the Netherlands was ordered in Netherlands v. Reed (Case 59/85) [1986] ECR 1283; again, an employment relationship with the University of Venice was ordered to be maintained in Alluè v. Università degli Studi di Venezia (Case 33/88), The Times, 16 June 1989; and in another case a provisional residence permit was ordered to be issued in Belgium (Case 363/89, pending)), it is submitted for the first time for the judgment of the Court of Justice, perhaps not by chance in the context of the somewhat special situation represented by the procedure for judicial review of laws provided for in the United Kingdom. The question, therefore, does not concern solely the English legal system, An analogous problem to the one before the Court of Justice was raised before numerous French courts when a new law on minimum prices for petrol (and also for books) was introduced which was not observed by some distributors who alleged that it was incompatible with Community law Other traders objected to that attitude and sought interim prohibitory measures on the basis of the new law Not a few courts granted the orders requested, basing their decision on the presumption of the validity of the law when confronted with a mere suspicion that it was incompatible with the EECTreaty (for example, judgment of the Tribunal de Grande Instance, Le Mans, 11 July 1983, Gazette du Palais 1984, 1, somm, p 121); other courts refused to grant the interim measures precisely on the ground that the infringement of the law suspected of being incompatible with Community law was not a “trouble manifestement illicite” (Cour d"Appel, Paris, 4 July 1984, Gazette du Palais 1984, 2, p 658, note by Fourgoix; Tribunal de Grande Instance, Pontoise, 22 February 1984, Gazette du Palais 1984, p 296; see Bertin, “Un Trouble Manifestement Illicite: la Lutte contre la Vie Chère,” Gazette du Palais 1983, doct, p 419; also “Le Juge des Référés et le Droit Communautaire, Gazette du Palais, 1984, doct 48) The French Court of Cassation has given its formal approval to this second approach (Chambre Commerciale, 15 May 1985, Gazette du Palais, 1985, 2, panor, pp 346 and 347), basing itself, however, on the judgments of the Court of Justice delivered in the meantime to the effect that the contested law was incompatible: see Associations des Centres Distributeurs Édouard Leclerc v Sàrl “Au blé vert” (Case 229/83) [1985] ECR 1 and Cullet v Centre Leclerc Toulouse (Case 231/83) [1985] ECR 305 Subsequently, the Court of Cassation, again as a result of a decision by the Court of Justice (see Bodson v Pompes Funèbres des Régions Libérées SA (Case 30/87) [1988] ECR 2479), but in more general terms, affirmed that it was for the judge hearing the application for interim relief to verify “whether the ‘trouble’ relied on was manifestly unlawful” under the EECTreaty (Commercial Chamber, 10 July 1989, Dalloz 1989, p 243) See also Court of Cassation, 22 April 1986, Dalloz 1986, p 242 nor does it relate solely to the relationship between a national law and a Community provision, but rather it relates to the requirement for, and the very existence of, the interim protection of a right which is not certain but whose existence is in the course of being determined in a situation where there is a conflict between legal rules of differing rank. This is a conflict which, as regards the relationship between a national provision and a Community provision, quite apart from the theoretical or terminological choices and methods applied in the individual member states, finds effective expression the concept of “primauté,” that is to say the “precedence” of the latter provision over the former.
The problem arises from the fact that in a structured and intricate context which a modern system of judicial protection demands there is a lack of contemporaneity between the two points in time which mark the course of the law, namely the point when the right comes into existence and the point (later on) when the existence of the right is (definitively) established.
17. To compensate for the fact that these two points in time do not coincide there is a first and general remedy. It is true that only the definitive establishment of the existence of the right confers on the right fullness and certainty of content in the sense of placing the right itself, and the means whereby it may be exercised, finally beyond dispute (res judicata in the substantive sense); but it is also true that that effect is carried back to the point in time when the right was invoked by initiating the procedure for judicial review. The effect of the establishment of the existence of the right, inappropriately but significantly described as retroactive effect, is merely the consequence of the function of the provision and of its nature and modus operandi which in fact gives rise to an enforceable legal right from the moment when the provision enters into force and for so long as it continues in force. The only possible delay is that which which may occur before the right becomes fully effective and operational in cases where application to a court is needed in order to establish the existence of the right, and in particular in cases of prior review of the validity of the provision which is alleged to be applicable. And it is scarcely necessary to add that the situation would be no different if the question were examined from the opposite point of view and one were to consider the non-existence of the right and the finding to that effect.
What is important to stress is that at the time when an application is made the right already exists (or does not) and the provision which confers that right on (or denies it to) the individual is lawful or unlawful. The procedure for judicial review merely postpones the establishment of the existence of the right, that is to say its full and effective operation, to a later point in time and subject to the “retroactivity” of the effects of the actual establishment of the right. That is plainly true both where the establishment of the right entails an appraisal of the link between the factual situation and the provision relied upon and where the national court is called upon to determine the provision applicable from between two or more provisions, which may even be in conflict. In the latter situation, too, where the existence of the right may also be established by means of a review of validity, the provision which will be determined as the one applicable (in place of another declared to be invalid or incompatible) was in reality so applicable at the time when the application was made, inasmuch as at that time what was lacking was only the establishment of the right's existence and not also its actual existence. That has been specifically emphasised also by the Court of Justice in Amministrazione delle Finanze dello Stato v. MIRECO S.a S. (Case 826/79) [1980] E.C.R. 2559, when it held, at p. 2573, para. 7:
“The interpretation which, in the exercise of the jurisdiction conferred upon it by article 177, the Court of Justice gives to a rule of Community law clarifies and defines where necessary the meaning and scope of that rule as it must be or ought to have been understood and applied from the time of its coming into force.”
18. The above-mentioned general remedy for the lack of contem- poraneity between the establishment of the right's existence and its actual existence does not always succeed in achieving the main objective of judicial protection. Sometimes the right's existence is established too late for the right claimed to be fully and usefully exercised, which is the more likely to be the case the more structured and complex, and the more probably rich in safeguards, is the procedure culminating in the definitive establishment of the right. The result is that in such a case the utility as well as the effectiveness of judicial protection may be lost and there could be a betrayal of the principle, long established in jurisprudence, according to which the need to have recourse to legal proceedings to enforce a right should not occasion damage to the party in the right.
Interim protection has precisely that objective purpose, namely to ensure that the time needed to establish the existence of the right does not in the end have the effect of irremediably depriving the right of substance, by eliminating any possibility of exercising it; in brief, the purpose of interim protection is to achieve that fundamental objective of every legal system, the effectiveness of judicial protection. Interim protection is intended to prevent so far as possible the damage occasioned by the fact that the establishment and the existence of the right are not fully contemporaneous from prejudicing the effectiveness and the very purpose of establishing the right, which was also specifically affirmed by the Court of Justice when it linked interim protection to a requirement that, when delivered, the judgment will be fully effective (see, for example, the order in Renckens v. Commission of the European Communities (Case 27/68) [1969] E.C.R. 255, 274; and see also the opinion of Mr. Advocate General Capotorti in Commission of the European Communities v. France (Cases 24/80, 97/80 R) [1980] E.C.R. 1319, 1337; further, the orders in Gutmann v. Commission of the European Communities (Cases 18/65, 35/65) [1966] E.C.R. 103, 135, in Nederlandse Sigarenwinkeliers Organisatie v. Commission of the European Atomic Energy Community (Case 260/82 R) [1982] E.C.R. 4371, 4377, 4378, in Fabbro v. Commission of the European Communities (Case 269/84 R) [1984] E.C.R. 4333, and in De Compte v. European Parliament (Case 44/88 R) [1988] E.C.R. 1669, 1670, are in substantially the same terms); The necessary link between the effectiveness of judicial protection and interim relief was brought into focus, as is known, by Italian (Choivenda, Istituzioni di Diritto Processuale Civile, I, Naples, 1933; also Principi di Diritto Processuale Civile, Naples, 1906, pp 137 et seq; Calamandrei, Introduzione allo Studio Sistematico dei Provvedimenti Cautelari, Padua, 1936) and by German academic legal literature (Hellwig, System des deutschen Zivilprozessrechts, Leipzig, 1913, II, pp 22 et seq) The principle that the duration of the proceedings must not cause damage to the party in the right is to be found in a different formulation in a decision of the German/Polish mixed arbitration tribunal of 29 July 1924: “By means of interim measures the courts seek to make up for the law"s delays in such a way that as possible the outcome of the proceedings is the same as if they could have been completed in one day:” Decisions of the Tribunal, V, 455 See also the decision of the Bundesverfassungsgericht (Federal Constitutional Court) of 19 June 1973 commented on in NJW 1973, 34, pp 1491 et seq (“The purpose of this special procedure is to secure the effective protection of the court against measures taken by the executive … The procedural fundamental right contained in article 19(4) (bb) of the Basic Law guarantees not only the formal right and the theoretical possibility of applying to the courts, but also the effectiveness of legal protection The citizen has a substantive right to judicial review which is in fact effective”) See, finally, Corte Costituzionale No 190 of 28 June 1985 to the effect that “the principle must be respected whereby the duration of the proceedings should not occasion damage to the party who is right, the validity of which principle has been demonstrated from the beginning of this century not only in Italian academic literature” Foro Italiano 1985, I, p 1881 On the origins and foundations of interim protection in France, see Debbasch, Procèdure Administrative Contentieuse et Procèdure Civile, Paris, 1962, pp 300 et seq or to the need to “preserve the existing position pending a decision on the substance of the case:” CMC Cooperativa Muratori e Cementisti v. Commission of the European Communities (Case 118/83 R) [1983] E.C.R. 2583, 2595, para. 37.
19. Now that the function of interim protection has been brought into focus, such protection can be seen to be a fundamental and indispensable instrument of any judicial system, which seeks to achieve, in the particular case and always in an effective manner, the objective of determining the existence of a right and more generally of giving effect to the relevant legal provision, whenever the duration of the proceedings is likely to prejudice the attainment of this objective and therefore to nullify the effectiveness of the judgment.
The requirement for interim protection, moreover, as has already been noted, arises in the same terms, both where the establishment of the right's existence involves the facts and, consequently, the determination of the correct provision to be applied, that is to say where the uncertainty as to the outcome of the application involves (although the expression is not perhaps a happy one) “the facts,” and where it is a question of choosing between two or more provisions which may be applicable (for example, a classification problem), irrespective of whether both are presumed to be valid or whether one is presumed to be incompatible with the other, which is of a higher order or in any event has precedence.
In particular, where, as in the case now before the Court of Justice, the determination as to the existence of the right not only involves a choice between two or more provisions which may be applicable but also involves a prior review of the validity or compatibility of one provision vis-à-vis another of a higher order or in any event having precedence, the difference is merely one of appearance, particularly when that review is entrusted to a court on which special jurisdiction has been conferred for the purpose. This situation, too, is fully covered by the typical function of judicial proceedings, which seek to establish the existence of and hence to give effect to the right, so that the requirement that the individual's position be protected on a provisional basis remains the same, inasmuch as it is a question of determining, interpreting and applying to the case in question the relevant (and valid) legal rules.
20. If follows that what is commonly called the presumption of validity, which attaches to laws or administrative acts no less than it does to Community acts, until such time as it is established by judicial determination that the measure in question is incompatible with a rule of law of a higher order or in any event having precedence, to the extent that such a procedure is provided for, does not constitute a formal obstacle to the interim protection of enforceable legal rights. In fact, precisely because what is concerned is a presumption, which as such may be rebutted by the final determination, it remains necessary to provide a remedy to compensate for the fact that the final ruling establishing the existence of the right may come too late and therefore be of no use to the successful party.
In fact, it is certain and undeniable that a provision, whether it is contained in an Act of Parliament or a Community act, or in an administrative act, must be presumed to be valid. But that cannot and must not mean that the courts are precluded from temporarily paralysing its effects with regard to the concrete case before them where, pending a final determination on its validity or compatibility vis-à-vis a provision of a higher order or having precedence, one or other of the legal rights in question is likely to be irremediably impaired and there is a suspicion (the degree of which must be established) that the final determination may entail a finding that the statute or administrative act in question is invalid.
21. In brief, the presumption that a law or an administrative act is valid may not and must not mean that the very possibility of interim protection is precluded where the measure in question may form the subject of a final judicial review of its validity.
Far from running counter to the principle of the validity of laws or administrative acts, which finds expression in a presumption that may always be rebutted by a final determination, interim protection in fact removes the risk that that presumption may lead to the perverse result, certainly not desired by any legal system, negating the function of judicial review and, in particular, of the review of the validity of laws. To take a different view would amount to denying root and branch the possibility of interim protection, not only in relation to laws, but absolutely, given that any act of a public authority, whether it is a rule-making instrument properly so-called or an individual decision, is presumed to be valid until the outcome of the judicial review of its validity.
22. In a procedural situation of the type with which we are concerned here, in which one provision is alleged to be incompatible with another of a higher order or having precedence, it is essential, as has already been stressed, to bear in mind the fact that both provisions hypothetically apply to the case in question from the moment when the application is made. That is especially so since the final determination, whose consequences are made to take effect from the time of the application, creates nothing new as regards the existence (or the non-existence) of the right claimed because the provisions in point are hypothetically valid and operative in the alternative (or invalid and inoperative) and to both is attached what is commonly called a presumption of validity, whilst what is postponed, owing to the time taken by the proceedings, is merely the point in time at which the final determination is made. In the meantime, a situation prevails which may be defined precisely in terms of “apparent law” and which is the very reason for interim measures, neither of the provisions in point giving rise to rights which are more than putative. It is therefore not a case of there being certainty (with the corresponding presumption of validity) as to one provision and uncertainty as to the other but the putative existence of both provisions. It is for the courts to assess whether the putative nature of the right claimed is such that interim protection must be granted or refused, on the basis of substantive criteria linked to the greater or lesser extent to which provision at issue appears to be valid (prima facie case, fumus boni juris, however designated) and to the possibility or otherwise that one or other of the interests in question may be prejudiced pending the final outcome of the proceedings.
23. The foregoing observations are amply confirmed by the fact that in all the legal systems of the member states (the Danish system constitutes a partial exception), however diverse may be the forms and requirements connected with the duration of the proceedings, there is provision for the interim protection of rights denied under a lower ranking provision but claimed on the basis of a provision of a higher order.
First of all, it is beyond dispute that the application of an administrative act, which however benefits from a presumption of validity in the same way as a law, so that the bringing of an action does not suspend its operation (except in certain rare cases), may be nevertheless suspended by way of interim relief pending a definitive ruling on validity.
The provisional disapplication of primary legislation, in legal systems in which judicial review of the validity thereof is provided for, is certainly rarer.
Often the problem of the constitutionality of primary legislation is raised in the context of proceedings brought against an administrative act adopted in pursuance of the legislation in question so that the question of disapplying the legislation as such does not arise: in some systems this is the only situation possible.
In other countries, on the other hand, and in particular in those where judicial review of the (constitutional) legality of primary legislation is not generally available but is confined to a specific judicial body, provision is made, or the practice is, for provisional suspension to be ordered. For example, in Germany, the Federal Constitutional Court may provisionally suspend the application of primary legislation in a context (Verfassungsbeschwerden) not dissimilar to that of the English procedure for judicial review (see Bundesverfassungsgericht 16 October 1977, Schleyer, Foro Italiano 1978, IV, p. 222; Bundesverfassungsgericht 19 June 1962, BVerfGE, vol. 14, p. 153); so, too, may the ordinary courts, which must then refer the matter to the Constitutional Court: see Bundesverfassungsgericht 5 October 1977, BVerfGE, vol. 46, p. 43.
Of particular relevance, moreover, is the case in Italy, inasmuch as not only do the ordinary courts not have the power to determine the unconstitutionality of laws and must therefore refer the matter to the Constitutional Court, but no power is expressly conferred either on the Constitutional Court or on the ordinary courts (or administrative courts) to grant interim measures (by way of suspension of the application of a law) pending the outcome of review proceedings. Notwithstanding this, many ordinary courts (Pretore, Bari, order of 4 February 1978, Foro Italiano 1978, I, p. 1807; Pretore, La Spezia, order of 29 March 1978, Foro Italiano 1979, I, p. 285; Pretore, Pisa, order of 30 July 1977, Foro Italiano 1977, I, p. 2354; Pretore, Pavia, order of 14 March 1977, Riv. Giur. Lav. 1977, II, p. 640; Pretore, Voltri, order of 1 September 1977, Riv. Giur. Lav. 1977, II, p. 639; Pretore, La Spezia, order of 23 November 1978, Foro Italiano 1979, I, p. 1921 et seq.), with the support of the majority view in academic literature (see Verde, “Considerazioni sul Procedimento d'Urgenza,” Studi Andrioli, Naples 1979, pp. 446 et seq.; Mortati, Istituzioni di Diritto Pubblico, 1976, II, p. 1391; Campanile, “Procedimento d'Urgenza e Incidente di Legittimità Costituzionale,” Riv. Dir. Proc. 1985, pp. 124 et seq.; Zagrebelsky, “La Tutela d'Urgenza,” le Garanzie Giurisdizionali dei Diritti Fondamentali, Padua 1988, pp. 27 et seq.; Sandulli, Manuale di Diritto Amministrativo, Naples 1984, II, p. 1408), have taken the view that it is possible to issue interim measures suspending the application of primary legislation (obviously with regard only to the parties to the proceedings) pending a ruling by the Constitutional Court. That court, although it has never decided the specific point which is before the Court of Justice (but see, with regard to the permissibility of interim protection pending settlement of jurisdictional questions, Corte Costituzionale No. 73 of 6 June 1973, Foro Italiano 1973, I, p. 1657; and see also Corte di Cassazione, Sezioni Unite, 1 December 1978, No. 5678, Foro Italiano 1978, I, p. 2704), has not failed to affirm, on the one hand, the essential rôle played by interim relief in ensuring the effectiveness of the system of judicial protection (see Corte Costituzionale 27 December 1974, No. 284, Foro Italiano 1975, I, p. 263) and, on the other hand, the existence of a general principle and of a “rule of rationality” underlying the legal system according to which it is for the courts, where the necessary preconditions are fulfilled (i.e. a prima facie case and periculum in mora), to adopt such urgent measures as are appropriate for ensuring, on a provisional basis, the effects of the final decision on the merits: Corte Costituzionale 28 June 1985 No. 190, Foro Italiano 1985, I, 1881. See also, for some points of interest, Corte di Cassazione, Sezione Unite Civili, 1 December 1978, No. 5678, Foro Italiano 1978, I, p. 2704; Consiglio di Stato, 14 April 1972, No. 5, Foro Italiano 1972, III, p. 105; Consiglio di Stato, 8 October 1982, No. 17, Foro Italiano 1983, II, p. 41.
Albeit in a different context, it is also significant that the French Conseil Constitutionnel declared to be unconstitutional a law which did not empower the courts to suspend, by way of interim relief, the application of an administrative decision, and moreover described such suspension as a “garantie essentielle des droits de la défense:” see Decision No. 86–224 DC of 23 January 1987, J.O.R.F. of 25 January 1987, p. 925.
24. If attention is now turned to the relationship between national provisions and Community provisions, there is no doubt that, by means of preliminary rulings given by the Court of Justice and the “direct” competence of national courts, machinery has been introduced which essentially consists of the review of the validity (or of compatibility, if this is preferred) of a national provision in relation to a Community provision, given that the national courts have jurisdiction to rule definitively that the former is incompatible with the latter. And if therefore the national courts may, indeed must, disapply a national law which conflicts with a Community provision having direct effect, once a definitive finding has been made to that effect (or, at any rate, must achieve that substantive result), they must also be able to disapply that law provisionally, provided that the preconditions are satisfied, where the incompatibility is not entirely certain or “established” but may call for a preliminary ruling by the Court of Justice. Otherwise, that judicial protection of the rights conferred on individuals by the Community provision which, as has been affirmed by the Court of Justice on numerous occasions and also specifically pointed out by the House of Lords, is the subject of a precise obligation on the part of the national courts, might be nullified.
25. This brings me back to the concrete case submitted for the consideration of the Court of Justice by way of the questions referred to it by the House of Lords. The right of the applicants in the main proceedings, which is denied by the national statute, is claimed on the basis of certain E.E.C. Treaty provisions having direct effect, that is to say provisions which prevail over domestic law but whose interpretation in the sense contended for is not free from doubt and, consequently, requires a preliminary ruling by the Court of Justice. In the meantime, the national court finds a bar to interim protection of the rights claimed in the presumption of validity which attaches to the statute until a final determination is made.
Inasmuch as the English court, as is undisputed and as it has itself underlined, can and must give precedence, once the final determination is made, by virtue of the review which can be carried out of the compatibility of the English statute with Community law, to the “certain” Community rule having direct effect, it must also be able, where the necessary preconditions are satisfied, to grant interim protection to the rights claimed on the basis of “uncertain” Community rules and denied by the provisions of national law.
The problem is not one of form but of substance. The presumption of validity does not have preclusive effect in view of the fact that it may be rebutted by the final determination, as is the case in the English legal system also by virtue of the European Communities Act 1972, just as the presumption of the validity of any provision subordinate to a provision of a higher order does not preclude interim relief. And it is the national court itself which points this out in the order for reference in relation to the possibility of suspending the application of a subordinate measure which is suspected of being in conflict with a statute.
26. What I mean to say, therefore, is that this assessment must be carried out on the basis of substantive criteria and not, as suggested by the United Kingdom, on the basis of a formal criterion such as the presumption of the validity of statute.
To give priority to the national legislation merely because it has not yet been definitively established as incompatible with Community law (and thus to proceed on the basis merely of a putative compatibility) may amount to depriving the Community rules of the effective judicial protection which is to be afforded to them “from the date of their entry into force and for so long as they continue in force.” Paradoxically, the right conferred (putatively) by the provision of Community law would as a general rule receive less, or less effective, protection than rights conferred (also putatively) by the provision of national law. That would be tantamount to saying that the right conferred by ordinary legislation may receive interim protection, whereas protection is denied to the right conferred by the Community, or in any event higher-ranking, provision, on the basis of the presumption of validity in favour of that legislation; as if the same presumption, which after all is nothing other than “putative,” did not also avail the provision having precedence.
Let me be quite clear. I do not mean by this that the national court must always and in any event give priority to a right putatively conferred by Community law as opposed to a right putatively conferred by national law, but merely that it must have the power to do so where the factual and legal circumstances so require; in other words it may (and must) not find formal obstacles to any application for interim measures based on directly effective Community provisions.
27. Nor does it avail to put forward as a counter argument the presumption of validity which attaches to Community measures, a presumption stressed many times by the Court of Justice. That is an argument which ends up by demonstrating the contrary. It is scarcely necessary to recall to mind article 185 of the E.E.C. Treaty which expressly provides that the Court of Justice may “if it considers that circumstances so require, order that application of the contested act be suspended.”
But that is not all. Even in regard to a system for the review of the validity of Community measures which is rigorously centred on the Court of Justice (also as regards the preliminary rulings procedure under article 177 of the E.E.C. Treaty), the Court of Justice itself has not failed to stress that “the rule that national courts may not themselves declare Community acts invalid may have to be qualified in certain circumstances in the case of proceedings relating to an application for interim measures:” see Foto-Frost v. Hauptzollamt Lübeck-Ost (Case 314/85) [1987] ECR 4199, 4232, para. 19.
28. Similarly, it is not at the formal but rather on the substantive level that it is necessary to assess the possibility that interim protection may be obtained (also) by way of an injunction against the Crown. By way of example, I would consider it unreasonable to think in terms of an injunction (to adopt a measure or enact primary legislation) which would amount to an interference with the discretionary powers enjoyed by the Crown or even by Parliament, whilst on the other hand I would regard it as being entirely reasonable and “orthodox” to order concrete non-discretionary action to be taken or, as in this case, the temporary suspension of application of the statute or administrative act, solely with regard to the parties to the proceedings, until such time as the court is in a position definitively to apply or to disapply one or the other.
29. In conclusion, the reply which I propose should be given by the Court of Justice to the first question put to it by the House of Lords is affirmative in the sense that, under Community law, the national court must be able to afford interim protection, where the pre-conditions are met, to rights claimed by an individual on the basis of provisions of Community law having direct effect, pending the final outcome of the proceedings, including proceedings on a reference to the Court of Justice for a preliminary ruling. And I also suggest that the Court of Justice should expressly link this power and duty of the national court to the requirement for effective judicial protection which applies in relation to provisions of Community law just as much as it does in relation to provisions of national law.
30. I need hardly add that such a reply does not amount to imposing remedies or judicial procedures different from those already provided for in the domestic law of the member states but merely implies that such remedies or procedures must be used “for the purpose of ensuring observence of Community provisions having direct effect, on the same conditions concerning admissibility and procedure as would apply were it a question of ensuring observance of national law:” Rewe-Handelsgesellschaft Nord m.b H. v. Hauptzollampt Kiel (Case 158/80) [1981] ECR 1805, 1838, para. 44. But I would recall once again that the principle in question, according to which the means of affording judicial protection to rights conferred by provisions of Community law remain exclusively those provided for by domestic law, does not apply if “those rules and time limits made it impossible in practice to exercise rights which the national courts have a duty to protect:” see the Comet case [1976] ECR 2043, 2053, para. 16; the Rewe-Zentralfinanz case [1976] ECR 1989, 1900, para. 15, the Express Dairy case [1980] ECR 1887, 1997–1998, para. 12; the Denkavit case [1980] ECR 1205, 1226, para. 25; and the MIRECO case [1980] E.C.R. 2559, 2574, para. 13.
31. In fact, as is made clear also by the order for reference and the observations of the United Kingdom, provision is made in the United Kingdom procedural system for the interim protection of a right, pending the final determination, whenever a danger would be caused by delay (periculum in mora) and a prima facie case is made out (the Divisional Court granted the interim relief requested). Consequently, it is not a question here of a procedure which is not provided for by the national legal system, rather it is simply a question of using the existing procedure in order to protect a right claimed on the basis of a provision of Community law having direct effect. The same may be said of the impossibility, to which reference has been made, of obtaining an injunction against the Crown, when in reality it is merely a case or ordering the provisional suspension of the application of a statute to the parties concerned, it being clearly understood that it may be the latter who will bear the risk of a final determination unfavourable to them.
If that were not the case, on the other hand, there would in any event still be a specific obligation, where the appropriate preconditions are satisfied, to afford interim protection, since otherwise we would find ourselves confronted precisely with the situation (I would again mention the Simmenthal case [1978] ECR 629) of a procedural system which makes it impossible in practice “to exercise rights which the national courts have a duty to protect.” That would be all the more serious if regard were had to the fact, also mentioned in the order for reference, that under the English legal system the definitive establishment of the right claimed never entails the recovery of losses suffered in the course of the proceedings by those claiming the legal right at issue. That is something which, let me be clear, is in itself a matter for concern in the light of the obligation of national courts to give full effect to the provisions of Community law.
32. Nor does there seem to me to be any justified basis for arguing a contrario (as in the observations of Ireland and the United Kingdom) that individuals are afforded sufficient protection by virtue of the right of the Commission, by infringement proceedings brought under article 169 of the E.E.C. Treaty, to apply to the Court of Justice for interim measures, a situation which in fact has occurred in this instance in regard to the nationality requirements of the United Kingdom legislation now before the Court of Justice, as I have already indicated. In this respect may it suffice to recall the judgment in N.V. Algemene Transport-en Expeditie Onderneming van Gend en Loos v. Nederlandse Administratie der Belastingen (Case 26/62) [1963] ECR 1, in which the Court of Justice affirmed that a restriction of the guarantees against an infringement by member states of a Community provision having direct effect to the procedures under articles 169 and 170 “would remove all direct legal protection of the individual rights of their nationals.”
33. The reply to the first question raised by the House of Lords, therefore, can only be in the affirmative, in the sense that the national court's duty to afford effective judicial protection to rights conferred on the individual by Community law, where the relevant requirements are satisfied, cannot fail to include the provision of interim protection for the rights claimed, pending a final determination.
Moreover, the first question is whether Community law obliges the national court to grant such interim protection or gives it the power to grant such protection, so that the second question as to the criteria which the national court should apply is dependent on a negative reply as to the obligation and an affirmative reply as to the power.
Over and above the literal formulation of the questions and the corresponding replies to be given by the Court of Justice, I consider that it is necessary to be very clear as to the substance. In the first place, it does not seem to me that we are concerned with an alternative, in the proper sense of the term, between an “obligation” and a “power,” regard being had to the fact that what is involved is a judicial activity which the national court is called upon to carry out and which, by its very nature, is an activity involving an assessment of the factual and legal elements presented by the specific case before the national court at any given time. Consequently, it is possible to use the expression “obligation,” in accordance with the Court of Justice's case law, in the sense that the national court performs that obligation by means of an assessment on a case by case basis of the preconditions on which generally the adoption of an interim measure depends.
In this connection, I consider not only that it is for the national court, obviously, to determine whether the preconditions for interim protection are met, but also that, in the absence of Community harmonisation, those preconditions must be and must remain those provided for by the individual, national legal systems. Further, it does not seem to me that the subject matter allows much room for imagination or offers scope for revolutionary discoveries, since legal theory and positive law, including that of the United Kingdom, have long specified the prima facie case (however designated) and the periculum in mora as the two basic preconditions for interim protection. The accent may be placed on one or the other according to the legal system in question, or what is a prima facie case may or may not perfectly coincide with the not manifestly ill founded or the prima facie well founded nature of the claim and so on, or it may be that in the assessment of the periculum in mora, apart from the traditional and necessary balancing of the respective interests of the parties (ensuring that the interim measure does not in its turn cause irreparable damage to the other party), express consideration is also given to the public interest. All that forms part of the prudent appreciation by the national courts which, case by case, will carry out a just appraisal of the appropriateness or necessity of granting or refusing an interim measure for the interim protection of the rights claimed. And there is scarcely any need to point out that in considering whether there is a prima facie case the courts will take account of the possibility that the national provision may be declared incompatible with Community law.
In the result, as regards the second question in particular, I suggest that the Court of Justice should give a reply which is in conformity with the judgment in the Comet case [1976] ECR 2043 in the sense that “the methods and time limits” of the interim protection are and remain, in the absence of harmonisation, those provided for by the national legal systems, provided that they are not such as to make it impossible in practice “to exercise rights which the national courts have a duty to protect.” Consequently, it is for the national court to draw from the above the necessary inferences as to the determination of the dispute before it on the basis of the factors set out in the statement of the grounds on which the questions are based; the Court of Justice clearly cannot make any assessment of the merits of those factors.
34. On the basis of the foregoing considerations, I therefore propose that the Court of Justice should reply as follows to the questions formulated by the House of Lords: (1) The obligation imposed by Community law on the national court to ensure the effective judicial protection of rights directly conferred on the individual by provisions of Community law includes the obligation, if the need arises and where the factual and legal preconditions are met, to afford interim and urgent protection to rights claimed on the basis of such provisions of Community law, pending a final determination and any interpretation by way of a preliminary ruling given by the Court of Justice. (2) In the absence of Community harmonisation, it is the legal system of each member state which determines the procedural methods and the preconditions for the interim protection of rights vested in individuals by virtue of provisions of Community law having direct effect, on condition that those methods and preconditions do not make it impossible to exercise on an interim basis the rights claimed and are not less favourable than those provided to afford protection to rights founded on national provisions, any provision of national law or any national practice having such an effect being incompatible with Community law.
19 June. The following judgment was delivered in open court in Luxembourg.
1. By a judgment of 18 May 1989 in Reg. v. Secretary of State for Transport, Ex parte Factortame Ltd. [1990] 2 AC 85, which was received at the Court Registry on 10 July 1989, the House of Lords referred to the European Court of Justice for a preliminary ruling under article 177 of the E.E.C. Treaty two questions on the interpretation of Community law. Those questions concern the extent of the power of national courts to grant interim relief where rights claimed under Community law are at issue.
2. The questions were raised in proceedings brought against the Secretary of State for Transport by Factortame Ltd. and other companies incorporated under the laws of the United Kingdom, and also the directors and shareholders of those companies, most of whom are Spanish nationals (hereinafter together referred to as “the applicants”).
3. The companies in question are the owners or operators of 95 fishing vessels which were registered in the register of British vessels under the Merchant Shipping Act 1894. Of those vessels, 53 were originally registered in Spain and flew the Spanish flag, but on various dates as from 1980 they were registered in the British register. The remaining 42 vessels have always been registered in the United Kingdom, but were purchased by the companies in question on various dates, mainly since 1983.
4. The statutory system governing the registration of British fishing vessels was radically altered by Part II of the Merchant Shipping Act 1988 and the Merchant Shipping (Registration of Fishing Vessels) Regulations 1988 (S.I. 1988 No. 1926). It is common ground that the United Kingdom amended the previous legislation in order to put a stop to the practice known as “quota hopping” whereby, according to the United Kingdom, its fishing quotas were “plundered” by vessels flying the British flag but lacking any genuine link with the United Kingdom.
5. The Act of 1988 provided for the establishment of a new register in which henceforth all British fishing vessels were to be registered, including those which were already registered in the old general register maintained under the Act of 1894. However, only fishing vessels fulfilling the conditions laid down in section 14 of the Act of 1988 could be registered in the new register.
6. Section 14(1) provides that, subject to dispensations to be determined by the Secretary of State for Transport, a fishing vessel is eligible to be registered in the new register only if:
“( a) the vessel is British-owned; ( b) the vessel is managed, and its operations are directed and controlled, from within the United Kingdom and; ( c) any charterer, manager or operator of the vessel is a qualified person or company.”
According to section 14(2), a fishing vessel is deemed to be British-owned if the legal title to the vessel is vested wholly in one or more qualified persons or companies, and if the vessel is beneficially owned by one or more qualified companies or, as to not less than 75 per cent., by one or more qualified persons. According to section 14(7) “qualified person” means a person who is a British citizen resident and domiciled in the United Kingdom and “qualified company” means a company incorporated in the United Kingdom and having its principal place of business there, at least 75 per cent. of its shares being owned by one or more qualified persons or companies and at least 75 per cent. of its directors being qualified persons.
7. The Act of 1988 and the Regulations of 1988 entered into force on 1 December 1988. However, under section 13 of the Act of 1988, the validity of registrations effected under the previous Act was extended for a transitional period until 31 March 1989.
8. On 4 August 1989 the Commission of the European Communities brought an action before the Court of Justice under article 169 of the E.E.C. Treaty for a declaration that, by imposing the nationality requirements laid down in section 14 of the Act of 1988, the United Kingdom had failed to fulfil its obligations under articles 7, 52 and 221 of the E.E.C. Treaty. That action is the subject of Case 246/89, now pending before the Court of Justice. In a separate document, lodged at the Court Registry on the same date, the Commission applied to the Court of Justice for an interim order requiring the United Kingdom to suspend the application of those nationality requirements as regards the nationals of the other member states and in respect of fishing vessels which until 31 March 1989 had been carrying on a fishing activity under the British flag and under a British fishing licence. By an order of 10 October 1989 in Commission of the European Communities v. United Kingdom (Case 246/89 R) [1989] E.C.R. 3125, the President of the Court of Justice granted that application. Pursuant to that order, the United Kingdom made an Order in Council amending section 14 of the Act of 1988 with effect from 2 November 1989.
9. At the time of the institution of the proceedings in which the appeal arises, the 95 fishing vessels of the applicants failed to satisfy one or more of the conditions for registration under section 14 of the Act of 1988 and thus could not be registered in the new register.
10. Since those vessels were to be deprived of the right to engage in fishing as from 1 April 1989, the companies in question, by means of an application for judicial review, challenged the compatibility of Part II of the Act of 1988 with Community law. They also applied for the grant of interim relief until such time as final judgment was given on their application for judicial review.
11. In its judgment of 10 March 1989, the Divisional Court of the Queen's Bench Division (i) decided to stay the proceedings and to make a reference under article 177 of the E.E.C. Treaty for a preliminary ruling on the issues of Community law raised in the proceedings; and (ii) ordered that, by way of interim relief, the application of Part II of the Act of 1988 and the Regulations of 1988 should be suspended as regards the applicants.
12. On 13 March 1989, the Secretary of State for Transport appealed against the Divisional Court's order granting interim relief. By judgment of 22 March 1989 the Court of Appeal held that under national law the courts had no power to suspend, by way of interim relief, the application of Acts of Parliament. It therefore set aside the order of the Divisional Court.
13. The House of Lords, before which the matter was brought, delivered its judgment on 18 May 1989. In its judgment it found in the first place that the claims by the applicants that they would suffer irreparable damage if the interim relief which they sought were not granted and they were successful in the main proceedings were well founded. However, it held that, under national law, the English courts had no power to grant interim relief in a case such as the one before it. More specifically, it held that the grant of such relief was precluded by the old common law rule that an interim injunction may not be granted against the Crown, that is to say against the government, in conjunction with the presumption that an Act of Parliament is in conformity with Community law until such time as a decision on its compatibility with that law has been given.
14. The House of Lords then turned to the question whether, notwithstanding that rule of national law, English courts had the power, under Community law, to grant an interim injunction against the Crown.
15. Consequently, taking the view that the dispute raised an issue concerning the interpretation of Community law, the House of Lords decided, pursuant to article 177 of the E.E.C. Treaty, to stay the proceedings until the Court of Justice had given a preliminary ruling on the following questions:
“1. Where: (i) a party before the national court claims to be entitled to rights under Community law having direct effect in national law (‘the rights claimed’), (ii) a national measure in clear terms will, if applied, automatically deprive that party of the rights claimed, (iii) there are serious arguments both for and against the existence of the rights claimed and the national court has sought a preliminary ruling under article 177 as to whether or not the rights claimed exist, (iv) the national law presumes the national measure in question to be compatible with Community law unless and until it is declared incompatible, (v) the national court has no power to give interim protection to the rights claimed by suspending the application of the national measure pending the preliminary ruling, (vi) if the preliminary ruling is in the event in favour of the rights claimed, the party entitled to those rights is likely to have suffered irremediable damage unless given such interim protection, does Community law either (a) oblige the national court to grant such interim protection of the rights claimed; or (b) give the court power to grant such interim protection of the rights claimed? 2. If question 1(a) is answered in the negative and question 1(b) in the affirmative, what are the criteria to be applied in deciding whether or not to grant such interim protection of the rights claimed?”
16. Reference is made to the report for the hearing for a fuller account of the facts in the proceedings before the national court, the course of the procedure before and the observations submitted to the Court of Justice, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court of Justice.
17. It is clear from the information before the Court of Justice, and in particular from the judgment making the reference and, as described above, the course taken by the proceedings in the national courts before which the case came at first and second instance, that the preliminary question raised by the House of Lords seeks essentially to ascertain whether a national court which, in a case before it concerning Community law, considers that the sole obstacle which precludes it from granting interim relief is a rule of national law, must disapply that rule.
18. For the purpose of replying to that question, it is necessary to point out that in Amministrazione delle Finanze dello Stato v. Simmenthal S.p A. (Case 106/77) [1978] ECR 629 the Court of Justice held, at p. 643, para. 14, that directly applicable rules of Community law “must be fully and uniformly applied in all the member states from the date of their entry into force and for so long as they continue in force” and that, at p. 643, para. 17:
“in accordance with the principle of the precedence of Community law, the relationship between provisions of the E.E.C. Treaty and directly applicable measures of the institutions on the one hand and the national law of the member-States on the other is such that those provisions and measures … by their entry into force render automatically inapplicable any conflicting provision of … national law …”
19. In accordance with the case law of the Court of Justice, it is for the national courts, in application of the principle of co-operation laid down in article 5 of the E.E.C. Treaty, to ensure the legal protection which persons derive from the direct effect of provisions of Community law: see, most recently, Amministrazione delle Finanze dello Stato v. Ariete S.p A. (Case 811/79) [1980] E.C.R. 2545 and Amministrazione delle Finanze dello Stato v. MIRECO S.a S. (Case 826/79) [1980] E.C.R. 2559.
20. The Court of Justice has also held that any provision of a national legal system and any legislative, administrative or judicial practice which might impair the effectiveness of Community law by withholding from the national court having jurisdiction to apply such law the power to do everything necessary at the moment of its application to set aside national legislative provisions which might prevent, even temporarily, Community rules from having full force and effect are incompatible with those requirements, which are the very essence of Community law: see the judgment in the Simmenthal case [1978] ECR 629, 644, paras. 22 and 23.
21. It must be added that the full effectiveness of Community law would be just as much impaired if a rule of national law could prevent a court seised of a dispute governed by Community law from granting interim relief in order to ensure the full effectiveness of the judgment to be given on the existence of the rights claimed under Community law. It follows that a court which in those circumstances would grant interim relief, if it were not for a rule of national law, is obliged to set aside that rule.
22. That interpretation is reinforced by the system established by article 177 of the E.E.C. Treaty whose effectiveness would be impaired if a national court, having stayed proceedings pending the reply by the Court of Justice to the question referred to it for a preliminary ruling, were not able to grant interim relief until it delivered its judgment following the reply given by the Court of Justice.
23. Consequently, the reply to the question raised should be that Community law must be interpreted as meaning that a national court which, in a case before it concerning Community law, considers that the sole obstacle which precludes it from granting interim relief is a rule of national law must set aside that rule.
Costs
24. The costs incurred by the United Kingdom, Ireland and the Commission of the European Communities, which have submitted observations to the Court of Justice, are not recoverable. Since these proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the proceedings pending before the national court, the decision on costs is a matter for that court.
On those grounds, the court in reply to the question referred to it for a preliminary ruling by the House of Lords, by judgment of 18 May 1989, hereby rules: Community law must be interpreted as meaning that a national court which, in a case before it concerning Community law, considers that the sole obstacle which precludes it from granting interim relief is a rule of national law must set aside that rule.
Solicitors: Chief State Solicitor, Republic of Ireland; Treasury Solicitor; Thomas Cooper & Stibbard.
[Reported by PAUL H. NIEKIRK ESQ., Barrister]
After the answers to the questions referred to the European Court of Justice had been received, the matter was reconsidered by the House of Lords.
On 9 July their Lordships made an order for interim relief for reasons to be given later.
The facts are set out in the opinions of Lord Bridge of Harwich and Lord Goff of Chieveley.
David Vaughan Q.C., Gerald Barling and David Anderson for the first to ninety-fourth applicants. There are three main issues in the substantive case (Reg. v. Secretary of State for Transport, Ex parte Factortame Ltd. (Case 221/89)) as referred to the European Court of Justice by the Divisional Court [1989] 2 C.M.L.R. 353: (a) would the applicants' basic Community law rights (in a field other than fishing) be contravened by nationality, domicile and residence requirements such as those in section 14 of the Merchant Shipping Act 1988? (b) Are these Community law rights removed in the context of registration of vessels by the rule of international law that a state may choose which vessels should fly its flag? (c) Are these Community law rights affected by the existence of the common fisheries policy? Hodgson J. in the Divisional Court found that the applicants had a “strong prima facie case” on each of the three. Bearing in mind both the factors that were before the Divisional Court and the subsequent legal developments, the applicants' case on the merits is nothing short of overwhelming.
As to (a), the relevant Community law rights are the right of establishment under articles 52 to 58 of the E.E.C. Treaty (Cmnd. 5179-II) and article 168 of and Annex XII to the Act concerning the conditions of accession of the Kingdom of Spain and the Portuguese Republic concerning the adjustments to the Treaties (“Act of Accession”) (1985) (Cmnd. 9634); the right to participate in capital (article 221 of the Treaty); the right not to be discriminated against on the grounds of nationality, a general principle that appears, inter alia, from articles 7 and 40(3) of the Treaty (see, e.g., Commission of the European Communities v. French Republic (Case 167/73) [1974] 1 E.C.R. 359).
It was conceded by the Secretary of State in the Divisional Court that Community law would prevent the enforcement of United Kingdom nationality, domicile and residence requirements as a condition for the entry of Community nationals to normal economic activities such as owning a fish and chip shop or operating a fleet of lake pleasure boats. As to the residence requirement, see the judgment of the European Court of 14 December 1989 in Reg. v. Ministry of Agriculture, Fisheries and Food, Ex parte Agegate Ltd. (Case C 3/87) [1990] 2 QB 151, which held a crew residence licence condition to be unlawful (paras. 22–26, at pp. 187–188). This must be true a fortiori of an investor/shareholder residence condition for registration. On the place of management and control restriction, the applicants themselves satisfy this restriction and accept that a member state may legitimately impose requirements that are necessary to ensure a “genuine link” between that state and its vessels. Accordingly, the restriction on the place of management and control in section 14 would be incompatible with Community law only to the extent that it was interpreted or applied in such a way as to exclude the possibility that any element of management, direction or control could exist in any other member state.
As to (b), the international law argument (that the requirement imposed by the 1958 Geneva Convention (Cmnd. 584) on the High Seas of a “genuine link” between states and vessels bearing their flag makes it necessary to limit the nationality, domicile and residence of the owners and directors and shareholders in owning companies) is untenable. If it were correct, the United Kingdom would itself have been in breach of the “genuine link” requirements for fishing vessels for the 30 years between the 1958 Convention and the Act of 1988 and would still be in breach of the requirement by not imposing the nationality, residence and domicile conditions on the owners of, and all those financially involved with, vessels other than fishing vessels. The point of the “genuine link” requirement is to ensure that a state has sufficient control over a vessel, principally for the purpose of ensuring safety with regard to such matters as signals, communications and the prevention of collisions, the manning and labour conditions of the crew and the construction, equipment and seaworthiness of the ships. The requisite jurisdiction and control would not be significantly assisted by the restrictions placed by the Act of 1988 on investors and company directors, many of whom will never have seen the vessel in question. Even if the restrictions could assist, it is not seriously arguable that they are necessary in order to avoid the British flag becoming a flag of convenience. The requirement of a genuine link could be much more easily ensured by restrictions relating to the vessel itself: the requirement of onshore representation in the flag state, for example, which forms part of the Commission's recommendation of 19 July 1989. The existence of less onerous methods of ensuring a genuine link renders the Act of 1988 restrictions disproportionate.
In any event, the 1958 Convention expressly provides, by article 30, that it is to be read subject to the provisions of international agreements already in force, which include the E.E.C. Treaty; the provision applies to the United Kingdom just as it does to other member states; and, as regards the obligations of member states inter se, Community law must, if necessary, be taken to prevail over conflicting provisions of public international law.
The international law argument was rejected on a prima facie basis by the European Court in Commission of the European Communities v. United Kingdom (Case 246/89 R) [1989] E.C.R. 3125, (impliedly overruling, to the extent to which it was necessary to do so, the remark of Advocate-General Mischo in Reg. v. Ministry of Agriculture, Fisheries and Food, Ex parte Jaderow Ltd. (Case C 216/87) [1990] 2 Q.B. 193, 208 at paragraph 7 of his opinion).
As to (c), basic treaty principles prevail over the specific rules of the common agricultural policy (including the common fisheries policy unless articles 39 to 46 of the Treaty call for derogations either expressly or by necessary implication: article 38(2) of the Treaty. Articles 39 to 46 make no such express or implied call for derogations; indeed, article 40(3) reaffirms the general principle of non-discrimination in the specific context of the common agricultural policy. Secondary Community legislation cannot authorise derogations from the Treaty, but the secondary legislation in any case affords the Secretary of State no support. On the contrary, the secondary legislation confirms the applicants' contention that the common fisheries policy, far from being exempt from the basic principles of Community law such as the right of establishment, the prohibition of discrimination and the right to free movement of goods, is expressly subjected to each of them. Nor is it the case that the very existence of national quotas justifies discrimination on grounds of nationality, domicile and residence “by necessary implication” or otherwise. National quotas, even if established in part for the benefit of the fishermen of each member state, cannot justify discrimination in favour of company directors and investors, as provided for by the Act of 1988. And if the national quotas were established in part for the benefit of the traditional fishing communities of each member state, again the quotas cannot justify as “necessary” the discrimination contained in the Act of 1988. The Act has no regard to whether or not a person is involved in the indigenous fishing industry. There is no correspondence in practice or in theory between financial involvement in the applicants' vessels (which cost about £1m. to build) and membership of a traditional fishing community. (c) The Act does nothing to help British fishermen or traditional fishing communities. Indeed, it has disadvantaged many of them by forcing the laying-up of boats that had been involved in the British fishing industry for years, with consequent unemployment and hardship of United Kingdom residents (including Britons) referred to in the affidavit evidence and accepted by all courts; and by restricting the access of the British fishing industry to foreign capital.
In any event, the common fisheries policy is concerned solely with the management of quota stocks in Community waters. It could not justify a measure that, by placing restrictions on the registration of a boat rather than on the grant of quota stock licences, extends to all fishing vessels, including those which fish for non-quota stocks and those which fish outside the Community 200-mile limit.
The following relevant legal developments since the judgment of the Divisional Court further strengthen the applicants' case.
(a) It has always been known that 42 of the applicants' vessels have always been British flag vessels and that 36 of them were part of the United Kingdom fleet during the period 1973–78, the reference period for the allocation of national quotas introduced in 1983. It came to the notice of the applicants' solicitors only in April 1989 (after the hearings in the Divisional Court and the Court of Appeal) that a further 43 of the applicants' vessels were explicitly accorded rights as “joint venture vessels” by virtue of article 168.4 of, and Annex XII to, the Act of Accession (1985) (Cmnd. 9634). On 12 June 1985, the date of signature of that Act, all those 43 vessels (ex-Spanish-flag boats that had transferred to the British flag before 1983) were registered as British fishing vessels fishing against United Kingdom quotas. The Act of Accession thus gave the applicants additional and specific Community rights with Treaty status. The allegation of “quota-hopping” is also seen as particularly unjust when 42 of the 95 vessels have never been anything other than British, and when a further 43 transferred to the British flag before quotas were introduced in 1983. It should also be remarked that the European Court decided to give interim relief in Commission of the European Communities v. United Kingdom (Case 246/89 R) without the Commission being aware of or having relied on the presence of the 43 vessels in Annex XII to the Act of Accession.
(b) By interim order in Commission of the European Communities v. United Kingdom the President of the European Court, having seen and heard written and oral argument by the Solicitor-General on behalf of the United Kingdom, acceded to the Commission's application for suspension of the nationality requirement in section 14 of the Act of 1988 pending judgment in the main proceedings (Case 246/89). In opposition to the Commission's application, the United Kingdom raised both the international law defence (remarking that the conditions corresponded to those imposed by other member-states) and the common fisheries policy defence. The President considered that the requirement of a prima facie case had been satisfied to the standard required for the grant of interim relief in the European Court. His order, however, has even greater significance in that (i) he applied the usual prima facie case/balance of interests test of the European Court, very similar to that in American Cyanamid Co. v. Ethicon Ltd. [1975] AC 396, without modifying it because he was dealing with the primary legislation of a member state (see, also, the indication by Mr. Advocate General Tesauro in paragraphs 30–34 of his opinion (ante, pp. 637–640) that a prima facie test was appropriate in the national court); and (ii) the President did not confine himself (as would have been sufficient under the case law of the court) to the question whether the Commission had a prima facie case. He expressed the provisional view that the Commission had much the stronger case by referring to there being no basis on which he thought that the United Kingdom's argument might be upheld and saying separately with regard to each defence that there was “nothing” before him to suggest that the United Kingdom had a prima facie case. His order accordingly provides the best guide that is ever likely to be available on an interim basis to the probability of success of a substantive action that has been referred by a United Kingdom court to the European Court. (c) The Agegate case (Case C 3/87) [1990] 2 QB 151 and the Jaderow case (Case C 216/87) [1990] 2 Q.B. 193 are not directly in point since they concern the validity of licence conditions rather than the validity of conditions for the registration of vessels. Nonetheless, the judgments are relevant in the following respects. First, the court in Agegate struck down the United Kingdom licence condition that 75 per cent. of the crew must be ordinarily resident in the United Kingdom: [1990] 2 QB 151, 187–188, paras. 22–26. The court started from the presumption that the residence requirement was discriminatory and held that it could not be justified by the aim of the quota system. If residence requirements cannot be justified for fishermen, the same must be true a fortiori of residence and domicile requirements imposed on owners, shareholders, directors and financial backers, who are at least one remove from the fishermen themselves: see Commission of the European Communities v. Kingdom of Belgium (Case 221/85) [1987] E.C.R. 719. per Mr. Advocate General Lenz, point 35, p. 733. Secondly, the court in Jaderow held that member states were justified in taking certain types of measure to ensure that a vessel had a “real economic link” with a member state: [1990] 2 Q.B. 193, 221–222, paras. 21–27. The “economic” link has a different purpose in the context of licence conditions from its purpose in the context of registration. The European Court took a very narrow view of the permissible “economic links” that could be imposed as licence conditions, insisting that they concerned only the relations between a vessel's fishing operations and the populations dependent on fisheries and related industries: [1990] 2 Q.B. 193, 224–225, paras. 42–44. This points to a similarly narrow view of the extent to which an economic link may be imposed as a condition of registration.
Although the Divisional Court [1989] 2 C.M.L.R. 353 found it necessary to refer the substantive issues to Luxembourg (Case 221/89), it is possible to say with a high degree of certainty (should this be necessary at the interim stage) that the applicants are the probable winners. Particularly helpful in this respect are the matters before the Divisional Court, which led Hodgson J. to the conclusion that the applicants had a strong prima facie case on all three main areas of contention; the wholehearted intervention of the Commission in support of the applicants in Case 221/89, when the Commission (unlike the member states that intervened on both sides) had no vested interest; the subsequent judgment in Agegate, which must render the residence condition in section 14 of the Act of 1988 almost impossible to defend; and the interim order of the European Court, made after hearing arguments identical to those advanced by the Secretary of State in this case, which confirmed not only that the applicants had a prima facie case but also, it would seem, that the Secretary of State had not.
The Secretary of State's arguments as to discretion (see [1990] 2 AC 85, 118–119) are all “blockers” under another name: they are to the effect that there can be no injunction against the Crown or against an Act of Parliament. [Reference was made to Garden Cottage Foods Ltd. v. Milk Marketing Board [1984] A.C. 130, 136–137.]
Absent the “constitutional enormity” referred to by Bingham L.J. in the Court of Appeal [1989] 2 C.M.L.R. 353, 407 — but there are enormities both ways — the Divisional Court and Court of Appeal judges were all one way on the question of discretion, and the course for the House of Lords should be to restore their order. [Reference was made to the Merchant Shipping Act 1988 (Amendment) Order 1989 (S.I. 1989 No. 2006), art. 3.]
National rules, whether obligatory or discretionary, have now, in the light of the European Court's judgment, to be set aside. The applicants are entitled to have their appeal allowed and the order of the Divisional Court reinstated or some other like order made.
Nicholas Forwood Q.C. for the ninety-fifth applicants, Rawlings (Trawling) Ltd. The ninety-fifth applicants endorse everything that has been said on behalf of the first to ninety-fourth applicants as regards general considerations in relation to the European Court judgment and the general consequences. It follows that the Divisional Court was right, in the situation then before it, to exercise its discretion to grant interim relief.
The factors specific to the ninety-fifth applicants are that they are currently fishing and an application by them to be put on the register has been granted. They seek now to be put in the same position as the other applicants. The relief currently being sought by all applicants would remove the effects of the restriction as regards both nationality and domicile. The ninety-fifth applicants want that removal, which might benefit them. Public interest considerations clearly have no application in their case: they are acknowledged not to be part of the mischief.
Sir Nicholas Lyell Q.C., S.-G., John Laws, Stephen Richards and Andrew Macnab for the Secretary of State. The European Court in the instant case did not decide that the national court was obliged to grant interim relief in the circumstances set out in the House of Lords' question, nor did it specify what criteria should be applied in determining whether such relief should be granted. It left to the national court the questions what criteria should be applied; whether any interim relief should be granted; and, if so, on what terms it should be granted; but it ruled that, once the national court had decided that such relief should be granted but for a jurisdictional rule that prevented it from doing so, the national court must set aside any such jurisdictional rule. It adopted a “minimalist” approach: it simply said that there must not be a national rule that prohibited the exercise of discretion. It did not say that the national court must exercise the discretion in the applicant's favour. It did not say that there must be a remedy. One should not draw more from Amministrazione delle Finanze dello Stato v. Simmenthal S.p A. (Case 106/77) [1978] ECR 629 than is warranted.
The House of Lords is, therefore, now required to address the question of fundamental importance, that was left outstanding in its previous judgment [1990] 2 AC 85, namely, what considerations the courts must take into account in granting interim relief that includes setting aside the provisions of an Act of Parliament and is contrary to the rule that no injunction may be granted against the Crown. The House of Lords is obliged to rule on the criteria and considerations to be applied in deciding whether to grant interim relief, and on the application of those considerations to the facts as they now stand. The House of Lords must look at the facts and law as they stand today. Any decision by it would irrevocably determine the position in the period until the European Court rules on the substantive issue. The legal considerations are of fundamental importance because the new powers conferred on the courts are of great significance and guidance on the exercise of such powers is necessary.
In an ordinary case, the purpose of an interlocutory injunction is clear: to “hold the ring,” or preserve, as best the court may, the position of both parties until their rights or obligations are established at trial: see American Cyanamid Co. v. Ethicon Ltd. [1975] AC 396, 406D–F and Reg. v. Secretary of State for Transport, Ex parte Factortame Ltd. [1990] 2 AC 85, 139E–H. In the present case, no question of “holding the ring” can possibly arise: see [1990] 2 AC 85, 142G — 143B. The consideration differentiating the present case from what is the usual situation in applications for interim relief is not, however, merely a function of the particular facts in play in the present case. Whenever an applicant claims that he has Community legal rights that are denied him by a United Kingdom statute (or subordinate legislation), and there is an article 177 reference on the question, any grant of interim relief pending the ruling of the European Court will entail, at least, (a) that the claimant, during the interim period, may enjoy the right he claims as if it were already established, whereas it is merely putative; and (b) that the legal position that the legislature (whether sovereign or secondary) intended to establish, which is likely to involve the grant of rights to others, will be to some extent abrogated. Neither (a) nor (b) can be described as a merely provisional position, capable of being recalled or corrected on the delivery of final judgment. Neither the claimant's enjoyment (for the interim period) of his claimed right, nor the abrogation (for the same period) of the legislature's effects, can be recalled. This is not merely a proposition of fact: unless the case is one in which a cross-undertaking in damages could sensibly be required (which here, and in perhaps all cases, it could not), it is a necessary truth. Thus, the effect of the interim order is actually to grant final relief in relation to the period up to judgment, and in a case like the present that final relief will diminish the value of the rights of persons that are in no sense putative but vested and undeniable.
The issue in the substantive proceedings in a case like the present is one of law, not fact: see [1990] 2 AC 85, 140B–F. It follows, therefore, that the ultimate decision of the case will not depend on proof of facts that are at present unresolved and as to which the court at present lacks the material to form any confident view. Where, as in the ordinary case, that is the position, the court has no interest in going on the basis that one side's account of the facts is more likely to turn out to be right than the other's: it simply recognises that there is a serious issue to be tried and proceeds to judge the balance of convenience. That is a natural and appropriate exercise in such circumstances.
If on the application for interlocutory relief the court is by contrast presented, as it will always be in cases like this, with two views of the law between which it cannot then and there finally decide because the question is being referred under article 177, wholly different considerations arise. The court in deciding whether to grant interim relief is bound to choose between two alternative positions: either the applicant's contention as to the law is in the meantime to be treated for all the world as being correct, or the respondent's contention is to be so treated. The question, therefore, that it has to answer is as to which legal régime shall prevail until final determination of the issue. In the ordinary case, however, the court is not faced with the question of what facts are to be assumed to be true in the meantime. It makes no such assumptions. It follows that there is an issue of principle as to what the court's approach should be in deciding which legal régime to validate on an interim basis, and the jurisprudence concerning interlocutory injunctions in the typical case affords no guidance on the question.
There is, in general terms, an elementary public interest in seeing that statute law (whether primary or secondary) is upheld. As a function of this, it is a settled principle of English law that a legislative act, proper in form, enjoys a presumption of validity: Smith v. East Elloe Rural District Council [1956] AC 736 and F. Hoffmann-La Roche & Co. A.G. v. Secretary of State for Trade and Industry [1975] A.C. 295. This is a factor that has no analogy in the ordinary case of interlocutory relief: there is no presumption that what a defendant in a private law suit has done (or intends to do) to the plaintiff is legally justified. The approach to the position that may potentially arise on a domestic law challenge to the vires of a statutory instrument (in which no issue of Community law arises) is grounded on well settled principles, none the less so because it is a different approach than that propounded in American Cynanamid Co. v. Ethicon Ltd. [1975] AC 396 in relation to private law litigation. There is then the question whether there should or might be any different approach where the complaint is that legislation, whether primary or secondary, is on its face inconsistent with Community law. There can be no basis for a distinction in principle between the two cases. All the factors that militate against any interim relief against a statutory instrument apply with at least equal force to the European case. The presumption of validity does not deprive the court of jurisdiction to grant interim relief against a legislative measure, since such a position is contradicted by the recent ruling of the European Court; but the public interest reasons that underlie that presumption speak loud as to the proper approach of the court to its discretion, now vouchsafed by the European Court, whether to grant such relief.
The principles that the court should apply in a case like the present are as follows. (1) The factors pointing against the grant of relief, which are of systematic and not merely contingent application, are so strong as to give rise to a principle that the court will presume against the grant of relief. Exceptional circumstances will have to be shown if the presumption is to be set aside.
(2) Proof that the applicant will, absent an injunction, suffer irrecoverable damage cannot of itself amount to an exceptional circumstances. Such irrecoverable damage can only exist on the premise that the applicant's substantive contention as to the law is to be taken as correct: if it is not correct, he has suffered no damage cognisable in law. (3) The court must at least be satisfied that the applicant's substantive case is more likely to be right than the respondent's. If the matter is evenly balanced, or the respondent's case appears stronger, the measure under challenge should be left in place until final trial: this does no more than recognise that the public interest ordinarily requires legislation to be presumed to be valid.
(4) The court must be especially slow to grant interim relief since its effect is to dispose finally of the rights of the parties in relation to the period elapsing before the European Court gives its ruling: the true position is that, if the relief is granted, then whatever the European Court rules, there will never be a trial that will affect the question whether the applicants may be allowed to enjoy, at the expense of others, the rights that they claim in respect of that period. This is fundamentally different from the situation that obtains on the grant of an interlocutory injunction in the ordinary case, where the plaintiff gives a cross-undertaking in damages. There, in the eye of the law, the defendant's putative legal right, apparently overborne by the injunction, is preserved by the undertaking. The undertaking is as good as the right itself and represents it: there is no finality.
(5) The court should take into account the attitude of the Commission to its own discretion to bring infraction proceedings under article 169 and to seek interim measures under article 186. It is made the guardian of the treaty under article 155.
(6) The usual factors relevant to the exercise of the court's discretion to grant interim relief, such as the requirement of clean hands, apply at least with equal force in this context. In particular, where a mandatory order is sought, the court will generally be slow to grant it: see, for example, Locabail International Finance Ltd. v. Agroexport [1986] 1 W.L.R. 657, 664A–D.
(7) In so far as any balance falls to be struck, the court must be satisfied that the consequences for the applicants if no relief is granted would be so much graver than the consequences to those with established rights if relief is granted as to amount to a wholly exceptional cicumstance, and even then relief should not be given unless the court firmly concludes that the public interest in maintaining the measure in effect until final judgment should take second place.
Fifteen months have elapsed since the judgment of the Divisional Court of 10 March 1989, and the legal and factual situations are now materially different. It would be wrong in principle for the court to close its eyes to such developments when considering the exercise of a discretion to grant interim relief. As to factual developments, reliance is placed on additional affidavit evidence sworn on behalf of the Secretary of State. The evidence shows that an interim order in favour of the applicants would seriously interfere with the exercise of vested and undeniable rights enjoyed by the operators of genuine British fishing vessels and would cause the British fishing fleet serious and uncompensatable damage. As to the introduction of fresh evidence, see Garden Cottage Foods Ltd. v. Milk Marketing Board [1984] A.C. 130, 137E–G.
As to the legal developments, the “nationality” issue is no longer a live one for the purposes of the present application, since the Act of 1988 was amended with effect from 2 November 1989 in order to give effect to the interim Order of the President of the Court of Justice in Commission of the European Communities v. United Kingdom (Case 246/89 R) [1989] E.C.R. 3125. So far as concerns the issues of “residence” and “domicile,” the substantive arguments, including those concerning the competence of a member state to determine who can fly its flag, are similar to those that arise in respect of “nationality,” though it should be stressed that the United Kingdom's substantive arguments on “nationality” continue to be pressed in the main proceedings before the European Court. The judgment of the European Court in Reg. v. Ministry of Agriculture, Fisheries and Food, Ex parte Agegate Ltd. (Case C 3/87) [1990] 2 QB 151 does not undermine the United Kingdom's case. So far as the issue of “direction and control” is concerned, the Crown's case is supported by the judgment of the European Court in Reg. v. Ministry of Agriculture, Fisheries and Food, Ex parte Jaderow Ltd. (Case C 216/87) [1990] 2 Q.B. 193, which held, inter alia, that a member state was entitled to require a vessel to have a real economic link with that state for the purpose of fishing against that state's quotas. The precise significance of the judgments in Agegate and Jaderow is a matter of dispute and remains to be determined, and the European Court has yet to make a substantive ruling on the specific issues raised in the present case. Accordingly, great caution needs to be exercised in the use of those judgments.
The United Kingdom's arguments in the main proceedings still pending before the European Court included the following. Community law does not affect the sovereign right of a member state to lay down the conditions for the grant of its flag to ships. The requirements laid down in the Act of 1988 govern access to the British flag. The purpose of Part II of the Act was to ensure that (i) British fishing vessels had a real economic link with the United Kingdom; (ii) the United Kingdom was able to exercise effective jurisdiction over vessels flying its flag; (iii) the United Kingdom quotas granted under the common fisheries policy enured to the benefit of the genuine British fishing fleet.
The grant of the flag gives rise to legal and international obligations. It (a) engages the state in question in real and far-reaching international obligations and (b) asserts the jurisdiction of that state over the ship and those on board in civil, criminal, operational and employment matters: see article 94 of the 1982 Convention on the Law of the Sea. Similar provisions apply, mutatis mutandis, to aircraft. The grant of the flag is intrinsically an act of sovereignty, and, in the absence of any express provision in the Treaty and any power for the Community to assume direct legal and international responsibility for vessels registered in the member states, it is not to be presumed that the Treaty interferes with the exercise of a state's sovereign power.
Customary international law, as expressed in article 5(1) of the 1958 Geneva Convention on the High Seas, requires a genuine link between a vessel and the state whose flag it flies. The nationality of owner criterion is a means of ensuring a genuine link between the vessel and the state whose flag it flies. Such a criterion is recognised in international law: article 5(1) of the 1958 Geneva Convention on the High Seas and the commentary thereon by the International Law Commission, the corresponding provision in the 1982 United Nations Convention on the Law of the Sea and article 8 of the 1986 Convention on Conditions for Registration of Ships. The other requirements, e.g. as to residence, of the Act of 1988 seek to reinforce the genuine link. Community law does not take precedence over customary international law (cf. article 234 of the Treaty); rather, customary international law is a source of Community law: van Duyn v. Home Office (Case 41/74) [1974] ECR 1337, 1350–1351.
The principle of non-discrimination in article 7 of the Treaty presupposes the existence of the concept of nationality. The attribution of nationality necessarily involves differentiation among persons connected with member states. Article 7 does not prevent a member state from deciding who is eligible to be its nationals or from deciding which vessels or aircraft are able to fly its flag. The grant of the flag does not impede the right of establishment under article 52. In merchant shipping generally, nationals of, or companies controlled by nationals of, other member states can be fully established in the United Kingdom operating vessels under their flag of origin. The same is true of fishing save that fishing activities cannot be carried on with access to the United Kingdom fishing quotas established under the common fisheries policy. The grant of the flag is not within the recognised categories of establishment: no mention of it is made in the General Programme for the abolition of restrictions on freedom of establishment (Official Journal 1962 No. 36). The right of establishment includes the right of secondary establishment, i.e., to have more than one establishment: Ordre des Avocats au Barreau de Paris v. Klopp (Case 107/83) [1985] Q.B. 711; [1984] E.C.R. 2971. In the case of the flag, such a right would be absurd. Community law does not allow persons to invoke article 52 for reasons that are not legitimate under Community law. To seek to rely on article 52 to evade and/or exploit the quota system under the common fisheries policy is an abus de droit: see, by analogy, Reg. v. Her Majesty's Treasury, Ex parte Daily Mail and General Trust Plc. (Case 81/87) [1989] Q.B. 446, opinion of Mr. Advocate General Darmon and judgment. If articles 7 and 52 did render illegal the registration conditions in the Act of 1988, including the nationality of owner criterion, that would have startling consequences for maritime and air transport generally. It would render otiose the transitional provisions in Council Regulation (E.E.C.)No. 4055/86 (Official Journal 1986 No. L.378/1) on phasing out national flag reservations for the maritime carriage of goods between member states and between member states and third countries. National airlines of member states would be able to obtain the flag of all other member states and then be eligible to operate internal air services within each member state on the same conditions as local airlines. This would undermine the purpose of article 61 of the Treaty.
It is settled law that the quota system constitutes a permitted derogation from the principle of equal access: Romkes v. Officier van Justitie for the District of Zwolle [1987] E.C.R. 2671 and Jaderow [1990] 2 Q.B. 193, 221–222, para. 24. The registration rules in the Act of 1988 are intended to prevent abuse of the freedoms of the Treaty to gain unfair advantage of the Community quota system, which is designed to protect the local fishing communities of each member state. The long and arduous negotiations leading up to the quota system established by Council Regulation (E.E.C.)No. 170/83 were based on the legitimate expectation that the concepts of “flying the flag” or “registered in a member state,” which are not defined in the E.E.C. Regulations, would remain within the competence of the member states, who would continue to be free to lay down rules on access to the flag in conformity with international law. Thus the quota system would not be undermined.
The preliminary points in Agegate [1990] 2 QB 151 and Jaderow were specifically concerned with the powers granted to member states under article 5(2) of Council Regulation (E.E.C.)No. 170/83 to adopt licensing conditions governing the pattern of operation of a fishing vessel. The European Court did not have to address its mind to rules on access to the flag. In particular, no consideration was given to the question whether the establishment of the quota system by reference to the concept of “flying the flag” and “registered in a member state” meant that member states had lost their right under international law to determine registration rules of fishing vessels. It was made clear by the court in both cases (see paragraphs 17 and 18 of the judgment in Jaderow, at p. 220, and paragraphs 16 and 17 of the judgment in Agegate, at p. 187) that national quotas were linked to vessels flying the flags of the member states in question and that the licensing conditions being discussed were those that might be attached to the licence to fish granted to vessels in the fishing fleet of the member state. They were, therefore, licensing conditions attached to those already entitled to fly the flag. It is important that there should be a real link with the member state so as to ensure that quotas are realistic and to make policing more real. It is easier to police people whose genuine base is in the member state.
The right of member states to lay down their own registration rules in a manner compatible with international law was an essential foundation of the common fisheries policy. Were it otherwise, the whole basis of the policy would be destroyed. The requirements of residence, domicil and direction and control are essential to ensure the real economic link, and are encompassed within the same general arguments. Nationality in itself would not always ensure that there is a real economic link between the vessel and its flag member state. The residence, domicil and place of direction and control requirements do not discriminate on grounds of nationality. A member state is entitled to impose residence requirements if they are for a legitimate purpose: Robert Fearon & Co. Ltd. v. Irish Land Commission (Case 182/83) [1984] E.C.R. 3677.
The order for which the applicants contend, if ultimately upheld at trial, produces the result that it would be the obligation of the United Kingdom, and of every member state, to be prepared to register as a fishing vessel any vessel owned by any member of the Community notwithstanding where he resided, managed the vessel and directed and controlled it. Fishermen would thus have an unrestricted right to choose under which flag to fish. That would undercut the whole common fisheries policy with regard to sharing out available stocks.
Vaughan Q.C. in reply. F. Hoffmann-La Roche & Co. A.G. v. Secretary of State for Trade and Industry [1975] A.C. 295 was an interlocutory case. It was not in a state for anyone to make a decision. Here, the matter came on for final trial. It would be wrong to bring in a higher standard than in other cases to deal with a Community matter of this nature. The burden should not be put too high on the applicant in a Community law case. [Reference was made to Smith v. Inner London Education Authority [1978] 1 All E.R. 411; Sierbien v. Westminster City Council (1987) 86 L.G.R. 431 and Films Rover International Ltd. v. Cannon Film Sales Ltd. [1987] 1 W.L.R. 670.] Here, the Divisional Court found that the damage and injustice would be all one way. Bingham L.J. in the Court of Appeal [1989] 2 C.M.L.R. 353, 405, said that the case for granting interlocutory relief was “very strong, if not overwhelming.” It is not necessary, in that case, to weigh the applicants' chances of success too nicely. As to injustice, the obtrusiveness of the order sought (e.g. an order to pull a house down) is also relevant: see Films Rover. It is prima facie contrary to Community law to have these requirements.
It is clear that those who have gone fishing have done so out of desperation. Their irreparable losses will be overwhelming. They are very unlikely to get a decision from the European Court in the substantive proceedings before Easter 1991.
As to the Secretary of State's seven principles, this case is different from the ordinary American Cyanamid case [1975] AC 396, but the proper place in which to take this into account is in the balancing exercise. It is exceptional to grant relief in this sort of case, but this does not mean that it cannot be granted. The court should look at Locabail International Finance Ltd. v. Agroexport [1986] 1 W.L.R. 657 in the light of Films Rover, not just by itself. The principles are put much too high; as they stand, it would be almost impossible for anyone to get any protection. The real questions are whether there is irrecoverable damage, whether the applicants can be protected in any way and how this is to be done. Under the European Court judgment, the principle to be safeguarded is that of full effectiveness from the moment of application.
Their Lordships took time for consideration.
11 October. LORD BRIDGE OF HARWICH. My Lords, when this appeal first came before the House last year (Reg. v. Secretary of State for Transport, Ex parte Factortame Ltd. [1990] 2 AC 85) your Lordships held that, as a matter of English law, the courts had no jurisdiction to grant interim relief in terms which would involve either overturning an English statute in advance of any decision by the European Court of Justice that the statute infringed Community law or granting an injunction against the Crown. It then became necessary to seek a preliminary ruling from the European Court of Justice as to whether Community law itself invested us with such jurisdiction. In the speech I delivered on that occasion, with which your Lordships agreed, I explained the reasons which led us to those conclusions. It will be remembered that, on that occasion, the House never directed its attention to the question how, if there were jurisdiction to grant the relief sought, discretion ought to be exercised in deciding whether or not relief should be granted.
In June of this year we received the judgment of the European Court of Justice (Case C 213/89), ante, pp. 640 et seq., replying to the questions we had posed and affirming that we had jurisdiction, in the circumstances postulated, to grant interim relief for the protection of directly enforceable rights under Community law and that no limitation on our jurisdiction imposed by any rule of national law could stand as the sole obstacle to preclude the grant of such relief. In the light of this judgment we were able to conclude the hearing of the appeal in July and unanimously decided that relief should be granted in terms of the orders which the House then made, indicating that we would give our reasons for the decision later.
My noble and learned friend, Lord Goff of Chieveley, whose speech I have had the advantage of reading in draft, has given a very full account of all the relevant circumstances arising since our decision last year in the light of which our final disposal of the appeal fell to be made. I gratefully adopt this account. I also agree with his exposition of the principles applicable in relation to the grant of interim injunctive relief where the dispute involves a conflict between private and public interests and where damages are not a remedy available to either party, leading, in the circumstances of this case, to the conclusion that it was appropriate to grant relief in terms of the orders made by the House. But I add some observations of my own in view of the importance of the subject matter.
Some public comments on the decision of the European Court of Justice, affirming the jurisdiction of the courts of member states to override national legislation if necessary to enable interim relief to be granted in protection of rights under Community law, have suggested that this was a novel and dangerous invasion by a Community institution of the sovereignty of the United Kingdom Parliament. But such comments are based on a misconception. If the supremacy within the European Community of Community law over the national law of member states was not always inherent in the E.E.C. Treaty (Cmnd. 5179-II) it was certainly well established in the jurisprudence of the European Court of Justice long before the United Kingdom joined the Community. Thus, whatever limitation of its sovereignty Parliament accepted when it enacted the European Communities Act 1972 was entirely voluntary. Under the terms of the Act of 1972 it has always been clear that it was the duty of a United Kingdom court, when delivering final judgment, to override any rule of national law found to be in conflict with any directly enforceable rule of Community law. Similarly, when decisions of the European Court of Justice have exposed areas of United Kingdom statute law which failed to implement Council directives, Parliament has always loyally accepted the obligation to make appropriate and prompt amendments. Thus there is nothing in any way novel in according supremacy to rules of Community law in those areas to which they apply and to insist that, in the protection of rights under Community law, national courts must not be inhibited by rules of national law from granting interim relief in appropriate cases is no more than a logical recognition of that supremacy.
Although affirming our jurisdiction, the judgment of the European Court of Justice does not fetter our discretion to determine whether an appropriate case for the grant of interim relief has been made out. While agreeing with Lord Goff's exposition of the general principles by which the discretion should be guided, I would wish to emphasise the salient features of the present case which, at the end of the argument, left me in no doubt that interim relief should be granted. A decision to grant or withold interim relief in the protection of disputed rights at a time when the merits of the dispute cannot be finally resolved must always involve an element of risk. If, in the end, the claimant succeeds in a case where interim relief has been refused, he will have suffered an injustice. If, in the end, he fails in a case where interim relief has been granted, injustice will have been done to the other party. The objective which underlies the principles by which the discretion is to be guided must always be to ensure that the court shall choose the course which, in all the circumstances, appears to offer the best prospect that eventual injustice will be avoided or minimised. Questions as to the adequacy of an alternative remedy in damages to the party claiming injunctive relief and of a cross-undertaking in damages to the party against whom the relief is sought play a primary role in assisting the court to determine which course offers the best prospect that injustice may be avoided or minimised. But where, as here, no alternative remedy will be available to either party if the final decision does not accord with the interim decision, choosing the course which will minimise the risk presents exceptional difficulty.
If the applicants were to succeed after a refusal of interim relief, the irreparable damage they would have suffered would be very great. That is now beyond dispute. On the other hand, if they failed after a grant of interim relief, there would have been a substantial detriment to the public interest resulting from the diversion of a very significant part of the British quota of controlled stocks of fish from those who ought in law to enjoy it to others having no right to it. In either case, if the final decision did not accord with the interim decision, there would have been an undoubted injustice. But the injustices are so different in kind that I find it very difficult to weigh the one against the other.
If the matter rested there, I should be inclined to say, for the reasons indicated by Lord Goff of Chieveley, that the public interest should prevail and interim relief be refused. But the matter does not rest there. Unlike the ordinary case in which the court must decide whether or not to grant interlocutory relief at a time when disputed issues of fact remain unresolved, here the relevant facts are all ascertained and the only unresolved issues are issues of law, albeit of Community law. Now, although the final decision of such issues is the exclusive prerogative of the European Court of Justice, that does not mean that an English court may not reach an informed opinion as to how such issues are likely to be resolved. In this case we are now in a position to derive much assistance in that task from the decisions of the European Court of Justice in Reg. v. Ministry of Agriculture, Fisheries and Food, Ex parte Agegate Ltd. (Case C 3/87) [1990] 2 QB 151 and Reg. v. Ministry of Agriculture, Fisheries and Food, Ex parte Jaderow Ltd. (Case C 216/87) [1990] 2 Q.B. 193 and the interim decision of the President in the proceedings brought by the European Commission against the United Kingdom (Commission of the European Communities v. United Kingdom (Case 246/89 R) [1989] E.C.R. 3125) to which Lord Goff of Chieveley has referred. In the circumstances I believe that the most logical course in seeking a decision least likely to occasion injustice is to make the best prediction we can of the final outcome and to give to that prediction decisive weight in resolving the interlocutory issue.
It is now, I think, common ground that the quota system operated under the common fisheries policy, in order to be effective and to ensure that the quota of a member state enures to the benefit of its local fishing industry, entitles the member state to derogate from rights otherwise exerciseable under Community law to the extent necessary to ensure that only fishing vessels having a genuine economic link with that industry may fish against its quota. The narrow ground on which the Secretary of State resists the applicants' claim is that the requirements of section 14 of the Merchant Shipping Act 1988 that at least 75 per cent. of the beneficial ownership of a British fishing vessel must be vested in persons resident and domiciled in the United Kingdom is necessary to ensure that the vessel has a genuine economic link with the British fishing industry. Before the decision of the European Court of Justice in Agegate that would have seemed to me a contention of some cogency. But in Agegate it was held that a licensing condition requiring 75 per cent. of the crew of a vessel fishing against the quota of a member state to be resident within the member state could not be justified on the ground that it was “irrelevant to the aim of the quota system:” p. 261. I confess that I find some difficulty in understanding the reasoning in the judgment which leads to this conclusion. But if a residence requirement relating to crew members cannot be justified as necessary to the maintenance of a genuine economic link with the local industry, it is difficult to see how residence or domicile requirements relating to beneficial owners could possibly fare any better.
The broader contention on behalf of the Secretary of State that member states have an unfettered right to determine what ships may fly their flag raises more difficult issues. It would not be appropriate in the context of the present interlocutory decision to enter upon a detailed examination of the wide-ranging arguments bearing upon those issues. I believe the best indication that we have of the prospect of success of that contention is found in the interlocutory judgment of President Due in the case brought by the Commission against the United Kingdom. He concluded that the contention was of insufficient weight to preclude him from granting an interim order suspending the application of the nationality requirements of section 14 of the Act of 1988 to nationals of other member states. His reasoning persuaded me that we should reach the same conclusion in relation to the residence and domicile requirements.
LORD BRANDON OF OAKBROOK. My Lords, I have had the advantage of reading in draft the speech produced by my noble and learned friend, Lord Goff of Chieveley, and agree with it entirely.
LORD OLIVER OF AYLMERTON. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Goff of Chieveley. I agree with it and, for the reasons given by my noble friend, I, too, would allow this appeal.
LORD GOFF OF CHIEVELEY. My Lords, this appeal was last before your Lordships' House in May 1989. The subject matter of the proceedings is an application by the applicants for judicial review, challenging the legality of certain provisions of the Merchant Shipping Act 1988, and the Merchant Shipping (Registration of Fishing Vessels) Regulations 1988 (S.I. 1988 No. 1926), on the ground that they contravene provisions of European law. The matter came before a Divisional Court (Neill L.J. and Hodgson J.) (Reg. v. Secretary of State for Transport, Ex parte Factortame Ltd. [1989] 2 C.M.L.R. 353), who requested a preliminary ruling from the European Court of Justice under article 177 of the E.E.C. Treaty on the questions necessary to enable them finally to determine the application. They then made an order for interim relief in the form of an order that in the meanwhile Part II of the Act of 1988 and the Regulations be disapplied and the Secretary of State for Transport be restrained from enforcing the same in respect of any of the applicants and any vessel now owned (in whole or in part), managed, operated or chartered by any of them so as to enable registration of any such vessel under the Merchant Shipping Act 1894 and/or the Sea Fishing Boats (Scotland) Act 1886 to continue in being. The Court of Appeal [1989] 2 C.M.L.R. 353 allowed an appeal by the Secretary of State from the interim order of the Divisionl Court. On appeal by the applicants to your Lordships' House [1990] 2 AC 85, it was held by your Lordships that, as a matter of English law, the English courts had no power to make such an order as that made by the Divisional Court. My noble and learned friend, Lord Bridge of Harwich, said of the order for interim relief, at pp. 142–143:
“Any such order, unlike any form of order for interim relief known to the law, would irreversibly determine in the applicants' favour for a period of some two years rights which are necessarily uncertain until the preliminary ruling of the E.C.J. has been given. If the applicants fail to establish the rights they claim before the E.C.J., the effect of the interim relief granted would be to have conferred upon them rights directly contrary to Parliament's sovereign will and correspondingly to have deprived British fishing vessels, as defined by Parliament, of the enjoyment of a substantial proportion of the United Kingdom quota of stocks of fish protected by the common fisheries policy. I am clearly of the opinion that, as a matter of English law, the court has no power to make an order which has these consequences.”
Your Lordships' House further held that, in any event, there was no jurisdiction in English law to grant an interim injunction against the Crown; this provided an additional reason why the order made by the Divisional Court could not be supported. Your Lordships' House however sought the guidance of the European Court of Justice on the question whether, in a case such as the present, European law overrides English law. Accordingly the following questions were referred to the court:
“1. Where — (i) a party before the national court claims to be entitled to rights under Community law having direct effect in national law (‘the rights claimed’), (ii) a national measure in clear terms will, if applied, automatically deprive that party of the rights claimed, (iii) there are serious arguments both for and against the existence of the rights claimed and the national court has sought a preliminary ruling under article 177 as to whether or not the rights claimed exist, (iv) the national law presumes the national measure in question to be compatible with Community law unless and until it is declared incompatible, (v) the national court has no power to give interim protection to the rights claimed by suspending the application of the national measure pending the preliminary ruling, (vi) if the preliminary ruling is in the event in favour of the rights claimed, the party entitled to those rights is likely to have suffered irremediable damage unless given such interim protection, does Community law either (a) oblige the national court to grant such interim protection of the rights claimed; or (b) give the court power to grant such interim protection of the rights claimed? 2. If question 1(a) is answered in the negative and question 1(b) in the affirmative, what are the criteria to be applied in deciding whether or not to grant such interim protection of the rights claimed?”
On 19 June 1990, in answer to the questions so referred to it, the court ruled as follows, ante, p. 644:
“… Community law must be interpreted as meaning that a national court which, in a case before it concerning Community law, considers that the sole obstacle which precludes it from granting interim relief is a rule of national law must set aside that rule.”
Following receipt of that ruling, the applicants returned to your Lordships' House on 2 July 1990 in order to pursue further their appeal from the decision of the Court of Appeal and to seek interim relief pending the determination by the European Court of Justice of the matters referred to it by the Divisional Court. However, for reasons which will appear, they sought interim relief in a form different from that ordered by the Divisional Court. On 9 July, shortly after the conclusion of the hearing, your Lordships announced the House's decision to grant interim relief, and an order was made by your Lordships for an interim injunction in the following terms:
“Pending final judgment or further order herein the Secretary of State whether by himself his servants or agents or otherwise howsoever be restrained from withholding or withdrawing registration in the register of British fishing vessels maintained by him pursuant to the Merchant Shipping (Registration of Fishing Vessels) Regulations 1988 in respect of any of the vessels specified in the first column of the schedule hereto by reason only of the following: (a) legal title or beneficial ownership of such vessel is vested in whole or in part in the person or persons listed against its name in the second column of the said schedule; and (b) (i) in the case of any natural person so listed, that person is resident or domiciled in a member state of the European Economic Community other than the United Kingdom; or (ii) in the case of any company so listed, (aa) 25 per cent. or more of the shares or of any class of the shares of that company, or of any company owning shares in that company, are legally or beneficially owned by a person or persons resident or domiciled in a member state of the European Economic Community other than the United Kingdom or (bb) 25 per cent. or more of the directors of that company, or of any company holding shares in that company, are resident or domiciled in a member state of the European Economic Community other than the United Kingdom.”
Provision was made for liberty to apply. It was indicated that your Lordships would publish at a later date your reasons for granting such interim relief. I now set out the reasons which caused me to agree that such relief should be granted.
When your Lordships decided to make the reference to the European Court of Justice in this matter in May 1989, my noble and learned friend, Lord Bridge of Harwich, delivered a speech with which the remainder of your Lordships, including myself, agreed. In his speech on that occasion, my noble and learned friend was concerned primarily with the jurisdiction of the English courts to grant an interim injunction in a case such as the present as a matter of English law. Even so, he gave a full account of the background to from, the judgment of Neill L.J. in the Divisional Court, and in particular his account of the common fisheries policy); and his consideration of the question whether, as a matter of English law, the court had jurisdiction in the present case to grant interim relief inevitably touched upon the question which your Lordships now have to address in the light of the ruling of the European Court of Justice. In these circumstances, it would be repetitious if I once again set out the background to the present appeal: I shall only do so to the extent necessary to set in their context certain decisions of the European Court of Justice. Furthermore I wish to stress that, in expressing my reasons why in my opinion your Lordships should grant interim relief, I have no intention of departing from anything contained in the speech of my noble and learned friend, with which I have expressed my complete agreement.
The question which arose for consideration by your Lordships, following the ruling of the European Court of Justice, concerned the appropriateness of an order for an interim injuction in a case such as the present, which is concerned with a challenge to the lawfulness of an Act of Parliament as being incompatible with European law. This inevitably raised for consideration the principles to be applied in the case of an application for such an interim injunction, and in particular the extent to which the principles stated by your Lordships' House in American Cyanamid Co. v. Ethicon Ltd. [1975] AC 396 are applicable in such a case, a matter upon which my noble and learned friend made some observations in his speech upon the first hearing of the appeal. I have however to say at once that your Lordships were not concerned with the simple question whether to interfere with the exercise of discretion by the Divisional Court in favour of granting an injunction. This is for three reasons. First, after the Divisional Court made its order, as I have already indicated, circumstances occurred which rendered an order in that form inappropriate. The purpose of the order was to continue in being the registration of the applicants' fishing vessels under the Act of 1894 and/or the Act of 1886. However, during the period which elapsed since the Divisional Court made its order, the register maintained under the Act of 1894 was closed. It was for this reason that the applicants sought an injunction in a different form, directed towards restraining the Secretary of State from withholding or withdrawing registration of their vessels in the register maintained under the Act of 1988 on certain grounds which, in the applicants' submission, were incompatible with European law — an injunction which your Lordships decided to grant. Second, important legal developments had taken place since the Divisional Court's order. Two judgments were delivered by the European Court of Justice concerning the validity of certain conditions imposed by the Secretary of State on the grant of licences to fishing vessels (Reg. v. Ministry of Agriculture, Fisheries and Food, Ex parte Agegate Ltd. (Case C 3/87) [1990] 2 QB 151 and Reg. v. Ministry of Agriculture, Fisheries and Food, Ex parte Jaderow Ltd. (Case C 216/87) [1990] 2 Q.B. 193), and an interim order was made by the President of the European Court of Justice, on an application by the President of the European Court of Justice, on an application by the European Commission, regarding certain nationality provisions in section 14 of the Act of 1988: Commission of the European Communities v. United Kingdom (Case 246/89 R) [1989] E.C.R. 3125. The latter order was of particular relevance to the applicants' application for an interim injunction in the present case. Third, there had been certain factual developments since the last hearing before your Lordships, which were the subject of evidence. In these circumstances, it was inevitable that your Lordships' House should consider the applicants' application de novo, and that it should, for that purpose, consider in some depth the applicable principles.
Before turning to those applicable principles, I shall briefly summarise the effect of the intervening decisions of the European Court and of its President. The present appeal is, of course, concerned with the question whether certain provisions of the Act of 1988 are compatible with European law. The same is true of the interim order of the President, but not of the two decisions of the court. Those decisions, which I shall refer to as the Agegate and Jaderow cases, were concerned with the validity of certain conditions imposed upon the grant of licences for British fishing vessels. They are not, therefore, of such direct relevance to the present appeal as the President's interim order. They have, however, some bearing upon the present appeal, and I think it desirable to refer to them; and I propose to set them in their context, even though this may involve some repetition of matters already recorded in the speech of my noble and learned friend, Lord Bridge of Harwich.
Under the Sea Fish (Conservation) Act 1967, as subsequently amended, fishing vessels registered in the United Kingdom are required to have a licence. That Act was supplemented by certain legislation in 1983 — the British Fishing Boats Act 1983, and the British Fishing Boats Order 1983 (S.I. 1983 No. 482) and the Sea Fish Licensing Order 1983 (S.I. 1983 No. 1206). This legislation was passed in an attempt to meet the situation created during the previous two or three years by the registration of Spanish fishing vessels as British fishing vessels, with a view to acquiring the same rights to fish in Community waters as those to which British fishing vessels beneficially owned by British nationals were entitled. Such registration was perceived as having the effect of circumventing restrictions imposed on Spanish registered vessels under the reciprocal fishing agreement concluded by the European Community with Spain in 1980 (following the Hague resolution of 1976 (Council Regulation of 3 November 1976; Official Journal 1981 No. C 105/1), whereby certain member states of the Community extended their fishing limits in the Atlantic Ocean to 200 miles from the coast); under the reciprocal fishing agreement of 1980, a limited number of Spanish fishing vessels were permitted to fish only for specified quantities of hake in specified waters of member states. It seems that the Spanish fishing vessels saw this as a substantial exclusion from fishing grounds in deep waters previously fished by them, and sought to circumvent the restriction by registering their vessels as British. It was in response to that move that the legislation of 1983 was introduced, under which a British-registered fishing boat fishing within British fishing limits was required to have a crew consisting of at least 75 per cent. of European Community nationals.
In January 1983, the system of national fish quotas was introduced by Council Regulations (E.E.C.)Nos. 170/83 and 172/83. The British authorities experienced difficulty in monitoring the catches of ex-Spanish-registered vessels, and concern about their activities was being expressed by British fishermen, especially those based in the western parts of the United Kingdom. This concern was being expressed against a background of continued activity by British-registered fishing vessels with a largely Spanish beneficial ownership operating under British registration but mainly from Spain and with only tenuous links with the United Kingdom, which were believed to be making substantial inroads into the fishing opportunities allocated to the United Kingdom under the common fisheries policy in the light of this country's traditional fishing activities.
Accordingly, in December 1985, new licensing conditions for British fishing vessels were announced, taking effect as from 1 January 1986. These related to crewing, social security contributions and operations. The crewing conditions required that at least 75 per cent. of the crew must be British citizens, or E.E.C. nationals (excluding, subject to certain limited exceptions, Greek nationals until 1 January 1988, and Spanish or Portuguese nationals until 1 January 1993) ordinarily resident in the United Kingdom, the Isle of Man or the Channel Islands. The social security conditions required the skipper and all the crew to make contributions to United Kingdom national insurance, or equivalent Isle of Man or Channel Islands schemes. The operating conditions provided as follows:
“The vessel must operate from the United Kingdom, Isle of Man or Channel Islands; without prejudice to the generality of this requirement a vessel will be deemed to have been so operating if, for each six-month period in each calendar year (i.e. January to June and July to December), either: (a) at least 50 per cent. by weight of the vessel's landings or transhipment of stocks to which this or any other licence in force at the relevant time relates have been landed and sold in the United Kingdom, Isle of Man or the Channel Islands or transhipped by way of sale within British fishery limits; or (b) other evidence is provided of the vessel's presence in a United Kingdom, Isle of Man or Channel Islands port on at least four occasions at intervals of at least 15 days.”
The validity of the crewing and social security conditions was challenged in the Agegate case [1990] 2 QB 151, and in addition the validity of the operating conditions was challenged in the Jaderow case [1990] 2 Q.B. 193. The Advocate General's opinion in both cases was published in November 1988, and so was available at the time of the hearing before the Divisional Court; but the judgment of the European Court of Justice in the two cases was not delivered until 14 December 1989, and differed in certain important respects from the opinion of the Advocate-General. In the Agegate case, the court upheld the validity of the social security condition; but in respect of the crewing condition, while upholding the condition in so far as it required 75 per cent. of the crew to be nationals of member states, the court held that Community law precluded a condition requiring 75 per cent. of the crew to reside ashore in the United Kingdom. In the Jaderow case, the court held that Community law did not preclude a member state, in authorising one of its vessels to fish against national quotas, from laying down conditions designed to ensure that the vessel had a real economic link with that state if that link concerned only the relation between that vessel's fishing operations and the population dependent on fisheries and related industries; and, on that basis, the court broadly upheld the validity of the operating conditions imposed by the United Kingdom. These two decisions are significant in the context of the present appeal, in that they provide an indication of the nature of the economic link which the court is prepared to recognise for these purposes, a link which does not extend to include a residence requirement imposed upon 75 per cent. of the vessel's crew.
Meanwhile the United Kingdom Government had come to the conclusion that there was substantial non-compliance with these conditions. Furthermore, the number of largely foreign beneficially owned vessels on the United Kingdom register continued to grow, mainly through the acquisition by Spanish interests of British fishing vessels; Spanish interests were also able to increase the number of licences held by them by acquiring vessels already holding United Kingdom licences. As a result, the problem was considered at a more fundamental level, by looking at the arrangements for registration of United Kingdom fishing vessels; and it was decided to introduce fresh legislation which, it was thought, would bring United Kingdom fishing vessel registration requirements “broadly into line with arrangements in a number of other member states” (see the first affidavit of Mr. Noble of the Ministry of Agriculture, Fisheries and Food) and to require fishing vessels on the United Kingdom register to be substantially owned by British interests. Hence the provisions of Part II of the Act of 1988.
The interim order of the President (Case 246/89 R) [1989] E.C.R. 3125, related to certain provisions of section 14 of the Act of 1988. Other provisions of that section formed the basis of the applicants' application for interim relief before your Lordships' House, and I think it desirable that I should set out the relevant parts of the section. Section 14(1), (2) and (7) provide as follows:
“(1) Subject to subsections (3) and (4), a fishing vessel shall only be eligible to be registered as a British fishing vessel if — ( a) the vessel is British-owned; ( b) the vessel is managed, and its operations are directed and controlled, from within the United Kingdom; and ( c) any charterer, manager or operator of the vessel is a qualified person or company. (2) For the purposes of subsection (1) ( a) a fishing vessel is British owned if — ( a) the legal title to the vessel is vested wholly in one or more qualified persons or companies; and ( b) the vessel is beneficially owned — (i) as to not less than the relevant percentage of the property in the vessel, by one or more qualified persons, or (ii) wholly by a qualified company or companies, or (iii) by one or more qualified companies and, as to not less than the relevant percentage of the remainder of the property in the vessel, by one or more qualified persons …. (7) In this section — ‘qualified company’ means a company which satisfies the following conditions, namely — ( a) it is incorporated in the United Kingdom and has its principal place of business there; ( b) at least the relevant percentage of its shares (taken as a whole), and of each class of its shares, is legally and beneficially owned by one or more qualified persons or companies; and ( c) at least the relevant percentage of its directors are qualified persons; ‘qualified person’ means — ( a) a person who is a British citizen resident and domiciled in the United Kingdom, or ( b) a local authority in the United Kingdom; and ‘the relevant percentage’ means 75 per cent. or such greater percentage (which may be 100 per cent.) as may for the time being be prescribed.”
The interim order of the President (Case 246/89 R) [1989] E.C.R. 3125 was made upon an application to him by the European Commission. The Commission brought an action under article 169 of the Treaty for a declaration that, by imposing the nationality requirements enshrined in section 13 and 14 of the Act of 1988, the United Kingdom had failed to fulfil its obligations under articles 7, 52 and 221 of the Treaty. The Commission further applied under article 186 of the Treaty and article 83 of the Rules of Procedure for an order requiring the United Kingdom to suspend the application of the nationality requirements enshrined in section 14(1) ( a) and ( c)of the Act, read in conjunction with paragraphs (2) and (7) of the section, as regards the nationals of other member states and in respect of fishing vessels which until 31 March 1989 were pursuing a fishing activity under the British flag and under a British fishing licence. Under article 83(2) of the Rules of Procedure, interim measures such as those requested may not be ordered unless there are circumstances giving rise to urgency and factual and legal grounds establishing a prima facie case for the measures applied for.
The President granted the interim order asked for by the Commission. With regard to the issue whether a prima facie case had been established, he said:
“25. The United Kingdom further considers that the nationality requirements introduced by the Act of 1988 are justified by the present Community legislation on fisheries; that legislation, although it establishes a common system, is based on a principle of nationality for the purposes of the distribution of fishing quotas. Under article 5(2) of Council Regulation 170/83 it is for the member states to determine the detailed rules for the utilisation of the quotas allocated to them and thus to lay down the conditions which the vessels authorised to fish from these quotas must satisfy. 26. It must be observed that the system of national quotas established by Council Regulation 170/83 constitutes, as the United Kingdom contends, a derogation from the principle of equal access for Community fishermen to fishing grounds and the exploitation thereof in waters coming within the jurisdiction of the member states, which is itself a specific expression of the principle of non-discrimination laid down in article 40(3) of the E.E.C. Treaty. 27. That derogation is justified, according to the recitals in the preamble to Regulation No. 170/83, by the need, in a situation where there is a dearth of fishery resources, to ensure a relative stability in regard to fishing activities in order to safeguard the particular need of regions where local populations are especially dependent on fisheries and related industries. 28. The possibility cannot therefore be excluded that in their legislation concerning in particular the registration of fishing vessels and access to fishing activities the member states may be led to introduce requirements whose compatibility with Community law can be justified only by the necessity to attain the objectives of the Community system of fishing quotas. As the Commission itself has admitted in these proceedings, such requirements may be necessary in order to ensure that there is a genuine link with the fishing industry of the member state against whose quota the vessel may fish. 29. However there is nothing which would prima facie warrant the conclusion that such requirements may derogate from the prohibition of discrimination on grounds of nationality contained in articles 52 and 221 of the E.E.C. Treaty regarding, respectively, the right of establishment and the right to participate in the capital of companies or firms within the meaning of article 58. 30. The rights deriving from the above-mentioned provisions of the Treaty include not only the rights of establishment and of participation in the capital of companies or firms but also the right to pursue an economic activity, as the case may be through a company, under the conditions laid down by the legislation of the country of establishment for its own nationals. 31. These rights prima facie also include the right to incorporate and manage a company whose object is to operate a fishing vessel registered in the state of establishment under the same conditions as a company controlled by nationals of that state. 32. As regards the United Kingdom's first submission based on its obligations under international law, it is sufficient to note, at this stage, that in this respect nothing has been put forward which at first sight could necessitate any derogation from the above-mentioned rights under Community law in order to ensure the effective exercise of British jurisdiction and control over the vessels in question. 33. It must therefore be held that, at the stage of these proceedings for the grant of interim relief, the application of the main proceedings does not appear to be without foundation and that the requirement of a prima facie case is thus satisfied.”
The President went on to hold that sufficient urgency had also been established; in particular, for fishing vessels hitherto flying the British flag, cessation of their activities could cause serious damage. As regards the balance of interests he had this to say:
“39. Finally, as regards the balance of interests, it is not established that the interim measures applied for may jeopardise the objective pursued by the British legislation at issue, namely to ensure the existence of a genuine link between the vessels fishing against the British quotas and the British fishing industry. 40. It appears prima facie that the registration requirements laid down by the new legislation, other than those relating to nationality, and the measures adopted by the United Kingdom authorities in 1983 and 1986 would be sufficient to ensure the existence of such a link. The United Kingdom itself considers that the ‘Anglo-Spanish’ vessels, which do not have that link with the United Kingdom, will not be able to satisfy the aforesaid requirements.”
Following the President's order, section 14 of the Act of 1988 was amended (by the Merchant Shipping Act 1988 (Amendment) Order 1989 (S.I. 1989 No. 2006)) with effect from 2 November 1989 to give effect to his order until after the final determination of the issue which was the subject of the Commission's substantive application. In section 14(1) ( a) and (2), the expression “Community-owned” was substituted for “British-owned”; in section 14(7) ( a), the words “or another state of the European Community” were added after the words “United Kingdom,” and in (7) ( c) the words “or a citizen of a Community state” were added after the words “British citizen.” These changes have the effect that the nationality issue ceases to be relevant for the purposes of the present appeal, though the issue is, your Lordships were told, still being vigorously contested by the United Kingdom before the European Court of Justice on the substantive reference by the Divisional Court.
The applicants nevertheless pursued their application for an interim injunction before your Lordships' House, but their complaint was restricted to other matters in section 14. They did not object, for the purposes of the present application, to the requirement, in section 14(1) ( b), that a vessel should be managed and its operations directed and controlled from within the United Kingdom; they stated that they were able to comply with these requirements. Their complaint was directed towards the requirements for domicile and residence in the United Kingdom contained in the definition of “qualified person” in section 14(7), which apply both to beneficial owners of vessels and, in the case of vessels beneficially owned by companies, both to shareholders and to directors (under section 14(7) ( b) and ( c) respectively), with the effect that 75 per cent. of the relevant shareholders and directors are required to be resident and domiciled in the United Kingdom. This, they submitted, is contrary to the right of establishment under article 52 of the Treaty, and the right to participate in capital under article 221. In answer, the Secretary of State submitted that articles 52 and 221 of the Treaty cannot be taken to apply in their full rigour to the fisheries sector. If these articles, and article 7, were so to apply, it would be impossible to prevent fishing interests in one member state registering vessels in another member state in which event it would be impossible (inter alia) to prevent such vessels fishing against the quotas of the latter member state, to the detriment of that member state's fishing community and allied industries (who were intended to be protected by the quota system), and also to prevent Spanish vessels avoiding provisions of the Act of Accession of 1985 (Act of Accession of Spain and Portugal, Official Journal 1985 No. L. 302).
It was further submitted by the applicants that the effect of the provisions relating to residence and domicile in section 14, whether or not coupled with the nationality provisions, was to render it impossible for many of the applicants' vessels to register as British fishing vessels on the register now maintained under the Act of 1988, with possibly catastrophic financial results for their owners. They relied upon the conclusion of Neill L.J. in the Divisional Court that he was not persuaded on the evidence before him that there were identifiable persons or communities whose activities or livelihood were being so seriously damaged, or would be so seriously damaged, as to outweigh the very obvious and immediate damage which would be caused by these new provisions if no interim relief were granted to the applicants. They submitted fresh evidence to your Lordships as showing that such damage was already being suffered; and they referred to the fact that, on the law as it stands at present (Bourgoin S.A. v. Ministry of Agriculture, Fisheries and Food [1986] Q.B. 716), the applicants would have no remedy in damages for loss or damage suffered by them by reason of the enforcement against them of provisions of the Act of 1988 if subsequently held to be incompatible with European law. Finally, it was stated that the judgment of the European Court of Justice on the substantive reference from the Divisional Court was expected in about a year's time, and that it would therefore be for no longer than that period that interim relief was required.
I turn now to the applicable principles in cases in which an interim injunction is sought, with particular reference to a case such as the present, in which the public interest is involved.
The jurisdiction of courts to grant interim injunctions is to be found in section 37 of the Supreme Court Act 1981, under which the court has power to grant an injunction in all cases in which it appears to it to be just or convenient so to do, and has power to do so on such terms and conditions as it thinks fit. Guidelines for the exercise of the court's jurisdiction to grant interim injunctions were laid down by your Lordships' House in American Cyanamid Co. v. Ethicon Ltd. [1975] AC 396, in the speech of Lord Diplock in that case, with which the remainder of their Lordships concurred. I use the word “guidelines” advisedly, because I do not read Lord Diplock's speech as intended to fetter the broad discretion conferred on the courts by section 37 of the Supreme Court Act 1981; on the contrary, a prime purpose of the guidelines established in the Cyanamid case was to remove a fetter which appeared to have been imposed in certain previous cases, viz., that a party seeking an interlocutory injunction had to establish a prima facie case for substantive relief. It is now clear that it is enough if he can show that there is a serious case to be tried. If he can establish that, then he has, so to speak, crossed the threshold; and the court can then address itself to the question whether it is just or convenient to grant an injunction.
Nothing which I say is intended to qualify the guidelines laid down in Lord Diplock's speech. But, before I turn to the question of public interest, which lies at the heart of the rival submissions in the present case, I must advert to the fact that Lord Diplock approached the matter in two stages. First, he considered the relevance of the availability of an adequate remedy in damages, either to the plaintiff seeking the injunction or to the defendant in the event that an injunction is granted against him. As far as the plaintiff is concerned, the availability to him of such a remedy will normally preclude the grant to him of an interim injunction. If that is not so, then the court should consider whether, if an injunction is granted against the defendant, there will be an adequate remedy in damages available to him under the plaintiff's undertaking in damages; if so, there will be no reason on this ground to refuse to grant the plaintiff an interim injunction.
At this stage of the court's consideration of the case (which I will for convenience call the first stage) many applications for interim injunctions can well be decided. But if there is doubt as to the adequacy of either or both of the respective remedies in damages, then the court proceeds to what is usually called the balance of convenience, and for that purpose will consider all the circumstances of the case. I will call this the second stage. Again, I stress that I do not wish to place any gloss upon what Lord Diplock said about this stage. I wish only to record his statement, at p. 408, that
“It would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balance lies, let alone to suggest the relevant weight to be attached to them. These will vary from case to case.”
And his further statement, at p. 409 (after referring to particular factors), that “there may be many other special factors to be taken into consideration in the particular circumstances of individual cases.”
I turn to consider the impact upon these guidelines of the public interest, with particular reference to cases in which a public authority is seeking to enforce the law against some person, and either the authority seeks an interim injunction to restrain that person from acting contrary to the law, and that person claims that no such injunction should be granted on the ground that the relevant law is, for some reason, invalid; or that other person seeks an interim injunction to restrain the action of the authority, on the same ground.
I take the first stage. This may be affected in a number of ways. For example, where the Crown is seeking to enforce the law, it may not be thought right to impose upon the Crown the usual undertaking in damages as a condition of the grant of an injunction: see F. Hoffmann-La Roche & Co. A.G. v. Secretary of State for Trade and Industry [1975] A.C. 295. Again, in this country there is no general right to indemnity by reason of damage suffered through invalid administrative action; in particular, on the law as it now stands, there would be no remedy in damages available to the applicants in the present case for loss suffered by them by reason of the enforcement of the Act of 1988 against them, if the relevant part of the Act should prove to be incompatible with European law: see Bourgoin S.A. v. Ministry of Agriculture, Fisheries and Food [1986] Q.B. 716. Conversely, an authority acting in the public interest cannot normally be protected by a remedy in damages because it will itself have suffered none. It follows that, as a general rule, in cases of this kind involving the public interest, the problem cannot be solved at the first stage, and it will be necessary for the court to proceed to the second stage, concerned with the balance of convenience.
Turning then to the balance of convenience, it is necessary in cases in which a party is a public authority performing duties to the public that “one must look at the balance of convenience more widely, and take into account the interests of the public in general to whom these duties are owed:” see Smith v. Inner London Education Authority [1978] 1 All E.R. 411, 422, per Browne L.J., and see also Sierbien v. Westminster City Council (1987) 86 L.G.R. 431. Like Browne L.J., I incline to the opinion that this can be treated as one of the special factors referred to by Lord Diplock in the passage from his speech which I have quoted. In this context, particular stress should be placed upon the importance of upholding the law of the land, in the public interest, bearing in mind the need for stability in our society, and the duty placed upon certain authorities to enforce the law in the public interest. This is of itself an important factor to be weighed in the balance when assessing the balance of convenience. So if a public authority seeks to enforce what is on its face the law of the land, and the person against whom such action is taken challenges the validity of that law, matters of considerable weight have to be put into the balance to outweigh the desirability of enforcing, in the public interest, what is on its face the law, and so to justify the refusal of an interim injunction in favour of the authority, or to render it just or convenient to restrain the authority for the time being from enforcing the law. This was expressed in a number of different ways by members of the Appellate Committee in the Hoffmann-La Roche case [1975] A.C. 295. Lord Reid said, at p. 341, that
“it is for the person against whom the interim injunction is sought to show special reason why justice requires that the injunction should not be granted or should only be granted on terms.”
Lord Morris of Borth-y-Gest, at pp. 352–353, stressed that all considerations appertaining to the justice of the matter become within the purview of the court; but he also stated that, in a case where the defendant attacks the validity of what appears to be an authentic law, the measure of the strength of this attack must inevitably call for some consideration. Lord Diplock, at p. 367, asserted that prima facie the Crown is entitled as of right to an interim injunction to enforce obedience to the law; and that
“To displace this right or to fetter it by the imposition of conditions it is for the defendant to show a strong prima facie case that the statutory instrument is ultra vires.”
Lord Cross of Chelsea did not expressly address the point. Lord Wilberforce, in a dissenting speech, stressed, at p. 358, that, in the last resort, the matter is one for the discretion of the judge; in particular, he rejected a suggestion that the presumption of validity of subordinate legislation required the court to enforce such legislation, by an interlocutory injunction, against the party who was calling the validity of such legislation in question.
I myself am of the opinion that in these cases, as in others, the discretion conferred upon the court cannot be fettered by a rule; I respectfully doubt whether there is any rule that, in cases such as these, a party challenging the validity of a law must — to resist an application for an interim injunction against him, or to obtain an interim injunction restraining the enforcement of the law — show a strong prima facie case that the law is invalid. It is impossible to foresee what cases may yet come before the courts; I cannot dismiss from my mind the possibility (no doubt remote) that such a party may suffer such serious and irreparable harm in the event of the law being enforced against him that it may be just or convenient to restrain its enforcement by an interim injunction even though so heavy a burden has not been discharged by him. In the end, the matter is one for the discretion of the court, taking into account all the circumstances of the case. Even so, the court should not restrain a public authority by interim injunction from enforcing an apparently authentic law unless it is satisfied, having regard to all the circumstances, that the challenge to the validity of the law is, prima facie, so firmly based as to justify so exceptional a course being taken.
With these principles in mind, I come to the facts of the present case. There can be no question of the present application being decided at the first stage of Lord Diplock's approach, and it is necessary to proceed at once to the second stage.
Your Lordships heard submissions from both parties about the strength of the applicants' challenge to the relevant provisions of section 14 of the Act of 1988. It is plain that the United Kingdom will, before the European Court of Justice, be resisting most strongly arguments by the applicants that any provision in section 14 is incompatible with European law, whether in respect of nationality (despite the recent decision of the President to grant interim relief), or in respect of domicile and residence of beneficial owners, shareholders and directors. It is unnecessary, and perhaps undesirable, for your Lordships now to analyse these arguments. They are set out in detail in the written observations already submitted by the United Kingdom and by the applicants to the European Court of Justice on the substantive reference by the Divisional Court, copies of which have been made available to your Lordships. There are, however, certain reasons which persuaded me to conclude, for present purposes, that, prima facie, the applicants had strong grounds for challenging the validity of the provisions relating to residence and domicile. First, a central element in the argument of the United Kingdom, in seeking to uphold the validity of section 14, is that articles 7, 52 and 221 of the Treaty should not be interpreted as affecting the nationality of vessels, or the grant of flags, in respect of which competence remains in principle with the member states. It has to be said, however, that an argument on these lines does not appear to have found favour with the President on the Commission's application for interim relief: Commission of the European Communities v. United Kingdom (Case 246/89 R) [1989] E.C.R. 3125. Second, although in the Jaderow case [1990] 2 Q.B. 193 the European Court accepted that a member state, in authorising a vessel to fish against national quotas, might lay down conditions designed to ensure that it had a real economic link with the state if that link concerned only the relation between that vessel's fishing operations and the populations dependent on fisheries and related industries, yet in the Agegate case [1990] 2 QB 151 the court rejected as invalid a condition requiring residence in the member state of 75 per cent. of the vessel's crew. If such a residence qualification is rejected in respect of the crew, as a condition of the grant of a vessel's licence, it may well be difficult to persuade the court to adopt a residence qualification relating to beneficial owners, or to 75 per cent. of shareholders in or directors of a company which beneficially owns a vessel, as a condition of registration of a fishing vessel under the Act of 1988; a fortiori must the same be true of a condition relating to domicile. As to the final outcome on these issues after consideration by the court, your Lordships can of course express no opinion; but these two points alone led me to conclude that the applicants' challenge is, prima facie, a strong one.
It is on that basis that I turn to consider the balance of convenience as a whole. I have already referred to the view formed by Neill L.J., when the matter was before the Divisional Court [1989] 2 C.M.L.R. 353, that serious damage may be caused to the applicants if no interim relief is granted. Your Lordships were furnished with up-to-date evidence in the form of answers to a questionnaire sent to owners of 62 vessels during the recent hearing. None of the answers to the questionnaire was on oath; and it was not in the circumstances possible for the Secretary of State to test the answers, or indeed to check their accuracy. However, no objection was made to this material being placed before your Lordships.
The answers to the questionnaire were not complete. However, from the answers received it was possible to derive the following basic information. All 62 vessels ceased to be on the United Kingdom register after the lapse of the old register on 1 April 1989. Twenty-four of the vessels have not fished since their registration lapsed; of the remainder, 33 have fished but only outside E.E.C. waters, in some cases for very short periods and in most cases after being laid up for a considerable time. Twenty-four vessels have succeeded in obtaining registration under the Act of 1988, but always for special reasons, 14 of them because shares in the owning company had been sold to qualified persons or companies. Thirty owners have tried to sell their vessels, but none of them has received an acceptable offer. Many owners claim to have suffered damages to date of well over £100,000; some fear imminent bankruptcy.
Your Lordships also had the benefit of a fourth affidavit sworn by Mr. Noble of the Ministry of Agriculture, Fisheries and Food. Apart from specific comments on particular vessels in the ownership of the applicants, he placed evidence before your Lordships to the effect that, as a result of the introduction of the new register, a number of British fishing vessels other than those owned by Spanish interests had been able to take up the opportunities now available to them, taking increased catches, employing extra crew, investing in new vessels to take advantage of the new opportunities, and generating increased activity onshore. He considered that, if the applicants' vessels returned to the British fleet and resumed their previous activities, the owners of these British fishing vessels would suffer serious losses; and he anticipated that the reintroduction of stiff quota restrictions would be required. However, even taking this evidence fully into account, I have, on all the material available to your Lordships, formed the same opinion as that formed by Neill L.J. in the Divisional Court on the material then before him, that there was not sufficient to outweigh the obvious and immediate damage which would continue to be caused if no interim relief were granted to the applicants.
It was for these reasons that, in agreement with the remainder of your Lordships, I concluded that the appeal should be allowed and interim relief granted in the terms of the order made.
LORD JAUNCEY OF TULLICHETTLE. My Lords, I have had the advantage or reading in draft the speech to be delivered by my noble and learned friend Lord Goff of Chieveley. I agree with the conclusion at which he has arrived and I gratefully adopt his detailed account of the circumstances giving rise to the present appeal. It is only because of the importance and novelty of the principal question to be considered that I venture to add a few observations thereanent.
The European Court of Justice has ruled, ante, p. 644H, that:
“… Community law must be interpreted as meaning that a national court which, in a case before it concerning Community law, considers that the sole obstacle which precludes it from granting interim relief is a rule of national law must set aside that rule.”
This House is accordingly now faced with the wholly novel situation of determining whether in the circumstances of this appeal interim relief against the application of primary legislation should be granted to the applicants, pending the decision of the European Court of Justice on the reference by the Divisional Court of 10 March 1989. In reaching a conclusion the following matters have to be addressed, namely: (1) the threshold which must be crossed by the applicants before this House will consider intervening, (2) whether they have crossed that threshold, and (3) if they have, whether the balance of convenience favours the granting of interim relief.
(1) The threshold
When this appeal was last before your Lordships' House [1990] 2 AC 85 my noble and learned friend, Lord Bridge of Harwich, referred to the familiar situation in which a plaintiff seeks an interim injunction to protect a right when the material facts are in dispute and continued, at p. 139:
“In this situation the court has a discretion to grant or withhold interim relief which it exercises in accordance with the principles laid down by your Lordships' House in American Cyanamid Co. v. Ethicon Ltd. [1975] AC 396. In deciding on a balance of convenience whether or not to make an interim injunction the court is essentially engaged in an exercise of holding the ring.”
American Cyanamid concerned a claim for alleged infringement of patent and an application for interim injunction was made upon contested facts. Lord Diplock referred, at p. 407, to:
“the supposed rule that the court is not entitled to take any account of the balance of convenience unless it has first been satisfied that if the case went to trial upon no other evidence than is before the court at the hearing of the application the plaintiff would be entitled to judgment for a permanent injunction in the same terms as the interlocutory injuction sought …”
and continued:
“Your Lordships should in my view take this opportunity of declaring that there is no such rule. The use of such expressions as ‘a probability,’ ‘a prima facie case,’ or ‘a strong prima facie case’ in the context of the exercise of a discretionary power to grant an interlocutory injunction leads to confusion as to the object sought to be achieved by this form of temporary relief. The court no doubt must be satisfied that the claim is not frivolous or vexatious; in other words, that there is a serious question to be tried. It is no part of the court's function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations. These are matters to be dealt with at the trial.”
As I understand it Lord Diplock in that passage was saying that the court must be satisfied that there is a serious question to be tried before it considers the balance of convenience. Indeed this must be so since it would be quite wrong that a plaintiff should obtain interim relief on the basis of a claim which was groundless. I agree that it is not the function of the court to try to resolve conflicts of evidence at an interlocutory stage but I would demur to any suggestion that in no circumstances would it be appropriate to decide questions of law. If the only question at issue between the parties is one of law it may be possible in many cases to decide this at the stage of a contested application for an interim injunction. For example, where an employer seeks to enforce a restrictive covenant in a former employee's contract of employment and the only defence is that the covenant by reason of its wide terms is unenforceable, it would be wholly illogical to grant to the employer an interim injunction on the basis that there was a serious question to be tried when the question could at the same time be resolved as matter of law in favour of the employee.
However, while the test of a serious question to be tried is appropriate to proceedings between private parties where no presumption favours the position of one party as against the other it does not follow that the same considerations apply when primary legislation and the public interest are involved. Indeed, my noble and learned friend, Lord Bridge of Harwich (Reg. v. Secretary of State for Transport, Ex parte Factortame Ltd. [1990] 2 AC 85, 140), remarked upon the fundamental distinction between the familiar situation and that which arises in this appeal. In F. Hoffmann-La Roche & Co. A.G. v. Secretary of State for Trade and Industry [1975] A.C. 295, the Secretary of State having sought by interim injuction to enforce a statutory instrument approved by both Houses of Parliament the defenders maintained that the instrument was ultra vires. Lord Reid said, at p. 341, that:
“it is for the person against whom the interim injunction is sought to show special reason why justice requires that the injunction should not be granted or should only be granted on terms”
and Lord Morris of Borth-y-Gest, at p. 353, pointed out that the measure of the strength of the attack upon the statutory instrument must inevitably call for some consideration. Lord Diplock said, at p. 366:
“All that can usefully be said is that the presumption that subordinate legislation is intra vires prevails in the absence of rebuttal, and that it cannot be rebutted except by a party to legal proceedings in a court of competent jurisdiction who has locus standi to challenge the validity of the subordinate legislation in question.”
He said, at p. 367:
“So in this type of law enforcement action if the only defence is an attack on the validity of the statutory instrument sought to be enforced the ordinary position of the parties as respects the grant of interim injunctions is reversed. The duty of the Crown to see that the law declared by the statutory instrument is obeyed is not suspended by the commencement of proceedings in which the validity of the instrument is challenged. Prima facie the Crown is entitled as of right to an interim injunction to enforce obedience to it. To displace this right or to fetter it by the imposition of conditions it is for the defendant to show a strong prima facie case that the statutory instrument is ultra vires.”
These observations, in my view, apply not only where a defendant is seeking to resist an attempt by the Crown to enforce secondary legislation but also where a plaintiff is seeking to restrict the Crown in its operation of such legislation. They must be equally appropriate to a challenge to primary legislation as they are to a challenge to secondary legislation. Indeed, when this appeal was last before this House Lord Bridge said, at p. 142:
“In this situation the difficulty which confronts the applicants is that the presumption that an Act of Parliament is compatible with Community law unless and until declared to be incompatible must be at least as strong as the presumption that delegated legislation is valid unless and until declared invalid.”
Given this presumption it follows from the above observations of Lord Diplock that it is for the Crown to enforce the provisions of the Act of 1988 and that anyone, whether a plaintiff or defendant, who seeks to challenge the validity thereof must at least show a strong prima facie case of incompatibility with Community law. It is the presumption in favour of the legislation being challenged which in my view makes the American Cyanamid test of a serious question to be tried inappropriate in a case such as the present. In expressing this opinion I must emphasise that I am in no way criticising the appropriateness of the American Cyanamid test for cases where primary or secondary legislation is not being challenged nor am I suggesting that Lord Diplock's approach to the balance of convenience is not appropriate in this case.
My Lords, I have considered anxiously whether other factors such as relative hardship or injustice should play any part in determining the appropriate threshold which an applicant for relief in circumstances such as the present should cross. Given the wide discretion conferred upon the courts by section 37 of the Supreme Court Act 1981 I would not wish to lay down any rules which might unduly inhibit that discretion in unforeseen circumstances in the future. Suffice it to say that as at present advised it would only be in the most exceptional circumstances that I can foresee the threshold being lowered by factors not directly related to the invalidity of the legislation under challenge. In the normal case other factors would be considered in relation to the balance of convenience. If an applicant seeking an injunction against primary or secondary legislation cannot show a strong prima facie ground of challenge it will in the absence of quite exceptional circumstances avail him nought that a refusal of an injunction would result in greater injustice to him should he succeed at trial than would result to the other party if the injunction was granted and he failed at trial.
I therefore conclude that the applicants will only cross the threshold if they demonstrate that there is a strong prima facie case that section 14 of the Act of 1988 is incompatible with Community law, which failing that exceptional circumstances exist which would justify lowering the threshold.
(2) Have the applicants crossed the threshold?
Section 14(1) provides that a fishing vessel shall only be eligible to be registered as a British fishing vessel if inter alia “the vessel is British-owned.” Section 14(2) provides that a fishing vessel is British-owned if the legal title is vested wholly in one or more qualified persons or companies and section 14(7) provides that a qualified company is one which is incorporated in the United Kingdom with 75 per cent. of the shares held by and 75 per cent. of its directors being qualified persons. Qualified person is defined in section 14(7) as “a person who is a British citizen resident and domiciled in the United Kingdom.” It is to this latter definition that Mr. Vaughan confined his attack on the ground that such a restriction in ownership was incompatible with Community law.
Since the appeal was last before this House in 1989 certain important events have taken place in the European Court. On 4 August 1989 (Commission of the European Communities v. United Kingdom (Case 246/89 R) [1989] E.C.R. 3125), the Commission sought a declaration that the nationality requirements of section 14 of the Act of 1988 constituted a failure by the United Kingdom to fulfil certain of its Treaty obligations. On 10 October 1989 the president of the court made the following order:
“Pending delivery of the judgment in the main proceedings, the United Kingdom shall suspend the application of the nationality requirements laid down in section 14(1) ( a) and ( c) of the Merchant Shipping Act 1988, read in conjunction with paragraphs (2) and (7) of that section, as regards the nationals of other member states and in respect of fishing vessels which, until 31 March 1989, were pursuing a fishing activity under the British flag and under a British fishing licence …”
Effect was given to this order by the Merchant Shipping Act 1988 (Amendment) Order 1989 which, in relation to the fishing vessels in question, amended section 14 by substituting “Community-owned” for “British-owned” in subsection (1) and by amending the definition of the “qualified person” to read “a person who is a British citizen or a national of a member state other than the United Kingdom and in either case resident and domiciled in the United Kingdom.”
It will be noted that the Commission did not seek to challenge the residence and domicile qualification which is now challenged by Mr. Vaughan. On 14 December 1989 the European Court similarly constituted gave judgment in two cases which may for convenience be called Agegate [1990] 2 QB 151 and Jaderow [1990] 2 Q.B. 193. Both cases concerned the grant to British-registered fishing vessels with strong Spanish connections of fishing licences which contained crewing conditions to the effect that: (1) at least 75 per cent. of the crew must be British citizens or E.E.C. nationals (excluding until 1 January 1993 Spanish nationals), and (2) the skipper and all the crew must be making contributions to United Kingdom national insurance. In the course of the Agegate judgment the following observations on the quota system were made [1990] 2 QB 151, 188:
“24. It follows from the foregoing that the aim of the quotas is to assure to each member state a share of the Community's total allowable catch, determined essentially on the basis of the catches from which traditional fishing activities, the local populations dependent on fisheries and related industries of the member state benefited before the quota system was established. 25. In that context a residence requirement such as the one in point in this case is irrelevant to the aim of the quota system and cannot therefore be justified by that aim.”
And the court ruled, inter alia, at p. 192:
“2. Community law precludes a member state from requiring, as a condition for authorising one of its vessels to fish against its quotas, that 75 per cent. of the crew of the vessel in question must reside ashore in that member state. 3. Save in those cases where Council Regulation (E.E.C.)No. 1408/71 otherwise provides, Community law does not preclude a member state from requiring, as a condition for authorising one of its vessels to fish against its quotas, that the skipper and all the crew of the vessel must be making contributions to the social security scheme of that member state.”
In the Jaderow judgment [1990] 2 Q.B. 193 the court recognised that the aim of national quotas derived from the common fisheries policy might justify conditions designed to ensure that there was a real economic link between the vessel and the member state in question if the purpose of such conditions was that the populations dependent on fisheries and related industries should benefit from them. The court ruled inter alia, at p. 226, that Community law as it now stands:
“(1) does not preclude a member state, in authorising one of its vessels to fish against national quotas, from laying down conditions designed to ensure that the vessel has a real economic link with that state if that link concerns only the relations between that vessel's fishing operations and the populations dependent on fisheries and related industries; (2) does not preclude a member state, in authorising one of its vessels to fish against national quotas, from laying down the condition, in order to ensure that there is a real economic link as defined above, that the vessel is to operate from national ports, if that condition does not involve an obligation for the vessel to depart from a national port on all its fishing trips; …”
It is to my mind implicit in these two decisions that the court did not consider that residence and domicile of a specified percentage of the crew was justified as a condition designed to ensure the existence of a real economic link between the vessel and the member state. Had the court so considered Agegate [1990] 2 QB 151 must have been decided differently. If residence of the crew is not relevant to ensure the existent of a real economic link between vessel and member state what is the position in relation to the residence of shareholders and directors of an owning company? The role of this House is not to give an answer to that question but rather to assess the prospects of the European Court giving an answer which is favourable to the applicants. Directors and shareholders are further removed from any link between a vessel and a member state than are members of the crew and the European Court having decided that residence of the latter is not relevant to ensure the existence of a real economic link there must at least be a strong probability that the court will take a similar view in relation to the former. Upon that assumption it would appear that the applicants can show a strong prima facie ground of challenge to the relevant statutory provision. However, there remains for consideration the argument of the Crown that Community law does not affect the sovereign right of a member state to lay down the conditions for the grant of its flag to ships. Customary international law, as expressed in article 5(1) of the Geneva Convention on the High Seas, requires that there should be a genuine link between a vessel and the state of her flag. Article 94 of the 1982 Convention on the Law of the Sea sets out the important legal and international obligations incurred by a state in relation to a vessel to whom the flag of the state has been granted. In the absence of any express provision it should not be presumed that the Treaty interferes with the exercise by a member state of its sovereign powers. I was initially attracted by these submissions and in some doubt as to whether they should not be given effect to. However on further consideration of the President's ruling of 10 October 1989 I have come to the conclusion that the applicants can show that they are very likely to be rejected by the European Court. In the context of legislative requirements introduced by member states to obtain the objective of the Community system of fishing quotas the president said:
“29. However there is nothing which would prima facie warrant the conclusion that such requirements may derogate from the prohibition of discrimination on grounds of nationality contained in articles 52 and 221 of the E.E.C. Treaty regarding, respectively, the right of establishment and the right to participate in the capital of companies or firms within the meaning of article 58. 30. The rights deriving from the above-mentioned provisions of the Treaty include not only the rights of establishment and of participation in the capital of companies or firms but also the right to pursue an economic activity, as the case may be through a company, under the conditions laid down by the legislation of the country of establishment for its own nationals. 31. These rights prima facie also include the right to incorporate and manage a company whose object is to operate a fishing vessel registered in the state of establishment under the same conditions as a company controlled by nationals of that state. 32. As regards the United Kingdom's first submission based on its obligations under international law, it is sufficient to note, at this stage, that in this respect nothing has been put forward which at first sight could necessitate any derogation from the above-mentioned rights under Community law in order to ensure the effective exercise of British jurisdiction and control over the vessels in question. 33. It must therefore be held that, at the stage of these proceedings for the grant of interim relief, the application in the main proceedings does not appear to be without foundation and that the requirement of a prima facie case is thus satisfied.”
Given the foregoing observations of the president it would appear that the applicants have a strong chance of successfully arguing before the European Court that international law does not justify derogation from the prohibition of discrimination on grounds of nationality contained in articles 52 and 221 of the Treaty.
In all these circumstances I consider that the applicants have crossed the threshold in relation to section 14 of the Act of 1988. It is therefore unnecessary to consider whether such exceptional circumstances exist as will justify lowering that threshold.
(3) Balance of convenience
In Films Rover International Ltd. v. Cannon Film Sales Ltd. [1987] 1 W.L.R. 670 Hoffmann J. in considering an application for an interlocutory mandatory injunction implicitly acknowledged that there was a serious question to be tried and said, at p. 680:
“The principal dilemma about the grant of interlocutory injunctions, whether prohibitory or mandatory, is that there is by definition a risk that the court may make the ‘wrong’ decision, in the sense of granting an injunction to a party who fails to establish his right at the trial (or would fail if there was a trial) or alternatively, in failing to grant an injunction to a party who succeeds (or would succeed) at trial. A fundamental principle is therefore that the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been ‘wrong’ in the sense I have described. The guidelines for the grant of both kinds of interlocutory injunctions are derived from this principle.”
I find this approach of assistance in the present case.
If the applicants are successful in the end of the day but are afforded no interim relief they will, standing the law as laid down in Bourgoin S.A. v. Ministry of Agriculture, Fisheries and Food [1986] Q.B. 716, suffer very severe and irrecoverable damage. If they are ultimately unsuccessful but are afforded interim relief the loss suffered by the British fishing industry as a whole and by individual members thereof during the period of interim relief will be relatively minor. Beyond this I cannot usefully add anything to what has already been said on this matter by my noble and learned friend Lord Goff of Chieveley. It follows that, the applicants having crossed the threshold, the balance of convenience favours the granting to them of interim relief.
Order accordingly.
Applicants' costs in Court of Appeal, European Court and House of Lords to be costs in cause.
Cause remitted to Queen's Bench Division.
Solicitors: Thomas Cooper & Stibbard; Thomas Cooper & Stibbard; Treasury Solicitor.
M. G.
The permission for BAILII to publish the text of this judgment was granted by:
Incorporated Council of Law Reporting for England & Wales
Their assistance is gratefully acknowledged.
ICLR_VOTE_BATCH_4 |
JISCBAILII_CASE_IMMIGRATION
SHAMUSIDEEN ARANJI OLADEHINDE Appellant
and
IMMIGRATION APPEAL TRIBUNAL
Respondent
And
JULIUS CORNELL ALEXANDER Appellant
and
IMMIGRATION APPEAL TRIBUNAL Respondent
18 October 1990
House of Lords
Lord Keith of Kinkel
Lord Brandon of Oakbrook
Lord Templeman
Lord Griffiths
Lord Ackner
I Macdonald QC and R Scannell (instructed by Lewis Silkin) for the first appellant
S Sedley QC and N Blake(instructed by The Joint Council for the Welfare of Immigrants) for the second appellant
M Beloff QC and D Panmck (instructed by Treasury Solicitor) for the respondent
Lord Keith of Kinkel: My Lords, I have had the opportunity of considering in draft the speech to be delivered by my noble and learned friend Lord Griffiths. I agree with it, and for the reasons he gives would dismiss these appeals.
Lord Brandon of Oakbrook: My Lords, I have had the advantage of reading in draft the speech proposed by my noble and learned friend, Lord Griffiths. I agree with it and for the reasons which he gives I would dismiss these appeals.
Lord Templeman: My Lords, By section 4 of the Immigration Act 1971 an immigration officer could decide whether to grant or refuse leave to enter the United Kingdom. By rule 78 of the immigration rules the Home Secretary proposed and Parliament approved that the refusal of leave to enter should require the authority of a chief immigration officer or of an immigration inspector: Statement of Changes in Immigration Rules (1983) (HC 169). Thus an immigration officer can only report with a recommendation that leave to enter be refused. That report is considered by a chief immigration officer or by an immigration inspector who then authorises and directs leave to be granted or refused. Leave to enter would normally be refused if an immigration officer
considered and a chief immigration officer or an immigration inspector agreed that the immigrant intended to overstay or intended to breach a condition against employment.
By section 5 of the Act of 1971 the Secretary of State decides whether to deport. Amongst the grounds for deportation are overstaying or breach of a condition not to take employment. By rules 156 and 158 (now (1989) (HC 251)) where an immigrant is an overstayer or has breached a condition of staying, deportation is normally the proper course subject to full account being taken of all relevant circumstances including compassionate circumstances.
Where an immigrant is suspected of overstaying or being in breach of a condition, the immigrant is interviewed by an immigration officer who makes a report. That report will set out the ascertained information relevant to the accusation of overstaying or breach of condition and any circumstances including compassionate circumstances discovered by the immigration officer or urged by the immigrant and relevant to a decision with regard to deportation. The report of the immigration officer relating to deportation was originally considered by a member of the deportation department of the Home Office who alone could authorise the service of a notice of intention to deport. The report of the immigration officer relating to deportation is now considered by one of the specified number of immigration inspectors, members of the Home Office, who alone can sanction service of notice of intention to deport. Formerly and now, the immigrant may appeal against the intention to deport but since the Immigration Act 1988 the adjudicator and the Immigration Appeal Tribunal have no power to allow an appeal against an intention to deport an immigrant who is proved to be liable to be deported and to have been guilty of overstaying or breach of condition. If an appeal is not made or if an appeal is unsuccessful, the report of the immigration officer and the intention to deport are reviewed by the deportation department at the Home Office (taking into account any fresh representations or development) and with the advice of the department and with the advice of the Minister of State, the Secretary of State decides whether to sign a deportation order and thus to exercise the power conferred on him by the Act of 1971.
No one contends that it is illegal or improper for deportation procedures to be initiated by an interview and report by an immigration officer. It is contended that it is illegal or improper for an immigration inspector approved by the Secretary of State and apprised of that report to direct the service of notice of intention to deport. There is no express or implied statutory prohibition on the employment of immigration inspectors selected by the Secretary of State with due regard to their seniority and experience to authorise the service of a notice of intention to deport. As to impropriety, if an immigration inspector may decide to refuse leave to enter I see no reason why he should not be allowed to authorise the service of notice of intention to deport. The intention to deport will in any event be reviewed by the deportation department, by the Minister of State and by the Secretary of State. Some attempt was made to equate the members of the immigration service (including immigration inspectors) with the role of policemen and to equate members of the deportation department with the role of judges. In my opinion the analogy is false. All members of the Home Office who are concerned with entry or deportation or both, are bound to use their best endeavours to ensure that persons lawfully seeking to enter are treated fairly, that persons lawfully entitled to remain are permitted to remain and that persons who have acted unlawfully are nevertheless permitted to enter or allowed to remain if in all the circumstances their unlawful conduct ought fairly to be excused.
The position of immigrants who have overstayed or are in breach of condition is said to have have been weakened because a decision to deport now rests with the Secretary of State alone, whereas prior to the Immigration Act 1988 an adjudicator or the Immigration Appeal Tribunal might on appeal against a notice of intention to deport rule against deportation. But this possibility does not affect the present question.
In full agreement with the speech to be delivered by my noble and learned friend, Lord Griffiths, I would dismiss these appeals.
Lord Griffiths: My Lords, The appellant Shamusideen Aranji Oladehinde is a citizen of Nigeria. On 17 September 1983 the appellant was granted leave to enter the United Kingdom for 12 months as a student with a condition restricting him from taking employment. This leave was extended, subject to the condition restricting employment, until 31 May 1988. On 31 May 1988 the appellant applied for further leave to remain in the United Kingdom as a student. On 25 August 1988, before that application for further leave had been determined the appellant was arrested. He was interviewed by an immigration officer. After some initial prevarication the appellant admitted during the course of the interview that he had worked under an assumed name for two security firms in breach of the condition restricting his taking employment attached to his leave to enter the United Kingdom as a student. The immigration officer reported the result of the interview on the telephone to an immigration inspector who, acting on behalf of the Secretary of State, decided that the appellant should be deported and authorised the immigration officer to serve a notice of intention to deport upon the appellant on the ground that he had taken employment in breach of the condition attached to his leave to enter. The notice was served forthwith by the immigration officer on 25 August.
The appellant appealed against the decision to deport him and his appeal was allowed by an adjudicator on 8 November 1988 on the ground that the Secretary of State had not acted fairly in deciding to deport the appellant. On 12 May 1989 the Immigration Appeal Tribunal allowed an appeal by the Secretary of State.
The appellant Julius Cornell Alexander is a citizen of St Vincent. On 7 October 1984 he was given leave to enter the United Kingdom as a visitor for two months. His leave to remain was extended to 7 April 1985. The appellant did not apply for further extension of his stay but remained in the United Kingdom without leave. On 23 September 1988 the appellant was arrested and interviewed by an immigration officer. The immigration officer reported the result of the interview on the telephone to an immigration inspector who acting on behalf of the Secretary of State decided that the appellant should be deported and authorised the immigration officer to serve a notice of intention to deport upon the appellant on the ground that he had overstayed his leave to enter the United Kingdom. On 20 February 1989 the appellant's appeal against
the decision to deport him was dismissed by the adjudicator. On 8 June 1989 the appellant's further appeal was dismissed by the Immigration Appeal Tribunal.
The Divisional Court [1990] 2 WLR 1195 granted orders of certiorari to quash each of the decisions to deport on the ground that the Secretary of State could not validly authorise immigration inspectors to make decisions to deport immigrants from the United Kingdom.
The Court of Appeal [1990] 2 WLR 1195 allowed appeals by the Secretary of State and granted the appellants leave to appeal to your Lordships' House.
These appeals raise three issues. Firstly, can the Secretary of State validly authorise immigration inspectors to take on his behalf decisions to deport persons from the United Kingdom. Secondly, did the inspectors in fact take the decisions or did they merely rubber-stamp decisions already taken by the immigration officers. Thirdly, whether a submission that a decision to deport has been taken by a person who has no power to make it is within the appellate jurisdiction created by section 15 of the Immigration Act 1971 as amended by section 5 of the Immigration Act 1988.
The statutory framework
Each of the appellants, one a citizen of Nigeria, the other a citizen of St Vincent, is subject to immigration control under the Immigration Act 1971.
The first appellant took employment and so did not observe the condition upon which he was given leave to enter the United Kingdom as a student, the second appellant has been an overstayer since 7 April 1985. Therefore each appellant is liable to deportation pursuant to section 3(5)(a) of the Act of 1971, as amended by section 52(7) of and schedule 4 to the British Nationality Act 1981, which provides:
"A person who is not a British Citizen shall be liable to deportation from the United Kingdom ... if, having only a limited leave to enter or remain, he does not observe a condition attached to the leave or remains beyond the time limited by the leave ..."
Section 5(1) provides for the making of the deportation order:
"Where a person is under section 3(5) or (6) above liable to deportation, then subject to the following provisions of this Act the Secretary of State may make a deportation order against him, that is to say an order requiring him to leave and prohibiting him from entering the United Kingdom; and a deportation order against a person shall invalidate any leave to enter or remain in the United Kingdom given him before the order is made or while it is in force."
However, before the deportation is made the immigrant is given an opportunity to appeal against the decision to make it, see section 15(l)(a); and section 15(2) provides that a deportation order shall not be made until the time for appealing has expired or until the appeal is determined.
Under the Act of 1971 the scope of the appeal was very wide. Section 19(1) provided that:
"Subject to . . . any restriction on the grounds of appeal, an adjudicator on an appeal to him under this Part of the Act -
(a) shall allow the appeal if he considers:
(i) that the decision or action against which the appeal is brought was not in accordance with the law or with any immigration rules applicable to the case; or
(ii) where the decision or action involved the exercise of a discretion by the Secretary of State or an officer, that the discretion should have been exercised differently; and
(b) in any other case, shall dismiss the appeal'.
The Immigration Act 1988, however, has imposed a considerable restriction upon the appellate jurisdiction of the adjudicator. Section 5 provides:
"(1) A person to whom this subsection applies shall not be entitled to appeal under section 15 of the principal Act against a decision to made a deportation order against him -
(a) by virtue of section 3(5)(a) of that Act (breach of limited leave);
....
except on the ground that on the facts of his case there is in law no power to made the deportation order for the reasons stated in the notice of the decision.
(2) Subsection (1) above applies to any person who was last given leave to enter the United Kingdom less than seven years before the date of the decision in question but the Secretary of State may by order exempt any such persons from that subsection in such circumstances and to such extent as may be specified in the order."
I turn now to some of the provisions relating to immigration officers for it is with their status that this appeal is primarily concerned. Section 4 of the Act of 1971 provides:
"(1) The power under this Act to give or refuse leave to enter the United Kingdom shall be exercised by immigration officers, and the power to give leave to remain in the United Kingdom, or to vary any leave under section 3(3)(a) (whether as regards duration or conditions), shall be exercised by the Secretary of State; and, unless otherwise allowed by this Act, those powers shall be exercised by notice in writing given to the person affected, except that the powers under section 3(3)(a) may be exercised generally in respect of any class of persons by order made by statutory instrument.
(2) The provisions of schedule 2 of this Act shall have effect with respect to:
(a) the appointment and powers of immigration officers and medical inspectors for purposes of this Act;
(b) the examination of persons arriving in or leaving the United Kingdom by ship or aircraft, and the special powers exercisable in the case of those who arrive as, or with a view to becoming, members of the crews of ships and aircraft; and
(c) the exercise by immigration officers of their powers in relation to entry into the United Kingdom, and the removal from the United Kingdom of persons refused leave to enter or entering or remaining unlawfully; and
(d) the detention of persons pending examination or pending removal from the United Kingdom;
and for other purposes supplementary to the foregoing provisions of this Act."
Schedule 2, paragraph 1 deals with the appointment of immigration officers and their duty to act in accordance with instructions given them by the Secretary of State.
"(1) Immigration officers for the purposes of this Act shall be appointed by the Secretary of State, and he may arrange with the Commissioners of Customs and Excise for the employment of officers of customs and excise as immigration officers under this Act.
(2) Medical inspectors for the purposes of this Act may be appointed by the Secretary of State or, in Northern Ireland, by the Minister of Health and Social Services or other appropriate Minister of the Government of Northern Ireland in pursuance of arrangements made between that Minister and the Secretary of State, and shall be fully qualified medical practitioners.
(3) In the exercise of their functions under this Act immigration officers shall act in accordance with such instructions (not inconsistent with the immigration rules) as may be given them by the Secretary of State ..."
The remainder of schedule 2 which runs to 33 paragraphs is primarily concerned with the powers to be exercised by immigration officers over the control of entry of immigrants into the United Kingdom and the arrest and removal of illegal immigrants, that is to say immigrants who have not at any time been given leave to enter the United Kingdom. The two appellants are not illegal immigrants and if they are to be removed from the United Kingdom it must be through the deportation procedure. The Act of 1971 does not bestow the power to deport upon an immigration officer. That power is reserved to the Secretary of State. See section 4(1) and 5(1).
The immigration rules referred to in paragraph 1 (3) are rules laid down by the Secretary of State as to the practice to be followed in the administration of the Act which he is required to lay before Parliament for approval: see section 1(4) and section 3(2). The rules lay down in considerable detail the approach to their work to be adopted by immigration officers and the way in which they are to carry it out; by way of example only rule 2 of the 1983 rules (HC 169) provides:
"Immigration officers will carry out their duties without regard to the race, colour or religion of people seeking to enter the United Kingdom."
and rule 87 provides:
"Before removal a passenger should be given the opportunity to telephone friends or relatives in this country, or his High Commission or Consul, if he wishes to do so."
The practice
It is obvious that the Secretary of State cannot personally take every decision to deport an immigrant who is in breach of his condition of entry or who is an overstayer. The decision must be taken by a person of suitable seniority in the Home Office for whom the Home Secretary accepts responsibility. This devolution of responsibility was recognised as a practical necessity in the administration of government by the Court of Appeal in Carltona Ltd v Commissioner of Works [1943] 2 All ER 560 and has come to be known as the Carltona principle.
Before August 1988 the practice was as follows:
An immigration officer who had interviewed the immigrant would report the results of that interview to a civil servant in the deportation department of the Home Office whose duty it was to decide whether or not the immigrant should be deported. In arriving at his decision the officer in the deportation department would have regard to the guidance contained in the immigration rules which provide that where a person is an overstayer or has breached a condition of stay, deportation is normally the proper course subject to full account being taken of all relevant circumstances including compassionate circumstances. See rules 156 and 158 of Statement of Changes in Immigration Rules (1983) (HC 169) (now (1989) (HC 251)). This decision was taken by a civil servant of not less than senior executive officer grade and there is no suggestion that this was not a proper exercise of the devolution of responsiblity within the Home Office.
If the decision was taken to deport the immigrant the immigration officer would be instructed to serve a notice of intention to deport upon the immigrant which gave the grounds upon which the decision had been taken and notified the immigrant of his rights of appeal and of the availability of the United Kingdom Immigrants' Advisory Service which, if he wished, would assist him in an appeal. In the event of an unsuccessful appeal or after the time for appealing had expired the case would again be reviewed in the deportation department, taking into account any additional relevant material that had come into existence since the decision to deport was first made. The decision might then be reversed but if it was not, a report on the case would be prepared and submitted to the Minister of State and then if he approved to the Home Secretary who signed the deportation order personally unless he was not available for a long period in which case it was signed by a junior Home Office minister.
On 1 August 1988 after the passing of the Act of 1988 the Home Secretary took the decision which gives rise to these appeals. It was decided that the initial decision to deport an immigrant liable to deportation under section 3(5)(a) of the Act of 1971, that is because he has not observed the condition attached to leave to enter or is an overstayer, should in future be taken by an inspector in the
immigration service and not by a civil servant in the deportation section. The first three grades in the immigration service are directly equivalent to administrative grades in the Civil Service; an immigration officer is equivalent to an executive officer, a chief immigration officer is equivalent to a higher executive officer, an inspector is equivalent to a senior executive officer. An inspector is of the equivalent grade to those in the deportation section who had previously been taking the decision to deport in section 3(5)(a) cases. At the same time inspectors were also authorised to exercise the powers of the Secretary of State contained in schedule 3 to the Act of 1971 relating to restriction orders, detention and supervised departure. Not all inspectors were given this authority. It was limited to 14 out of a total 52 inspectors and their authority was further limited to cases in which they had not previously been involved as immigration officers. Those nominated were all persons of long service and experience in the immigration service. Mr Barrell the inspector in Mr Oladehinde's case had 24 years' experience and Mr McCormack who made the decision in Mr Alexander's case had 22 years' experience.
Since the introduction of this new power there has been a considerable increase in the number of immigrants deported for being in breach of their conditions or for overstaying. The appellants attributed this to a less scrupulous examination of the circumstances of an immigrant by inspectors before taking the decision to deport than had hitherto been the case when the deportation section had taken the decison. I am in no position to judge the truth of this assertion, there is certainly no evidence that the inspectors involved in these cases neglected their duty and it seems to me that the increase may equally have been affected by the fact that adjudicators are no longer entitled to reverse a decision on compassionate grounds.
There is no dispute that both appellants were liable to be deported, the one for breach of condition, the other as an overstayer, and Parliament has approved a rule that says that in such circumstances deportation should generally follow. Furthermore the initial decision to deport is in a sense provisional as the case is again reviewed before the Home Secretary is invited to sign the deportaton order. I appreciate, however, that the initial decision is a serious matter setting in motion the deportation procedure which will gather a momentum that may be difficult to reverse.
Such is the background against which the appellants' submissions must be examined.
I will deal first with the submission that the decision to deport was taken by the immigration officers concerned and not by the inspectors. There is no evidence to support this submission which is based upon the suspicion that there cannot be a full appreciation of the circumstances of the case as a result of a telephone conversation. I confess myself to some unease about the practice of taking the decision to deport in this way, but it was not a practice introduced as a result of giving inspectors the power to take the decision. It was first introduced in 1986 when decisions were still taken in the deportation section. It seems to me that it would be much more satisfactory if whoever is responsible for taking the decision had the opportunity to consider a written report including any representations on behalf of the immigrant before taking the decision. It is after all a grave decision affecting the future welfare of the immigrant and although it will be reviewed again in the deportation section, I have already commented on the momentum of the initial decision. There is however a practical difficulty in that the power to detain only arises after service of the notice of intention to deport (see schedule 3, paragraph 2(2) to the Act of 1971), so unless the immigrant is held in custody for the purpose of taking criminal proceedings against him, he cannot be detained for a short period whilst the written report is being considered and by the time a written report has been considered and a decision taken the immigrant may well have disappeared. What seems to me to be required is a power to detain for a short period while the report is considered. However that may be, both inspectors swore affidavits that they received full oral reports of the results of the interviews with the immigrants and that they personally took the decision in the light of those reports to authorise service of the notice to deport. No application was made to cross-examine the inspectors and I can see no grounds upon which it would be right to reject their sworn evidence that the decision to deport was theirs and not that of the immigration officers. Nor in these cases is there any challenge to the fact that both appellants were liable to deportation. On this issue the appellants must fail.
I turn now to the principal issue. The appellants submit that immigration officers are the holders of a statutory office and as such they are independent of the executive arm of government and cannot have devolved upon them any of the executive's powers. Therefore it is said the Carltona principle cannot extend to cover the exercise of the Secretary of State's powers by an immigration inspector.
Alternatively it is submitted that if immigration officers are civil servants in the Home Office the structure of the Act, which differentiates between the powers of the immigration officers which are primarily concerned with entry control and subsequent policing of illegal immigrants, and the powers of the Secretary of State in relation to deportation carries with it a clear statutory implication that the powers of the Secretary of State are not to be exercised by immigration officers.
I cannot accept either of these submissions. I have no doubt in my mind that immigration officers have been civil servants since they were first employed under the Aliens Act 1905. The fact that nowhere in the Act of 1971 is there any reference to an immigration service, or the structure of such a service, is only explicable in terms that it was recognised that it had evolved as part of the Home Office expanding over the years. The status of immigration officers is not that of statutory office holders such as adjudicators or members of appeal tribunals who are referred to in the Act as office holders: see schedule 3 paragraph 2 and 8. Immigration officers are civil servants in the Home Office to whom are assigned specific statutory duties under the Act. Apart from a small pay lead in recognition of their statutory responsibilities their conditions of service and grading are in all respects comparable to other Home Office civil servants. The Act makes no provision for the management of the immigration service for that is the function of the Home Office of which the service is a part. Immigration inspectors are senior line managers and as such will rarely exercise the specific powers given to immigration officers by the Act. The only mention of a duty to be carried out under the Act by an immigration inspector is to be found in rule 78 of the immigration rules of 1983 which reads:
"The power to refuse leave to enter is not be exercised by an immigration officer acting on his own. The authority of a Chief Immigration Officer or of an Immigration Inspector must always be obtained."
As there are many more chief immigration officers than inspectors I would expect the power only occasionally to be exercised by an inspector.
It is well recognised that when a statute places a duty on a minister it may generally be exercised by a member of his department for whom he accepts responsibility: this is the Carltona principle. Parliament can of course limit the minister's power to devolve or delegate the decision and require him to exercise it in person. There are three examples of such a limitation in the Act of 1971. Section 13(5) provides:
' 'A person shall not be entitled to appeal against a refusal of leave to enter, or against a refusal of an entry clearance, if the Secretary of State certifies that directions have been given by the Secretary of State (and not by a person acting under his authority) ..."
and see also sections 14(3) and 15(4).
There is no such limitation in respect of the decision to deport, nor would the Act be workable if there was such a limitation.
Where I find in a statute three explicit limitations on the Secretary of State's power to devolve I should be very slow to read into the statute a further implicit limitation.
The immigration service is comprised of Home Office civil servants for whom the Home Secretary is responsible and I can for myself see no reason why he should not authorise members of that service to take decisions under the Carltona principle providing they do not conflict with or embarrass them in the discharge of their specific statutory duties under the Act and that the decisions are suitable to their grading and experience.
It has been recognised that it would not be right to authorise an inspector to take a decision to deport in any case upon which he had been engaged as an immigration officer for to do so would be too much like asking a prosecutor to be judge in the same cause. But in a case in which he has been in no way personally involved I am unable to see any good reason why the decision to deport in a section 3(5)(a) case should not be left to an immigration inspector. He will be a person of comparable grade to those who previously took the decision and equally experienced in immigration matters. There was a suggestion that because immigration officers were primarily concerned with control of entry and policing functions in respect of illegal immigrants there might be an ethos in the service that would lead too readily to a decision to deport. There was no evidence to support this suggestion and I can see no reason why senior members of the service should be tarred with this image, and in any event their decisions are reviewed in the deportation department before the order is signed by the Home Secretary. It is also to be remembered that direct transference may take place within the Home Office between those working in the immigration service and the deportation section and the evidence is that training of all those in the Home Office concerned with the implementation of immigration control is closely coordinated.
On this issue my Lords I am in agreement with the Court of Appeal that there is no legal impediment to the Home Secretary authorising immigration inspectors to take the decision to deport immigrants who are in breach of their conditions of entry or who are overstayers.
The final question concerns the scope of the appeal against the decision to deport provided by section 5 of the Act of 1988 which, for convenience, I will set out again:
"(1) A person to whom this subsection applies shall not be entitled to appeal under section 15 of the principal Act against a decision to make a deportation order against him -
(a) by virtue of section 3(5)(a) of that Act (breach of limited leave); or
(b) by virtue of section 3(5)(c) of that Act as belonging to the family of a person who is or has been ordered to be deported by virtue of section 3(5)(a),
except on the ground that on the facts of his case there is in law no power to make the deportation order for the reasons stated in the notice of the decision."
In R v Secretary of State for the Home Department, ex parte Malhi [1990] 2 WLR 932 the Court of Appeal held that on the true construction of section 5(1) an adjucicator hearing an appeal under section 15 of the Act of 1971 was not entitled to investigate the propriety of the procedures leading up to the Secretary of State's decision to make a deportation order but could only enquire whether the facts of the applicant's circumstances were such that the Secretary of State had power to make a deportation order for the reasons stated in the notice of intention to deport.
The appellants submit that this decision can be distinguished or alternatively was wrongly decided. In my opinion the case cannot be distinguished and it was rightly decided.
In passing the Act of 1988 Parliament took the decision to curtail the appellate powers of adjudicators which had under section 19(1) of the Act of 1971 enabled an adjudicator to substitute his own discretion for that of the Secretary of State. This the adjudicator can no longer do. I read section 5(1), as did the Court of Appeal in Malhi, as confining the adjudicator to considering whether or not in a given case the evidence establishes that the immigrant is liable to deportation on the grounds stated in the notice of the decision to deport. There is no question in these appeals that there is in law power to make deportation orders because Mr Oladehinde had breached his condition of entry and Mr Alexander is an overstayer. What is in issue in these appeals is whether the power is being correctly exercised by the Secretary of State. As Stuart-Smith LJ pointed out [1990] 2 WLR 932, 943 the adjudicator is concerned with the existence of the power and not with the exercise of the power. The procedures of judicial review exist to enable litigants to challenge the allegedly improper exercise of power and to have the matter tested in the High Court, as has been done in these appeals. It would be an unnecessary and potentially embarrassing overlap of jurisdiction if the adjudicator also had similar powers.
In my opinion the adjudicator had not jurisdiction to enquire into the propriety of the Secretary of State's decision to allow immigration inspectors to take the decision to deport, nor had he jurisdiction to enquire into whether the decision had been taken by the immigration officers and not by the inspectors. These are matters relating to exercise of the power and not with the existence of the power and are properly the subject of judicial review.
I agree with the judgments in the Court of Appeal in Malhi and am prepared to adopt their reasoning as my own.
I would therefore dismiss both appeals.
Lord Ackner: My Lords, The essential issue in this case is whether immigration inspectors are entitled to take the initial or preliminary decision to serve a notice of intention to deport, on behalf of the Secretary of State on persons who have entered this country lawfully but who are alleged to have broken the rules or conditions relating to their stay. The issue is not whether such immigration inspectors in the instant appeals broke the rules of natural justice in making their decisions. During the course of submissions I expressed concern both at the apparent failure to give the appellants any opportunity to make representations to the inspectors prior to their making their decisions and the apparent failure to ensure that the appellants knew precisely what material the immigration officers had put before the inspectors as the basis upon which to decide whether or not to make the decision. The Immigration Act 1988 seriously restricted the immigrant's right of appeal. It has therefore become even more important that the decision-maker has all the relevant material before him and that this material is accurate. However, the procedure which was or should have been adopted by the immigration inspectors is not the subject matter of this appeal. The essential issue is whether the inspectors had lawful authority to make the decisions which they made. For the reasons given by my noble and learned friend Lord Griffiths I am satisfied that the inspectors had such authority and I too would dismiss these appeals.
Appeals dismissed |
Regina v. Commissioners of Inland Revenue ex parte Woolwich Equitable
Building Society
25 October 1990
[1990]
1 WLR 1400; [1991] 4 All ER 92; 63 TC 589, HL(E)
The Society’s appeal was heard in the House of Lords
(Lords Keith of Kinkel, Brightman, Oliver of Aylmerton, Goff of Chieveley and
Lowry) on 11, 12, 13, 18, 19, 20 and 21 June 1990 when judgment was reserved.
On 25 October 1990 judgment was given unanimously against the Crown, with
costs.
John
Gardiner Q.C., Nicholas Underhill and Jonathan Peacock for the Society.
S.A.
Stamler Q.C. and Alan Moses
Q.C. for the Crown.
The following cases were cited in argument in addition
to the cases referred to in the speeches:—Ayrshire
Employers Mutual Insurance Association Ltd. v. Commissioners of Inland Revenue 27 TC 331; 1946 SC
1; Fry v. Burma
Corporation Ltd. 15 TC 113; [1930] AC 321; Reid
v. Reid (1886) 31 ChD 402; Lauri v. Renad
[1892] 3 Ch 402; Kingsway Investments (Kent) Ltd.
v. Kent County Council [1971] AC 72; [1970]
1 All ER 70; Dunkley v. Evans & Another [1981] 1 WLR 1522; [1981] 3
All ER 285; Potato Marketing Board v. Merricks [1958] 2 QB 316; Olsen v. City of
Camberwell; [1926] VLR 58; Regina v. Secretary of State for Transport ex parte Greater London Council [1986] QB 556; [1985] 3
All ER 300; Thames Water Authority v. Elmbridge Borough Council [1983] QB 570; Director of Public Prosecutions v. Hutchinson & Another [1989] QB 583; [1989] 1
All ER 1060; Grosvernor Place Estates Ltd.
v. Roberts 39 TC 433; [1961] Ch 148; Vestey & Others v. Inland Revenue Commissioners 54 TC 503; [1980] AC 1148; Strickland v. Hayes [1896] 1 QB 290; Dyson v. Attorney
General [1912] 1 Ch 158; Moore v. Austin 59 TC 110; [1985] STC 673; In re Lang Propeller Ltd. 11 TC 46; [1927] 1 Ch
120 Skinner & Another v. Cooper & Another [1979] 1 WLR 666; [1979] 2
All ER 836.
Lord Keith of Kinkel;—My Lords, I have had the opportunity of considering
in draft the speech to be delivered by my noble and learned friend Lord Oliver
of Aylmerton. I agree with it, and would allow the appeal for the reasons he
gives.
Lord Brightman:—My Lords, I also have considered in draft the
speech to be delivered by my noble and learned friend Lord Oliver of Aylmerton,
and for the reasons given by him would allow the appeal.
Lord Oliver of Aylmerton:—My Lords, the Appellants in this appeal, to whom it
may be convenient to refer simply as “the Woolwich,” call in question the
validity of regulations made pursuant to s 343(1A) of the Income and
Corporation Taxes Act 1970, which they claim were ultra
vires. The question reduces, in the end, to a short, but by no means
simple, question of construction of the relevant statutory provisions, but in
order to understand the problem it is necessary to say something of the
historical background to the section. This has been conveniently and
intelligibly set out in the judgment of Nolan J. in the High Court [1987] STC
654 and to do more than merely to summarise it would be a work of supererogation.
The collection of income tax from the recipients of
annual interest and dividends by means of deduction at source, enshrined at the
date of the commencement of these proceedings in ss 52, 53 and 232 of the Act
of 1970, is a system which has been established for many years and would, but
for the arrangements described below, have applied to investment income from
building societies in the same way as it applied to other investment income.
Under this system, income tax at the basic rate is accounted for to the Revenue
by the paying institution and the recipient is treated, for tax purposes, as
having received a grossed-up amount which, after deduction of tax at the basic
rate, is equal to the income actually received by him. If he is a high-rate
taxpayer he pays additional tax on that amount. If his total income is such
that he is not liable to pay even basic rate tax, he is entitled to reclaim the
tax deducted or the appropriate proportion of it from the Revenue.
Building societies have traditionally provided a safe
and simple form of investment for persons of relatively modest means, many of
whom are not liable to pay basic rate income tax on the whole of their income,
a circumstance which would either have given rise to a very large number of small
repayment claims or would have resulted in the Revenue retaining more tax than
was actually due owing to the failure of investors, either from ignorance of
the law or inertia, to make claims for repayment. Accordingly, in the year
1894, the Revenue offered to the building societies two alternative
arrangements. “A” and “B,” for the discharge of the tax liability of investors
in a way which obviated the necessity for claims for repayment. Under
arrangement “B,” which was the one selected by the Woolwich, the society
discharged the liability for income tax payable in the tax year 1894-95 in
respect of interest paid to its investors by paying to the Revenue tax at one
half of the standard rate on the amount of interest paid and in practice this
was, then and thereafter, treated as applying equally to dividends. The purpose
of this was to achieve a position of “revenue neutrality,” the calculation
being that the Revenue would thus receive, as nearly as may be, the same amount
in tax as it would have received under the ordinary system of tax deduction if
investors qualified to make repayment claims had availed themselves of their
right to do so.
The basic features of this arrangement have been
repeated in each year since 1895 up to and including the tax year 1985-86,
although there have been refinements. In 1925 a distinction was made between
investors who were clearly liable for tax at the basic rate, such as corporate
investors or commercial undertakings, and individual investors. As regards
interest or dividends paid to the former, the societies account for tax at the
basic rate, whilst as regards the latter, they accounted for a reduced rate of
tax which was arrived at each year on the basis of statistical evidence and was
calculated to produce a position of revenue neutrality. An important
complication in this procedure, which has given rise to the problem raised by
this appeal, is that, no doubt for administrative convenience both to the
societies and to the Revenue, the amount payable under each annual arrangement
was calculated not by reference to the payments made in the actual fiscal year
for which the tax was due but by reference to the payments shown as made or
accrued in each society’s annual accounts. Originally it was calculated by
reference to the accounts of the accounting period ending in the previous year
of assessment, but in the year 1940-41 societies were given the right to elect,
once and for all for that and all subsequent years, that the calculation should
be based on the accounts for each society’s accounting year ending in the
current year of assessment. The Woolwich, whose accounting years end on 30
September in each year, made that election.
These arrangements, which were entirely voluntary on
the part of the societies, were renewed annually and were, up to 1951, entirely
extra-statutory. Section 23 of the Finance Act 1951, however, accorded them
statutory recognition and from 1970 until the end of the tax years 1985-86 they
were regulated by s 343 of the Act of 1970.
Subsection (1) of s 343 provided as follows:
“The
Board and any building society may, as respects any year of assessment, enter
into arrangements whereby—(a) on such sums as may be determined in accordance
with the arrangements the society is liable to account for and pay an amount
representing income tax calculated in part at the basic rate and in part at a
reduced rate which takes into account the operation of the subsequent
provisions of this section; and (b) provision is made for any incidental or
consequential matters, and any such arrangements shall have effect
notwithstanding anything in this Act ... ”
There followed a proviso obliging the Board to secure
the position of tax neutrality already referred to. It is unnecessary to set it
out here for, as will be seen, the Finance Act 1984 transferred the function of
fixing the reduced rate for the purposes of the section from the Board to the
Treasury and s 26(3) of that Act contained provisions to the same effect to the
terms of which I will refer a little later. Section 343(2) provided for the
deduction of dividends and interest paid for the purposes of the society’s
corporation tax and also regulated the treatment for corporation tax purposes
of dividends and interest paid by a society to company investors. The position
of investors in and borrowers from a building society are dealt with in subss
(3) and (4) which, so far as material, provide as follows:
“(3)
Where any arrangements under this section are in force in the case of any
society as respects any year of assessment—(a)
notwithstanding anything in Part II of this Act, income tax shall not be
deducted from any dividends or interest payable in that year in respect of
shares in or deposits with or loans to that society, (b) subject to subsection (2) (b) above no repayment of income tax and, subject
to paragraph (i) of the proviso below, no assessment to income tax shall be
made in respect of any such dividends or interest on or to the person receiving
or entitled to the dividends or interest, (c) any amounts paid or credited in
respect of any such dividends or interest shall, in computing the total income
of an individual entitled thereto, be treated as income for that year received
by him after deduction of income tax from a corresponding gross amount ...
provided that—(i) paragraph (b) above shall
not prevent an assessment in respect of income tax at a rate other than the
basic rate; (ii) for the purpose of determining whether any or what amount of
tax is, by virtue of paragraph (c) above, to be taken into account as having
been deducted from a gross amount in the case of an individual whose total
income is reduced by any deductions so much only of that gross amount shall be
taken into account as is part of his total income as so reduced ...
(4)
Where any arrangements under this section are in force in the case of any
society as respects any year of assessment then, notwithstanding anything in
Part II of this Act, income tax shall not be deducted upon payment to the
society of any interest on advances, being interest payable in that year.”
Thus it will be seen that the payment by a society
under an arrangement made under this section in any year of assessment has the
effect of discharging entirely any liability for individual investors for basic
rate tax on dividends or interest received by them in that year of assessment
even though, as previously noted, the “amount representing income tax” is in
fact calculated not upon the income actually received in that year but upon
those sums which have been paid or accrued in the society’s accounts for the
accounting period ending in that year. So long, of course, as successive
arrangements continue to be made on the same basis, amounts paid during the
period between the end of the society’s accounting year and the beginning of the
next year of assessment will be brought into account for the purposes of the
computation of the society’s liability in that year of assessment. If, however,
the arrangement is discontinued—if, for instance, the society declines to enter
into an arrangement for the next year of assessment and elects to deduct and
account for tax on dividends and interest actually paid in that year of
assessment—there will be what has been referred to as a “gap period” which will
never be brought into account. That is, in effect, what has occurred in this
case and it is this that has given rise to these proceedings.
Just to complete the picture, under s 343 as it
originally stood there are two further matters which ought to be mentioned.
Obviously in the case of any building society whose accounting year-end did not
coincide with the end of the fiscal year the amounts upon which tax fell to be
calculated straddled two financial years in respect of which different rates of
tax might be applicable. Thus from the year 1975-76 onwards the practice was to
apportion dividends and interest paid on a time basis and to calculate the
reduced rate separately for each apportioned part according to the tax rate for
the actual year of assessment into which it fell. Secondly, and no doubt for
administrative convenience, it was the universal rule that the tax payable by
each society under the arrangement was paid on 1 January of the year of
assessment to which the arrangement related.
The Finance Act 1984 introduced new arrangements with
regard to tax on interest payments on bank deposits and, as already mentioned,
transferred to the Treasury the responsibility for fixing the reduced rate in
each year for arrangements with buildings societies under s 343. The proviso to
subs (1) of that section was repealed and was replaced by s 26(3) of the Act of
1984 which was in the following terms:
“Whenever
they exercise their powers under this section the Treasury shall aim at
securing that (assuming for the purposes of this subsection that the amounts
payable by building societies under section 343 of the Taxes Act and by
deposit-takers under section 27 of this Act are income tax) the total income
tax becoming payable to, and not being repayable by, the Crown is (when regard
is had to the operation of those sections) as nearly as may be the same in the
aggregate as it would have been if those sections had not been enacted.”
In his budget statement delivered on 19 March 1985 the
Chancellor of the Exchequer indicated that since, on 6 April of that year, the
banks were to move over to the composite rate system for the payment of tax on
bank interest (which tax, I observe in parenthesis, was accounted for quarterly
and calculated on payments made or credited during the quarter) it was now
necessary to put the building societies’ payments onto a similar footing as
from the beginning of the following tax year. For reasons which, I confess, are
not entirely clear to me, Parliament determined to effect this, not directly by
primary legislation, but by empowering the Board of Inland Revenue, to
introduce the new system by regulation. By s 40 of the Finance Act 1985, s
343(1) of the Act of 1970 was amended by adding to the words “in respect of any
year of assessment” the words “ending before 6 April 1986,” thus terminating,
as from that date, the system of annual voluntary arrangements. Two new
subsections, numbered respectively (1A) and (1B) were added in the following
terms:
“(1A)
The Board may by regulations made by statutory instrument make provision with
respect to the year 1986-87 and any subsequent year of assessment requiring
building societies, on such sums as may be determined in accordance with the
regulations, to account for and pay an amount representing income tax
calculated in part at the basic rate and in part at the reduced rate determined
for the year of assessment concerned under section 26(1)(a) of the Finance Act
1984: and any such regulations may contain such incidental and consequential
provisions as appear to the Board to be appropriate, including provisions
requiring the making of returns.
(1B)
A statutory instrument made in the exercise of the power conferred by
subsection (1A) above shall be subject to annulment in pursuance of a
resolution of the Commons House of Parliament.”
At the same time amendments,
to take effect for the year 1986-87 and subsequent years, were made to subss
(2) and (3) to substitute reference to the regulations under subs (1A) for
references to arrangements made under subs (1).
So matters stood on 25 October 1985 when the Woolwich
entered into arrangements under the amended s 343(1) for the year of assessment
1985-86. Under those arrangements a sum of £138,201,856 became payable in
respect of dividends and interest payable during that year of assessment, such
sum being calculated in the usual way on the sums shown as paid or credited in
the Woolwich accounts for the financial year ended 30 September 1985. These
arrangements, by virtue of s 343(3) had the effect of discharging once and for
all any ability of investors for basic rate tax on dividends or interest paid
to them by the society during that year of assessment and on 1 January 1986 the
sum was duly paid, thus discharging in full the society’s liability to the
Revenue under the arrangements.
On 13 March 1986, the Commissioners of Inland Revenue
made regulations (the Income Tax (Building Societies) Regulations, 1986 (S.I.
1986 No. 482)), the broad effect of which was, as from 6 April 1986, to impose
on the building societies a compulsory system of collection of tax in respect
of dividends and interest paid and to require the tax to be accounted for
quarterly and to be calculated in each quarter not, as previously, on the sums
shown in the audited accounts ending in the year then current but on the sums
actually paid or credited in the quarter concerned. The quarter-days were
fixed, presumably as a matter of administrative convenience, as the last days
of February, May, August and November. These regulations were laid before
Parliament on 14 March 1986 and came into operation on 6 April 1986.
It can readily be seen that, in the absence of any
further taxing provision the effect of a changeover from calculating tax
payable, by reference to each society’s annual accounts for the year ending in
the current year of assessment (1985-86) to calculation on the actual payments
made during the year of assessment (1986-87) would have the result that
payments made or credited between the end of the accounting year and 6 April
1986 would never be brought into account for the purposes of calculating the
tax payable, for they related to the year 1985-86, the tax liability for which
had already been discharged by the arrangements made for that year. On one view
of the matter this is an entirely equitable result because, it is argued, if
one goes back through the years, there must have been, when arrangements first
came to be made on the basis of the society’s annual accounts, an element of
doublecounting which balances the period falling out of account. Whether that
is right or wrong in fact, the Commissioners were clearly of the view that
provision was required to prevent sums paid during the gap period from
escaping, as they would put it, liability for tax. It was quite evidently with
this in mind that they introduced into the Regulations of 1986 transitional
provisions designed to bring these sums into account. The question is whether,
on their true construction, the provisions of s 343(1A) enable them to do so.
Turning now to the Regulations of 1986, Regulation 2
contains a number of definitions, the material one for present purposes being
“payment” which is defined to include “credit” and “payment quarter” meaning “a
period of three months ending with the last day of February, May, August or
November.” The obligation on a building society to pay tax—that is, the
charging provision—is in Regulation 3 which, for relevant purposes, provides as
follows:
“… a building
society shall pay to the Board on the relevant payment date for each payment
quarter or other period to which regulation 7 applies, in respect of any
payments of dividends or interest ... made after February 1986, a sum made up
of the reduced rate amount and the basic rate amount for that payment quarter
or period.”
Regulation 7 (which deals with the collection of
amounts in respect of income tax payable) incorporates Schedule 20 to the
Finance Act 1972 and applies it to building societies with certain
modifications. Broadly that Schedule regulates the collection of income tax
from companies, imposes a duty to make returns and provides for payment to be
due without assessment. As regards the obligation to make returns in the case
of a building society, the regulation provides that a return shall be made for
“(a) each
complete payment quarter within the accounting period beginning with the
payment quarter ending 31 May 1986; (b) each
part of an accounting period being a part which begins after February 1986 and
which is not a complete payment quarter.”
Paragraph 5 of Schedule 20 enables a company to set
off against its tax liability the tax on payments which it itself has received
under deduction of tax. Regulation 7(3)(e) applies this only in relation to
payments received after February 1986. Regulation 4(1) applies the reduced rate
amount to dividends and interest paid (in broad terms) to individuals and
Regulation 5 applies the basic rate amount (again in broad terms) to payments
made to corporate investors beneficially entitled.
It will be seen, therefore, that Regulation 3 has the
effect of charging to tax in 1986-87 payments which in fact were made between
28 February 1986 and 6 April 1986, that is to say, during the year of
assessment 1985-86. This forms one branch of the Woolwich’s attack on the
validity of the Regulations of 1986. The same point, but of greater
quantitative importance arises in relation to Regulation 11 which contains
transitional provision designed to charge to tax any balance of dividends and
interest paid during 1985-86 between the end of a society’s accounting year and
28 February 1986. It is headed: “Transitional
payments in 1985-86 taken into account under 1985-86 arrangements” and
provides, so far as material, as follows:
“(1)
This regulation applies with respect to any payment by a building society,
after the end of the society’s last accounting period which ends in the year
1985-86, but before 1 March 1986—(a) made to an investor by way of dividends or
interest in respect of an investment; or (b)
which is a section 53 payment.”
(The reference to a s 53 payment is a reference to
payment by building societies of annuities or other annual payments from which
tax is to be deducted at source within the meaning of s 53(l)(a) of the Act of
1970.)
“(2)
Subject to the provisions of these regulations, any such payment shall be
treated in all respects as a payment to which these regulations apply and as
made in the payment quarter to which the payment dates specified in paragraph
(3) below relate.
(3) The
accounting periods concerned, the specified payment dates to which paragraph
(2) refers, and the amounts in respect of the sum payable to the Board to which
regulation 3 applies which shall be payable on or before those dates, are as
follows:
Accounting period ending
Payment Date
Amount
In December 1985, January or February 1986
14 March 1987
The whole
In September, October or November 1985
14 March 1987 14 March 1988
One half One half
In June, July or August 1985
14 March 1987 14 March 1988 14 March 1989
One third One third One third
Before June 1985
14 March 1987 14 March 1988 14 March 1989 14 March
1990
One quarter One quarter One quarter One quarter
(4) Subject
to paragraph (5), the sum payable to the Board to which paragraph (3) refers is
the sum of the reduced rate amount arrived at by reference to a rate of 25.25
per cent, and the basic rate amount arrived at by reference to a rate of 30 per
cent.
(5) Regulation
7(3) shall apply for the purposes of this regulation with the substitution of
the following paragraph for paragraph ‘(e)’—
(e) as if, for the purposes of paragraph 5 (set off
against company’s, income tax payable), the period from the end of the
society’s last accounting period ending in the year 1985—86 down to the end of
February 1986 were an accounting period.”
If these regulations stood alone the effect would, of
course, be that sums shown as accrued due in society’s accounts for the year
ended in the fiscal year 1985-86 but actually paid after the end of the
society’s accounting year would be brought into account for the purpose of the
regulations even though they were already taken into account of for the
purposes of the arrangements for that year. That position, however, is catered
for by Regulation 12 which underlines the intention behind Regulation 11 and is
in the following terms:
“The
above regulations shall not apply to any payment of dividends or interest in
respect of an investment or to any section 53 payment to the extent that
account was taken of any such payment in computing the amounts representing
income tax payable by a building society under the arrangements as respects the
year 1985-86 to which subsection (1) of section 343 applies.”
So far as the Woolwich is concerned the effect of
these regulations is to subject it over a period of 24 months to tax on 29
months income, with the result that, on the calculations contained in the
evidence, the Revenue receives for the fiscal years 1986-87 and 1987-88 some
£76m more than it would otherwise have received in respect of the dividends and
interest paid or credited during those years. It is, therefore, perhaps not
altogether surprising that on 17 June 1986 the Woolwich commenced proceedings
for judicial review seeking a declaration that the Regulations of 1986 were
unlawful.
My Lords, for my part I entertain very little doubt
that, as the legislation in fact stood at the date when these regulations were
made, the Woolwich was entitled to succeed. Income tax, as has been forcefully
pointed out in the course of the argument, is an annual tax which is assessed
in respect of a particular year of assessment. Whilst the concept of calculating
the amount of tax payable in respect of that year by reference to the income
received during another period—for instance, the previous year of assessment—is
a familiar one, no precedent exists for charging tax for a particular year on
the income of a period of more than a year. Section 343(1A) enables the Revenue
only to make provision “with respect to the year 1986—87 and any subsequent
assessment” and to require a building society to account for and pay “an amount
representing income tax.” That cannot, clearly, refer to the society’s income
tax because the society does not pay income tax. The amount which the society
is required to pay can only sensibly “represent” income tax which could
otherwise be payable by its depositors and it is to be calculated in part at
the basic rate and in part at the reduced rate “determined for the year of
assessment concerned under s 26(1)(a) of the
Finance Act 1984.” That section requires the Treasury to determine the rate
individually for each year of assessment and with the aim of producing a
position of tax neutrality for that year of assessment. The words “such sums as
may be determined” cannot, on any ordinary principles of statutory
construction, be read as unrelated to the year of assessment with respect to
which the regulations of 1986 are made and as unrelated to the income tax which
those sums are to represent. On no ordinary analysis could it be read as
embracing a power to make provision for the taxation of sums paid or credited
in the year 1985-86.
The subsection did not, however, remain in the form in
which it stood at the date when these proceedings were commenced. Section 47(1)
of the Finance Act 1986, which received the Royal Assent on 25 July 1986,
introduced a deliberately retrospective amendment. It provides:
“In
section 343 of the Taxes Act (Building Societies), subsection (1A) (which was
inserted by the Finance Act 1985 and enables the Board to make regulations
requiring societies to account for amounts representing income tax on certain
sums) shall have effect and be deemed always to have had effect with the
insertion after the words ‘in accordance with the regulations’ of the words
‘(including sums paid or credited before the beginning of the year but not
previously brought into account under subsection (1) above or this
subsection)’.”
It is the effect of these additional and retrospective
words which forms the real issue on this appeal. In the argument on the
application for judicial review before Nolan J. they played a relatively
insignificant part: [1987] STC 654. Nolan J. could see nothing in s 343(1A)
which authorised the Commissioners to go back on the arrangements made with the
Woolwich for 1985-86 and he treated the provisions of Regulation 11(4), which
seek to charge tax at the 1985-86 rates and which the Commissioners now accept
are ultra vires as a clear indication that
the regulations went beyond the power conferred by s 343(1A). On no analysis
could Parliament have intended to delegate to civil servants the power to fix
the rate of tax payable for a year of assessment. He found himself unable to
ascribe any sensible meaning to the words added by s 47 of the Finance Act 1986
save, possibly, to authorise what was probably unnecessary, that is to say, the
utilisation of sums paid or credited in a previous year as an artificial
measure of the tax payable in the year 1986-87 in the same way as sums shown in
a society’s accounts had been used under the previous arrangement as the
measure of the tax payable in respect of the fiscal year in which the accounting
period expired. He accordingly made the declaration sought by the Woolwich.
From this decision the Commissioners appealed to the
Court of Appeal which, on 13 April 1989 unanimously reversed the decision of
Nolan J. on the short ground that whatever might have been the effect if the
section had remained unamended, the words introduced by s 47 of the Act of 1986
fairly and squarely covered the interest paid between 30 September 1985 and 5
April 1986. The pith of the Court’s decision lies in the following short
passage from the judgment of Sir Nicolas Browne-Wilkinson V.-C. [1989] STC 463,
469([1]):
“As a
matter of ordinary construction, I find the conclusion contended for by counsel
for the Crown inescapable. The section 47 words are clear and they cover the
present case. Moreover the Regulations have been made and their validity
challenged before Parliament had to consider the Finance Bill 1986. It was in
those circumstances that Parliament enacted section 47 of the Finance Act 1986
which introduced the section 47 words. In such circumstances, in the absence of
any other reason for Parliament to have enacted section 47 so as to deem
section 343(1A) always to have included the section 47 words, the inference
must be that Parliament intended to put to rest the existing challenge to the
validity of the Regulations.”
Before your Lordships the Woolwich has argued
strenuously that this is altogether too simple an approach. For my part, I
confess that I find the conclusion irresistible that Parliament intended by
these words to enable the Revenue to take account of and to charge to tax sums
which, rightly or wrongly, it regarded as otherwise representing windfalls in
the hands of building societies. One has only to look at the circumstances. The
Regulations of 1986 had been made and had been objected to. They were made the
subject of a direct challenge in legal proceedings, the evidence in support of
which clearly adumbrated the arguments advanced before the Judge and the Court
of Appeal. The notion that Parliament should go to the trouble of enacting an
expressly retrospective amendment in order to provide, unnecessarily, for the
use of these sums as a measurement of tax liability—a matter never remotely in
issue—is simply fanciful. But that is not, of course, a total answer to the
issue raised, for it is said that the question is ultimately not one of what,
subjectively, Parliament may (or must) have intended to do but whether, by the
words which it has used, it has effectively done it.
I hope that I shall not be thought to be lacking in
deference to the lengthy, and in many respects, cogent arguments which have
been advanced by Mr. Gardiner on the Woolwich’s behalf if I do not set them out
here in extenso. They highlighted a number of anomalies, not least of which is
that s 343(1) provides in terms that for the year 1985-86 arrangements entered
into shall “have effect notwithstanding anything in this Act.” To create in
relation to sums paid in that year and therefore covered by that arrangement a
liability to tax in the following year of assessment must involve to some
extent going back on that arrangement. The difficulties are far from unreal but
the argument failed on what appears to me to be the salient point, that is to
say, the necessity for ascribing some sensible meaning other than that
suggested by the Revenue to the words which the legislature has advisedly
chosen to use. I confess that I have not found the problems raised as easy of
resolution as have the majority of your Lordships and I have been oppressed by
what appeared to me and still appears to me to be very real difficulties, not
altogether dispelled, for me at any rate, by Mr. Stamler’s robust arguments on
behalf of the Revenue. I console myself that I am not alone in finding the
problem a difficult one. It is rightly said that the application of what is
essentially an annual tax on income of a particular year of assessment to a
period in excess of a year is without precedent. I see force in the argument
that an intention to produce what Nolan J., with his long experience in matters
of taxation, described [1987] STC 654, 660d, as “a truly astonishing result”
should not be ascribed to Parliament without very clear words. Again, it is not
easy to see how, on the footing that sums paid or credited in the gap period
are to be brought into account and taxed at the reduced rate in another year of
assessment as an addition to the sums paid or credited in that year, the
Treasury is to exercise its powers under s 26 of the Act of 1984, for these
powers have to be exercised in relation to a particular year of assessment, in
this case 1986-87. In exercising its powers the Treasury has to assume that the
sums payable by the society are income tax—which can only mean income tax for
the year of assessment—and to produce the net result that the total income tax
becoming payable to the Crown (again in that year of assessment) is no more
than it would have been if s 343 (including subs (1A)) had not been enacted. In
the end, however, I have been persuaded that the Court of Appeal was right in
its conclusion that no other sensible meaning can be given to what were
conveniently referred to as “the s 47 words” than that they were intended to
authorise the taxation in the year 1986-87 and the subsequent years of
assessment of sums paid or credited in the gap period and not previously
brought into account.
It is, of course, true that the ultimate test of
Parliamentary intention is by reference to the words which Parliament has
chosen to use. But here there is no real difficulty in construing Parliament’s
words. Read in their ordinary natural meaning s 343(1A), as amended, authorises
the Revenue to make regulations requiring, in respect of identified years of
assessment, payment of an amount representing income tax on any sums paid
before the year in question and not previously brought into account. “On” here
must I think mean “in respect of’ and, indeed, s 343(2) as amended by s 47 of
the Act of 1986 says as much. On the face of it, that clearly authorises, for
instance, a requirement to pay in the year of assessment 1986-87, a sum in
respect of interest in fact paid before the commencement of that year. One then
asks, what, as a matter of construction, prevents the Revenue from requiring
such payment in addition to payment of sums in respect of interest paid during
that year of assessment? The suggested inhibition against such cumulative
taxation lies not in the words which Parliament has chosen to use but in
certain well-established presumptions or principles—a presumption against
double taxation, a presumption that income tax, being an annual tax is payable
only on the income of a particular year and so on. But these are only
presumptions. They are clearly rebuttable if sufficiently clear express words are
used. But they can also be rebutted, as it seems to me, by circumstances
surrounding the enactment of the particular legislation which lead to an
inevitable inference that Parliament intended, in using the words that it did,
that these presumptions or principles should not apply. I am bound to say that
I think it unfortunate that the Revenue, through Parliament, should have chosen
by secondary rather than primary legislation to take what was, on ordinary
principles, the very unusual course of seeking to tax more than one year’s
income in a single year of assessment, but s 47 of the Finance Act 1986 is, on
any analysis, a very unusual provision and I have, in the end, found myself
irresistibly driven to the conclusion that this was what Parliament intended
should occur. It may be—I do not know—that the legislature did not appreciate
fully that the effect of the arrangements made in 1985 was to discharge all
liability for tax on interest paid in the year of assessment 1985-86, including
tax on interest paid after the end of a society’s accounting year, and that,
accordingly, to tax those sums again in a subsequent year was, in a sense, to
tax them twice. But even making that assumption it amounts to no more than
saying that the legislature should not have intended to do that which it
plainly set out to do. I would, for my part, therefore, reject the Woolwich’s
principal argument.
That is not, however, the end of the matter for an
alternative argument is advanced. This arises out of the Revenue’s
concession—clearly rightly made—that Regulation 11(4) is ultra vires. What is said here is that this has
the effect of invalidating Regulation 11 in toto. On the other side, it is
argued that the only effect of invalidating Regulation 11(4) is that it is
notionally deleted from the Regulations of 1986, so that there is simply no
specification of a rate of tax applicable. It would follow that the appropriate
rate is simply that which s 343(1A) prescribes, that is to say, the rate for
the year of assessment into which the sums are brought. That argument found
favour with the Court of Appeal which held Regulation 11 to be valid save to
the extent that para (4) purported to fix a rate of tax. Before your Lordships,
Mr. Underhill has submitted that this case cannot be approached on such a
simple “blue- pencil” basis. Clearly “severance,” to use the convenient and
conversational expression, by a process of simple deletion is practicable here
without altering the grammatical sense of what is left. But Mr. Underhill has
submitted— and, in my judgment, rightly submitted—that this does not provide
the complete answer. One has to ask also the question whether the deletion of
that which is in excess of the power so alters the substance of what is left
that the provision in question is in reality a substantially different
provision from that which it was before deletion. If it is, it cannot be
assumed that the legislator would have enacted it in its altered form and the
whole must be declared bad. Your Lordships have been referred to a number of
authorities, but I do not think the principles, at any rate as they apply to
this case, are seriously in doubt. The matter is in essence one of reading and
construing the provision in question and if, on a fair reading, the provision
shorn of the offensive part is, in substance and effect, a different provision
from that which the legislator, on his own showing, intended to enact, then,
for my part, I do not see how any of it can stand.
Turning to the Regulations of 1986, the essential
scheme adopted is to begin with a charging provision (Regulation 3) which, in
terms, does not apply to payments made prior to 1 March 1986. Those are brought
into charge by Regulation 11, but they are brought in a very particular way,
that is to say, by subjecting them to Regulation 3, deeming them under that
regulation to be paid at times when they were not in fact paid, and then
avoiding, by Regulation 11(4), the taxation consequences which would otherwise
have flowed from this scheme, that is to say, that they would be taxed for the
rates appropriate for the periods in which they are deemed to have been paid.
If one follows the regulations through and relates Regulation 11 back to
Regulation 3 it becomes immediately apparent how vitally important Regulation
11(4) was to the scheme which the draftsman adopted. The starting assumption
was, quite clearly, that the intention of s 343(1A) was that sums paid prior to
the specified years of assessment but not previously brought into account would
be charged to tax at the rate appropriate for the year of assessment in which
they were actually paid or credited. There is nothing in subs (1A) which
justifies this, but it was clearly assumed to be so. This is borne out by the
fact that in respect of the period from 1 March 1986 to 5 April 1986 tax has in
fact been levied at the 1985-86 rate, a course of action which the Revenue now
admits and asserts was a mistake. Similarly, Regulation 11(5) is all of a piece
with this scheme for it authorises the set-off against the sums to be paid in
respect of tax on payments made by the society during the gap period of the tax
deducted from those payments made to the society in the same period which have
been paid under deduction of tax. Whether this provision was strictly
authorised by the power in s 343(1A) to make regulations “with respect to the
year 1986-87” may be open to doubt, but the intention was clearly to levy tax,
albeit payable in a subsequent year, in exactly the same way as if it had
become payable for the year of assessment 1985-86.
In considering the Regulations of 1986 it may be
convenient, by way of shorthand, to refer to “interest” as including also
dividends. If we go first to Regulation 3 we see that what the building society
is required to pay is a sum “in respect of payments of interest made after
February 1986.” Nothing else is charged by this regulation and it is the only
charging provision. The payment is to be made on the payment date for each
payment quarter to which Regulation 7 applies and it is a sum made up of the
reduced rate and basic rate amount for that payment quarter. The payment
quarters have been defined already by Regulation 2 to which I have already
referred and those to which Regulation 7 applies are, by Regulation 7(3)(e)
“each complete payment quarter ... beginning with the payment quarter ending 31
May 1986.” So far, therefore, there is nothing which charges tax in respect of
payments of interest made in the year 1985-86 except insofar as those payments
were made after February 1986. Regulation 11 then seeks to bring them into
charge. Paragraph (1) defines the payments to which the regulation relates and
the charging provision is in para (2). This has a dual purpose. First,
notwithstanding that Regulation 3 applies only to post-February 1986 payments,
it subjects the para (1) payments to that regulation. If that stood alone it
would be self-contradictory, so the second part of the paragraph deems them to
have been paid, not when they were in fact paid, but at dates after February
1986. This is done by treating them “in all respects” as if made in the payment
quarters which are set out in para (3)—that is to say, in the case of the
Woolwich, as if they were made as to one half in the payment quarter ending on
28 February 1987 and as to the other half in that ending on 28 February 1988.
If then we relate that back to Regulation 3 we find that the sums which the
building society is obliged to pay are to be calculated at the reduced -and
-basic rates applicable for the years of assessment in which those payment
quarters fall. No other rate of tax is prescribed. But this would contradict
the basic assumption upon which the Regulations of 1986 have been framed,
namely that the applicable rate for the sum should be the rate for the year of
assessment in which they were actually paid, i.e. 1985-86. Thus para (4) is
introduced to correct this.
It thus becomes apparent that the one thing the
draftsman did not intend was that the sums artificially deemed to be paid in
the specified payment quarters in 1987 and 1988 in order to bring them into
charge under Regulation 3, should be taxed at the rate applicable for those
years of assessment. Yet, if para (4) is deleted, as the Revenue concede that
it must be, that is exactly what Regulation 11 now achieves. It seems to me, accordingly,
that it is beyond argument that Regulation 11 without para (4) is in substance
quite different from the regulation which the draftsman actually produced and
intended. Whether such a result is one which is strictly authorised by s
343(1A) may be open to doubt for it seems extremely unlikely that Parliament
can have intended to confer upon the Revenue a discretion to tax the sums paid
during the gap period at differential rates according to the adventitious dates
upon which, during 1985-86, individual societies had chosen to close their
financial years. But this is in any event immaterial, for the one thing that is
perfectly clear is that this was not the result that the Revenue intended or
contemplated.
Mr. Stamler had really no answer to this save to
suggest that a combination of Regulation 3 and Regulation 11(2) produced, by a
process of reasoning that I confess that I was unable to follow, the result
that the sums deemed to be paid in 1987 and 1988 fell to be taxed according to
the rates fixed for the year of assessment 1986-87. That might be possible for
the payments falling to be made on 14 March 1987 but I find it quite impossible
to ascribe that result to the regulation in relation to the remaining payment
dates referred to in para (3) and it quite clearly does not accord with the
intention to which the Revenue and its draftsman intended to give effect. The
Court of Appeal were prepared to treat the remainder of Regulation 11 as
unaffected by the deletion of para (4) because, it was said, s 343(1A) itself
contained the formula for fixing the rate of tax which could apply in the
absence of para (4) and which, they surmised, the draftsman would have been
prepared to allow to operate had he appreciated the invalidity of the
paragraph. I cannot agree that this is a correct approach. The draftsman’s
hypothetical intention is by no means obvious. If, as Mr. Stamler submitted,
the whole purpose of the transitional provision was to compel societies to
disgorge to the Revenue tax which, in fixing their interest rates, they notion-
ally and indirectly deducted from payments to investors in the gap period,
there can be no logic at all in subjecting those payments to rates of tax which
bear no relation to, and indeed might well exceed, the tax notionally deducted.
That becomes even clearer when one considers that Regulation 11(1) applies not
only to payments of interest and dividends but to payments of annuities to
which s 53 of the Act of 1970 applies and where tax would have been deducted at
source by the society. It cannot rationally have been intended that the society
should come under an obligation to account to the Revenue for tax at a higher
rate than that which obtained at the time when the tax was deducted. What form
the regulation might have taken if the invalidity of para (4) had been
appreciated is a matter of pure speculation.
Nor does the matter stop simply with Regulation 11.
The same erroneous assumption which produced para (4) of that regulation
appears in a slightly different form also in Regulation 3. That this is so is
demonstrated by the fact that the Revenue, as it is now admitted mistakenly,
applied the tax rates for the year 1985-86 to payments made in the period from
the end of February 1986 to 6 April 1986. It is suggested that this can be
rectified simply by a refund of the excess amount of tax demanded. The matter
is not, however, as simple as that. It has to be remembered that what s 343(1A)
authorises—and this is all that it authorises—is the making of regulations
requiring societies to pay, on the sums determined, an amount calculated in
part at the basic rate and in part at the reduced rate “determined for the year
of assessment concerned” under s 26(1)(a) of
the Act of 1984. “The year of assessment concerned,” as a result of the opening
words of the section can only be the year 1986—87 or some subsequent year.
Regulation 3, however, requires payment on the relevant payment date for each
payment quarter of “a sum made up of the reduced rate amount and the basic rate
amount for that payment quarter or period.” As already mentioned, the
regulation applies expressly to payments made after February 1986 and therefore
covers, as the first payment quarter, the period 1 March 1986 to 6 April 1986
(falling in the year of assessment 1985-86) and the period 7 April 1986 to 31
May 1986 (falling in the year of assessment 1986-87). These payments therefore
fall between two stools. There is no single “reduced rate amount” or “basic
rate amount” for that quarter. That is the first difficulty. Regulation 7, it
is true, contemplates (in para (3)(a)) a
period which is not a complete payment quarter and may be said to enable the
references to the basic rate amount and the
reduced rate amount to be read plurally as referring to the amounts applicable
to the separate periods of the quarter in question according to whether they
fall within the year 1985-86 or the year 1986-87. But that could only have the
result of making the amounts “for” the period 1 March 1986 to 6 April 1986 the
amounts determined for the year 1985-86. Thus the regulation is manifestly ultra vires to this extent because the section
under which it is made does not authorise the application of any rate other
than that “for the year of assessment concerned” and that, as already
explained, has to be either the year 1986-87 or some subsequent year. Again,
this is not a defect which can be cured by deletion. The whole regulation would
have to be re-written and it is entirely a matter of speculation what form the
re-writing would take if the draftsman had appreciated the error into which he
was falling.
Whether it is open to the Commissioners now to lay
before Parliament new regulations containing different transitional provisions
is not a matter which it is necessary to consider nor, indeed, would it be
appropriate to do so. If they can and do, then the exercise upon which the,
Woolwich is engaged may seem a singularly sterile one. Nevertheless, although I
am very sensible of the manifest inconvenience which this will involve, it is,
I, think, clear on analysis that the admitted invalidity of Regulation 11(4)
infects the whole of that regulation and I see no alternative to declaring it
to be wholly void and ineffective. It follows that, whilst dismissing the
appeal as regards the power to make regulations having the effect of imposing
tax on sums paid during the gap period, I would allow the appeal as regards the
invalidity of Regulation 11 and of Regulation 3 so far as it relates to the
period after February and before 6 April 1986.
Lord Goff of Chieveley:—My Lords, I have had the advantage of reading in draft
the speech of my noble and learned friend, Lord Oliver of Aylmerton. I agree
with him that the Woolwich’s principal, argument, that the regulations were
unlawful in so far as they purported to require building societies to pay an
amount representing income tax in respect of sums paid or credited before 6
April 1986, must fail. On this point, I do not wish to add anything to what has
been said in the speech of my noble and learned friend.
I turn to the Woolwich’s second argument, which arises
from the Revenue’s concession that Regulation 11(4) is ultra vires. This is that, because that paragraph
cannot be severed from the remainder of Regulation 11, no other part of that
regulation can be saved.
Since my noble and learned friend has so fully
analysed the Regulations, in terms with which I am very substantially in
agreement, I am relieved from the burden of setting out the terms of the
Regulations in extenso or of indulging in a complete analysis of them. I can
proceed straight to Regulation 11, which is described as a transitional
provision, being concerned with certain payments made after the end of the
society’s last accounting period which ends in the year 1985-86, but before 1
March 1986. It is therefore concerned with payments made in the so-called “gap
period,” but not with those made after 28 February and before 6 April 1986,
since those are dealt with directly by Regulation 3. Paragraph (2) of
Regulation 11 provides that:
“Subject
to the provisions of these Regulations, any such payment shall be treated in
all respects as a payment to which these Regulations apply and as made in the
payment quarter to which the payment dates specified in paragraph (3) below
relate.”
So far as the Woolwich is concerned, para (3) has the
effect that payments made by it during the specific period are thereby treated
as paid in part on 14 March 1987, and in part on 14 March 1988. Paragraph (4)
specifies the applicable reduced rate amount and basic rate amount which
together produce the sum payable to the Revenue by the building societies in
respect of the relevant payments. The trouble with para (4) is that the basic
rate amount so specified is plainly based on the basic rate of tax applicable
in 1985-86 (30 per cent.), whereas s 343(1A) of the Act provides that the
relevant rates shall be those for the year of assessment into which the omitted
sums are brought—which, however, cannot be before 1986-87, when the basic rate
was 29 per cent.
I wish to add that, in my opinion, Regulation 3
reveals that (as one would expect) a similar mistake was made in so far as the
regulation refers to payments made after February 1986 and before 6 April 1986.
Under the regulation, the sum payable by the building society to the Board on
the relevant payment date for each payment quarter is to be made up of the
reduced rate amount and the basic rate amount “for that payment quarter or
period.” Those words must be read, in my opinion, as referring to the reduced
rate and basic rate applicable in the year of assessment in which the relevant
payment quarter or period falls. It follows that, consistently with Regulation
11(4), the applicable rates for that part of the first payment quarter which
fell before 6 April 1986 were the rates for 1985-86; and so to this extent
Regulation 3 is also ultra vires.
Reverting to Regulation 11, the contention of the
Revenue has been that, in these circumstances, the problem can be solved if the
Court simply excises para (4). However, as my noble and learned friend has
pointed out, the problem cannot be solved as easily as that, for the simple
reason that para (4) forms an integral part of Regulation 11. Paragraph (2),
which is the central paragraph", has been drafted on the assumption that
para (4) will specify the relevant reduced rate amount and basic rate amount;
and if para (4) is simply excised, this will leave para (2) providing,
unqualified, that the payments shall be treated in
all respects as made in the relevant payment quarters specified in para
(3), which would lead to the basic rate amount being arrived at not by
reference to a rate of 30 per cent., but in part by reference to the basic rate
for 1986-87, and in part to that for 1987-88. In any event, the Revenue’s
contention does not deal with the problem that, for the reasons I have
explained, Regulation 3 is also in part ultra
vires.
Now it is true that, so far as severance is concerned,
the Court no longer has to proceed on the basis of what has been called the
blue pencil test, under which the Court can only sever the good from the bad
where the bad can be excised by a simple deletion of words from the instrument
in question. It is now open to the Court, taking advantage of the remedy of a
declaration, to declare that the instrument in question shall not take effect
in so far as the maker of the instrument has acted beyond his powers, even
though verbal severance of the offending provision is not on the old blue
pencil approach: see Director of Public
Prosecutions v. Hutchinson ([2]),
[1990] 3 WLR 196, 199-220, per Lord Bridge
of Harwich. But the Court must nevertheless be satisfied that, in so
proceeding, it is effecting no damage to the substantial purpose and effect of
the instrument.
However, as I see it, the problem in the present case
is that the mistake made by the Revenue in Regulations 3 and 11(4) cannot be
cured, either by the simple excision of particular words (as proposed, by the
Revenue with regard to Regulation 11(4)), or by a declaration. In the case of
Regulation 11, this is because what is left after the excision of Regulation
11(4) has the effect of providing for rates of tax different from those
intended by the Revenue. What is required in these circumstances is not merely
the excision of Regulation 11(4), but the introduction of a new provision in
its place. The same applies, in my opinion, to Regulation 3, for there too a
new provision is required in relation to payments made after February 1986 and
before 6 April 1986.
The Court of Appeal considered that, in relation to
Regulation 11, the invalidity of Regulation 11(4) did not leave a complete
blank as to the applicable rate, because s 343(1A) provided that the omitted
interest should be brought into account at the rate fixed for the year of
assessment under which it has to be brought in. But the difficulty with
Regulation 11 is that, once para (4) is removed, para (2) is left free to
operate in unqualified terms and specifies the payment quarters in which the
relevant payments are treated in all respects as made; and plainly the Revenue
did not intended para (2) to operate to fix the reduced rate amount and basic
rate amount applicable in relation to such payments. So far as Regulation 3 is
concerned, if it is declared ultra vires so
far as it relates to payments made after February 1986 and before 6 April 1986,
then there is no provision which identifies the year of assessment under which
such payments have to be brought in. In truth, what is required in relation to
the offending parts of both Regulation 11 and Regulation 3 is not merely that
they should be quashed or declared ineffective in so far as they are ultra vires, but that fresh provision should be
made for the appropriate rates of tax in place of those which were unlawfully
specified. It is however in my opinion, no part of the Court’s function to
legislate in this way. It is for the Revenue, if it is still able to do so, to
amend both regulations to bring them in accordance with its statutory powers.
For these reasons I would, like my noble and learned
friend, Lord Oliver of Aylmerton, allow the appeal as regards the invalidity of
Regulation 11, and also allow the appeal as regards the invalidity of
Regulation 3 in so far as it relates to the period after February and before 6
April 1986.
Lord Lowry:—My Lords, in this appeal I have concluded that
neither in its original form nor as amended by s 47(1) of the Finance Act 1986
did s 343(1A) of the Income and Corporation Taxes Act 1970 authorise the
collection of additional tax from the Woolwich (amounting to £69m) which was
referable to the period from 1 October 1985 to 5 April 1986. For convenience I
shall call it “the gap period”, but without accepting the implication which
might thereby gain credence that this appellation signifies a gap in the rightful
revenues of the Crown, as the Respondents would contend.
I gratefully adopt the description which Nolan J. has
given of the historical background and the scheme of taxation [1987] STC 654,
655-658, and also the summary contained in the speech of my noble and learned
friend, Lord Oliver of Aylmerton, which I have had the advantage of reading in
draft. Therefore I can go straight to the main question.
Not surprisingly, there is much in my noble and
learned friend’s reasoning which I happily accept, including his cogently
expressed opinion that s 343(1A), as first enacted, did not, with regard to the
gap period, authorise what the Regulations purported to achieve. It is only
when I come to consider the s 47(1) amendment that I feel obliged to adopt a
different view. I cannot, however, take a short cut by starting there, because
I think it is important for me to consider the meaning first of s 343(1), then
of the original s 343(1A) and finally of s 343(1A) as amended. Although these
provisions are found in my noble and learned friend’s speech, it will be
convenient to set them out again, together with s 26 of the Finance Act 1984
and s 47(1) of the Act of 1986. Section 343(3) is, of course, also important
but I can refer to the text of my noble and learned friend’s speech.
Here are subss 343(1) and (1A) as they had effect at
the time the Regulations were made on 13 March 1986 to come into operation on 6
April 1986:
“343(1)
The Board and any building society may, as respects any year of assessment
ending before 6th April 1986, enter into arrangements whereby—(a) on such sums
as may be determined in accordance with the arrangements the society is liable
to account for and pay an amount representing income tax calculated in part at
the basic rate and in part at a reduced rate ... and (b) provision is made for
any incidental or consequential matters, and any such arrangements shall have
effect notwithstanding anything in this Act: ...
(1A)
The Board may by regulations made by statutory instrument make provision with
respect to the year 1986—87 and any subsequent year of assessment requiring
building societies, on such sums as may be determined in accordance with the
regulations, to account for and pay an amount representing income tax
calculated in part at the basic rate and in part at the reduced rate determined for the year of assessment concerned under
section 26(l)(a) of the Finance Act 1984; and any such regulations may contain
such incidental and consequential provisions as appear to the Board to be
appropriate, including provisions requiring the making of returns.”
To begin with, s 343(1) had ended with a proviso:
“Provided
that in exercising their powers of entering into arrangements under this
section, the Board shall at all times aim at securing that (if the amount so
payable by the society under the arrangements is regarded as income tax for the
year of assessment) the total income tax becoming payable to, and not becoming
repayable by, the Crown is, when regard is had to the operation of the
subsequent provisions of this section, as nearly, as may be the same in the
aggregate as it would have been if those powers had never been exercised.”
This was repealed on the enactment of s 26 of the
Finance Act 1984 (“section 26”), which applied to arrangements under s 343(1)
for the year of assessment 1985—86 and continued to apply to the year 1986-87
and subsequent years. So far as material, it provides:
“26(1)
In the year 1984-85 and in every subsequent year of assessment the Treasury
shall by order made by statutory instrument determine, a rate which shall, for
the following year of assessment, be—(a) the reduced rate for the purposes of
section 343 of the Taxes Act (building societies); and (b) the composite rate for the purposes of section
27 of this Act. (2) The order made under subsection (1) above in each year of
assessment shall—(a) be made before 31st
December in that year; and (b) be based only
on information relating to periods before the end of the year of assessment in
which the order is made. (3) Whenever they exercise their powers under this
section the Treasury shall aim at securing that (assuming for the purposes of
this subsection that the amounts payable by building societies under section
343 of the Taxes Act and by deposit-takers under section 27 of this Act are
income tax) the total income tax becoming payable to, and not being repayable
by, the Crown is (when regard is had to the operation of those sections) as
nearly as may be the same in the aggregate as it would have been if those
sections had not been enacted. (4) In relation to the exercise of their powers
under this section at any time before the year 1988-89, the Treasury may regard
subsection (3) above as directed only to amounts payable by building societies
under section 343 and to the operation of that section. (5) In section 343(1)
of the Taxes Act, the proviso and in paragraph (a) the
words from ‘which takes’ to ‘this section’ shall cease to have effect from 6th
April 1985 ...”
Section 47(1) of the Finance Act 1986 (“section
47(1)”) was enacted in July 1986 and provided:
“47(1)
In section 343 of the Taxes Act (building societies), subsection (1A) (which
was inserted by the Finance Act 1985 and enables the Board to make regulations
requiring societies to account for amounts representing income tax on certain
sums) shall have effect and be deemed always to
have had effect with the insertion after the words ‘in accordance with
the regulations’ of the words ‘(including sums paid or credited before the
beginning of the year but not previously brought into account under subsection
(1) above or this subsection)’.”
(I have emphasised the words which gave the amendment
retrospective effect.)
Accordingly, subss 343(1) and (1A) must be read for
all purposes as follows:
“343(1)
The Board and any building society may, as respects any year of assessment
ending before 6th April 1986, enter into arrangements whereby—(a) on such sums as may be determined in accordance
with the arrangements the society is liable to account for and pay an amount
representing income tax calculated in part at the basic rate and in part at a
reduced rate: and (b) provision is made for
any incidental or consequential matters, and any such arrangements shall have
effect notwithstanding anything in this Act: ...
(1A)
The Board may by regulations made by statutory instrument make provision with
respect to the year 1986—87 and any subsequent year of assessment requiring
building societies, on such sums as may be determined in accordance with the
regulations (including sums paid or credited before the beginning of the year
but not previously brought into account under subsection (1) above or this
subsection), to account for and pay an amount representing income tax
calculated in part at the basic rate and in part at the reduced rate determined
for the year of assessment concerned under s 26(l)(a) of the Finance Act 1984;
and any such regulations may contain such incidental and consequential
provisions as appear to the Board to be appropriate, including provisions
requiring the making of returns.”
I shall call the amendment introduced by s 47(1) “the
section 47 amendment”.
I have been impressed by and grateful for the cogent
and often persuasive arguments of counsel on either side, but I remain
unimpressed by talk of injustice and inequity on the one hand and by references
to lost interest and the gap period on the other. Nor am I affected by
ingenious examples of the strange financial results which could conceivably
arise from the adoption of one construction or the other. If something
unforseen were to happen, it might be dealt with by enactment or regulation,
but in reality such figures as your Lordships have seen tend to show a fairly
steady investors’ income from year to year. But, subject always to interpreting
the words of s 343(1A), the Woolwich is entitled to say that it would be
surprising and prima facie contrary to accepted tax principles for the
amount representing the investors’ income tax for the years of assessment
1986-87 and 1987-88 to be based on the income of two-and-a-half years. As Sir
Nicolas Browne-Wilkinson V.-C. said in the Court of Appeal [1989] STC 463, 470([3]):
“As
to counsel for Woolwich’s second submission, there
is no doubt that in relation to the charging of income to income tax it
is fundamental that in any one tax year the income brought into tax must be the
income of a period of one year only. Tax payable in any one tax year may be
measured by the income of some other year; but in all cases the income brought
into tax is the income of one year and no more.”
The words I have emphasised show that the
Vice-Chancellor was expressing a general view about income tax, which of course
must be subject to the meaning of the relevant provisions in this case, to
which I now turn.
Section 343(1) allows the Board and a building society
as respect any year of assessment ending
before 6 April 1986 to enter into arrangements whereby on such sums as may be
determined in accordance with the arrangements the society is liable to account
for and pay an amount representing income tax calculated in part at the basic
rate and in part at a reduced rate: “as respects any year of assessment” refers
to the year of assessment of the society’s investors (in the instant case the
fiscal year 6 April 1985 to 5 April 1986), the period of charge and all payments and credits of dividends
and interest by the society to investors during that period would, but for the
arrangements, be charged by deducting the tax before payment. The phrase “on
such sums as may be determined” means “by reference to such sums as may be
determined”; in the instant case this is by reference to the sums paid or
credited to investors during the society’s accounting year 1 October 1984 to 30
September 1985 (this choice of arrangement having been made by the Woolwich in
1940-41). The building society then becomes liable to account for and pay to
the Revenue an amount representing the investors’ income tax for the year of
assessment 1985-86. The “reduced rate” of income tax was calculated under the
arrangements, when the proviso was part of s 343(1), in order to achieve what
has been called revenue neutrality, as described by my noble and learned
friend, Lord Oliver. My explanation is illustrated by the arrangements (which
were put in evidence) entered into by the Board with building societies for the
year of assessment 1985-86. The arrangements (giving here only the words needed
to illustrate the point) provide:
“1.
Charge to income tax at composite rates
By
virtue of section 343 ... the society shall be liable to account for and pay an
amount representing income tax calculated at the rate of 25.25 per cent, for
1984-85 and 25.25 per cent, for 1985-86 ‘—(the rates by chance coincided but
could have differed)—’ ... on the total of the
fol-. lowing sums: (a) the sum of the dividends and interest ... payable
in the basis period by the society to its
investors ...
2. Charge
to income tax at basic rates
The
society shall also be liable to account for and pay an amount representing
income tax calculated at the basic rates for 1984-85 and 1985-86 on the total of the following sums: (a) The sum of
the dividends and interest payable in the basis period by the society to its
investors ...
3.
Determination of basis period
(1) Subject
to the provisions of this paragraph the basis period shall be determined as
follows: (a) If an account is made up for a period of one year to a date in the
year of assessment 1985—86 and is the only account made up to a date in that
year of assessment, that period shall be the basis period. (b) In any other
case the Board of Inland Revenue shall decide what period of 12 months ending
in the year of assessment 1985-86 shall be the basis period. (2) If during the
year of assessment 1985-86 the society ceases or unites with another society to
which paragraph (3) below applies, the basis period shall be that period ending
on the rate of cessation or union and commencing on 6 April 1985 ... ”
(Emphasis added)
The words I have emphasised above show on what sums it was determined that the building
society was liable to account for and pay an amount representing income tax.
Those sums were payable to investors in the basis period, that is, the
accounting year of the society ending during the year of assessment.
The word “on” in s 343(1) and in the arrangements made
thereunder is very important. It is a neutral word and, like many words in the
English language, including statutory language, takes its colour, like a
chameleon, from its surroundings or, more literally, its meaning from its
context. The society’s accounting year, called “the basis period” in the
arrangements (a familiar concept in relation to the income tax liability of a
taxpayer), is the measurement period and the amount representing the investors’
income tax in respect of the fiscal year 1985-86 which the building society is
liable to account for and pay is measured by reference to the sums payable to
the investors in the basis period (in the case of the Woolwich 1 October 1984
to 30 September 1985). In the context of s 343(1) “on” means “by reference to”
and not “charged on” or “in respect of’. That this must be so is obvious when
one recalls that part of the basis period (1 October 1984 to 5 April 1985) lies
outside the year of assessment and is not part of a chargeable period for the
purposes of 1985-86 income tax. Mr. Gardiner, for the Woolwich, referred your
Lordships to ss 108 and 109 for the use of the phrase “in respect of’ and to ss
115(1), 116(1), 117(2), 118(1), 119 and 120(1) of the Act of 1970 as
exemplifying the use of “on” meaning “by reference to“ and also cited Duckering (Inspector
of Taxes) v. Gollan([4]) [1964] 1 WLR 414. I need only refer
to the Case Stated 415-418 and to s 132 of the Income Tax Act 1952 for further
examples of “on” used in this sense.
The grammatical structure of s 343(1) should be noted.
The building society is liable to do something, namely “account for and pay”.
The object of those verbs is “an amount representing income tax”, and the verbs
are modified by the adverbial phrase “on such sums as may be determined”, which
is not an adjectival phrase qualifying “income tax”. This is confirmed both by
the position of the phrase in the subsection and by the wording of paras 1 and
2 of the arguments which I have mentioned above.
Section 343(1A) closely follows s 343(1) in its
wording. The difference is that regulations are to take the place of
arrangements and, that the regulations, once made, will require building
societies to pay. But the difference ends there. The regulations are to make
provision with respect to (s 343(1) said “as
respects”) a year of assessment, starting with 1986-87. The building societies’
obligation will be to account for and pay an amount
representing income tax (that is the investors’ income tax) calculated in part at the basic rate (so far the
words emphasised are the same as in s 343(1)) and in part at the reduced rate
determined for the year of assessment concerned under s 26(l)(a) of the Finance
Act 1984. (The difference in wording here, which does not alter the effect, is
due to s 26 having been enacted before s 343(1A), whereas, apart from repealing
the proviso, it was necessary to amend s 343(1) when s 26 was introduced.)
And they were to pay that amount on such sums as may be determined under the regulations
(instead of in accordance with the arrangements).
Your Lordships do not know whether the responsible
Government department had the 1986 Regulations in draft or even in mind when s
343(1 A) was enacted. We do know, however, that on 19 March 1985 the Chancellor
of the Exchequer had indicated that, since the banks were to change their
system of payment of tax on bank interest on 6 April 1985, the building
societies would be put on a similar footing from 6 April 1986.
The scheme of taxation in s 343(1 A), apart from the
fact that it would no longer be an optional alternative to the conventional way
of taxing payments to investors, was just the same as that of s 343(1). It
dealt with the investors’ tax liability in respect of one fiscal year and
obliged the building societies to pay an amount “representing income tax”, that
is, the investors’ income tax for (in the first place) 1986-87. The duty of the
Treasury under s 26(1) and (3) to determine a reduced rate and achieve revenue
neutrality is to be exactly the same as it was with respect to the year
1985-86. And “on such sums” still means “by reference to such sums”. This
rather wearisome analysis makes it easy to see why Mr. Stamler, for the Revenue
would not admit, even with regard to s 343(1), that the word “on” in the phrase
“on such sums as may be determined” meant “by reference to,” because one can
see that it already has the same meaning in s 343(1A). I scarcely need to point
out that tax is “charged on” all sums paid or credited to investors in the
relevant year of assessment. Those sums are readily ascertainable; they do not
need to be “determined” either “in accordance with the arrangements” or “in
accordance with the regulations”.
After the enactment of s 343(1) three events occurred:
(1) the regulations were made and laid and came into
operation on 6 April 1986; (2) the Woolwich commenced proceedings for judicial
review; and (3) section 47 was enacted.
I shall assume that the object of introducing the s 47
amendment was either to make it clear that s 343(1 A) was a valid statutory
authority for the making of the impugned regulations or to convert that
provision into a valid statutory authority. It seems highly probable, in so far
as it is relevant at all, that one of these explanations is the right one. The
ambivalence of any diagnosis is consistent with the Revenue’s presentation of
their case. Before Nolan J. they seem to have relied on s 343(1A) and to have
introduced the s 47 amendment as a make-weight, but in the Court of Appeal the
emphasis seems to have been on the effect of the amendment, while before your Lordships
the Revenue advanced both arguments with equal vigour. Mr. Gardiner, while
conceding that it would be ex abundanti cautela,
suggested that the purpose of the s 47 amendment was to make it clear that the
Regulations of 1986 could require building societies to pay amounts by
reference to sums which had been paid or credited before 6 April of the
relevant year of assessment. It clearly has that effect,
in my opinion, assuming that such an effect was ever needed, and therefore I am
inclined to infer that the amendment had a different purpose from that attributed to it by Mr.
Gardiner. For the Revenue, Mr. Stamler, when arguing that s 343(1A) as enacted
already authorised the Regulations of 1986 in their entirety (except Regulation
11(4)), said that the s 47 amendment was on that basis unnecessary. I shall
come back to this point, but I take leave of it for the moment by saying that
“the purpose of legislation” is not the same thing as “the intention of
Parliament”, which may be gathered only from the actual words of the statute.
Before examining the amendment I will briefly consider
one or two things which the Regulations of 1986 could
have done consistently with s 343(1A) as drafted, and, indeed, with the
arrangements under s 343(1). They could have continued the existing scheme by
requiring building societies to account for and pay an amount representing
income tax by reference to the society’s accounting year (in the case of the
Woolwich, 1 October 1985 to 30 September 1986). Or they could have designated a
year commencing on 1 March 1986 and ending on 28 February 1987. Or they could
have made the basis period coterminous with the year of assessments, in which
case the sums by reference to which the
amounts were to be paid would have precisely coincided with the sums on which
tax was chargeable. The Regulations could have provided for an annual payment
on 1 January, as before, or for a different system such as quarterly payment on
specified days, as they actually did. The true cause of complaint is not the
Board’s choice of the gap period but the combination of the gap period with the
relevant years of assessment, which results in a basis period of excessive
length.
Let me now consider what the s 47 amendment did. I
shall set it out again:
“(including
sums paid or credited before the beginning of the year but not previously brought
into account under subsection (1) above or this subsection).”
It is, of course, necessary to incorporate the new
words into the syntax of the existing subsection and to keep in mind, as I have
already said, that s 343(1A), of which the amendment is now a part, is modelled
on, and now refers to, s 343(1).
Accordingly, as the legislature now tells us, “such
sums as may be determined in accordance with the Regulations” include “sums
paid or credited before the beginning of the year but not previously brought
into account under subsection (1) above or this subsection”. So the s 47
amendment simply defines more specifically (I do not say it extends) the
expression “such sums as may be determined in accordance with the Regulations”.
It achieves absolutely nothing else. (I
emphasise these words because I believe they provide the key to the problem.)
The consequence is that s 343(1A) as amended continues
to authorise precisely the same regulations as it authorised in its original
form, namely, regulations requiring building societies to account for and pay
an amount representing income tax (that is, representing investors’ income tax
in respect of the relevant year of assessment) and to pay that amount by
reference to such sums (now more exactly defined) as may be determined in
accordance with the regulations. The Treasury’s duty to determine the reduced
rate and to aim at revenue neutrality, as required by s 26, is unchanged. In
fact nothing has changed.
With all respect to those who may take a different
view, I do not consider that s 343(2) as amended by s 47(2) of the Finance Act
1986 places any difficulty in the way of construing the word “on” as “by
reference to” in s 343(1A) or s 343(1A) as amended. The original s 343(2),
which is concerned with a building society’s corporation tax, refers to
“dividends or interest payable in respect of
shares in, or deposits with or loans to, the society”, and para (a) of the subsection speaks of “the amount
accounted for and paid by the society in respect
thereof as representing income tax,” meaning “in respect of any such
dividends or interest”. Dividends and interest are
paid in respect of shares etc. and in para (a)
the amount accounted for and paid by the society as representing income tax is paid in respect of
the actual dividends and interest paid to investors in the society’s accounting
period, but it is also paid on (or by
reference to) “such sums as may be determined in accordance with the
arrangements” under s 343(1).
Section 343(2) was the subject of two amendments by s
40(4) of the Finance Act 1985 and s 47(2) of the Finance Act 1986 to have
effect for 1986-87 and subsequent years and, as amended, provides as follows:
“(2)
For any year of assessment to which regulations under subsection (1A) above
apply, dividends or interest payable in respect of shares in, or deposits with
or loans to, a building society shall be dealt with for the purposes of
corporation tax as follows: (a) in computing
for any accounting period ending in the year of assessment the income of the
society from the trade carried on by it there shall be allowed as a deduction
the actual amount paid or credited in the accounting period of any such
dividends or interest, together with any amount accounted for and paid by the
society in respect thereof as representing income tax, (b) in computing the income of a company which is
paid or credited in the year of assessment with any such dividends or interest
in respect of which the society is required to account for and pay an amount in
accordance with the regulations, the company shall be treated as having
received an amount which, after deduction of income tax, is equal to the amount
paid or credited, and shall be entitled to a set off or repayment of income tax
accordingly, (c) no part of any such dividends or interest paid or credited in
the year of assessment shall be treated as a distribution of the society or as
franked investment income of any company resident in the United Kingdom.”
Nothing arises before para (b). It is concerned with computing the income of a
company “which is paid or credited in the year of
assessment” (for present purposes not before 1986-87) “with any such
dividends or interest” (that is, such dividends or interest as are mentioned in
line 2 of para (2)). The words introduced by s 47(2) are “in respect of which
the society is required to account for and pay an amount in accordance with the
regulations”. They describe further the dividends or interest referred to.
There is a close parallel with my analysis of para (2)(a): the dividends and interest are paid to the
company in the year of assessment and in
respect of those dividends and that interest the building society is required
to account for and pay an amount in accordance with the regulations; by looking
again at s 343(1A) it can be seen that the amount is to be paid “on such sums
as may be determined in accordance with the regulations”, by looking again at s
343(1 A) it can be seen that the amount is to be paid “on such sums as may be
determined in accordance with the regulations”, but I can see absolutely no
indication that the dividends or interest in
respect of which that amount is to be paid under s 343(1 A) are or can
be dividends or interest paid to the company in 1985-86.
In my judgment the only possible means of escape from
this conclusion is (1) to assume or pretend that “on” in the phrase “on such
sums as may be determined” in ss 343(1) and 343(1A) means and has always meant
“charged on” (because the s 47 amendment did not change the meaning of “on”)
and (2) to say, as the Revenue did, that “brought into account” in the
amendment means “brought into account for the purpose of paying tax thereon”.
As to the first point, I refer to my earlier observations. As to the second,
the words “not previously brought into account under subs (1) above” are
significant. From an income tax point of view, the “arrangements” and s 343(3)
have ensured that the sums paid or credited to investors in the whole of the
year of assessment 1985-86, including the sums paid or credited in the gap
period, have already been “brought into account” in the Revenue’s sense of the
word, but the sums paid or credited in the gap period have not been “brought
into account” in the way envisaged by arrangements made under s 343(1). In this
respect s 343(1A) has the same effect as s 343(1) and continues to have that
effect after amendment.
The Revenue’s case depends, in my view, on three
fallacies. These are:
(1) The theory that the deductions made by the building
societies during the gap period from the dividends and interest which they paid
to their investors represent money for which the building societies ought to
account to the Revenue. This view explains the inclusion of the gap period by
the Regulations of 1986 together with the relevant fiscal years and, when
advanced in argument, is calculated to predispose a court to accept the
Revenue’s interpretation.
(2) The confusion of the probable purpose of
introducing the amendment with the intention of Parliament as it is to be
gathered from the words used in the Act.
(3) The acceptance of the proposition that, if the
words of the s 47 amendment clearly refer to
the sums paid or credited in the gap period, they also have the effect contended for by the Revenue, I shall deal
with these points in turn.
(1) As respects the year of assessment 1985-86, the
Board and the Woolwich entered into arrangements whereby the entire liability
of the investors for income tax (except for tax at the higher rate) was
discharged, and the Woolwich was also discharged when on 1 January 1986 it paid
to the Board an amount representing that income tax. Thereafter no income tax
or money representing income tax was due in respect of the fiscal year 1985-86.
The Woolwich does not pay income tax in its own right but has a personal
liability for corporation tax with which this case is not concerned. Under
proper regulations the investors’ income tax liability for the year 1986-87 and
subsequent years of assessment ought to be disposed of on similar principles,
using either the year of assessment itself or some other 12-month period as the
basis period. If a cessation or merger occurs, special rules will apply, as
also happened under the former arrangements. The legitimate and declared object
of the old arrangements and the new regulations was and is to collect each year
from the building societies an amount representing the investors’ income tax for
that year. When the Woolwich and other
building societies changed their basis period in 1940-41 from the accounting
year which ended before the year of assessment to the accounting year which
ended during the year of assessment, there was a gap period, but this did not
give rise to legislation to fill the gap. Thus to disregard the 1940 gap was
correct in principle. The Regulations of 1986 introduced a current year basis
of assessment in place of what had been in part a previous year basis. The
Revenue’s proposition amounts to a spurious charge of unjust enrichment against
the building societies and overlooks the point that both s 343(1) and s 343(1A)
are not directed to the tax liability of building societies in their own right
but are concerned with the liability of building societies (as an alternative
to conventional tax accounting) to pay to the Revenue in respect of each single
year of assessment an amount representing the investors’ income tax for that year.
(2) Assuming (in all probability rightly) that the
purpose of the s 47 amendment was to validate the Regulations of 1986 by
retrospectively enlarging the authority to make them, it does not follow that
the amendment achieved that purpose. One fallacy is to infer that purpose must
be equated with legislative intention as expressed in the words used in the
enactment. Another fallacy is to conclude that, because no other sensible
purpose of the amendment can be found, therefore the purpose contended for by
the Respondents not only existed (which can
be readily enough inferred) but has been achieved
(which calls for an examination of the enacting words in their context). If the
purpose of an enactment, including an amending enactment, can be found and if
the words of the statute are on one possible construction apt to achieve the
purpose, but not on another construction, then the Court should prefer the
construction which achieves the purpose, but, if no reasonable construction of
the words used can lead the Court to conclude that the purpose has been
achieved, the intention of Parliament as elicited from the words of the statute
prevails and the purpose, however obvious, is defeated. There is no room for a
purposive construction if the words to be construed will not bear the
interpretation sought to be put upon them and it must always be borne in mind
that the art of statutory interpretation can be applied only when the provision
to be interpreted is ambiguous. I refer to Maxwell
on Interpretation of Statutes, 12th ed. (1969), pp. 1-2, and 28-29 and
also to Bennion, Statutory Interpretation
(1984), p. 237 where the matter is put succinctly:
“The
distinction between the purpose or object of an enactment and the legislative
intention governing it is that the former relates to the mischief to which the
enactment is directed and its remedy, while the latter relates to the legal
meaning of the enactment.”
(3) The unacceptability of this proposition is
obvious.
I turn now to the judgments delivered in the Courts
below.
The judgment of Nolan J. is worthy of careful study
and, I suggest to your Lordships, of considerable respect as well. After
describing the effect produced by the Regulations of 1986 as a truly
astonishing result, the Judge added [1987] STC 654, 660([5]):
“Parliament
is omnipotent, and if it enacted that income tax for any year should be paid on
the income to two years or the income of twenty years, then that would be the
end of the matter; but in none of the Finance Acts of this or of the last
century has it ever sought to levy a year’s income tax upon the income of more
than a year. If it wished to do so one would expect the clearest terms to be
employed. The suggestion that it has implicitly authorised the Revenue to
achieve such a result by way of delegated legislation is one which defies
acceptance.”
He then said, at pp. 660—661([6]):
“By
claiming further tax (albeit from the taxpayer rather than directly from its
members) upon the dividends and interest received by the members during that
period” (i.e. the gap period) “the Revenue are, as it seems to me, going back
on that arrangement. I can see nothing in section 343(1A) which authorises them
to do so.”
Having adverted to the preceding year basis of
assessment, he continued, at pp. 661-662([7]):
“The
income thus taxed is none the less in law the income of the year of assessment,
albeit artificially measured in this way. As Lord Donovan said in Duckering (Inspector of Taxes) v. Gollan([8]) [1965] 1 WLR 680, 689 ... ‘My Lords, it is a
truism which the Appellant does not dispute that United Kingdom income tax for
any year of assessment for which the tax is granted by Parliament is a levy
upon the income of that year. It is not a levy upon the income of a preceding
year, nor does it become so by virtue of the fact that this latter income may
be used to measure the amount of tax payable.’
Precisely
the same principle applies, of course, when the income used as a measure is
income of a period ending in the current year of assessment rather than in a
preceding year of assessment. That sometimes happens in the case of income
charged under Case VI of Schedule D (see section 125 of the Income and
Corporation Taxes Act 1970) which it will be noted expressly incorporates the
requirement that the period whose income is used as a measure must not exceed
12 months.
One
result of the system of using as the unit of measurement the income of a period
which has ended before or during the year of assessment concerned is that when
that system ceases to operate it leaves a gap. It leaves a period running from
the end of the last unit of measurement until the end of the last year of
assessment for which the system is in operation. The actual income of that gap
will not be used as a measure of liability unless the legislation contains
special provisions avoiding that result. Various provisions to that effect are
set out in the Act of 1970: see, for example, section 118 dealing with trades
and professions. It is not necessary for me to set out these provisions in
detail. Their general purpose is to prevent artificial exploitation of the gap.
In every case they do this by providing for the inclusion in the measure of
liability of income which would otherwise drop out. Equally in every case—and
this is the point—for each fresh period whose income is brought into the
measure another period of equal length is left out, so that in all cases the
assessment for the year remains an assessment upon not more than 12 months’
income. The inevitable corollary is that a gap remains. It is just a different
gap of the same length. The only way in which it could be avoided would be by
loading more than 12 months’ income into the measure of liability for a year of
assessment, and that is anathema.”
The Judge reviewed the arguments and found himself
unpersuaded by the arguments for the Revenue. He then turned to s 47(1), saying
at p. 662([9]):
“The
reason why it figures late in my judgment (as it did in the argument of counsel
for the Crown) is because of the difficulty I find in seeing what effect it
has, or was intended to have.”
Having quoted the subsection he concluded his judgment
as follows, at pp. 662-663([10]):
“If
this was intended to mean that the Revenue were authorised to use dividends and
interest paid before 6 April 1986 as a measure of liability in 1986-87
following the same pattern as in previous years it would be intelligible,
though I would have thought it unnecessary. Counsel for the Crown contends,
however, although without basing his case upon section 47(1), that it goes
further than that and confirms the validity of the tax imposed by regulations 3
and 11 on dividends and interest paid before 6 April 1986. This I cannot
accept. Section 47(1) still leaves the power conferred by section 343(1A) as a
power exercisable only with respect to 1986-87 and subsequent years. It does
not purport to legitimise the tax sought to be imposed by regulation 11 at the
1985-86 rates. It does not purport to withdraw the protection of section
343(3)(b) from the taxpayer’s members for that year. If section 47(1) has
misfired, or has been based upon an erroneous view of the law, it would not be
the first piece of fiscal legislation to do so.
The
case for the taxpayer was also supported by a comparison with the treatment
accorded to bank interest by section 27 of the Finance Act 1985, and by helpful
illustrations in figures of the effects which regulations 3 and 11 would
produce. Upon these points too I accept the validity of the arguments put
forward by counsel for the taxpayer; but it would do nothing to improve an
already over long judgment if I set out in full. It is enough to say that for
the reasons given I consider the regulation to be ultra
vires in so far as they purport to levy tax upon dividends and interest
paid by building societies in 1985-86.”
My Lords, I derive comfort, if little satisfaction,
from those words of a Judge who is thoroughly experienced in tax matters: “If s
47(1) has misfired, or has been based upon an erroneous view of the law, it
would not be the first piece of fiscal legislation to do so.” I think that that
is what has happened here and I feel that what might otherwise be an improbable
conclusion on my part is fortified by the presence of the admittedly ultra vires Regulation 11(4), by the Revenue’s
admission (or assertion) during the hearing of this appeal that they were wrong
to charge 1985-86 rates of reduced tax in relation to the period 1 March to 5
April 1986 and by the fact that the Revenue’s primary case before Nolan J.
involved the contention that the original s 343(1A) was itself effective to
authorise the impugned portions of the Regulations. -Against that background,
it would not be at all surprising if s 47(1) had missed its mark.
My Lords, I now come to the judgment of Sir Nicolas
Browne- Wilkinson V.-C. [1989] STC 463 with which the other members of the
Court of Appeal concurred and which I take up at p. 469. The Vice-Chancellor’s
first observation was that the case for the Revenue before Nolan J. was
fundamentally different from that presented to the Court of Appeal because,
having earlier relied “to a very minor extent” on s 47, they now contended
“that Woolwich is not accountable for the tax
payable by the investors and that the whole case turns on the s 47 words
which ... retrospectively validate the regulations.” (Emphasis added.) He then
said that Crown counsel’s argument was very straightforward, to the effect that
the omitted interest ([11]):
“falls
fairly and squarely within the express terms of the section 47 words, i.e., the
omitted interest consists of ‘sums paid or credited before the beginning of the
year but not previously brought into account under section 343(1) or (1A)’. It
follows, says counsel for the Crown, that the regulations cannot be ultra vires in requiring payments to be made in
respect of the omitted interest.”
The Vice-Chancellor expresses a tentative conclusion,
at pp. 469-470([12]):
“As a
matter of ordinary construction, I find the conclusion contended for by counsel
for the Crown inescapable. The section 47 words are clear and they cover the
present case. Moreover the regulations had been made and their validity
challenged before Parliament had to consider the Finance Bill 1986. It was in
those circumstances that Parliament enacted section 47 of the Finance Act 1986
which introduced the section 47 words. In such circumstances, in the absence of
any other reason for Parliament to have enacted section 47 so as to deem
section 343(1A) always to have included the section 47 words, the inference
must be that Parliament intended to put to rest the existing challenge to the
validity of the regulations.
What,
then, is the contrary argument? Counsel for Woolwich relied on the cumulative
effect of three submissions to persuade us that the section 47 words should not
be given their apparent meaning: first, that section 47 was retrospective in
its effect and should be narrowly construed; second, that the effect of
regulation 11 was to charge to tax in one year the income of a period of more
than one year and this was an impossible concept under our tax law—it was
anathema; third, that the Crown’s argument, if right, involves an element of
double taxation against which the Court should always lean. I will deal with
these submissions in turn.”
In fairness to Mr. Gardiner, who has appeared for the
Woolwich at every stage of these proceedings, it should be acknowledged that in
your Lordships’ House he did not at all concede that the s 47 words, according to their apparent meaning, authorised
the regulations complained of. What he said here, rightly in my opinion, was
that, although those words clearly referred to
the sums paid or credited in the gap period, they did not authorise the
exaction of tax, or an amount representing tax, on those sums as well as on the sums paid or credited in the
relevant years of assessment, namely, 1986-87 and 1987-88.
The next passage in the Vice-Chancellor’s judgment, at
p. 470, is crucial ([13]):
“It
was principally the anathema argument that led the Judge to the conclusion that
regulation 11 was ultra vires. But he was
proceeding on the basis, urged before him by the Revenue, that Woolwich was
accounting for the tax payable by its investors. In this court the Revenue
changed its stance and submitted that the liability of Woolwich under section
343 is not a liability to account for the income tax payable by its investors
but a liability sui generis, i.e. a
liability to make a composition payment ‘representing’, and calculated by
reference to, what would otherwise have been the net tax liabilities of the
investors as a body as opposed to accounting for each investor’s tax deducted
by Woolwich. Therefore, argues the Revenue, the anathema argument has little,
if any, relevance to the present case.
In my
judgment the revised Revenue stance is correct. Under section 343(3) interest
is payable to investors without deduction of tax and the investor is not liable
to basic rate tax on such interest. Therefore the building society in making
the lump sum payment is not accounting to the Revenue for the tax liability of
anybody. Nor is the lump sum payable by the society calculated by reference to
what would, apart from section 343(3), have been the tax liability of each
individual investor. The lump sum is a sum calculated on a statistical basis
seeking to reflect the net ‘take’ for the Revenue from all investors in all
building societies. The nature of the payment to be made by the building
society is a composition payment calculated by reference to the aggregate net
tax liability of all investors but is not a payment of income tax as such.”
Here the Court of Appeal accepted the Revenue’s
contention that the liability under section 343
was not a liability to account for the income tax payable by its investors but
a liability sui generis. I need not repeat
every word of the sentence which I have just quoted above. The anathema, it
will be recalled, is the ideal of computing a year’s tax liability by reference
to a period of more than one year, and the Court has accepted the Revenue’s submission—that
the anathema argument has no relevance because
the amount to be paid is not income tax but merely represents income tax.
Therefore, said the Vice-Chancellor, the building society in making the lump
sum payment is not accounting to the Revenue for the tax liability of anybody.
He then aptly summarised the effect of s 26(3), but disregarded the fact that
inextricable from the anathema argument is the point that the Treasury simply
cannot achieve revenue neutrality by determining a reduced rate of tax if the
area of the “net take” measures two-and-a-half years when the periods with
respect to which provision is made by the Regulations of 1986 add up to two
years. Indeed, to put it this way is a concession to the Revenue because under
s 26(1) and (3) the Treasury must look to the year of assessment 1986-87 while
tax at the basic rate and the reduced rate is collected on the immediately
preceding six months but payment thereof is spread over two years. The fact
that what has to be paid is an amount representing income tax and not the tax
itself is quite irrelevant.
The Vice-Chancellor continues on the same tack, at p.
471([14]):
“For
these reasons the arrangements affecting the lump sum liability of building
societies are a unique form of statutory impost to which ordinary principles of
tax law do not necessarily apply. Since the composition payment is designed to
put the Revenue in the position it would have been in had interest been payable
under deduction of tax, there is nothing inherently contrary to principle in
bringing into the computation of such composition payment sums which would
normally have suffered deduction of tax (if there had been no arrangement) and
which, due to the change in the system introduced by the 1985 Act, would
otherwise have dropped out of account. Given the special nature of the lump sum
payment, to my mind the anathema argument has little force.”
This statement, with great respect, completely
disregards the wording of s 343(1) and (1A) and the arrangements made in the
past and even the general drift of the Regulations of 1986, so far as they are
not impugned. It would be strange if ordinary principles of tax law did not
apply, when one considers that the purpose of s 343 was not to abandon those
principles but, with the help of s 26, to find a practical way of applying
them.
After discussing the arguments on double taxation the
Vice-Chancellor concluded the main part of his judgment, at p. 471([15]):
“For
these reasons I do not find any compelling reason to depart from the plain meaning
of the section 47 words. Even if the factors relied on by Woolwich had more
substance, it would still be necessary to give the section 47 words some effect: they cannot have been specifically
inserted for no reason at all. Counsel for Woolwich suggested that they were
inserted ex abundanti cautela to make it
clear that there was no objection to the regulation providing that liability
should be measured by reference to interest paid before the commencement of the
tax year 1986—87. But, in my judgment, this does not fully explain the
introduction of the section 47 words. Section 47 is directed to a case in which
two requirements are satisfied, viz, first,
that the interest had been paid or credited before the beginning of the year
and, second, that such interest had not previously been brought into account.
No suggestion has been put forward for the presence in section 47 of words
referring to monies not previously brought into account save that relied on by
the Revenue, i.e. that the words were included to authorise the taxing, in the
years 1986-87 and thereafter, of monies not previously brought into account
under the old arrangements.
I am
therefore satisfied that the Regulations of 1986 are not ultra vires
apart from regulation 11(4) which the Revenue accepts is invalid.”
I again have to make the point that it is not only the
plain meaning of the s 47 words but their effect which has to be considered. The rest of the
passage quoted is, I hope, adequately covered by what I have said already.
And now, my Lords, before I finish, I wish to pull
together some loose ends and then to comment on the way in which the Revenue
put their case to your Lordships.
Like my noble and learned friend, I am impressed by
the argument that an intention (using that word in its proper sense) to produce
what Nolan J. described as a truly astonishing result should not be ascribed to
Parliament without very clear words. As Mr. Gardiner put it, Regulation 3,
shorn of its transitional feature, exhausts the power conferred by s 343(1A) by
charging the entire dividends and interest for the year of assessment 1986—87
and the s 47 amendment does not increase or expand the liability to charge. He
also submitted that an amount paid by the Woolwich in respect of the gap period
dividends and interest discharged no liability of the investors and could not
be called an amount representing their income tax of any year of assessment.
Another approach for the Woolwich is to ask, “Does s
343(1A) in its original form or as amended authorise the Board to adopt a
different principle from that allowed by s 343(1)?” On the analysis which I
have made, I suggest that the answer must be “No”. It would, moreover, be
strange if the Board has been given the power to decide what sums should be
charged to tax, as distinct from being used as the measure of the investors’
tax. In this connection Regulation 11(2) is an interesting artificial
provision:
“Subject
to the provisions of these Regulations, any such payment shall be treated in
all respects as a payment to which these Regulations apply and as made in the
payment quarter to which the payment dates specified in paragraph (3) below
relate.”
Against the background that no precedent exists for
charging tax for a particular year on the income of a period of more than a
year, both s 343(1A) and s 26 are directed towards one year of assessment, in
the present instance 1986-87. What has to be paid is an amount representing
income tax and that can only be the tax chargeable against the investors with
respect to 1986-87. Having come this length, I would adopt what my noble and
learned friend, Lord Oliver, has said about s 26([16]):
“In
exercising its powers the Treasury has to assume that the sums payable by the
society are income tax—which can only mean income tax for the year of
assessment—and to produce the net result that the total income tax becoming
payable to the Crown (again in that year of assessment) is no more than it
would have been if s 343 (including subsection (1A)) had not been enacted.”
Finally I come to the Revenue’s presentation of their
case which, thanks to the ability of Mr. Stamler, lacked nothing in
thoroughness, ingenuity or force. For the first time he will be unable to
answer back. So I must be careful with my comments.
(1)
Mr. Stamler would not concede that “on”
meant “by reference to” in s 343(1) or s 343(1A). I formed the view that the
position he took up was necessary to his case but untenable.
(2)
He ruthlessly disregarded s 26 in the
interpretation of s 343(1A). Again he had to do so.
(3)
He described the Woolwich as an
accounting party in respect of its gap period deductions, but both the
investors and the Woolwich have fully accounted for the investors’ 1985-86
income tax. The fact that the Woolwich has made deductions from the gap period
payments does not oblige it to pay the deductions to the Revenue because, while
the Woolwich has to account for and pay all deductions made in 1986-87, it
cannot credibly be argued that the gap period deductions represent investors’
income tax of either 1985-86 or 1986-87. The forbidden choice of 1985-86 rates
by the Board in Regulation 11(4) illustrates by accident the Revenue’s
vulnerability.
(4)
Mr. Stamler said, “Admittedly, you cannot
tax the investors again in respect of the gap period, but you can tax the Woolwich.” He made the point that the
Woolwich paid no tax in respect of the gap period (except, presumably, such
corporation tax as was due). With respect, that means nothing unless it can be
correctly equated with failing to pay an amount representing income tax of the
depositors, a point I have covered already.
(5)
It seems to me that the Revenue’s
argument on these lines depends not on the meaning of s 343(1 A) but on the
supposed absurdity of the Woolwich’s getting away with non-payment of tax
(which was not lawfully due).
(6)
Mr. Stamler argued that there was no
reason for symmetry between the period in respect of which the investors’
liability for income tax has been discharged and the period in respect of which
the liability of the Woolwich to account for an amount representing income tax
has to be discharged. He also said that the concept of measurement was
irrelevant to the situation of the Woolwich and that for “an amount representing income tax” in s 343(1A) (and
presumably also in s 343(1)) one might as well substitute “an amount instead of income tax”. These propositions, with
respect, are further examples of the complete abandonment of ss 343(1 A) and 26
in favour of saying, “The Woolwich made deductions in the gap period and must
pay them to us.”
The only authority I will mention is Partington v. Attorney
General (1869) L.R. H.L. 100 in which Lord Cairns said, at p. 122:
“If
the person sought to be taxed comes within the letter of the law he must be
taxed, however great the hardship may appear to the judicial mind to be. On the
other hand, if the Crown, seeking to recover the tax, cannot bring the subject
within the letter of the law, the subject is free, however apparently within
the spirit of the law the case might otherwise appear to be. In other words, if
there be admissible, in any statute, what is called an equitable construction,
certainly such a construction is not admissible in a taxing statute, where you
can simply adhere to the words of the statute.”
My Lords, I have not seen in the Revenue’s printed
case or heard in argument any reasoned statement which shows how s 343(1A) or s
47(1) achieves the result contended for by the Revenue. Accordingly, I would
allow this appeal.
Appeal allowed, with costs.
[Solicitors:—Solicitor of Inland Revenue; Messrs.
Clifford Chance.]
[1]
Page 607B/D ante.
[2]
[1990] 2 AC 783
[3]
Page 607G/H ante.
[4]
42 TC 333.
[5]
Page 597E/F-G ante.
[6]
Page 598C ante.
[7]
Pages 598G/599E ante.
[8]
42 TC 333, at page 349.
[9]
Page 600B ante.
[10]
Page 600D/E-H/I ante.
[11]
Page 606I ante.
[12]
Page 607B/C-E/F ante.
[13]
Pages 607I/608D ante.
[14]
Page 608G-H/I ante.
[15]
Page 609E/H ante.
[16]
Page 620F/G-GH ante. |
JISCBAILII_CASE_TORT
Parliamentary
Archives,
HL/PO/JU/18/251
Regina v. Deputy Governor of
Parkhurst Prison and others
(Respondents) ex parte Hague (A.P.)
(Appellant)
JUDGMENT
Die Mercurii 24° Julii 1991
Upon Report from the Appellate Committee to
whom was
referred the Cause Regina against Deputy Governor of
Parkhurst
Prison and others ex parte Hague (A.P.), That the
Committee
had heard Counsel as well on Tuesday the 4th as on
Wednesday
the 5th, Thursday the 6th, Monday the 10th, Tuesday the
11th
and Wednesday the 12th days of June last, upon the
Petition
and Appeal of Christopher Hague currently detained at
Her
Majesty's Prison Long Lartin, praying that the matter of
the
Order set forth in the Schedule thereto, namely an Order
of
Her Majesty's Court of Appeal of the 25th day of May
1990,
might be reviewed before Her Majesty the Queen in Her Court
of
Parliament and that the said Order might be reversed, varied
or
altered or that the Petitioner might have such other relief
in the
premises as to Her Majesty the Queen in Her Court of
Parliament
might seem meet; as upon the case of the Deputy
Governor of
Parkhurst Prison lodged in answer to the said
Appeal; and due
consideration had this day of what was offered
on either side in
this Cause:
It is Ordered and Adjudged, by
the Lords Spiritual and
Temporal in the Court of Parliament of Her
Majesty the Queen
assembled, That the said Order of Her Majesty's
Court of
Appeal of the 25th day of May 1990 complained of in the
said
Appeal be, and the same is hereby, Affirmed and that
the said
Petition and Appeal be, and the same is hereby, dismissed
this
House: And it is further Ordered, That the costs of
the
Appellant be taxed in accordance with the Legal Aid Act 1988.
Cler: Parliamentor:
Judgment: 24.7.91
HOUSE OF LORDS
REGINA
v.
DEPUTY GOVERNOR OF PARKHURST
PRISON AND OTHERS
(RESPONDENTS)
ex parte
HAGUE (A.P.)
(APPELLANT)
WELDON
(RESPONDENT)
v.
SECRETARY OF STATE FOR THE HOME
DEPARTMENT
(APPELLANT)
CONJOINED APPEALS
Lord Bridge of Harwich
Lord
Ackner
Lord Goff of Chieveley
Lord Jauncey of Tullichettle
Lord
Lowry
LORD
BRIDGE OF HARWICH
My Lords,
There are two appeals before the
House. I shall refer to
them as the case of Hague and the
case of Weldon respectively.
They raise important questions
with respect to the rights of
convicted prisoners.
Introduction
The decisions of the Court of
Appeal in Reg. v. Board of
Visitors of Hull Prison, Ex parte
St. Germain [1979] Q.B. 425 and
of this House in Leech v.
Deputy Governor of Parkhurst Prison
[1988] AC 533
established that the courts have jurisdiction to
entertain
applications for judicial review of disciplinary awards
made by
boards of visitors and by prison governors respectively
under the
Prison Rules 1964. In both cases it had been contended,
in effect
on behalf of the Home Office, that jurisdiction should be
declined
on the ground that any interference by the courts in the
management
of prisons would be subversive of prison discipline. In
Leech's
case, as I record at p. 566B-C, Mr. Laws had urged that,
if
jurisdiction were accepted in relation to awards by prison
governors, this would "make
it impossible to resist an invasion by
what he called 'the
tentacles of the law' of many other
departments of prison
administration." In deciding the appeal your
Lordships faced
that prospect without undue alarm and I believe
that the
circumstances of the case of Hague now before the House
show
that it was right to do so. In the case of Hague both
courts
below held that they had jurisdiction to entertain an
application
for judicial review which questioned the legality of
Hague's
segregation under rule 43 of the Prison Rules 1964 and the
Court
of Appeal declared that the procedure followed pursuant to
the
terms of a Home Office circular issued in 1974 was not
warranted
by the terms of the rule and was accordingly unlawful.
In your
Lordships' House the Secretary of State, acting by Mr.
Laws, has
chosen, very sensibly if I may say so, not to pursue any
challenge
either to the assumption of jurisdiction or to its
exercise by the
declarations granted. Instead the Home Office have
issued a new
circular prescribing a new procedure to be followed
in future in
the relevant circumstances which conforms to the
requirements of
rule 43 as construed by the Court of Appeal. I
believe this
confirms the view that the availability of judicial
review as a
means of questioning the legality of action
purportedly taken in
pursuance of the prison rules is a beneficial
and necessary
jurisdiction which cannot properly be circumscribed
by
considerations of policy or expediency in relation to
prison
administration. Those considerations only come into play
when the
court has to consider, as a matter of discretion, how
the
jurisdiction should be exercised. But the issues which it
is
necessary to resolve in the present appeals relate neither to
the
scope of the courts' public law jurisdiction in judicial
review nor
to the exercise of discretion in that jurisdiction. The
appeals
raise the wholly different question whether a convicted
prisoner
who, in the course of serving his sentence, has been
treated in a
way which the rules do not permit has in any and
what
circumstances a cause of action in private law sounding
in
damages against the prison governor or the Home Office on
the
ground either of a breach of statutory duty or of the tort of
false
imprisonment.
Hague
I turn to recount, so far as
necessary, the circumstances in
each case giving rise to the
litigation and the course of the
litigation in the courts below.
In July 1988 Hague was at
Parkhurst Prison serving a sentence of
15 years' imprisonment. In
circumstances which it is unnecessary
for present purposes to
relate he was thought by the Deputy
Governor then in charge of
the prison to be a trouble maker and on
8 July 1988 was ordered
by the Deputy Governor to be transferred
to Wormwood Scrubs and
to be held there for 28 days in segregation
from other prisoners.
The order made by the Deputy Governor was
formally confirmed
by the Regional Director of Prisons on behalf
of the Secretary of
State. The order was given, confirmed and
carried into effect in
purported pursuance of rule 43 of the
Prison Rules 1964 and in
reliance on the terms of the Home Office
circular to which I have
earlier referred. Rule 43 provides as
follows:
"Removal from
association
- 2 -
"(1) Where it appears
desirable, for the maintenance of
good order or discipline or in
his own interests, that a
prisoner should not associate with other
prisoners, either
generally or for particular purposes, the
governor may
arrange for the prisoner's removal from
association
accordingly.
A prisoner shall not be removed
under this rule for a
period of more than 24 hours
without the authority of a
member of the board of
visitors, or of the Secretary of
State. An authority
given under this paragraph shall be for
a period not
exceeding one month, but may be renewed
from month to
month. . . .
The governor may arrange at his
discretion for such a
prisoner as aforesaid to resume
association with other
prisoners, and shall do so if in
any case the medical officer
so advises on medical grounds."
The effect of the action taken in
purported pursuance of the rule
was that, for a period of 28 days,
Hague was denied the benefit
of association with other prisoners
and various other privileges
enjoyed by long-term prisoners who
are subject to the normal
prison regime. The regime of a prisoner
segregated under rule 43
is not, we are told, significantly
different from that of a prisoner
held in cellular confinement
pursuant to a disciplinary award of
the governor or the board of
visitors under rule 51 or 52
respectively. Hague challenged the
legality of his segregation by
an application for judicial review
claiming relief in various forms
including damages for false
imprisonment. The application was
dismissed by the Divisional
Court (Ralph Gibson L.J. and Nolan J.)
but allowed in part by the
Court of Appeal (Sir Nicolas Browne-
Wilkinson V.-C., Taylor and
Nicholls L.JJ.) [1990] 3 W.L.R. 1210.
They held that the governor
of one prison had no power under rule
43 to order the segregation
of a prisoner after his transfer to
another prison. That power
could only be exercised by the
governor of the receiving prison.
They held further that the
authority of a member of the board of
visitors or of the Secretary
of State under rule 43(2) for the
continued segregation of the
prisoner beyond the period of 24
hours could lawfully be given only
in the exercise of an
unfettered discretion both as to whether it
should be given and if
so for how long, whereas the Home Office
circular had approved the
grant by the Regional Director of
Prisons on behalf of the
Secretary of State of authority confirming
a governor's order to
detain the prisoner for a period of 28 days
as a matter of
routine. The Court of Appeal gave effect to these
conclusions by
making appropriate declarations, but refused in their
discretion
to grant orders of certiorari to quash the relevant
orders made by
the Deputy Governor of Parkhurst Prison and the
Regional Director
of Prisons on behalf of the Secretary of State.
It will not now be
necessary to consider any issue relating to this
refusal. It was
conceded by Mr. Laws in the course of argument
that, since it has
been declared that the procedure which led to
Hague's segregation
was not lawful under rule 43, neither the
circumstance that the
relevant orders were made in reliance on
the Home Office circular
nor the fact that they had not been
formally quashed by certiorari
could afford any defence to Hague's
claim for damages if such a
claim were otherwise sustainable.
The Court of Appeal held that in
the circumstances an action for
- 3 -
damages for false imprisonment did
not lie. They granted the
parties leave to appeal and to
cross-appeal, but, as already
indicated, no cross-appeal is
presented by the Secretary of State.
Weldon
Weldon was in May 1984 in Leeds
Prison serving a sentence
of four years' imprisonment. In 1987 he
issued proceedings in the
Leeds County Court claiming damages
against the Home Office for
assault and battery and for false
imprisonment. The relevant
paragraph of the particulars of claim
reads as follows:
"2. On or about 9 May 1984,
the Plaintiff was falsely
imprisoned and unlawfully assaulted and
battered by certain
prison officers.
PARTICULARS
(i) Shortly after 5.30 pm on
the said date, three prison
officers burst into the Plaintiff's
cell and without
good cause dragged him onto the landing, where
they
were joined by three further prison officers;
(ii) the Plaintiff was then
dragged down the stairs
(despite his request to walk) and placed
in a cell in
the punishment block;
(iii) shortly afterwards, the
Plaintiff was removed to a
strip cell where his clothes were taken
from him. He
remained there till the following morning.
During
this time the Plaintiff was further assaulted by the
same
prison officers;
(iv) the Plaintiff will allege
that the unlawful treatment
hereinbefore described converted pro
tem a lawful
detention into a false imprisonment."
The Home Office applied to strike
out so much of the pleading as
alleges false imprisonment. The
application was dismissed by the
registrar and appeals by the Home
Office were successively
dismissed by the assistant recorder Mr.
D.R. Wood, and by the
Court of Appeal (Fox, Parker and Ralph
Gibson L.JJ.) [1990] 3
W.L.R. 465. The Home Office now appeals by
leave of the Court
of Appeal.
Breach of statutory duty
It was not open to counsel for
Hague in any court below
your Lordships' House to advance a claim
to damages for breach
of statutory duty because of the decision of
the Court of Appeal
in Becker v. Home Office [1972] 2 Q.B.
407, where one of the
grounds on which it was held that the
plaintiff failed was that a
breach of the prison rules does not,
per se, give rise to a cause of
action. But Mr. Sedley has
now put the claim for damages in the
case of Hague on this
alternative basis in the forefront of his
argument and I think it
logical to consider it first.
On this part of the case Mr.
Sedley has constructed an
elaborate argument resting on a premise
which he describes as
- 4 -
"the groundrule" for
ascertaining whether a plaintiff has a cause of
action for breach
of statutory duty. It ail depends, he submits, on
whether he
belongs to a class which the statutory provision was
intended to
protect and has suffered a detriment in consequence of
a breach of
the duty of a kind from which the provision was
intended to
protect him. If so, then in the absence of any other
specific
provision in the statute, such as a criminal penalty, to
enforce
performance of the statutory duty, it necessarily follows,
Mr.
Sedley submits, that the law affords a remedy in damages
for
its breach. Hence the question of statutory construction is
not
the broad question whether an intention to give a cause of
action
can be inferred from the provision in question read in
their
context, but the narrower question whether the provision
is
intended to protect the interests of a class of which the
plaintiff
is a member. This then leads on to the conclusion that
certain
provisions of the Prison Rules 1964, which were intended
to
protect the interests of prisoners, and in particular rule
43(2)
which was intended to protect prisoners from unlawful
segregation,
must give rise to a cause of action in favour of any
prisoner who
suffers a detriment from a breach of the duty
imposed.
I believe the fallacy in this
argument is that it relies on
authorities relating to statutory
duties imposed for no other
purpose than to protect various
classes of person from the risk of
personal injury to which they
are exposed and seeks to apply
certain dicta in those authorities
to a totally different statutory
context. Thus Groves v.
Wimborne (Lord) [1898] 2 QB 402 was
concerned with the
question whether a breach of the duty to fence
dangerous machinery
imposed by section 5(4) of the Factory and
Workshop Act 1878 gave
a cause of action to a workman thereby
injured notwithstanding the
criminal sanctions also imposed by the
statute for breach of the
duty. It was in this context that
Vaughan Williams L.J. said, at
pp.415-416:
". . . it cannot be doubted
that, where a statute provides
for the performance by certain
persons of a particular duty,
and some one belonging to a class of
persons for whose
benefit and protection the statute imposes the
duty is
injured by failure to perform it, prima facie, and, if
there
be nothing to the contrary, an action by the person
so
injured will lie against the person who has so failed
to
perform the duty."
Again, it was in reference to a
provision in the Pedestrian
Crossing Places (Traffic) Regulations
1941 designed to protect
pedestrians from injury by motor vehicles
that Lord Wright said in
London Passenger Transport Board v.
Upson [1949] A.C. 155, 168:
"... a claim for damages for
breach of a statutory duty
intended to protect a person in the
position of the
particular plaintiff is a specific common law
right which is
not to be confused in essence with a claim for
negligence.
The statutory right has its origin in the statute, but
the
particular remedy of an action for damages is given by
the
common law in order to make effective, for the benefit of
the
injured plaintiff, his right to the performance by the
defendant
of the defendant's statutory duty."
- 5 -
In Lonrho Ltd. v. Shell
Petroleum Co. Ltd. (No.2) [1982] A.C. 173,
185, Lord Diplock
describing exceptions to the "general rule" that
"where
an Act creates an obligation, and enforces the performance
in a
specified manner . . . that performance cannot be enforced in
any
other manner" said:
"The first is where upon the
true construction of the Act it
is apparent that the obligation or
prohibition was imposed
for the benefit or protection of a
particular class of
individuals, as in the case of the Factories
Acts and similar
legislation. As Lord Kinnear put it in Butler
(or Black) v.
Fife Coal Co. Ltd. [1912] AC 149, 165, in the
case of such
a statute:
'There is no reasonable ground for
maintaining that a
proceeding by way of penalty is the only
remedy
allowed by the statute . . . We are to consider the
scope
and purpose of the statute and in particular for
whose benefit it
is intended. Now the object of the
present statute is plain. It
was intended to compel
mine owners to make due provision for the
safety of
the men working in their mines, and the persons
for
whose benefit all these rules are to be enforced are
the
persons exposed to danger. But when a duty of
this kind is imposed
for the benefit of particular
persons there arises at common law a
correlative
right in those persons who may be injured by
its
contravention."'
Mr. Sedley relied on all these
passages and in particular on
the references in the passages cited
from Lord Wright and Lord
Kinnear to the common law as the source
of the plaintiff's rights.
But the context in each case makes
clear that the role of the
common law is simply to make effective
the benefit which the
legislature intends to confer on the
particular plaintiff of
protection from danger of a particular
kind, in each of the cases
cited the danger of personal injury. I
do not think one escapes by
this route from the fundamental
question: "Did the legislature
intend to confer on the
plaintiff a cause of action for breach of
statutory duty?" by
transposing it into the question: "Did the
legislature intend
to confer on the plaintiff protection from
damage of a kind for
which, if the protection is not effectively
provided, the common
law will afford a monetary remedy?" When
asked in relation to
enactments of the kind to which the
authorities relied upon refer
the two questions are really one and
the same. When asked in
relation to enactments of such a very
different kind as the prison
rules, the second form of the
question neither avoids nor
illuminates the problem of answering
the first.
The fuller citation of authority
on this point in the speech
of my noble and learned friend, Lord
Jauncey of Tullichettle,
which I gratefully adopt and need not
repeat, amply supports the
conclusion that, like any other
question of statutory construction,
the question whether an
enactment gives rise to a cause of action
for breach of statutory
duty is a question of ascertaining the
intention of the
legislature.
- 6 -
The Prison Rules 1964 are
made under section 47 of the
Prison Act 1952 which provides by
subsection (1):
"The Secretary of State may
make rules for the regulation
and management of prisons, remand
centres, detention
centres and Borstal institutions respectively,
and for the
classification, treatment, employment, discipline and
control
of persons required to be detained therein."
Mr. Laws submits that the critical
question of legislative intent
must be determined at the stage of
considering the ambit of this
rule-making power and that
Parliament cannot have intended to
enable the Secretary of State
to make rules which would confer a
right of action on prisoners
for any breach . I see the attraction
of this submission but I am
unable to accept it. The power
conferred is very wide,
particularly in relation to the "treatment"
of persons
detained in prison. If the Secretary of State were to
make rules,
for example in relation to the employment of prisoners
in prison
workshops, of a kind which were clearly designed for no
other
purpose than to safeguard prisoners from hazards likely to
cause
personal injury, I am of the opinion, on the one hand, that
those
rules would properly be construed as giving a cause of action
to
prisoners injured in consequence of a breach and, on the other
hand,
that such rules could not be condemned as ultra vires
section 47.
In Arbon v. Anderson [1943]
K.B 252 the question at issue
was whether a cause of action arose
from a breach of the Prison
Rules 1933 made under the Prison Act
1898. Goddard L.J. said,
at p. 254:
"The real question which
falls to be determined is whether
it is intended by the statute to
confer an individual right. I
am clearly of opinion that neither
the Prison Act 1898, nor
the rules were intended to confer any
such right."
In Becker v. Home Office
[1972] 2 Q.B. 407 both Lord Denning
M.R. and Edmund Davies L.J.
expressed their conclusion that a
breach of the Prison Rules 1964
creates no civil liability in equally
general terms. Mr. Sedley
submits that such a general approach is
erroneous and that each
provision in the rules must be considered
separately. Whilst I do
not accept this criticism of the earlier
authorities, I do accept
that we may properly be invited in asking
the question whether the
breach of a particular provision of the
rules gives rise to a
cause of action to examine that provision in
its context. Adopting
that course, I can find nothing in rule 43 or
in any context that
is relevant to the construction of rule 43
which would support the
conclusion that it was intended to confer
a right of action on an
individual prisoner. The purpose of the
rule, apart from the case
of prisoners who need to be segregated
in their own interests, is
to give an obviously necessary power to
segregate prisoners who
are liable for any reason to disturb the
orderly conduct of the
prison generally. The rule is a purely
preventive measure. The
power is to be exercised only in
accordance with the procedure
prescribed by sub-rule (2). But
where the power has been exercised
in good faith, albeit that the
procedure followed in authorising
its exercise was not in
conformity with rule 43(2), it is
inconceivable that the legislature
intended to confer a cause of
action on the segregated prisoner.
- 7 -
False
imprisonment
The Court of Appeal in the case of
Weldon approached the
question whether a prisoner serving
his sentence cart ever sustain a
claim for false imprisonment, as
they were invited to do by Mr.
Laws, as a single question which
must admit of the same answer
irrespective of the identity of the
defendant. Ralph Gibson L.J.,
delivering the leading judgment,
with which both Fox and Parker
L.JJ. agreed, said, at p. 474:
"There is no reason apparent
to me why the nature of the
tort, evolved by the common law for
the protection of
personal liberty, should be held to be such as
to deny its
availability to a convicted prisoner, whose residual
liberty
should, in my judgment, be protected so far as the law
can
properly achieve unless statute requires otherwise.
If,
however, as Mr. Laws submitted, the tort of false
imprisonment
was not available to a convicted prisoner
against a prison
officer, I accept his submission that it
could not, for the same
reasons, be available to a convicted
prisoner against a fellow
prisoner."
Ralph Gibson L.J. had also
delivered the judgment of the
Divisional Court in the case of
Hague in which he expressed the
view that the segregation
of a prisoner would not constitute the
tort of false imprisonment
if the order for segregation, although
not lawfully authorised
under rule 43, was given in good faith.
Giving the judgment in the
case of Weldon he found it unneccesary
to express a final
conclusion on this point since, if want of good
faith were a
necessary ingredient of the tort, he held that it was
sufficiently
alleged in the pleading against the officers concerned.
The
pleading, he held, also alleged circumstances capable of
amounting
to "intolerable conditions of detention" such as
would
sustain a claim of false imprisonment on the authority of
the
decision of the Court of Appeal in Middleweek v. the
Chief
Constable of Merseyside (Note) [1990] 3 W.L.R. 481. It
was on
these grounds that the Court of Appeal declined to strike
out the
pleading of false imprisonment in the case of Weldon.
Parker
L.J., in adding his own reasons to his agreement with those
given
by Ralph Gibson L.J., was clearly much concerned with
the
problem of the rights of prisoners as against fellow prisoners
or
prison officers acting in bad faith. He said, at p. 480:
"Although the plaintiff may,
in the end, fail to establish the
facts, we must proceed for the
moment on the basis that he
was kept locked up naked overnight in
a cell known as a
strip cell. It is said that as he was lawfully
detained in the
prison this cannot amount to false imprisonment.
If this be
right it must, I think, follow that he could have had
no
claim for false imprisonment if his detention naked in
that
cell had continued for weeks. It would also seem to me
to
follow that if he had been locked up in a similar
condition,
not by prison officers, but by fellow inmates, he would
have
no such claim. It would follow, too, that, if a
convicted
criminal were confined in a prison in which he and
his
fellows were permitted, within the confines of a
perimeter
fence enclosing some acres of ground, to lead normal
lives,
he would have no such claim if he were locked up, with
or
without clothes, in a shed in some remote part of the
- 8 -
grounds, whether by fellow inmates
or prison officers. To
hold that such treatment could not amount
to false
imprisonment offends, in my judgment, against
common
sense."
In so far as the Court of Appeal's
reasoning in these
judgments proceeds from the premise urged upon
them by Mr.
Laws that a prisoner's "right to liberty" is
either totally abrogated
or partially retained in the form of a
"residual liberty," I think,
with all respect, that it
is erroneous. To ask at the outset
whether a convicted prisoner
enjoys in law a "residual liberty," as
if the
extent of any citizen's right to liberty were a species of
right
in rem or a matter of status, is to ask the wrong question.
An
action for false imprisonment is an action in personam. The
tort
of false imprisonment has two ingredients: the fact of
imprisonment
and the absence of lawful authority to justify it. In
Meering
v. Grahame-White Aviation Co. Ltd. (1919) 122 L.T. 44
Atkin
L.J. said, at p. 54 that "any restraint within defined
bounds
which is a restraint in fact may be an imprisonment".
Thus if A
imposes on B a restraint within defined bounds and is
sued by B
for false imprisonment, the action will succeed or fail
according to
whether or not A can justify the restraint imposed on
B as lawful.
A child may be lawfully restrained within defined
bounds by his
parents or by the schoolmaster to whom the parents
have
delegated their authority. But if precisely the same
restraint is
imposed by a stranger without authority, it will be
unlawful and
will constitute the tort of false imprisonment.
I shall leave aside initially
questions arising from the
situation where a convicted prisoner
serving a sentence is
restrained by a member of the prison staff
acting in bad faith, by
a fellow prisoner or any other third
party, or in circumstances
where it can be said that the
conditions of his detention are
intolerable. I shall address first
what I believe to be the primary
and fundamental issue, viz.
whether any restraint within defined
bounds imposed upon a
convicted prisoner whilst serving his
sentence by the prison
governor or by officers acting with the
authority of the prison
governor and in good faith, but in
circumstances where the
particular form of restraint is not
sanctioned by the prison
rules, amounts for that reason to the tort
of false imprisonment.
The starting point is section
12(1) of the Prison Act 1952
which provides:
"A prisoner, whether
sentenced to imprisonment or
committed to prison on remand pending
trial or otherwise,
may be lawfully confined in any prison."
This provides lawful authority for
the restraint of the prisoner
within the defined bounds of the
prison by the governor of the
prison, who has the legal custody of
the prisoner under section 13,
or by any prison officer acting
with the governor's authority. Can
the prisoner then complain that
his legal rights are infringed by a
restraint which confines him
at any particular time within a
particular part of the prison? It
seems to me that the reality of
prison life demands a negative
answer to this question. Certainly
in the ordinary closed prison
the ordinary prisoner will at any time
of day or night be in a
particular part of the prison, not because
- 9 -
that is where he chooses to be,
but because that is where the
prison regime requires him to be. He
will be in his cell, in the
part of the prison where he is
required to work, in the exercise
yard, eating meals, attending
education classes or enjoying
whatever recreation is permitted,
all in the appointed place and at
the appointed time and all in
accordance with a more or less Figid
regime to which he must
conform. Thus the concept of the
prisoner's "residual
liberty" as a species of freedom of movement
within the
prison enjoyed as a legal right which the prison
authorities
cannot lawfully restrain seems to me quite illusory.
The prisoner
is at all times lawfully restrained within closely
defined bounds
and if he is kept in a segregated cell, at a time
when, if the
rules had not been misapplied, he would be in the
company of other
prisoners in the workshop, at the dinner table or
elsewhere, this
is not the deprivation of his liberty of movement,
which is the
essence of the tort of false imprisonment, it is the
substitution
of one form of restraint for another.
Mr. Harris seeks to surmount these
difficulties by submitting
that whenever there is a breach of the
rules which is sufficiently
"fundamental" this converts
an otherwise lawful imprisonment into
an unlawful imprisonment.
This, as I understand it, is quite a
different concept from that
of an infringement of residual liberty.
The submission is that any
breach of the rules which is sufficiently
far reaching in its
effect on the prisoner, for example the failure
to supply him with
clothing "adequate for warmth and health"
pursuant to
rule 20(2), undermines the legality of his imprisonment.
Logically
this would lead to the conclusion that the prisoner who
has not
been supplied with proper clothing would be entitled to
walk out
of the prison, but Mr. Harris understandably disclaims any
such
extravagant proposition. It follows that the authority given
by
section 12(1) for lawful confinement of the prisoner cannot
possibly
be read as subject to any implied term with respect to
compliance
with the prison rules and this is fatal to any
submission which
seeks to make the lawfulness of the imprisonment
depend in any
sense on such compliance.
In my opinion, to hold a prisoner
entitled to damages for
false imprisonment on the ground that he
has been subject to a
restraint upon his movement which was not in
accordance with the
Prison Rules 1964 would be, in effect, to
confer on him under a
different legal label a cause of action for
breach of statutory duty
under the Rules. Having reached the
conclusion that it was not
the intention of the Rules to confer
such a right, I am satisfied
that the right cannot properly be
asserted in the alternative guise
of a claim to damages for false
imprisonment.
Mr. Sedley and Mr. Harris both
rely on a number of 19th
century decisions. These are considered
in the judgment of Taylor
L.J. in the case of Hague [1990]
3 W.L.R. 1210, 1263-1264, and in
the speech of my noble and
learned friend, Lord Jauncey of
Tullichettle. I agree with their
reasons for reaching the conclusion
that these cases are no longer
relevant in view of the broad scope
of section 12(1) of the Act of
1952.
I turn next to the question posed
by the example given in
the judgment of Parker L.J. in the case of
Weldon [1990] 3 W.L.R.
465, 480, of a prisoner locked in a
shed by fellow prisoners. I
think the short answer to this
question is given by Taylor L.J. who
said in the case of Hague
[1990] 3 W.L.R. 1210, 1267G:
- 10 -
"In such a situation action
for false imprisonment would
surely lie (for what it was worth),
since the fellow prisoners
would have no defence under section 12
of the Prison Act
1952."
The prisoner locked in the shed is
certainly restrained within
defined bounds and it is nihil ad rem
that if he were not locked in
the shed, he would be locked in his
cell or restrained in
accordance with the prison regime in some
other part of the
prison. The restraint in the shed is unlawful
because the fellow
prisoners acted without the authority of the
governor and it is
only the governor, who has the legal custody of
the prisoner, and
persons acting with the authority of the
governor who can rely on
the provisions of section 12(1).
This consideration also leads to
the conclusion that a prison
officer who acts in bad faith by
deliberately subjecting a prisoner
to a restraint which he knows
he has no authority to impose may
render himself personally liable
to an action for false imprisonment
as well as committing the tort
of misfeasance in public office.
Lacking the authority of the
governor, he also lacks the protection
of section 12(1). But if
the officer deliberately acts outside the
scope of his authority,
he cannot render the governor or the Home
Office vicariously
liable for his tortious conduct. This no doubt
explains why Mr.
Harris did not seek to sustain the decision of the
Court of Appeal
in his favour on the ground that the plaintiff's
pleading should
be read as involving an allegation of bad faith.
There remains the question whether
an otherwise lawful
imprisonment may be rendered unlawful by
reason only of the
conditions of detention. In Reg. v.
Commissioner of the Police of
the Metropolis, Ex parte Nahar
(unreported) 27 May 1983, two
applicants for habeas corpus who had
been remanded in custody
were held pursuant to the provisions of
section 6 of the
Imprisonment (Temporary Provisions) Act 1980 in
cells below the
Camberwell Green Magistrates Court which were
designed only to
enable persons to be held in custody for a few
hours at a time
and which were obviously deficient in many
respects for the
purpose of accommodating prisoners for longer
periods. They
sought their release on the ground that the
conditions of their
detention rendered it unlawful. The
applications were rejected,
but Stephen Brown J. said in the
course of his judgment: "There
must be some minimum standard
to render detention lawful. . ."
McCullough J. said:
"Despite the temporary nature
of the detention there
contemplated, there must be implied into
section 6 of the
Act of 1980 some term which relates to the
conditions
under which a prisoner may lawfully be detained. I say
so
because it is possible to conceive of
hypothetical
circumstances in which the conditions of detention
were
such as would make that detention unlawful. I do not
propose
to offer any formulation of that term. Were it
broken in any
particular case I would reject emphatically
the suggestion that
the matter would not be one for the
exercise of the court's
jurisdiction to grant the writ of
habeas corpus."
- 11 -
These observations were considered
by the Court of Appeal
in Middleweek v. Chief Constable of
Merseyside (Note) [1990] 3
W.L.R. 481. The plaintiff had been
awarded damages for false
imprisonment by the jury on the basis
that his otherwise lawful
detention at a police station had been
rendered unlawful because it
was unreasonable in the circumstances
to keep him in a police
cell. The defendant successfully appealed,
but Ackner L.J.,
delivering the judgment of the court, said at p.
487:
"We agree with the views
expressed by the Divisional Court
that it must be possible to
conceive of hypothetical cases in
which the conditions of
detention are so intolerable as to
render the detention unlawful
and thereby provide a remedy
to the prisoner in damages for false
imprisonment. A
person lawfully detained in a prison cell would,
in our
judgment, cease to be so lawfully detained if the
conditions
in that cell were such as to be seriously prejudicial
to his
health if he continued to occupy it, e.g., because it
became
and remained seriously flooded, or contained a fractured
gas
pipe allowing gas to escape into the cell. We do not
therefore
accept as an absolute proposition that if detention
is initially
lawful, it can never become unlawful by reason
of changes in the
conditions of imprisonment."
I sympathise entirely with the
view that the person lawfully
held in custody who is subjected to
intolerable conditions ought not
to be left without a remedy
against his custodian, but the
proposition that the conditions of
detention may render the
detention itself unlawful raises
formidable difficulties. If the
proposition be sound, the
corollary must be that when the
conditions of detention
deteriorate to the point of intolerability,
the detainee is
entitled immediately to go free. It is impossible, I
think, to
define with any precision what would amount to
intolerable
conditions for this purpose. McCullough J.
understandably and perhaps wisely
abstained from any attempt at
definition in Ex parte Nahar.
The examples given by Ackner L.J.
of a flooded or gas-filled cell
are so extreme that they do not,
with respect, offer much guidance
as to where the line should be
drawn. The law is certainly left in
a very unsatisfactory state if
the legality or otherwise of
detaining a person who in law is and
remains liable to detention
depends on such an imprecise criterion
and may vary from time to
time as the conditions of his detention
change.
The logical solution to the
problem, I believe, is that if the
conditions of an otherwise
lawful detention are truly intolerable,
the law ought to be
capable of providing a remedy directly related
to those conditions
without characterising the fact of the detention
itself as
unlawful. I see no real difficulty in saying that the law
can
provide such a remedy. Whenever one person is lawfully in
the
custody of another, the custodian owes a duty of care to
the
detainee. If the custodian negligently allows, or a fortiori,
if he
deliberately causes, the detainee to suffer in any way in
his health
he will be in breach of that duty. But short of
anything that
could properly be described as a physical injury or
an impairment
of health, if a person lawfully detained is kept in
conditions which
cause him for the time being physical pain or a
degree of
discomfort which can properly be described as
intolerable, I believe
that could and should be treated as a
breach of the custodian's
- 12 -
duty of care for which the law
should award damages. For this
purpose it is quite unnecessary to
attempt any definition of the
criterion of intolerability. It
would be a question of fact and
degree in any case which came
before the court to determine
whether the conditions to which a
detainee had been subjected
were such as to warrant an award of
damages, for the discomfort
he had suffered. In principle I
believe it is acceptable for the law
to provide a remedy on this
basis, but that the remedy suggested
in the cases of Nahar
and Middleweek is not. In practice the
problem is perhaps
not very likely to arise.
Conclusion
For the reasons I have given I
conclude that a claim for
damages either for breach of statutory
duty or for false
imprisonment is not sustainable in either of the
cases before the
House. I would accordingly dismiss the appeal in
the case of
Hague. In the case of Weldon I would
allow the appeal and order
that in paragraph 2 of the particulars
of claim the words "falsely
imprisoned and" and
sub-paragraph (iv) of the particulars given
thereunder be struck
out.
LORD ACKNER
My Lords,
A person lawfully held in custody
who is subjected to
intolerable conditions, must, of course, have
a remedy against his
custodian. This clearly can include the
following:
an action in tort against a
prison authority for damages for
negligence where, for
example, the intolerable conditions
cause him to suffer
injury to his health;
where the facts fit, an
action in tort for damages for
assault;
(c) where malice can be
established, an action for misfeasance
in the exercise of a
public office; and
(d) the termination of such
conditions by judicial review.
I accept, however, for the reasons
stated by my noble and
learned friends, Lord Bridge of Harwich and
Lord Jauncey of
Tullichettle that an otherwise lawful imprisonment
is not rendered
unlawful by reason only of the conditions of
detention, thereby
providing a prisoner with a potential action
for the tort of false
imprisonment. Accordingly my dictum in the
judgment of the
Court of Appeal in the Middleweek case was
erroneous.
I am not however prepared to
accept that as a matter of
general principle a person who is
lawfully deprived of part only of
his liberty, cannot sue in tort
for false imprisonment, if unlawfully
deprived of the residue or
balance of that liberty. While a
prisoner has no residual liberty
vis a vis the governor, I would not
accept that he had no remedy
against a fellow prisoner who locked
him in some confined space. I
agree with the observations of
Taylor L.J. in Weldon when
he said at p. 1267:
- 13 -
"In such a situation an
action for false imprisonment would
surely lie (for what it was
worth), since the fellow prisoner
would have no defence under
section 12 of the Prison Act
1952."
I agree, that for the reasons
stated in the speech of my
noble and learned friend, Lord Bridge
of Harwich that no claim for
damages is sustainable either for
breach of statutory duty or for
false imprisonment in the case of
either prisoner and I, too, would
therefore dismiss the appeal in
Hague and allow the appeal in
Weldon.
LORD JAUNCEY OF TULLICHETTLE
My Lords,
These two appeals arise out of
actions by convicted
prisoners in respect of incidents during
their confinement. In
Hague the prisoner sought judicial
review of a decision of the
Deputy Governor of Parkhurst Prison to
segregate him and
thereafter to transfer him to Wormwood Scrubs
for continued
segregation. He claimed certain declarations as well
as damages
for false imprisonment. The Divisional Court dismissed
the
application but on appeal the Court of Appeal held, inter
alia (1)
that he was entitled to a declaration that his
continued
segregation in Wormwood Scrubs on the authority of the
Deputy
Governor of Parkhurst was unlawful, (2) that a breach of
the
Prison Rules 1964 could not found a private law claim for
damages
by a prisoner, and (3) that a convicted prisoner could
only succeed
in an action of false imprisonment in respect of his
detention in
prison if he was kept in intolerable conditions
which, so far as
Hague was concerned, was not the case. In Weldon
the prisoner
claimed damages for false imprisonment in respect of
his
confinement over night in a strip cell in the prison in which
he
was serving a sentence. The Court of Appeal dismissed an
appeal
against a refusal to strike out the claim on the grounds
that the
facts disclosed an arguable case of false imprisonment
either on
the ground that he had been unlawfully deprived of his
residual
liberty or that he had been kept in intolerable
conditions. Hague
appealed on the grounds (1) that a breach of the
Prison Rules 1964
sounded in damages, and (2) that the reasons
given by the Court
of Appeal in Weldon for refusing to
strike out the claim were
sound. The Home Office appealed in
Weldon on the ground that a
convicted prisoner serving a
sentence could not maintain an action
of damages for false
imprisonment against the prison authorities.
There was no
challenge to the declaration granted to Hague by the
Court of
Appeal. In these circumstances I propose to address
myself to the
issues of a breach of statutory duty and the tort of
false
imprisonment at common law.
My Lords, I am able to give this
brief summary of the
background to these appeals because of the
detailed account
contained in the speech of my noble and learned
friend Lord
Bridge of Harwich which I gratefully adopt.
Breach of Statutory Duty
-14-
Mr. Sedley for Hague submitted
that there had been a
breach of the prison rules which sounded in
damages. In a
carefully reasoned argument to which I hope that I
do justice in
paraphrasing he argued that a breach of statutory
duty
unaccompanied by a statutory remedy or penalty affords a
right of
action to a person injured thereby where the plaintiff
belongs to a
class which the statutory provision was intended to
protect, and
the breach has caused the plaintiff damage of a kind
against which
the provision was intended to protect him. In
support of this
proposition he relied on Groves v. Wimborne
(Lord) [1898] 2 Q.B.
402 and Cutler v. Wandsworth Stadium
Ltd. [1949] A.C. 398.
Where such a situation existed, as it
did in the present case, no
question of legislative intent arose.
Mr. Sedley invited your
Lordships to overrule Arbon v. Anderson
[1943] K.B. 252 and
Becker v. Home Office [1972] 2 Q.B.
407, in both of which cases
it had been held that a breach of the
prison rules did not give
rise to an action of damages.
Mr. Laws on the other hand
maintained that the first
question to be considered was what
rights, if any, Parliament
intended to confer in passing the
statute and that matters such as
availability of other remedies
merely assisted the resolution of
that question and were not in
themselves decisive. He also relied
on Groves v. Wimborne
(Lord) and Cutler v. Wandsworth Stadium
Ltd. Mr. Laws
argued that the Secretary of State had no power
under section 47
of the Prison Act 1952 to make rules which
conferred private
rights on individuals.
In order to consider these
arguments it is necessary to
examine the relevant authorities.
Groves v. Wimborne (Lord) arose
out of a breach of a duty
imposed by the Factory and Workshop
Act 1878 to fence dangerous
machinery. At the beginning of his
judgment on p. 406 A.L. Smith
L.J. referred to the Act of 1878 as
"A public Act passed in
favour of the workers in factories and
workshops to compel their
employers to do certain things for their
protection and benefit".
In dealing with the question whether the
cause of action which was
prima facie given by the relevant
section had been taken away by
certain provisions as to payment
of fines, he said, at pp.
407-408:
"In dealing with the question
whether this was the intention
of the Legislature it is material
... to consider for whose
benefit the Act was passed, whether it
was passed in the
interests of the public at large or in those of
a particular
class of persons. The Act now in question, as I have
said,
was clearly passed in favour of workers employed
in
factories and workshops, and to compel their employers
to
perform certain statutory duties for their protection
and
benefit."
Later, at p. 408, after
consideration of further matters, he said
that he had
been led to the conclusion:
"That it cannot have been the
intention of the Legislature
that the provision which imposes upon
the employer a fine
as a punishment for neglect of his statutory
duty should
take away the prima facie right of the workman to be
fully
compensated for injury occasioned to him by that neglect."
- 15 -
Rigby
L.J. at p. 414 said:
"The plaintiff is one of
those persons, the possibility of
injury to whom through neglect
to fence ''machinery the
section contemplates. That being so, the
only question
seems to be whether the provisions of the Act with
regard
to the imposition of fines for neglect of the duty
created
by the section reasonably lead to the conclusion that
the
Legislature intended that such fines should be the only
remedy
for breach of that duty. I think that, when those
provisions are
examined, it is impossible to arrive at that
conclusion."
Vaughan
Williams L.J. at p. 416 said:
"In such a case as this one
must, as Lord Cairns said in
Atkinson v. Newcastle Water Works
Co. (1877) 2 Ex.D. 441,
look at the general scope of the Act
and the nature of the
statutory duty; and in addition one must
look at the nature
of the injuries likely to arise from a breach
of that duty,
the amount of the penalty imposed for a breach of
it, and
the kind of person upon whom it is imposed, before one
can
come to a proper conclusion as to whether the
legislature
intended the statutory remedy to be the only remedy
for
breach of the statutory duty."
All the members of the Court of
Appeal were clearly of the
view that the intention of the
legislature had to be looked at in
determining whether breach of a
statutory duty gave rise to an
action in tort.
In Cutler v. Wandsworth Stadium
Ltd. Lord Simonds at p.
407, after referring to the question
whether where a statutory
obligation is placed on A, B who
conceives himself to be damnified
by A's breach of it has a right
of action against him, stated:
"I do not propose to try to
formulate any rules by reference
to which such a question can
infallibly be answered. The
only rule which in all circumstances
is valid is that the
answer must depend upon a consideration of
the whole Act
and the circumstances, including the pre-existing
law in
which it was enacted. But that there are indications
which
point with more or less force to the one answer or the
other
is clear from authorities which, even where they do
not bind, will
have great weight with the House. For
instance, if a statutory
duty is prescribed but no remedy by
way of penalty or otherwise
for its breach is imposed, it
can be assumed that a right of civil
action accrues to the
person who is damnified by the breach. For
if it were not
so, the statute would be but a pious aspiration."
Lord Simonds later referred with
approval to a passage from the
speech of Lord Kinnear in Butler
(or Black) v. Fife Coal Co. Ltd.
[1912] AC 149, 165, which
included the following sentences:
"We are to consider the scope
and purpose of the statute
and in particular for whose benefit it
is intended. Now the
object of the present statute is plain. It
was intended to
compel mine owners to make due provision for the
safety of
- 16 -
the men working in the mines, and
the persons for whose
benefit all these rules are to be enforced
are the persons
exposed to the danger."
Once again the intention of the
legislature is treated as a
matter of importance. In Lonrho Ltd
v. Shell Petroleum Co. Ltd.
(No. 2) [1982] A.C. 173 Lord
Diplock at p. 185 referred to the
general rule that where an Act
creates an obligation, and enforces
the performance in a specified
manner the performance cannot be
enforced in any other manner, and
then set out one or two
exceptions to the rule . . .
"The first is where upon the
true construction of the Act it
is apparent that the obligation or
prohibition was imposed
for the benefit or protection of a
particular class of
individuals, as in the case of the Factories
Acts and similar
legislation."
This exception was referred to by
Lord Bridge of Harwich in P. v.
Liverpool Daily Post and Echo
Newspapers Plc. [1991] 2 W.L.R.
513 at p. 523H in the
following terms:
"But in order to fall within
the principle which Lord Diplock
had in contemplation it must, in
my opinion, appear upon
the true construction of the legislation
in question that the
intention was to confer on members of the
protected class a
cause of action sounding in damages occasioned
by the
breach."
Finally, in Calveley v. Chief
Constable of the Merseyside
Police [1989] A.C. 1228 Lord
Bridge of Harwich, in the context of
a submission that breach of
one of the Police (Discipline)
Regulations 1977 gave a right to
damages, said at p. 1237D:
"That the duty is imposed for
the benefit of the police
officer subject to investigation is
plain. It seems to me
equally plain that the legislature cannot
have contemplated
that the object of the duty was to protect the
officer from
any injury of a kind attracting compensation and
cannot,
therefore have been intended to give him a right
to
damages for breach of the duty".
My Lords, I take from these
authorities that it must always
be a matter for consideration
whether the legislature intended that
private law rights of action
should be conferred upon individuals in
respect of breaches of the
relevant statutory provision. The fact
that a particular provision
was intended to protect certain
individuals is not of itself
sufficient to confer private law rights
of action upon them,
something more is required to show that the
legislature intended
such conferment.
The Prison Act 1952 is designed to
deal with the
administration of prisons and the management and
control of
prisoners. It covers such wide-ranging matters as
Central
Administration, Prison Officers, Confinement and Treatment
of
Prisoners, Release of Prisoners on Licence, Provision
and
Maintenance of Prisons and Offences. Its objects are far
removed
from those of legislation such as the Factories and Coal
Mines
Acts whose prime concern is to protect the health and safety
of
- 17 -
persons who work therein. Section
47 empowers the Secretary of
State to make rules in relation to
many of the matters with which
the Act is concerned and is in the
following terms, inter alia . . .
"(1) The Secretary of State
may make rules for the
regulation and management of prisons,
remand centres,
detention centres and Borstal institutions
respectively, and
for the classification, treatment, employment,
discipline and
control of persons required to be detained
therein."
I find nothing in any of the other
sections of the Act to suggest
that Parliament intended thereby to
confer on prisoners a cause of
action sounding in damages in
respect of a breach of those
provisions. To give the Secretary of
State power in section 47 to
confer private law rights on
prisoners would therefore be to allow
him to extend the general
scope of the Act by rules. This could,
of course, be done by some
such provision as is found in section
76(2) of the Factories Act
1961 whereby the Minister is
specifically empowered to make
regulations which "impose duties
on owners, employed persons
and other persons . . .". However, in
the absence of such a
specific provision I conclude that it was not
intended that the
Secretary of State should be able to extend the
scope of the Act
by creating private rights by way of rules, from
which it follows
that had he done so he would have been acting
ultra vires.
That is sufficient for disposal of this part of the
appeal but in
deference to the able arguments addressed to your
Lordships I turn
to consider the effect of the rules upon the
assumption that the
Secretary of State did have power thereby to
confer private law
rights upon prisoners.
The appellant Hague relies on
a breach of rule 43 which is
in the following terms:
"Removal and association
Where it appears desirable,
for the maintenance of
good order or discipline or in
his own interests, that
a prisoner should not
associate with other prisoners,
either generally or
for particular purposes, the
governor may arrange for
the prisoner's removal from
association accordingly.
A prisoner shall not be removed
under this Rule for a
period of more than 3 days without the
authority of a
member of the board of visitors or of the
Secretary
of State. An authority given under this
paragraph
shall be for a period not exceeding one
month, but
may be renewed from month to month except that,
in
the case of a person aged less than 21 years who
is
detained in prison, such an authority shall be
for a
period not exceeding 14 days, but may be
renewed
from time to time for a like period.
The governor may arrange at his
discretion for such a
prisoner as aforesaid to resume association
with other
prisoners, and shall do so if in any case the
medical
officer so advises on medical grounds."
This rule should be read in the
context of rule 2(1) which provides:
- 18 -
"Maintenance of order and
discipline
"2. (1) Order and
discipline shall be maintained with
firmness, but with no more
restriction than is
required for safe custody and well ordered
community
life."
Mr. Sedley argued that the
limitation in rule 43(2) on the
time during which a prisoner may
be removed from association was
imposed for the benefit of
prisoners in whom there arose a
correlative private law right if
they were injured by a breach. My
Lords, I cannot accept this
proposition. The rules are wide-ranging
in their scope covering a
mass of matters relevant to the
administration and good government
of a prison. Many of these do
not directly relate to prisoners and
I do not consider that those
which do were ever intended to confer
private law rights in the
event of a breach. The rules are
regulatory in character, they
provide a framework within which the
prison regime operates but
they are not intended to protect
prisoners against loss, injury and
damage nor to give them a right
of action in respect thereof. I
would only add that if a prisoner
suffered in health as a result of
segregation contrary to the
rules he would in all probability have a
right of action in
negligence against the prison authorities. If, as
in the case of
Hague, he suffered no damage to health then a
breach of the rules
would not result in loss or injury of the kind
which normally
flows from a breach of statutory duty and which
the statute is
designed to prevent (see Lord Bridge of Harwich in
P. v.
Liverpool Daily Post and Echo Newspapers Plc. [1991] 2
W.L.R.
513 at p. 524 A-B).
In Arbon v. Anderson [1943]
K.B. 252 Goddard L.J., sitting
as an additional judge of the
King's Bench Division, said at p. 254:
"With regard to the prison
rules, it would be enough to say
that there were no breaches, but,
in case a higher court
should take a different view, I should say
that, in my
opinion, neither do these rules confer rights on
prisoners
which can be enforced by action. They are made under
the
Prison Act 1898, section 2, for the 'government of prisons'
.
. . The real question which falls to be determined is
whether
it is intended by the statute to confer an individual
right. I am
clearly of opinion that neither the Prison Act
1898 nor the rules
were intended to confer any such right."
In Becker v. Home Office
[1972] 2 Q.B. 407, in which Arbon v.
Anderson does not
appear to have been cited, the plaintiff sought
to claim damages
in respect of an alleged breach of the prison
rules. Lord Denning
M.R. said at p. 418H:
"The prison rules are
regulatory directions only. Even if
they are not observed, they do
not give rise to a cause of
action. So I hold that in point of law
Mrs. Becker cannot
claim."
Edmund Davies L.J. said at p.
420C:
"... I hold (as Lord Denning
M.R. has done) that a breach
of these prison rules does not, per
se, create any civil
liability at the suit of a party who claims
to have been
damnified thereby."
- 19 -
For the reasons which I have
already given I have no doubt
that the dicta which I have just
quoted from these two cases
correctly state the law as do the
observations 'of Taylor and
Nicholls L.JJ. in Hague [1990]
3 W.L.R. 1210 at 1263c and 1270H
respectively.
Finally, I should emphasise that
the conclusion which I have
reached on this part of the appeal
does not leave a prisoner
without a remedy if the rules are broken
to his detriment. He
may complain to the governor or board of
visitors under rule 8(1)
and in the event of a complaint to the
latter a report may be
made to the Secretary of State under
section 6(3) of the Act. He
may also challenge any administrative
decision of the Secretary of
State or the governor which he
considers to contravene the
provisions of the Act or the rules by
judicial review proceedings.
In the case of a continuing wrong
done to him a prisoner could
expect that a hearing in
judicial review proceedings could be
obtained with little delay.
These public law remedies are
additional to any private law
remedies which would be available to
him such as damages for
misfeasance in public office, assault or
negligence.
False imprisonment
Are there any circumstances in
which a convicted prisoner
committed to a prison in terms of
section 12 of the Prison Act
1952 can sue the prison authorities
for damages for false
imprisonment? The divisional court in Weldon
answered this
question in the affirmative and referred to two
possible situations,
namely:
(1) Where the prisoner has been
deprived of his residual liberty
without reasonable cause and in
bad faith, and (2) where the
prisoner has been subjected to
intolerable conditions of detention.
The Court of Appeal in Hague
considered whether the conditions
under which he was imprisoned
were intolerable but concluded that
they were not. The relevant
circumstances in Weldon were that,
according to his
averments, he was dragged out of his cell,
dragged downstairs,
placed in a cell in the punishment block, later
removed to a strip
cell where his clothes were taken from him
and wherein he remained
until the following morning. In Hague
his continued
segregation after transfer to Wormwood Scrubs
contravened the
provisions of the Prison Rules 1964 and was
unlawful. It was said
that the conditions in which Weldon was
kept in the strip cell
were, prima facie, intolerable, but no such
submission was made on
behalf of Hague.
False imprisonment is defined in
Clerk and Lindsell on
Torts, 16th ed., (1989) pp. 972-973,
para. 17-15 as "complete
deprivation of liberty for any time,
however short, without lawful
cause". The work then quotes
the "Termes de la Ley":
"Imprisonment is no other
thing but the restraint of a man's
liberty, whether it be in the
open field, or in the stocks, or
in the cage in the streets or in
a man's own house, as well
as in the common gaols; and in all the
places the party so
restrained is said to be a prisoner so long as
he hath not
his liberty freely to go at all times to all places
whither he
will without bail or mainprise or otherwise."
- 20 -
The latter definition of
imprisonment was cited with approval by
Duke and Atkin L.JJ. in
Meering v. Grahame-White Aviation Co.
Ltd. (1919) 122 L.T.
44 at pp. 51' and 53. The reference to
liberty to go "at all
times to all places" must, of course, be read
in the context
of the normal restrictions imposed by general law
or contract on
the ability of individuals to go where and when
they please.
Residual liberty
In the Court of Appeal in Weldon
Ralph Gibson L.J. [1990] 3
W.L.R. 465, 473H, after referring in
some detail to the Prison
Rules 1964, said:
" It is apparent, in my
judgment, from consideration of
those rules that the legislative
intention is that a prisoner
should, subject to any lawful order
given to him and to any
rules laid down in the prison, enjoy such
liberty - his
residual liberty - within prison as is left to him."
In reaching the conclusion that
the Prison Rules 1964 left a
prisoner with some residual liberty
Ralph Gibson L.J. had regard to
a passage in the speech of Lord
Wilberforce in Raymond v. Honey
[1983] 1 AC 1 at p. 10G
where he said:
"Secondly, under English law,
a convicted prisoner, in spite
of his imprisonment, retains all
civil rights which are not
taken away expressly or by necessary
implication".
These observations were made in
the context of a case
concerning a prisoner's right of access to
the Courts. They are
highly relevant to the protection of such
rights as a prisoner
retains but they do not assist in determining
what those rights are.
In seeking to support the decision of the
Court of Appeal Mr.
Harris for Weldon referred to four 19th
century authorities which,
he maintained, supported the
proposition that a convicted prisoner
could be falsely imprisoned.
In Osborne v. Angle (1835) 2 Scott
500, a prisoner in the
Fleet Prison was, on being subsequently
charged with dealing with
a forged bill of exchange, conveyed to
the strong room. He
obtained a rule calling upon the warden to
show cause why he
should not be restored to the proper and
ordinary custody of the
prison. The rule was discharged upon the
ground that the warden
was well justified in what he had done,
although it appears from
the judgments of Tindal C.J. and Gaselee
J. that the court would
have interfered if improper and unnecessry
restraint had been
imposed. It was argued, by Mr. Harris, that
the apparent
willingness of the court to have interfered in
appropriate
conditions supported the proposition which he was
advancing. I do
not think that it did. If the court had interfered
it would have
been to affirm the rule by making an order such as
today would be
made in judicial review proceedings but not by
awarding damages
for false imprisonment. In Yorke v. Chapman
(1839) 10 Ad. &
E. 207, a prisoner committed to the Queen's
Bench Prison for debt
was confined by the marshal in terms of a
rule of court in a
strong room for disorderly behaviour. He had a
statutory right to
petition the court on the ground of abuse by the
prison
authorities and in respect of that complaint the court had
power
to award recompense and costs. However, he chose instead
- 21 -
to bring an action of assault and
false imprisonment against the
marshal. The Attorney-General
sought a rule absolute to stay the
action on the ground, inter
alia, that there was no charge of
excess but Lord Denman C.J.
held that the plaintiff's statutory
remedy did not remove his
right to bring an action for redress. I
do not think that this
case assists Mr. Harris because there was no
attempt to strike out
the action based on false imprisonment and
indeed the
Attorney-General appears to have accepted that a
charge of
"excess" would have been actionable. Furthermore,
the
existence of allegations of assault, if proved, would have
entitled
the plaintiff to a remedy at common law irrespective of
any
remedy for false imprisonment.
The two remaining 19th century
cases were Cobbett v. Grey
(1850) 4 Exch. 729 and Osborne
v. Milman (1886) 17 QBD 514, in
both of which prisoners
complained that they were falsely
imprisoned in a part of a prison
in which they could not lawfully
be confined. In Arbon v.
Anderson [1943] K.B. 252, Goddard L.J.
at p. 254 analysed
these two cases and concluded that both related
to the nature of
the imprisonment rather than to the conditions
thereof. In Hague
[1990] 3 W.L.R. 1210, 1263F-1264H, Taylor L.J.
again analysed the
two cases and concluded that both depended
upon the strict
classification of prisoners at the time and the
statutory
requirements as to where they should be confined
dependent upon
their classification. I entirely agree with his
careful analysis
of these two cases and do not feel that I can
usefully add
anything thereto. I would merely emphasise, as
Taylor L.J. did,
that the Secretary of State's power under section
12(1) of the
Prison Act 1952 to confine a prisoner "in any
prison"
demonstrates how different is the position today to
that which
prevailed in the 19th century. I do not therefore
consider that
these four cases support the proposition that a
prisoner committed
to prison in terms of section 12 can,
nevertheless, be falsely
imprisoned.
I turn to more recent authority.
In Williams v. Home
Office (No. 2) [1981] 1 All E.R. 1211,
Tudor-Evans J. at p. 1241
said:
"In my judgment, the sentence
of the court and the
provisions of section 12(1) always afford a
defence to an
action of false imprisonment. The sentence justifies
the
fact of imprisonment and the subsection justifies
the
confinement of a prisoner in any prison. How then can it
be
unjustifiable and unlawful to confine him there? I
accept
the submission . . . that the sentence of the court
and the
provisions of section 12(1) provide a defence to this
action,
subject to the arguments based on the Bill of Rights
and natural
justice . . . The next question is whether the
lawfulness of the
detention can be affected by the
conditions of the detention. I do
not think so. The
question of the conditions of imprisonment is a
matter for
the Secretary of State. The check or safeguard
against
unacceptable conditions . . . lies in the prisoner's
rights
under the rules to complain to the governor or
the
Secretary of State."
In Reg. v. Board of Visitors of
Gartree Prison, Ex parte
Sears, 14 March 1985, The Times, 20
March 1985, a prisoner
- 22 -
sought damages in respect of
cellular confinement and loss of
privilege. Mann J. said:
"If a person is imprisoned in
al place where he is lawfully so
imprisoned, then it does
not seem to me that a variation in
conditions of confinement can
constitute the tort of false
imprisonment at common law."
These two cases were referred to
by Ackner L.J. in Middleweek v.
Chief Constable of Merseyside
(Note) [1990] 3 W.L.R. 481 with
apparent approval
although this was later qualified to the extent
of propounding the
proposition that lawful detention could become
unlawful when the
conditions became intolerable. To this
proposition I shall return
later.
It is perhaps instructive to
examine once more the
circumstances which in each of the two cases
were said to
constitute false imprisonment. In Weldon it
was said that his
removal to and confinement in a strip cell
constituted the tort.
In Hague the Court of Appeal held
that his continued segregation
in the prison to which he was
transferred on the orders of the
Governor of the transferring
provision was unlawful and in breach
of rule 43. This unlawful
segregation, it was argued, amounted to
false imprisonment. No
complaints were made about his presence
in the second prison and
no complaint about segregation could have
been made had the
Governor of that prison independently ordered
and obtained leave
for it. Thus in each case what was said to
constitute false
imprisonment was not the confinement in the
particular prison but
rather the treatment therein, or, as Goddard
L.J. put it in Arbon
v. Anderson the conditions and not the nature
of the
imprisonment. The alteration in the conditions infringed
the
residual liberty possessed by the two men and thus constituted
false
imprisonment.
This proposition presupposes that
a prisoner lawfully confined
in prison has, vis a vis the
Governor, residual liberty which can be
protected by private law
remedies. That a prisoner has a right to
sue in respect of torts
committed against him in prison is beyond
doubt (Raymond v.
Honey (supra)). If he is assaulted by a prison
officer he may
sue for damages, and if he is negligently cared for
whereby he
sustains injury to his health he may likewise sue. But
does he
have such residual liberty, vis a vis the Governor, as
amounts to
a right protectable in law? I do not consider that he
does.
He is lawfully committed to a
prison and while there is
subject to the Prison Act 1952 and the
Prison Rules 1964. His
whole life is regulated by the regime. He
has no freedom to do
what he wants, when he wants. His liberty to
do anything is
governed by the prison regime. Placing Weldon in a
strip cell and
segregating Hague altered the conditions under
which they were
detained but did not deprive them of any liberty
which they had
not already lost when initially confined.
Intolerable conditions
In the Court of Appeal in Weldon
Ralph Gibson L.J. at p.
479E concluded that the plaintiff's
allegation included "an assertion
of fact capable of
constituting such 'intolerable conditions of
- 23 -
detention' as to render the
detention unlawful within the principle
stated by Ackner L.J. in
the Middleweek case". In that case,
Middleweek v.
Chief Constable of Merseyside (Note) [1990] 3
W.L.R. 481,
Ackner L.J. after referring to an unreported decision
of the
Divisional Court in Reg. v. Commissioners of Police of
the
Metropolis, Ex parte Nahar (unreported) 14 March 1985,
said at p.
487:
"We agree with the views
expressed by the Divisional Court
that it must be possible to
conceive of hypothetical cases in
which the conditions of
detention are so intolerable as to
render the detention unlawful
and thereby provide a remedy
to the prisoner in damages for false
imprisonment. A
person lawfully detained in a prison cell would,
in our
judgment, cease to be so lawfully detained if the
conditions
in that cell were such as to be seriously prejudicial
to his
health if he continued to occupy it, e.g., because it
became
and remained seriously flooded, or contained a fractured
gas
pipe allowing gas to escape into the cell., We do
not
therefore accept as an absolute proposition that if
detention
is initially lawful, it can never become unlawful by
reason
of changes in the conditions of imprisonment."
My Lords, there is no doubt that
in the conditions
predicated by Ackner L.J. the prisoner would
have a public law
remedy and, if he sustained injury to health, a
private law remedy
as well, but the latter remedy would lie in
negligence rather than
in false imprisonment. To say that
detention becomes unlawful
when the conditions thereof become
intolerable is to confuse
conditions of confinement with nature of
confinement and to add a
qualification to section 12(1). If, as I
believe to be the case, a
prisoner at any time has no liberty to
be in any place other than
where the regime permits, he has no
liberty capable of deprivation
so as to constitute the tort of
false imprisonment. An alteration
of conditions therefore deprives
him of no liberty because he has
none already. I am therefore of
the opinion that the above quoted
dictum of Ackner L.J. in
Middleweek is an incorrect statement of
the law.
General
There are certain further matters
which are relevant to
both of the arguments on residual liberty
and intolerable
conditions. Mr. Harris argued than a substantial
breach of a
justiciable prison rule affected the legality of the
detention and
could give rise to false imprisonment. This argument
is unsound
for two reasons. In the first place it turns the tort
of false
imprisonment into one of degree dependent upon whether or
not
the breach in question is substantial. Such a concept is at
odds
with the definition of the tort and particularly at odds with
the
dictum of Atkin L.J. in Meering v. Grahame-White Aviation
Co.
Ltd. (1919) 122 L.T. 44, 53-54:
"It appears to me that a
person could be imprisoned without
his knowing it. I think a
person can be imprisoned while he
is asleep, while he is in a
state of drunkenness, while he is
unconscious, and while he is a
lunatic. Those are cases
where it seems to me that the person
might properly
complain if he were imprisoned, though the
imprisonment
- 24 -
began and ceased while he was in
that state. Of course,
the damages might be diminished and would
be affect by
the question whether he was conscious of it or not.
"So a man might in fact, to
my mind, be imprisoned by
having the key of a door turned . . .It
is quite unnecessary
to go on to show that in fact the man knew
that he was
imprisoned."
If a man can be falsely imprisoned
when he is unaware of the fact
it is difficult to see what
relevance comfort or discomfort has to
the constitution of the
tort. In my view, imprisonment is either
lawful or false and
questions of degree do not arise. In the
second place, the
argument seeks to obtain by the back door the
remedy which is not
available by the front, namely, that based on
breach of statutory
duty.
If deprivation of residual liberty
or subjection to intolerable
conditions could constitute false
imprisonment it would mean
adding to section 12(1) some such words
as "so long as the
conditions of his confinement are
tolerable and the provisions of
this Act and of any rules made
hereunder are observed in relation
to him in all material
respects". I see no justification for so
qualifying section
12(1). In my view that subsection provides a
complete answer to
any claim of false imprisonment against the
Governor or anyone
acting on his authority.
It was suggested during argument
that if no action of false
imprisonment could lie against the
Governor, a prisoner would have
no remedy against a fellow
prisoner who locked him in some
confined space. While a prisoner
has no residual liberty vis a vis
the Governor, it does not
necessarily follow that vis a vis fellow
prisoners he does not
have such measure of liberty as is permitted
to him by the prison
regime. Furthermore section 12 would
provide no defence to a
fellow prisoner. As the matter is not
necessary to the
determination of these appeals and was not fully
argued I say no
more. It was further suggested that as a matter
of general
principle someone who had already suffered some
deprivation of
liberty could not thereafter suffer false
imprisonment. This
appears to misunderstand the definition of the
tort which is total
deprivation of liberty, that is to say of all such
liberty as the
individual presently enjoys and not deprivation of
total liberty,
namely, liberty which is otherwise wholly
unrestricted. I see no
reason why an individual enjoying restricted
liberty such as an
undergraduate "gated" within his college should
not be
falsely imprisoned if the result thereof is to deprive him
totally
of such liberty as he presently enjoys.
To summarise my conclusion on
these appeals:
No action of damages lies in
respect of a breach of
the Prison Rules 1964.
No action of damages for
false imprisonment lies
against the Secretary of State
or the Governor of a prison
either on the ground of
unlawful deprivation of residual
liberty, or on
the ground of subjection to intolerable
conditions.
- 25 -
I would therefore dismiss the
appeal in Hague and allow
that in Weldon making the
orders proposed by my noble and
learned friend, Lord Bridge of
Harwich.
LORD
GOFF OF CHIEVELEY
My Lords,
I agree with my noble and learned
friends, Lord Bridge of
Harwich and Lord Jauncey of Tullichettle,
that the Prison Rules
1964 are regulatory in character and were
never intended to
confer private law rights on prisoners in the
event of their breach.
I also agree, for the reasons given by my
noble and learned
friends, with the second conclusion summarised
at the end of Lord
Jauncey's speech, viz. that no action of
damages for false
imprisonment lies against the Secretary of State
or governor of a
prison either on the ground of unlawful
deprivation of residual
liberty, or on the ground of subjection to
intolerable conditions;
though I accept that, in the latter
circumstances, an action for
damages for negligence may be
available to the prisoner, but only
in respect of the type or
types of damage which, on accepted
legal principles, will give
rise to such an action. I too, therefore,
would dismiss the appeal
in the case of Hague and allow the
appeal in the case of
Weldon.
LORD LOWRY
My Lords,
I have had the advantage of
reading in draft the speeches
of my noble and learned friends,
Lord Bridge of Harwich and Lord
Jauncey of Tullichettle. I agree
with both of them that no claim
for damages is sustainable either
for breach of statutory duty or
for false imprisonment in the case
of either prisoner. Accordingly
I, too, would dismiss the appeal
in Hague and allow the appeal in
Weldon.
- 26 - |
JISCBAILII_CASE_CONSTITUTIONAL
Parliamentary
Archives,
HL/PO/JU/18/251
Regina
v. R (Appellant) (On Appeal from the Court of Appeal
(Criminal
Division))
JUDGMENT
Die Mercurii 23 Octobris 1991
Upon Report from the Appellate Committee to
whom was
referred the Cause Regina against R, That the Committee
had
heard Counsel on Monday the 1st day of July last, upon
the
Petition and Appeal of Christopher Rawlinson of Norman
House,
Ashleigh Road, Leicester, praying that the matter of the
Order
set forth in the Schedule thereto, namely an Order of
Her
Majesty's Court of Appeal (Criminal Division) of the 14th
day
of March 1991, might be reviewed before Her Majesty the
Queen
in Her Court of Parliament and that the said Order might
be
reversed, varied or altered or that the Petitioners might
have
such other relief in the premises as to Her Majesty the
Queen
in Her Court of Parliament might seem meet; as upon the
case
of the Director of Public Prosecutions (on behalf of
Her
Majesty) lodged in answer to the said Appeal; and
due
consideration had this day of what was offered on either
side
in this Cause:
It is Ordered and Adjudged, by
the Lords Spiritual and
Temporal in the Court of Parliament of Her
Majesty the Queen
assembled, That the said Order of Her
Majesty's Court of
Appeal (Criminal Division) of the 14th day
of March 1991
complained of in the said Appeal be, and the same is
hereby,
Affirmed and that the said Petition and Appeal be,
and the
same is hereby, dismissed this House.
Cler: Parliamentor:
Judgment: 23.10.91
HOUSE OF LORDS
REGINA
v.
R.
(APPELLANT)
(ON APPEAL FROM THE COURT OF
APPEAL
(CRIMINAL DIVISION))
Lord Keith of Kinkel
Lord
Brandon of Oakbrook
Lord Griffiths
Lord
Ackner
Lord
Lowry
LORD
KEITH OF KINKEL
My Lords,
In this appeal to the House with
leave of the Court of
Appeal (Criminal Division) that court has
certified the following
point of law of general public importance
as being involved in its
decision, namely:
"Is a husband criminally
liable for raping his wife?"
The appeal arises out of the
appellant's conviction at
Leicester Crown Court on 30 July 1990,
upon his pleas of guilty,
of attempted rape and of assault
occasioning actual bodily harm.
The alleged victim in respect of
each offence was the appellant's
wife. The circumstances of the
case were these. The appellant
married his wife in August 1984 and
they had one son born in
1985. On 11 November 1987 the couple
separated for about two
weeks but resumed cohabitation at the end
of that period. On 21
October 1989 the wife left the matrimonial
home with the son and
went to live with her parents. She had
previously consulted
solicitors about matrimonial problems, and
she left at the
matrimonial home a letter for the appellant
informing him that
she intended to petition for divorce. On 23
October 1989 the
appellant spoke to his wife on the telephone
indicating that it was
his intention also to see about a divorce.
No divorce proceedings
had, however, been instituted before the
events which gave rise to
the charges against the appellant. About
9 p.m. on 12 November
1989 the appellant forced his way into the
house of his wife's
parents, who were out at the time, and
attempted to have sexual
intercourse with her against her
will. In the course of doing so he
assaulted her by squeezing her
neck with both hands. The
appellant was arrested and interviewed
by police officers. He
admitted responsibility for what had
happened. On 3 May 1990 a
decree nisi of divorce was made
absolute.
The appellant was charged on an
indictment containing two
counts, the first being rape and the
second being assault
occasioning actual bodily harm. When he
appeared before Owen J.
at Leicester Crown Court on 30 July 1990
it was submitted to the
judge on his behalf that a husband could
not in law be guilty as a
principal of the offence of raping his
own wife. Owen J. rejected
that proposition as being capable of
exonerating the appellant in
the circumstances of the case. His
ground for doing so was that,
assuming an implicit general consent
to sexual intercourse by a
wife on marriage to her husband, that
consent was capable of
being withdrawn by agreement of the parties
or by the wife
unilaterally removing herself from cohabitation and
clearly
indicating that consent to sexual intercourse had been
terminated.
On the facts appearing from the depositions either the
first or the
second of these sets of circumstances prevailed.
Following the
judge's ruling the appellant pleaded guilty to
attempted rape and
to the assault charged. He was sentenced to
three years'
imprisonment on the former count and to eighteen
months
imprisonment on the latter.
The appellant appealed to the
Court of Appeal (Criminal
Division) on the ground that Owen J.:
"made a wrong decision in law
in ruling that a man may
rape his wife when the consent to
intercourse which his
wife gives in entering the contract of
marriage has been
revoked neither by order of a court nor by
agreement
between the parties."
On 14 March 1990 that Court (Lord
Lane C.J., Sir Stephen Brown
P., Watkins, Neill and Russell L.JJ.)
delivered a reserved judgment
dismissing the appeal but certifying
the question of general public
importance set out above and
granting leave to appeal to your
Lordships' House, which the
appellant now does.
Sir Matthew Hale, in his History
of the Pleas of the Crown
(1736) vol. 1, ch. 58, p. 629,
wrote:
"But the husband cannot be
guilty of a rape committed by
himself upon his lawful wife, for by
their mutual
matrimonial consent and contract the wife hath
given
herself up in this kind unto her husband which she
cannot
retract."
There is no similar statement in
the works of any earlier English
commentator. In 1803 East, in his
Treatise of the Pleas of the
Crown, Vol. 1 ch. X, p. 446,
wrote:
"... a husband cannot by law
be guilty of ravishing his
wife, on account of the matrimonial
consent which she
cannot retract."
- 2 -
In the first (1822) edition of
Archbold, A Summary of the Law
Relative to Pleading and
Evidence in Criminal Cases, at p. 259 it
was stated, after a
reference to Hale, "A husband also cannot be
guilty of
a rape upon his wife."
For over 150 years after the
publication of Hale's work
there appears to have been no reported
case in which judicial
consideration was given to his proposition.
The first such case
was Reg. v. Clarence (1888) 22 QBD 23, to which I shall refer
later. It may be taken that the
proposition was generally regarded
as an accurate statement of the
common law of England. The
common law is, however, capable of
evolving in the light of
changing social, economic and cultural
developments. Hale's
proposition reflected the state of affairs in
these respects at the
time it was enunciated. Since then the
status of women, and
particularly of married women, has changed
out of all recognition
in various ways which are very familiar and
upon which it is
unnecessary to go into detail. Apart from
property matters and
the availability of matrimonial remedies, one
of the most
important changes is that marriage is in modern times
regarded as
a partnership of equals, and no longer one in which
the wife must
be the subservient chattel of the husband. Hale's
proposition
involves that by marriage a wife gives her irrevocable
consent to
sexual intercourse with her husband under all
circumstances and
irrespective of the state of her health or how
she happens to be
feeling at the time. In modern times any
reasonable person must
regard that conception as quite
unacceptable.
In S. v. H.M. Advocate 1989
S.L.T. 469 the High Court of
Justiciary in Scotland
recently considered the supposed marital
exemption in rape in that
country. In two earlier cases, H.M.
Advocate v. Duffy 1983
S.L.T. 7 and H.M. Advocate v. Paxton
1985 S.L.T. 96 it had
been held by single judges that the
exemption did not apply where
the parties to the marriage were
not cohabiting. The High Court
held that the exemption, if it had
ever been part of the law of
Scotland, was no longer so. The
principal authority for the
exemption was to be found in Baron
Hume's Criminal Law of
Scotland, first published in 1797. The
same statement appeared
in each edition up to the fourth, by Bell,
in 1844. At p. 306 of
vol. 1 of that edition, dealing with art and
part guilt of
abduction and rape, it was said:
"This is true without
exception even of the husband of the
woman; who although he cannot
himself commit a rape on
his own wife, who has surrendered her
person to him in that
sort, may however be accessory to that crime
. . .
committed on her by another."
It seems likely that this
pronouncement consciously followed Hale.
The Lord Justice-General, Lord
Emslie, who delivered the
judgment of the court, expressed doubt
whether Hume's view
accurately represented the law of Scotland
even at the time when
it was expressed and continued, at p. 473:
"We say no more on this
matter which was not the subject
of debate before us, because we
are satisfied that the
Solicitor-General was well founded in his
contention that
whether or not the reason for the husband's
immunity given
- 3 -
by Hume was a good one in the 18th
and early 19th
senturies, it has since disappeared altogether.
Whatever
Hume meant to encompass in the concept of a
wife's
'surrender of her person' to her husband 'in that sort'
the
concept is to be understood against the background of
the
status of women and the position of a married woman at
the
time when he wrote. Then, no doubt, a married woman
could be said
to have subjected herself to her husband's
dominion in all things.
She was required to obey him in all
things. Leaving out of account
the absence of rights of
property, a wife's freedoms were
virtually non-existent, and
she had in particular no right
whatever to interfere in her
husband's control over the lives and
upbringing of any
children of the marriage.
"By the second half of the
20th century, however, the status
of women, and the status of a
married woman, in our law
have changed quite dramatically. A
husband and wife are
now for ail practical purposes equal partners
in marriage
and both husband and wife are tutors and curators of
their
children. A wife is not obliged to obey her husband in
all
things nor to suffer excessive sexual demands on the part
of
her husband. She may rely on such demands as evidence
of
unreasonable behaviour for the purposes of divorce. A
live
system of law will always have regard to
changing
circumstances to test the justification for any exception
to
the application of a general rule. Nowadays it cannot
seriously
be maintained that by marriage a wife submits
herself irrevocably
to sexual intercourse in all
circumstances. It cannot be affirmed
nowadays, whatever
the position may have been in earlier
centuries, that it is
an incident of modern marriage that a wife
consents to
intercourse in all circumstances, including sexual
intercourse
obtained only by force. There is no doubt that a wife
does
not consent to assault upon her person and there is
no
plausible justification for saying today that she
nevertheless
is to be taken to consent to intercourse by assault.
The
modern cases of H.M. Advocate v. Duffy and H.M.
Advocate
v. Paxton show that any supposed implied consent
to
intercourse is not irrevocable, that separation may
demonstrate
that such consent has been withdrawn, and that
in these
circumstances a relevant charge of rape may lie
against a husband.
This development of the law since
Hume's time immediately prompts
the question: is revocation
of a wife's implied consent to
intercourse, which is
revocable, only capable of being established
by the act of
separation? In our opinion the answer to that
question must
be no. Revocation of a consent which is revocable
must
depend on the circumstances. Where there is no
separation
this may be harder to prove but the critical question
in any
case must simply be whether or not consent has
been
withheld. The fiction of implied consent has no
useful
purpose to serve today in the law of rape in Scotland.
The
reason given by Hume for the husband's immunity
from
prosecution upon a charge of rape of his wife, if it ever
was
a good reason, no longer applies today. There is now,
accordingly,
no justification for the supposed immunity of a
husband. Logically
the only question is whether or not as
matter of fact the wife
consented to the acts complained
- 4 -
of, and we affirm the decision of
the trial judge that
charge 2(b) is a relevant charge against the
appellant to go
to trial."
I consider the substance of that
reasoning to be no less
valid in England than in Scotland. On
grounds of principle there is
now no justification for the marital
exception in rape.
It is now necessary to review how
the matter stands in
English case law. In Reg. v. Clarence
(1888) 22 QBD 23 a
husband who knew that he suffered from a
venereal disease
communicated it to his wife through sexual
intercourse. He was
convicted on charges of unlawfully inflicting
grievous bodily harm
contrary to section 20 of the Offences
Against the Person Act
1861 and of assault occasioning actual
bodily harm contrary to
section 47 of the same Act. The
convictions were quashed by a
court of 13 judges of Crown Cases
Reserved, with four dissents.
Consideration was given to Hale's
proposition, and it appears to
have been accepted as sound by a
majority of the judges.
However, Wills J. at p. 33 said that he
was not prepared to assent
to the proposition that rape between
married persons was
impossible. Field J. (in whose judgment
Charles J. concurred) said,
at p. 57, that he should hesitate
before he adopted Hale's
proposition, and that he thought there
might be many cases in
which a wife might lawfully refuse
intercourse and in which, if the
husband imposed it by violence,
he might be held guilty of a
crime.
In Rex v. Clarke [1949] 2
All. E.R. 448 a husband was
charged with rape upon his wife in
circumstances where justices
had made an order providing that the
wife should no longer be
bound to cohabit with the husband. Byrne
J. refused to quash the
charge. He accepted Hale's proposition as
generally sound, but
said, at p. 449:
"The position, therefore, was
that the wife, by process of
law, namely, by marriage, had given
consent to the husband
to exercise the marital right during such
time as the
ordinary relations created by the marriage contract
subsisted
between them, but by a further process of law, namely,
the
justices' order, her consent to marital intercourse
was
revoked. Thus, in my opinion, the husband was not entitled
to
have intercourse with her without her consent."
In Reg. v. Miller [1954] 2
Q.B. 282 the husband was charged
with rape of his wife after she
had left him and filed a petition
for divorce. He was also charged
with assault upon her
occasioning actual bodily harm. Lynskey J.
quashed the charge of
rape but refused to quash that of assault.
He proceeded on the
basis that Hale's proposition was correct, and
also that Rex v.
Clarke had been rightly decided, but took
the view, at p. 290, that
there was no evidence which entitled him
to say that the wife's
implied consent to marital intercourse had
been revoked by an act
of the parties or by an act of the court.
As regards the count of
assault, having referred to Reg. v.
Jackson [1891] 1 QB 671,
where it was held that a husband
had no right to confine his wife
in order to enforce a decree for
restitution of conjugal rights, he
said, at pp. 291-292:
- 5 -
"It seems to me, on the
reasoning of that case, that
although the husband has a right to
marital intercourse, and
the wife cannot refuse her consent, and
although if he does
have intercourse against her actual will, it
is not rape,
nevertheless he is not entitled to use force or
violence in
the exercise of that right, and if he does so he may
make
himself liable to the criminal law, not for the offence
of
rape, but for whatever other offence the facts of
the
particular case warrant. If he should wound her he might
be
charged with wounding or causing actual bodily harm, or
he may be
liable to be convicted of common assault. The
result is that in
the present case I am satisfied that the
second count is a valid
one and must be left to the jury for
their decision."
So the case had the strange result
that although the use of force
to achieve sexual intercourse was
criminal the actual achievement
of it was not. Logically, it might
be thought that if a wife be
held to have by marriage given her
implied consent to sexual
intercourse she is not entitled to
refuse her husband's advances,
and that if she resists then he is
entitled to use reasonable force
to overcome that resistance. This
indicates the absurdity of the
fiction of implied consent. In the
law of Scotland, as Lord Emslie
observed in S. v. H. M.
Advocate 1989 S.L.T. 469, 473, rape is
regarded as an
aggravated assault, of which the achievement of
sexual intercourse
is the worst aggravating feature. It is
unrealistic to sort out
the sexual intercourse from the other acts
involved in the assault
and to allow the wife to complain of the
minor acts but not of the
major and most unpleasant one.
The next case is Reg. v.
O'Brien [1974] 3 All E.R. 663,
where Park J. held that a
decree nisi effectively terminated a
marriage and revoked the
wife's implied consent to marital
intercourse, so that subsequent
intercourse by the husband without
her consent constituted rape.
There was a similar holding by the
Criminal Division of the Court
of Appeal in Reg. v. Steele (1976)
65 Cr. App. R. 22 as
regards a situation where the spouses were
living apart and the
husband had given an undertaking to the court
not to molest his
wife. A decision to the like effect was given
by the same court in
Reg. v. Roberts [1986] Crim. L.R. 188,
where the spouses
had entered into a formal separation agreement.
In Reg. v.
Sharples [1990] Crim. L.R. 198, however, it was ruled
by Judge
Fawcus that a husband could not be convicted of rape
upon his wife
in circumstances where there \vas in force a family
protection
order in her favour and he had had sexual intercourse
with her
against her will. The order was made under section 16
of the
Domestic Proceedings and Magistrates Courts Act 1978 in
the terms
that "the respondent shall not use or threaten to use
violence
against the person of the applicant". Judge Fawcus took
the
view that it was not to be inferred that by obtaining an order
in
these terms the wife had withdrawn her consent to sexual
intercourse.
There should be mentioned next a
trio of cases which were
concerned with the question whether acts
done by a husband
preliminary to sexual intercourse with an
estranged wife against
her will could properly be charged as
indecent assaults. The cases
are Reg. v. Caswell [1984] Crim. L.R.
III, Reg. v. Kowalski [1987]
Cr. App. R. 339, and Reg.
v. H. (unreported), 5 October 1990,
- 6 -
Auld J. The effect of these
decisions appears to be that in
general acts which would
ordinarily be indecent but which are
preliminary to an act of
normal sexual intercourse are deemed to
be covered by the wife's
implied consent to the latter, but that
certain acts, such as
fellatio, are not to be so deemed. Those
cases illustrate the
contortions to which judges have found it
necessary to resort in
face of the fiction of implied consent to
sexual intercourse.
The foregoing represent all the
decisions in the field prior
to the ruling by Owen J. in
the present case. In all of them lip
service, at least, was paid
to Hale's proposition. Since then there
have been three further
decisions by single judges. The first of
them is Reg. v. C.
(Rape; Marital Exemption) [1991] 1 All E.R.
755. There were
nine counts in an indictment against a husband
and a co-accused
charging various offences of a sexual nature
against an estranged
wife. One of these was of rape as a
principal. Simon Brown J.
followed the decision in S. v. H.M.
Advocate 1989 S.L.T.
469 and held that the whole concept of a
marital exemption in rape
was misconceived. He said, at p. 758:
"Were it not for the deeply
unsatisfactory consequences of
reaching any other conclusion on
the point, I would shrink,
if sadly, from adopting this radical
view of the true position
in law. But adopt it I do. Logically, I
regard it as the
only defensible stance, certainly now as the law
has
developed and arrived in the late twentieth century. In
my
judgment, the position in law today is, as already declared
in
Scotland, that there is no marital exemption to the law
of rape.
That is the ruling I give. Count seven accordingly
remains and
will be left to the jury without any specific
direction founded on
the concept of marital exemption."
A different view was taken in the
other two cases, by reason
principally of the terms in which rape
is defined in section 1(1) of
the Sexual Offences (Amendment) Act
1976 viz.
"For the purposes of section
1 of the Sexual Offences Act
1956 (which relates to rape) a man
commits rape if - (a) he
has unlawful sexual intercourse with a
woman who at the
time of the intercourse does not consent to it;
and (b) at
the time he knows that she does not consent to
the
intercourse or he is reckless as to whether she consents to
it
. . . "
In Reg v. J. (Rape; Marital
Exemption) [1991] 1 All E.R.
759 a husband was charged with
having raped his wife, from whom
he was living apart at the time.
Rougier J. ruled that the charge
was bad, holding that the effect
of section l(l)(a) of the Act of
1976 was that the marital
exemption embodied in Hale's
proposition was preserved, subject to
those exceptions established
by cases decided before the Act was
passed, he took the view
that the word "unlawful" in the
subsection meant "illicit", i.e.
outside marriage, that
being the meaning which in Reg. v.
Chapman [1959] 1 Q.B.
100 it had been held to bear in section 19
of the Sexual Offences
Act 1956. Then in Reg. v. S. (unreported),
15 January 1991,
Swinton-Thomas J. followed Rougier J. in holding
that section 1(1)
of the Act of 1976 preserved the marital
exemption subject to the
established common law exceptions.
- 7 -
Differing, however, from Rougier
J., he took the view that it
remained open to judges to define
further exceptions. In the case
before him the wife had obtained a
family protection order in
similar terms to that in Reg. v.
Sharples [1990] Crim L.R. 198.
Differing from Judge Fawcus in
that case, Swinton-Thomas J. held
that the existence of the family
protection order created an
exception to the marital exemption. It
is noteworthy that both
Rougier J. and Swinton-Thomas J. expressed
themselves as being
regretful that section 1(1) of the Act of 1976
precluded them from
taking the same line as Simon Brown J. in Reg.
v. C. (Rape:
Marital Exemption) [1991] 1 All E.R. 755.
The position then is that that
part of Hale's proposition
which asserts that a wife cannot
retract the consent to sexual
intercourse which she gives on
marriage has been departed from in
a series of decided cases. On
grounds of principle there is no
good reason why the whole
proposition should not be held
inapplicable in modern times. The
only question is whether section
1(1) of the Act of 1976 presents
an insuperable obstacle to that
sensible course. The argument is
that "unlawful" in the subsection
means outside the bond
of marriage. That is not the most natural
meaning of the word,
which normally describes something which is
contrary to some law
or enactment or is done without lawful
justification or excuse.
Certainly in modern times sexual
intercourse outside marriage
would not ordinarily be described as
unlawful. If the subsection
proceeds on the basis that a woman on
marriage gives a general
consent to sexual intercourse, there can
never be any question of
intercourse with her by her husband being
without her consent.
There would thus be no point in enacting
that only intercourse
without consent outside marriage is to
constitute rape.
Reg. v. Chapman [1959] 1
Q.B. 100 is founded on in support
of the favoured construction.
That was a case under section 19 of
the Sexual Offences Act 1956,
which provides:
"(1) It is an offence,
subject to the exception mentioned
in this section, for a person
to take an unmarried girl under
the age of eighteen out of the
possession of her parent or
guardian against his will, if she is
so taken with the
intention that she shall have unlawful sexual
intercourse
with men or with a particular man. (2) A person is
not
guilty of an offence under this section because he takes
such
a girl out of the possession of her parent or guardian
as
mentioned above, if he believes her to be of the age of
eighteen
or over and has reasonable cause for the belief."
It was argued for the defendant
that "unlawful" in that section
connoted either
intercourse contrary to some positive enactment or
intercourse in
a brothel or something of that kind. Donovan J.,
giving the
judgment of the Court of Criminal Appeal, rejected
both
interpretations and continued, at p. 105:
"If the two interpretations
suggested for the appellant are
rejected, as we think they must
be, then the word 'unlawful'
in section 19 is either surplusage or
means 'illicit'. We do
not think it is surplusage, because
otherwise a man who
took such a girl out of her parents'
possession against their
will with the honest and bona fide
intention of marrying her
- 8 -
might have no defence, even if he
carried out that
intention. In our view, the word simply means
'illicit', i.e.,
outside the bond of marriage. In other words, we
take the
same view as the trial judge.' We think this
interpretation
accords with the common sense of the matter, and
with
what we think was the obvious intention of Parliament. It
is
also reinforced by the alternatives specifically mentioned
in
sections 17 and 18 of the Act, that is, 'with the intent
that she
shall marry, or have unlawful intercourse . . .'."
In that case there was a context
to the word "unlawful"
which by cogent reasoning led the
court to the conclusion that it
meant outside the bond of
marriage. However, even though it is
appropriate to read the Act
of 1976 along that of 1956, so that
the provisions of the latter
Act form part of the context of the
former, there is another
important context to section 1(1) of the
Act of 1976, namely the
existence of the exceptions to the
marital exemption contained in
the decided cases. Sexual
intercourse in any of the cases covered
by the exceptions still
takes place within the bond of marriage.
So if "unlawful" in the
subsection means "outside
the bond of marriage" it follows that
sexual intercourse in a
case which falls within the exceptions is
not covered by the
definition of rape, notwithstanding that it is
not consented to by
the wife. That involves that the exceptions
have been impliedly
abolished. If the intention of Parliament was
to abolish the
exceptions it would have been expected to do so
expressly, and it
is in fact inconceivable that Parliament should
have had such an
intention. In order that the exceptions might be
preserved, it
would be necessary to construe "unlawfully" as
meaning
"outside marriage or within marriage in a situation
covered
by one of the exceptions to the marital exemption".
Some
slight support for that construction is perhaps to be gathered
from
the presence of the words "who at the time of the
intercourse
does not consent to it", considering that a woman in a
case
covered by one of the exceptions is treated as having
withdrawn
the general consent to intercourse given on marriage
but may
nevertheless have given her consent to it on the
particular
occasion. However, the gloss which the suggested
construction
would place on the word "unlawfully" would give it
a
meaning unique to this particular subsection, and if the mind
of
the draftsman had been directed to the existence of the
exceptions
he would surely have dealt with them specifically and
not in such
an oblique fashion. In Reg. v. Chapman Donovan
L.J. accepted at
p. 102 that the word "unlawfully" in
relation to carnal knowledge
had in many early statutes not been
used with any degree of
precision, and he referred to a number of
enactments making it a
felony unlawfully and carnally to know any
woman-child under the
age of 10. He said, at p. 103 "one
would think that all
intercourse with a child under 10 would be
unlawful; and on that
footing the word would be mere surplusage".
The fact is that it
is clearly unlawful to have sexual intercourse
with any woman
without her consent, and that the use of the word
in the
subsection adds nothing. In my opinion there are no
rational
grounds for putting the suggested gloss on the word, and
it should
be treated as being mere surplusage in this enactment,
as it
clearly fell to be in those referred to by Donovan L.J. That
was
the view taken of it by this House in McMonagle v.
Westminster
City Council [1990] 2 A.C. 716 in relation to
paragraph 3A of
Schedule 3 of the Local Government (Miscellaneous
Provisions) Act
1983.
- 9 -
I am therefore of the opinion that
section 1(1) of the Act
of 1976 presents no obstacle to this House
declaring that in
modern times the supposed marital exception in
rape forms no part
of the law of England. The Court of Appeal
(Criminal Division)
took a similar view. Towards the end of the
judgment of that
court Lord Lane C.J. said, at p. 1074:
"The remaining and no less
difficult question is whether,
despite that view, this is an area
where the court should
step aside to leave the matter to the
Parliamentary process.
This is not the creation of a new offence,
it is the removal
of a common law fiction which has become
anachronistic
and offensive and we consider that it is our duty
having
reached that conclusion to act upon it."
I respectfully agree.
My Lords, for these reasons I
would dismiss this appeal, and
answer the certified question in
the affirmative.
LORD BRANDON OF OAKBROOK
My Lords,
For the reasons given in the
speech of my noble and learned
friend, Lord Keith of Kinkel, I
would answer the certified question
in the affirmative and dismiss
the appeal.
LORD GRIFFITHS
My Lords,
For the reasons given by my noble
and learned friend, Lord
Keith of Kinkel, I would dismiss this
appeal and answer the
certified question in the affirmative.
LORD ACKNER
My Lords,
For the reasons given in the
speech of my noble and learned
friend, Lord Keith of Kinkel, I,
too, would answer the certified
question in the affirmative and
dismiss the appeal.
- 10 -
LORD
LOWRY
My Lords,
For the reasons given by my noble
and learned friend, Lord
Keith of Kinkel, I would dismiss this
appeal and answer the
certified question in the affirmative.
- 11 - |
JISCBAILII_CASE_TRUSTS
Parliamentary
Archives,
HL/PO/JU/18/252
Guild (Executor Nominate of the
late James Young Russell)
(Appellant) v. Commissioners of Inland
Revenue (Respondents)
(Scotland)
JUDGMENT
Die Jovis 27° Februarii 1992
Upon Report from the Appellate Committee to
whom was
referred the Cause Guild (Executor Nominate of the late
James
Young Russell) against the Commissioners of Inland
Revenue,
That the Committee had heard Counsel as well on Monday
the
27tn as on Tuesday the 28th days of January last upon
the
Petition and Appeal of David James Guild W.S. of 5
Rutland
Square, Edinburgh, praying that the matter of
the
Interlocutors set forth in the Schedule thereto,
namely
Interlocutors of the Lords of Session in Scotland of the
First
Division of the 15th day of March 1991, might be
reviewed
before Her Majesty the Queen in Her Court of Parliament
and
that the said Interlocutors might be reversed, varied
or
altered or that the Petitioner might have such other relief
in
the premises as to Her Majesty the Queen in Her Court
of
Parliament might seem meet; as upon the case of
the
Commissioners of Inland Revenue lodged in answer to the
said
Appeal; and due consideration had this day of what was
offered
on either side in this Cause:
It is Ordered and Adjudged, by
the Lords Spiritual and
Temporal in the Court of Parliament of Her
Majesty the Queen
assembled, That the said Interlocutors of the
15th day of
March 1991 complained of in the said Appeal be, and
the same
are hereby, Recalled and that the determination of
the
Commissioners of Inland Revenue of the 8th day of June 1990
be
Set Aside: And it is further Ordered, That the
said Cause be
and the same is hereby remitted back to the Court of
Session
in Scotland to proceed as accords: And it is further
Ordered,
That the Respondents do pay or cause to be paid to
the said
Appellant the Expenses incurred by him in respect of
the
Action in the Court of Session and also the Costs incurred
by
him in respect of the said Appeal to this House, the amount
of
such last-mentioned Costs to be certified by the Clerk of
the
Parliaments if not agreed between the parties: And is is
also
further Ordered, That unless the Costs certified as
aforesaid
shall be paid to the Appellant entitled to the same
within one
calendar month from the date of the Certificate thereof
the
Cause shall be, and the same is hereby, remitted back to
the
Court of Session in Scotland or to the Judge acting
as
Vacation Judge to issue such Summary Process or Diligence
for
the recovery of such Costs as shall be lawful and necessary.
Cler: Parliamentor:
Judgment:
27 February 1992
HOUSE OF LORDS
GUILD
(EXECUTOR NOMINATE OF THE LATE
JAMES YOUNG RUSSELL)
(APPELLANT)
v.
COMMISSIONERS OF INLAND REVENUE
(RESPONDENTS)
(SCOTLAND)
Lord Keith
of Kinkel
Lord Roskill
Lord Griffiths
Lord Jauncey of
Tullichettle
Lord Lowry
LORD
KEITH OF KINKEL
My
Lords,
The late James Young Russell ("the
testator"), who resided
in North Berwick, died on 11
September 1982 leaving a will dated
7 April 1971 in which, after
bequeathing a number of pecuniary
legacies he provided as follows:
"And I leave the whole, rest,
residue and remainder of my
said means and estate to the Town
Council of North
Berwick for the use in connection with the Sports
Centre in
North Berwick or some similar purpose in connection
with
sport and the receipt of the Treasurer for the time being
of
the Burgh of North Berwick shall be a sufficient receipt
and
discharge for my Executor."
At the time of the testator's
death the town council of
North Berwick had ceased to exist as a
result of the coming into
force on 16 May 1975 of section 1(5) of
the Local Government
(Scotland) Act 1973. The provision of
sporting and recreational
facilities in North Berwick and the
surrounding area became the
responsibility of East Lothian
District Council, set up under the
Act. The Sports Centre in North
Berwick had been the property
of the Town Council and as a result
of the Act it became vested
in the District Council, which
undertook its operation and
management.
In these circumstances the present
appellant, who is
executor nominate under the testator's will,
raised an action of
multiplepoinding and exoneration in the Court
of Session, in the
course of which he lodged an administrative
claim to be ranked
and preferred to the fund in medio,
being the residue of the
testator's estate, for the purpose of
applying to the court for
approval of a cy-pres scheme.
Claims were also lodged by the
testator's heirs on intestacy and
the appellant's administrative
claim was supported by East
Lothian District Council. By
interlocutor dated 5 April 1986 the
Lord Ordinary, Lord Jauncey,
ranked and preferred the appellant to
the fund in medio in terms
of his administrative claim,
holding that the terms of the bequest
of residue evinced a general
charitable intention, and that there
was nothing to indicate that
the selection of the Town Council to
administer the bequest
involved delectus personae (Russell's
Executor v. Balden,
1989 S.L.T. 177). "
The appellant then presented a
petition to the Inner House
for approval of a cy-pres
scheme for the future administration of
the bequest, and approval
was duly granted on 14 June 1988.
Nothing now turns on the terms
of the cy-pres scheme so
approved.
Some time later, on 8 June 1990,
the Commissioners of
Inland Revenue, the present respondents, sent
to the appellant a
notice of determination to the effect that the
transfer of value
involved in the testator's bequest of residue
was not an exempt
transfer for the purposes of paragraph 10 of
Schedule 6 to the
Finance Act 1975. That was the Act, in force at
the testator's
death, which introduced capital transfer tax. There
is no need for
present purposes to consider the main provisions of
the Act, since
this appeal is concerned only with the exemption
from the tax
afforded to property which is given to charities. The
exemption is
contained in paragraph 10 of Schedule 6 to the Act,
which
provided so far as material:
"(1) Subject to the
provisions of Part II of this Schedule,
transfers of value are
exempt to the extent that the values
transferred by them-
(a) are attributable to
property which is given to
charities; and
so far as made on or within one
year of the death
of the transferor, do not exceed £250,000.
. . .
(3) For the purposes of this
paragraph property is given to
charities if it becomes the
property of charities or is held
on trust for charitable purposes
only."
Under section 51 of the Act
"charity" and "charitable" are stated
to have
the same meanings as in the Income Tax Acts. Section
360(3) of the
Income and Corporation Taxes Act 1970 provides:
"In this section "charity"
means any body of persons or trust
established for charitable
purposes only."
The appellant appealed against the
respondent's
determination to the First Division of the Court of
Session as the
Court of Exchequer in Scotland, under paragraph
7(3) of Schedule 4
to the Act of 1975. On 15 March 1991 that court
by a majority
(Lord President Hope and Lord Mayfield, Lord
McCluskey
dissenting) refused the appeal and affirmed the
determination. The
appellant now appeals to your Lordships' House.
- 2 -
At one time it was being contended
on behalf of the Crown
that for the purpose of determining whether
or not the exemption
from tax of charitable bequests was available
it was appropriate to
have regard, not to the terms of the
original bequest, but to the
terms of the cy-pres scheme
approved by the court. That
contention, if correct, would have
resolved the issue in favour of
the Crown, since it is conceded
that the purposes of the cy-pres
scheme are not, strangely
enough, charitable purposes only. The
contention has, however, now
been departed from. Before the First
Division one of the arguments
for the Crown was that during the
period between the testator's
death and the date when the cy-pres
scheme became operative
the residue of his estate was not "held
on trust" within
the meaning of paragraph 10(3) of Schedule 6 to
the Act of 1975.
That argument was unanimously rejected by
their Lordships of the
First Division and was not renewed before
your Lordships' House.
Counsel for the respondents did, however,
argue another point upon
which they were unsuccessful in the First
Division, namely that
the first part of the bequest failed to pass
the requisite test
since the purposes of the Sports Centre in North
Berwick were not
charitable purposes only. Counsel for the
appellant, for their
part, sought to overturn the decision of the
First Division upon
the point upon which they had, by a majority,
failed there, namely
whether or not the second part of the
bequest, by its reference to
"some similar purpose in connection
with sport," was of
such width as to admit the possibility of the
funds being applied
to provide some benefit of a non-charitable
nature.
A Scottish court, when faced with
the task of construing
and applying the words "charity"
and "charitable" in a United
Kingdom tax statute, must
do so in accordance with the technical
meaning of these words in
English law: Commissioners for Special
Purposes of the Income
Tax v. Pemsel [1891] AC 531; I.R.C. v.
City of Glasgow
Police Athletic Association [1953] AC 380. For
tax purposes,
and for them alone, the English law of charity is to
be regarded
as part of the law of Scotland. Lord Jauncey's
decision in the
action of multiplepoinding proceeded upon the
general law of
Scotland as regards charities, and, as the Glasgow
Police
Athletic case shows, the decision under the corresponding
English
common law rules would have been different. However,
the Glasgow
Police Athletic case and that of I.R.C. v. Baddeley
[1955] AC 572 led to the Recreational Charities Act 1958, and it
is
that Act which the appellant invokes in his claim to the
charitable
exemption from capital transfer tax.
Section 1 of the Act provides:
"(1) Subject to the
provisions of this Act, it shall be and be
deemed always to have
been charitable to provide, or assist
in the provision of,
facilities for recreation or other leisure-
time occupation, if
the facilities are provided in the
interests of social welfare:
Provided that nothing in this
section shall be taken to
derogate from the principle that a trust
or institution
to be charitable must be for the public benefit.
(2) The requirements of the
foregoing subsection that the
facilities are provided in the
interests of social welfare shall
not be treated as satisfied
unless-
- 3 -
(a) the facilities are
provided with the object of
improving the conditions of
life for the persons for
whom the facilities are primarily
intended; arid
(b) either-
(i) those persons have need of
such facilities as
aforesaid by reasons of their youth,
age,
infirmity or diablement, poverty or social and
economic
circumstances, or
(ii) the facilities are to be
available to the
members or female members of the public at
large.
(3) Subject to the said
requirement, subsection (1) of this
section applies in particular
to the provision of facilities at
village halls, community centres
and women's institutes, and
to the provision and maintenance of
grounds and building to
be used for purposes of recreation or
leisure-time
occupation, and extends to the provision of
facilities for
those purposes by the organising of any activity."
In the course of his argument in
relation to the first branch
of the bequest counsel for the
respondents accepted that it
assisted in the provision of
facilities for recreation or other leisure
time occupation within
the meaning of subsection (1) of section 1
of the Act, and also
that the requirement of public benefit in the
proviso to the
subsection was satisfied. It was further accepted
that the
facilities of the Sports Centre were available to the
public at
large so that the condition of subsection (2)(b)(ii) was
satisfied.
It was maintained, however, that these facilities were
not
provided "in the interests of social welfare" as required
by
subsection (1), because they did not meet the condition laid
down
in subsection (2)(a), namely that they should be "provided
with the
object of improving the conditions of life for the
persons for
whom the facilities are primarily intended." The
reason why it
was said that this condition was not met was that on
a proper
construction it involved that the facilities should be
provided with
the object of meeting a need for such facilities in
people who
suffered from a position of relative social
disadvantage. Reliance
was placed on a passage from the judgment
of Walton J. in I.R.C.
v. McMullen [1978] 1 W.L.R. 664.
That was a case where the
Football Association had set up a trust
to provide facilities to
encourage pupils of schools and
universities in the United Kingdom
to play association football
and other games and sports. Walton J.
held that the trust was not
valid as one for the advancement of
education nor did it satisfy
section 1 of the Act of 1958. He said
at p. 675, in relation to
the words "social welfare" in subsection
(1):
"In my view, however, these
words in themselves indicate
that there is some sort of
deprivation - not, of course, by
any means necessarily of money -
which falls to be
alleviated; and I think that this is made even
clearer by the
terms of subsection (2)(a). The facilities must be
provided
with the object of improving the conditions of life
for
persons for whom the facilities are primarily intended. In
- 4 -
other words, they must be to some
extent and in some way
deprived persons"
When the case went to the Court of
Appeal ([1979] 1 W.L.R. 130)
the majority (Stamp and Orr L.JJ.)
affirmed the judgment of
Walton J. on both points, but Bridge L.J.
dissented. As regards
the Recreational Charities Act point he said
at p. 142:
"I turn therefore to consider
whether the object defined by
clause 3(a) is charitable under the
express terms of section
1 of the Recreational Charities Act 1958.
Are the facilities
for recreation contemplated in this clause to
be 'provided in
the interests of social welfare' under section
1(1)? If this
phrase stood without further statutory elaboration,
I should
not hesitate to decide that sporting facilities for
persons
undergoing any formal process of education are provided
in
the interests of social welfare. Save in the sense that
the
interest of social welfare can only be served by the
meeting
of some social need, I cannot accept the judge's view
that
the interests of social welfare can only be served in
relation
to some 'deprived' class. The judge found this
view
reinforced by the requirement of subsection (2)(a) of
section
1 that the facilities must be provided 'with the object
of
improving the conditions of life for the persons for whom
the
facilities are primarily intended; . . . ' Here again I
can see no
reason to conclude that only the deprived can
have their
conditions of life improved. Hyde Park improves
the conditions of
life for residents in Mayfair and Belgravia
as much as for those
in Pimlico or the Portobello Road, and
the village hall may
improve the conditions of life for the
squire and his family as
well as for the cottagers. The
persons for whom the facilities
here are primarily intended
are pupils of schools and
universities, as defined in the trust
deed, and these facilities
are in my judgment unquestionably
to be provided with the object
of improving their conditions
of life. Accordingly the ultimate
question on which the
application of the statute to this trust
depends, is whether
the requirements of section l(2)(b)(i) are
satisfied on the
ground that such pupils as a class have need of
facilities for
games or sports which will promote their physical
education
and development by reason either of their youth or of
their
social and economic circumstances, or both. The
overwhelming majority of pupils
within the definition are
young persons and the tiny minority of
mature students can
be ignored as de minimis. There cannot surely
be any doubt
that young persons as part of their education do
need
facilities for organised games and sports both by reason
of
their youth and by reason of their social and
economic
circumstances. They cannot provide such facilities
for
themselves but are dependent on what is provided for them."
In the House of Lords the case was
decided against the Crown
upon the ground that the trust was one
for the advancement of
education, opinion being reserved on the
point under the
Recreational Charities Act. Lord Hailsham of St.
Marylebone L.C.
said ([1981] AC 1 at p. 11):
"I do not wish my absence of
decision on the third or fourth
points to be interpreted as an
indorsement of the majority
- 5 -
judgments in the Court of Appeal
nor as necessarily
dissenting from the contrary views contained in
the minority
judgment of Bridge L.J."
Reference was also made to the
speech of Lord Denning in
National Deposit Friendly Society
Trustees v. Skegness U.D.C.
[1959] A.C. 293, a case concerned
with the meaning of "the
advancement of ... social welfare"
in section 2(1)(a) of the
Rating and Valuation (Miscellaneous
Provisions) Act 1955. Lord
Denning said at pp. 322-323:
"A person is commonly said to
be engaged in 'social
welfare' when he is engaged in doing good
for others who
are in need - in the sense that he does it, not for
personal
or private reasons - not because they are relatives
or
friends of his - but because they are members of the
Community
or of a portion of it who need help ... If a
person is engaged in
improving the conditions of life of
others who are so placed as to
be in need, he is engaged in
'social welfare"'.
Counsel for the appellant, for his
part, relied on part of the
judgment of Lord MacDermott L.C.J. in
Commissioner of Valuation
for Northern Ireland v. Lurgan
Borough Council [1968] N.I. 104. A
local authority which was
owner and occupier of an indoor
swimming pool claimed exemption
from rates in respect of it
under section 2 of the Valuation
(Ireland) Amendment Act 1854 on
the ground inter alia that
it was used exclusively for the purposes
of a recreational charity
under the Act of 1958. A majority of
the Court of Appeal held that
this ground of exemption was
established. Lord MacDermott said at
p. 126, having referred to
section 1 of the Act:
"Here, I think, there can be
no doubt that in the
construction, equipment and running of this
hereditament the
Council has provided facilities for recreation.
The big
question is - have these facilities been provided 'in
the
interests of social welfare'? 'Social welfare' is a
somewhat
vague and uncertain expression. Taken by itself I
still
incline to the view I expressed in National Deposit
Friendly
Society Trustees v. Skegness Urban District Council,
that it
signifies something more than 'social well-being'. In
the
present context, however, I do not think it necessary
to
speculate as to the precise distinction to be drawn
between
these two expressions as subsection (2) of section 1,
though
not exactly a definition, provides in effect, in my
opinion,
the essential elements which must be present if a state
of
social well-being is to amount to 'social welfare' as
that
expression is used in the section. These elements are to
be
drawn from paragraphs (a) and (b) of subsection (2). By (a)
the
facilities must be provided with the object of improving
the
conditions of life for the persons for whom the facilities
are
primarily intended. To my mind the provision of the
hereditament
satisfies that requirement. The primary
object, even if confined
to the phraseology of the preamble
to the Act of 1846, was clearly
to improve the conditions
of life of the inhabitants of the
Borough of Lurgan and if,
as I have held, this was done in a
manner which enured for
the benefit of the public at large,
paragraph (a) would still
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be complied with. It is clear from
the terms of the case
stated that the hereditament was not only
provided to
improve the conditions of life for those for whom it
was
primarily intended, but that in fact it has done so. The
full
use which has been made of the hereditament since
its
inauguration is, I think, cogent evidence that it has filled
a
need in the life of the community and has added to the
enjoyment
of its members.
"The second requirement to be
satisfied is one or other of
the subparagraphs of paragraph (b).
Of these alternatives I
am of opinion that subparagraph (i) does
not apply so as to
support the Council's case. There is nothing in
the case
stated that I can see which shows that those benefited
have
need of the facilities provided by reason of any of
the
specific factors mentioned, ie. youth, age, infirmity
or
disablement, poverty or social and economic circumstances.
But
subparagraph (ii), on the views I have already expressed,
is
applicable for the facilities of the hereditament are
available to
the public at large."
In this passage Lord MacDermott
makes the point that
section 1(2) of the Act does not exactly
contain a definition but
that it does state the essential elements
which must be present if
the requirement that the facilities
should be provided in the
interests of social welfare is to be
met. It is difficult to envisage
a case where, although these
essential elements are present, yet
the facilities are not
provided in the interests of social welfare.
Nor do I consider
that the reference to social welfare in
subsection (1) can
properly be held to colour subsection (2)(a) to
the effect that
the persons for whom the facilities are primarily
intended must be
confined to those persons who suffer from some
form of social
deprivation. That this is not so seems to me to
follow from the
alternative conditions expressed in subsection
(2)(b). If it
suffices that the facilities are to be available to the
members of
the public at large, as subparagraph (ii) provides, it
must
necessarily be inferred that the persons for whom the
facilities
are primarily intended are not to be confined to those
who have
need of them by reason of one of the forms of social
deprivation
mentioned in subparagraph (i).
The fact is that persons in ail
walks of life and all kinds of
social circumstances may have their
conditions of life improved by
the provision of recreational
facilities of suitable character. The
proviso requiring public
benefit excludes facilities of an undesirable
nature. In my
opinion the view expressed by Bridge L.J., as he
then was, in
I.R.C. v. McMullen is clearly correct and that of
Walton J.
in the same case is incorrect. Lord MacDermott in the
Lurgan
case plainly did not consider that the category of persons
for
whom the facilities were primarily intended was subject to
any
restriction. The observations of Lord Denning in the Skegness
case
are not relevant in the present context. I would therefore
reject
the argument that the facilities are not provided in the
interests
of social welfare unless they are provided with the
object of
improving the conditions of life for persons who suffer
from some
form of social disadvantage. It suffices if they are
provided with
the object of improving the conditions of life for
members of the
community generally. The Lord President, whose
opinion contains
a description of the facilities available at the
Sports Centre which
- 7 -
it is unnecessary to repeat, took
the view that they were so
provided. I respectfully agree, and
indeed the contrary was not
seriously maintained.
It remains to consider the point
upon which the appellant
was unsuccessful before the First
Division, namely whether or not
the second branch of the bequest
of residue, referring to "some
similar purpose in connection
with sport", is so widely expressed as
to admit of the funds
being applied in some manner which falls
outside the requirements
of section 1 of the Act of 1958. Counsel
for the appellant invited
your Lordships, in construing this part of
the bequest, to adopt
the benignant approach which has regularly
been favoured in the
interpretation of trust deeds capable of being
regarded as
evincing a charitable intention. That approach is
appropriate
where the language used is susceptible of two
constructions one of
which would make it void and the other
effectual. (I.R.C. v.
McMullen [1981] AC 1, per Lord Hailsham
of St.
Marylebone at p. 14; Weir v. Crum-Brown [1908] AC 162,
per
Lord Loreburn L.C. at p. 167). It was argued for the
respondents
that the benignant approach was not apt in the present
case, since
the question was not whether the trust was valid or
invalid, but
whether it qualified for exemption from tax by virtue
of the Act
of 1958. But the importation into Scots law, for tax
purposes, of
the technical English law of charities involves that a
Scottish
judge should approach any question of construction arising
out of
the language used in the relevant instrument in the same
manner as
would an English judge who had to consider its validity
as a
charitable gift. The English judge would adopt the benignant
approach
in setting about that task, and so the Scottish judge
dealing with
the tax consequences should do likewise.
The matter for decision turns upon
the ascertainment of the
intention of the testator in using the
words he did. The adjective
"similar" connotes that
there are points of resemblance between
one thing and another. The
points of resemblance here with the
Sports Centre cannot be
related only to location in North Berwick
or to connection with
sport. The first of these is plainly to be
implied from the fact
of the gift being to the Town Council of
North Berwick and the
second is expressly stated in the words
under construction. So the
resemblance to the Sports Centre
which the testator had in mind
must be ascertained by reference
to some other characteristics
possessed by it. The leading
characteristics of the Sports Centre
lie in the nature of the
facilities which are provided there and
the fact that those
facilities are available to the public at
large. These are the
characteristics which enable it to satisfy
section 1 of the Act of
1958. Adopting so far as necessary a
benignant construction, I
infer that the intention of the testator
was that any other purpose
to which the Town Council might apply
the bequest or any part of
it should also display those
characteristics. In the result I am of
opinion, the first part of
the bequest having been found to be
charitable within the meaning
of section 1 of the Act of 1958,
that the same is true of the
second part, so that the funds in
question qualify for exemption
from capital transfer tax.
My Lords, for these reasons I
would allow the appeal and
set aside the determination of the
respondents. I would allow the
appellant his costs here and his
expenses before the Court of
Session.
- 8 -
LORD
ROSKILL
My Lords,
I have had the advantage of
reading in draft the speech
prepared by my noble and learned
friend, Lord Keith of Kinkel,
and for the reasons which he gives I
would allow the appeal.
LORD GRIFFITHS
My Lords,
I have had the advantage of
reading the speech of my noble
and learned friend, Lord Keith of
Kinkel, and for the reasons
which he gives I, too, would allow the
appeal.
LORD JAUNCEY OF TULLICHETTLE
My Lords,
I have had the advantage of
reading in draft the speech of
my noble and learned friend, Lord
Keith of Kinkel, and for the
reasons which he gives I, too, would
allow the appeal.
LORD LOWRY
My Lords,
I have had the advantage of
reading in draft the speech of
my noble and learned friend, Lord
Keith of Kinkel, and for the
reasons which he gives I, too, would
allow the appeal.
- 9 - |
(Revised)
LORD JUSTICE GLIDEWELL: The appellant, the defendant in the court below, was at the material time the Chief Constable of the Merseyside police. By a writ issued on 19th June 1986 the plaintiff, Mr. Alexandrou, claimed damages for the negligence of police officers in the Merseyside police, for which the defendant was responsible under Section 48 of the Police Act 1964. Before the hearing, damages were agreed subject to liability, in the sum of £7,500. After a hearing in Liverpool in December 1988, Hodgson J. on 17th February 1989 in Birmingham gave judgment for the plaintiff in that sum. The defendant now appeals against that judgment.
The Pleadings
The statement of claim alleged that at the material time the plaintiff occupied a retail clothing store known as "Ziggys at 5 Borough Pavement, Grange Precinct, in Birkenhead. At that shop the plaintiff had installed a burglar alarm system which, when activated, raised the alarm at the Mortimer Street police station, Birkenhead. Paragraphs 4 and 5 of the statement of claim read as follows:
"4. At, or about, 7 pm on 26th January 1986 a person or persons unknown entered the said clothing store and in so doing activated the burglar alarm at the Mortimer Street police station and stole therefrom a large quantity of clothing owned by the plaintiff in consequence whereof the plaintiff has suffered loss and damage."
"5. The said loss and damage was caused through the
negligence of the defendant, his servants, or agents.
"PARTICULARS OF NEGLIGENCE
The defendant, his servants, or agents, were negligent in that they:
a) Failed once the burglar alarm system was activated at the police station to attend with reasonable expedition thereafter at the said clothing store.
b) Failed in the circumstances to take any or any adequate precautions so as to discover the cause of the burglar alarm being so activated.
c) Failed to heed or act upon the warning given by the burglar alarm.
d) Assumed without any, or any proper enquiry, that the activation of the burglar alarm was a false alarm.
e) Failed with any, or reasonable expedition, to contact the plaintiff or the key-holder namely David McCarthy,"
The plaintiff claimed that by reason of the alleged negligence he had suffered the loss and damage alleged. Paragraph 3 of the defence read as follows:
"The defendant admits that at about 19.20 hours on 26 January 1986 the internal alarm at the said premises was activated and as a result the alarm was raised with the Merseyside police. The defendant denies that the said alarm was activated by a person or persons entering the said premises."
The paragraph continued with further allegations of fact with which I will deal when I come to summarise the evidence.
The defence denied that the defendant owed the plaintiff a duty of care in the circumstances alleged in the statement of claim, denied the allegations of negligence, and further denied that any loss or damage was caused by the negligence of himself or his servants or agents. Thus the issues before the judge were formulated.
The Evidence
The evidence before the judge can be summarised as follows. The Grange Precinct in Birkenhead is a modern shopping precinct. The lockup shop occupied by the plaintiff was one of a row of shops at first floor level in the Precinct. The front of the shop gave access to a pedestrian street. In order to reach the rear of the shop without going through the shop itself it was necessary to go along the pedestrian street, down a flight of steps to the ground level below, into a service tunnel and along a passage, up a further flight of steps and en to a walkway which ran along the back of the shops at first floor level. At the back of the plaintiff's shop there was a fire door which gave access to the walkway and a transom window some feet above the level of the walkway.
The burglar alarm system installed at the plaintiff's shop comprised an exterior alarm bell; an interior alarm bell, situated towards the rear of the premises; and a mechanism which when the alarm was activated sent a 999 telephone call to the police station which, when answered, delivered a recorded message indicating that the alarm had been activated at the premises in question. If the exterior alarm bell were removed, the 999 call would be activated. About four minutes later, the inside bell would start ringing. That would continue ringing indefinitely unless either it were turned off, or the control panel for the system was damaged, or there was some failure of power to the inside bell.
At 19.20 hours on Sunday 26th January 1986, the burglar alarm at the plaintiff'3 shop was activated, and the 999 call was received at the police control room. At that time WPC Thompson was on duty in Borough Pavement, a little distance from the plaintiff's shop. She heard a burglar alarm begin to ring, but at first did not know in which shop it was situated. She spoke to the control room at 19.23 hours, and was informed that the alarm was ringing in the plaintiff's shop. She went to the front of the shop, and said that she could see no signs of disturbance. She did not observe the burglar alarm on the exterior of the premises. Almost immediately afterwards, she was joined by PC William Smith, who had been on patrol nearby. He went apparently to the rear of the premises, and then returned saying, as he subsequently said in evidence, that he had checked the rear of the premises and found nothing wrong. WPC Thompson reported this to control at 19.24 hours. Shortly after this WPC Thompson went off duty.
The story was then taken up by PC Smith. He said in evidence that after he had met WPC Thompson at the front of the shop he went by the route I have described to the rear. He gave evidence in detail about the route he took, and said that he inspected the rear of the premises, including both the door and the window above. He also checked the rear of every other shop along that walkway. He found that everything was secure. He was asked by the judge whether he could hear the alarm from the back of the shop, and after hesitating he replied that he could not remember. He returned to the front of the shop, where WPC Thompson still was, and saw no sign that there had been an alarm bell attached to the front.
PC Smith said that thereafter he gave "Ziggys" shop passing attention. When asked what he meant by that phrase he said:
"During the course of duty if I'm asked to give passing attention or I decide to give passing attention to a shop, I check that particular attention is given to a shop that is particularly open to be burgled or damaged; therefore it gets more attention that the rest of the Precinct. If the alarm is also sounding on the premises then it's much easier to break in without causing undue alarm. It is much easier to break into premises that are alarmed and the alarm is sounding, and the police are aware that the alarm is sounding but are not there. It would raise no undue suspicion because the alarm is already sounding."
Thereafter he said that on a number of occasions he went back to "Ziggys", but he explained that by this he meant that he went on several occasions during the course of his patrol to inspect the front of the shop which, on each occasion, he found secure. At about 9.30 pm he visited the shop and realised that the alarm bell inside had stopped ringing. He then went to the rear of the shop and said that he again found it secure. He reported the fact that the alarm bell had stopped ringing to control, who noted that message as being received at 21.26 hours.
Meanwhile, the police had been trying to make contact with the person holding the key of the shop. They telephoned a Mrs Fitzgerald, who told them that she no longer had the key, and gave them the name and address of Mr. McCarthy. He was not on the telephone. A police patrol went to that address, which was a large house let in small flatlets. The police officers on the patrol gave evidence that they rang the bell of each of the flatlets, and banged on the doors, but gained no reply. At that point they were called away to another more urgent task, and therefore no contact was made with Mr McCarthy that night.
On the following morning the plaintiff went to his shop. When he went inside he found that it was in disarray and all the clothes which had been in stock on the Saturday, 36 hours before, had been removed. The control panel of the burglar alarm had been ripped off the wall. The transom window was broken, and the bars protecting it had been drawn apart. The fire escape door had been smashed so as to allow access to, or egress from, the premises. The cover of the fire alarm bell on the exterior of the premises and the bell inside had been completely removed.
The judge's findings of fact
The learned judge did not believe PC Smith when that officer said that at about 19.23 hours he went to the rear of the shop and checked it and found everything secure. The judge's reasons for not believing the officer were his hesitation in answer to the question whether he heard the alarm bell from the back, and the fact that according to the recorded times he had both gone to and returned from the back of the shop in the course of one minute, i.e. between 19.23 and 19.24 hours, which the judge found was not possible.
Moreover, the judge did not believe that PC Smith had again visited the rear of the premises when he realised that the bell was not ringing at 21.26 hours, nor did he accept that at that stage the rear of the premises was undamaged and secure.
The judge accepted the evidence of the plaintiff as to the conditions he found on the following morning.
The judge found that it was highly probable that the
burglary had happened as follows:
"Shortly before 21.26 hours entry was made through the window, the bars being forced apart. The burglars then stopped the bell ringing by pulling the panel away from the wall. The window would be an unsatisfactory means of egress while carrying several thousand pounds worth of goods from the shop to, no doubt, a waiting vehicle. The fire door was therefore smashed open from the inside and the loot removed."
He rejected as unlikely to have happened the suggestion that the bell might have stopped of its own accord and the burglary might have been committed much later.
The judge then said (at page 7(B) of the transcript of his judgment):
"If this reconstruction is correct then it follows that, at the time that PC Smith says that he inspected the rear of these premises shortly after 21.26 hours? the window at least had been smashed and entry gained. I think PC Smith is probably telling me the truth when he says he did visit the front of the premises quite frequently, in which case he probably realised that the bell had stopped very shortly after it did stop. At that time therefore the burglars would probably not have begun to remove the goods; they were probably in the process of breaking down the fire door.
"It seems clear to me therefore that, had PC Smith done that which he plainly ought to have done, this burglary, or rather the theft of the goods, would have been prevented."
The judge then turned to consider whether the police had also been negligent in failing to find the key-holder, Mr. McCarthy. In the light of the evidence he had heard, which I have summarised above, he said that the officers who went to look for Mr. McCarthy did nothing wrong and were in no way careless. Thus in respect of the allegation of negligence in paragraph 5(e) of the statement of claim the judge found for the defendant on the facts.
The judge's conclusions on the law
The learned judge reminded himself that in order to succeed in an action based on the tort of negligence, a plaintiff has to establish three elements, namely:
i) that the defendant owed him a duty of care in the circumstances; and
ii) that the defendant or his servant or agent had acted in breach of that duty; and
iii) that the plaintiff had suffered damage as a consequence of that breach.
The judge commented that it was in establishing that the defendant owed him a duty of care that the plaintiff was presented with "his greatest obstacle to success". The judge then gave lengthy and detailed consideration to the authorities governing this question. He held that in all the circumstances the police did owe the plaintiff a duty of care. In the passage from his judgment which I have quoted above, the judge had in effect already concluded that if the police did owe the plaintiff a duty of care, PC Smith was in breach of that duty and his breach caused the plaintiff's loss, i.e. in the sense that but for the constable's failure, the theft of the goods would have been prevented.
Submissions
The major argument before us was also on the difficult question whether in the circumstances such as those of the present case the police do owe to a shopkeeper, such as the plaintiff, p duty of care, or more narrowly whether they owed such a duty to this particular plaintiff in the particular circumstances. However, Mr. Leveson for the appellant also submits that even if the police did owe such a duty, and if PC Smith was in breach of that duty, on the evidence before him the judge was not entitled to conclude, as he did, that the breach caused the loss suffered by the plaintiff. I shall consider these submissions under these two heads. Before I do so, however, there is a preliminary point which must be made.
The allegation in the statement of claim was that the burglar or burglars entered the plaintiff's shop "at or about 7 pm on 26 January 1986 ... and in so doing activated the burglar alarm . ..". However, the judge found that entry to the premises was made at, or shortly before, 21.26 hours. The judge did not believe that PC Smith visited the rear of the premises and checked that they were secure at about 19.23 hours, and thus found in effect that if the police did owe the plaintiff a duty of care arising out of the activation of his burglar alarm system, PC Smith was in breach of that duty. Nevertheless from the judge's finding that the burglars did not enter at this time, it follows that this breach of itself did not cause the plaintiff any loss. The breach upon which the judge must have been basing his conclusion that the defendant was liable was the constable's failure, as the judge found, to revisit the rear of the premises at about 21.26 hours when he realised that the alarm bell was not ringing, thus allowing the burglars to proceed with their theft of the goods undisturbed.
This allegation was not part of the plaintiff's pleaded case, and the judge did not require the plaintiff's counsel (as with respect I believe he should have done) to amend his statement of claim so as to formulate his case in this way. It is thus not clear either from the pleadings, nor indeed from the express words of what is otherwise a careful and detailed judgment, what exactly was the ambit of the duty of care which the judge held the defendant owed to the plaintiff, of which PC Smith was found to be in breach.
I assume that the duty of care which the judge held the police owed to the plaintiff can be expressed as a duty:
a) Once the burglar alarm was activated at the police station to inspect the plaintiff's shop as soon as was reasonably possible;
b) to take reasonable steps to ascertain whether there was any sign of unauthorised entry to the premises, and if there was none;
c) to continue to inspect the shop with reasonable frequency; and
d) once the burglar alarm had stopped ringing to inspect again with reasonable care to ascertain whether there was any sign of unauthorised entry.
It is on PC Smith's failure in the last of these respects that the judge has based his judgment for the plaintiff.
Did the police owe the plaintiff a duty of care?
The difficulty in answering this question arises from the fact that the plaintiff's loss was not caused directly by any act or failure on the part of the police, but by the activities of the burglars. The police, on the judge's findings of fact, were indirectly responsible for the plaintiff's loss, because of PC Smith's failure properly to inspect the rear of the shop when he realised at 21.26 hours that the alarm bell had stopped ringing, and his consequent failure to prevent or intercept the theft.
It is not sufficient for a plaintiff, who seeks to establish that a defendant owed him a duty to take reasonable care to prevent loss being caused to the plaintiff by the activities of another person, simply to prove that if the defendant did not exercise reasonable care it was foreseeable that the plaintiff would suffer the loss. It is necessary for the plaintiff also to show that in the circumstances of the particular case he stands in a special relationship to the defendant, from which the duty of care arose: see per Lord Wilberforce in McLouqhlin v O'Brien,[1983] 1 AC 410 at 420 H:
"That foreseeability does not of itself, and automatically, lead to a duty of care is, I think, clear."
Dorset Yacht Co Ltd v Home Office [1970] AC 1004, was a decision on a preliminary point of law. A group of Borstal boys, some of whom had a record of previous escapes, were encamped on Brownsea Island under the supervision of prison officers. A number of yachts, including one owned by the plaintiff company, were moored nearby. The boys escaped in the night while the officers were asleep, boarded another yacht in order to reach the mainland, and while attempting to do so collided with and damaged the plaintiff's yacht. The plaintiff sued the Home Office, alleging that the damage to its yacht was caused by the negligence of the prison officers. The preliminary issue was whether the Home Office or the officers owed any duty of care in tort to the plaintiff. The House of Lords held that, in the particular circumstances, a duty of care could arise. Lord Diplock said at p. 1070 B:
"The risk of sustaining damage from the tortious acts of criminals is shared by the public at large. It has never been recognised at common law as giving rise to any cause of action against anyone but the criminal himself. It would seem arbitrary and therefore unjust to single out for the special privilege of being able to recover compensation from the authorities responsible for the prevention of crime a person whose property was damaged by the tortious act of a criminal merely because the damage to him happened to be caused by a criminal who had escaped from custody before completion of his sentence instead of by one who had been lawfully released or who had been put on probation or given a suspended sentence or who had never been previously apprehended at all. To give rise to a duty on the part of the custodian owed to a member of the public to take reasonable care to prevent a Borstal trainee from escaping from his custody before completion of the trainee's sentence there should be some relationship between the custodian and the person to whom the duty is owed which exposes that person to a particular risk of damage in consequence of that escape which is different in its incidence from the general risk of damage from criminal acts of others which he shares with all members of the public. What distinguishes a Borstal trainee who has escaped from one who has been duly released from custody is his liability to recapture, and the distinctive added risk which is a reasonably foreseeable consequence of a failure to exercise due care in preventing him from escaping is the likelihood that in order to elude pursuit immediately upon the discovery of his absence the escaping trainee may steal or appropriate and damage property which is situated in the vicinity of the place of detention from which he has escaped. So long as Parliament is content to leave the general risk of damage from criminal acts to lie where it falls without any remedy except against the criminal himself the courts would be exceeding their limited function in developing the common law to meet changing conditions if they were to recognise a duty of care to prevent criminals escaping from penal custody owed to a wider category of members of the public than those whose property was exposed to an exceptional added risk by the adaption of a custodial system for young offenders which increased the likelihood of their escape unless due care was taken by those responsible for their custody. I should therefore hold that any duty of a Borstal officer to use reasonable care to prevent a Borstal trainee from escaping from his custody was owed only to persons whom he could reasonably foresee had property situated in the vicinity of the place of detention of the detainee which the detainee was likely to steal or appropriate and damage in the course of eluding immediate pursuit and recapture. Whether or not any person fell within this category would depend upon the facts of the particular case including the previous criminal and escaping record of the individual trainee concerned and the nature of the place from which he escaped."
It will be seen that in that case, the relationship between the plaintiff and the Borstal officers from which there could arise a duty of those officers to take reasonable care in guarding the Borstal boys was based upon the fact that the plaintiff's yacht was moored close to the place where the Borstal party was encamped. In other words, the group of persons to whom the duty was owed was limited to the owners of boats moored in the vicinity.
The authority which is most in point in the present case is the decision of the House of Lords in Hill v Chief Constable of West Yorkshire,[1989] AC 53. I cannot do better than to adopt the summary of the relevant facts and the issue from the speech of Lord Keith of Kinkel starting at p. 57 H:
"My Lords, in 1975 a man named Peter Sutcliffe embarked upon a terrifying career of violent crime, centred in the metropolitan police area of West Yorkshire. All his victims were young or fairly young women. Between July 1975 and November 1980 he committed 13 murders and eight attempted murders upon such women, the modus operandi in each case being similar. Sutcliffe's last victim was a 20-year-old student called Jacqueline Hill, whom he murdered in Leeds on 17 November 1980. By chance, Sutcliffe was arrested in suspicious circumstances in Sheffield on 2 January 1981, and confessed to the series of murders and attempted murders following interrogation. On 22 May 1981, at the Central Criminal Court, Sutcliffe was convicted of inter alia the murder of Miss Hill.
Miss Hill's mother and sole personal representative now sues the Chief Constable of West Yorkshire, claiming on behalf of Miss Hill's estate damages on the ground of negligence, for inter alia loss of expectation of life and pain and suffering. The defendant is sued under section 48(1) of the Police Act 1964, enacting that the chief officer of police for any police area shall be liable in respect of torts committed by constables under his direction and control in the performance or purported performance of their functions. The plaintiff in her statement of claim sets out the 20 offences committed by Sutcliffe before the death of Miss Hill and avers that the circumstances of each of these were such that it was reasonable to infer that all were committed by the same man, and further that it was foreseeable that, if not apprehended, he would commit further offences of the same nature. The pleadings go on to allege that it was accordingly the duty of the defendant and all officers in his police force to use their best endeavours and exercise all reasonable care and skill to apprehend the perpetrator of the crimes and so protect members of the public who might otherwise be his future victims. A substantial number of matters are set out and relied upon as indicating that the West Yorkshire police force failed in that duty. It is unnecessary to set out these matters in detail. They amount broadly to allegations of failure to collate properly information in possession of the force pointing to Sutcliffe as a likely suspect, and of failing to give due weight to certain pieces of information while according excessive importance to others.
The defendant, without delivering defences, applied under R.S.C. Ord. 18, r. 19 to have the statement of claim struck out as disclosing no reasonable cause of action. That application was granted by Sir Neil Lawson, sitting as a judge of the High Court on 19 December 1985. Upon appeal by the plaintiff the Court of Appeal (Fox and Glidewell L.JJ. and Sir Roualeyn Cumming-Bruce) [1988] Q.B. 60, on 19 February 1987, affirmed Sir Neil Lawson. The plaintiff now appeals, with leave given in the Court of Appeal, to your Lordship's House.
"In considering whether the statement of claim was rightly struck out it must be assumed that the averments of fact therein contained are true. In particular, it must be assumed that in the course of their investigations into a series of crimes committed by Sutcliffe the West Yorkshire police force made a number of mistakes which they would not have made if they had exercised a reasonable degree of care and skill such as would have been expected to be displayed in the circumstances, by an ordinarily competent police force. It must also be assumed, though this is not specifically averred in the statement of claim, that had they exercised that degree of care and skill Sutcliffe would have been apprehended before the date upon which he murdered Miss Hill, with the result that that particular crime would not have been committed.
"The question of law which is opened up by the case is whether the individual members of a police force, in the course of carrying out their functions of controlling and keeping down the incidence of crime, owe a duty of care to individual members of the public who may suffer injury to person or property through the activities of criminals, such as to result in liability in damages, on the ground of negligence, to anyone who suffers such injury by reason of breach of that duty."
Lord Keith considered the earlier decision of the House of Lords in Anns v Merton London Borough Council,[1978] AC 728, and said:
"It has been said almost too frequently to require repetition that foreseeability of likely harm is not in itself a sufficient test of liability in negligence. Some further ingredient is invariably needed to establish the requisite proximity of relationship between plaintiff and defendant, and all the circumstances of the case must be carefully considered and analysed in order to ascertain whether such ^an ingredient is present. The nature of the ingredient will be found to vary in a number of different categories of decided cases. In the Anns case there was held to be sufficient proximity of relationship between the borough and future owners and occupiers of a particular building the foundations of which it was decided to inspect, and there was also a close relationship between the borough and the builder who had constructed the foundations."
He then dealt in more detail with Dorset Yacht, and quoted the passage from the speech of Lord Diplock which I have already quoted. He concluded on this point:
"It appears from the passage quoted from the speech of Lord Diplock in the Dorset Yacht case that in his view no liability would rest upon a prison authority, which carelessly allowed the escape of an habitual criminal, for damage which he subsequently caused, not in the course of attempting to make good his getaway to persons at special risk, but in further pursuance of his general criminal career to the person or property of members of the general public. The same rule must apply as regards failure to recapture the criminal before he had time to resume his career. In the case of an escaped criminal his identity and description are known. In the instant case the identity of the wanted criminal was at the material time unknown and it is not averred that any full or clear description of him was ever available. The alleged negligence of the police consists in a failure to discover his identity. But if there is no general duty of care owed to individual members of the public by the responsible authorities to prevent the escape of a known criminal or to recapture him, there cannot reasonably be imposed upon any police force a duty of care similarly owed to identify and apprehend an unknown one. Miss Hill cannot for this purpose be regarded as a person at special risk simply because she was young and female. Where the class of potential victims of a particular habitual criminal is a large one the precise size of it cannot in principle affect the issue. All householders are potential victims of an habitual burglar, and all females those of an habitual rapist. The conclusion must be that although there existed reasonable foreseeability of likely harm to such as Miss Hill if Sutcliffe were not identified and apprehended, there is absent from the case any such ingredient or characteristic as led to the liability of the Home Office in the Dorset Yacht case. Nor is there present any additional characteristic such as might make up the deficiency. The circumstances of the case are therefore not capable of establishing a duty of care owed towards Miss Hill by the West Yorkshire Police."
Mr Leveson submits that there is no relevant distinction between the present case and Hill. Hodgson J said in his judgment (transcript p 17E)
"There is no doubt that, in the instant case, the argument has to be that there is a general duty of care owed by this police force to all owners of intruder alarms which are 'connected' to the police control room: there is nothing in the relationship between this plaintiff and the police which distinguished their relationship from all others".
The judge's conclusion was:
"There is clearly a special relationship created between the police and the owners of intruder alarm systems which is of a different and closer nature than that between the police and members of the public in general. Subject therefore to the impact on the case of the fact that it is here sought to make the police liable for the act of a third party (the burglars) with whom the police had no special relationship and over whom they had no control, I would hold that there was here sufficient proximity to raise a duty of care owed by the police to the owners of intruder alarms".
Mr. Scholes, for the plaintiff, accepts the judge's definition of the class of persons to whom the police owe a duty as owners of intruder alarms connected to the police station, though at one stage in his argument he appeared to limit the class to those with "999" type burglar alarms. He submits that this is a much more limited group than the category of "young or fairly young women" to whom it was alleged that the police owed a duty in Hill. Thus, submits Mr. Scholes, the judge was correct in distinguishing the present case from Hill.
It is possible to envisage an agreement between an occupier of a property protected by a burglar alarm and the police which would impose a contractual liability on the police. That is not, however, the situation in this case. The communication with the police in this case was by a 999 telephone call, followed by a recorded message. If as a result of that communication the police came under a duty of care to the plaintiff, it must follow that they would be under a similar duty to any person who informs them, whether by 999 call or in some other way, that a burglary, or indeed any crime, against himself or his property, is being committed or is about to be committed. So in my view if there is a duty of care it is owed to a wider group than those to whom the judge referred. It is owed to all members of the public who give information of a suspected crime against themselves or their property. It follows, therefore, that on the facts of this case it is my opinion that there was no such special relationship between the plaintiff and the police as was present in Dorset Yacht. On this issue I respectfully disagree with the learned judge.
If I were wrong in that conclusion, it would then be necessary to consider whether, as a matter of general policy, the police should be under the duty proposed. As I said in my judgment in this court in Hill, [1988] QB at 75 E,
"Whether one asks, in the words of Lord Wilberforce in Anns v Merton London Borough Council [1978] AC 728, 752A whether there are considerations which ought to negative the duty, or, in those of Lord Keith of Kinkel in Governors of the Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd [1985] AC 210, 241C, whether it is just and reasonable that a duty of care should arise, a court confronted by a novel set of facts has in the end to give the answer which it thinks justice and public policy require".
In his speech in Hill, Lord Keith dealt with this issue as follows:
That is sufficient for the disposal of the appeal. But in my opinion there is another reason why an action for damages in negligence should not lie against the police in circumstances such as those of the present case, and that is public policy. In Yuen Kun Yeu v Attorney-General of Hong Kong [1988] A.C. 175, 193, I expressed the view that the category of cases where the second stage of Lord Wilberforce's two stage test in Anns v Merton London Borough Council [1978] AC 728, 751-752 might fall to be applied was a limited one, one example of that category being Rondel v Worsley [1969] 1 AC 191. Application of that second stage is, however, capable of constituting a separate and independent ground for holding that the existence of liability in negligence should not be entertained. Potential existence of such liability may in many instances be in the general public interest, as tending towards the observance of a higher standard of care in the carrying on of various different types of activity. I do not, however, consider that this can be said of police activities. The general sense of public duty which motivates police forces is unlikely to be appreciably reinforced by the imposition of such liability so far as concerns their function in the investigation and suppression of crime. From time to time they make mistakes in the exercise of that function, but it is not to be doubted that they apply their best endeavours to the performance of it. In some instances the imposition of liability may lead to the exercise of a function being carried on in a detrimentally defensive frame of mind. The possibility of this happening in relation to the investigative operations of the police cannot be excluded. Further it would be reasonable to expect that if potential liability were to be imposed it would be not uncommon for actions to be raised against police forces on the ground that they had failed to catch some criminal as soon as they might have done, with the result that he went on to commit further crimes. While some such actions might involve allegations of a simple and straightforward type of failure - for example that a police officer negligently tripped and fell while pursuing a burglar - others would be likely to enter deeply into the general nature of a police investigation, as indeed the present action would seek to do. The manner of conduct of such an investigation must necessarily involve a variety of decisions to be made on matters of policy and discretion, for example as to which particular line of inquiry is most advantageously to be pursued and what is the most advantageous way to deploy the available resources. Many such decisions would not be regarded by the courts as appropriate to be called in question, yet elaborate investigation of the facts might be necessary to ascertain whether or not this was so. A great deal of police time, trouble and expense might be expected to have to be put into the preparation of the defence to the action and the attendance of witnesses at the trial. The result would be a significant diversion of police manpower and attention from their most important function, that of the suppression of crime. Closed investigations would require to be reopened and retraversed, not with the object of bringing any criminal to justice but to ascertain whether or not they had been competently conducted. I therefore consider that Glidewell L.J. in his judgment in the Court of Appeal [1988] Q.B. 60,76 in the present case, was right to take the view that the police were immune from an action of this kind on grounds similar to those which in Rondel v Worsley,[1969] 1 AC 191, were held to render a barrister immune from actions for negligence in his conduct of proceedings in court.
Lord Brandon, Lord Oliver and Lord Goff agreed with Lord Keith, and Lord Templeman based his agreement that the appeal should be dismissed solely on considerations of public policy. He said at p 65 C-D:
"The threat of litigation against a police force would not make a policeman more efficient. The necessity for defending proceedings, successfully or unsuccessfully, would distract the policeman from his duties. This action is in my opinion misconceived and will do more harm than good."
Mr. Scholes argues that the factors referred to by Lord Keith do not all apply in the present case, and that if actions of this sort were brought against the police from time to time, it would not require any significant diversion of resources to deal with them. Hodgson J. in his judgment said on this issue:
"This case is clearly distinguishable on its facts from Hill. In Hill the allegation of lack of care was in the detection of crime already committed whereas I am here dealing with lack of care in the prevention of crime.
"It seems to me that there are two main strands to be discerned in the speeches of Lord Keith and Lord Templeman in Hill. The first is that to hold that the police owed a duty of care would have the effect of reducing the efficiency of the police by (per Lord Keith) the waste of 'police time? trouble and expense' put into the 'preparation of the defence to the action and the attendance of witnesses at the trial' and because (per Lord Templeman) 'the necessity of defending proceedings, successfully or unsuccessfully, would distract the policeman from his duties'. The second is the extreme complexity of any investigation into the conduct of the police in the detection of crime.
"I have, I think, to answer the question whether the imposition of the duty of care sought by the plaintiff in this case would or might influence adversely the operational efficiency of the police in their fight against crime. I cannot believe that it would".
In my view the observations of Lords Keith and Templeman in Hill in relation to the effect on the police of their being potentially liable in negligence were general, not limited to the facts of that case. I would therefore hold that it is not fair or reasonable that the police should be under any such common law duty as is here proposed.
It follows that in my judgment the police are not, and were not, under a duty of care of the kind here under consideration. On this ground I would allow the appeal.
If the Police were in breach of a duty of care, did that breach cause the Plaintiff's loss?
In case that opinion should be wrong, I proceed to consider briefly Mr. Leveson's submission about the judge's findings of fact. Put shortly, this is as follows. The evidence is that PC Smith discovered at 21.26 hours that the burglar alarm bell inside the shop had stopped ringing. There is no clear evidence how long before that time the bell stopped ringing. Moreover, there is no evidence as to how long it would have taken a gang of burglars to remove the contents of the shop. Thus there was no proper evidence upon which the judge could conclude, as he did, that if PC Smith had properly inspected the rear of the premises at 21.26 hours, he would have intercepted and prevented the burglary which was happening at that time. In other words, the evidence is not sufficient to prove that if PC Smith had done everything he should have done, he would have prevented the burglary. The theft of the goods might have already been complete by the time the police officer discovered that the bell was no longer ringing.
On this issue I conclude, after some hesitation, that there was evidence upon which the learned judge could properly come to the finding of fact to which he did come. If PC Smith had been doing his job properly, he accepted that he would have been patrolling past the shop with reasonable frequency. While the judge had no clear evidence as to the length of time it would have taken for thieves to remove the entire stock of the shop, this would obviously not have been the work of a few minutes, taking account of the fact that the stock had to be carried down a flight of stairs, presumably to a vehicle waiting below. It follows in my view that the judge was entitled to conclude that, on the balance of probabilities, if PC Smith had investigated the rear of the premises at 21.26 hours, he would have been in time to intercept and prevent the theft taking place.
On this issue therefore I would not disturb the judge's findings, but on the major issue of law I regret that I cannot agree with him. For the reasons I have already set out, I would allow this appeal.
LORD JUSTICE PARKER: I agree that this appeal should be allowed for the reasons set out in the judgments of Slade L.J. and Glidewell L.J. which I have had the opportunity to read in draft. For my part, however, I would also allow the appeal on the further ground that, even if there was a duty of care on the part of PC Smith and even if that duty was broken in the respect found by the judge, there was not sufficient evidence to justify the judge's finding that the breach of duty was causative of the plaintiff's loss. In this I respectfully differ from the views expressed by Glidewell L.J.
It is, in my view, important to note that the plaintiff's pleaded case was that the burglary occurred at or about 7 pm when a person or persons unknown entered his shop and activated the burglar alarm in so doing, and that the defendant's negligence lay in failing to respond to that alarm in the respects which are set out in the judgment of Glidewell L.J. That case was rejected by the judge, who found that the break-in had occurred some two hours later and was still in progress when, at 9.26 pm PC Smith had noticed that the bell, which had in fact been activated at 7.23 pm, had stopped ringing. He found that as a matter of probability i) the bell had stopped ringing shortly before 9.26; ii) that it had stopped because, on entry, the burglars had pulled the control panel away from the wall; iii) that PC Smith realised that the bell had stopped ringing very shortly after it did stop; iv) that had he "done that which he plainly ought to have" (i.e. inspected the back of the premises) the theft of the goods would have been prevented.
The judge's view that the burglary was still in progress at 9.26 was founded on his conclusion that the bell had stopped ringing shortly before 9.26. I take this to mean so short a time before 9.26 that by that time the theft could not have been completed.
Before considering the evidence as to this I should mention that no suggestion that the time of the burglary was 9.26 or thereabouts was raised until after all the evidence had been called. It was then raised by the judge at the beginning of, or in the course of, the closing speech of counsel for the defendant when he indicated that this was likely to be his conclusion. Counsel not surprisingly objected that it was not pleaded but it appears that the matter was taken no further.
As a result of the fact that the point was not raised until after the evidence had been concluded, there was no investigation of matters which were or should have been of great importance for the determination of the time at which the bell stopped ringing. Such evidence as there was is accordingly very sparse.
PC Smith's duty was to patrol the whole of the Grange Precinct. His tour of duty lasted from 6.45 pm to 11 pm. He was to give the plaintiff's shop passing attention, which meant that he would pay particular attention to it because premises at which an alarm has been ringing for some time are apparently attractive to burglars. The alarm could be heard if he was within 40 feet of the shop and he was very close to the shop on a number of occasions between 7.23 and 9.26.
There was no evidence whatever as to the time it would have taken to go round the Precinct, of the size of the Precinct, of how many occasions constituted "a number", of the pattern of his patrol if any or, most crucially, of the time at which, before 9.26, he had last been close enough to the shop to hear the alarm. Nor was there any evidence of the time it would have taken to remove the plaintiff's goods from the shop and load them on to a lorry, a question which would in any event depend upon how many thieves were involved and available to carry the goods from the shop to the lorry.
In my judgment there was, with all respect to the judge, no evidence upon which he could conclude that the bell had stopped, very shortly before 9.26 or even that the time at which it had stopped was too close to 9.26 for the theft to have been completed by that time.
There was, I have no doubt, evidence that the bell had stopped because the panel had been pulled away from the wall; but I can see nothing which, as a matter of probability, could properly lead to the conclusion that that event occurred within such a time before 9.26 that, had PC Smith gone to the back of the premises at that time, he could have prevented the theft.
For those reasons, as well as those of Slade L.J. and Glidewell L.J., I would allow this appeal.
LORD JUSTICE SLADE: I have had the advantage of reading the judgment of Glidewell L.J. in draft, and gratefully adopt his statement of the facts. I agree that this appeal must be allowed for the reasons which he states, but will add some brief observations of my own because we are differing from the learned judge.
The basis of fact (unpleaded) upon which the judge found liability established was that on the balance of probabilities
(a) the burglars entered the premises shortly before 9.26 pm;
(b) PC Smith, on noticing at 9.26 pm that the alarm bell had stopped ringing, failed to inspect the rear of the premises as he should have done (and said he had done);
(c) if PC Smith had promptly inspected the rear of the premises at that time, the theft of the goods would have been prevented.
I am bound to say that finding(a) in particular causes me unease. On the somewhat sparse evidence before us, it seems to me perfectly possible that the bell had in fact stopped ringing a substantial time before 9.26 pm when PC Smith noticed that it had stopped ringing and that by that time the burglars had been and gone. PC Smith's evidence (which on this point was not challenged) was that while in the Precinct he would not have heard the alarm sounding internally in the shop unless he was within 40 feet of it: (Transcript p. 45 A). There was apparently no specific evidence at the trial either as to the size of the Precinct or as to the number of times when PC Smith would have been likely to find himself within 40 feet of the shop during the course of his patrol of the area between about 7.30 pm and 9.26 pm. If the burglary had already been completed by 9.26 pm, any subsequent negligence on the part of PC Smith could have caused the plaintiff no loss, and the police could have been under no liability even if they owed a duty of care to the plaintiff. Nevertheless, for the rest of this judgment I am prepared to assume (without deciding) that all the learned judge's crucial findings of fact were justified on the evidence.
I turn to the law. In Hill v Chief Constable of Yorkshire [1989] AC 53 at p. 59, Lord Keith of Kinkel (with whose speech Lord Brandon of Oakbrook, Lord Oliver of Aylmerton and Lord Goff of Chieveley agreed) defined the question of law "opened up" by the case as being whether
"the individual members of a police force, in the course of carrying out their functions of controlling and keeping down the incidence of crime, owe a duty of care to individual members of the public who may suffer injury to the person or property through the activities of criminals, such as to result in liability in damages on the grounds of negligence, to anyone who suffers such injury by reason of breach of that duty."
This question is one of great general importance. The answer to it given by the House of Lords in that case may, in my opinion, be sufficiently accurately summarised as follows. Generally, no such duty of care exists; the mere foreseeability of likely harm in the circumstances postulated is not by itself enough to give rise to the duty. If the alleged duty on the part of the police officers is to arise in any given set of facts, so as to result in civil liability for failure to control another Man, to prevent his doing harm to a third party, some further ingredient must be present to establish the requisite proximity °T relationship between the plaintiff and the defendant: (see ibid at pp. 60 By 62 B, 62 G-H per Lord Keith).
Here the plaintiff's case has to be, and is, that the connection of his shop by way of a burglar alarm system, capable of raising a 999 call at the Mortimer Street police station, constituted a special ingredient sufficient to establish the requisite proximity of relationship between himself and the police so as to give rise to a duty of care.
As Glidewell L.J. has pointed out, it is possible to envisage an agreement between an occupier of a property protected by a burglar alarm and the police which would impose on the police a contractual liability; but no such contractual liability has been suggested in the present case. As things are, I cannot see that the duty in tort (if any) owed by the police to this plaintiff can have been any greater than the duty in tort (if any) owed by them to any ordinary member of the public who by means of a 999 call warns them that a crime is being or is about to be committed against his person or property. By common law police officers owe to the general public a duty to enforce the criminal law. This duty may in an appropriate case be enforced at the instance of one having title to sue by mandamus: (see Hill [1980] AC at P. 59 per Lord Keith). In my judgment, however, on public policy grounds similar to those given by Lord Keith at p. 63, it is unthinkable that the police should be exposed to potential actions for negligence at the suit of every disappointed or dissatisfied maker of a 999 call. I can see no sufficient grounds 'or holding that the police owed a duty of care to this plaintiff °n or after receipt of the 999 call on 26th January 1986, if they would not have owed a duty of care to ordinary members of the public who made a similar call.
For these and the further reasons given by Glidewell L.J., I consider that the police owed no duty of care to the plaintiff of the kind here alleged, and would allow the appeal on this ground.
(Order: Appeal allowed; order as to costs in court below set aside, save for order for legal aid taxation of plaintiff's costs? costs in court below to be paid by plaintiff, such order not to be enforced without leave; costs against plaintiff in respect of costs of appeal, such order not to be enforced without leave; plaintiff's liability in respect of those costs being assessed as nil; application for costs adjourned for ten weeks to enable Law Society to show cause; legal aid taxation of plaintiff's costs, both in Court of Appeal and below, to take place in Liverpool). |
LORD JUSTICE GLIDEWELL: The plaintiff, Mr. Gordon Kaye, is a well-known actor, the star of a popular television comedy series. This formed the basis of a stage show in which the plaintiff was appearing in January 1990. The show finished its run in London on 27th January 1990. Thereafter it was due to appear in Australia with the plaintiff in the lead.
Mr. Peter Froggatt is a theatrical agent and a personal friend of Mr. Kaye. Since Mr. Kaye is at present incapable of managing his own affairs, in this action Mr. Froggatt is his next friend.
On 25th January 1990 Mr. Kaye was driving his car on a road in London during a gale, when a piece of wood became detached from an advertisement hoarding, smashed through the windscreen of the plaintiff's car and struck him on the head. The plaintiff suffered severe injuries to his head and brain. He was taken to Charing Cross Hospital where he was on a life support machine for three days. He was then in intensive care, until on 2nd February he was moved into a private room, forming part of Ward G at the hospital.
It was apparent that there was intense interest amongst Mr. Kaye's fans, and consequently in many newspapers and in television, in Mr. Kaye's progress and condition. For fear that his recovery might be hindered if he had too many visitors, and to lessen the risk of infection, the hospital authorities placed notices at the entrance to the ward asking visitors to see a member of the staff before visiting. Mr. Froggatt agreed with the hospital authorities a list of people who might be permitted to visit Mr. Kaye, and this was pinned up outside his room. A similar notice to that outside the ward was pinned on the door of the room itself.
The first defendant is the editor, and the second defendant company is the publisher, of Sunday Sport, a weekly publication which Potter J., from whose decision this is an appeal, described as having "a lurid and sensational style". A copy of a recent edition of Sunday Sport which was put in evidence before us shows that many of the advertisements contained in it are for various forms of pornographic material. This indicates the readership it seeks to attract.
Until 13th February 1990 Mr. Kaye had not been interviewed since his accident by any representative of a newspaper or television programme. On that day, acting on Mr. Robertson's instructions, a journalist and a photographer from Sunday Sport went to Charing Cross Hospital and gained access to the corridor outside Ward G. They were not seen nor intercepted by any of the hospital staff. Ignoring the notices on the door to the ward and on the plaintiff's door, they entered the plaintiff's room. Mr. Kaye apparently agreed to talk to them and according to a transcript that we have heard of a taped record they made of what transpired, did not object to their photographing various cards and flowers in his room. In fact a number of photographs, both in colour and monochrome, were taken of the plaintiff himself showing the substantial scars to his head amongst other matters. The taking of the photographs involved the use of a flashlight.
After some time members of the nursing staff of the hospital learned what was happening. They attempted to persuade the journalist and the photographer to leave, but without success. Security staff were called, and the representatives of Sunday Sport were ejected.
Medical evidence exhibited by Mr. Froggatt to his affidavit in this action says that Mr. Kaye was in no fit condition to be interviewed or to give any informed consent to be interviewed. The accuracy of this opinion is confirmed by the fact that approximately a quarter-of-an-hour after the representatives of Sunday Sport had left his room, Mr. Kaye had no recollection of the incident.
According to Mr. Robertson's affidavit, he regards what he and his staff had achieved as "A great old-fashioned scoop". He makes it clear in his affidavit that he realised that a number of newspapers were interested in interviewing and taking photographs of Mr. Kaye, and that some of them would "pay large sums of money for the privilege". He says, disingenuously, "I do not think it unreasonable to attempt a direct approach in order to get a free interview. The plaintiff only had to refuse".
The defendants made it clear that they intended to publish an article in Sunday Sport about the interview with the plaintiff, using one or more of the photographs that had been taken. A draft of the article as originally prepared is exhibited to Mr. Robertson's affidavit. It was intended to be in two parts, a front page lead with a banner headline and a full story inside the newspaper. The wording of both parts of the article made it clear that the defendants were saying that Mr. Kaye had agreed to be interviewed and to be photographed and described the interview and pictures as exclusive to Sunday Sport.
On Friday, 16th February 1990, upon Mr. Froggatt's undertaking by counsel to issue by noon on Monday, 19th February 1990 and serve on the defendants the writ in this action together with an undertaking in the usual form as to damages, Potter J. on an application made on behalf the plaintiff by Mr. Froggatt granted an injunction against the defendants in the following terms:
1. The Defendants and each of them whether by themselves, their servants or agents or otherwise be restrained from publishing, distributing, or causing to be published or distributed by any means howsoever or by otherwise exploiting:-
(a) any photographs or part of any photographs taken of the Plaintiff at the Charing Cross Hospital on 13th February 1990;
(b) any statement made by the Plaintiff in the presence of any servant or agent of the Second Defendants at Charing Cross Hospital on 13th February 1990 or any summary or record thereof until trial or further order;
2. The Defendants and each of them be restrained whether by themselves, their servants or agents or otherwise from passing off any photograph or part of a photograph taken of the Plaintiff at Charing Cross Hospital on 13th February 1990 as a photograph consented to by the Plaintiff and from passing off any statement made by the Plaintiff in the presence of any servant or agent of the Second Defendants in Charing Cross Hospital on 13th February 1990 as a statement voluntarily given by the Plaintiff to The Sunday Sport until trial or further order;
3. The Defendants and each of them be restrained whether by themselves, their servants or agents or otherwise from publishing or causing to be published any statement to the effect that the Plaintiff had posed for a photograph for publication in The Sunday Sport and/or had given an interview to The Sunday Sport while in Charing Cross Hospital for treatment until trial or further order;"
The judge also ordered the Defendants to deliver up
"any tape-recording, notes of interview or photographs obtained or taken by any servant or agent of the Second Defendants in Charing Cross Hospital on 13th February 1990 and any copies of negatives thereof."
The defendants appealed against the judge's order. We heard the appeal on Friday, 23rd February, 1990. At the conclusion of the hearing we announced our decision which was to the effect that the appeal was allowed to the extent that we discharged the order made under heads 1 and 2 set out above, and that we substituted for the order under head 3 an order in the following terms:
"The Defendants and each of them be restrained until trial or further order whether by themselves their servants or agents from publishing causing to be published or permitting to be published anything which could be reasonably understood or convey to any person reading or looking at the Defendants' Sunday Sport newspaper that the Plaintiff had voluntarily permitted any photographs to be taken for publication in that newspaper or had voluntarily permitted representatives of the Defendants to interview him while a patient in the Charing Cross hospital undergoing treatment."
In place of the order for delivery up, we accepted an undertaking from the Defendants' solicitors
"that the material referred to in paragraph 4 of the aforesaid order will be kept in safe custody by the Defendants' Solicitors with the proviso that they shall be entitled to release it to the 1st Defendant to be used in any way which complies with the terms of the injunction aforestated".
I now give my reasons for arriving at this decision.
It is well-known that in English law there is no right to privacy, and accordingly there is no right of action for breach of a person's privacy. The facts of the present case are a graphic illustration of the desirability of Parliament considering whether and in what circumstances statutory provision can be made to protect the privacy of individuals.
In the absence of such a right, the plaintiff's advisers have sought to base their claim to injunctions upon other well- established rights of action. These are:
1. Libel
2. Malicious falsehood
3. Trespass to the person
4. Passing off.
The appeal canvassed all four rights of action, and it is necessary to deal with each in turn.
Libel. The basis of the plaintiff's case under this head is that the article as originally written clearly implied that Mr. Kaye consented to give the first "exclusive" interview to Sunday Sport, and to be photographed by their photographer. This was untrue: Mr. Kaye was in no fit condition to give any informed consent, and such consent as he may appear to have given was, and should have been known by Sunday Sport's representative to be, of no effect. The implication in the article would have the effect of lowering Mr. Kaye in the esteem of right-thinking people, and was thus defamatory.
The plaintiff's case is based on the well-known decision in Tolley v. J.S. Fry & Sons Ltd. [1931] AC 333. Mr. Tolley was a well-known amateur golfer. Without his consent, Fry published an advertisement which consisted of a caricature of the plaintiff with a caddie, each with a packet of Fry's chocolate protruding from his pocket. The caricature was accompanied by doggerel verse which used Mr. Tolley's name and extolled the virtues of the chocolate. The plaintiff alleged that the advertisement implied that he had received payment for the advertisement, which would damage his reputation as an amateur player. The judge at the trial ruled that the advertisement was capable of being defamatory, and on appeal the House of Lords upheld this ruling
It seems that an analogy with Tolley v. Fry was the main plank of Potter J's. decision to grant injunctions in this case.
Mr. Milmo for the defendants submits that, assuming that the article was capable of having the meaning alleged, this would not be a sufficient basis for interlocutory relief. In William Coulson & Sons v. James Coulson & Co. [1887] 3 TLR 4,this court held that, though the High Court has jurisdiction to grant an interim injunction before the trial of a libel action, it is a jurisdiction to be exercised only sparingly. In his judgment the Master of the Rolls said:
"Therefore to justify the court granting an interim injunction it must come to a decision upon the question of libel or no libel, before the jury decided whether it was a libel or not. Therefore the jurisdiction was of a delicate nature. It ought only to be exercised in the clearest cases, where any jury would say that the matter complained of was libellous and where if the jury did not so find the court would set aside the verdict as unreasonable".
This is still the rule in actions for defamation, despite the decision of the House of Lords in American Cyanamid v. Ethicon [1975] AC 396 in relation to interim injunctions generally.
This court so decided in Herbage v. Times Newspapers Limited and Others, unreported but decided on 30th April 1981.
Mr. Milmo submits that on the evidence we cannot be confident that any jury would inevitably decide that the implication that Mr. Kaye had consented to give his first interview to Sunday Sport was libellous. Accordingly, we ought not to grant interlocutory relief on this ground.
It is in my view certainly arguable that the intended article would be libellous, on the authority of Tolley v. Fry. I think that a jury would probably find that Mr. Kaye had been libelled, but I cannot say that such a conclusion is inevitable. It follows that I agree with Mr. Milmo's submission and in this respect I disagree with the Learned judge; I therefore would not base an injunction on a right of action for libel.
Malicious Falsehood. The essentials of this tort are that the Defendant has published about the plaintiff words which are false, that they were published maliciously, and that special damage has followed as the direct and natural result of their publication. As to special damage, the effect of s.3(1) of the Defamation Act 1952 is that it is sufficient if the words published in writing are calculated to cause pecuniary damage to the plaintiff. Malice will be inferred if it be proved that the words were calculated to produce damage and that the defendant knew when he published the words that they were false or was reckless as to whether they were false or not.
The test in Coulson v. Coulson applies to interlocutory injunctions in actions for malicious falsehood as it does in actions for defamation. However, in relation to this action, the test applies only to the requirement that the plaintiff must show that the words were false. In the present case I have no doubt that any jury which did not find that the clear implication from the words contained in the defendants' draft article were false would be making a totally unreasonable finding. Thus the test is satisfied in relation to this cause of action.
As to malice I equally have no doubt from the evidence, including the transcript of the tape-recording of the "interview" with Mr. Kaye in his hospital room which we have read, that it was quite apparent to the reporter and photographer from Sunday Sport that Mr. Kaye was in no condition to give any informed consent to their interviewing or photographing him. Moreover, even if the journalists had been in any doubt about Mr. Kaye's fitness to give his consent, Mr. Robertson could not have entertained any such doubt after he read the affidavit sworn on behalf of Mr. Kaye in these proceedings. Any subsequent publication of the falsehood would therefore inevitably be malicious.
As to damage, I have already recorded that Mr. Robertson appreciated that Mr. Kaye's story was one for which other newspapers would be willing to pay "large sums of money". It needs little imagination to appreciate that whichever journal secured the first interview with Mr. Kaye would be willing to pay the most. Mr. Kaye thus has a potentially valuable right to sell the story of his accident and his recovery when he is fit enough to tell it. If the defendants are able to publish the article they proposed, or one anything like it, the value of this right would in my view be seriously lessened, and Mr. Kaye's story thereafter be worth much less to him.
I have considered whether damages would be an adequate remedy in these circumstances. They would inevitably be difficult to calculate, would also follow some time after the event, and in my view would in no way be adequate. It thus follows that in my opinion all the preconditions to the grant of an interlocutory injunction in respect of this cause of action are made out. I will return later to what I consider to be the appropriate form of injunction.
Trespass to the Person. It is strictly unnecessary to consider this cause of action in the light of the view I have expressed about malicious falsehood. However, I will set out my view shortly. The plaintiff's case in relation to this cause of action is that the taking of the flashlight photographs may well have caused distress to Mr. Kaye and set back his recovery, and thus caused him injury. In this sense it can be said to be a battery. Mr. Caldecott, for Mr. Kaye, could not refer us to any authority in which the taking of a photograph or indeed the flashing of a light had been held to be a battery. Nevertheless I am prepared to accept that it may well be the case that if a bright light is deliberately shone into another person's eyes and injures his sight, or damages him in some other way, this may be in law a battery. But in my view the necessary effects are not established by the evidence in this case. Though there must have been an obvious risk that any disturbance to Mr. Kaye would set back his recovery, there is no evidence that the taking of the photographs did in fact cause him any damage.
Moreover, the injunction sought in relation to this head of action would not be intended to prevent another anticipated battery, since none was anticipated. The intention here is to prevent the defendants from profiting from the taking of the photographs, i.e. from their own trespass. Attractive though this argument may appear to be, I cannot find as a matter of law that an injunction should be granted in these circumstances. Accordingly I would not base an injunction on this cause of action.
Passing off. Mr. Caldecott submits (though in this case not with any great vigour) that the essentials of the tort of passing off, as laid down by the speeches in the House of Lords in Warnink v. J. Townsend & Sons [1979] AC 731, are satisfied here. I only need say shortly that in my view they are not. I think that the plaintiff is not in the position of a trader in relation to his interest in his story about his accident and his recovery, and thus fails from the start to have a right of action under this head.
Form of Injunction.
Before I turn to consider the form of an interim injunction which should be granted, I must comment that apart from the initial draft of the article intended to be printed in Sunday Sport which was before the judge, two other versions have subsequently appeared. A second was put before Potter J., and a third before us. Both the second and third versions use words which do not imply so clearly as did the original version of the article that the plaintiff consented to be interviewed and photographed by Sunday Sport. Nevertheless in my view the later articles are irrelevant for present purposes. The fact that at one time the defendants envisaged printing the original article is sufficient to entitle the plaintiff to an injunction which prohibits the defendants from publishing an article which contains the implication which was to be read into that original article.
In relation to the injunctions granted by Potter J., the wording of the first injunction was in my view wider than was necessary to prevent the defendants from doing that which was objectionable, i.e. publishing material from which the objectionable implication could be drawn.
The second injunction granted by Potter J. was based upon the tort of passing off. I have already said that in my view the evidence does not prove the commission of this tort. It was for these reasons, that in common with my brethren, I took the view that the first and second injunctions should be discharged. We considered that the third injunction was in general satisfactory but needed some amendment, and basing ourselves on the plaintiff's right of action in malicious falsehood, we granted the injunction in the terms set out above.
I therefore concluded that, to the extent I have indicated, the defendants' appeal should be allowed, but that they should be subject to an injunction in the terms which we have already announced.
LORD JUSTICE BINGHAM: I have had the benefit of reading in draft the judgment prepared by Glidewell LJ. I agree with it, and with the order made.
Any reasonable and fair-minded person hearing the facts which Glidewell LJ has recited would in my judgment conclude that these defendants had wronged the plaintiff. I am therefore pleased to be persuaded that the plaintiff is able to establish, with sufficient strength to justify an interlocutory order, a cause of action against the defendants in malicious falsehood. Had he failed to establish any cause of action, we should of course have been powerless to act, however great our sympathy for the plaintiff and however strong our distaste for the defendants' conduct.
This case nonetheless highlights, yet again, the failure of both the common law of England and statute to protect in an effective way the personal privacy of individual citizens. This has been the subject of much comment over the years, perhaps most recently by Professor Markesinis (The German Law of Torts, 2nd edn 1990 page 316) where he writes:
"English law, on the whole, compares unfavourably with German law. True, many aspects of the human personality and privacy are protected by a multitude of existing torts but this means fitting the facts of each case in the pigeon-hole of an existing tort and this process may not only involve strained constructions; often it may also leave a deserving plaintiff without a remedy."
The defendants' conduct towards the plaintiff here was "a monstrous invasion of his privacy" (to adopt the language of Griffiths J. in Bernstein v. Skyviews Ltd [1978] QB 479 at 489 G). If ever a person has a right to be let alone by strangers with no public interest to pursue, it must surely be when he lies in hospital recovering from brain surgery and in no more than partial command of his faculties. It is this invasion of his privacy which underlies the plaintiff's complaint. Yet it alone, however gross, does not entitle him to relief in English law.
The plaintiff's suggested cause of action in libel is in my view arguable, for reasons which Glidewell LJ has given. We could not give interlocutory relief on that ground. Battery and assault are causes of action never developed to cover acts such as these: they could apply only if the law were substantially extended and the available facts strained to unacceptable lengths. A claim in passing-off is hopeless. Fortunately, a cause of action in malicious falsehood exists, but even that obliges us to limit the relief we can grant in a way which would not bind us if the plaintiff's cause of action arose from the invasion of privacy of which, fundamentally, he complains. We cannot give the plaintiff the breadth of protection which I would, for my part, wish. The problems of defining and limiting a tort of privacy are formidable, but the present case strengthens my hope that the review now in progress may prove fruitful.
LORD JUSTICE LEGGATT: I agree with both judgments that have been delivered. In view of the importance of the topic I add a note about the way in which the common law has developed in the United States to meet the need which in the present case we are unable to fulfil satisfactorily.
The recognition of a right to privacy seemed to be in prospect when Lord Byron obtained an injunction to restrain the false attribution to him of a bad poem: Byron v. Johnson (1816) 2 Mer. 29. But it was not until 1890 that in their article "The Right to Privacy", 4 Harv. L. Rev. 193, Warren and Brandeis reviewed a number of English cases on defamation and breaches of rights of property, confidence and contract, and concluded that all were based on a broader common principle. They argued that recognition of the principle would enable the courts to protect the individual against the infliction by the press of mental pain and distress through invasion of his privacy. Since then the right to privacy, or "the right to be let alone", has gained acceptance in most jurisdictions in the United States.
It is manifested in several forms: see Dean Prosser, Torts, 4th edn, 1971. One example is such intrusion upon physical solitude as would be objectionable to a reasonable man. So when in Barber v. Time Inc. (1942) 159 S.W. 2d 291 the plaintiff was confined to a hospital bed, the publication of her photograph taken without consent was held to be an invasion of a private right of which she was entitled to complain. Similarly, a so-called "right of publicity" has developed to protect the commercial interest of celebrities in their identities.
"The theory of the right is that a celebrity's identity can be valuable in the promotion of products, and the celebrity has an interest that may be protected from the unauthorised commercial exploitation of that identity. 'The famous have an exclusive legal right during life to control and profit from the commercial use of their name and personality'":
Carson v. Here's Johnny Portable Toilets Inc. (1983) 698 F.2d 831 at page 835.
We do not need a First Amendment to preserve the freedom of the press, but the abuse of that freedom can be ensured only by the enforcement of a right to privacy. This right has so long been disregarded here that it can be recognised now only by the legislature. Especially since there is available in the United States a wealth of experience of the enforcement of this right both at common law and also under statute, it is to be hoped that the making good of this signal shortcoming in our law will not be long delayed.
(Order: Appeal allowed in terms of judgment of Glidewell L.J.; order in respect of costs before Potter J. to stand; no order as to costs in Court of Appeal). |
(Revised)
LORD JUSTICE NEILL: This is an appeal by Mr John Michael White from the order dated 10th April 1989 of His Honour Judge Lovegrove sitting as an additional judge of the Queen's Bench Division. By his order the judge dismissed Mr White's action for damages for personal injuries sustained by him at about midnight on 30th November 1984. In the action Mr White alleges that his injuries and the consequential loss suffered by him were caused by a breach by the respondents, the Council of the City and District of St. Albans, of the duty owed to him under section 1 of the Occupiers' Liability Act 1984. The 1984 Act came into force on 13th May 1984, only a few months before the events with which this appeal is concerned. It was passed to amend the law as to the liability of persons as occupiers of premises for injury suffered by persons other than their visitors.
The issues raised on this appeal are, firstly, whether the Council are under any liability at all to Mr White; secondly, if so, whether Mr White was guilty of any, and if so what, contributory negligence, and, thirdly, the quantum of damages. We have heard argument directed to the question of liability and contributory negligence, and I will deal first with the issue of liability.
On the evening of 30th November 1984 Mr White went from his home in Luton to a concert in the City Hall in the centre of St. Albans. He there met two young ladies whom he knew, and when the concert ended at or shortly after 11.15 in the evening the three of them made some arrangements to take a taxi to the station so that they could go home by train. Before they left, however, it appears that they met a Mr Stanbrook who was another acquaintance of Mr White. Mr Stanbrook offered them a lift home in his car as he too lived in Luton. They accepted his offer, but they had to wait a little time as Mr Stanbrook had some work to finish in the City Hall. Finally, at about midnight, they set off across the road to the car park which lies not far from the City Hall. The plan at page 42 of the documents before us shows the layout of the area with which we are concerned.
Mr White did not know the area and therefore to find the way to the car park it was necessary for him to follow Mr Stanbrook; the two young ladies came along behind. In order to reach the car park it was necessary to cross a narrow road lying to the east of the City Hall, and it would have been perfectly simple to have approached the car park, which was a two-level car park, and gain access to it through the ordinary entrance. But Mr Stanbrook seemed to think that he could take a shorter route and he therefore took his party across the road and then towards the entrance of a council building that lies, as is apparent from the plan, between the City Hall and the two-level car park. That building, which is shown clearly in the top photograph on page 26 of the bundle and which was referred to in the course of the hearing as the "Vic Hallam" building, was built on a piece of land which was intended for some larger building to be put on it, but it appears to be a single storey building with another building connected to it which is shown on the plan as a "temporary drawing office".
Mr Stanbrook and Mr White and the two ladies went up the ramp, which is to be seen in the photograph at the bottom of page 26. This photograph shows the door, the entrance to the building, more or less in the middle of the photograph. They then turned to the right and went under a horizontal white bar which is clearly shown in the photograph at the top of page 27. Mr White with the ladies behind him followed Mr Stanbrook. It appears that they then went round the side of the Vic Hallam building towards the car park. As he reached the corner where the side and the back of the building joined Mr White came to a gap. That gap is shown clearly in the photograph at page 28. It is a gap which we understand is about one metre wide and forms a channel between the plinth on which the Vic Hallam building stands and the two-storey car park which Mr Stanbrook and the others were seeking to reach. The gap is also shown in a photograph at page 30 which was taken from near the bottom of the channel or passageway between the two buildings. According to the evidence, it seems to have been designed as a fire break between the two buildings.
As is apparent from the photograph at page 28, on the Vic Hallam side of the gap there is a series of what appear to be concreted posts standing at intervals. On the other side by the car park there is a low wall on top of which there is some horizontal fencing.
Some way down the back of the building following the line of the channel there is a narrow bridge in the form of a concrete plank. The bridge is shown in photograph 29. It was fenced off on the car park side by a wire fence to prevent access from that side on to the bridge and to the back of the Vic Hallam building. Photograph 30 also shows from ground level the position of that little bridge.
It was a dark night and plainly this part of the land was not well lit; it was also raining. Mr White got to the edge, not realising that there was this gap between the plinth on which the Vic Hallam building stood and the car park. He fell over the edge and suffered quite serious injuries. It is in respect of those injuries and the consequential loss which he has suffered that he has brought these proceedings against the City Council. The basis of his claim is the allegation that the Council were in breach of their duty under the 1984 Act. In order to consider the claim it is necessary to turn at once to the provisions of the 1984 Act.
Section 1 is the relevant section. The scheme of that section is as follows. In subsection (1) it is provided that the rules under the section are to take the place of the rules at common law both (a) "to determine whether any duty is owed by a person as occupier of premises to persons other than his visitors in respect of any risk of their suffering injury on the premises by reason of any danger due to the state of the premises or to things done or omitted to be done on them"; and also (b) to determine "if so, what that duty is."
It is unnecessary for the purposes of this appeal to refer to subsection (2) which contains provisions stating who is to be treated as an occupier of premises. It is accepted that the Council were occupiers of all the relevant land and buildings on this occasion. But it is necessary to read subsections (3), (4) and (5):
"(3) An occupier of premises owes a duty to another (not being his visitor) in respect of any such risk as is referred to in subsection (1) above if-
(a) he is aware of the danger or has reasonable grounds to believe that it exists;
(b) he knows or has reasonable grounds to believe that the other is in the vicinity of the danger concerned or that he may come into the vicinity of the danger (in either case, whether the other has lawful authority for being in that vicinity or not); and (c) the risk is one against which, in all the circumstances of the case, he may reasonably be expected to offer the other some protection.
(4) Where, by virtue of this section, an occupier of premises owes a duty to another in respect of such a risk, the duty is to take such care as is reasonable in all the circumstances of the case to see that he does not suffer injury on the premises by reason of the danger concerned.
(5) Any duty owed by virtue of this section in respect of a risk may, in an appropriate case, be discharged by taking such steps as are reasonable in all the circumstances of the case to give warning of the danger concerned or to discourage persons from incurring the risk."
We can see, therefore, the scheme of those last three subsections. Subsection (3) contains the provisions which are relevant for the purpose of determining whether the occupier of the premises owes any duty at all to the person who is described as "another (not being his visitor)". Subsection (4) sets out the nature and extent of the duty once it has been established that the person on the premises is a person to whom a duty is owed. Subsection (5) contains provisions which may, in certain circumstances, apply whereby the occupier may be able to discharge his duty by taking such steps as are reasonable in all the circumstances, either to give warning of the danger or, alternatively, to discourage persons from incurring the risk. The learned judge in his judgment dealt first with the question of duty. He started with s1(3)(a). He considered the facts and came to the conclusion first that there was this gap or channel between the two buildings which did constitute a danger, and secondly that the Council were aware of the danger or had reasonable grounds to believe that it existed. Plainly there is no appeal against that finding by the learned judge.
He then turned to s1(3)(b), which is the paragraph to which our attention has been particularly directed and about which the argument has really revolved in this case. The learned judge said this: "... the question is whether the Defendants had reasonable grounds to believe that the Plaintiff was or might come in that vicinity", because it was accepted that the Council had no actual knowledge that he was in the vicinity or might come in the vicinity. The judge continued at page 11 of his judgment:
"The levelled surface was fenced off in all places from where access could easily be obtained to it, either by horizontal bars on three sides or, as I find to be the case, chain-link fencing from the open car park. Always excepting emergencies such as policemen or firemen going on the levelled surface in the course of duty, it is difficult to think why anyone would go on that roof by night except for purposes of some criminal activity such as theft or for access to the open car park. There were several other proper and orthodox means of access to the car park. The levelled surface presented a short-cut but it did not greatly reduce the journey from the direction of the City Hall. There is no evidence that the levelled surface was originally used as a short-cut, or, if it was, that the Defendants knew this.
"It is submitted on behalf of the Plaintiff that the horizontal fencing and the chain-link fencing may show that people might try to gain access to the open car park in this way. In my judgment, the purpose of the fencing was to deter people from going on to the levelled surface from the highway. Whether one adopts a subjective or objective approach, I do not think the Defendants had reasonable or any grounds to believe that anyone would use the levelled surface as a short-cut to the car park, and so come into the vicinity of the danger."
In his detailed and, if I may say so, very helpful submissions Mr West, on behalf of Mr White the appellant, has argued that in two respects the judge has fallen into error in the conclusion which he reached on paragraph (b). He submits, first of all, that if you look at these premises and see where the car park lies in relation to the City Hall and notice that this was indeed a route which could very easily be taken to get from the City Hall to the car park, the layout of the premises by itself could lead to the inference that the Council might have reasonable grounds to believe that persons such as Mr White might come into the vicinity of the danger. Secondly he says, and this is really the main thrust of his submissions, that once it is established that precautions are being taken to guard against or to stop people getting to a particular area of land, then it follows logically that the person who has taken those precautions must have reasonable grounds for believing that someone is likely to come into the vicinity of a danger, if the danger is on the premises and in the area around which the precautions have been erected. So he submits that at the stage of considering s1(3)(b), that is whether or not this requirement for the existence of a duty has been satisfied, one does not consider how satisfactory the precautions may be. The nature of the precautions is something to be examined under subsection (4). It was on that aspect of the case, said Mr West, that the learned judge went wrong. Furthermore, he developed that argument by contending that you have to test the question of whether or not a duty exists by reference to the moment when a building has been completed and when those who are responsible for the safety of anybody coming to the building or premises have to consider what precautions they should take.
For my part I do not accept that the way in which the case was put by Mr West is correct. It seems to me that the question to be considered under subsection (3}(b) must be answered by looking at the actual state of affairs on the ground at the time when the injury is suffered. The question is: had the occupier of the premises reasonable grounds to believe that somebody such as Mr White might come into the vicinity of the danger? In this case, when one looks at the facts, one sees that at one end of the route they were taking there was a wire fence erected on the side by the car park. At the other end, to gain access to the route which they followed, one had to get underneath a wooden barrier. It seems to me, in the absence of any evidence whatever of the route being taken on other occasions, impossible to contend that the Council had reasonable grounds for believing that Mr White might come into the vicinity of the danger and were therefore under a duty. This was private land. It was surrounded, as the photographs demonstrate, by a three-tiered wooden fence. Moreover, the area at the back of the Vic Hallam site (and that is really what we are concerned with) was protected by this wire fence, and to deter people from approaching the area from the front there was this single wooden bar. To my mind, the judge was wholly justified in coming to the conclusion that the Council had no reasonable grounds for believing that Mr White on that occasion might come into the vicinity of this gap or channel into which, unhappily, he fell.
It therefore becomes unnecessary to express a conclusion on the other aspects of the case, though I, for my part, would not agree with the decision which the judge came to on section t(3)(c). It seems to me that had the Council been aware of the danger and known that someone might come into the vicinity, then they might reasonably have been expected to offer some protection against that danger to a trespasser. But it is not necessary to go further into that aspect of the case because I am quite satisfied that the plaintiff's claim must fail because he has not established that the Council, in the circumstances, had reasonable grounds for believing that he might come into the vicinity of the danger.
On that short ground I, for my part, would dismiss the appeal.
LORD JUSTICE NICHOLLS: I agree. The plaintiff's argument concentrated on the judge's conclusion on the issue raised by section 1(3)(b) of the Act. As applied to the circumstances of this case that issue was: did the defendants know or have reasonable grounds to believe that persons such as the plaintiff, taking an alternative route to the car park from the highway, might come into the vicinity of this dangerous gap from its unfenced side? That is a question of fact and the judge answered that question in the negative.
In reaching that conclusion the judge found that the purpose of the horizontal fencing was to deter people going to the levelled surface from the highway. Basing himself essentially on that finding, and on the existence of the wall and fencing on the car park side of the gap, Mr West advanced an argument that, having taken these precautions, the defendants must fail on subsection (3)(b). By seeking to deter people from going on to the levelled area from the highway because, so it is to be assumed, of the existence of the danger of which the defendants were aware, the defendants thereby showed that they knew people might go into the vicinity of the danger. The adequacy of the fencing precautions, so it was submitted, is a matter to be evaluated when determining whether the defendants have discharged their duty under subsection (4). The adequacy of the precautions taken with regard to fencing does not fall to be considered in the context of subsection (3)(b).
I cannot accept this argument. Under the Act three ingredients must exist before an occupier owes a duty under section 1. One of these ingredients is that set out in subsection (3)(b). If, taking into account all the circumstances, the occupier does not know or have reasonable grounds to believe that other persons are or may come into the vicinity of the danger, then the statutory duty does not exist. All the circumstances must include matters such as any fencing which separates the vicinity of the danger from surrounding areas. Here, the existence of the horizontal fencing of the Vic Hallam building made it plain that unauthorised persons were to keep off the levelled surface. Of course that fencing, and in particular the single bar fence at the top of the slope beside the entrance to the Vic Hallam building, did not present any sort of obstacle to any able-bodied person minded to get over it. But, and this is a crucial factual feature in this case, there was no evidence that the levelled surface was used as a short cut to the car park or, indeed, by any unauthorised person for any other purpose. That being so, on the facts, subsection (3)(b) was not satisfied in this case.
I too would dismiss this appeal.
LORD JUSTICE BINGHAM: I agree. In my judgment the case turns on whether the plaintiff could satisfy the requirements of section 1(3)(b) of the Act. Section 1(3)(b) required the judge to consider and answer four questions:
(1) Did the defendants know that the plaintiff was in the vicinity of the danger concerned?
(2) Did the defendants have reasonable grounds to believe that the plaintiff was in the vicinity of the danger concerned?
(3) Did the defendants know that the plaintiff might come into the vicinity of the danger?
(4) Did the defendants have reasonable grounds to believe that the plaintiff might come into the vicinity of the danger?
The learned judge clearly posed and considered questions (1) and (2) and answered them in the negative, as I understand to be conceded, correctly. He also was correct in my judgment to answer questions (3) and (4) in the negative, and I draw attention particularly to the findings that my Lord has already recited, first at page 12B - "There is no evidence that the levelled surface was originally used as a short-cut, or, if it was, that the Defendants knew this", and secondly the finding at page 12D - "Whether one adopts a subjective or objective approach, I do not think the Defendants had reasonable or any grounds to believe that anyone would use the levelled surface as a short-cut to the car park, and so come into the vicinity of the danger." There was, in short, nothing to suggest that the defendants knew or had reason to believe that the plaintiff or any other trespasser might use the flat surface as a thoroughfare. There is no evidence that the roof ever had been so used otherwise than on this occasion unless one can properly infer that Mr Stanbrook had used it before. I am, for my part, entirely unpersuaded that the defendants' conduct in fencing off the levelled area showed that section 1(3)(b) was satisfied. It has to be borne in mind that this section is concerned with the liability of an occupier to trespassers. So read, the section follows, as I think, a logical and sensible progression. One can readily accept that an occupier should owe a duty of care towards trespassers if his premises are, to his knowledge, dangerous and he knows or ought to know that trespassers make use of his land. But it is, I think, quite otherwise if the occupier does not know and has no reason to know that trespassers do or are at all likely to enter his land. That was, on the evidence, the position here, and I accordingly agree both with the trial judge and with my Lords that the plaintiff failed to discharge the burden which lay on him under section 3(1)(b) and that the appeal, like the claim, must accordingly fail.
Order: Appeal dismissed; application for costs against the Legal Aid Fund adjourned for ten weeks; legal aid taxation of plaintiff's costs. |
LORD JUSTICE BELDAM: The appellant, Andrew James Pitts, appeals against the judgment of His Honour Judge Fallon sitting as a Judge of the High Court at Bristol on 1st December 1988. The appellant claimed damages for personal injuries received when he was travelling as a pillion passenger on a motor cycle ridden by the deceased, Mark Hunt, which was in collision with a car driven by the second defendant on 10th September 1983. The question of liability had been ordered to be tried as a preliminary issue. Having heard evidence on Wednesday 26th to Friday 28th October 1988, the learned judge dismissed the appellant's case against both defendants. From his dismissal of the claim against the first defendants, the appellant now appeals.
The facts as found by the learned judge are not challenged.
The appellant at the time of the accident was eighteen years old. He himself owned a motor bicycle and was licensed to ride it. Mark Hunt, the deceased, whose personal representatives are the respondents to the appeal, was sixteen years of age. He was the owner of a 250 cc Suzuki motor bicycle which he used as a trail bike. He was not, however, the holder of a licence, nor was he insured to use the motor bicycle on a road. The appellant and the deceased were friends and used to go trail biking together. The appellant knew that the deceased was not the holder of a licence and that he was not insured to use the Suzuki motor cycle on the road. Together these two young men went to a disco at the Boot Inn at Shipton on 10th September 1983. They arrived there at about 7.30 pm and stayed until 11.15 pm. During that time they each drank far more than was good for them. After the accident samples taken from the deceased showed that the concentration of alcohol in his blood was over twice the permitted limit. In spite of this, the two young men set off together on the deceased's motor bicycle with the deceased driving. Their journey home took them along the A338 road which leads from Shipton Bellinger to Tidworth. They were travelling in a northerly direction towards Tidworth along a stretch of road which is approximately 8 metres wide and which passes the Tidworth Garrison Cricket Ground. The centre of the road is marked by painted hazard lines and cat's eye studs. There is no street lighting on this section of the road and traffic is restricted to a speed of 60 mph. It is an "A" class road with a good surface which was wet at the time. Approaching the scene of the accident when travelling towards Tidworth, as the motor cycle was, the road is virtually straight for 200 yards. It then rises to a crest and starts to bear to the left.
As these two young men rode home, no doubt in high spirits, the effects of intoxication began to exert themselves, and as is too frequently the case it caused them to throw caution to the wind; they began to behave in a reckless, irresponsible and idiotic way.
Two Army non-commissioned officers whose car had broken down were walking towards Shipton Belinger along the right-hand side of the road facing oncoming traffic when they heard the motor cycle approaching. They then saw its light and it was clearly in the middle of the road. The driver and pillion passenger were shouting as if they were having a good time and the horn was being blown. It then appeared to be driven straight towards them and passed them so closely that they moved onto the verge to get out of its way. They noticed then that it was being driven from side to side of the road, weaving in and out of the white hazard lines. It was travelling at about 50 mph as it did so. They heard both the rider and pillion passenger shouting "Hooray" and "Yippee", as if enjoying the experience. They were clearly showing no concern for other users of the road and the judge drew the inference that they were deliberately riding in a way calculated to frighten others. The evidence of these two pedestrians clearly supported that inference.
The second defendant, a young man of twenty-six, was driving his girlfriend home in his parents' Renault motor car. He was also giving a lift home to his brother's girlfriend. He was approaching the scene of the accident, travelling in a southerly direction at a reasonable speed, on his own side of the road. He was about to negotiate the bend in the road when he saw the motor cycle coming towards him on its wrong side of the road and travelling directly towards him in his path. Instinctively he moved to his offside in the hope that he would avoid a collision but, no doubt because the motor cycle was weaving down the centre of the road, it then seemed as if it swerved back onto its own side. So in response the second defendant steered towards his nearside but in the time available he was unable to avoid a collision. The motor cycle struck the Renault a severe but glancing blow on the front offside corner and then careered back onto its nearside verge for a distance of about 35 metres beyond the point of impact which appears to have been on or near the crown of the road. Tragically the injuries received by Mark Hunt were fatal. The appellant sustained injuries which have left him permanently partially disabled.
Such were the primary facts as the judge found them. He acquitted the second defendant of all blame and dismissed the appellant's claim against the first defendant on a number of grounds. Before considering them, it is necessary to state some further findings which the learned judge made. He found that the deceased had drunk so much that he was obviously unfit to drive and that if the appellant had been in a proper state he would have realised that. He found that the deceased, very much aided and abetted by the plaintiff, was deliberately trying to frighten others who were on the road. No doubt because they had drunk so much, they viewed it as a joke or a game but it was certainly reckless driving. He found that the appellant had supported or encouraged the deceased whom he knew was under age, drunk and uninsured, and he added:
"On my findings the deceased was riding this motor cycle recklessly and dangerously and at the very least the plaintiff was aiding and abetting that driving. He was not manipulating the controls of the machine but he was fully in agreement with and was encouraging the way in which the deceased was manipulating the controls. Indeed the eye-witness accounts which I have accepted demonstrate that both the plaintiff and the deceased were actually enjoying their experience, partly, if not largely as a result of the very large amount they had drunk that night."
The learned judge then considered the various defences which had been raised by the first defendants. Firstly he held that the plaintiff could not maintain an action which was based on or arose out of criminal conduct on his part, "ex turpi causa non oritur actio. Secondly that on the grounds of public policy the law would not recognise in the circumstances of this claim that a duty of care was owed by the deceased to the appellant. Thirdly that, even if the appellant would ordinarily have been owed the normal duty of care, the risk of injury was so glaring and obvious that by the act of travelling as a pillion passenger on a motor bicycle ridden by the deceased in a state of intoxication and in the manner which he himself encouraged and enjoyed, he must be taken to have willingly accepted any risk of injury involved, "violenti non fit injuria". It had, however, been argued on the plaintiff's behalf that the provisions of section 148(3) of the Road Traffic Act 1972 precluded the first defendant from relying upon such a defence.
Holding that the section did in fact have that effect, the learned judge then considered whether if there had been a breach of duty by the deceased the damages recoverable by him should be reduced having regard to his own fault and if so to what extent. On this basis he concluded that as the appellant was equally responsible for what had happened and was in effect a partner in a joint enterprise of stupidity with the deceased, that it would defy commonsense to find that the appellant was not himself wholly to blame for his own injuries. Accordingly he held the appellant was not entitled to recover any damages even on that basis.
The first two grounds on which the learned judge rejected the plaintiff's claim arose from the first defendant's reliance upon public policy and, in particular, the policy expressed in the Latin maxim "ex turpi causa non oritur actio".
Since the days of Lord Mansfield it has been a rule of public policy that a court will not lend its aid to a man who founds his cause of action on an illegal or immoral act: Holman v. Johnson [1775] 1 Cowp 341. The question there arose in an action for goods sold and delivered which it was alleged were supplied in the knowledge that they were to be smuggled into England. The plaintiff, however, recovered the price of the goods since mere knowledge on his part that they might be unlawfully imported into England did not bar his claim.
The same grounds of public policy were said to underlie the decision of Lord Kenyon in Merryweather v. Nixon [1799] 8 T.R. 136 that a joint tortfeasor who had alone been sued to judgment and had had to pay the whole damages could claim no contribution from his fellow wrongdoer. This rule, finally abolished in 1935? was narrowed in its effect by later decisions to cases in which the tortfeasor claiming indemnity or contribution must have known that he was doing an unlawful act. In Adamson v. Jaryis [1827] 4 Bing 66 Best C.J. said:
"..... from the concluding part of Lord Kenyon's judgment in Merryweather v. Nixon, and from reasoned justice, and sound policy, the rule that wrongdoers cannot have redress or contribution against each other is confined to cases where the person seeking redress must be presumed to have known that he was doing an unlawful act."
In Colburn v. Patmore [1834] Exch. 1 CM & R 73 Lord Lyndhurst C.B. said at page 83:
"I know of no case in which a person who has committed an act, declared by the law to be criminal, has been permitted to recover compensation against a person who has acted jointly with him in the commission of the crime. It is not necessary to give any opinion upon this point but I may say that I entertain little doubt that a person who is declared by the law to be guilty of a crime cannot be allowed to recover damages against another who has participated in its commission."
This principle was applied by Denning J. (as he then was) in Askey v. Golden Wine Company & Ors. [1948] 2 AER 35. He held that the plaintiff who had been induced by the defendant's fraud to sell liquor in breach of the Food and Drugs Regulations and who had been fined could not recover the amount of the fine from the defendant when he had himself at least been guilty of gross negligence.
It is perhaps not surprising that few cases are to be found in the eighteenth and nineteenth centuries in which joint participants in a tort, the facts of which also constituted a crime, are to be found seeking redress the one against the other. The punishment meted out to the solicitors for the parties in the Highwayman's case, Everet v. Williams [1725] who were imprisoned and fined £50 each, would not have encouraged the bringing of such proceedings, see LQR 9 197, and until the rule in Smith v. Selwyn [1914] 3 KB 98 was abolished, no civil remedy could be pursued by the victim of a crime which amounted to felony until the criminal had been prosecuted. Further, before 1870, if he was prosecuted and convicted, the felon's property would be forfeited so that it was unlikely that any claim against him would be satisfied.
The rule of public policy that a cause of action could not be based upon an illegal act has been held to extend to cases in which an insured has sought indemnity under a policy of insurance for liability caused through his own unlawful acts. See Haseldine v. Hosken [1933] 1 KB 822 and Gray v. Barr [1971] 2 QB 554. Such a rule was treated by Kennedy J. in Burrows v. Rhodes [1899] 1 QB 816 at page 828 as having long been settled law if the liability in respect of which a person seeks indemnity arises from an act which is manifestly unlawful or which the actor knows to be unlawful as constituting either a civil wrong or a criminal offence. However the law has treated cases in which an insured claims indemnity in respect of a liability arising out of the use of a motor vehicle on the highway exceptionally in this respect. In Tinline v. White Cross Insurance [1921] 3 KB 327 an insured was held to be entitled to indemnity under a policy of motor insurance in respect of an accident even though he had pleaded guilty to manslaughter of a person killed as a result of his driving. Bailhache J. acknowledged that it was against public policy to indemnify a man against the consequences of a crime which he knowingly commits and in the word "crime" he included breach of any statutory duty which rendered a man liable to fine or imprisonment. In permitting recovery under the policy the judge drew a clear distinction between accidents which occurred through gross negligence and those which could be said to be the result of intentional acts on the part of the insured in which case he would have been denied indemnity.
In James v. The British General Insurance Co. Ltd. [1927] 2 KB 311 the insured was drunk and had been convicted of manslaughter and sentenced to twelve months imprisonment. Roche j. again drew the distinction between gross negligence or reckless negligence, negligence of the kind which constitutes criminality but nevertheless negligence as opposed to the wilful or advertent doing of the act. He said:
"In such circumstances as these there is not in my view on the part of the person who does the act that degree of criminality which in the doing of a known unlawful act makes it against public policy that the perpetrator should be indemnified in respect of it."
The distinction between deliberate and intentional acts and those which are unintentional though grossly negligent was maintained in the case of Hardy v. Motor Insurers Bureau [1964] 2 QB 745. In that case a security officer had been intentionally injured when he sought to prevent the driver of a van from driving off while he questioned him. The security officer had obtained judgment for damages of £300 in respect of his injuries. The driver of the van who was uninsured had been convicted of maliciously inflicting grievous bodily harm to the security guard. The requirement of malice in that offence would have been satisfied by recklessness: see R. v. Shephard [1981] AC 394. Nevertheless it was clear that the driver had deliberately driven off while the security guard was hanging on to the vehicle and had continued to drive when it must have been obvious to him that he would cause some injury to the guard. As the van driver was uninsured, the security guard sought to recover his damages from Motor Insurers Bureau who by the terms of their agreement with the Ministry of Transport had agreed to satisfy claims in respect of any judgment obtained for a liability required to be covered under a policy of motor insurance issued under the Road Traffic Acts. It was contended for the Bureau that liability for a criminal act was not a liability which the Road Traffic Acts required, or could require, to be covered by a policy of insurance. This court held that it was not against public policy to allow the security guard to recover under the agreement even though public policy would have precluded the driver from claiming indemnity under a policy if he had had one. Diplock L.J. said at page 767:
"The rule of law on which the major premise is based -ex turpi causa non oritur actio - is concerned not specifically with the lawfulness of contracts but generally with the enforcement of rights by the courts, whether or not such rights arise under contract. All that the rule means is that the courts will not enforce a right which would otherwise be enforceable if the right arises out of an act committed by the person asserting the right (or by someone who is regarded in law as his successor) which is regarded by the court as sufficiently anti-social to justify the courts refusing to enforce that right."
After holding that as the Road Traffic Act conferred on an injured third party a direct right of action against insurers and that it was therefore within the agreement and that it did not offend against the rule ex turpi causa non oritur actio to permit the injured person to recover, he went on:
"No doubt, in the unlikely event of the assured himself discharging his liability to the third party, the rule ex turpi causa non oritur actio would prevent his enforcing his contractual right to indemnity against the insurers if the event which gave rise to his liability to the third party were an intentional crime committed by the insured."
In Gray v. Barr (supra) an insured had been held liable for injuries caused by discharging a shotgun when confronting his wife's lover. He claimed indemnity under a policy of insurance covering him for personal liability for accident. He had been charged with manslaughter of the wife's lover but had been acquitted. This court unanimously held that in such a case he was not entitled to indemnity. The first ground of its decision was that the incident was not an accident within the meaning of the policy, but the court went on to consider whether the claim to indemnity was barred by public policy. Lord Denning drew the distinction between manslaughter which could be categorised as "motor manslaughter" on the one hand, and manslaughter in which the conduct is wilful and culpable on the other. He said at page 569:
"If the death of Mr. Gray was caused by the deliberate act of Mr. Barr in going up the stairs with a loaded gun, it was no accident, and it would, in any case, be against public policy to allow him to recover indemnity for the consequences of it."
Salmon L.J. thought that the cases which permitted an insured convicted of manslaughter for reckless and drunken driving to recover indemnity under a policy of insurance might be "sui generis". He went on on page 582:
"In any event, although motor cars have sometimes been called lethal weapons, these cases are not in my view akin to the cases in which injuries are caused in the course of unlawfully threatening a man with a loaded gun. Public policy is not static ... In any event, threatening violence with a loaded gun would, I am sure, now be generally regarded as much more shocking and necessary to be deterred than what the unfortunate Major Rowlandson did in Beresford's case. I am confident that, in any civilised society, public policy requires that anyone who inflicts injuries in the course of such an act shall not be allowed to use the courts of justice for the purpose of enforcing any contract of indemnity in respect of his liability in damages for causing injury by accident."
Lord Denning at page 568 drew attention to the distinction between manslaughter in which the death of another may be the result simply of a reckless act, and manslaughter in which the death arises from an unlawful and dangerous act done with the intention of frightening or harming someone or when the actor knows that it is likely to frighten or harm someone and nevertheless goes on and does it regardless of the consequences.
I have quoted at some length the considerations which have led courts to refuse on grounds of public policy to permit a person to enforce a claim to indemnity for they illustrate to my mind how the courts have adjusted the application of the maxim to changing social conditions and in particular to the policy underlying the Road Traffic Acts. They establish, I believe, that it is the conduct of the person seeking to base his claim upon an unlawful act which is determinative of the application of the maxim.
Before leaving the question of public policy as it has been applied in cases of indemnity or contribution, it is pertinent to point out that when in 1935 the rule in Merryweather v. Nixon was finally abolished by the Law Reform (Married Women and Tortfeasors Act) 1935 a tortfeasor liable in respect of damage suffered by any person as a result of a tort (whether a crime or not) could recover contribution from any other tortfeasor liable in respect of the same damage. The rule was abolished as a result of the third interim report of the Law Revision Committee which expressly considered whether an exception ought to be made in the case where a tort is also a crime. In its report, 1934 Command Paper 4637, para. 10, the Committee said:
"At first sight public policy might appear to demand that such an exception should be made at any rate when the crime is wanton and deliberate and not merely the result of inadvertence. We have, however, come to the conclusion that it is impracticable to draw such a distinction and that any attempt to exclude from our recommendation torts which are also crimes would produce anomalies (such as would result from the fact that libel is a crime while slander is not or that negligent driving may amount to felony) and uncertainties which it would be undesirable to introduce. Accordingly our recommendation is made without qualification."
In defence to a claim in tort based on negligence or breach of statutory duty, public policy based upon the rule ex turpi causa non oritur actio has not often been raised. It was raised in National Coal Board v. England [1954] AC 403. A mineworker who was injured in an explosion of a detonator in a colliery at Aberdare claimed damages for breach of statutory duty by the shotfirer who fired the shot without first ascertaining that all persons in the vicinity had taken shelter. The plaintiff had aided and abetted the shotfirer by coupling up the charges when he was not supposed to do so. It was contended that he could not recover because of his own illegal acts. Although the House of Lords had little difficulty in rejecting this contention, Lord Asquith said at page 428:
"Cases where an action in tort has been defeated by the maxim are exceedingly rare. Possibly a party to an illegal prize fight who is damaged in the conflict cannot sue for assault. ... But it seems to me in principle that the plaintiff cannot be precluded from suing simply because the wrongful act is committed after the illegal agreement is made and during the period involved in its execution. The act must, I should have supposed, at least be a step in the execution of the common illegal purpose. If two burglars, A and B, agree to open a safe by means of explosives, and A so negligently handles the explosive charge as to injure B, B might find some difficulty in maintaining an action for negligence against A. But if A and B are proceeding to the premises which they intend burlariously to enter, and before they enter them, B picks A's pocket and steals his watch, I cannot prevail on myself to believe that A could not sue in tort (provided he had first prosecuted B for larceny). The theft is totally unconnected with the burglary. There is, however a surprising dearth of authority on this point."
The case in which this question arose directly was Ashton v. Turner and Anr. [1981] l QB at page 137. The plaintiff was one of three young men who after an evening's drinking used a motor car belonging to one of them on a joint enterprise of burglary. Having stolen some radios and set off the alarm, they tried to make their escape in the car which, due to the negligent driving of the defendant, crashed and the plaintiff sustained injury. He sought to recover damages from the driver. Ewbank J. dismissed the plaintiff's claim holding that as a matter of public policy the law would not recognise a duty of care owed by one participant in a crime to another. He held in the alternative that, even if a duty of care was owed, the plaintiff had willingly accepted as his the risk of negligence and injury resulting from it.
In arriving at this conclusion Ewbank J. was much influenced by two decisions in the Courts of Australia: Godbolt v. Fittock [1963] 63 S.R.(N.S.W.) 617 and Smith v. Jenkins [1970] 44 ALJR 78. In the latter case the High Court of Australia held that no action would lie by the passenger in a motor vehicle to recover damages for injuries sustained by the careless driving of the vehicle when the passenger and driver were at the time of the accident participating jointly in the offence of unlawfully using the motor vehicle. Although all the judges were agreed that the plaintiff could not recover, there was a difference of opinion about the legal basis for the decision. Kitto J. and Walsh J. considered that in the circumstances public policy would not recognise a right of action. Barwick C.J., Windeyer J. and Owen J. considered that the basis for dismissing the claim should be that the law would not hold that a duty of care arose out of the relationship of joint participants in an illegal enterprise. ^
The question again came before the High Court of Australia in 1977 in the case of Jackson v. Harrison [1977-1978] 138 CLR 438. The respondent was injured when he was travelling as a passenger in a motor car driven by a driver he knew to be disqualified. The two of them were jointly participating in an offence under the Motor Vehicles Act 1959. The majority distinguished the case of Smith v. Jenkins (supra) and held that the passenger was not disabled from recovering damages on the ground that the illegality did not bear on the standard of care reasonably to be expected of the driver. Barwick C.J. dissented and in the course of his judgment he said:
"It seems to me that where there is a joint venture to do an act punishable by fine or imprisonment, no narrow or pedantic view should be taken of the nature and scope of the arrangement between the parties when applying the principle of Smith v. Jenkins and that the consequence to one of the participants of any act done in furtherance of the arrangement or in obtaining the benefit of having carried it out should not give rise to a cause of action. The relationship of those participants should not be regarded as giving rise to relevant rights and duties. The public policy which the denial of a cause of action in such circumstances is designed to serve is not satisfied if the miscreant is not denied rights against his co-participant in the commission of the offence in respect of acts related to that commission."
Mason J. said:
"If a joint participant in an illegal enterprise is to be denied relief against a co-participant for injury sustained in that enterprise, the denial of relief should be related not to the illegal character of the activity but rather to the character and incidence of the enterprise and to the hazards which are necessarily inherent in its execution. A more secure foundation for denying relief, though more limited in its application - and for that reason fairer in its operation - is to say that the plaintiff must fail when the character of the enterprise in which the parties are engaged is such that it is impossible for the court to determine the standard of care which is appropriate to be observed."
Jacobs J. based his conclusion on the fact that the type of offence in which they were jointly engaged did not bear at all on the standard of care which was to be expected of the driver in the circumstances.
In another jurisdiction nearer home in Winnick v. Dick [1984] Scots Law Times page 185, the Second Division of the inner House also considered the question whether public policy would preclude an action for damages by a passenger in a motor car which was being driven by a driver with whom he had been drinking all day and knew that he was drunk. Lord Hunter at page 189 said:
"..... either because in law one joint participant would not in such circumstances be held to owe a duty of care to the other joint participant or because on grounds of public policy, the court would not countenance nor adjudicate on a claim by one such joint participant against another I see no reason why a Scottish court should not on the basis of one or other or both of these principles, arrive in appropriate circumstances at a result the same as that reached in several cases in other jurisdictions, to which we were referred, see, e.g. Smith v. Jenkins and Ashton v. Turner."
Lord Wheatley, however, felt that such a defence would have far reaching effects and could give rise to delicate decisions on what is embraced in 'crime' in this context and he felt that in the circumstances of that case, since the pleadings did not raise the issue with clarity, the point should not be decided.
In opening his appeal on behalf of the appellant, Mr. Peppitt drew attention to the case of Saunders v. Edwards [1987] 1 WLR 1116. This court, he said, had approved a test for determining whether in the circumstances the court would decline to allow the plaintiff to recover in cases of illegality. It was based upon a helpful review of cases by Hutchison J. in Thackwell v. Barclays Bank plc [1986] 1 AER 676. The plaintiff in that case was a party to a fraudulent scheme under which a cheque had been made payable to him. The plaintiff's signature endorsing the cheque to a third party was forged and in reliance on the forgery the bank credited the third party. The plaintiff sued the bank for conversion. In defence the bank relied on the maxim "ex turpi causa". The test applied by Hutchison J. in that case and approved by the court in Saunders v. Edwards -
"... involved the court looking at the quality of the illegality relied on by the defendant and all the surrounding circumstances, without fine distinctions, and seeking to answer two questions: first, whether there had been illegality of which the court should take notice and, second, whether in all the circumstances it would be an affront to the public conscience if by affording him the relief sought the court was seen to be indirectly assisting or encouraging the plaintiff in his criminal act."
Mr. Peppitt relied particularly on the passage in the judgment of Bingham L.J. where he said:
"Where issues of illegality are raised, the courts have (as it seems to me) to steer a middle course between two unacceptable positions. On the one hand it is unacceptable that any court of law should aid or lend its authority to a party seeking to pursue or enforce an object or agreement which the law prohibits. On the other hand, it is unacceptable that the courts should, on the first indication of unlawfulness affecting any aspect of a transaction, draw up its skirts and refuse all assistance to the plaintiff, no matter how serious his loss nor how disproportionate his loss to the unlawfulness of his conduct."
Bingham L.J. went on to point out that the cases which had been referred to in the judgments of Kerr L. J. and Nicholls L. J. were valuable both for the statements of principle which they contained and for the illustrations which they give of the courses which courts had in fact steered in different factual situations. It was his view that, on the whole, the courts had tended to adopt a pragmatic approach to these problems, seeking where possible to see that genuine wrongs were righted so long as the court did not thereby promote or countenance a nefarious object or bargain which it was bound to condemn. So Mr. Peppitt argued on behalf of the appellant that the court should take a pragmatic approach and, in deciding whether the public conscience would be shocked by allowing the appellant to recover the damages in the circumstances of this case, the court should have regard to the serious injuries which he had suffered and from which he would suffer for the rest of his life and should regard the public conscience as being as greatly shocked by the idea that he would recover no compensation for those injuries as it would be by the thought of allowing him to recover by basing his claim on the unlawful escapade in which he suffered the injuries.
The particular sphere of social behaviour and activity arising from the use of motor vehicles in modern conditions is one in which Parliament has been continuously active during this century. It has produced codes designed to regulate and control the behaviour of drivers and for the construction, maintenance and use of vehicles for the purpose of securing the safety of road users. It has also produced a code of requirements for motor insurance designed to make provision for compensating those who suffer injury from the use of vehicles on the road. Thus it seems to me that the primary source of public policy in this sphere must be the Acts of Parliament themselves. That policy is properly supplemented by taking into account the reasons given by the courts of this country for refusing to enforce rights based on conduct which has been regarded as sufficiently anti-social and contrary to the policy of the Acts. I would regard decisions in other jurisdictions which may have different social attitudes as of but secondary guidance, though of course entitled to respect and consideration. Although it is part of that policy that passengers carried on or in vehicles who sustain injury should be compensated, it is clear that Parliament did not regard it as essential that the driver of a vehicle who by his own fault injures himself should be required to insure against that risk. Parliament did however provide that, of the various offences specifically relating to the use of motor vehicles, causing death by reckless driving, reckless driving itself and driving when under the influence of drink and drugs were to be regarded as among the most serious of offences and were to be punishable by imprisonment. Parliament did not expressly provide that a passenger who took part with the driver in the commission of such offences should not be entitled to the benefit of the provisions designed to secure that he should receive compensation.
The policy underlying the provisions for compulsory insurance for passengers and others injured in road accidents is clearly one intended for their benefit: it does not follow that if an offence is committed jointly by the driver and passenger of a kind not regarded as so serious as to disentitle the driver from claiming indemnity for the benefit of an innocent passenger, the passenger who is a joint offender can, subject to questions of contributory negligence, recover compensation from the driver. If however the offence, or series of offences, is so serious that it would preclude the driver on grounds of public policy from claiming indemnity under a policy required to be effected under the Act for the benefit of a passenger, that public policy would in my judgment also preclude the passenger jointly guilty of that offence from claiming compensation.
On the facts found by the learned judge in this case the appellant was playing a full and active part in encouraging the young rider to commit offences which, if a death other than that of the young rider himself had occurred, would have amounted to manslaughter. And not just manslaughter by gross negligence on the judge's findings. It would have been manslaughter by the commission of a dangerous act either done with the intention of frightening other road users or when both the appellant and the young rider were aware or but for self induced intoxication would have been aware that it was likely to do so and nevertheless they went on and did the act regardless of the consequences. Thus on the findings made by the learned judge in this case I would hold that the appellant is precluded on grounds of public policy from recovering compensation for the injuries which he sustained in the course of the very serious offences in which he was participating. On a question on which, as Bingham L.J. said, the courts have tended to adopt a pragmatic approach, I do not believe that it is desirable to go further in an attempt to categorise the degree of seriousness involved in offences which will not preclude recovery of compensation. I would, however, add that the public attitude to driving a motor vehicle on a road when under the influence of drink has, I believe, changed markedly with the increasing number of serious accidents and the dreadful injuries which are the consequence of such driving. The public conscience is ever increasingly being focussed not only on those who commit the offence but, in the words of recent publicity, those who ask the driver to drink and drive.
The second ground upon which the learned judge held that the plaintiff's claim failed was because in the circumstances of the case the law would not recognise the existence of a duty of care owed by the rider to the appellant. As this ground is also based on public policy, it is not I think in the circumstances of this case significant. That both the appellant and rider owed a duty to other road users to exercise reasonable care is clear. I am not convinced of the wisdom of a policy which might encourage a belief that the duty to behave responsibly in driving motor vehicles is diminished even to the limited extent that they may in some circumstances not owe a duty to each other, particularly when those circumstances involve conduct which is highly dangerous to others.
As to the defence raised that the appellant voluntarily undertook to run the risk of injury by taking part in such a foolhardy, risky and illegal activity, I would have been prepared to say that it was obvious from the description of the appellant's behaviour whilst he was participating that he had done so. However the learned judge accepted that the effect of section 148(iii) of the Road Traffic Act was that any agreement or understanding that the risk of injury would be the appellant's was of no effect.
Before the enactment of the Motor Vehicles (Passenger Insurance) Act 1971, a policy of insurance required to be effected under the provisions of the Road Traffic Act 1960 was not required to cover:
"a) Liability in respect of the death of, or bodily injury to, persons being carried in or upon, or entering or getting onto or alighting from, the vehicle at the time of the occurrence of the event out of which the claims arise"
unless such passengers were carried in a vehicle for hire or reward or in pursuance of a contract of employment. It was this provision and proviso which were repealed by section 1 of the Motor Vehicle (Passenger Insurance) Act 1971. At the same time in subsection (2) it was provided:
"If any other person is carried in or upon the vehicle while the user is so using it, any antecedent agreement or understanding between them (whether intended to be legally binding or not) shall be of no effect so far as it purports or might be held
(a) to negative or restrict any such liability of the user in respect of persons carried in or upon the vehicle as is required by section 203 of that Act to be covered by a policy of insurance; or
(b) to impose any conditions with respect to the enforcement of any such liability of the user; and the fact that a person so carried has willingly accepted as his the risk of negligence on the part of the user shall not be treated as negativing any such liability of the user. For the purposes of this subsection ... the reference to an antecedent agreement is to one made any time before the liability arose."
This is the provision now to be found in section 1483 of the Road Traffic Act 1972. It is not at first sight easy to see a distinction between an understanding between the driver and passenger, whether legally binding or not, which is made at any time before the liability arises and the fact that the person so carried has willingly accepted as his the risk of negligence on the part of the user. If the former is of no effect, it would not negative any liability of the user. I can only think that the draughtsman was drawing a distinction between agreements or understandings which negative or restrict liability by their terms on the one hand and, on the other, facts which would give rise to the defence of volenti no fit injuria which but for the provision would be taken to negative the liability which is required to be recovered under a policy of insurance under section 145. That is to say, any liability which may be incurred by the driver in respect of death or bodily injury to any person caused by or arising out of the use of the vehicle on the road. I think therefore that the words of section 148(3) clearly mean that it is no longer open to the driver of a motor vehicle to say that the fact of his passenger travelling in a vehicle in circumstances in which for one reason or another it could be said that he had willingly accepted a risk of negligence on the driver's part relieves him of liability for such negligence. I am supported in this view by the decision of the Inner House of the Court of Session in Winnick v. Dick [1984] SLT and by the opinion of Lord Hunter and Lord Wheatley in that case. I do not believe that there is any difference of principle in the application of the doctrine of volenti in Scotland and England which would lead to a different result in England. This is a conclusion at which I arrive with some relief because the rights of a passenger under section 148 of the Road Traffic Act, which applies to Scotland as well as to England, ought not to suffer a change on his journey by car to Scotland as it crosses the border.
Although it is unnecessary in view of the decision to which I have come to express an opinion on the learned judge's decision that the appellant should have his damages reduced to nil by reason of his own fault, I would say that I was quite unpersuaded by the argument for the respondent that this was a correct apportionment of responsibility. Although the court when apportioning liability between two tortfeasors is given express power under section 6 of the Law Reform (Married Women and Tortfeasors) Act 1935 to exempt a person from liability to make contribution, or to direct that a contribution to be recovered from any person liable in respect of the damage should amount to a complete indemnity, it seems to me that the wording of section 1 of the Law Reform (Contributory Negligence) Act 1945 is incapable of a similar interpretation. Section 1 begins with the premise that the person suffers damage as a result partly of his own fault and partly of the fault of any other person or persons. Thus before the section comes into operation, the court must be satisfied that there is fault on the part of both parties which has caused damage. It is then expressly provided that the claim shall not be defeated by reason of the fault of the person suffering the damage. To hold that he is himself entirely responsible for the damage effectively defeats his claim. It is then provided that the damages recoverable in respect thereof (that is the damage suffered partly as a result of his own fault and partly the fault of any other person) shall be reduced. It therefore presupposes that the person suffering the damage will recover some damage. Finally reduction is to be to such extent as the court thinks just and equitable, having regard to the claimant's share in the responsibility for the damage. To hold that the claimant is 100% responsible is not to hold that he shared in the responsibility for the damage.
For these reasons I would not support the judge's conclusion. In the circumstances of this case in which arguments can be advanced on the question of blameworthiness which might suggest a greater degree of fault on the older as opposed to the younger boy, or as to the rider as opposed to the passenger, I would not myself take any view which attributed a greater share of responsibility to one or the other. They participated equally in the illegal and dangerous escapade regardless of the safety of others and of themselves and had they been jointly charged with the criminal offences they were jointly committing they would have been charged and convicted as principals.
Subject to the question of their ages, I doubt whether any distinction would have been drawn for the purpose of any sentence imposed upon them. In the circumstances, had the appellant been entitled to damages, I would have held they should have been reduced by 50%. For the reasons I have given, however, I would dismiss the appeal.
LORD JUSTICE BALCOMBE: I have had the advantage of reading in draft the judgments of Beldam and Dillon L.JJ. The facts are fully set out in the judgment of Beldam, L.J. and I need not repeat them.
Three issues arise on this appeal and cross-appeal:
(1) Whether the joint illegal enterprise upon which the appellant plaintiff and the deceased Hunt were engaged at the time of the accident was such as to preclude the plaintiff from being able to sue Hunt's representatives for damages?
(2) Whether any defence of volenti non fit injuria which might otherwise be available is excluded by section 148(3) of the Road Traffic Act 1972.
(3) Whether the plaintiff was one hundred per cent contributorily negligent.
I consider these issues separately below.
1. The joint illegal enterprise.
In a case of this kind I find the ritual incantation of the maxim "ex turpi causa non oritur actio" more likely to confuse than to illuminate. I prefer to adopt the approach of the majority of the High Court of Australia in the most recent of the several Australian cases to which we were referred - Jackson v. Harrison [1978] 138 C.L.R. 438. That is to consider what would have been the cause of action had there been no joint illegal enterprise - that is the tort of negligence based on the breach of a duty of care owed by Hunt to the plaintiff - and then to consider whether the circumstances of the particular case are such as to preclude the existence of that cause of action. I find myself in complete agreement with the following passage from the judgment of Mason J. in Jackson v. Harrison at pp.455-6:
"If a joint participant in an illegal enterprise is to be denied relief against a co-participant for injury sustained in that enterprise, the denial of relief should be related not to the illegal character of the activity but rather to the character and incidents of the enterprise and to the hazards which are necessarily inherent in its execution. A more secure foundation for denying relief, though more limited in its application - and for that reason fairer in its operation - is to say that the plaintiff must fail when the character of the enterprise in which the parties are engaged is such that it is impossible for the court to determine the standard of care which is appropriate to be observed. The detonation of an explosive device is a case of this kind. But the driving of a motor vehicle by an unlicensed and disqualified driver, so long as it does not entail an agreement to drive the car recklessly on the highway (see Bondarenko v. Sommers [(1968) 69 S.R. (N.S.W.) 269], stands in a somewhat different position. In this case the evidence indicates that the participants contemplated that the vehicle would be driven carefully -an accident or untoward event might, as in fact it did, lead to discovery of their breach of the law. It is not suggested that either party lacked the experience or ability to drive carefully - that they were unlicensed was due to their having been disqualified as a result of earlier traffic offences.
... A plaintiff will fail when the joint illegal enterprise in which he and the defendant are engaged is such that the court cannot determine the particular standard of care to be observed. It matters not whether this in itself provides a complete answer to the plaintiff's claim or whether it leads in theory to the conclusion that the defendant owes no duty of care to the plaintiff because no standard of care can be determined in the particular case."
The facts of the earlier case in the High Court of Australia of Smith v. Jenkins [1970] 119 C.L.R. 397 are set out in the judgment of Dillon L.J. and I need not repeat them. Of those facts Jacob J. said in Jackson v. Harrison (supra) at page 460:
"It appears to me that these facts lie at the basis of the conclusion that there was a relevant joint criminal enterprise. It was a jaunt, an escapade, a joyride even though of a most serious kind from the beginning to the end. How could a standard of care be determined for such a course of criminal activity? I doubt that the decision would have been the same if the accident had occurred days, weeks or months later when the circumstances of the taking of the vehicle had ceased to have any significant relationship to the manner in which the vehicle was being used."
This approach seems to me to enable the court to differentiate between those joint enterprises which, although involving a contravention of the criminal law and hence illegal - e.g. the use of a car by an unlicensed and disqualified driver as in Jackson v. Harrison (supra), are not such as to disable the court from determining the standard of care to be observed, and those, such as the use of a get-away car as in Ashton v. Turner [1981] Q.B. 137, where it is impossible to determine the appropriate standard of care.
Mr. Peppitt submitted that, however reprehensible the plaintiff's conduct may have been, his culpability involved neither dishonesty nor violence nor any moral turpitude such as is inherent in crimes of dishonesty or violence. Although an assessment of the degree of moral turpitude becomes unnecessary if one adopts, as I do, the approach of the majority of the High Court of Australia in Jackson v. Harrison (supra), I would not wish it to be thought that I accept this submission. It was only by good fortune that no innocent third party was injured by this disgraceful piece of motorcycle riding, in which the judge found on the facts that the plaintiff was an active participant. If moral turpitude were relevant, here was moral turpitude of a high degree.
However, I prefer to found my judgment on the simple basis that the circumstances of this particular case were such as to preclude the court from finding that Hunt owed a duty of care to the plaintiff.
I agree with Dillon L.J. and for the reasons which he gives, that section 148(3) of the road Traffic Act 1972 does not affect the position under this head.
2. Volenti and section 148(3).
Mr. Bamett sought to persuade us that the application of the 'violenti' doctrine is to extinguish liability and, if liability has already been extinguished, there is nothing on which section 148(3) of the Road Traffic Act 1972 can bite. As Dillon L.J. says, if this argument were to be accepted, it would mean that section 148(3) could never apply to a normal case of volenti, although that was clearly its intention. For the reasons given by the judge below, by both Beldam and Dillon L.JJ. and by the Inner House of the Court of Session in Winnick v. Dick [1984] SLT 185, I agree that the effect of section 148(3) is to exclude any defence of volenti which might otherwise be available. On this issue I agree with the judge below that Ewbank J's. decision in Ashton v. Turner (supra) at page 148A-B was incorrect.
3. Contributory Negligence.
I agree that the judge's finding that the plaintiff was one hundred per cent contributarily negligent is logically unsupportable and, to use his own words, "defies common sense". Such a finding is equivalent to saying that the plaintiff was solely responsible for his own injuries, which he clearly was not. For my part I prefer to express no opinion on how the liability should have been apportioned, had that been material.
I agree that this appeal should be dismissed.
LORD JUSTICE DILLON: I gratefully accept the account of the facts of this case contained in the judgment of Beldam L.J.
On those facts the plaintiff accepts that if he is entitled to recover anything from the first defendants his award must be subject to a significant deduction for contributory negligence. The judge's finding that the second defendant was not at fault is not challenged by anyone. The first defendants say however that the plaintiff is not entitled to recover anything at all, and the case was put in the court below on one or other or both of the well-known Latin maxims ex turpi causa and volenti non fit injuria.
The judge, in a very careful reserved judgment, held that because of section 148(3) of the Road Traffic Act 1972 the maxim volenti could not provide the first defendants any defence, but he also held that the plaintiff was not entitled to recover anything from the first defendants on the grounds of ex turpi causa and further that the plaintiff was one hundred percent contributorily negligent.
The judge's view on the extent of the plaintiff's contributory negligence was that the plaintiff and the deceased boy Mark Hunt were jointly responsible for the reckless driving of the motor cycle. So both were responsible for causing the accident and, on the judge's view, "logically at least" each was one hundred percent to blame. With all respect I do not find that logical nor has the judge approached the question correctly. In the context of the plea of contributory negligence in the present case, the judge was required to apportion liability for the accident as between the deceased and the plaintiff. He does not effect any apportionment by saying that each was 100 percent to blame. If they were equally to blame the apportionment would be 50 percent to each. On the facts it would be impossible to apportion more than 50 percent liability to the pillion passenger, the plaintiff, vis a vis the driver, the deceased.
Another matter which can be disposed of quite shortly is the issue of volenti. We have had argument as to whether the doctrine of volenti requires it to be shown, as Lord Denning M.R. said in Nettleship v. Weston [1971] 2 Q.B.691 at 701 D-E, that the plaintiff had voluntarily agreed to waive any claim for any injury that might befall him or whether the application of that doctrine is that it should be implied, from the mere acceptance by the plaintiff of such an obvious risk, that there was no duty of care. I find it unnecessary to explore this, since on any view the volenti defence is, in my judgment, precluded by section 148(3) of the 1972 Act.
Section 148(3) (now replaced by section 149 of the Road Traffic Act 1988 which has entirely the same effect) provides as follows:
"(3) Where a person uses a motor vehicle in circumstances such that under section 143 of this Act there is required to be in force in relation to his use of it such a policy of insurance or security as is mentioned in subsection (1) of that section, then, if any other person is carried in or upon the vehicle while the user is so using it, any antecedent agreement or understanding between them (whether intended to be legally binding or not) shall be of no effect so far as it purports or might be held -
(a) to negative or restrict any such liability of the user in respect of persons carried in or upon the vehicle as is required by section 145 of this Act to be covered by a policy of insurance; or
(b) to impose any conditions with respect to the enforcement of any such liability of the user;
and the fact that a person so carried has willingly accepted as his the risk of negligence on the part of the user shall not be treated as negativing any such liability of the user.
For the purposes of this subsection references to a person being carried in or upon a vehicle include references to a person entering or getting on to, or alighting from, the vehicle, and the reference to an antecedent agreement is to one made at any time before the liability arose."
On that wording, the fact that the plaintiff has willingly - volens - accepted as his the risk of negligence on the part of the deceased cannot be treated as negativing the liability of the deceased, and the defence of volenti cannot apply. The Court of Session so held in Winnik v. Dick [1984] SLT 185 – see especially per Lord Hunter at 190, right-hand column to 191 -and I respectfully agree with them. I see no significant difference between the English and Scottish doctrines of volenti, (taking the latter as explained by Lord Kilbrandon in McCaig v. Lanqan [1964] SLT 121), and I would reject arguments for the first defendants which would have the effect that the provisions of section 148(3) could never apply to a "normal" case of volenti.
The much more difficult aspect of this appeal arises from the first defendants' claim, which the judge upheld, that the plaintiff is barred from recovering anything by the application of the maxim "ex turpi causa".
It so happens that the cases where a passenger has been injured by the "negligence" of the driver when the vehicle in which the passenger was being carried was being used for an illegal purpose in which the passenger was an accomplice have come before the High Court of Australia more often than before the Appellate Courts in this country. The factual situations in which the Australian Courts have held that a passenger injured by the "negligence" of the driver in the course of a joint criminal enterprise cannot recover damages from the driver are clear. But the reasoning by which the Australian Courts have reached their conclusions from common law principles is, to me, very much less clear, not least because of the extent to which the judgments in one particular decision of the High Court, Smith v. Jenkins [1970] 44 AL.J.R.78; 119 C.L.R.397 have been reinterpreted in later decisions of the High Court. There is also the problem of how the Australian approach, purportedly based on common law principles, is reconcilable with certain recent developments in the English Courts, also purportedly based on common law principles, in cases to which the judge below was not referred.
It is clear for a start that the fact that a plaintiff was engaged in an illegal activity which brought about his injury does not automatically bring it about that his claim for damages for personal injury as a result of the negligence of the defendant must be dismissed. See e.g. Baker v. Market Harborouqh Industrial Co-Operative Society Ltd. [1953] 1 WLR 1472 where, as in many other cases, the court apportioned liability for a road accident which had been caused by each driver, independently, driving negligently and without due care and attention. See also the judgment of Latham C.J. in Henwood v Municipal Tramways Trust [1938] 60 CLR 438. In that case a passenger on a tram, feeling ill, lent out of a window of the tram to be sick, and was killed because his head was struck in succession by two steel standards erected by the tram company to carry the overhead cables which supplied the current for the trams. It was an offence punishable by a fine under a by-law having statutory force for any passenger in a tram to lean out of the window. But it was nonetheless held that the parents of the deceased could bring an action for negligence in respect of his death, and seemingly he himself could have brought the action if he had merely been injured and survived, on the grounds that the tram company had failed to take sufficient steps to protect passengers against a foreseeable, and indeed known, danger. Latham J. said at page 446:
"But there are other considerations which are, in my opinion, sufficiently weighty to displace those to which I have referred. In the first place, there is no general principle of English law that a person who is engaged in some unlawful act is disabled from complaining of injury done to him by other persons, either deliberately or accidentally. He does not become caput lupinum. Other persons still owe to him a duty to take care, the extent of that duty being determined by the circumstances of the case which create the duty. The person who is injured in a motor accident may be a child playing truant from school, an employee who is absent from work in breach of his contract, a man who is loitering upon a road in breach of a by-law, or a burglar on his way to a professional engagement - but none of these facts is relevant for the purpose of deciding the existence or defining the content of the obligation of a motor driver not to injure them. Thus, it cannot be held that there is any principle which makes it impossible for a defendant to be liable for injury brought about by his negligence simply because the plaintiff at the relevant time was breaking some provision of the law.
The general principle stated will probably not be questioned, ..."
So much is common ground between the parties, but it raises questions which have been the subject of discussion in English and Australian judgments as to whether a line can be drawn between different grades of illegality, and whether there is a distinction, and if so, on what ground, between the ordinary case of negligence, albeit involving a criminal act, such as the two last cited, and cases where a passenger sues the driver for injuries sustained by reckless driving at the time of the accident when they were both engaged in a joint criminal enterprise of which the reckless driving was an inherent part.
Mr. Peppitt Q.C. for the plaintiff founds on certain recent authorities in this country which he relied on as establishing a "conscience test" to be applied in cases of illegality.
The starting point is the judgment of Hutchison J. in Thackwell v. Barclays Bank [1986] 1 ALL ER 676. In that case the plaintiff claimed damages from the bank for having paid a cheque drawn in favour of the plaintiff to a third party in reliance on a forgery of the plaintiff's signature on an endorsement of the cheque. The claim was rejected on the ground that the cheque represented the proceeds of a fraud on a fourth party, to which the plaintiff, the drawer of the cheque and the forger of the endorsement were all parties. Hutchison J. at 689 C-D treated the case as one in which public policy would prevent the plaintiff suing just as it would prevent a burglar from whom the stolen goods were snatched by a third party just as the burglar left the victim's house from maintaining an action in conversion against the third party. The judge in reaching that conclusion seems to have accepted a submission from counsel for the defendants that there were two distinct but related lines of authority running through the cases on illegality, the second of which laid down the "conscience test". That test was put as follows at 687 D-E:
"That test, he suggested, involved the Court looking at the quality of the illegality relied on by the defendant and all the surrounding circumstances, without fine distinctions, and seeking to answer two questions: first whether there had been illegality of which the Court should take notice and, second, whether in all the circumstances it would be an affront to the public conscience if by affording him the relief sought the Court was seen to be indirectly assisting or encouraging the plaintiff in his criminal act."
The context in which that submission was put forward in Thackwell v. Barclays Bank seems to have been one of the proximity of the illegality to the matters of which complaint was made in the action. There is authority in Singh v. Ali [1960] AC 167 that a person who has acquired property under an illegal contract and has been using it without a permit can nonetheless maintain an action for damages for conversion against a person, even the vendor of the property, who subsequently - on the facts some three or four years later - wrongly deprives him of that property. The suggestion seems to have been in Thackwell v. Barclays Bank that it would be an affront to the public conscience to allow one thief to maintain an action because a second of the thieves had stolen the first's share in the course of the division of the swag.
The conscience test was approved by this court in Saunders v. Edwards [1987] 1 WLR 1116. That was again a case of the proximity, or relevance, of the illegality to the matters of which the plaintiff was complaining. The plaintiff claimed damages for fraudulent misrepresentation which had induced him to purchase a flat from the defendant. The defendant sought unsuccessfully to defend himself by asserting that the contract for the sale of the flat, and presumably also the conveyance, were tainted with illegality in that in the apportionment of the purchase price in the contract between chattels and the flat itself the amount attributable to the chattels had been fraudulently inflated, and the amount attributable to the flat had been correspondingly reduced, in order to reduce the stamp duty payable to the Revenue. This court applied Hutchison J's test, to which Nicholls LJ at 1132H added at the end of the formulation the words "or encouraging others in similar criminal acts".
Saunders v. Edwards was, it seems to me, a case where the alleged illegality over the stamp duty apportionment was independent of, or unrelated to, the wrong in the way of fraudulent misrepresentation for which the plaintiff was suing. Kerr L.J. decided the case, however, on the basis, at 1127 C-E, that the cases "show that there are no rigid rules for or against the ex turpi causa defence" and that the cases "show that the conduct and relative moral culpability of the parties may be relevant in determining whether or not the ex turpi causa defence falls to be applied as a matter of public policy". Bingham L.J. used rather different language at 1134 C-E where he said:
" ... I think that on the whole the Courts have tended to adopt a pragmatic approach to these problems, seeking where possible to see that genuine wrongs are righted so long as the Court does not thereby promote or countenance a nefarious object or bargain which it is bound to condemn. Where the plaintiff's action in truth arises directly ex turpi causa, he is likely to fail ..... Where the plaintiff has suffered a genuine wrong to which allegedly unlawful conduct is incidental, he is likely to succeed."
That passage was adopted by Kerr L.J. in giving the leading judgment of this court in Euro-Diam Ltd. v. Bathurst [1988] 1 Ll Rep 228 at 233. The latter part of it is sufficient to cover the decision in Saunders v. Edwards.
I find a test that depends on what would or would not be an affront to the public conscience very difficult to apply, since the public conscience may well be affected by factors of an emotional nature, e.g. that these boys by their reckless and criminal behaviour happened to do no harm to anyone but themselves. Moreover if the public conscience happened to think that the plaintiff should be compensated for his injuries it might equally think that the deceased driver of the motor cycle, had he survived and merely been injured, ought to be compensated, and that leads into the much-debated question whether there ought to be a universal scheme for compensation for the victims of accidents without regard to fault.
Beyond that, appeal to the public conscience would be likely to lead to a graph of illegalities according to moral turpitude, and I am impressed by the comments of Mason J. in Jackson v. Harrison [1978] 138 CLR 438 at 455 where he said:
"... there arises the difficulty, which I regard as insoluble, of formulating a criterion which would separate cases of serious illegality from those which are not serious. Past distinctions drawn between felonies and misdemeanours, malum in se and malum prohibitum, offences punishable by imprisonment and those which are not, non-statutory and statutory offences, offer no acceptable discrimen."
Bingham L.J's dichotomy between cases where the plaintiff's action in truth arises directly ex turpi causa and cases where the plaintiff has suffered a genuine wrong to which allegedly unlawful conduct is incidental avoids this difficulty, in that it does not involve grading illegalities according to moral turpitude.
In the Australian courts it was held by the High Court of Australia in Jackson v. Harrison that the maxim ex turpi causa is a maxim of the law of contract which cannot apply in the law of tort. This however is, as it seems to me, a matter of terminology and in the present case rather a red herring. The most commonly cited anglicisation of the maxim is that of Lord Mansfield in Holman v. Johnson [1775] 1 Cowp 341 at 343 that "No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act". Whether that is or is not -see Windeyer J. in Smith v. Jenkins - a correct translation of the maxim is now beside the point since it has been applied continuously as the law of England for over 200 years. Moreover it has been so applied not only in cases where the cause of action has been laid in contract, but also in cases, such as Chettiar v. Chettiar [1962] AC 294 where it was held that a person who was party to an illegal transaction could not be heard to claim that that transaction had given rise to an enforceable trust in his favour. See also Re Emery's Investments Trust [1959] Ch 410.
That a defence of illegality can be pleaded to a case founded in tort is, in my judgment, clear, whether or not the defence is correctly called "ex turpi causa". Thackwell v. Barclays Bank is one instance. Another is Murphy v. Culhane [1977] QB 94. There the plaintiff as the widow and administratrix of the estate of her deceased husband claimed damages from the defendant on the ground that the defendant had unlawfully assaulted the deceased by beating him about the head with a plank by which assault he was killed. The plaintiff did not have to plead any illegality as part of her case, but on a preliminary issue the defendant was allowed by this court to plead that the assault alleged occurred during and as part of a criminal affray initiated by the deceased and others with the joint criminal purpose of assaulting and beating the defendant. Lord Denning considered that a man who took part in a criminal affray might well be said to have been guilty of such a wicked act as to deprive himself of a cause of action; alternatively, even if the plaintiff were entitled to damages, they might fall to be reduced under the Law Reform (Contributory Negligence) Act 1945. Since the case came before this court on a preliminary issue, it was unnecessary to decide between these alternatives.
I find it, at this stage, both necessary and helpful to examine the principal Australian cases.
In Smith v. Jenkins a group of four youths all about sixteen years of age, who had been drinking, robbed a man, stole his car keys, and then, having found out where his car was, stole the car and drove it off on a joyride. The plaintiff was the first driver, but after a couple of changes of driver he was merely a passenger; a relatively few miles from the scene of the theft the car left the road at 80 or 90 m.p.h. and hit a tree. The plaintiff was seriously injured and sued the youth who had been the driver at the time of the accident; it was held that he could not recover anything.
In Bondarenko v. Sommers [1967] 69 S.R.(N.S.W.) 269 a decision of the Court of Appeal of New South Wales, a group of youths stole a car and proceeded to race the stolen car against a car one of them owned along a rough and fairly narrow road containing potholes and ruts. The result of such reckless driving was that the stolen car turned over. One of the youths who was a passenger in the stolen car at the time of that accident claimed damages for his injuries, but was held not entitled to recover.
Then in Jackson v. Harrison a passenger was injured through the negligent driving of a motor car by a driver who was at the time of the accident and to the passenger's knowledge disqualified from driving. It was held by the majority of the High Court, Barwick C.J. dissenting, that the passenger was not thereby disabled from recovering damages from the driver. The view of the majority, Mason J., Jacobs J. and Aickin J., was that the illegality did not bear on the standard of care reasonably to be expected of the driver. That followed from a further decision of the High Court in a case of Progress & Properties Ltd. v. Craft [1976] 135 CLR 651, which was not a motoring case.
In that case the plaintiff. Craft, was a workman on a building site who, in breach of statutory regulations, was carried to the top floor of a building under construction in a goods hoist with the concurrence of the operator of the hoist who was a fellow employee. As the hoist reached the top floor the operator's foot slipped off the brake, the hoist fell to the ground at a speed which exceeded the maximum permissible speed under the regulations, and the plaintiff was injured. He claimed damages from his employers because of the operator's negligence and the employers pleaded as a defence the illegality on which the plaintiff and the operator were jointly engaged. It was held by a majority of the High Court, Barwick C.J. again dissenting, that the plea of illegality did not avail the employers. The reason given in the judgment of Jacobs J. with which the other members of the majority concurred was that the duty of care owed by the operator was the same whether he was hoisting goods only or a man in the hoist. Therefore the illegality did not affect the standard of care the plaintiff was entitled to expect. Both Jackson v. Harrison and Progress & Properties Ltd. v. Craft can be regarded as cases within Bingham L.J'S category, in Saunders v. Edwards, of cases where the plaintiff had suffered a genuine wrong to which his allegedly unlawful conduct was merely incidental.
In Smith v. Jenkins, Kitto J. founded his judgment on a principle which he took from the judgment of Scrutton L.J. in Hillen v. I.C.I. (Alkali) Ltd. [1934] 1 KB 455 that if the whole transaction is known by each party to be illegal there is no contribution or indemnity between joint wrongdoers. He said at page 80 of the A.L.J, report: " ... it seems ... clear that Scrutton L.J. perceived a general principle of law ... namely that persons who join in committing an illegal act which they know to be unlawful (or I should add in the language of the judgment in Adamson v. Jarvis [1827] 4 Bing 66 at p.73 which they must be presumed to know to be unlawful) have no legal rights inter se by reason of their respective participations in that act." That principle cannot, however, have survived intact as a principle of English law since the enactment of section 6 of the Law Reform (Married Women and Tortfeasors) Act 1935.
Barwick C.J. held at 78-9 of the report of Smith v. Jenkins that the failure of the plaintiff to recover damages was to be attributed to a refusal of the law to erect a duty of care as between persons jointly participating in the performance of an illegal act, rather than to a refusal of the courts, upon grounds of public policy, to lend their assistance to the recovery of damages for breach in those circumstances of a duty of care owed by the one to the other because of the criminally illegal nature of the act out of which the harm arose. The other members of the High Court seem to have taken the same view. Owen J. commented at page 89 that it would be an odd state of affairs if in a case such as that put by Lord Asquith in National Coal Board v. England [1954] AC 403 at 429 a court was called upon to consider and decide the standard of care to be expected in particular circumstances of a prudent safebreaker, or whether in the case suggested by Scrutton L.J. in Hillen v. I.C.I. (Alkali) Ltd. the smuggler who had not warned his confederates of a defect in the rope which they were using in the course of hiding smuggled goods had acted with the degree of care to be expected in the circumstances of a reasonably careful smuggler. The court considered that the doctrine of volenti did not provide a satisfactory solution of the problem.
On the facts of Progress & Properties Ltd. v. Craft it became clear that merely to say that if the parties were engaging in a joint illegal act neither would owe any duty of care to the other was to put the proposition too widely. The distillation of the law by the High Court of Australia rests therefore now on the judgment of Jacobs J., with which the other members of the majority of the court concurred, in Progress & Properties Ltd. v. Craft and in the judgments of Mason and Jacobs JJ. with whom Aickin J. concurred in Jackson v. Harrison. For relief to be derived on the ground of the illegality, the circumstances of the joint illegal venture in the course of which the accident which caused the plaintiff's injuries occurred must be such as to negate, as between the two of them, any ordinary standard of care. Thus Mason J. said in Jackson v. Harrison at page 456:
"A plaintiff will fail when the joint illegal enterprise in which he and the defendant are engaged is such that the court cannot determine the particular standard of care to be observed." -
and Jacobs J. said in Progress & Properties Ltd. v. Craft at page 668:
"Where there is a joint illegal activity the actual act of which the plaintiff in a civil action may be complaining as done without care may itself be a criminal act of a kind in respect of which the court is not prepared to hear evidence for the purpose of establishing the standard of care which was reasonable in the circumstances."
This formulation would clearly cover the instances given in the authorities of the careless smuggler or safebreaker, or the reckless driving, to escape capture, of the getaway car after a robbery as in the English case of Ashton v. Turner [1981] QB 137. It was regarded in Jackson v. Harrison as also covering the factual situations in Bondarenko v. Sommers where there was, in the words of Mason J. in Jackson v. Harrison, an agreement to drive the stolen car recklessly for the purpose of racing on the highway, and the factual situation in Smith v. Jenkins. In reference to Smith v. Jenkins, Jacobs J. said in Jackson v. Harrison at 460:
"It was a jaunt, an escapade, a joyride even though of a most serious kind from the beginning to the end. How could a standard of care be determined for such a course of criminal activity?"
I feel unable to draw any valid distinction between the reckless riding of the motor cycle in the present case by the deceased boy Hunt and the plaintiff under the influence of drink, and the reckless driving of the cars, albeit stolen, in Smith v. Jenkins and Bondarenko v. Sommers. The words of Barwick C.J. in Smith v. Jenkins -
"The driving of the car by the appellant, the manner of which is the basis of the respondent's complaint, was in the circumstances as much a use of the car by the respondent as it was a use by the appellant. That use was their joint enterprise of the moment."
apply with equal force to the riding of the motor cycle in the present case. This is a case in which, in Bingham L.J's words, the plaintiff's action in truth arises directly ex turpi causa.
It remains, however, to consider whether the agreement or understanding between the plaintiff and the deceased to ride the motor cycle recklessly while under the influence of drink falls within section 148(3) of the Road Traffic Act 1972 and so is of no effect so far as it purports or might be held to negative or restrict any such liability of the deceased in respect of persons carried in or upon the vehicle as is required by the Act to be covered by a policy of insurance.
It is fundamental to the distinction by the Australian courts between Smith v. Jenkins and Bondarenko v. Sommers (and the decision of the court of Appeal in New South Wales in Godbolt v. Fittock [1963] S.R. (N.S.W.) 617 on the one hand and Jackson v. Harrison and Progress & Properties Ltd. v. Craft on the other hand that the joint illegal purpose on which the parties were engaged at the time of the accident must have displaced the ordinary standard of care. Does section 148(3) have the effect that an express or tacit agreement by the parties to engage in such a joint illegal venture cannot be relied on to negative or restrict liability for negligent driving in the ordinary sense of those words?
My answer to that question is "No" because section 148(3) is concerned to preclude a defence of "volenti", but it is not concerned with any defence of illegality. The words "agreement or understanding" in section 148(3) do not contemplate an illegal agreement, express or tacit, to carry out an illegal purpose, otherwise, since the words in section 148(3) are "negative or restrict" liability, the passenger in the stolen getaway car driven recklessly from the scene of a robbery in order to escape interception and capture would be able to recover full damages from the Motor Insurers Bureau, as representing the uninsured driver, without even any reduction or restriction of the damages for contributory negligence.
For the foregoing reasons I would dismiss this appeal.
Appeal dismissed. Application for costs against the Legal Aid Board adjourned to 15th June. Application for leave to appeal to the House of Lords granted. |
LORD JUSTICE BINGHAM: In this action the plaintiffs ("the Club") sued the defendants ("the Council") for damages for breach of contract and common law negligence. It was in issue between the parties whether there was any contract between them and whether the Council owed the Club any duty of care in tort. These issues of liability came before His Honour Judge Jolly sitting as a judge of the Queen's Bench Division and he decided them both in favour of the Club (all questions of quantum being deferred). The Council appeal, contending that the judge was wrong on each point.
The Council own and manage Blackpool Airport. For purposes of raising revenue the Council have made it a practice to grant a concession to an air operator to operate pleasure flights from the airport, no doubt largely for the entertainment of holiday-makers. The Club (one of whose directors was and is a Mr. Bateson) tendered for and were granted this concession in 1975 and again in 1978 and again in 1980.
In 1983 the most recently granted concession was due to expire. The Council accordingly prepared an invitation to tender. This was sent to the Club and to six other parties, all of them in one way or another connected with the airport. This document was headed and began as follows:
"BLACKPOOL BOROUGH COUNCIL BLACKPOOL AIRPORT
PLEASURE FLYING CONCESSION
INSTRUCTIONS TO TENDERERS
"The Council do not bind themselves to accept all or any part of any tender. No tender which is received after the last date and time specified shall be admitted for consideration.
The concession will be for a period of three years commencing on the 1st day of April 1983. Tenderers should note that the concession is NOT to be a sole concession and the Council may accept all or any tenders submitted in respect of each class of aircraft.
Tenderers may tender for both classes of aircraft or one only.
Successful tenderers will be required to execute an Agreement prepared by the Town Clerk for the time being of the Council. A specimen form of agreement may be examined on application to the Airport Director and it will be assumed that tenderers are aware of the covenants and conditions contained therein.
FORM OF TENDER
I/We the undersigned hereby make the following offers for the privilege of operating pleasure flights from Blackpool Airport for a period of three years from the 1st day of April 1983."
There then followed provision, with blank spaces to be filled in by the tenderer, for alternative offers for different sizes of aircraft and for the naming of willing sureties. The invitation then continued:
"This form of tender, fully completed and enclosed in the envelope provided endorsed 'TENDER FOR PLEASURE FLYING CONCESSION' and not bearing any name or mark indicating the identity of the sender, is to be received by
THE TOWN CLERK
P.O. BOX
11
TOWN HALL
BLACKPOOL FY1 INS
not later than 12 o'clock noon on Thursday 17th March 1983.
PLEASE NOTE THE ATTACHED NOTICE IN RED"
"The attached notice in red" was an extract from the Council's Standing Orders in these terms:
IMPORTANT NOTICE
The Council's Standing Orders with respect to Contracts include the following provisions:-
1. Tenders shall be submitted in a plain, sealed envelope bearing the words 'Tender..........(followed by the subject to which it relates)........' and shall not bear any name or mark indicating the identity of the sender, and
2. No tender which is received after the last date and time specified shall be admitted for consideration. STRICT COMPLIANCE WITH THESE STANDING ORDERS is REQUESTED
[Signature]
Town Clerk."
The envelope provided to the selected tenderers was printed and addressed to the Town Clerk at the post office box number given in the invitation. The envelopes also bore the printed words "Tender for" and "Due in" to which the Council's employees had added in manuscript "Pleasure Flying Concession" and "12 noon Thursday 17th March 1983."
Only three of the selected tenderers responded to the Council's invitation. One put in a low bid for the lighter size of aircraft only. The second, Red Rose Helicopters Limited, submitted a larger bid, also for the lighter size of aircraft.
Mr. Bateson for the Club filled in the form of tender, submitting a bid substantially larger (on its face) than the others' for the lighter size of aircraft, and also submitting a bid for the heavier size. He put it in the envelope provided by the Council, took it to the Town Hall and posted it in the Town Hall letter box at about 11.00 am on Thursday 17th March. This was about an hour before the advertised deadline expired. The Town Clerk's staff were supposed to empty the letter box each day at 12 o'clock. They failed to do so. The Club's tender accordingly remained in the letter box until the next morning, 18th March, when the letter box was next opened. The envelope was then taken out and date-stamped 18th March 1983 by the Town Clerk's department. At some time thereafter the word "LATE" was written on the envelope, because that is what the Club's tender was mistakenly thought to be.
On 29th March 1983 the chairman of the Council's relevant committee considered which tender to accept. The Club's tender had been recorded as being late, and was in accordance with the Council's standing orders excluded from consideration when the chairman made his decision. He accordingly made his choice between the two tenders believed to be in time, recommending acceptance of Red Rose Helicopters' tender, no doubt because it was bigger.
An indication that its tender was accepted was given to Red Rose Helicopters. The Town Clerk wrote to the Club to say that its tender was not received until the 18th March and was therefore received too late for consideration. Mr. Bateson replied that the Club's tender had been delivered to the Town Hall before the deadline. "You will appreciate", he wrote, "that this matter is of some considerable importance to our company". The Council evidently made enquiries and established that the Club's tender had been received in time.
On 30th March the Airport Director accordingly wrote to Mr. Bateson saying "Due to an error in the administration of the terms of tender for the above Concession I regret to inform you that the tenders recently received have been declared invalid." Amended tender documents were accordingly sent for a re-scheduled tendering procedure. In a letter of 31st March the Town Clerk wrote to the Club (and, I infer, other potential tenderers) outlining the facts summarised above and concluding
"I trust that you will appreciate that the only course of action open to us is to go through the formalities of seeking tenders for a second time."
It seems that as a result of this second invitation further tenders were submitted. At this stage, however, Red Rose Helicopters, having taken legal advice, contended that its earlier tender had been accepted and that the Council were contractually bound to proceed on that basis. Proceedings were threatened. The Council then decided to disregard the tenders received in response to its second invitation and to honour the contract made with Red Rose Helicopters.
The contractual argument hinges on paragraph 4 of the Club's amended statement of claim in which it was alleged that the Council "warranted that if a tender was returned to the Town Hall, Blackpool before noon on Thursday the 17th March 1983 the same would be considered along with other tenders, duly returned when the decision to grant the concession was made." Mr. Shorrock QC for the Club declined to put the contractual term contended for in any other way, save that he accepted that "when" might with advantage be read as "when or if." It was for breach of this warranty that damages in contract were claimed.
Mr. Bateson was the only witness called. His examination in chief included this passage:
"(Q)......when you submitted your tenders before noon on 17th March, did you believe or not that the tender would be considered along with others that had been submitted? (A) We were under no doubt that it would be considered as other tenders had been considered in previous years.
(Q) If you had known or thought that a tender submitted by you would not have been considered, would you have bothered to tender in the first place? (A) It would have been very questionable whether to bother to tender, but we would probably have pursued the matter beforehand."
Mr. Bateson was not cross-examined.
The learned judge resolved the contractual issue in favour of the Club, holding that an express request for a tender might in appropriate circumstances give rise to an implied obligation to perform the service of considering that tender. Here, the Council's stipulation that tenders received after the deadline would not be admitted for consideration gave rise to a contractual obligation (upon acceptance by submission of a timely tender) that such tenders would be admitted for consideration.
In attacking the judge's conclusion on this issue Mr. Toulson QC for the Council made four main submissions. First, he submitted that an invitation to tender in this form was well established to be no more than a proclamation of willingness to receive offers. Even without the first sentence of the Council's invitation to tender in this case, the Council would not have been bound to accept the highest or any tender. An invitation to tender in this form was an invitation to treat, and no contract of any kind would come into existence unless or until, if ever, the Council chose to accept any tender or other offer. For these propositions reliance was placed on Spencer v Harding (1870) LR 5 CP 561 and Harris v Nickerson (1873) LR 8 QB 286.
Secondly, Mr. Toulson submitted that on a reasonable reading of this invitation to tender the Council could not be understood to be undertaking to consider all timely tenders submitted. The statement that late tenders would not be considered did not mean that timely tenders would. If the Council had meant that they could have said it. There was, although Mr. Toulson did not put it in these words, no maxim exclusio unius, expressio alterius.
Thirdly, the court should be no less rigorous when asked to imply a contract than when asked to imply a term in an existing contract or to find a collateral contract. A term would not be implied simply because it was reasonable to do so: Liverpool City Council v Irwin [1977] AC 239 at 253 H. In order to establish collateral contracts, "Not only the terms of such contracts but the existence of an animus contrahendi on the part of all the parties to them must be clearly shown": Heilbut, Symons & Co v Buckleton [1913] AC 30 at 47. No lower standard was applicable here and the standard was not satisfied.
Fourthly, Mr. Toulson submitted that the warranty contended for by the Club was simply a proposition "tailor-made to produce the desired result" (to quote Lord Templeman in CBS Songs Ltd v Amstrad Consumer Electronics PLC [1988] AC 1013 at 1059 F) on the facts of this particular case. There was a vital distinction between expectations, however reasonable, and contractual obligations: see Lavarack v Woods of Colchester Ltd [1967] 1 QB 278 at 294, per Diplock LJ. The Club here expected its tender to be considered. The Council fully intended that it should be. It was in both parties' interests that the Club's tender should be considered. There was thus no need for them to contract. The court should not subvert well-understood contractual principles by adopting a woolly pragmatic solution designed to remedy a perceived injustice on the unique facts of this particular case.
In defending the judge's decision Mr. Shorrock for the Club accepted that an invitation to tender was normally no more than an offer to receive tenders. But it could, he submitted, in certain circumstances give rise to binding contractual obligations on the part of the invitor, either from the express words of the tender or from the circumstances surrounding the sending out of the invitation to tender or (as here) from both. The circumstances relied on here were that the Council approached the Club and the other invitees, all of them connected with the airport; that the Club had held the concession for 8 years, having successfully tendered on three previous occasions; that the Council as a local authority was obliged to comply with its standing orders and owed a fiduciary duty to ratepayers to act with reasonable prudence in managing its financial affairs; and that there was a clear intention on the part of both parties that all timely tenders would be considered. If in these circumstances one asked of this invitation to tender the question posed by Bowen LJ in Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 at 266 ("How would an ordinary person reading this document construe it?"), the answer in Mr. Shorrock's submission was clear: the Council might or might not accept any particular tender; it might accept no tender; it might decide not to award the concession at all; it would not consider any tender received after the advertised deadline; but if it did consider any tender received before the deadline and conforming with the advertised conditions it would consider all such tenders.
I found great force in the submissions made by Mr. Toulson and agree with much of what he said. Indeed, for much of the hearing I was of opinion that the judge's decision, although fully in accord with the merits as I see them, could not be sustained in principle. But I
am in the end persuaded that Mr. Toulson's argument proves too much. During the hearing the questions were raised: what if, in a situation such as the present, the Council had opened and thereupon accepted the first tender received, even though the deadline had not expired and other invitees had not yet responded? or if the Council had considered and accepted a tender admittedly received well after the deadline? Mr. Toulson answered that although by so acting the Council might breach its own standing orders, and might fairly be accused of discreditable conduct, it would not be in breach of any legal obligation because at that stage there would be none to breach. This is a conclusion I cannot accept, and if it were accepted there would in my view be an unacceptable discrepancy between the law of contract and the confident assumptions of commercial parties, both tenderers (as reflected in the evidence of Mr. Bateson) and invitors (as reflected in the immediate reaction of the Council when the mishap came to light).
A tendering procedure of this kind is, in many respects, heavily weighted in favour of the invitor. He can invite tenders from as many or as few parties as he chooses. He need not tell any of them who else, or how many others, he has invited. The invitee may often, although not here, be put to considerable labour and expense in preparing a tender, ordinarily without recompense if he is unsuccessful. The invitation to tender may itself, in a complex case, although again not here, involve time and expense to prepare, but the invitor does not commit himself to proceed with the project, whatever it is; he need not accept the highest tender; he need not accept any tender; he need not give reasons to justify his acceptance or rejection of any tender received. The risk to which the tenderer is exposed does not end with the risk that his tender may not be the highest (or, as the case may be, lowest). But where, as here, tenders are solicited from selected parties all of them known to the invitor, and where a local authority's invitation prescribes a clear, orderly and familiar procedure (draft contract conditions available for inspection and plainly not open to negotiation, a prescribed common form of tender, the supply of envelopes designed to preserve the absolute anonymity of tenderers and clearly to identify the tender in question, and an absolute deadline) the invitee is in my judgment protected at least to this extent: if he submits a conforming tender before the deadline he is entitled, not as a matter of mere expectation but of contractual right, to be sure that his tender will after the deadline be opened and considered in conjunction with all other conforming tenders or at least that his tender will be considered if others are. Had the Club, before tendering, enquired of the Council whether it could rely on any timely and conforming tender being considered along with others, I feel quite sure that the answer would have been "of course". The law would, I think, be defective if it did not give effect to that.
It is of course true that the invitation to tender does not explicitly state that the Council will consider timely and conforming tenders. That is why one is concerned with implication. But the Council does not either say that it does not bind itself to do anything, and in the context a reasonable invitee would understand the invitation to be saying, quite clearly, that if he submitted a timely and conforming tender it would be considered, at least if any other such tender were considered.
I readily accept that contracts are not to be lightly implied. Having examined what the parties said and did, the court must be able to conclude with confidence both that the parties intended to create contractual relations and that the agreement was to the effect contended for. It must also, in most cases, be able to answer the question posed by Mustill LJ in The Kapetan Markos N.L. (NO.2) [1987] 2 LI. 321 at 331: "What was the mechanism for offer and acceptance?" In all the circumstances of this case (and I say nothing about any other) I have no doubt that the parties did intend to create contractual relations to the limited extent contended for. Since it has never been the law that a person is only entitled to enforce his contractual rights in a reasonable way (White and Carter (Councils) Ltd v McGregor [1962] AC 413 at 430 A, per Lord Reid), Mr. Shorrock was in my view right to contend for no more than a contractual duty to consider. I think it plain that the Council's invitation to tender was, to this limited extent, an offer, and the Club's submission of a timely and conforming tender an acceptance.
Mr. Toulson's fourth submission is a salutary warning, but it is not a free-standing argument: if, as I hold, his first three submissions are to be rejected, no subversion of principle is involved. I am, however, pleased that what seems to me the right legal answer also accords with the merits as I see them.
I accordingly agree with the learned judge's conclusion on the contractual issue, essentially for the reasons which he more briefly gave.
This conclusion makes it unnecessary to consider at length the Club's alternative argument, which the judge also accepted, that if there was no contract at all between the parties the Council nonetheless owed the Club a duty to take reasonable care to see to it that if the Club submitted a tender by the deadline it would be considered along with other tenders duly returned when the decision to grant the concession was made.
Mr. Shorrock sought to sustain this argument in particular by reliance on Ministry of Housing and Local Government v Sharp [1970] 2 QB 223, Ross v Caunters [1980] Ch 297 and American Express International Banking Corporation v Hurley [1985] 3 All ER 564, none of which (he submitted) was inconsistent with the principles laid down in the House of Lords' recent decision in Caparo v Dickman [1990] 2 WLR 358.
Mr. Toulson urged that the court should not introduce a common law duty of care into an area of pre-contractual negotiations where the parties could, if they wished, have introduced such a duty by agreement but had not done so: Tai Hing Cotton Mill v Liu Chong Hing Bank [1986] AC 80. Although a duty to take reasonable care not to cause pure economic loss could be held to exist, such cases were rare and confined to limited classes of case which did not include the present case and with which the present case had no analogy. The plaintiff's task was even harder where, as Mr. Toulson argued was the case here, his complaint was of a mere omission. Mr. Toulson argued, it if was necessary to do so, that Ross v Caunters was wrongly decided.
I am reluctant to venture into this somewhat unvirginal territory when it is unnecessary to do so for the purpose of deciding this case. Having heard the argument, I am tentatively of opinion that Mr. Toulson's objections are correct and that the Club cannot succeed on this point if they fail on the other. But I do not think it necessary or desirable to express a final conclusion.
I would accordingly dismiss the appeal. The practical consequences of deciding the contractual issue on liability in the Club's favour must, if necessary, be decided hereafter.
LORD JUSTICE STOCKER: I agree. I have had the advantage of reading in draft the judgment of Bingham LJ and add short observations of my own solely in deference to the lucid and interesting arguments of counsel put before the court.
The format of the invitation to tender document itself suggests, in my view, that a legal obligation to consider to tender submitted before any award of a concession was made to any other operator was to be implied in the case of any operator of aircraft to whom the invitation was directed who complied with its terms and conditions. The fact that the invitation to tender was limited to a very small class of operators is itself of significance. The circumstances surrounding the issue of the invitation to tender and the formal requirements imposed by it support the conclusion. Of particular significance, in my view, was the requirement that tenders be submitted in the official envelope supplied and endorsed, as described by Bingham LJ., by the Council. The purpose of this requirement must surely have been to preserve the anonymity of the tenderer and, in conjunction with the defendants' Standing Orders, to prevent any premature leak of the nature and amount of such tender to other interested or potentially interested parties. Such a requirement, as a condition of the validity of the tender submitted, seems pointless unless all tenders submitted in time and in accordance with the requirements are to be considered before any award of the concession is made. There can be no doubt that this was the intention of both parties, as exemplified by the defendants' actions when their error with regard to the time of receipt of the plaintiffs' tender was appreciated. Such a common intention can, of course, exist without giving rise to any contractual obligations, but the circumstances of this case indicate to me that this is one of the fairly rare exceptions to the general rule expounded in the leading cases of Spencer v Harding [1870] LR 5 CP 561 and Harris v Nickerson [1873] LR 8 QB 286. I therefore agree that in all the circumstances of this case there was an intention to create binding legal obligations if and when a tender was submitted in accordance with the terms of the invitation to tender, and that a binding contractual obligation arose that the plaintiffs' tender would be before the officer or committee by whom the decision was to be taken for consideration before a decision was made or any tender accepted. This would not preclude or inhibit the defendants from deciding not to accept any tender or to award the concession, provided the decision was bona fide and honest, to any tenderer. The obligation was that the plaintiffs' tender would be before the deciding body for consideration before any award was made. Accordingly, in my view, the conclusion of the learned judge and his reasons were correct.
I agree that in the light of this conclusion no useful purpose can be served by consideration of the difficult questions which arise upon the claim formulated in tort.
Accordingly I agree with the conclusions reached by Bingham LJ., and with the detailed reasoning contained in his judgment and agree that this appeal should be dismissed.
LORD JUSTICE FARQUHARSON: I agree.
(Order: Appeal dismissed with costs; application for leave to appeal to House of Lords refused). |
(Revised)
LORD JUSTICE PURCHAS: This appeal raises important issues concerning the assessment of damages "proportioned to the injury resulting from the death ... to the dependents respectively ..." (Section 3(1) Fatal Accidents Act 1976-"the 1976 Act") in the case of an infant dependant who has lost the support of his or her mother immediately following his birth. The claim, which is brought by Richard Brian Corbett ("Richard") through his father and next friend Brendan Desmond Corbett ("the father"), arises out of his mother's death for which the defendants, the Barking, Havering and Brentwood Health Authority admit responsibility in negligence. The assessment of the loss of dependency has been complicated by the immense delay between the death, which took place at a time when the infant was but a few weeks old, and the trial some eleven and a half years later. In these circumstances it is necessary to set out in summary form the relevant history.
Family history
Richard was born by Caesarean section on 27th October 1977. His mother, who was 29 years of age, died on 12th November 1977 as a result of complications of lung infection caused by mismanagement of anaesthetic procedures during the operation. Richard was her first child. The father is a process engineer employed by the Ford Motor Company. He had joined the company at the age of 16 and served a six-year apprenticeship.
The death caused the father severe shock and reaction against Richard who was seen as a contributory cause of the death. For the next eighteen months to two years the father played little part in the upbringing of Richard who was effectively reared by his paternal grandparents to whose home the father with Richard had moved after the mother's death. After two years the father become reconciled to the position and started taking a much more positive attitude towards Richard. This position developed to the extent that after the first few years, so long as his work schedule allowed it, the father played a substantial role in looking after Richard. When Richard was about three years of age the father established a home for himself and Richard, first in a flat and later a house; but both were near to his parents' home where he still spent most of his time taking all his meals there. Richard remained in the care of his grandparents while his father was at work.
Insofar as the grandmother was capable of doing so,
Legal proceedings
It is now necessary to touch upon the regrettable history of the proceedings. I have extracted one or two landmarks from the long chronology contained in the court bundle. It is clear that almost immediately after the mother's death the father consulted a firm of solicitors, Messrs Hunt and Hunt. At this stage the claim, under the 1976 Act, was being made solely on behalf of the father and did not include any claim on behalf of Richard. A legal aid certificate was granted in March/April 1978; a writ was issued on 5th May 1978 but not served. No further action was taken to extend the writ which would, therefore, have expired on 4th May 1979. An expert was consulted in August 1978 after which nearly another year passed until May 1979 when this witness said that he had no time to prepare a report. In June 1979 a report was received from another medical expert.
In November 1979 the father instructed another firm of solicitors to whom in December 1979 the legal aid certificate was transferred; these were Anthony Thipthorpe Company. They commissioned another medical report from third expert and in April 1980 they approached the authority requesting medical records, etc. In January 1981 counsel was instructed and a letter before action making a claim in respect of the father alone sent in February 1981. In June 1981 the authority made an offer to settle the father's claim in the sum of £2,000 plus costs which was accepted by Messrs Anthony Thipthorpe and Company on 17th August 19891, the father signing a form of discharge in September 1981. None of these documents has been made available to the court.
It was not until May 1982 that the father's present solicitors were instructed and a claim initiated on behalf of Richard. Legal aid was granted over a year later in August 1983. In October 1983 a letter before action was despatched setting out a claim against one of the former firms of solicitors (which one is not identified). In March 1984 the writ against those solicitors was issued and served. This action has been stayed pending the present litigation. The process of obtaining legal aid to pursue the authority on behalf of Richard took place between March 1984 and August 1984. Between July 1984 and June 1985 information was being sought from the authority, or their solicitors, in order to formulate the claim in negligence. A delay of this nature is, in my judgment, especially regrettable where the ground of the claim is medical negligence. It is surprising that an effective claim was mounted at all. The letter before action to the authority was dated June 1985 and a writ was issued in August 1985 and served followed by an amended statement of claim in the same month. Pleadings then ensued but the action was not set down for trial until September 1987. Liability was disputed until just before the trial when the authority admitted negligence and the trial proceeded solely on the question of damages.
The trial
The case presented for Richard before His Honour Judge Hayman was based upon the traditional approach in cases of this kind since the case of Hay v. Hughes [1975] 1 Q.B. 791, namely establishing as the best "instrument" for assessing the loss of dependency the cost of a nanny/carer over the period during which he would be expected to receive the benefits of dependency but ignoring the value of the support he had in fact received from his grandparents.
Before trial the plaintiff's advisers had submitted detailed schedules and tables summarising the evidence which they intended to put before the judge to establish the cost of providing such care and attention. In addition the claim was enhanced by an element in addition to the pure commercial value of hiring a replacement to represent the special features of a mother's care and attention. Evidence was called by both parties to establish the value of the services of a nanny and also to establish the duration of the expected dependency. There was an immediate issue to which I must return later in a little more detail as to whether or not it would be likely that Richard would have proceeded to further education beyond the age of 18.
The judge came to the following conclusions nearly all of which are challenged by Mr. McGregor who presented this appeal on behalf of Richard.
That Richard would have been dependent upon his mother until the age of 18:
"In my judgment, from a realistic point of view (to adopt the words of Croom-Johnson L.J. in Spittle v. Bunney), the maximum period to be covered by the award is until Richard is 18, which is 18 years from the death of his mother ... That is not only the age of majority but it is about the age when Richard would be likely, in the normal course of events, to leave home and achieve his independence".
In rejecting the question of further education the judge said this:-
"The onus of establishing that Richard is likely, on the balance of probabilities, to proceed to tertiary education is on the boy himself, as plaintiff. In my judgment he has failed to discharge that onus. On the evidence the position is evenly balanced: he may or may not go on to higher education".
The figure for the commercial value of the services of a nanny/carer to be used as the basis for the computation of loss of dependency was:-
"In my judgment, what must be taken into account is the net in hand figure only; that is the actual amount of money left in the nanny/housekeeper's hands after she has paid her tax and National Insurance contributions. ...
In the result, on the basis of the 'nanny' formula the net in hand figure for the nanny/housekeeper for 52 weeks in the year is, in my judgment, the appropriate figure to be used in valuing the lost services. All other items of notional expenditure are irrelevant and are to be left out of account".
That the net in hand wage at the date of trial was £100 per week. This was generally speaking accepting the evidence of the experts called for the defendants rather than the plaintiffs; that the corresponding figure in 1977 was £40 and that, taking a very rough average approach, the figure thereafter increased by about £5 a week each year, which he took as an increase of £260 a year.
In applying this basic figure to the loss of dependency no discount was to be taken between the date of the death of his mother until he reached the age of five or six when Richard would start going to school. The total for this period starting at £45 a week and, increasing as indicated, came to £17,940.
For the period from the age of six until the date of trial, namely five and a half years approximately, the judge, in order to reflect the decreasing reliance of Richard upon his mother over these years including less requirement for supervision because he would be attending school, took one-half of the total cost of the nanny/housekeeper on the following basis:
"Again taking the net in hand figures in accordance with my findings. This, it may well be, is an under-valuation for the first year or so and it may be an over-valuation for the final year or so, but I have little doubt that it evens out overall. In my judgment it would be inappropriate to make any adjustment for such under- or over-valuation; that would be an unnecessary complication".
On this basis he started the scale at £75 a week (the 1984 figure) and worked forward from that, arriving at a total cost at the full rate of £24,700 which he discounted to a half at £12,350.
The total figure, therefore, for the period from October 1987 to May 1989 was £30,290 (£17,940 + £12,350).
The judge then turned to the remaining six months of the multiplier which he had taken as 12 being the appropriate discounted figure for a dependency lasting 18 years working from the date of death. This resulted in a multiplier of 0.5 to which he applied the full figure of £5,200 a year, arriving at the figure of £l,300 by taking six months at half the rate.
The total award, therefore, of damages subject to interest was £31,590.
The judge then looked at the figure in the overall context:-
"I now stand back and look at the matter as would a jury, asking himself this question: subject to the second head of damages, does that figure of £31,590 properly reflect the value of the services of the mother which have been lost to Richard during his dependency? Subject to the figure being rounded up to £32,000 the answer, in my judgment, is that it does".
That, although the nanny/housekeeper worked considerably less hours than the mother would devote to Richard, in the particular circumstances taking into account the positive contribution of the father, there was no need for any adjustment to the overall figure which he had reached at this stage.
12. The so-called second head of damage was based on paragraph 1588 of McGregor on Damages, 15th Edition. The judge did not wholly accept Mr. McGregor's submissions based upon the special nature of the benefits received from the mother as described in Mehmet v. Parry [1977] 2 All E.R. 529 and Regan v. Williamson [1976] 1 W.L.R. 305:
"I turn to the second head of damages claimed, the loss of the mother's personal services or care to date and in the future. Mr. McGregor's submission^ here can best be formulated by reference to paragraph 1588 of his book. It is there stated:
'[It may be argued] that the benefit of a mother's personal attention to a child's upbringing, morals, education and psychology, which the services of a housekeeper, nurse or governess could never provide, has in the long run a financial value for the chid, difficult as it is to assess'. ...
As far as Mr. McGregor's submission is concerned (as set out in his book), in my judgment there is no such head of damage in English law; at any rate, it is not open to this court so to hold. But if I may say so with respect, I am in full agreement with the view stated by Watkins J. in Regan v. Williamson that the term 'services' is to be given a liberal and not a restrictive interpretation.
In a case where one is concerned with a commercially hired nanny/housekeeper, the gap, as it were, between her services and those performed by a mother can readily be seen. The gap is less apparent in the case of a nanny/housekeeper acting as a substitute mother (a proxy parent). In the present case, however, the substitute mother is the grandmother and she, in my view, is the next best thing to the mother herself. The grandmother has acted out of love and affection not for financial gain, and I am sure she has done as much for Richard as if he had been, in truth, her ninth child. I would think there is little, if anything at all, between the quality of the service given by the grandmother and that which would have been given by the deceased mother.
Having said all that, the grandmother had just turned 57 when he was born and when Richard was born and she is now approaching 69. [sic]. When he is 18 she would be 75. It seems to me, on the medical evidence that the grandmother has a reasonable prospect of being alive at that time when Richard has his 18th birthday but how active she will then be is a matter of some speculation. The mother, I understand, was 29 years old when she died. Had she survived she would be 40 today. It seems to me that with the best will in the world the grandmother, by reason of her age has not been and will not hereafter be able to devote as much of her time and energy to Richard as the mother would have done (I assume here, and have no reason to believe otherwise, that the deceased woman would have been a good mother, and I accept from Mr. Corbett that she would not have returned to outside employment). I mention that there were other children in the grandmother's house. (I refer in particular to Richard and Claire) so that Richard was not the only child who required the grandmother's attendance. However, as Richard would probably not have been the only child had his mother survived (I accept Mr. Corbett's evidence on this), not much can be made of this point although it has some relevance in the context of the grandmother's age. I judge, therefore, that there has been, and will be, some loss of services here, some diminution in the personal care and attention which Richard would have been likely to receive from his mother h ad she survived. I think that this properly sounds in damages, but in my judgment in a modest sum only.
Again I stand back and look at the matter as would a jury. On that basis the appropriate award, in my judgment, is the sum of £3,000. Adding this to the other figure, the total award is therefore £35,000".
Of the sum of £32,000 the judge apportioned this as to £30,700 for the period up to the date of trial and £l,300 thereafter and the sum of £3,000 as to £2,875 for the period up to trial and £125 thereafter. There was no attack on the figure of £3,000 by Mr. McGregor and it was not challenged in the respondent's notice. I will, therefore, say no more about this.
The multiplicand
Mr. McGregor's first ground of attack upon the judgment was to submit that the finding that the net in hand figure to be adopted for the value of a nanny/carer was £100 per week was too low and contrary to the evidence. Evidence had been given by four persons experienced in the provision and hiring of nannies/housekeepers. There was, needless to say, a range of differences between the various witnesses. Mr. McGregor urged upon the court that the witnesses called for the plaintiffs, who on the whole gave higher figures ranging from £120 per week to £200 or more in the case of specialised services, were of greater experience and more reliable than those called on behalf of the defendants whose experience was comparatively limited in the field. I hope that it will not be considered discourteous if I deal with this particular submission quite shortly. Having reviewed the passages in the transcript of evidence to which we were. referred by Mr. McGregor, I have come to the firm conclusion that this was an area in which the judge was perfectly entitled to exercise his own discretion and judgment as to the reliability of the witnesses and select that evidence which he thought best served the purpose of assessing the value of the lost dependency. It must never be forgotten in this particular exercise that the multiplicand/multiplier approach based upon the cost of hiring alternative commercial services is at the best a very crude and approximate instrument. It borders upon complete artificiality and, in my judgment, is acceptable only on the basis that there is no better means of approaching this difficult and almost unquantifiable aspect of dependency. During argument the expression "plucking a figure out of the air" was used by either side upon a significant if not sinister number of occasions. In this context, I can see no possible ground upon which this court could interfere with the net in hand figure upon which the judge founded the rest of his assessment.
Mr. McGregor's second point was that the judge was wrong not to make a quantified increase in "the net in hand" figure to take into account a number of elements which he included under the general rubric of "cover". These are to be found in schedules which had been provided by the plaintiffs to the defendants before the trial and which were in the court bundle of documents. The terms of employment of a nanny/carer involved allowed for her to be absent on three evenings per week, one and a half days per week, one long weekend per month and four weeks paid holiday per year. Although all these items were included in the schedules Mr. McGregor did not pursue all of them. In addition, there were further elements including accommodation allowance that is heating, lighting and food to be shared with the household costs which was discounted to a figure of 10% of the assessed figure, and, in addition, uniform, agency fees and so on which Mr. McGregor did not attempt to include.
Mr. McGregor's excellent tables and schedules as mathematical propositions cannot be faulted. If the exercise were the precise assessment of compensation for an established pecuniary loss then their relevance would be undisputed. Where, with respect to Mr. McGregor, his criticism of the judgment falls short is because in the assessment of damages for a loss of this kind one is dealing with "a jury question" as -was emphasised in this court: see the judgment of Croom-Johnson L.J. in Spittle v. Bunney [1988] 1 WLR 847 at page 857H:-
"What then should have been the direction given to the jury trying the facts of the present case? They would be told that they should award such sum as they might think was proportioned to the injury to Kate resulting from her mother's death. They should be told that the services which had been given and which would have been given to Kate by her mother had a monetary value and they could proceed upon the basis that by the time Kate reached the age of 22 there would be no further deprivation by the loss of her mother's services, and they could take whatever number of years, short of 18 1/2, which they thought represented the value at the time of death of the lost services up to that age. They should be told that the fact that nobody was being paid or would be paid as a substitute mother made no difference, and that Mrs. Spittle's services, given free, were not to be set against any sum which they assessed. As to how they should value Kate's mother's services, there were not to use as a measure the evidence of the cost of fostering services. They should be told that they were to use what other evidence (the cost of a nanny) as they thought best, and that if they thought that did not properly reflect the true value of the services of Kate's mother they should stand back and use their common sense.
What they ought also to be reminded of is that as children get older they may also get more independent of their parents and less in need of being looked after. In the early years the services rendered by a mother to her small child may be valued by the cost of a hired nanny. The requirements are to some degree comparable. As the child grows older, and reaches school age, the valuation by commercial standards becomes less and less appropriate, and to use them is again not comparing like with like. Once the child has begun school, at least by the age of six, the extent of the services decreases in amount. She needs, for a time, to be taken to and from school. Later on, she may go there by herself. Not only is the yardstick of a nanny's wage less appropriate, but the services rendered by the mother change in nature".
In coming to his assessment of the multiplicand the judge modelled himself very closely upon the judgment in Spittle v. Bunney; and I for my part cannot see any ground upon which he could be challenged in approaching the problem on this basis. This is certainly the case in his deciding the appropriate cost of providing the services of a nanny/carer:-
"... A further reason for excluding these items is this. What one is engaged in here is the valuation of the lost services and not what it would cost to provide those services. I have already made this point.
In the result, on the basis of the 'nanny' formula the net in hand figure for the nanny/housekeeper for 52 weeks of the year is, in my judgment, the appropriate figure to be used in valuing the lost services. All other items of notional expenditure are irrelevant and are to be left out of account".
Mr. McGregor submitted that the judge was not entitled to take this course and that he should have taken a higher figure than £100 per week as the basis for arriving at the multiplicand. I find that I cannot agree with this submission. Bearing in mind it was at all times a question for assessment by a jury in the context of a general direction as to how to approach the problem, I do not believe that a jury could be faulted if, having heard all the evidence in the present case, they decided not to adjust the figure of £100 per week net in hand upwards because either of the four weeks annual paid holiday or occasional periods of sickness but were content to absorb them in the general figure for loss of dependency based upon the figure they had selected as the datum point.
I now turn to Mr. McGregor's third point which related to the question of the 50% discount on the datum figure which the judge decided to apply in view of the diminished need for support and services in the period between six years and eleven and a half years of age. In Spittle v. Bunney Croom-Johnson L.J. dealt with this matter in the second part of the extract of the judgment which I have already cited. I have no doubt that the proposition that as a child grows older and reaches school age the valuation by commercial standards in relation to the cost of providing nanny/housekeeper services becomes less and less appropriate. But it occurred to me during argument that it could well be submitted that as the value of this type of support diminished the value of another aspect of the support might increase. By this I mean that although perhaps the time spent in supplying the services by the mother might well grow less as the child became older, the value of those services in the form of moral guidance, discipline and example might very well be assessed at a considerably higher figure. In following on this aspect of the case the approach made by the judge he which took from the judgment in Spittle v. Bunney I would not like to be taken as agreeing without some kind of reservation the proposition that time spent is necessarily directly proportional to the value of the services rendered or in the context of fatal accidents claim the value of the dependency lost. However, this matter was not argued before the judge and no evidence was laid before him on which an approach along these lines would have been justified. With these qualifications I have come to the clear conclusion that Mr. McGregor's attack upon the assessment made by the judge of the value of the services lost based upon the datum of £100 per week net in hand without further fine tuning for the second period between the ages of five and eleven and a half to be discounted by 50% cannot, as a matter of principle, be disturbed in this court. I deliberately reached my conclusion on this basis rather than a direct approbation of the exercise carried out by the judge about which I harbour some doubts. These doubts, however, do not afford a proper ground for interference in this court.
The multiplier
This is the area in which the issues raised on the appeal, in my judgment, are of importance. The judge considered that he was bound by authority to take as the overall period for dependency 18 years from the death-technically a few weeks less, but for the purposes of argument this adjustment can be ignored. Applying normal discounts he reached a multiplier of 12 years. Mr. McGregor submitted that if this is the correct exercise he should have taken 13 years and there may be some justification for this submission. On this basis, again taking the date of death as the datum point, at the date of trial there was only 0.5 years to run before the full period of the multiplier expired if this figure is to be assessed not only with the date of death as datum point; but with the factors from which the multiplier is to be calculated assumed to be those which would be known to the court were the trial to have taken place on that date.
Considering himself bound by the authority of the House of Lords in Crookson v. Knowles [1979] AC 556, the judge took a multiplier of 1/2 in assessing the post-trial damages. Mr. Playford, in a strong and attractive argument, submitted that this was the only course open to the judge and that any other method of approach would throw this particular area of law, over which a satisfactory condition of finality had at last been achieved, back into the melting pot with the consequent hardship and undesirable results. On the other hand, Mr. McGregor submitted that ignoring for the moment the lifespan of the deceased for the purposes of computing the multiplier, it was totally bizarre and unrealistic to assess damages on the basis that the probability of Richard's surviving was merely one of six months when he was at the age of 11 1/2. Mr. Playford submitted that the distortion arose from the immense delay in bringing the action and referred to the course taken by the Court of Appeal in Spittle v. Bunney where a minor, aged three at the time of the accident in which his mother was killed, was given a dependency of 18 years (it was assumed that she would proceed to further education); a multiplier of 11 was adopted and as 7 1/2 years had elapsed by the time of trial the effective multiplier for the assessments of future damages was taken at 3 1/2 years. Mr. Playford submitted that 3 1/2 years appeared acceptable whereas 0.5 of a year unacceptable merely because of the distortion in the excessive delay in the latter case and no point of difference in principle could be detected between the two cases.
With respect to counsel, some confusion and difficulty may have arisen over the encapsulation of the competing arguments into two phrases: "assessment of multiplier from date of death" and "assessment of multiplier from date of trial". The use of the multiplier/multiplicand approach for the capitalization of damages "in futuro" to be compensated by a once-for-all lump sum provision is an adequate and well-known instrument; but, like all instruments, it must be used in an appropriate manner.
In every assessment of damages "in futuro" to be compensated by an immediate payment there are at least five essential elements:-
1. the likelihood of the provider of the support continuing to exist;
2. the likelihood of the dependent being alive to benefit from that support;
3. the possibility of the providing capacity of the provider being affected by the changes and chances of life either in a positive or in a negative manner;
4. the possibility of the needs of the dependent being altered by the changes and chances of life, again in a positive or negative way;
5. an actuarial discount to compensate (a) for the immediate receipt of compensatory damages in advance of the date when the loss would in fact have been incurred, and (b) the requirement that the capital should be exhausted at the end of the period of dependency.
1 and 2 are actuarial figures depending upon the age, health and circumstances of the person involved. 3 and 4 must be speculative and are to be taken into account by way of adjusting the life expectancy figures in 1 and 2. Normally this would be by way of reduction; but the present case is an obvious exception. This arises from the doubt whether Richard's dependency would end at the age of 18; or whether he would proceed to further education. 5 is again an "actuarial" assessment depending on current and anticipated interest rates, anticipated inflation rates and the period of years over which the receipt of the compensation anticipates the occurrence of the loss.
In my judgment, as a general rule in order to arrive at the multiplier it is necessary to take the following steps:
(a) consider the combined effect of 1 and 3 in order to arrive at the number of years during which the provision of the support is likely to be available if needed by the dependent;
(b) consider the combined effects of 2 and 4 in order to arrive at the number of years during which the dependent is likely to need the support;
(c) apply 5 to the lesser of (a) and (b) above, with an added but usually minor discount to take account of an outside chance that choice between (a) and (b) might in the event prove to be wrong.
In normal cases, i.e. the death of a wage-earning husband and father (a) will be the appropriate period of years to which the discount in 5 will be applied. In other cases, such as the present one where the dependency will end before the discounted life expectancy of the mother; (b) will be the period of years to which the discount in 5 will be applied. The application of the formula will depend on the circumstances in each case. The issue at the heart of this part of the appeal is not what is the date from which the multiplier should operate; but at what date should the known facts be taken when calculating elements 1 to 4 above and when choosing the discount in 5.
I have come to the firm conclusion that the judge was in error in considering that he was bound by Cookson v. Knowles [1979] AC 556 and Graham v. Dodds [1983] 1 W.L.R. 808 to take a multiplier of 12 as the conventional figure arrived at after carrying out the exercise in (c) above. In coming to this conclusion, I do so with considerable deference, since having been privileged to read the judgment of my brother, Ralph Gibson L.J., I know that I have the misfortune to find myself in disagreement with him in this respect.
It is perhaps convenient to start with the critical part of the speech of Lord Bridge of Harwich in Graham v. Dodds. This was an appeal from the Court of Appeal in Northern Ireland. That court was entertaining an appeal from an award of damages under the Fatal Accidents (Northern Ireland) Order 1977 made by Lord Lowry C.J., sitting with a jury. The majority in the Court of Appeal held that as in their speeches in Cookson v. Knowles Lord Diplock and Lord Fraser had expressed opposite and irreconcilable opinions as to the date from which the multiplier was to be assessed, it was open to them to hold that it was proper to award special damages in respect of the period between the death and the date of trial and then to fix a multiplier as at the date of trial on the assumption of the death of the deceased at that date (i.e. date of trial). At page 813G Lord Bridge said:-
"The only issue arising in this appeal which is strictly one of law is whether, in assessing damages for loss of dependency arising from a fatal accident, the multiplier or number of years purchase should be calculated from the date of death or from the date of trial. Counsel for the defendant has contended for the former. Counsel for the plaintiff has throughout contended for the latter and this view prevailed with the learned Lord Chief Justice and the majority of the Court of Appeal. The judge, in a short note appended to the transcript in his report of the trial, said:
'I took the view that there is no legal principle that the number of years of purchase (in this case I suggest 11 to 14) should be automatically reduced having regard to the number of years special damage since the death of the deceased and that the contrast sometimes made with personal injury cases is not a sound one".
On this issue the majority of the Court of Appeal examined the speeches in your Lordships' house in Cookson v Knowles [1979] AC 556 and reached the conclusion that Lord Diplock and Lord Fraser of Tullybelton had expressed opposite and irreconcilable opinions. Gibson L.J. illustrated his understanding of the supposedly conflicting doctrines by indicating how they would apply in assessing the dependency of the widow of a young man killed at the age of 21, in the following terms:
'Should the action not come to hearing until five years had elapsed Lord Fraser of Tullybelton would assess at death the multiplier, which I take at say 18, and he would then allow five years' special damage and 13 years as the multiplier of future loss. Lord Diplock, on the other hand, would also give five years' special damage and then fix the multiplier on the assumption of the death of the deceased at the age of 26 years, which Mr. Hill conceded would not be appreciably less than the original figure of 18'.
On the basis of such a conflict, Gibson and O'Donnell L.JJ. held themselves free to choose which of the two doctrines they preferred and both came down in favour of the view they attributed to Lord Diplock.
It is to be observed that in Cookson v. Knowles Viscount Dilhorne, Lord Salmon and Lord Scarman all expressed their agreement with the speeches of both Lord Diplock and Lord Fraser of Tullybelton. Gibson L.J. recognised this and described it as a 'confusing feature' of the case. It would indeed be astonishing that such a radical conflict should have escaped the attention of the three concurring members of your Lordships' House, but still more astonishing that neither Lord Diplock nor Lord Fraser of Tullybelton should have said a word to indicate any awareness that they were disagreeing with each other on a matter of fundamental principle.
My Lords, I have to say, with respect, that the majority of the Court of Appeal based their decision in this case on a misunderstanding of the decision in Cookson v. Knowles [1979] AC 556. In that case the widow's claim under the Fatal Accidents Acts arose from the death of her husband at the age of 49. The trial judge took 11 years' purchase from the date of death as the appropriate multiplier. But he applied it to the estimated annual dependency at the date of trial, 2 1/2 years after the date of death, to arrive at a single capital sum of damages on which he awarded interest at 9 per cent from the date of death to the date of trial. The Court of Appeal reduced the capital award by estimating the dependency in two parts: (a) from the date of death to the date of trial, (b) from the date of trial onwards and allowed interest on the first part of the award only at a reduced rate. For the purpose of the capital assessment, the trial judge's figure of 11 years purchase from the date of death had to be divided; 2 1/2 was applied in calculating the pre-trial loss, 8 1/2 in calculating the future loss. But the propriety of calculating the overall multiplier from the date of death was not questioned. In the unanimous decision of this House affirming the Court of Appeal, Lord Fraser of Tullybelton dealt with the last point expressly in the following passage, at pp. 575-576:
'In the present case the deceased was aged 49 at the date of his death and the trial judge and the Court of Appeal used a multiplier of 11. That figure was not seriously criticised by counsel as having been inappropriate as at the date of death, although I think it is probably generous to the appellant. From that figure of 11, the Court of Appeal deducted 2 1/2 in respect of the 2 1/2 years from the date of death to the date of trial, and they used the resulting figure of 8 1/2 as the multiplier for the damages after the date of trial. In so doing they departed from the method that would have been appropriate in a personal injury case and counsel for the appellant criticised the departure as being unfair to the appellant. The argument was that if the deceased man had had a twin brother who had been injured at the same time as the deceased man was killed, and whose claim for damages for personal injury had come to trial on the same day as the dependant's claim under the Fatal Accidents Acts* the appropriate multiplier for his loss after the date of trial would have been higher than 8 1/2. On the assumption, which is probably correct, that that would have been so, it does not in my opinion follow that the multiplier of 8 1/2 is too low in the present claim under the Fatal Accidents Acts where different considerations apply. In a personal injury case, if the injured person has survived until the date of trial, that is a known fact and the multiplier appropriate to the length of his future working life has to be ascertained as at the date of trial. But in a fatal accident case the multiplier must be selected once and for all as at the date of death, because everything that might have happened to the deceased after that date remains uncertain. Accordingly having taken a multiplier of 11 as at the date of death and having used 2 1/2 in respect of the period up to the trial, it is in my opinion correct to take 8 1/2 for the period after the date of trial. That is what the Court of Appeal did in this case/
If I may say so, respectfully, I find the reasoning in this passage as cogent as it is clear. But, what is perhaps more important, I can find nothing in the speech of Lord Diplock which conflicts in any way with Lord Fraser of Tullybelton's reasoning or with his conclusion. The two passages cited by Gibson L.J. from Lord Diplock's speech dealing with the assessment of the dependants' future loss from date of trial are not directed to the question of the appropriate multiplier and certainly lend no support to the doctrine that this can be calculated on the assumption that the deceased, if he had survived the accident, would certainly have remained alive and well and in the same employment up to the date of trial. Such a doctrine, ignoring the uncertainty which, as Lord Fraser of Tullybelton pointed out, affects everything that might have happened to the deceased after the date of his death, is clearly contrary to principle and would lead to the highly undesirable anomaly that in fatal accident cases the longer the trial of the dependants' claims could be delayed the more they would eventually recover.
Accordingly, in so far as the learned Lord Chief Justice based his directions to the jury with respect to the multiplier to be applied in assessing future loss on the considerations appropriate in awarding damages for future loss of earnings to a surviving plaintiff in a personal injury case aged 4 5 (the age the plaintiff's husband would have attained at the date of trial if he had survived) and treated the pre-trial loss as 'special damage,' and in so far as the majority of the Court of Appeal approved the directions given on that basis, they erred in law".
I have ventured to set out the speech of Lord Bridge at length because it gives a clear indication of the ground upon which the noble and learned Lord held that there was no dissent in Cookson v. Knowles and in view of the unhappy differences in this court as to the effect of these two authorities.
It is clear to me that Lord Bridge was considering the years of dependency emanating from (a) and (c) above, and ignoring (b). This must have been appropriate in the context of the facts in Cookson v. Knowles. It explains his reliance on the sentence "But in a fatal accident case the multiplier must be selected once and for all as at the date of death because everything that might have happened to the deceased after that date remains uncertain". (My emphasis). This analysis of the speech of Lord Bridge is supported by the passage occurring shortly after his quotation from the speech of Lord Fraser referring to passages from the speech of Lord Diplock cited by Gibson L.J. One of these is repeated in the extract already included in this judgment. It remains only to remark that the reference by Lord Bridge to the undesirability of encouraging delay is clearly justifiable; but does not take into account the power in the court to withhold interest for an appropriate part of the period of time elapsing between the death and the date of trial.
Again in the circumstances of Cookson v. Knowles and Graham v. Dodds it was not necessary to consider the effect upon (b) of the facts relating to the consideration of (2) and (4) above established by the proven survival of the dependent when the critical assessment depends upon (b) as discounted by (c). Lord Bridge makes no reference to those parts of Lord Diplock's speech in which he considered the aspects of interest and advancement of compensation in relation to the date of trial and date of death - nor, with respect to the judgments which follow, should any weight be attached to these passages in the present context. I can see no justification for denying the court the power to take into account by way of adjusting the multiplier to be assessed "as at the date of death" in light of facts established at the trial. This exercise is permissible when assessing the multiplicand and in the normal case in effect goes by default because the critical period to be considered in computing the multiplier is (a) rather than (b). Frequently also when (b) is larger that (a) the period of years over which the receipt of compensation is advanced is substantial and the element of this in the discount in (c) will also be substantial. When, however (b) represents a very short period, this period will not be much discounted from the remaining years to the age of 18, i.e. 6 1/2 plus an increment for the possibility of Richard's going to further education. In addition the further discount arising from (4) will also be small.
If these factors are put into the equation when assessing (c) as the date of death they must result in a substantial increase in the multiplier assessed "as at the date of death". This is not the same exercise as that which the Court of Appeal carried out in calculating the multiplier as at the date of trial in Graham v. Dodds, since it still takes into account the uncertainties surrounding the hypothetical survival of the provider of the support. The failure to do this was the main ground for the rejection of the Court of Appeal's approach in Graham v. Dodds by Lord Bridge. It is for this reason that I have the misfortune not to agree with Gibson L.J. that Graham v. Dodds prevents this court from adjusting the multiplier to take into account the facts arising from the delay before the trial took place. For the same reasons I cannot agree that this court cannot disturb the judge's finding of the multiplier at 12.
It was common ground that either 12 or 13 would have been the appropriate multiplier to cover 18 years dependency in "normal standard circumstances". Not to make a meaningful adjustment because during 11 1/2 of the 18 years of dependency upon which the discounts in (b) would normally be applied but which no longer contain uncertainties would be illogical. It did in this case lead to the bizarre position where the dependency of a normal health individual was discounted to six months.
In Cookson v. Knowles the resolution of the use of the multiplier in circumstances such as the present case was never directly in issue. Lord Fraser discusses the propriety of using 8 1/2 years from the date of the trial as being the residue of the multiplier of 11 based on the date of death in the context of the comment "that in a fatal accident case the multiplier must be selected once and for all as at the date of death because everything that might have happened to the deceased after that date remains uncertain". Lord Fraser must here have been considering a case where the length of the multiplier depended, if not solely, almost exclusively upon the prospects of the provider of the dependency continuing to be able to provide it and not upon the prospects of the beneficiary continuing to receive that support. In the usual case of the death of a wage-earning husband in a claim by his widow and children this would be the normal approach. I do not think that Lord Fraser had in mind a case where the main determinative factor was the period of years during which the beneficiary would be expected to continue to receive support from a provider, whose life expectancy would carry his ability to continue affording that support long after the expiry of the period during which the receipt of the support would continue to be required.
For these reasons I have come to the conclusion that the judge fixed a multiplier which was demonstrably too low. However, I cannot accept Mr. McGregor's first submission that the multiplier should be calculated from the date of trial. In my judgment, in a case such as the present, the correct approach must be to calculate the multiplier from the date of death but in so doing account must be taken of the removal of many of the "uncertainties" surrounding the provision and receipt of the dependency during the period involved. Accordingly, the discount from the 18 year period to take into account those uncertainties will itself be reduced. Other uncertainties, themselves independent of the continued existence of the beneficiary, e.g. the continued existence of the provider, will remain factors upon which the multiplier will depend and in respect of which the figure for the multiplier must be discounted.
To elaborate a little on the proposition made at the end of the last paragraph, if the multiplier was calculated from the date of trial this would ignore other factors which should reduce the multiplier. These include the changes and chances affecting the hypothetical continuation of the deceased's provision of support. This is not merely a question of life expectancy. There are a whole host of other events which might well have taken place. The mother might have met with an incapacitating or indeed fatal accident, she might have been the victim of some incapacitating illness or, unattractive as the proposition may be in the circumstances, become one of the 33 l/3rd per cent of married persons whose marriage breaks up in circumstances in which her availability to provide the support would be withdrawn. These changes and chances affecting the supporting life are still present and must still be taken into account in considering to what degree the multiplier, which otherwise would have been 12, should be increased by the court using the datum point of the death but taking into account the fact now well-known to the court that the dependent has survived 11 1/2 years of the period.
I have already mentioned the question of delay. Mr. Playford submitted that to take into account the facts as they existed at the date of trial would in a case like this put a premium on delay. There is force in this argument; but then again, delay results in the tortfeasor having the use of the money represented by the damages, whilst the beneficiary is correspondingly deprived unless he is compensated by an award of interest on the damages recovered. The sanction to deter delay is in the discretion in the court to withhold interest under the provisions of section 35A of the Supreme Court Act 1981 (as amended). Having concluded that the judge erred in principle in his assessment of the multiplier it is, in my judgment, open to this court to use its own discretion and to substitute a multiplier of its own taking into account the established facts which were available at the trial. This is an exercise of pure discretion and does not admit of any further argument.
Mr. McGregor's final attack on the judge's assessment of the multiplier related to a passage from his judgment at page 14 of the transcript:
"The onus of establishing that Richard is likely, on the balance of probabilities to proceed to tertiary education is on the boy himself, as plaintiff. In my judgment he has failed to discharge that onus. On the evidence the position is evenly balanced: he may or may not go on to higher education. But even if he leaves school at 16 and enters employment, his dependency on his mother, if still alive, would not be likely to end at that time. It is likely that he would still be living at home for a year or two or may be more".
It was on this passage and on the passage ; already cited in this judgment that the judge reached the figure of 18 as being the age at which the dependency would cease. Mr. McGregor's point is a simple one and is based upon a passage from the speech of Lord Reid in Davies v. Taylor [1974] A.C. 207, at page 212:-
"But in the present case the trial judge applied a different test. He held that there was an onus on the appellant to prove that on a balance of probabilities she had an expectation of continued dependency - that it was more probable than not that there would have been a reconciliation. In fairness to him I must note that he understood that this had been agreed by counsel. But we were informed that that was not so and counsel for the respondent very properly did not seek to found on this. I think that the learned judge was misled.
When the question is whether a certain thing is or is not true - whether a certain event did or did not happen - then the court must decide one way or the other. There is no question of chance or probability. Either it did or it did not happen. But the standard of civil proof is a balance of probabilities. If the evidence shows a balance in favour of it having happened then it is proved that it did in fact happen.
But here we are not and could not be seeking a decision either that the wife would or that she would not have returned to her husband. You can prove that a past event happened, but you cannot prove that a future event will happen and I do not think that the law is so foolish as to suppose that you can. All that you can do is to evaluate the chance. Sometimes it is virtually 100 per cent.: sometimes virtually nil. But often it is somewhere in between. And if it is somewhere in between I do not see much difference between a probability of 51 per cent, and a probability of 49 per cent.
'Injury' in the Fatal Accidents Act does not and could not possibly mean loss of a certainty. It must and can only mean loss of a chance. The chance may be a probability of over 99 per cent. But it is still only a chance. So I can see no merit in adopting here the test used for proving whether a fact did or did not happen. There it must be all or nothing.
If the balance of probability were the proper test what is to happen in the two cases which I have supposed of a 60 per cent, and a 40 per cent, probability. The 40 per cent, case will get nothing but what about the 60 per cent. case. Is it to get a full award on the basis that it has been proved that the wife would have returned to her husband? That would be the logical result. I can see no ground at all for saying that the 40 per cent, case fails altogether but the 60 per cent, case gets 100 per cent. But it would be almost absurd to say that the 40 per cent, case gets nothing while the 60 per cent, case award is scaled down to that proportion of what the award would have been if the spouses had been living together. That would be applying two different rules to the two cases. So I reject the balance of probability test in this case".
Mr. McGregor submitted that His Honour Judge Hayman fell into exactly the same trap as the judge who was the subject matter of the criticism of Lord Reid in the passage from the speech in Davies v. Taylor which I have just recited. I can see no fallacy in this submission. If the judge on the evidence found that the matters were "evenly balanced" as to whether or not Richard would have continued to further education he was not entitled to discount that possibility altogether. I am not satisfied that Mr. McGregor was entitled to go to the further extent which he did in his submission and say that the judge was obliged in law to apply a discount of 50% and, therefore, add 1 1/2 years to the 18 years making it 19 1/2. I am, however, satisfied that there should have been some small addition to the total period of dependency which should in turn affect the multiplier by a minor upward adjustment. In the event I would give effect to this and to the other factors to which I have referred in concluding that the multiplier of 12 was too low, I would award an uplift in the multiplier to take into account all adjustments to 15.
Mr. McGregor further attacked the judge's award on the basis that it was not comparable with other similar awards. He submitted that the judge was using the figure for damages at which Croom-Johnson L.J. arrived in Spittle v.- Bunney of £25,000. This figure was substituted for the figure of £47,500 which had been awarded by the trial judge. The £25,000 was apportioned as to £22,000 damages down to trial arid £3,000 for the post-trial period. At page 858H Croom-Johnson L.J. said:
"In substituting these figures for the figures assessed by the trial judge, I have taken into account the special qualitative factor dealt with by Watkins j. in Regan v. Williamson and approved, at least by implication, in this court in Abrahams v. Cook (unreported 18th November 1987, Court of Appeal (Civil Division) Transcript No. 1157/87".
Mr. McGregor referred to the passage of the judgment of Croom-Johnson L.J. in Spittle v. Bunney at page 856 as set out below:-
"The defendant also cited to this court awards in other cases, updated where suitable. They were unquestionably lower than the award in this case, although the circumstances were different in each case. In Hay v. Hughes [1975] QB 790 the wages of the notional resident housekeeper (who did not exist) were £15 a week and with other expenses were assessed at £l,000 a year. That was in 1970. Updated for inflation that would now be £28,530 on a multiplier of 9. Regan v. Williamson [1976] 1 W.L.R. 305 was not a case of a notional housekeeper. One had been employed to look after the widower and four children, of whom the youngest was aged 3 1/4. Watkins J. deducted the cost of the dead mother's keep and expenses, and added to the basic sum a further figure because there was a possibility that the mother might have gone out to work again and because she was otherwise available all day, whereas the housekeeper was not. The figure awarded, if it is updated, would be £31,606".
Mr. McGregor had done some research on the adjustment of the figures originally awarded in Regan v. Williamson in 1976 and Hay v. Hughes in 1975 if the current adjusting factor taken from the inflation tables in Kemp & Kemp had been used. He submitted that as a result of an error in the submissions of counsel, Croom-Johnson L.J. had arrived at figures that were too low as comparable figures. The adjusted figures at the date of the trial in Spittle v. Bunney would have been in the case of Regan v. Williamson £41,198 and in Hay v. Hughes £37,350 which, he submitted, were more in line with Turner j.'s assessment at first instance of £47,500 in Spittle v. Bunney. The figures, Mr. McGregor submitted, when adjusted to the date of trial in the present case would have been 46,240 and £41,850 respectively.
This ingenious approach to the judgment in Spittle v. Bunney does not, in my judgment, assist Mr. McGregor's argument. It is by no means clear that Croom-Johnson L.J. was paying any more than passing attention to the submissions of counsel when referring to comparable cases. There is no specific reference to the question of comparable cases in the part of the judgment where the learned Lord Justice reached his conclusion at page 858. He considered it in the light of what a jury would probably award if they had taken into account all the matters in evidence arid came to the conclusion that they would have reached, a decision that the total damages could not exceed £25,000 for the whole of the multiplier period. I am, therefore, unable to accede to this part of Mr. McGregor's argument. For my part, I doubt whether in these kind of cases, comparison with other awards can ever be more than of limited value. Each case must be considered on its own peculiar facts.
Interest
I now turn to the final matter raised on this appeal, namely the decision by the learned judge to follow the course taken by this court in Spittle v. Bunney and to exercise discretion not to award the full amount of interest on the damages recovered up to the date of trial. The judgment on this aspect of the case is to be found in the supplementary transcript entitled "proceedings" at page 18D:
"My judgment is the discretion as regards the period of which interest is left to run and it seems to me totally unjustified that a claim of this nature should take eleven and a half years to come on. The fact that the child is protected by limitation, it does not follow he is therefore protected as regards to interest. Therefore, in my judgment, there should be some diminution in the interest to be awarded. I think the proper deduction is a deduction of 4 years of interest on the basis given the difficulties and all other factors in this case. I think it is more than reasonable to assume that this claim could have come on for trial seven and a half years. The interest will be whatever the total amount is left".
As I read the judgment, regardless of the argument that ensued thereafter which is recorded in the transcript, the judge ruled that interest should be given for the damages awarded as if the trial had taken place after 7 1/2 years as opposed to 11 1/2 years from the date of death. This should be the basis upon which the figure for interest should be computed. Mr. McGregor, whilst conceding that it was essentially a matter of discretion for the judge, submitted two points by which the judge should have been influenced not to make a deduction, namely that a reduction in the interest penalised the infant but not the adults or legal advisers and, therefore, should not be made in a case of this kind. I cannot, I regret, accede to this argument. I cannot put from my mind the fact that there is an outstanding action in negligence against at least one firm of solicitors; but even if this were not so the accommodation granted to infants to avoid the provisions of the Limitation Acts is, as the judge says at one point of the transcript, related to their right to recover damages but not necessarily a relief against the penalty which arises because once the claim is on foot the matter is not proceeded with diligently. The other point that Mr. McGregor made was that in no previous case where the court has taken action in this way has the reduction been more than two years. Mr. McGregor said this is twice any previous deduction. I think it fair to say that Mr. McGregor did not press this argument with much enthusiasm. He had to concede that the delay in this case wholly exceptional and in its own way unprecedented. I accept Mr. Playford's submission, that an unprecedented and wholly exceptional delay justifies an unprecedented and wholly exceptional exercise of discretion. I would, therefore, not interfere with the judge's order on this point. I would, therefore, to the limited extent indicated in this appeal allow the appeal and substitute a new figure for post-trial damages to be computed in accordance with a multiplier of 15 from which 11 1/2 must be deducted being the period up to the date of trial, i.e. 3 1/2 X £2,600 = £9,100 should be substituted for £l,300 awarded by the judge.
LORD JUSTICE RALPH GIBSON: The main issue in this case is whether the multiplier applied by the learned judge was correct. There is, in addition, an issue as to the judge's assessment of the plaintiff's chances of proceeding to some education or training after the age of 18. I would dismiss the appeal on all the other grounds put forward on behalf of the appellants for the reasons stated in the judgments of Purchas and Farquharson L.JJ.
The submissions for the defendants by Mr. Playford, in support of the judge's decision on the multiplier, have been, in brief summary as follows. It is established by the authority of Cookson v. Knowles [1979] AC 556 that in a fatal accident case the multiplier must be selected once and for all from the date of death: see per Lord Fraser 576C-E. The principle has provided, it was said, certainty and clear guidance in this difficult area of law for over 10 years; and, having been applied by this court in Spittle v. Bunney [1988] 1 WLR 847, should not be disturbed. The apparent illogicality of awarding only one half year's purchase of the multiplicand at the date of trial, in the case of a boy then aged eleven and a half whose maximum period of dependency, although diminishing in value, would have continued for at least a further six and a half years from that date, was said to reflect the distortion caused by delay: see Spittle v. Bunney at page 855E. To accede to the submission of Mr. McGregor, and to calculate the value of the loss of services to the date of trial as special damages, and then to add a lump sum calculated at the date of trial by reference to a multiplier selected as at that date, would be to ignore authority and to cause grave confusion.
Mr. McGregor submitted, in effect, that to select the multiplier in this case as at the date of trial - and the multiplier should be 5 years - was not to depart from established principle but to apply that principle correctly as contrasted with the application of a supposed rule which itself departs from principle.
The effect of accepting Mr. McGregor's submissions upon the multiplier, while upholding the judge's decision upon all other aspects of the case, would, as I understand it, be as follows:
(i) Loss from birth to 6th birthday £17,940
(ii) Loss from 6th birthday, October 1983 to trial in May 1989 £12,350
(iii) Part of £3,000 awarded for uplift of figure based on "nanny's services" to allow for loss of special services of a mother £2,785
£33,075
(iv) Add 5 years future loss at £2,600: £13,000
Total £46,075
That total is to be compared with the £35,000 awarded by the learned judge.
The main force of Mr. McGregor's submission, as it seems to me, lies in the fact that the appellant by May 1989 had, under rules of law which are not in dispute, lost his mother's services for eleven and a half years. The award to the date of trial covered only that accrued loss with nothing by way of pre-payment. Any interest upon that award, such as the court might in discretion direct, would compensate only for the delayed receipt of the compensation for the lost services. For the remainder of the period of lost dependency, namely six and a half years, the damages awarded cover one half year so that there is apparently no compensation for the loss over six years. That would be justifiable, of course, if the reduction in compensation was no more than that fairly necessary to reflect uncertainty as to the continued provision of the service by the mother, or by uncertainty as to the continued ability of the child to receive the service. Mr. McGregor submits that, on the evidence, neither sort of justification can be demonstrated. If that part of the submission can be made good then there would have to be clear authority, as I think, binding upon this court, before we could properly reject Mr. McGregor's submission at least to the extent of holding that the multiplier applied by the judge must be wrong. An award of £46,000 to an eleven and a half year old boy, who may in fact have suffered no interference in his physical well-being or in his way of life or upbringing as a result of the death of his mother, may appear to be out of proportion to the loss actually suffered by him but, apart from this question of the multiplier, the judge's award of £35,000 is acknowledged by the respondents to be in accordance with established principles. If those principles justify the award calculated in the way followed by the judge, then it should be applied so as to ensure that the child receives on the facts as found by the judge full compensation in accordance with those principles.
It is necessary to consider the submissions made to this court by reference to the basic principles of law applicable to the assessment of fatal accident damages. If the appellant can show that the learned judge is apparently wrong according to those principles it would then be necessary to see whether the judge's decision must be upheld by reason of binding authority.
For the reasons explained by Lord Diplock in Cookson v. Knowles "the assessment of damages in fatal accident cases has become an artificial and conjectural exercise": page 568D-E. It is in part artificial where a dependant mistreated as having wholly lost a form of support or service which has in fact been replaced wholly or in part. it is conjectural because the assessor must estimate the chances of a state of affairs continuing to exist such as the provision of the support or service, if the death had not occurred, or of a state of affairs ceasing to exist such as by the death of the recipient or termination of the receipt of services as when a child becomes independent. Notwithstanding such artificiality and the conjectural nature of the exercise, the purpose is to determine fairly within the statutory rules the amount of the damages "proportioned to the injury resulting from the death to the dependants respectively": (section 2 of the Fatal Accidents Act 1846, now section 3 of the Fatal Accidents Act 1976), and, within the principles established by the decisions of the courts, to put the child as near as may be fairly accomplished into the position in which it is conjectured that he would have been but for the death of his mother.
Where the claim is for the loss of the services of a mother to her child the claim is limited to the loss of those services capable of being valued in terms of money which the mother would have rendered to the child as his mother if she had survived. That proposition was treated as correct in Hay v. Hughes [1975] QB 790 and has not been disputed in this action. The compensation does not extend to cover the loss of the benefits arid happiness to be derived from the companionship of his mother, or from her love, or for the loss of the joys of a happy home so far as he has lost them by his mother's death: see Hay v. Hughes [1975] QB 790 and 810. The fact that the child has enjoyed the care and companionship of his grandmother, which has to a large extent replaced the services which he would have received from his mother, may be regarded as irrelevant because the services of his grandmother did not "result from the death" of his mother. Further, despite the fact that nothing has been spent upon any services to replace those of the mother the wages payable to a "notional nanny" may be taken as the measure of the services which the child had lost: Spittle v. Bunney [1988] 1 W.L.R. at 853F.
The method for calculating the amount of pecuniary benefit which the child would in probability have received from his mother in the future, i.e. after her death, which has been evolved by the courts, requires the calculation to be made in two parts by reference to the annual or other periodic value of the benefit, i.e. the multiplicand. The first stage is for such part of the period between the death and the trial as during which but for the death the support or services would have been enjoyed by the claimant. The amount is the annual value multiplied by the number of years in that period. The value of the lost support or services is to be calculated by reference to the facts proved at the date of trial. The second stage is damages for loss in the future from the trial for the period of time over which, but for the death, the financial support or services would have continued to enjoyed.
In the ordinary or typical fatal accident case, that is a widow claiming for loss of support from her dead husband, such as was Cookson v. Knowles (see page 566H), the estimated period of time by reference to which the multiplier is determined is that over which the deceased husband would have continued to provide the financial support to the claimant, and that in turn is usually assessed by reference to the number of years before the deceased would have reached retirement age, but subject, of course, to his working life expectancy. The period of time over which the claimant widow would have been alive and present to receive the benefit is ordinarily not of controlling relevance in the fixing of the multiplier because the life expectancy is longer than the period before the date on which the husband would have retired and, in the ordinary case, there is no reason to expect that the widow would have ceased to receive the support for any other reason. It is obvious, and it is not in dispute, that if the widow's life expectancy should be shorter, or if she has in fact died before trial, or if for any other reason she would in probability have ceased to receive the support at an earlier date than her husband's retirement, recovery is limited to the assessed or actual period of loss.
The multiplier itself, of course, is less than the number of years taken as the probable duration of the continued support because of the effect of two factors. Firstly, the multiplier is set to produce the present value of the series of future payments having regard to the fact that the claimant is regarded as having the lump sum award available for investment over the period of time and, secondly, that present value is discounted to allow for the fact that, for one reason or another, save as already allowed for in the calculation of the life expectancy, the person providing the maintenance or services might have ceased providing them and the person receiving the maintenance or services might not have enjoyed the benefit of them over the period of years during which it would have been capable of being provided: see per Lord Reid: Taylor v. O'Connor [1971] A.C. 115 at 128D. In the ordinary case both factors are operative in the selection of the multiplier but they are seldom, I think, separately discussed or analysed.
The first period of time relevant to the multiplier in this case is the life expectancy of the mother. It is common ground that it greatly exceeded the period of 18 years over which the child would, if he lived, have continued to receive the services of his mother. If the trial had taken place soon after the mother's death the appropriate multiplier, fixed in accordance with "the wealth of experience of judges and counsel which is an adequate guide" (see per Lord Reid, Taylor v. O'Connor at page 128E) would have been 13 according to the submissions of Mr. McGregor both before the judge and in this court. The judge fixed the multiplier at 12. It is not suggested that there is any special feature in the evidence, relevant either to the mother or to the child, which would suggest any risk of unusually early termination of the willingness or ability to provide the services by the mother before the child reached the age of 18 or of the ability by the child to receive them. There are, however, the ordinary vicissitudes of life which must be taken into account.
So far as concerns the discount required by reason of the immediate receipt of future payment, the multiplier in principle is less than "the number of years which represents the period for which it is estimated that the dependant would have continued to enjoy the benefit of the dependency since the capital sum will not be exhausted until the end of that period and in the meantime so much of as is not exhausted in each year will earn interest from which the dependency for that year could in part be met": per Lord Diplock: Cookson v. Knowles at page 568B.
In the ordinary fatal accident case which goes to trial there is at least the unavoidable delay required by the necessary procedures between the death and the trial. The claimant does not in fact have the lump sum award from the date of death upon which interest will be earned. Thus, in Hay v. Hughes [1975] 1 Q.B. 790 (decided before the practice of dividing Fatal Accident Act damages into two parts was established by Cookson v. Knowles) two boys aged four and a half and two and a half lost both parents in an accident on 10th January 1970. The mother was aged 25 and the father 29. At a trial on 24th October 1973, Reeve J. held that the services of the mother would have been enjoyed by the boys to age eighteen and a half: there was thus an average maximum period of lost dependency in that respect of 15 years. The value of the mother's services was fixed at El,000 per annum over the whole period and a multiplier of 9 applied to it. The plaintiff contended in the Court of Appeal for a multiplier of 12 but the court refused to disturb the judge's award. Nothing was said about the fact that, for the period of three and three-quarter years between death and trial, the claimants had not had the award available to earn interest and that the period of future loss from the date of trial to the expected end of the dependency, namely 10 years for one child and 12 years of the other, was to be compensated by five and a quarter years purchase of the loss. The fact that the multiplicand was the same over the whole period although the services would be diminishing was not expressly treated as justification for that aspect of the award.
In Cookson v. Knowles the death was on 14th December 1973; the multiplier taken was 11; and the multiplicand was £2,250 per annum. Judgment was given after trial on 27th May 1976 for a capital sum of £24,750. The trial judge, following the guide lines in Jefford v. Gee [1972] 2 Q.B. 130, awarded interest on the whole sum from the date of death to the date of trial at 9%: i.e. £5,412. The principle justifying the discount for immediate payment was thus more than justified because the claimant received interest over the period from death to trial not only upon the sums awarded in respect of that period but also upon the sums awarded in respect of the rest of the period of dependency. In the case of Cookson, however, the Court of Appeal varied the guide lines and held that, for the purpose of awarding interest on damages, the damages should be divided into two parts as described above.
The House of Lords upheld the new guide lines. The question, the reasoning upon which is relevant to this appeal, was whether in fatal accident and personal injury cases, where there are no unusual circumstances, interest should be awarded on the whole or part of the capital sum awarded by way of damages, and if the latter, on what part: page 576. The reasoning by which Lord Diplock reached the conclusion that interest should be awarded on the first part of the damages, i.e. from death to trial at half the short term interest rate current during that period, and that no interest should be awarded on the damages for future loss after the trial, may be summarised as follows. For the period between death and trial there are some hard facts available which reduce, although they cannot eliminate, reliance upon conjecture: e.g. the level of wages which the deceased would have been earning if still in work. Therefore the two part assessment was right. Lord Diplock's grounds for rejecting the Court of Appeal's reasoning on the relevance of inflation need not be repeated. The first part of the total damages, i.e. for the period from death to trial, is in respect of losses already sustained over the period, in that case of two and a half years. If the husband in that case had lived, the widow would have received payments in successive instalments over that period. Compensation for the additional loss sustained by the delay in payment of each instalment was provided in a rough and ready way by giving interest for the whole of that period but at half the short term investment rate. I would add the comment that, on that basis, the claimant has received for that period net compensation only: there is no holding in advance over that period any capital sum, intended to provide part of the lost dependency in future years, which would be meanwhile earning interest capable of providing part of that dependency.
As to the second part of the damages, the future loss (page 572B) Lord Diplock said that the starting point is the present value, not as at the date of death but at the date of the trial, of an annuity equal to the dependency starting then and continuing for the remainder of the period for which it is assumed the dependency would have enured to the benefit of the widow if the deceased had not been killed. To calculate what would have been the present value of that annuity at the date of death, its value at the date of trial would have to be discounted at current interest rates for the two and a half years which had elapsed between the death and trial. From the juristic standpoint it is that discounted amount and no more to which the widow would become entitled at the date of her husband's death. Interest on that discounted figure to the date of trial would bring it back up to the higher figure actually awarded. To give in addition interest on that higher figure would be not only to give interest twice but also to give interest on interest. I must add that I understand the reference to the "higher figure" to be to the sum calculated upon the basis of the earnings of the deceased at trial rather than those at the date of death.
The enquiry thus far shows, I think, that the multiplier of 12 years taken by the judge in this case does not appear to be fully in accordance with the principles for calculation of damages in a fatal accident case unless the fixing of the multiplier as at the date of death is a rule to be applied in every case, irrespective of the time which has elapsed between the death and the trial. The multiplier of 12 years is, as it seems to me, without question one which the judge could properly take as appropriate on the facts of this case for a maximum period of dependency of 18 years if the award is to be calculated as at the date of death but with the value of the service fixed by reference to the relevant cost at the date of trial. If the taking of that multiplier of 12 had depended significantly upon a theoretical uncertainty of the survival of the child then the fact that he had survived to age eleven and a half at trial would, and in my view should on the authority of Cookson v. Knowles, be taken into account in fixing the multiplier as at the date of death but it is not apparent that the multiplier of 12 did, in the judgment of the learned judge, so depend.
The difficulty, in my view, is that the taking of 12 years purchase to cover a maximum of 18 years lost services for this child appears to have depended largely upon the notion of discount for early receipt as at the date of death for services to be lost in the future over the ensuing 18 years. A sum awarded eleven and a half years after death provides, as explained by Lord Diplock in Cookson v. Knowles, in the first part of the award of damages, only compensation for the value of the lost services over that period and there is no element of receipt in advance of compensation for future loss. If the award is rightly calculated in this case, it must be because the law requires that the damages be calculated in that way, although the damages will be received as to eleven and a half twelfths as compensation for past loss; and that must be because, in law, the claimant's right is to a sum in damages calculated in that way and no other.
I turn then to consider whether, as Mr. Playford submits, there is authority which so provides. It is to be noted that in Cookson v. Knowles it was argued for the widow, that, if the award was to be calculated in two parts, it was inappropriate to take a multiplier from the date of death and to deduct the period of years from death to trail because that involved "deducting years from years' purchase". In particular it was submitted that the award, based upon a multiplier of 11 as at death, which was meant to compensate the plaintiff for the ensuing thirteen and a half years until the deceased would have retired at the age of 65, was inadequate. For the defendant, it was argued (page 563C) that, at four and three-quarter per cent., an 11 year multiplier was too much because the fund is not exhausted for 16 years and that took account of none of the contingencies of life. In particular the damages should be assessed at the date of death. Their Lordships held that, in a fatal case, the multiplier must be selected once and for all as at the date of death because everything that might have happened to the deceased after that date remains uncertain: see per Lord Fraser at page 576. The argument for fixing a multiplier at the date of trial in that case was less compelling than in this case, because the elapsed period of time between death and trial was markedly less, but the argument in substance was, in my judgment, the same and it was rejected.
In Graham v. Dodds [1983] 1 W.L.R. 808 the House of Lords rejected the contention that there was any difference upon this point between the opinion expressed by Lord Fraser and that of Lord Diplock in Cookson v. Knowles. In that case the plaintiff's husband was killed, aged 41, in December 1977 in a road accident for which the defendant admitted liability. The jury on 22nd January 1982 awarded total damages of £103,300 after directions by Lord Lowry C.J. The Court of Appeal in Northern Ireland dismissed the defendant's appeal. That decision was reversed by the House of Lords. At page 813G Lord Bridge said:
"The only issue arising in this appeal which is strictly one of law is whether, in assessing damages for loss of dependency arising from a fatal accident, the multiplier or number of years purchase should be calculated from the date of death or from the date of trial. Counsel for the defendant has contended for the former. Counsel for the plaintiff has throughout contended for the latter and this view prevailed with the learned Lord Chief Justice and the majority of the Court of Appeal".
Then at page 815G Lord Bridge continued:
"Accordingly, in so far as the learned Lord Chief Justice based his directions to the jury with respect to the multiplier to be applied in assessing future loss on the considerations appropriate in awarding damages for future loss of earnings to a surviving plaintiff in a personal injury case aged 45 (the age the plaintiff's husband would have attained at the date of trial if he had survived) and treated the pre-trial loss as "special damage", and in so far as the majority of the Court of Appeal approved the directions given on that basis, they erred in law".
It is necessary to note what the Court of Appeal in Northern Ireland had thought to be the difference between the opinions of Lord Diplock and of Lord Fraser as expressed in Cookson v. Knowles. Lord Bridge at page 814A continued:
"Gibson L.J. illustrated his understanding of the supposedly conflicting doctrines by indicating how they would apply in assessing the dependency of the widow of a young man killed at the age of 21 in the following terms:
'Should the action not come to hearing until 5 years had elapsed Lord Fraser would assess at death the multiplier, which I take at say 18, and he would then allow 5 years special damage and 13 years as the multiplier of future loss. Lord Diplock on the other hand, would also give 5 years special damage and then fix the multiplier on the assumption of the death of the deceased at the age of 26 years, which Mr. Hill conceded could not be appreciably less than the original figure of 18'.
On the basis of such a conflict Gibson and O'Donnell L.JJ. held themselves free to choose which of the two doctrines they preferred and both came down in favour of the view they attributed to Lord Diplock".
Lord Bridge then explained why the majority of the Court of Appeal in Northern Ireland had based their decision on a misunderstanding of the decision in Cookson v. Knowles. Lord Bridge concluded, with reference to the opinion expressed by Gibson L.J.:
"Such a doctrine, ignoring the uncertainty which, as Lord Fraser pointed out, affects everything that might have happened to the deceased after the date of his death, is clearly contrary to principle and would lead to the highly undesirable anomaly that in fatal accident cases the longer the trial of the dependant's claims could be delayed the more they would eventually recover".
For my part I have reached the conclusion that Mr. Playford is correct in his submission and that it is not open to this court to accede to the argument advanced by Mr. McGregor for the appellant and to hold that the judge was wrong, on the facts of this case, not to fix a multiplier as at the date of trial. The rule, which appears to me to have been laid down in Cookson v. Knowles and repeated in Graham v. Dodds, is to be regarded as part of the "artificial and conjectural exercise" to which Lord Diplock referred in Cookson v. Knowles and which is the product of decisions by the courts upon statutory provisions which have, in turn, been followed by further statutory provisions which have altered the law so laid down.
I have considered whether it would be possible to hold that, in fixing the multiplier as at the date of death, but having regard to the facts known at trial such as the rate of earnings, and the survival of the dependant, account should also be taken of the number of years which have elapsed since the death. If, as in this case, because of delay, eleven and a half years of the (otherwise) appropriate multiplier have elapsed, so that there will be no receipt in advance of a capital sum capable of earning interest, may the multiplier be adjusted to allow for that fact? I have read in draft the judgment of Purchas L.J. and I recognise the force of the reasons given by him in concluding that the court is entitled and required to have regard, in fixing the multiplier as at the date of death, to the fact that the award of damages is to be made eleven and a half years after the death. After much hesitation I have reached the conclusion that it is not possible to take that course without departing from the reasoning of their Lordships in Graham v. Dodds as set out above. So to do would be, as it seems to me, in effect, to calculate the multiplier as at the date of trial.
I would reject also the further submission made by Mr. McGregor for the appellant to the effect that, if the judge as right to fix the multiplier as at the date of death, the figure taken was, on the facts found by the judge, too low. As I have said, I accept that the survival of the plaintiff to age eleven and a half at the date of trial was a relevant fact to which the court should have regard just as the court had regard to the evidence as at the date of trial as to the cost of the services of a nanny etc. There is, however, in my judgment, no material upon which this court could hold that the learned judge misdirected himself in this regard in fixing the multiplier at 12. It was, as I have said, a multiplier which it was open to the learned judge to take on established principles having regard to the ordinary uncertainties of life and the methods of calculating the multiplier in cases of this nature which have been approved over the years by the courts.
The remaining issue is, as mentioned above, the judge's assessment of the plaintiff's chances of proceeding to some education or training after the age of 18. The learned judge noted that the onus of establishing that the plaintiff was likely, on the balance of probabilities, to proceed to tertiary education was on the plaintiff himself; and held that he had failed to discharge that onus because "on the evidence the position is evenly balanced: he may or may not go on to higher education". Mr. McGregor submitted that the learned judge was wrong to regard this matter as a fact which the plaintiff was required to prove positively that, if he failed to prove as a fact that he would proceed to tertiary education, the judge was required to disregard any chances that there might be of the plaintiff continuing to be dependent upon his mother after the age of 18. For my part, I think that Mr. McGregor is right in this submission at least to the extent that the judge failed expressly to direct, himself in accordance with the principle stated by Lord Reid in Davis' case. The judge should have asked himself what reasonable chance there was of the plaintiff proceeding to tertiary education and, if there was such a reasonable chance, to place a "Value in percentage terms upon it. I reject the submission that, because he failed to do that, this court is bound to accept that the chance was of the order of 50%. I would give effect to this point by increasing the multiplier from 12 to 13. That would add the sum of £2,600 to the total award.
I would not disturb the ruling of the learned judge as to interest for the reasons given by Purchas L.J.
LORD JUSTICE FARQUHARSON: This is an appeal from a decision of Judge Hayman sitting as a Deputy High Court Judge in London on 5th June 1989.
The appellant had claimed, by his father as next friend, damages under the Fatal Accidents Act 1976 for the death of his mother which he alleged had been caused by the negligence of the respondent.
The appellant was born on 27th October 1977 but during the course of the birth the administration of an anaesthetic to the mother had been so mismanaged that she contracted a serious infection and died on 12th November 1977 aged 29. There was a long delay before a writ was issued on behalf of the appellant on 6th August 1985. Before the trial the respondent admitted liability so that the only issue before the judge was of damages. For general damages he awarded the sum of £32,000 to which he added a further £3,000 for the loss of the additional services his mother would have given by way of care, guidance and instruction. After reducing the amount he would otherwise have awarded for interest to 615,110 because of the delay the judge gave judgment for a total sum of £50,110.
The appellant has been brought up by his grandmother who undertook the care of him after his mother's death. Her task could not have been an easy one as four of her own children were still living at her house, as well as her husband at the time of the appellant's arrival. Mrs. Corbett had just turned 57 and had to give up a job she had recently taken. So far as possible she gave her grandson a mother's care and according to the boy's father had done a first rate job in looking after him. The judge expressly found that father and son were extremely fortunate that Mrs. Corbett was able to take over the role of substitute mother. She said in evidence that she expected to look after the appellant until he left home.
The appellant first went to school at the age of five and this involved Mrs. Corbett taking him there and fetching him home in the afternoon. Additionally she had to bring him home for lunch and then return him to school until the age of nine because he found it difficult to settle with other children. Since that time her duties have been less onerous.
The Multiplicand
Owing to the difficulty in calculating the loss of mother's services on a claim of this nature the courts have derived assistance from evidence of the amount of wages paid to a nanny housekeeper carrying out the kind of duties that the mother would otherwise have done. The figure which is considered by way of comparison is the net in hand wage, that is to say the sum available to the nanny/housekeeper after payment of tax and other statutory deductions. It has always been emphasised that this comparison exercise is only a guide to the courts and is not to be taken too precisely. Thus as the dependent child grows older he will not require the services of a trained nanny although he will still need somebody to cater for his general needs. In the present case this class of evidence was investigated in considerable depth. There were no less than four witnesses called who ran employment agencies for the services of nannies and nanny housekeepers. This evidence was broadly directed to the cost of employing people who gave these services. Two of these witnesses gave the net in hand figure current at the date of trial as £132 per week, although one of them said that if the role to be filled was one of substitute mother the figure would be higher. The other two put the figure at £100 a week. A considerable amount of evidence was given by these ladies of the needs of a growing child in this context and what paid help and supervision would be necessary at different times of his or her upbringing. For my part I would rather doubt whether these witnesses could properly give expert sociological evidence of this nature. It underlines the importance of not placing too much reliance on evidence of the cost of employing people who undertake a mother's work. The judge accepted the evidence of the two witnesses who gave the lower figure of net in hand wage at the date of trial, and for the purpose of his assessment of the loss of dependency calculated the figures from 1977 onwards on the basis of that evidence. Mr. McGregor appearing for the appellant criticises the judge's findings on two grounds; first that the judge's assessment was against the weight of the evidence, and second that he failed to take into account the costs of "cover", as it has been called in this appeal. This term describes the cost of hiring help during the weekends and holidays when the nanny/housekeeper is not on duty.
The answer to the first of these criticisms is that it was for the judge to decide whose evidence he accepted and whether in whole or in part. Mr. McGregor has taken us through the transcripts of the evidence devoted to this part of the case in some detail, but this exercise revealed nothing to suggest that the judge's findings were not sufficiently supported by the evidence. Equally when the judge came to assess the multiplicand on the basis of the net in hand wage it was not necessary for him to engage in an exact mathematical calculation. If he took the annual net in hand wage of a nanny as the appropriate figure, as he did, there was no obligation to augment it with additional sums for time off in respect of sickness or holidays. It is probable that had she lived the appellant's mother would, like most young parents, have asked friends or grandparents to baby-sit or have the child to stay during holidays or at weekends, but it would be unreal for the court to discount the damages for such reasons. Mr. McGregor's submission would oblige the judge to treat the comparison with a nanny's wage as a precedent to be followed rather than as a guide to the cost of the mother's services.
In respect of the period from the age of six until eleven and a half, which was the appellant's age at the date of trial, the judge assessed the value of the lost services at one half of the in hand wages of a nanny/housekeeper on the basis that less care and supervision or services were necessary than for the first six years of the appellant's life. Mr. McGregor submits that this is too great a reduction, especially bearing in mind that the appellant had to be taken to and fetched from school twice a day until the age of nine. The judge of course was seeking an average in establishing the amount of care required to bring up a boy between the ages of five and eleven. No doubt in the early part of that time when the appellant was only six the average figure would appear to inadequate to pay for the necessary care but it would be outbalanced by the appellant's decreasing needs as he grew older. For my part I would endorse the judge's method of calculation in this part of the case.
The award of £3,000 for the loss of those services which a mother would give but which would not be given to the same degree by a substitute was also criticised as being inadequate. Awards of this nature are of fairly recent growth and a pattern has yet to emerge. The possibility of an award on these grounds was considered in this court in Hay v. Hughes [1975] QB 790 and given in Regan v. Williamson [1976] 1 W.L.R. 305 and in Mehmet v. Perry [1977] 2 All E.R. 529. In the present case the judge took into account the special services given by Mrs. Corbett to the appellant saying that she was the next best thing to the mother herself, treating him as one of her own children. The judge took the view that "there is little, if anything at all between the quality of the service given by the grandmother and that which would have been given by the deceased mother". The judge further considered the difference in age between the mother and grandmother as a disadvantage to the appellant. Having properly considered all those matters the judge was entitled to come to the conclusion, as he did, that a modest sum for damages under this head was appropriate.
The multiplier
In assessing damages under the Fatal Accidents Act the multiplier should be calculated from the date of birth. Kay v. J.N.P. [1976] 1 Q.B. 85. This is in contradistinction to the way a multiplier is fixed in a personal injuries case which is at the date of trial. The difference is explained by Lord Fraser in Cookson v. Knowles [1979] AC 556 at page 576 where he says:
"In a personal injury case, if the injured person has survived until the date of trial, that is a known fact and the multiplier appropriate to the length of his future working life has to be ascertained as at the date of trial. But in a fatal accident case the multiplier must be selected once and for all as at the date of death, because everything that might have happened to the deceased after the date remains uncertain".
In the present case the judge fixed the multiplier at 12. When the case came to trial 11 1/2 of that number of years purchase had expired. Following the decision of the House of Lords in Cookson v. Knowles (supra) the judge divided his award between the pre trial loss and the future loss. So 11 1/2 years of the multiplier was applied to the pre trial loss and the remaining half year was used to calculate the post trial loss. One recognises that any calculations of this kind bears a considerable degree of artificiality which may be justified on the basis that nobody has devised a better method of calculating damages in Fatal Accident cases, but the position borders on the absurd when the effect is that a healthy eleven and a half year old boy at the time of the trial is assessed as having a multiplier of half of a year. Mr. McGregor's solution is that one should at the time of trial make another calculation of the number of years purchase appropriate to the dependant. The dependency is likely to terminate when this appellant reaches the age of 18 so a fair estimate would be a further five years purchase from the date of trial whatever the appropriate multiplicand might be.
Mr. McGregor justifies his submission by contending that the relevant or dominant life for the purpose of calculating the multiplier in the present case was not the mother's but the appellant's. On an actuarial basis the mother, had she not died as a result of the respondent's negligence, would have lived more than the eighteen years of the appellant's dependency, so the relevant life for the purpose of calculating the appropriate award of damages, and for the accelerated receipt of the capital sum is the appellant's. Therefore argues Mr. McGregor, his survival to the age of eleven and a half is a factor which must be fed into the equation and which would result in a further multiplier.
Mr. Playford for the respondent views these arguments with alarm. He submits that the basis of calculating damages in Fatal Accident Act cases has now been established for ten years since the decision in Cookson v. Knowles. It has worked satisfactorily and to accede to Mr. McGregor's submissions would simply throw this area of the law into uncertainty. The artificiality of the calculation in the present case has been caused by the lamentable delay in the prosecution of the claim. Mr. Playford further submits that acceptance of Mr. McGregor's arguments would be in conflict with decisions of the House of Lords not only in Cookson v. Knowles but in the later case of Graham v. Dodds [1983] 1 W.L.R. 808 which followed Cookson v. Knowles. Finally it was not the approach of this court in the recent decision in Spittle v. Bunney [1988] 1 WLR 847. In that case which on the facts was not dissimilar to the present the child, Kate, was three and a half years old at her mother's death and ten at the time of the trial. The judge took the view that Kate would proceed to tertiary education of some sort and fixed the multiplier at 11. In the Court of Appeal Croom-Johnson L.J. regarded that as being on the high side, though not too long.
In my judgment it is not open to this court to calculate the measure of damages as at the time of trial as Mr. McGregor suggests even in the restricted case where a dependent is claiming damages for loss of a mother's services. The two decisions of the House of Lords cited above do not permit that course and we would similarly be in conflict with this court's decision in Spittle v. Bunney. It also ignores the possibility of the mother not living the full term of eighteen years even if she had not died as a result of the respondent's negligence. The calculation must be based on a continuation of joint lives. However, the survival of the dependent in good health to the date of trial may have some significance. It becomes a "known fact" as Lord Fraser puts it. The longer the period from the death to the trial the more significant it will become. It must be recognised that this may put a premium on delay, but the court has other weapons to compensate for that. The extent to which such a 'known fact' should increase the multiplier of general damages will depend on the facts of an individual case but on any view some account must be taken of it.
The damages awarded
In the present case when deciding upon the appropriate multiplier (as from the date of death) the judge should have taken into account the fact of the appellants' survival for a period of eleven and a half years. If he had done so he would, in my judgment, have set a higher figure than 12. There was in this case little discount to be made for the accelerated receipt of a large capital sum so that factor could not have affected the judge's mind when fixing the multiplier. For these reasons and for those examined more closely in the judgment of Purchas L.J. this court should, in my opinion, increase the multiplier to reflect the fact of the appellant's survival to the date of trial. I agree with the comments of Purchas L.J. that a further small addition to the multiplier should also be made in respect of the appellants chances of further education. In the result I would hold that a figure of 15 should be substituted as multiplier for the 12th applied by the judge. On the basis of this calculation the figure for post trial damages should be £9,100 rather than £l,300.
Interest
The judge disallowed four years of interest on the sum awarded because of the delay in bringing the claim. That he had the power to take such a course in the exercise of his discretion is established by the decisions not only of Cookson v. Knowles but also of Jefford v. Gee [1970] 2 QB 130 and Birkett v. Hayes [1982] 1 W.L.R. 816. Mr. McGregor complains that the judge has disallowed too much, bearing in mind that one is here dealing with an infant plaintiff. For my part I reject that argument. The power to deprive a tardy litigant of interest when he is guilty of unjustifiable delay is an essential discipline. The period of four years in the context of this case is one the judge could properly identify as being justified.
I would allow the appeal to the limited extent indicated in this judgment.
Order: Appeal allowed with costs of appeal; leave to appeal to House of Lords. |
Revised)
LORD JUSTICE NOURSE: I will ask Mr Justice Ward to give the first judgment.
MR JUSTICE WARD: With the leave of the judge this respondent husband in a suit for divorce appeals against the order of His Honour Judge Blackburn made on 21st November 1989 whereby the learned judge dismissed the husband's appeal from the order of the learned deputy Registrar that he pay periodical payments to three children of the family at the rate of £10 per week in respect of each child. The learned deputy Registrar made an order in the wife's favour of £0.05 per annum and there is no appeal in respect of that.
The children of this family are a boy Kris born on 30th June 1978, so he is soon to be 12 years of age; Rachel was born on 19th March 1980, so she is ten; and Craig was born on 12th January 1985; he is five. They are the children of this petitioner and respondent who married on 7th January 1978 and separated nine years later in February 1987 at about the time of the grant of the decree nisi of divorce in the petitioner wife's favour. That decree was made absolute on 6th March 1989, but I shall for convenience continue to call them "husband" and "wife".
The husband had been unemployed for some four and a half years when in October 1988 he found work, at first on a temporary or probationary basis, but he was taken on to the permanent staff in December of 1988.
On 28th February 1989 the wife applied for periodical payments for herself and the three children. That came before the learned deputy Registrar on 8th September 1989 when he made the orders I have recited and that led to the appeal to the judge. The learned judge properly heard the matter de novo, read the affidavits, took oral evidence and, as I have stated, confirmed the Registrar's order.
The wife's income was found to be £98.75 per week made up as follows: (1) From her comparatively new employment as a sales assistant she earned £50 a week basic with some possibilities for overtime which the learned judge quite rightly ignored. After payment of her national insurance contribution she was left with £48 a week net. (2) She continued the part-time employment she had held for some time in the local sports and social club where she worked three nights a week and earned £29.32 from that source. (3) She was in receipt of child benefit of £21.75 for the three children. She is, therefore, a hard working lady to whom all credit must be given. She does not shirk at all from her responsibilities for herself and for her family.
It does not appear to have been drawn to the learned judge's attention that she was entitled as of right to a further benefit, being the single parent benefit currently of £5.60 per week. She was not making claims for nor in receipt of any other state benefit and gave evidence that she had not enquired into those matters. Nor was it explored before the learned judge, who was therefore not given the benefit of the help we have had today and for which I pay my tribute to Miss Wall, counsel for the wife, who very fairly feeds us this vital information, namely that having regard to the wife's earned income she is entitled to family credits of £45.35 per week. She will receive that amount on a basis that there is no order for periodical payments either in her favour or in favour of the children. If an order is made in respect of either her or the children, as I understand it, that benefit will be reduced by £0.70 for every pound which she receives up to that limit of £45.35.
Considering therefore what this lady is entitled to, if one has regard to those state benefits, the arithmetic then is to this effect: from her income some £79.32, from her child benefit £21.75, from her single parent benefit £5.60, and there is family credit of £45.35, which adds up to a total of some few pence short of £152 per week.
As against that, she expressed in her affidavit her weekly expenditure which totalled £112.70 per week. I draw attention to only some features of that expenditure. Her rent was £33 a week and £3 was paid off the arrears that had accumulated making £36 a week in all. Her food bills were modestly pitched at £30 a week for herself and her three children. Her mail order catalogue, which I assume related largely to buying clothing, was £12 a week. Because she has struggled, and one recognises how she must have struggled, she has not always been able to meet all her expenditure. The result is she has incurred certain penalties for non-payment of rates, water rates and the television licence, and the poor lady has certain fines to pay as a result of that misfortune, and those fines are included in those outgoings.
The learned judge said this of her income and her need : "After paying her rent and rates, she has left £50,with which to feed and clothe herself and her three children. This patently is not enough", and quite clearly it is not. Her express need was for £71.70 in addition to that commitment for rent and rates, and that was modest, as was conceded, and rightly conceded, by counsel for the husband both in the court below and before us.
The real issue, therefore, is the extent to which the husband can meet that need of this wife and this family. His position is that following the separation from his wife he has established a relationship with another lady whom he hopes soon to marry and with whom he hopes then to start a new family. For a while after the separation he lived with his father, but then he took a tenancy in the private sector of a one-bedroomed flat which was costing him £26 a week. The learned judge appears, as I understand his judgment, to accept that the flat with its one bedroom was not convenient for access to the children on rainy days, nor, I would add, is it convenient for the children for the purpose of staying access, and ordinarily one would hope and expect that a father would enjoy staying access, bearing in mind he has a boy rising 12, another boy of five, and his daughter in the middle, aged ten.
Faced with life in that one-bedroomed flat and his hopes for the future, this husband and his girlfriend embarked on the purchase of alternative accommodation. It is not clear from the papers when that was first contemplated. They were in the process of purchasing the property at the time his first affidavit was sworn in May of 1989, which is after the wife's application made in February, and they had moved into the property by 26th May 1989. What they have done is this. They have availed themselves of those opportunities, which may be rare opportunities and are certainly beneficial opportunities, to buy a property in conjunction with a housing association. The basis of the arrangement is that the young couple acquire a one-half interest in the property and the other half is acquired by the association, who then let it to the couple. Consequently, they pay a mixture of mortgage repayments and rent.
That opportunity presented itself in respect of a three-bedroomed semi-detached house, three and a half years old, clearly, in estate agents' parlance, a desirable residence, with a garden which makes it a suitable family home. The cost was £60,000 and the couple have borrowed £30,000 for their half share, for which their mortgage commitment, as set out in the evidence to the learned judge, was £67-84 per week, and their rent in respect of the half they did not own £12.72 per week, making a total outgoing of £80.56 per week. If that is shared between them, the cost of providing the roof over his head is £40.28 per week.
The husband gave evidence that this was regarded by them to be a very reasonable price to be paid on a market which was then still rising, that a two-bedroomed property would have been inadequate for their needs once they had started a family, and that it would have been a waste of money having regard to the duplication of the costs of sale in the not too distant future as they saw it. The learned judge found that that property far exceeded the husband's needs, that he did not need a house of that size for access purposes, and that he had "deliberately taken on unnecessary and excessive obligations after he had an obligation to the children."
The learned judge also observed that the couple ran a motor car. This was a Metro motor car, the lowest in the range, acquired by the girlfriend in August of 1988 - that is to say, before the husband found his employment and indeed before the wife made the application for periodical payments. It was financed by hire purchase and was used by the husband to take the girlfriend to work and then to look for work with the success I have recited. It is now used to convey both of them to work and his is a 12 mile journey. It is not wholly clear whether the learned judge made any critical finding of the couple for having undertaken that responsibility. He seems to say that the husband should limit his expenditure to £10 towards travel and that without the car the couple would be better off, and the implication of those remarks is a criticism of them. But it was not a criticism which Miss Wall, for the wife, felt able to sustain in this court, and it was here accepted that the car, being most modest of its kind, was essential to this couple for their working lives as well as for collecting the children on access.
Miss Wall mounted some attack against the husband's expenditure of some El 2.92 per week on the hire purchase commitment he and the girlfriend took, and I assume took after these proceedings were well under way, to buy for themselves a refrigerator and some furniture to replace the chairs that had broken springs and had to be thrown away. Bearing in mind that the husband left the matrimonial home with the contents intact for the wife and children, he cannot be criticised in my judgment for wishing to equip himself with some modest furniture, and that outlay does not in my judgment justify the condemnation Miss Wall has given it.
That apart, the major issue which counsel for the wife raises is whether or not the mortgage commitment could be justified.
To that Mr Smith, for the husband, has two answers. Firstly, he says that of the total expenditure of £80.56 only one half of it should be regarded as the husband's liability - that is to say, some £40 per week, and he says that that cannot be regarded as an unreasonable amount to pay towards the cost of his home. Secondly, Mr Smith submits that the learned judge was not justified in his finding that the husband deliberately took on unnecessary and excessive obligations without regard to all the circumstances of the case. Mr Smith points out that there was no cross-examination of the husband to determine the extent to which other and cheaper accommodation was available. He points out the difficulties in obtaining local authority accommodation of that sort, bearing in mind that he is not at the moment married to the lady, is without children by her, and has merely an order for access to, but not care and control of, the children of his marriage. There was no evidence, he submitted, of the availability of housing association accommodation which justified the learned judge's finding that the respondent could rent a house from a housing association at a rent similar to that paid by the petitioner of £33 a week.
In my judgment the approach of this court in this case must be, firstly, to have regard to the need of the wife and the children for proper support. Having assessed that need, the court should then consider the ability of the husband to meet it. Whilst this court deprecates any notion that a former husband and extant father may slough off the tight skin of familial responsibility and may slither into and lose himself in the greener grass on the other side, nonetheless this court has proclaimed and will proclaim that it looks to the realities of the real world in which we live, and that among the realities of life is that there is a life after divorce. The respondent husband is entitled to order his life in such a way as will hold in reasonable balance the responsibilities to his existing family which he carries into his new life, as well as his proper aspirations for that new future. In all life, for those who are divorced as well as for those who are not divorced, indulging one's whims or even one's reasonable desires must be held in check by the constraints imposed by limited resources and compelling obligations. But this husband's resources, even when one adds to them the contribution made by his girlfriend, are very limited indeed. He brings in £115 a week net and she brings in £97 a week net. Their joint income is £212 per week. Their expressed outgoings, as found by the judge, details of which I need not recite, were £179.39, and that took no account of food, clothing, entertainment, holidays, house repairs, car repairs, servicing, the television licence or the road fund tax. By allowing something for car repairs and the servicing of that motor car, its road fund tax, licence, and the television licence, one easily adds another £6 or £7 to the listed outgoings of £179. After meeting those expenses their joint income is then reduced to something in the region of £25 a week on which this man and his girlfriend have to feed and clothe themselves and maintain the first family.
In my judgment this father was reasonably entitled to say that for the welfare of his children, their welfare being the court's first consideration under section 25 of the Matrimonial Causes Act 1973, he should have accommodation sufficient for proper access and so suitable to be able to offer them staying access. Two bedrooms may have been sufficient, but three bedrooms does not far exceed his need having regard to the fact that the wife herself lives in a three-bedroomed house. There is no evidence before the court to suggest that there was any housing association accommodation available to rent. The scheme undertaken is a beneficial one. There is force in the submission of Mr Smith that one simply does not know whether this scheme would have been available for the more modest purchase of a two-bedroomed house at a figure of, say, £50,000, all of which might then have had to be borrowed at greater expense than presently incurred. I find it difficult to say that this husband, in incurring these liabilities, was behaving in an extravagant fashion. That was the test applied in the case of Furniss v. Furniss [1982] 3 FLR 46. The approach in Barnes v. Barnes [1972] 1 WLR 1381 was to permit expenditure to a proper standard. The approach in Preston v. Preston was to look at need within the context of section 25 of the Matrimonial Causes Act in terms of what was reasonably required. So whether one judges this man by a standard of extravagant expenditure or of living to an improper standard or of behaving unreasonably, I do not find it possible to judge him to have gone beyond the limit of what is permissible. His share of £40.28 per week is not out of proportion to the wife's rental of £33 per week. Consequently, I find that his expenditure as set out is reasonably incurred by him and I find, as a result, that the £25 a week or thereabouts left for himself and the girlfriend to feed and clothe themselves is barely adequate to sustain any reasonable way of life.
In my judgment, therefore, this father would find it extremely difficult, if not impossible, to meet the obligation he has and which ordinarily he should honour to maintain his children. In paying him due credit, I observe that he has paid £10 a week to the children, being the most that he felt he could afford.
This court is entitled, as the authority of Stockford v. Stockford [1982] FLR 58 makes clear, to approach the case upon a basis that if, having regard to the reasonable financial commitments undertaken by the husband with due regard to the contribution properly made by the lady with whom he lives, there is insufficient left properly and fully to maintain the former wife and children, then the court may have regard to the fact that in proper cases social security benefits are available to the wife and children of the marriage; that having such regard, the court is enabled to avoid making orders which would be financially crippling to the husband. Benefits are available to this family of which the learned judge was not made aware, and I have come to the conclusion that the husband cannot reasonably be expected to contribute at all to the maintenance of his previous family without financially crippling himself. In my judgment it is far better that the spirit of effecting a clean break and starting with a fresh slate be implemented in this case, not by dismissing the claims of the wife and the children, but by acknowledging that now and, it is likely, in the foreseeable future he will not be able to honour the obligations he has recognised towards his children, and in my judgment the appeal should be allowed and I would substitute a nominal order to each of the children for the order of £10 which each of them is currently ordered to receive.
LORD JUSTICE NOURSE: I agree that this appeal should be allowed for the reasons which have been given by Mr Justice Ward. I wish to emphasise the three points, all of them made by Mr Smith on behalf of the husband, which have most influenced me in coming to the conclusion that we should take the unusual step of interfering with the learned judge's order in this case.
First, the judge said that the husband could himself rent a house from a housing association, like the wife who rents one at £33 per week. That is something which was not explored in evidence. There was no evidence either that the husband could get a suitable house at such a rent or that, if he did, it would meet the reasonable needs of himself and his girl friend or indeed the needs of the children when they come to stay with him on access visits.
Secondly, the judge found that the husband had deliberately taken on unnecessary and excessive obligations after he had an obligation to the children. It was on that basis that the judge thought that the husband could afford £30 per week out of his income, because if he had not taken on those obligations he would have been able to afford it. For my part I do not think, with respect to the learned judge, that that finding was justified. It could only have been directed to the amount which the husband is having to pay in respect of the new house now occupied by himself and his girl friend. His half share of the rent and mortgage repayments in respect of that property is a little over £40. That is not much more than the £33 which is being paid by the wife, and it is to be noted that before then the husband was paying £26 a week for a one-bedroomed flat, a form of accommodation which was quite unsuitable for himself and his girl friend and inadequate for the purposes of the access visits of the children. I fully appreciate that the learned judge heard and saw the witnesses, which we have not done. But I do not think that the £40 a week can be described as either unnecessary or excessive, and the other obligations which have followed from it in respect of the household expenses are neither unnecessary nor excessive on their own.
Thirdly, although the husband has managed to pay £10 a week in respect of the children's maintenance since the £30 order was made, it is to my mind quite clear that he cannot reasonably afford it. As the figures which my Lord has given show, against the joint income of the husband and his girl friend of £212 there are reasonable outgoings to be set of something of the order of £186 a week, leaving little more than £25 for food, clothing and everything else. It is indeed to the husband's credit that he has done his best during the interim period. But I am in no doubt that he cannot afford even £10 a week, and I therefore agree with the proposal that he should be ordered to pay a nominal amount only.
The decision of the court is that we allow the appeal and
substitute an order of £0.05 per annum per child for the order made by the learned judge.
Order: Appeal allowed; an order of £0.05 per annum per child substituted for the order made by the judge in the court below; legal aid taxation of both parties' costs. |
JISCBAILII_CASE_PROPERTY
BAILII Citation Number: [1990] EWCA Civ 1
Court of Appeal
15 May 1990
B e f o r e :
Lord Justice MUSTILL, Lord Justice RALPH GIBSON and Lord Justice NICHOLLS
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Between:
JAVAD
V
AQIL
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Peter Harvey (instructed by Kumars, of Ilford, Essex) appeared on behalf of the appellant; Colin Challenger (instructed by Hawker & Co) represented the respondent.
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Giving the first judgment at the invitation of Mustill LJ, NICHOLLS LJ said: This case turns on the distinction between a tenancy at will and a periodic tenancy. Shortly stated, a tenancy at will exists where the tenancy is on terms that either party may determine it any time. A periodic tenancy, on the other hand, is one which continues from period to period indefinitely until determined by proper notice: for example, from year to year, quarter to quarter, month to month, or week to week. Failing agreement to the contrary, the notice of determination required is half a period in the case of a yearly tenancy but a full period in other cases.
Given that a periodic tenancy can exist where the period is very short indeed, a layman could be forgiven for being surprised to find that the distinction between a periodic tenancy and a tenancy at will can be all-important for the purposes of the statutory protection afforded to business tenancies. But such, it is now established, is the effect of Part II of the Landlord and Tenant Act 1954: see Wheeler v Mercer [1957] AC 416 and Hagee (London) Ltd v A B Erikson and Larson [1976] QB 209. Hence the dispute in the present case. The defendant was let into occupation of business premises owned by the plaintiff while negotiations proceeded for the grant to him of a 10-year lease. For some months he was there with the plaintiff's consent. On three occasions he paid rent on a quarterly basis before negotiations broke down, and the plaintiff told him to leave. Was the defendant in occupation as a tenant at will, as contended by the plaintiff and as decided by the judge? If he was, then the judge was right to order him to give up possession. On that basis his tenancy, as a tenancy at will, was not within the protection of the 1954 Act. Or was he a quarterly tenant, as he contends? If so, he had the statutory protection afforded to business tenants.
The history
Unhappily the judge, Judge Stucley DSC, died shortly after the hearing. So counsel's note of the judgment was not approved by the judge. But, working from the available note and the contemporary correspondence, the salient facts are these. The plaintiff owned a property at 188 Brick Lane, London E1. On June 25 1985 he met the defendant for the first time. The defendant had lost his place of business and had nowhere to continue his business of manufacturing leather goods. The two of them discussed the terms for the grant of a lease of the property to the defendant. From the beginning there were difficulties. For instance, there was disagreement on whether the defendant should be free to sublet part only of the property.
The defendant was in an awkward situation. He had nowhere to go and he needed somewhere to leave his stock. The plaintiff took pity on him. The defendant paid the plaintiff £ 2,500, and the plaintiff gave him the keys. This was in anticipation that they would be able to agree the terms of a lease in due course. The plaintiff signed a receipt dated June 26 1985, in the presence of a witness, and handed it to the defendant. The receipt read:
To whom it may concern
I Mr S Javid of 188 Brick Lane, London E1 confirm that I have received £ 2,500 as rent for three months in advance for property 188 Brick Lane, E1 from Mr M Aqil of 30 Natal Road, Ilford, Essex.
The defendant moved in. But the plaintiff had workmen there, carrying out structural repairs. This led to serious disagreement between the parties. So much so that after about a fortnight the defendant walked out. At the outset each party had instructed a firm of solicitors to act for him in connection with the proposed lease. On June 27 a draft lease was sent by the plaintiff's solicitors, Suriya & Co, to the defendant's solicitors, Jennings Son & Ash. The draft was returned with amendments on July 2. When the defendant left the property his solicitors asked for 'the deposit' to be returned.
After a short while, the parties composed their differences sufficiently for the defendant to move back into the premises. The plaintiff agreed that the defendant could sublet the upper part of the building but not the shop downstairs. On August 4 the plaintiff's solicitors were once more in communication with the defendant's solicitors regarding the terms of the proposed lease. They stated that the defendant was to pay three months' advance rent as deposit and that the rent was payable three months in advance. As before, their letter was headed 'Subject to contract'. On September 9 the plaintiff's solicitors sent an engrossment of the lease to the defendant's solicitors, and asked for '3 months' deposit'. By September 30 matters had progressed to the stage of the plaintiff's solicitors sending to the defendant's solicitors an amended engrossment of the counterpart lease for execution together with a completion statement. The lease was for a term of 10 years, at a rent of £ 10,000 per year, reviewable after 12 months. The rent was payable quarterly in advance on the usual quarter days. In addition, the tenant was to reimburse the insurance premiums paid by the landlord. The completion statement was made up as at October 21. It provided for the defendant to pay on completion (1) a deposit of £ 2,500, (2) rent for the period, of less than a whole quarter, from October 21 to December 23 inclusive, in the sum of £ 1,753.60 (this equalled rent at the rate of £ 2,500 per quarter) and (3) the plaintiff's solicitors' costs of £ 230.
Eventually the plaintiff's workmen left the property. When this occurred is not clear. The defendant found the property still had many shortcomings. He spent £ 2,000 installing electrical wiring so that he could carry on the manufacture of leather garments, but the plaintiff did not know of this. I interpose: in reliance on this and other expenditure, a case founded on estoppel was put forward by the defendant in the county court. This was rejected by the judge, and no appeal was brought in respect of that part of the judge's decision.
Completion did not take place on October 21. The defendant was prepared to pay the rent quarterly in advance, but he objected to paying an additional £ 2,500 as a deposit in respect of potential damage to the property and arrears of rent. On November 11 he made a second payment to the plaintiff. The amount was £ 1,878.42. The difference, of about £ 125, between this sum and the amount of rent stated in the abortive completion statement seems to have represented the insurance premium.
The judge made no finding on why the second rent payment was calculated from October 21. Indeed, he thought that the money paid as rent did not add up to an annual amount of £ 10,000. However, before us it was accepted that on this the judge must be wrong, in that the explanation for the amount of the first two payments seems to be that they represented rent for approximately two quarters, from June 26 to Christmas 1985, plus the insurance premium, but less an allowance by way of a rent-free period of some three weeks or so agreed by the plaintiff, possibly covering the period when the defendant was out of possession in late July and early August.
By mid-December the plaintiff's solicitors were pressing for completion. On January 10 1986 the defendant paid another £ 2,500 to the plaintiff as the next quarter's rent in advance. The plaintiff's solicitors pressed again for completion to take place by January 14. But the parties were, it seems, unable to resolve their disagreement about payment of the deposit. On February 14 the plaintiff's solicitors wrote to the defendant's solicitors requiring the property to be vacated by the end of February. The defendant did not leave. On July 4 the plaintiff commenced proceedings in the county court for possession and mesne profits. Judge Stucley gave judgment in favour of the plaintiff on December 14 1987. It is from this decision that the defendant has appealed.
The issue on this appeal
As already foreshadowed, the sole issue on this appeal is whether the defendant went into occupation as a tenant at will or as a quarterly tenant. This is the sole issue, because the parties have pleaded and presented their cases in this way. Thus, as to the plaintiff, his particulars of claim assert that at the defendant's request the plaintiff allowed the defendant into possession of the property as a tenant at will pending the outcome of the negotiations. The trial was conducted on that basis. Before us the plaintiff sought leave to amend his pleading to put forward an alternative claim that the defendant went into occupation as a licensee. We refused this application, because had such a case been advanced before the judge it is likely that material points which were not canvassed at the trial would have been raised with the parties in the course of their evidence.
As to the defendant, his case, as pleaded and presented at the trial, was that he held a periodic tenancy. At one stage in the argument before us there was some suggestion that at the outset the defendant might have been granted a term certain of three months. Quite rightly, in view of the course of the proceedings in the court below, this possibility was not pursued.
Thus the court is restricted to deciding between these two alternatives. In particular, the issue of occupation as a licensee is not before the court. It is not profitable to consider whether this constraint may lead to an artificial conclusion in the present case, and I shall not attempt to do so.
Possession plus payment of rent
Much of the argument before us was directed at the legal consequence which follows from proof of possession and payment of rent by reference to a quarterly period. For the defendant it was submitted that proof of those facts raises a presumption in favour of a periodic tenancy which can be rebutted, and the occupant be held to be a tenant at will, only by an express agreement to that effect. Alternatively, this presumption is not rebutted by the fact that the grant of a lease is under discussion, in a case where a substantial sum has been paid over as rent in advance. Mr Harvey relied on a brief passage in the judgment of Buckley J (as he then was) in D'silva v Lister House Development Ltd [1971] Ch 17 at p 31. For the plaintiff it was submitted that today there is no presumption in favour of an intention to create a periodic tenancy arising from possession with consent plus periodic payments of rent. At a later stage Mr Challenger modified this submission so as to make it applicable only in cases where negotiations for the sale or lease of property were taking place. He prayed in aid observations by Ormrod LJ in Longrigg, Burrough & Trounson v Smith (1979) 251 EG 847, [1979] 2 EGLR 42.
I cannot accept the defendant's submissions. They are contrary both to principle and to authority. I shall consider first the position in principle. A tenancy, or lease, is an interest in land. With exceptions immaterial for present purposes, a tenancy springs from a consensual arrangement between two parties: one person grants to another the right to possession of land for a lesser term than he, the grantor, has in the land. The extent of the right thus granted and accepted depends primarily upon the intention of the parties.
As with other consensually based arrangements, parties frequently proceed with an arrangement whereby one person takes possession of another's land for payment without having agreed or directed their minds to one or more fundamental aspects of their transaction. In such cases the law, where appropriate, has to step in and fill the gaps in a way which is sensible and reasonable. The law will imply, from what was agreed and all the surrounding circumstances, the terms the parties are to be taken to have intended to apply. Thus if one party permits another to go into possession of his land on payment of a rent of so much per week or month, failing more the inference sensibly and reasonably to be drawn is that the parties intended that there should be a weekly or monthly tenancy. Likewise, if one party permits another to remain in possession after the expiration of his tenancy. But I emphasise the qualification 'failing more'. Frequently there will be more. Indeed, nowadays there normally will be other material surrounding circumstances. The simple situation is unlikely to arise often, not least because of the extent to which statute has intervened in landlord-tenant relationships. Where there is more than the simple situation, the inference sensibly and reasonably to be drawn will depend upon a fair consideration of all the circumstances, of which the payment of rent on a periodical basis is only one, albeit a very important one. This is so however large or small may be the amount of the payment.
To this I add one observation, having in mind the facts of the present case. Where parties are negotiating the terms of a proposed lease, and the prospective tenant is let into possession or permitted to remain in possession in advance of, and in anticipation of, terms being agreed, the fact that the parties have not yet agreed terms will be a factor to be taken into account in ascertaining their intention. It will often be a weighty factor. Frequently in such cases a sum called 'rent' is paid at once in accordance with the terms of the proposed lease: for example, quarterly in advance. But, depending on all the circumstances, parties are not to be supposed thereby to have agreed that the prospective tenant shall be a quarterly tenant. They cannot sensibly be taken to have agreed that he shall have a periodic tenancy, with all the consequences flowing from that, at a time when they are still not agreed about the terms on which the prospective tenant shall have possession under the proposed lease and when he has been permitted to go into possession or remain in possession merely as an interim measure in the expectation that all will be regulated and regularised in due course when terms are agreed and a formal lease granted.
Of course, when one party permits another to enter or remain upon his land on payment of a sum of money, and that other has no statutory entitlement to be there, almost inevitably there will be some consensual relationship between them. It may be no more than a licence determinable at any time or a tenancy at will. But when and so long as such parties are in the throes of negotiating larger terms, caution must be exercised before inferring or imputing to the parties an intention to give to the occupant more than a very limited interest, be it licence or tenancy. Otherwise the court would be in danger of inferring or imputing from conduct, such as payment of rent and the carrying out of repairs, whose explanation lies in the parties' expectation that they will be able to reach agreement on the larger terms, an intention to grant a lesser interest, such as a periodic tenancy, which the parties never had in contemplation at all.
I turn to the authorities. Of the earlier cases I refer first to the decision of the Court of King's Bench, in Doe d Cheny v Batten (1775) 1 Cowp 243, for a much-quoted observation of Lord Mansfield. There a tenancy at will of some warehouses was determined. After proceedings had been brought to recover possession, and while they were still pending, the landlord accepted payment of a quarter's rent. Lord Mansfield said (at p 245):
The question therefore is, quo animo the rent was received, and what the real intention of both parties was? If the truth of the case is, that both parties intended the tenancy should continue, there is an end of the plaintiff's title: if not, the landlord is not barred of his remedy by ejectment: . . .
Next I can go straight to the decision of the Court of Common Pleas in Doed Lord v Crago (1848) 6 CB 90. There Wilde CJ reviewed some of the earlier authorities. He did so in the context of an argument that from the payment of rent on a yearly basis the law presumes a tenancy from year to year, in the absence of evidence referring such payment of rent to some other contract. Thus the decision is of particular relevance having regard to the defendant's arguments in the present case. There a lease had been granted for a term of 99 years or until the earlier death of the survivor of three named persons. The assignee of the lease remained in possession for many years after the death of such survivor, paying the annual rent reserved by the lease. The assignee of the lease claimed that the lessor had known of the death for some years, that a new yearly tenancy had been created by the payment and acceptance of rent after the termination of the lease, and that the new tenancy had not been determined by notice to quit. Delivering the judgment of the court, Wilde CJ said (at p 98):
We are of opinion that the learned judge acted correctly in leaving to the jury the question of fact, whether the premises had been occupied by the defendant as under the old lease, in ignorance of its determination, or under some new agreement. And we think that it would not have been proper to have directed the jury that the law implied from the receipt of rent under the circumstances proved some agreement creating a yearly tenancy, which could not determine without notice to quit.
It is clear, that, upon proof of the payment of rent in respect of the occupation of premises ordinarily let from year to year, the law will imply that the party making such payments holds under a tenancy from year to year; and it was so ruled in Bishop v Howard. But it is equally clear that it is competent to either the receiver or payer of such rent to prove the circumstances under which the payments as for rent were so made, and by such circumstances to repel the legal implication which would result from the receipt of rent, unexplained.
The principle, that the payment of rent may be explained, for the purpose of protecting parties from the legal consequences which would otherwise follow from such payments, is recognised by Buller J, in Williams v Bartholomew, and was allowed in Rogers v Pitcher, and it is consistent with the general principles of the law.
In this case, if the receipt of rent by the lessor of the plaintiff had been unexplained, a tenancy from year to year ought to have been presumed, according to the decision of Bishop v Howard. But the plaintiff did not leave the receipt of rent unexplained; but gave evidence for the purpose of shewing that such receipt of rent had taken place under a mistake of fact in respect of the determination of the lease, which had improperly been concealed from him. Upon that explanation, the question in the cause was no longer, what was the legal presumption from the unexplained payment of rent; but, whether the evidence offered to explain the receipts on the part of the plaintiff did establish, that, in point of fact, the rent had been received in relation to the old lease, and not upon a new agreement. That was a question of fact, which we think was properly left to the jury. And we think that the jury were properly directed, that, if such rent had been received in relation to any new agreement, the verdict should be for the defendant; such direction being in conformity with the principle, that, from the payment of rent, unexplained, the law will imply a tenancy from year to year, with the incidents attached to it, namely, the necessity of a regular notice to quit, before the defendant's possession could be disturbed.
That case is clear authority for the proposition that regard must be had to the particular circumstances, whatever they may be, in which the rent payments were made. So far as I can see from the authorities, that principle, expressed well over a century ago, has never been doubted. That decision is inconsistent with the defendant's submissions in the present case. Of course, the circumstances in which the principle falls to be applied have much changed since those early Victorian days. But those changes have not invalidated the underlying principle. The shift in emphasis discernible in judicial observations in this field in recent cases is no more than a reflection of the same approach applied in the different circumstances which come before the court today. Because of the widespread intervention of statute in the landlord-tenant area, a typical case today invariably involves more than the simple facts of possession and an unexplained payment of rent.
I do not think that the slightly earlier decision, in Doe d Bastow v Cox (1847) 11 QB 122, on which Mr Harvey relied, is inconsistent with Doe d Lord v Crago. There a mortgagor retained possession pursuant to a mortgage which provided that he would hold the property as tenant at will, paying a specified yearly rent. The court held that, despite the payment of a yearly rent, the mortgagor was a tenant at will and accordingly was not entitled to six months' notice to quit. Lord Denman CJ said (at p 123):
The Courts are desirous to presume a tenancy from year to year, where parties do not express a different intention: but here they have expressed it. To hold otherwise would be going beyond any decided case.
To the same effect Coleridge J said:
Mr Lush says the rule has been to presume in favour of a yearly tenancy. But it is also a rule that documents shall be construed according to the apparent intention; which, in the present instance, clearly is to create a tenancy at will. Rent, at the rate of £ 25.4s. per annum, is to be paid quarterly; but that is, if the will continues undetermined: otherwise the reservation by quarters will not take effect.
There the court, not surprisingly, gave effect to an express provision that the tenancy was to be a tenancy at will. But that decision is not authority for the proposition that nothing short of an express provision is sufficient to displace the inference of a yearly tenancy.
Against that background I turn to the D'silva case (supra) which Mr Harvey submitted is indistinguishable from the present case. Dr D'silva went into possession, and paid rent, while negotiations for a lease were proceeding. In the action he claimed to be entitled to a lease, on several grounds. Buckley J held, in his favour, that the defendant company was bound by the lease to which its seal had been affixed. The judge next (at p 31) considered what would be the position if he were wrong in that view. He noted that the defendant's solicitors had asked for payment of a quarter's rent and that it was on payment of a quarter's rent that the doctor went into possession. Buckley J then said:
If I put out of mind for the moment the question of the effect of the execution of the lease and assume that there never has been any effective lease brought into existence then, in my judgment, the effect of that must be that the plaintiff became a quarterly tenant of the company.
As such he was entitled to protection as a business tenant.
I am unable to read that brief sentence in the judgment in the way contended by Mr Harvey. I am not persuaded that Buckley J was doing other than applying the established principle to the particular facts of that case. Whether, in carrying out that exercise, he reached the same conclusion as this court might have reached on those facts is neither here nor there for present purposes. What I am concerned to do is to identify the underlying legal principle.
It is not necessary for me to attempt to review all the more recent authorities, concerning the question now under consideration, to which we were referred. None of them supports the defendant's submissions. In the main, they are no more than examples of the application of the principle discussed above in differing factual circumstances. The nuances of the language used by the judges who decided them have to be understood having in mind the facts of the particular case and the arguments under consideration. But I must comment on three of them.
First, the case of Longrigg (supra) on which Mr Challenger placed much reliance in support of his submission that there is no longer any presumption arising from the mere facts of possession plus payment of rent. Longrigg was a holding-over case. The defendant was a dealer in antiques. For many years he carried on his business, and he and his wife lived in property let to them by the plaintiffs. After his final tenancy determined he refused to leave. He claimed to be entitled to the protection of the Rent Acts in respect of the living accommodation. He continued to pay rent quarterly. In an action by the plaintiffs for possession, the defendant asserted that a new periodic tenancy had been created. The Court of Appeal rejected this. Lord Scarman held that the inference to be drawn in the circumstances was that no contractual tenancy, periodic or otherwise, was agreed. He cited a passage from the judgment of Russell LJ in Lewis v MTC (Cars) Ltd [1975] 1 WLR 457 at p 462:
It is quite plain that if you find one person in occupation paying sums by way of rent quarterly or half-yearly to another person, ordinarily speaking it is a right conclusion that there is a relationship between them of contractual landlord and tenant; but, of course, the circumstances may show that there is no justification for such an inference.
Likewise Denning LJ in Marcroft Wagons Ltd v Smith [1951] 2 KB 496 at p 506:
If the acceptance of rent can be explained on some other footing than that a contractual tenancy existed, as, for instance, by reason of an existing or possible statutory right to remain, then a new tenancy should not be inferred.
Lord Scarman noted that counsel rightly relied upon that passage as showing that in many cases a common and reasonable inference from the acceptance of rent is the creation of a tenancy. He added (at p 847):
. . . but of course the law remains essentially this, that one must look at all the circumstances of the case and determine what is a fair inference to be drawn.
He added a cautionary note (at p 849):
Indeed, one would have thought that today, where tenants have in one respect or another the protection of the law for possession of premises to which they would have at common law no contractual entitlement, the courts would not be as quick to infer a new tenancy as in the old days they would have been where there was nothing to explain the presence of a defendant upon the premises or upon the land other than a trespass or a contract.
Ormrod LJ and Templeman LJ agreed that the inference to be drawn was that no agreement for a new tenancy was reached. Ormrod LJ observed (at p 849):
The old common law presumption of a tenancy from the payment and acceptance of a sum in the nature of rent dies very hard. But I think the authorities make it quite clear that in these days of statutory controls over the landlord's rights of possession, this presumption is unsound and no longer holds. The question now is a purely open question; it is simply: is it right and proper to infer from all the circumstances of the case, including the payments, that the parties had reached an agreement for a tenancy? I think it does not now go any further than that.
He added:
The question is whether the proper inference from all the circumstances is that the parties had agreed upon a new tenancy.
Ormrod LJ's statement of the relevant question does not differ from what I have sought to set out above. The thrust of his trenchant observation, that the authorities make it clear that the 'presumption is unsound and no longer holds', was, if I understand him aright, that the circumstances in which the presumption will operate will seldom, if ever, arise in present-day conditions. Whether the correct view is that having regard to the statutory controls the so-called 'old common law presumption' no longer exists, or is that the cases in which it will operate in practice are very few and far between, seems to me to be a peculiarly arid issue on which it is not necessary to express an opinion. At the end of the day it will always be for him who asserts he enjoys an interest in another's land to make good his claim.
To the same effect is the decision of the Court of Appeal in Sopwith v Stutchbury (1985) 17 HLR 50. That was a case of entry into possession of a dwelling-house while terms were being finalised. Of the several issues in that case the only one material for present purposes concerned the status enjoyed by the first defendant in the property between March 15 1975, being the date when he entered, and April 21 1975, when a lease was executed. The Court of Appeal held that he was a licensee. Stephenson LJ (at p 74) summarised the issue and the court's approach today in these words:
The question, of course, is, taking into account all the circumstances, what is the right conclusion to draw? Under what right, in what legal relationship, was this occupation of A's land by B? Many recent cases are opposed to a too facile assumption that because something called 'rent' is accepted, or even accepted as rent, by the party owning the land, that necessarily implies a tenancy. It is always a question of the intention of the parties, and in these days, where owners of property are unable to evict those who occupy their property under the statutory protection to which I have referred, it is not at all easy to infer, by the acceptance of rent from the protected tenant, the creation of a new tenancy: see Longrigg, Burrough & Trounson v Smith (1979) 251 EG 847, [1979] 2 EGLR 42. That, of course, is a consideration strongly applicable to the payment of rent by persons who are let into property and then staying on in it; it is not so strongly applicable to persons who are let into property for the first time. Nevertheless, it is something to be borne in mind in a case where, as here, a person is let into property for the first time, and let into property by a businessman acting through an obviously experienced manager.
Kerr LJ (at p 78) commented upon the surprising results which could follow if a party let into possession during a negotiation were to be held to have become a tenant.
Finally, I must mention Cardiothoracic Institute v Shrewdcrest Ltd [1986] 1 WLR 368*. This was another holding-over case. The landlord hoped to redevelop a site. The defendant was in possession of the site as a business tenant pursuant to three successive leases in respect of which orders had been made under section 38(4) of the 1954 Act excluding the operation of sections 24 to 28 of the Act. The last of the three leases expired on October 31 1983. Thereafter the parties were involved in a succession of negotiations for a series of
extensions. The defendant paid rent, mostly monthly in advance, in general accordance with the terms of the successive extensions. In September 1985 the defendant advanced a claim that he was protected by Part II of the Act. Knox J rejected that claim, and accepted the plaintiff's submission that after the expiry of the third lease the defendant was a tenant at will. He held that once one took into account the parties' knowledge of the operation of the 1954 Act, it was clear that they did not intend to create a periodic tenancy pending the grant, which both sides anticipated, of a tenancy approved by the court under section 38. Nor was there any compelling reason why the court should impute such an intention to them if, as was factually perfectly possible, they gave no serious thought to the legal repercussions of the payment and acceptance of rent.
Mr Harvey submitted that that case was wrongly decided. I reiterate that, for present purposes, what alone is material is identifying the underlying principle applied in the particular case being considered. As to that, I can see no sign that Knox J departed from the established principle I have mentioned.
The judge's decision
Judge Stucley held that no periodic tenancy was created when the defendant moved his stock into 188 Brick Lane on June 26 1985, because there were too many outstanding differences between the parties. He mentioned, as an example, the disagreement over subletting. For good measure, he reached the same conclusion regarding the defendant's status when the defendant returned to the property and, eventually, the workmen went away and the defendant was left in sole possession. He said that the matter was so nebulous that there was nothing sufficiently material to grasp upon to find a periodic tenancy existing.
I can see no ground for disturbing the judge's conclusion. Upon a fair reading of the necessarily imperfect note of his judgment, it is clear that the judge approached the issue before him in the correct way. From the conclusions he expressed, it is apparent that the essential question to which he directed his attention was whether in all the circumstances it was right to infer the creation of a periodic tenancy. He noted the basis on which the defendant went into possession: it was on terms that the parties would eventually agree a lease. This was supported by the plaintiff's evidence. The judge's note of the evidence, in the relevant parts, reads: 'I let them in. Our agreement was subject to lease being agreed. If no lease should be agreed the premises should return to plaintiff.' In cross-examination: 'He [the defendant] took premises on basis that he would sign lease . . . I let defendant into premises because he was going to sign lease subsequently.' In fact, as already noted, the parties seem never to have reached agreement on all the terms. The defendant's evidence was to a different effect. He said that the plaintiff 'never said that if a lease was never finalised between us I would have to go. This matter was never raised . . . Nothing was said about my occupation being subject to my signing a lease'. In cross-examination the defendant went further: 'Javad said even if lease did not go through I could continue as a tenant.' From the judge's conclusions it is plain that on this he preferred the plaintiff's evidence.
The judge also had the payments of rent well in mind. His error over how the amounts were arrived at does not, in my view, vitiate his conclusion, given (1) the basis on which the defendant went into possession, (2) the extent to which, on important matters, the parties were not agreed over the terms of the proposed lease on June 26 1985 and (3) the fact that they never did reach overall agreement, even on a 'subject to contract' basis.
Mr Harvey sought to gain some assistance from the fact that when the defendant left the property in July 1985, the plaintiff did not wish to repay the £ 2,500. There is no weight in this point. The property was to be returned to the plaintiff if the parties were unable to agree terms. Whether, in that event, the defendant was to be entitled to repayment pro rata of the sums paid in advance as rent was an issue which arose briefly in July. But that issue was speedily overtaken by events, when the defendant returned to the property in August. When negotiations ultimately broke down, he did not quit. Indeed he is still there.
I would dismiss this appeal. Entry into possession while negotiations proceed is one of the classic circumstances in which a tenancy at will may exist: see Scarman LJ in the Hagee case, supra, at p 217. In my view the judge's conclusion was correct.
MUSTILL and RALPH GIBSON LJJ agreed and did not add anything.
The appeal was dismissed with costs; costs order not to be drawn up for two weeks to ascertain if appellant is legally aided; costs of September 1 1989 to be paid by appellant's former solicitors, Jennings, Son & Ash.
The electronic text of this judgment was provided by Estates Gazette, whose assistance is gratefully acknowledged. |
(Revised)
LORD JUSTICE PURCHAS: This is an appeal from the judgment and order of Norland J. dated 13th July 1989 awarding damages in the sum of £34,536 in favour of David Dean Stanley ("the minor") against Mohammed Saddique the driver of a motor car involved in an accident on 24th March 1984 as a result of which the minor's mother, Elaine Stallard, was killed. In an action brought under the Fatal Accidents Act 1976 (as amended) ("the Act") Mohammed Saddique admitted liability and the trial proceeded solely on the question of damages. The minor brings the action by his father and next friend, David John Stanley, who was not married to his mother. The details of what the judge described as "the tangled web of family relationships which occurred before and after the minor's birth" are set out in the judgment but need not be rehearsed in detail here. The appellant does not challenge any of the findings of fact reached by the judge and subject to one matter raised by Mr. Ashworth, who appeared for the respondent, it is not necessary to go behind these findings to consider the evidence.
The basis of the claim is the dependency of the minor upon his mother. The mother was married to a Frederick Stallard by whom she had three children. The first one, who was born whilst the mother was still under 21 and some months before her marriage, was, unfortunately, crippled and suffered from a speech defect. She was born in February 1978. The two younger children were sons: one born in June 1979 and the second born in March 1981.
In the summer of 1982 the mother began an association with the minor's father who was himself married but had been divorced. The father had had one son by his marriage who lived with his mother. The father, although associating with the minor's mother, kept in contact with his former wife to whom he returned from time to time. The mother and father were at Blackpool for the duration of the summer of 1982. They obtained accommodation - a living room and bedroom in a guesthouse - and both obtained part-time casual work: the mother as a waitress and later as a chambermaid, and the father as a barman in a public house. Part of the defendant's case was based upon the mother's leaving her children, the youngest being at the material time between 15 and 18 months of age, in order to go to Blackpool with the father. However, on the other side of this coin during that summer the mother clearly missed her children and telephoned home to her husband for news of them. The result was that her husband and the two children came to Blackpool. In addition, the father's former wife went to Blackpool and as a result, for a matter of a few weeks, each of the minors' parents returned to their respective former spouses. The mother was the first to leave their respective former spouses for the second time and, having found a place to live, invited the father to join her. During 1982 and 1983 the mother had a number of lowly paid casual and part-time jobs such as working in the kitchen of a restaurant, working in the fields picking fruit and in a public house. In December of 1983 the minor was born and thereafter lived with his mother but neither of them were maintained by the father.
At the time of the mother's death the father was working with a net weekly wage of about £63. The mother and the minor were supported by social security benefits. At the time of the death the minor's father was absent from work for about three weeks looking after the minor. Subsequently he resumed work for a short time.
In about June 1984 the father met a young woman named Tracey Stanley ("Tracey"). They were working together picking strawberries. They were married on 3rd November 1984 after which the two moved into Tracey's flat. Tracey had a daughter of her own who by that time was aged eight and a son was subsequently born to the father and Tracey in 1985. The judge found that after his marriage to Tracey the father settled down and was a good father to the minor. The judge was impressed by Tracey:-
"... I am satisfied that she is providing excellent motherly services to the plaintiff, and that she makes no distinction between the three children of the family. The plaintiff is fully accepted as a member of the family of the plaintiff's father and his stepmother.
I am satisfied that the services being provided by the plaintiff's stepmother for the plaintiff are of a higher quality than could foreseeably have been expected to have been provided by the plaintiff's mother. That the infant plaintiff has a good prospect that those will continue to be provided by his stepmother until after he leaves school and is of an age of about 18 when he is able to look after himself entirely".
The judge then made important findings about the mother:-
"I cannot avoid making an assessment of the plaintiff's mother. What I find about her is the result of my assessment of the evidence given by the plaintiff's father; by the plaintiff's mother's first husband (Mr. Stallard) and by her friend Mrs. Alldret.
So far as the services of a motherly kind likely to have been provided by the plaintiff's mother if she had lived, I have reached the clear conclusion that they would have been of an indifferent quality and lacking in continuity. Some indication of her reliability as a mother was the fact that she left her three children, one, the daughter, handicapped; and the other, the younger boy, extremely young, for an irresponsible association with the plaintiff's father in Blackpool. ...
I now consider the question of financial support by the plaintiff's mother for the plaintiff. Probably from time to time his mother would have obtained work and would have supplied some measure of financial support. I am satisfied, on the evidence, that the probabilities were that she would, more often than not, have been unemployed or living on social security benefits, but from time to time would have obtained work of a casual nature. She was interested in flower arranging.
By the time of her fatal accident, the plaintiff's mother had been working at home for a flower shop making flower arrangements such as bouquets and wreaths. However, the flower shop venture would, in any event, have come to an end within a matter of weeks because the owner of the shop died and his wife returned to Canada. But as her conversations with Mrs. Alldret showed, it clearly was the plaintiff's mother's intention to work which would of course have adversely affected the amount of time and care she could have given to the infant plaintiff. Moreover, in any event, the work, as I find, would have been spasmodic and ill-paid.
It is highly improbable that the plaintiff's mother and father would have married. On 29th February 1984 she proposed to him, but his reply was: 'I'll give you an answer in four years time'.
But for his mother's death, the plaintiff's prospects would have been bleak both so far as care and financial security are concerned.
Anyone considering the outlook for the plaintiff at the time of his mother's death would have come to the conclusion that the most likely outcome for his future was that he would be put into care. However, it was his father who came to his aid and looked after him in the months before he married Tracey".
Based on these findings the first contention of the defendants was that as the minor was better off in the home provided by his father and Tracey than he would ever have been with his mother there was no loss of dependency and, therefore, no damages to be awarded under the Act. The judge did not accede to this contention but calculated a loss of dependency adopting the multiplier/multiplicand approach: see Spittle v. Bunney [1988] 1 WLR 847. However, at the end of his judgment at the request of the defendants he assessed two figures for damages on the basis that he was wrong to do this but taking into account the short period between the mother's death and the date when the minor became part of the family unit established by the father and Tracey. The judge's assessment of damages was as follows:-
5
"However, in this case I am dealing with a mother who, on the balance of probabilities, was going to be much absent from home, leaving her child with an unqualified child minder such as Mrs. Alldret.
In my judgment, it would be appropriate in this case to assess the value of the plaintiff's mother's services at the rate of £3,000 per year in the early years of the plaintiff's life. As he grew older and went to school and as he became a teenager, those services would become less necessary and would in fact become much less onerous.
Bearing in mind the extreme infancy of the plaintiff at the date of his mother's death, I consider an overall multiplier from the date of her death to be one of 12 years. For the first four years of the 12 year period I consider a multiplicand of £3,000 a year to be appropriate. For the next four years a multiplicand of £2,000 per year to be appropriate and for the final four years a multiplicand of £1,000 to be appropriate. This is intended to cover the observations of the Court of Appeal in Spittle v. Bunney [1988] 1 WLR 847.
I next assess the value to the plaintiff of the loss of financial support he probably would have received from his mother up to the date of 18. I consider it exceedingly unlikely that there would have been any continuing financial support after that age. As I have already found, the probabilities are that his mother's employment record would have been that of mainly part-time and casual work, lowly paid.
In those circumstances I do not consider it appropriate to use a conventional approach of a multiplier and a multiplicand to estimate a fair figure for the value of financial support that he has probably lost but he has suffered some loss and I assess that in the sum of £5,000.
The argument of Mr. Worsley (counsel for the first defendant) is that because of my findings of fact the plaintiff has suffered no loss at all, but he does accept that it would be open to me, even on my findings of fact, to find that the infant plaintiff did suffer a loss of motherly services in the months after his mother's death before he went to live with his father and Tracey.
If that be the correct approach, I would have assessed damages for the loss of services for that period in the sum of £500.
Mr. Worsley also submitted that it could be open to me, on the basis of Meade v. Clarke-Chapman [1956] 1 W.L.R. 76 and Reincke v. Gray [1964] 1 W.L.R. 832 to find that because Tracey was a stepmother, some allowance by way of lost services should be allowed in case in years to come the marriage of Tracey and the plaintiff's father ended and the plaintiff at some distant date in the future ceased to have the benefit of Tracey's services. If that be the appropriate approach in this case, I would have assessed that loss in the sum of £1,000".
The judge came to the conclusion that the benefits accruing from the home consisting of the father, Tracey and their children was excluded by virtue of section 4 of the Act. This is the first ground of attack on appeal. The problem is one of construction. It is useful to set out the relevant provisions:-
"3(1) In the action such damages, other than damages for bereavement, may be awarded as are proportioned to the injury resulting from the death to the dependents respectively. ...
(3) ... where these fall to be assessed damages payable to a widow ... there shall not be taken into account the re-marriage of the widow or her prospects of remarriage.
4 In assessing damages in respect of a person's death in an action under this Act benefits which have accrued or will or may accrue to any person from his estate or otherwise as a result of his death shall be disregarded".
In a nutshell, Mr. Clegg, who appeared for the appellants, argued that if a wide interpretation to the word "benefits" in section 4 was adopted there was no need for section 3 (section 4 is a result of an amendment introduced into the 1976 Act by the Administration of Justice Act 1982). Mr. Ashworth, for the respondents, countered this argument by pointing out that if section 4, as substituted by the 1982 Act, is narrowly interpreted then it would fail to exclude a number of benefits previously excluded in the 1976 Act which would be contrary to the whole policy of the amendments introduced by the 1982 Act. He submitted that there were a number of reasons why section 3(1) was retained although it was, strictly speaking, otiose. The judge rejected Mr. Clegg's argument then presented by his junior, Mr. Hughes, and favoured a broad interpretation of the word "benefits" in section 4.
It is necessary to consider the legislative history of this section although it is not perhaps open to the court to follow to its limit the invitation extended by Mr. Ashworth to consider the Pearson Report (Royal Commission on Civil Liability and Compensation for Personal Injury of March 1978). Mr. Ashworth pointed to passages of the report where Parliament in enacting the 1982 Act had specifically departed from the recommendations of the report, e.g. paragraph 540. Thus he submitted that the report should be ignored when construing the section of the Act substituted by the 1982 Act.
The starting point for the assessment of damages is section 2 of the Fatal Accidents Act 1846:-
"... and in every such action the jury may give such damage as they think proportioned to the injury resulting from such death to the parties respectively for whom and for whose benefit such action shall be brought".
Since this Act was passed by successive statutes a wholly artificial statutory structure has been erected controlling the recovery of damages resulting from death. The Fatal Accidents Act 1846 enacted amendments which are not relevant to this appeal. The Fatal Accidents (Damages) Act 1908 provided that in the assessment of damages there should not be taken into account any payment made under any contract of assurance or insurance. Prior to the passing of the 1908 Act the normal common law rule of assessment of damages, namely the net result of the injuries caused by the death balanced against any benefits accruing therefrom represented the measure of damages. Public policy dictated that those who were provident enough to effect contracts for their own protection should not be penalised. Besides this, a series of common law decisions removed gratuitous or voluntary payments from the benefits deducted from the damages on the basis that they did not arise out of or as a consequence of the death. A similar approach applied in the case of actions for personal injuries where the victim survived.
The Law Reform (Personal Injuries) Act 1948, section 2, provided that no account should be taken of any right to "benefit" resulting from the death in assessing damages under the Fatal Accidents Act 1846 (as amended). In section 2(5) "benefit" was defined as benefit under the National Insurance Acts 1946. In the case of other actions for damages for personal injuries section 2(1) provided that account was to be taken of one half of the value of such rights for five years beginning with the time when the cause of action accrued. Section 2(5) of the 1948 Act was subsequently repealed by the Fatal Accidents Act 1959. Section 2 of the 1959 Act provided that in assessing damages under the Fatal Accidents Act 1846 no account should be taken of "any insurance money, benefit, pension or gratuity". The definition of "benefit" was extended to include benefit under the National Insurance Acts 1946 (as amended) and any payment by a friendly society or trade union.
Apart from section 2(1) of the 1948 Act the extension of the damages recoverable under the Fatal Accidents Act was not matched by developments in the common law rules for assessing the damages recoverable for personal injuries. These still demanded that the net loss on balance should be the measure of damages: see Davies v. Powell Dufferin Collieries [1942] A.C. 601, per Lord Wright, at page 617 and Lord McMillan at page 609. The assessment of damages under the Fatal Accidents Act represented a statutory departure from the basic common law principle against double recovery.
In Malyon v. Plummer [1964] 1 Q.B. 330 per Diplock L.J. at page 345:
"Because in most cases the most reliable guide as to what would happen in the future if the deceased had lived is what did in fact happen in the past when he was alive, the common and convenient way of making the first estimate where the deceased at the time of his death was the breadwinner of the family is (a) to ascertain what annual benefit in money or money's worth in fact accrued to the person for whom the action is brought from the deceased and arising out of the relationship before the death of the deceased, (b) to assess the extent (if any) to which that benefit would be likely to have increased or diminished in value in the future if the deceased had lived, (c) to assess the number of years for which that benefit would have been likely to have continued if the deceased had not been killed by the tortious act of the defendant, and (d) to apply to the annual benefit, assessed under (a) and (c) and generally called 'the dependency', the appropriate multiplier derived from (c) allowance being made for the present receipt of a capital sum in respect of annual losses which would be sustained in the future. But the fact that it is convenient to have recourse to the past for guidance as to what would have been likely to happen in a hypothetical future which owing to the death of the deceased will never occur, must not blind one to the fact that one is estimating a loss which will be sustained in the future".
By section 4(1) of the Law Reform (Miscellaneous Provisions) Act 1971 the remarriage or prospects of remarriage of a defendant who was a widow of the deceased were to be disregarded.
In Hay v. Hughes [1975] 1 Q.B. 790 the court was concerned with the benefit in fact received from the care of the dependant's grandmother by whom the dependant who was an infant was brought up. It is, therefore, directly relevant to this issue. The court was able to hold that the benefit resulting from the grandmother's care was not caused by or resulted from the death and, therefore, could be excluded from the assessment of damages. This was one of a number of cases which fell either side of a very thin and totally artificial line. The obvious difficulties appear from the judgments of the Court of Appeal in this case and are best summarised in the judgment of Ormrod L.J. at page 818:-
"This principle, however, has been so seriously eroded by subsequent legislation that, today, little remains of it. Already by the Act of 1908 Parliament had excepted sums payable on the death of the deceased under insurance policies. The Act of 1959 went much further, excepting a very wide class or classes of benefits, including pensions; and the Act of 1971 directed the court, in the case of widows, to ignore all benefits arising from remarriage or the prospect of remarriage. All that is left of the balancing process appears to be benefits arising from the estate of the deceased and, in the case of children, from their stepfather's liability to maintain them: Meade v. Clarke-Chapman & Co. Ltd. [1956] 1 W.L.R. 76; Reincke v. Gray [1964] 1 W.L.R. 832 and Thompson v. Price [1973] Q.B. 838. Daniels v. Jones [1961] 1 W.L.R. 1103 suggests that even in cases where the benefit arises from the estate, the court will not be unduly influenced by arithmetical calculations. The courts themselves have further restricted the classes of benefit which are to be taken into account by construing such phrases as 'resulting from' or 'in consequence of' the death, restrictively: see, for example, Peacock v. Amusement Equipment Co. Ltd. [1954] 1 Q.B. 347; Redpath v. Belfast and County Down Railway [1947] N.I. 167; Voller v. Dairy Produce Packers Ltd. [1962] 1 W.L.R. 960 and Rawlinson v. Babcock & Wilcox Ltd. [1967] 1 W.L.R. 481".
In this context Parliament passed the Fatal Accidents Act 1976 which, inter alia, provided:-
"3(1) ... such damages may be awarded as are proportioned to the injury resulting from the death to the dependants respectively ...
(2) In assessing damages payable to a widow in respect of the death of her husband in an action under this Act there shall not be taken into account the remarriage of the widow or her prospects of remarriage. ...
4(1) In assessing damages in respect of a person's death in an action under this Act, there shall not be taken into account any insurance money, benefit, pension or gratuity which has been or will or may be paid as a result of the death.
(2) In this section -
'benefit' means benefit under the enactments relating to social security, including enactments in force in Northern Ireland, and any payment by a friendly society or trade union for the relief or maintenance of a member's dependants,
'insurance money' includes a return of premiums, and
'pension' includes a return of contributions and any payment of a lump sum in respect of a person's employment".
For the purposes of this appeal it is important to notice the definition of "benefit." The statutory framework in this Act had if anything moved further away from the assessment of damages for personal injuries under the common law as amended by statute where benefits under the social security legislation, albeit to a limited extent, still had to be deducted from the damages. In Cookson v. Knowles [1979] AC 556, 568D, Lord Diplock expressed the view that the assessment of damages had "become an artificial and conjectural exercise."
The preamble to the Administration of Justice Act 1982 in its relevant parts reads:
"An Act . . . to amend the law relating to actions for damages for personal injuries, including injuries resulting in death . . ."
Section 3(1) substituted "en bloc" new sections 1-4 of the Fatal Accidents Act 1976. The relevant provisions of the new sections, namely 3(3) and 4 have already been set out in this judgment. The remaining subsections of section 3 carry forward provisions equivalent to those found in the earlier statutes, e.g. damages may be awarded as are proportioned to the injury resulting from the death (3)(1)), 3(2) a provision for relating to the costs not recovered from the defendant.
The problem is to decide whether in construing the new section 4 there is any justification for construing the words "benefits which have accrued or will or may accrue to any person from his estate or otherwise as a result of his death shall be disregarded" as in any way being restricted or whether they should be given the full ambit of the word "otherwise". Mr. Clegg submitted that the specific exclusion of a widow's remarriage or prospects of remarriage from the assessment of damages provided in section 3(3) indicated that "otherwise" must be restricted in some way otherwise section 3(3) was otiose. He suggested that the exclusion should be restricted to direct pecuniary benefits. However, if this course is taken the word "otherwise" would not be sufficiently wide to reinstate the various rights to benefits which had been progressively introduced since the 1908 Act culminating in the sections of the 1976 Act which were wholly replaced by section 3(1) of the 1982 Act. As a result of the passage of this Act none of the pre-existing statutory exemptions from the deductions of benefits from Fatal Accidents Acts damage survived unless it is through the medium of the word "otherwise". It seems inconceivable that Parliament would have effected a wholesale repeal of all the long-standing previous statutory exceptions from the deduction of benefits by a side wind of this sort with the exception of the exclusion of the prospects of remarriage on the part of the widow (semble but not the widower). In my judgment, the preferable construction is that advanced by Mr. Ashworth, namely that section 3(3) was left in as being a particularly significant question of policy but that by section 4 Parliament intended to further the departure from ordinary common law assessment of damages for personal injuries by the artificial concept which has for many decades been the basis of damages recoverable under the Fatal Accidents Acts.
For the reasons I have just given I have come to the conclusion that the judge was correct in his decision that the benefits accruing to the minor as a result of his absorption into the family unit consisting of his father and stepmother and siblings should be wholly disregarded for the purposes of assessing damages. This, then, substantially disposes of the grounds of appeal as contained in the notice of appeal, namely that the plaintiff had suffered no loss or alternatively the minimal loss attributable to the short periods of time between his mother's death and his receiving benefits from the father's new family home with his step mother and the possibility of the benefit from this source being for some reason brought to an end which were assessed at the figures given by the judge. Mr. Clegg, however, argued that in any event the judge failed properly to take into account his own findings of fact as to the prospects of any substantial benefit which would have been enjoyed by the minor had his mother not died. This really was an attack either upon the multiplier or the multiplicand in the computation made by the judge based upon Spittle v. Bunney: see the passage already cited from the judgment. Mr. Clegg submitted that in assessing the value of the mother's services at £3,000 per year discounted against the smaller reliance placed upon her by the minor as he grew older and became a teenager, the judge failed in taking an overall multiplier of 12 years to represent his age up to 18 to make any or any proper discount for the real possibility that the mother might, as a result of her own shortcomings, not be available during the full period of 12 years. He relied upon the mother's record in relation to her earlier children and the findings of the judge as to the prospects that the minor had of enjoying any continuing or valuable support from his mother in the passage from the judgment I have already cited. This, Mr. Clegg submitted, called for a far more substantial discount either by reducing the multiplicand or, in my judgment more appropriately, the multiplier before reaching the figure which the judge in fact reached of £24,000. So far as the assessment of £5,000 for the loss of financial support which he might have received from his mother through her earnings, the judge reached this as an overall figure as a "jury decision" on the basis that her employment record would have been that of mainly part-time and casual work lowly paid. Mr. Clegg found greater difficulty in attacking this figure except on the basis of his attack in other respects, namely the real possibility that the mother would not be in a position to afford to provide this financial support.
Mr. Ashworth objected strongly to Mr. Clegg's arguments on the latter part of his appeal. The court considered that the attack on the £24,000 as a computed figure for damages did not fall fairly within the terms of the Notice of Appeal nor was it clearly adumbrated in the skeleton argument produced by the appellant. Accordingly, over the adjournment Mr. Clegg was put on terms to deliver a properly amended notice of appeal and on the second morning of the hearing the application to amend was argued. We decided to allow the amendment for two reasons which may be shortly stated. The first is that the appellants accepted all the findings of fact made by the judge and were prepared to be bound by them and, secondly, the issues raised were clearly apparent on the face of the judgment and subject to an adjournment to enable Mr. Ashworth to prepare his reply the amendment ought to be allowed in order that justice should be done between the parties. The main basis upon which Mr. Ashworth opposed the application stemmed not from any difficulty that he would experience in answering but from the position he had adopted vis-à-vis his own client having received the notice of appeal in advising them whether to oppose the appeal or to seek some compromise. These are matters which in the opinion of the court did not touch upon the attainment of justice between the parties by allowing the amendment but might very well be germane to any question of costs should the appellant succeed on this one issue not properly disclosed in the notice of appeal and fail upon the main grounds contained in that notice.
Mr. Ashworth, in replying to the issues raised in the amended notice of appeal, drew the court's attention to a number of passages in the transcript of evidence to support his submission that the picture which might be obtained from a superficial reading of the findings of the judge did less than justice to the mother. He submitted that looking at this evidence the mother was not untypical of a young mother with one failed marriage and that there was no reason to be certain that her attitude to her earlier family would be repeated in relation to her youngest child. Further, he pointed out that the father himself had a failed marriage and that the stepmother, Tracey, had lived with another man for five years but had kept care and control of her daughter.
Mr. Ashworth justifiably submitted that the evidence about the mother given by the father was unlikely to be biased in her favour but nevertheless the father made a number of admissions which were advantageous to the mother. At page 36A of the transcript of evidence, in answering the judge's question, "was she quite a good mother when she was at home?", the father said:
"If I put it this way to you, she had the chance to keep the marriage going when I found out about her adultery. She also had the chance to keep the children and the house. I offered her an open relationship. She didn't want it. She just ran out of the house. I didn't touch her or nothing".
Mr. Stallard also gave evidence about the short reconciliation which took place in the summer of 1983 and how the mother had left the children whilst he was away from the home when she returned to Blackpool. Notwithstanding the able submissions of Mr. Ashworth I was unable to detect any point at which the judge's assessment of the mother could be faulted. The possible exception to this was the judge's finding at page 5 of the transcript of the judgment that the minor's parents would ever have married and that his prospects would have been bleak both so far as care and financial security were concerned.
In the light of these findings and bearing in mind the point well made by Mr. Ashworth that the mother of necessity is being judged retrospectively five years later without the opportunity to demonstrate that like the father she would have matured, I consider that these are the prospects and possibilities all of which have to be taken into account when reaching an appropriate multiplier.
In the end, the assessment of the damages for loss of dependency, as apart from that element of the dependency which could be related to financial support, is a jury question. I have no doubt that the judge's computation was plainly too high and was on a wrong principle inasmuch as it omitted to make a proper discount for the real possibility that the mother would not have stayed with the family and that, therefore, this finding cannot be upheld on appeal. That having been said, the duty of the court is to do the best it can to arrive at some figure which a jury might well have awarded had it taken into account all the circumstances. I consider that such was the lack of steady prospect of support that the multiplier/multiplicand approach is, as the judge indicated at one point in his judgment, quite inappropriate although in the event he carried out an exercise of this kind. In carrying out an assessment on a jury award basis, I have reached a figure for loss of services at £10,000. This must be added to the figure of £5,000 for loss of financial support which the judge assessed, and which in my judgment cannot be disturbed on appeal. The total award of damages should, therefore, be £15,000. I would allow the appeal and substitute the figure of £15,000, subject to an appropriate adjustment for interest.
LORD JUSTICE RALPH GIBSON: The primary findings of fact of the learned judge have been stated by my Lord, Purchas L.J. I refer to primary findings of fact but, so far as concerns the learned judge's assessment of what the future services of the mother to the plaintiff would have been but for her death, they are more accurately to be described as conjectural estimates based upon findings of past fact: see per Lord Diplock in Cookson v. Knowles [1979] AC 556 at 568. The appellant's appeal on the factual issues, which the court allowed to be raised by an amended notice of appeal, was based upon those primary findings.
The first contention was that the plaintiff had failed to prove any injury resulting to him from the death of his mother; and that contention was based not upon what happened to the plaintiff after the death but on what would probably have happened if his mother had remained alive. In its alternative form, this submission was that the plaintiff's loss of services from his mother was confined to the period of about seven and a half months between the death of his mother and his being taken into the care of his father and Tracey, the father's new wife. The learned judge assessed damages for loss of services during that period at £500.
The original basis of these contentions was that, on the judge's findings, the mother would have abandoned the plaintiff and that, in consequence, the plaintiff would have gone into care at about the time of her death or shortly thereafter just as she had abandoned her three children by her husband when the youngest child was about 15 months old. That particular contention was, I think, misconceived and based upon what appeared to me to be a misreading of the passage in the judgment of the learned judge at page 5F where the judge said:
"Anyone considering the outlook for the plaintiff at the time of his mother's death would have come to the conclusion that the most likely outcome for his future was that he would be put into care. However, it was his father who came to his aid and looked after him in the months before he married Tracey".
Mr. Piers Ashworth, for the respondent plaintiff, informed the court that it had not been submitted to the learned judge at trial that the evidence supported the inference that the deceased would have abandoned the plaintiff at about the time of her death. There was then no home for the plaintiff in which he could be cared for upon the departure of his mother as there had been at the time of the desertion by the mother of her first three children. Very clearly the learned judge, in my view, did not find that the plaintiff would in any event have been abandoned by his mother at about the time of her death. The judge could not have proceeded to the conclusions which he reached if that had, in truth, been his view of the facts.
The next main submission for the appellant upon the facts was that, on the primary findings of fact made by the learned judge, the assessment of the value of the plaintiff's mother's services which she would have provided over the years following her death was plainly too high and unsustainable. He fixed the multiplier at 12 and set the rate at £3,000 per annum for the first four years: (2,000 per annum for the next four years; and £1,000 per annum for the last four years.
The process of reasoning of the learned judge in reaching those conclusions appears from his judgment to have been, in summary form, as follows:
(i) He assumed that the correct method of assessment was to assess the value in monetary terms of the mother's services;
(ii) As to the evidence of Mrs. Wasmouth, who runs an employment agency and had produced figures as to the earnings of a housekeeper, her agency dealt with "households of a very different social and economic background" from that to be envisaged for the plaintiff. On the facts as he had found them as to the indifferent quality of the plaintiff's mother's services, both to the date of her death and to be expected in the future, the yardstick of the cost of professional help was "unrealistic". (J. 6G).
(iii) It was equally unrealistic to adopt the hourly rate of a child minder in the neighbourhood of between £1.00 and El.50 an hour. It was to be borne in mind (see Regan v. Williamson [1976] 1 W.L.R. 306 and Mehmet v. Perry [1977] 2 A.E.R. 529) that a mother's services are not confined to the physical labour of being a nanny but extended beyond services of that kind and are not limited so far as hours are concerned. (J. 7A). The services needed by a child are "multifarious and may be greater in extent and better in quality than those provided by paid staff if provided by a natural mother". (J. 7E).
(iv) In assessing the value of the services provided by a mother numerous factors must be taken into account including the security and continuity of the provision of those services which will be much dependent upon the stability of her relationship with her spouse, the willingness and availability of the mother to render those services and the income of the household. A single parent "eking out an existence on social security benefits assisted by part-time and casual work" is likely to be under stress which may affect the quality of the services rendered.
v) This mother, on the balance of probabilities, was going to be much absent from home leaving her child with an unqualified child minder.
The judge then expressed his conclusion that it was appropriate to assess the value of the services of this mother to this plaintiff in the sums stated by him.
Although the learned judge said that the yardstick of the cost of professional help was "unrealistic" because of the indifferent quality of the services to be expected from the mother in future, it is necessary to note what that cost was shown by the plaintiff's evidence to be at the date of trial in order to understand what proportion of that cost is represented by the judge's assessment. For the first four years from the date of death on 24th March 1984 the probable earnings of a nanny/housekeeper net after tax and national insurance were shown to have been £2,663, £3,080, £3,672 and £4,000. The yearly average based upon those figures is, I think, £3,354 per annum. The figure of £3,000 per annum for the first four years is thus about 89% of the average cost of a nanny/housekeeper over those years. Mr. Ashworth submitted that the judge's figure of £3,000 was not by that calculation shown to be unsustainable because, he said, the cost of a nanny/housekeeper Rust in every case be, and was plainly in this case, increased **y an amount to represent the extra services beyond physical labour which a natural mother would provide and the extra hours over which services would be provided.
For my part, I cannot accept the assessment of £3,000 per annum for the first four years as a sustainable assessment of the value of the services of this mother upon the basis of the judge's conjectural estimates as to the quality of the services and as to the security and continuity of the provision of them to the plaintiff. There was no evidence such as was before the court in Regan v. Williamson where Watkins J. added a sum to the proved cost of a substitute carer to represent the extra value of the services of the deceased mother in that case. At page 309 Watkins J. said that the notion of a mother's services should:
"... include an acknowledgment that a wife and mother does not work to set hours and, still less, to rule. She is in constant attendance save for those hours when she is, if that is the fact, at work. During some of those hours she may well give the children instruction on essential matters to do with their upbringing and, possibly, with such things as their homework. This sort of attention seems to be as much of a service, and probably more valuable to them, than the other kinds of service conventionally so regarded".
The judge said nothing of such an addition, nor of any basis upon which it could be founded upon the evidence in this case. Mr. Ashworth is, of course, correct in saying that the sum of £3,000 represented the assessment of the judge based upon the reasoning which I have set out. He argued that we should not disturb the conclusion without some basis for saying that he had misdirected himself. He pressed upon this court the fact that, at the date of the death of the mother, the prospect then of the plaintiff's father providing a secure home or steady support for him were bleak but, in the events which happened, the plaintiff's father has settled down with a new wife in a secure marriage in which the plaintiff is and will be well cared °r. The judge was entitled, said Mr. Ashworth, in a most °9ent and skilful submission, to treat the deceased mother as having at least the same capacity for achieving responsibility with a new partner as that demonstrated by the father of the plaintiff* There is, of course, force in that point but its force is reduced by the fact that the learned judge said nothing of it and appears to have found nothing in the evidence to support such a basis of assessment.
What then should this court do? Mr. Clegg submitted that the value of the services of this mother was in fact assessed by the judge at a lower figure than £3,000 per annum for a period of time relevant to the first four years, namely the sum of £500 in respect of the loss of motherly services in the months after his mother's death before the plaintiff went to live with his father and Tracey (J.8G.). In that passage in the judgment, the judge, at the invitation of counsel for the appellant, assessed damages to be awarded upon the basis that the plaintiff's loss was limited to the period of months after his mother's death until he went to live with his father and Tracey after their marriage on 3rd November 1984. The period is something over seven months and the annual rate which can be derived from that figure of £500 for seven months is, I think, £857. Mr. Ashworth argued that that figure of £500 is not fairly capable of being applied for this purpose but I confess that I do not understand why it is not. There is nothing to suggest that the quality or continuity of the services to the Plaintiff were likely to change for the better to any substantial extent after the expiry of those seven months.
Further, the assessment of the security and continuity of the services which the mother would have provided, as entrusted with their quality if and when provided, would better reflected, in my judgment, in the multiplier to be applied. The multiplier of 12 selected by the judge was based, I understand his judgment, simply upon the period of time over which the plaintiff was likely to continue to be present and able to receive services if his mother remained willing and able to provide them, and upon the life expectancy of the mother. The only express reference by the learned judge to any factor relevant to the selection of the multiplier was to the "extreme infancy of the plaintiff at the date of his mother's death".
The learned judge, having regard to the probable course of the mother's future employment, namely one of part-time and casual work, lowly paid, considered it inappropriate to use the conventional approach of multiplier and multiplicand for the assessment of financial loss. He fixed instead the sum of £5,000 as a fair figure for the lost financial support. I would take the same course with reference to the loss of services. I have had regard to the sums awarded in such cases as Regan, and Spittle v. Bunney, upon the facts in those cases, and have taken into account the effects of inflation; and I have considered in draft the judgment of Purchas L.J. I agree that the lost value of the services which this mother would in probability have rendered to this plaintiff should be assessed in the sum of £l0,000.
As to loss of financial support, I think the award was Perhaps generous but I would not disturb it. There is no reference in the judgment to financial support from the mother iron her own national insurance benefits but the judge would Rave had them in mind as well as support from the uncertain earnings which the mother might have received over the years.
In the result, subject to the points of law advanced for the appellant, I would allow this appeal to the extent of substituting the sum of £15,000 for the judge's total award of £29,000.
As to the point of law, based upon the construction of section 4 and of section 3(3) of the 1976 Act as amended, I was at first inclined to the view that the concept of "benefits which have accrued or will or may accrue to any person from his estate or otherwise as a result of his death" must be held not to extend to the effects of remarriage which are covered specifically by section 3(3) to the extent there provided. I have, however, with no great confidence that we have correctly understood the intention of Parliament as expressed in these provisions, reached the conclusion that the preferable construction is that expressed by Purchas L.J. for the reasons given by him.
SIR DAVID CROOM-JOHNSON: For the reasons given in the judgments of Purchas and Ralph Gibson L.JJ. I also would allow this appeal and agree with the substituted figure for damages.
Order: Appeal allowed, ordered varied, with costs of appeal and legal aid taxation; leave to appeal to House of Lords refused. |
LORD JUSTICE NICHOLLS:
This is the judgment of the court in a case which raises some important points concerning administrations under Part 2 of the Insolvency Act 1986. We shall need to add more detail at a later stage, but for the moment we can use a broad brush when setting out the essential facts. Atlantic Computer Systems plc, to which we shall refer as "the company", is the major operating company in the United Kingdom of a large and complex group of companies, the "Atlantic group", with interests in computer leasing. There are about 120 companies in the group, of which the majority are active trading companies. We were told that this group is, or was, the third largest leasing business in the world.
The ultimate parent of all these companies is British and Commonwealth Holdings plc. Earlier this year B & C stopped providing financial support for the Atlantic group. The company ceased to be able to pay its debts. On 18th April 1990 Mr. Justice Hoffmann made an administration order in respect of the company, specifying purpose (d) in section 8(3) of the Act as the purpose which making an administration order would be likely to achieve, viz., a more advantageous realisation of the company's assets than would be effected on a winding-up. Two partners in Price Waterhouse, Mr. J.F. Soden and Mr. R.C. Boys-Stones, were appointed joint administrators. The order was made on the application of Atlantic Computer Services Group plc, which is the company's immediate parent, and which is itself a substantial creditor of the company.
The 2,500 existing leases granted by the company in respect of computers fall into several different categories. For present purposes we need refer to only two categories. In both these categories the capital cost of acquiring the computers was provided by a bank or other financial institution ("the funder"). In the first category, which comprises some 632 cases on the administrators' calculations, the computer is owned by the funder and let to the company under a hire-purchase agreement. The company in turn, and as was intended by the funder, then let the computer to the "end user" under a further lease ("the sub-lease"). In the second category, which comprises some 76 cases, the procedure was similar save that the arrangement between the funder and the company was a lease (a "head lease") as distinct from a hire-purchase agreement. For present purposes nothing turns on the distinction between these two categories. The fundamental feature, common to both categories, is that the computers are the property of the funder. In many instances in the first category, the hire-purchase agreement provided for the company to assign to the funder the stream of income to which the company was entitled under the sub-lease. But here also, for the purpose of the initial questions which arise for decision, nothing turns on the presence or absence of this additional feature. Among the funders in one or both of these two categories of transactions are companies in the groups headed respectively by Norwich Union Life Insurance Society and Allied Irish Banks plc. We shall refer to the companies in these respective groups as "Norwich" and "AIB".
A few days after the administration order was made the administrators sent a circular to the end users notifying them of the administration order and telling them that payments due under the sub-leases should continue to be made to the company. Thereafter invoices were sent out periodically by the administrators. Substantial payments have been received by the administrators since 18th April. The money is set aside in designated bank accounts. Up to 8th June the administrators received from end users sums in excess of £1.7 million. Approximately £220,000 of this was in respect of sub-leases of computers owned by Norwich, and about £7,000 in respect of sub-leases of computers owned by AIB. The income stream from end users has now substantially dried up. Most end users have stopped paying. Some of them have said they will not pay until the company confirms that it will meet all its obligations under the sub-leases.
As to the head leases (in which expression we include hire-purchase agreements between funders and the company), substantial payments have fallen due, and are continuing to fall due, from the company to the funders, including Norwich and AIB. When the administration order was made the arrears owing to Norwich and AIB were about £976,000 and £Irll6,000 respectively. Over the 3-month period from 18th April to 18th July the indebtedness accruing due to Norwich and AIB respectively was about £1.1 million and £520,000. But since the date of the administration order no payments have been made by the administrators to Norwich or AIB, or to any other funders, in respect of head leases. And the administrators have declined to consent to Norwich and AIB exercising their rights to terminate the head leases.
The first question: administration expenses.
It is in these circumstances that the first question arises. The administrators have received and retained money payable under the sub-leases in respect of computer equipment which is the property of the funders. Are the administrators obliged, as Norwich and AIB contend, to pay as expenses of the administration all the sums falling due under the head leases? Mr. Justice Ferris upheld this contention: The core of his reasoning is to be found in the following passage in his judgment. Having considered certain authorities, he said:
"I think that the principle comes to this. If in the course of a corporate insolvency the liquidator or receiver uses or realises property belonging to a third party for the benefit of the corporation, then the proper price for that use or realisation, and also any liabilities such as rates or taxes which arise from such use or realisation, are to be treated as an expense of the winding up or receivership and paid accordingly. Where the use or realisation is based upon a contractual right, the proper price is that provided for by the contract. I think that this principle is based not upon any provision of the legislative regime governing the winding up or receivership but upon the fact that this is an ordinary consequence of the use of property belonging to another, and that the legislation does nothing to relegate the claim for payment on the part of the owner of that property to that of an unsecured creditor whose debt became due before the insolvency. If this is right, as I think it is, it would be strange if a similar principle did not apply to administrations under Part II of the 1986 Act."
The appeal came on speedily, before the formal order embodying the judge's decision had been drawn up. We were shown a draft order, agreed by the parties, which contains declarations to the effect that the rentals and supplemental rentals accruing due under the head leases from the date of the administration order were payable as an expense of the administration. Likewise with insurance payments, contractual interest and damages payable for breach of covenant to insure or maintain the equipment. The joint administrators have appealed against that decision.
The issue raised by this part of the appeal calls for a consideration of the relevant provisions of the 1986 Act. However, we must deal first with two preliminary matters which formed the basis of much of the argument presented to us on the proper interpretation of the Act.
The use of property by a liquidator: the "liquidation expenses" principle.
The first preliminary matter is to identify the principles to be distilled from the authorities relating to liquidation expenses on which the judge mainly relied. The relevant authorities go back over a hundred years to the Companies Act 1862. This Act established company law in a form which has continued unchanged in its essence up to the present. The cases in question arose out of the provision in that Act, section 87, which was the distant predecessor of section 130(2) of the 1986 Act. Section 130(2) provides that when a winding-up order has been made or a provisional liquidator appointed "no action or proceeding shall be proceeded with or commenced against the company or its property except by leave of the court and subject to such terms as the court may impose". Over the years the courts have been concerned to establish the principles on which the discretion to give or refuse leave under that provision should be exercised. In doing so they have been guided, as one would expect, by the purpose for which Parliament imposed the prohibition. For present purposes it is sufficient to note two classes of actions or proceedings for which leave is sought, viz., (1) where a person seeks leave in a liquidation to possess or repossess what in law is his own property and (2) where a person seeks leave in a liquidation to exercise a remedy over the company's property. An example of the first category is where a mortgagee seeks possession of property mortgaged to him. An example of the second category is where a rating authority seeks leave to distrain for unpaid rates. In the case of a lessor of land let to a company, the appropriate category depends on the remedy the lessor is seeking to exercise in respect of the arrears of rent owing to him. If he is seeking to exercise a right of re-entry, he falls into the first category. If he is seeking leave to distrain, he falls into the second category.
A judicial exposition of the purpose for which the prohibition on commencing or pursuing proceedings was imposed, and how this affects actions in the first category, can be found in the judgment of Lord Justice James in In re David Lloyd & Co. (1877) 6 ChD 339, 344:
"These sections in the Companies Act, and the corresponding legislation with regard to bankrupts, enabling the Court to interfere with actions, were intended, not for the purpose of harassing, or impeding, or injuring third persons, but for the purpose of preserving the limited assets of the company or bankrupt in the best way for distribution among all the persons who have claims upon them. There being only a small fund or a limited fund to be divided among a great number of persons, it would be monstrous that one or more of them should be harassing the company with actions and incurring costs which would increase the claims against the company and diminish the assets which ought to be divided among all the creditors. But that has really nothing to do with the case of a man who for the present purpose is to be considered as entirely outside the company, who is merely seeking to enforce a claim, not against the company, but to his own property. The position of a mortgagee under such circumstances is, to my mind, exactly similar to that of a man who said, 'You are in possession of my property by way of trespass, and I want to get it back again.' A landlord might say, 'You have property under lease from me; you have broken the covenants of the lease, and I have a right of re-entry in consequence of that breach.' The company ought not, because it has become insolvent or has been minded to wind up its affairs, to be placed in a better position than any other lessee with regard to his lessor. So with regard to a mortgagee. The mortgagee says, 'There is some property upon which I have a certain specific charge, and I want to realise that charge. I have nothing to do with the distribution of your property among your creditors, this is my property.' Why a mortgagee should be prevented from doing that I cannot understand. Power was given to the court to interefere with actions by restraining them or not allowing them to proceed, but this power was given because it was understood that the court would exercise it with a due regard to the rights of third persons, persons who were not members of the company, and who had not to come in and claim to share in the distribution of the company's assets among the creditors, and who were not therefore quasi parties to the winding-up proceedings. The court would have due regard to the rights of independent persons. A mortgagee is, to my mind, such an independent person ..."
Two points are to be noted regarding cases of this first type, which we can call "possession" cases: (1) in the absence of special circumstances, leave is given as of course, and (2) it is immaterial whether the arrears of rent under the lease, or the arrears of interest under the mortgage, accrued due before or after the commencement of the winding-up. In this type of case the claimant is not seeking an order for payment, or seeking to enforce an order for payment, although his claim for possession may well have the indirect effect of compelling the company to pay.
In contrast is the second type of case, where a person seeks leave to seize the company's property. There, prima facie, to grant leave would be inconsistent with the purpose for which Parliament imposed the prohibition on proceedings. This is so whether the claim, for example, in respect of arrears of rent, accrued pre-liquidation or post-liquidation. In In re Traders' North Staffordshire Carrying Co. (1874) L.R. 19 Eq. 60, Sir George Jessel M.R. refused to permit a canal company, having statutory powers of distraint for unpaid tolls, to distrain upon goods belonging to a company being wound up. He said (at page 63) :
"In substance it is getting payment by the creditor out of the goods of his debtor, and a preferential payment as between that creditor and the other creditors of the debtor, and, as I understand it, the very object and meaning of the Act of Parliament was to prevent any such preference being obtainable after the commencement of the winding-up."
However, the matter stands differently if the debt, in respect of which the creditor is seeking to exercise a remedy against the company's property, was a new debt incurred by the liquidator for the purposes of the liquidation. In such a case the grant of leave would not be inconsistent with the purpose of the legislation. In such a case it is just and equitable that the burden of the debt should be borne by those for whose benefit the insolvent estate is being administered. The court should exercise its discretion accordingly. The creditor should be at liberty to enforce his rights against the company's property if his debt is not paid in full. Further, and by way of corollary, since the debt was incurred for the purposes of the liquidation, it is properly to be regarded as an expense of the liquidation and it ought to be paid as such. The court will direct the liquidator accordingly.
This latter principle is not confined to new debts incurred by the liquidator. It applies also to continuing obligations under existing contracts such as leases which the liquidator chooses to continue for the benefit of the winding-up. Thus, the principle is applicable in respect of rent accruing due while a liquidator retains leasehold land for the purpose of the winding-up. The lessor should be paid in full, or be allowed to distrain. The principle is equally applicable in the case of other liabilities incurred in the course of winding-up; for example, where rates become due in respect of land occupied by a liquidator for the purpose of the winding-up: see In re International Marine Hydropathic Co. (1884) 28 Ch.D. 470. Indeed, the principle is of general application to the outgoings on property the possession of which is retained for the purpose of more advantageously winding-up the affairs of the company: see Lord Justice Baggallay in In re National Arms and Ammunition Co. (1885) 28 ChD 474, 478. In In re Lundy Granite Co. (1871) L.R. 6 Ch.App. 462, 466 Lord Justice James stated the underlying principle in a landlord-tenant context:
"But in some cases between the landlord and the company, if the company for its own purposes, and with a view to the realisation of the property to better advantage, remains in possession of the estate, which the lessor is therefore not able to obtain possession of, common sense and ordinary justice require the Court to see that the landlord receives the full value of the property. He must have the same rights as any other creditor, and if the company choose to keep the estates for their own purposes, they ought to pay the full value to the landlord, as they ought to pay any other person for anything else, and the Court ought to take care that he receives it."
Likewise Lord Justice Lindley in In re Oak Pits Colliery Company (1882) 21 Ch.D. 322 at 330:
"If the liquidator has retained possession for the purpose of the winding-up, or if he has used the property for carrying on the company's business, or has kept the property in order to sell it or to do the best he can with it the landlord will be allowed to distrain for rent which has become due since the winding-up
... When the liquidator retains the property for the purpose of advantageously disposing of it, or when he continues to use it, the rent of it ought to be regarded as a debt contracted for the purpose of winding-up the company, and ought to be paid in full like any other debt or expense properly incurred by the liquidator for the same purpose, and in such a case it appears to us that the rent for the whole period during which the property is so retained or used ought to be paid in full without reference to the amount which could be realised by a distress."
The same approach is applicable in respect of interest accruing due on a debt secured by a mortgage on property retained by a liquidator for the purposes of the winding-up: see In re Brown, Bayley & Dixon (1881) 17 Ch.D. 649, where a mortgagee had power to distrain in respect of unpaid interest. But in practice courts have been less ready to apply this principle in favour of mortgagees: see In re Lancashire Cotton Spinning Company (1887) 35 Ch.D. 656 and In re Hiqqinshaw Mills and Spinning Company [1896] 2 Ch 544.
It is important to keep in mind that this principle, relating to outgoings on property retained by a liquidator for the purposes of the winding-up, is no more than a principle applied by the court when exercising its discretion in a winding-up. The principle, which it will be convenient to call the "liquidation expenses" principle, is a statement of how, in general, the court will exercise its discretion in a common-form set of circumstances. The liquidator himself has power, in a suitable case, to pay the relevant outgoings. But the court retains an overriding discretion, to give leave under section 130(2) or to give directions to a liquidator that the relevant outgoings shall be paid by him as an expense of the liquidation. Lord Justice Baggallay drew attention to this in In re National Arms and Ammunition Company (supra), at page 477:
"... under section 87 the Court has power to allow the distress to be levied in proper cases. The same principles must guide the discretion of the Court, whether the application is in the shape of an application for leave to distrain, or of an application for payment." (emphasis added).
Likewise Sir John Pennycuick V-C in In re Downer Enterprises Ltd. [1974] 1 W.L.R. 1460. There a liquidator retained a lease with a view to selling it as soon as practicable. One of the issues before the Vice-chancellor was whether the lessor would have been entitled to have the arrears of rent accruing since the commencement of the liquidation paid in full as an expense of the liquidation. The Vice-Chancellor said (at page 1465):
"It is on those facts that I have to consider the issue of law ... which may be stated in these terms: Was Prudential entitled, as against the company, to be paid rent in full after the commencement of the winding up; or, perhaps more accurately: Would the court in the exercise of its discretion and applying certain established principles, have so directed? ... Strictly the court has a discretion as to whether to allow arrears to be paid in full in such circumstances, but that is a judicial discretion which the court exercises upon well established principles."
The use of property by an administrative receiver.
The second preliminary matter concerns the expenses incurred by a company in the conduct of its business when under the management of an administrative receiver. Typically, when lending money to a company, a bank will take as security a charge over all or most of the assets of the company, present and future, the charge being a fixed charge on land and certain other assets, and a floating charge over the remaining assets. The deed authorises the bank to appoint a receiver and manager of the company's undertaking, with power to carry on the company's business. Such a receiver is referred to in the 1986 Act as an "administrative receiver".
Normally the deed creating the floating charge and authorising his appointment provides that an administrative receiver shall be the agent of the company. Now the 1986 Act, in section 44(1), provides that this shall always be so, unless and until the company goes into liquidation. For many years the position regarding a receiver appointed as agent of the company was that in general he was not personally liable for contracts entered into by him for and on behalf of the company. He was no more personally liable than was a director who entered into a contract for and on behalf of his company. This position was changed by section 87(2) of the Companies Act 1947. The position now, with regard to administrative receivers, is set out in section 44(1) and (2) of the 1986 Act. Under that section an administrative receiver is personally liable on (a) any contract entered into by him in the carrying out of his functions, except in so far as the contract otherwise provides, and (b) on any contract of employment "adopted" by him in the carrying out of those functions. In the latter regard the administrative receiver has, in effect, a period of 14 days' grace after his appointment. Head (b) represents a statutory overruling of the effect of the decision in Nicoll v. Cutts [1985] 1 B.B.C. 427. In cases where he is personally liable an administrative receiver is entitled to an indemnity out of the assets of the company (section 44(1)(c)). But even today an administrative receiver is not, in general, personally liable, and hence the statutory indemnity out of the assets of the company does not arise, in respect of contracts adopted by him in the course of managing the company's business, other than contracts of employment. With that one special exception, personal liability is confined, in general, to new contracts made by him. Thus he is not personally liable for the rent payable under an existing lease, or for the hire charges payable under an existing hire purchase agreement. This is not a surprising conclusion. It does not offend against basic conceptions of justice or fairness. The rent and hire charges were a liability undertaken by the company at the inception of the lease or hire purchase agreement. The land or goods are being used by the company even when an administrative receiver is in office. It is to the company that, along with other creditors, the lessor and the owner of the goods must look for payment.
Nor is a lessor or owner of goods in such a case entitled to be paid his rent or hire instalments as an "expense" of the administrative receivership, even though the administrative receiver has retained and used the land or goods for the purpose of the receivership. The reason is not far to seek. The appointment of an administrative receiver does not trigger a statutory prohibition on the lessor or owner of goods such as that found in section 130 in the case of a winding-up order. If the rent or hire is not paid by the administrative receiver the lessor or owner of the goods is at liberty, as much after the appointment of the administrative receiver as before, to exercise the rights and remedies available to him under his lease or hire purchase agreement. Faced with the prospect of proceedings, an administrative receiver may choose to pay the rent or hire charges in order to retain the land or goods. But if he decides not to do so, the lessor or owner of goods has his remedies. There is no occasion, assuming that there is jurisdiction, for the court to intervene and order the administrative receiver to pay these outgoings.
Part 2 of the 1986 Act.
Against that background and with those principles in mind, we turn to consider the position of administrators appointed under the 1986 Act. Part 2 of this Act represents a major reform in the law relating to companies which are insolvent or likely to become so. The statute enables the court to appoint an administrator to manage the affairs, business and property of a company with a view to achieving one or other of the statutory objectives set out in section 8(3). This reform was introduced by the Insolvency Act 1985 following proposals on insolvency law and practice made in June 1982 by a committee under the chairmanship of Sir Kenneth Cork. The committee considered that the power, contained in any well-drawn floating charge, to appoint a receiver and manager of the property and undertaking of a company had been of outstanding public benefit. A significant number of companies had been forced into liquidation, and potentially viable businesses capable of being rescued had been closed down, for want of such a floating charge. The committee proposed that statutory provision should be made enabling an administrator to be appointed in appropriate circumstances, with all the powers normally conferred upon a receiver and manager appointed under a floating charge.
The statutory scheme, as enacted, makes clear that an administrator is intended as a statutory alternative to an administrative receiver. An administrator is intended to fill the lacuna perceived to exist in the case of insolvent companies where either there is no floating charge or the holder of a floating charge does not appoint an administrative receiver.
Thus section 9(3) provides that if an administrative receiver has been appointed, the court cannot make an administration order, unless the person on whose behalf the administrative receiver was appointed consents or unless the security by virtue of which the administrative receiver was appointed is impeachable. When an administration order is made any administrative receiver vacates office, and while an administration order is in force no administrative receiver may be appointed (section 11). Further, there are some similarities between administrators and administrative receivers. For instance, an administrator's powers expressly include the same wide powers as those conferred by the Act on administrative receivers (sections 14(1)(a) and 42, and the first schedule).
The statute addresses the question of expenses incurred by an administrator, but only in the context of what is the position when a person ceases to hold office. Section 19(4) provides that the remuneration of an administrator and "any expenses properly incurred by him" shall be charged on and paid out of any property of the company in his custody or under his control when he ceases to be administrator in priority to any security to which section 15(1) applies. Section 15(1) applies to any security which, as created, was a floating charge. Section 19(5) provides:
"Any sums payable in respect of debts or liabilities incurred, while he was administrator, under contracts entered into or contracts of employment adopted by him or a predecessor of his in the carrying out of his or the predecessor's functions shall be charged on and paid out of any such property as is mentioned in subsection (4) in priority to any charge arising under that subsection.
For this purpose, the administrator is not to be taken to have adopted a contract of employment by reason of anything done or omitted to be done within 14 days after his appointment."
There is a striking resemblance between the debts and liabilities to which this subsection applies in the case of an administrator, and the debts and liabilities in respect of which an administrative receiver is personally liable pursuant to section 44. Section 19(5) does not impose personal liability on the administrator. In that respect he is in a better position than an administrative receiver, even though his status resembles that of an administrative receiver in that in exercising his powers he is deemed to act as the company's agent (section 14(5)). But in section 19(5) Parliament addressed, although in a somewhat oblique fashion, the position regarding debts and liabilities arising under contracts entered into or adopted by an administrator in the carrying out of his functions. The answer supplied by Parliament was that, as in the case of administrative receivers, no special provision was made for debts and liabilities incurred during an administration under a contract adopted by the administrator, save in the one case of contracts of employment. This answer is important, having in mind that one of the primary functions of an administrator is that frequently, if not normally, he will continue to carry on the company's business and, hence, will continue to use the land and goods currently being used by the company for the purposes of its business. Indeed, it is of the essence of his appointment that an administrator should do these very things in cases when the purpose sought to be achieved by the administration order is purpose (a) in section 8(3), viz., the survival of the company, and the whole or any part of its undertaking, as a going concern.
If the relevant statutory provisions had ended there we would have seen no reason to doubt that Parliament must have intended, as Mr. Heslop submitted, that the position regarding outgoings on property used by the company during an administration should be similar to that obtaining in an administrative receivership. But that would be to ignore a crucial part of the statutory structure. Parliament considered that an administrator should be buttressed with a support which an administrative receiver does not have. That support encroaches upon the property rights of others. Section 11(3) provides:
"During the period for which an administration order is in force:
(a) no resolution may be passed or order made for the winding-up of the company;
(b) no administrative receiver of the company may be appointed;
(c) no other steps may be taken to enforce any security over the company's property, or to repossess goods in the company's possession under any hire-purchase agreement, except with the consent of the administrator or the leave of the court and subject (where the court gives leave) to such terms as the court may impose; and
(d) no other proceedings and no execution or other legal process may be commenced or continued, and no distress may be levied, against the company or its property except with the consent of the administrator or the leave of the court and subject (where the court gives leave) to such terms as aforesaid."
Thus the making of an administration order triggers the like prohibition on proceedings being brought or continued against the company as the prohibition which exists, and has long existed, when a winding-up order is made. The owners of property, and of charges over property, are disabled from exercising their proprietary rights unless the administrator consents or the court gives leave.
We regard this feature as of cardinal importance, distinguishing an administration from an administrative receivership in a respect vital to the matter now under consideration. This feature, coupled with the further feature that the court has power to give directions to the administrator on the conduct of the administration, leads inexorably to the conclusion that much of the reasoning which caused the courts to adopt what we have referred to as the "liquidation expenses" principle in the case of liquidations is also applicable in administrations but subject, in our view, to a very important qualification. In liquidations the principles on which the court will exercise its discretion have hardened into a set practice, both in relation to "possession" cases and in the application of the "liquidation expenses" principle. In "possession" cases leave is granted as of course. And in the circumstances in which the "liquidation expenses" principle is applicable, entitlement to have the outgoings paid as an expense of the liquidation seems to have become more or less automatic. In our view there is no place for comparable hard-and-fast principles in the case of administrations. The reason for this difference is that the objectives of winding-up orders and administration orders are different and, hence, the approach that should be adopted by the court when exercising its discretion under the two regimes is different. In the case of winding-up the company has reached the end of its life. The basic object of the winding-up process, in the case of an insolvent company, is to achieve an equal distribution of the company's assets among the unsecured creditors. A secured creditor will not, as such, participate in the ensuing distribution. If he seeks leave to obtain possession of his own property, leave should be granted. And if another's land or goods (and we can see no relevant difference between them, for this purpose) are detained by the liquidator against the owner's wishes and used for the purposes of the winding-up, it is obviously only fair that in respect of the period of detention the owner should be paid his rent or hire charges in full as expenses of the liquidation.
In contrast, an administration is intended to be only an interim and temporary regime. There is to be a breathing-space while the company, under new management in the person of the administrator, seeks to achieve one or more of the purposes set out in section 8(3). There is a moratorium on the enforcement of debts and rights, proprietary and otherwise, against the company, so as to give the administrator time to formulate proposals and lay them before the creditors, and then implement any proposals approved by the creditors. In some cases winding up will follow, in others it will not. Whether those whose land or goods are being used by the company during this interim period should be given leave to enforce their proprietary rights forthwith or should be paid ahead of everyone else must depend on all the circumstances, which will vary widely from one case to the next. We do not think that Parliament intended, for example, that if a company's factory or offices are leasehold, and the administrator continues to carry on the business on those premises, the court as a matter of course would always give leave to re-enter, or to distrain in respect of rent accruing from the date of the administration order, or make a direction for payment of the rent in full as an expense of the administration. Likewise in respect of vehicles or machinery which are in the company's possession under hire purchase agreements and which are being used by a company in the course of carrying on its business. Parliament must have intended, for instance, that, in appropriate circumstances, and for a strictly limited period, such a lessor or owner of goods might not be given leave if giving leave would cause disruption and loss out of all proportion to the loss which the lessor or the owner of goods would suffer if leave were refused. Indeed, Parliament must have intended that when exercising its discretion the court should have due regard to the property rights of those concerned. But Parliament must also have intended that the court should have regard to all the other circumstances, such as the consequences which the grant or refusal of leave would have, the financial position of the company, the period for which the administration order is expected to remain in force, the end result sought to be achieved, and the prospects of that result being achieved.
If this flexible approach is right, there is no room in administrations for the application of a rigid principle that, if land or goods in the company's possession under an existing lease or hire purchase agreement are used for the purposes of an administration, the continuing rent or hire charges will rank automatically as expenses of the administration and as such be payable by the administrator ahead (so it would seem) of the pre-administration creditors. Nor, even, for a principle that leave to take proceedings will be granted as of course. Such rigid principles would be inconsistent with the flexibility Parliament must have intended should apply by giving the court a wide discretion.
This conclusion is consistent with section 19(5). If a administrator adopts an existing contract of employment, the liabilities arising under that contract are automatically payable as provided in that subsection. As to other existing contracts "adopted" by an administrator, creditors have no automatic preference or priority.
We recognise that if a lessor or owner of goods is not to have any such automatic priority, this will be a powerful factor in favour of leave being granted to him to enforce his proprietary rights. So be it. At a later stage we shall turn to consider the principles guiding the exercise of the discretion to grant or withhold leave.
We also recognise that, if a lessor or owner of goods is not to have any such automatic priority, it might seem, at first sight, that the financial interests of lessors and owners of goods will dictate that, as soon as they learn of a administration order, they should make an application to the court for leave to take proceedings. We do not think that this conclusion follows. An administrator can give his consent under the section. Further, an administrator undoubtedly has power, in an appropriate case, to pay rent and hire charges in respect of land and goods used by him for the purposes of the administration. This is so both as to arrears and as to amounts continuing to fall due. Under the Act he has power to make any payment which is necessary or incidental to" the performance of his functions (paragraph 13 of schedule 1). When deciding whether or not to give his consent or to exercise this power, an administrator will need to consider whether the case is one in which, if an application were made to the court by the lessor or owner of goods, the court would be likely to give leave, or to give leave unless some or all of the rent or hire charges were paid by the administrator. If it is such a case, and if the lessor or owner of the goods is seeking possession, the administrator should consider whether, having regard to those features and all the other circumstances of the case, he ought to give consent or ought to pay some or all of the rent or hire charges of the land or goods if he wishes to continue to use them.
An administrator is an officer of the court. He can be expected to make his decision speedily, so far as he can do so. He may be able at least to make an interim decision, such as agreeing to pay the current rents for the time being. The administrator should also make his decision responsibly. His power to give or withhold consent was not intended to be used as a bargaining counter in a negotiation in which the administrator has regard only to the interests of the unsecured creditors. When he refuses consent it would be helpful if, unless the reason is self-evident, he were to state succinctly why he has refused and also why he is not prepared to pay the rental arrears or at least the current rentals. A similar approach should be adopted by the administrator when secured creditors seek his consent to enforce their security. It should not be necessary, therefore, for the Companies Court to be swamped with applications under section 11, or for administrations to be subjected regularly to the expense and disruption of such applications. Should it become necessary for a lessor or owner of goods or the owner of a security to make an application to the court, the court has ample powers, by making orders as to costs and giving directions to the administrator, either as its own officer or as envisaged by section 17, to ensure that the applicant is not prejudiced by an unreasonable decision of an administrator.
We must note two other points. It was argued that, unless lessors of land and owners of goods let on hire purchase terms which are used by an administrator in the course of his administration are entitled of right to be paid the continuing rent and hire charges as an expense of the administration, the result would amount to expropriation by statute without compensation. An intention to take away the property of a subject without a right to compensation is not to be imputed to Parliament unless that intention is expressed in unequivocal terms: see Lord Atkinson in Central Control Board (Liquor Traffic) v. Cannon Brewery Co. Ltd. [1919] A.C. 744, 752. We do not think this line of argument assists. To the extent that the prohibition in section 11 precludes an owner of land or goods from exercising his proprietary rights, section 11 does have an expropriatory effect. But that is provided for in unequivocal terms. The safety valve which Parliament has built into the system is the owner's ability to make an application to the court. Built into section 11 itself is provision for an application to the court for leave, in the absence of agreement by the administrator. Further, Parliament provided that the administrator should manage the affairs, business and property of the company, at any time before proposals have been approved by the creditors under section 24, "in accordance with any directions given by the court" (section 17). Still further, there is the long-stop safeguard provided by section 27. On the hearing of a petition under that section the court has wide powers, including power to discharge the administration order and make consequential provision. Given these discretionary safeguards, we can see no justification for reading into the statutory provisions an implication that the owner of land or goods was intended to have some other remedy to compensate for any loss he suffers by reason of the section 11 prohibition.
The second point we must note briefly is a contention by Norwich and AIB to the effect that, even if they are not entitled of right to be paid the sums due under the head leases from the date of the administration order as expenses of the administration, they became so entitled after the lapse of a reasonable period of time within which the administrators could make up their minds whether they wished to continue to retain the head leases. We do not agree. At bottom this contention is the same as the principal argument advanced, save that it incorporates "thinking time". But the essential difficulty remains. This modified contention, as much as the primary contention, is inconsistent with the court having been given a wide discretion, in exercise of which, in appropriate circumstances, the court may refuse leave under section 11 even though the administrator is continuing to use land or goods belonging to another without payment in full of the current rent and hire charges.
For these reasons we cannot accept that Norwich and AIB have an absolute entitlement to be paid, as an administration expense, the rent and other outgoings payable under the head-leases. On this we have to part company with the judge.
"Goods in the company's possession"
The next question which arises concerns the proper meaning of the expression "goods in the company's possession" in section 11(3)(c). This paragraph prohibits steps being taken "to re-possess goods in the company's possession under any hire purchase agreement", except with consent or leave. By section 10(4), reference to hire purchase agreements include conditional sale agreements, chattel leasing agreements and retention of title agreements.
The computer equipment in this case is for the most part on the premises of end users, to whom it has been sub-let by the company. Can it still be said to be in the possession of the company for the purposes of section 11(3)(c)? The judge thought not. That is certainly a very arguable view, although it produces the curious result that the funders can take steps to re-possess the equipment without consent or leave, but consent or leave is needed for AIB to enforce its security over the income arising under the sub-leases of the same equipment. Plainly for some purposes the equipment is in the possession of the end users. If it matters, which is open to question, the parties contemplated and provided that this would happen. For example, the master hire purchase agreement between AIB and the company provided by clause 7.01 that the goods should be "located at the site", meaning the address of the end user; and by clause 9.01, that the company should not "part with possession of any of the goods", except that the company should be entitled do sub-lease them. A typical sub-lease by the company contains a covenant (in clause 9) that the sub-lessee "shall peaceably and quietly hold possess and use" the goods. By clause 12(iii) upon termination the company "shall immediately be entitled to the possession" of them.
In Towers and Co. Ltd. v. Gray [1961] 2 Q.B. 351, 361, Lord Parker C.J. said:
"The term 'possession' is always giving rise to trouble. As Earl Jowitt said in United States of America and Republic of France v. Dollfus Mieq et Cie SA and Bank of England:
'The person having the right to immediate possession is, however, frequently referred to in English law as being the 'possessor' - in truth the English law has never worked out a completely logical and exhaustive definition of possession'.
For my part I approach this case on the basis that the meaning of 'possession' depends upon the context in which it is used ... In some contexts, no doubt, a bailment for reward subject to a lien, and where perhaps some period of notice has to be given before the goods can be removed, could be of such a nature that the only possession that there could be said to be would be possession in the bailee. In other cases it may well be that the nature of the bailment is such that the owner of the goods who has parted with the physical possession of them can truly be said still to be in possession."
That in itself does not provide a solution to this point, since it contemplated that either the bailor or the bailee may have possession for a given purpose - but not both. However, it does contemplate that for some purposes a bailor, and therefore a sub-bailor, may still have possession despite the bailment. In our judgment the answer emerges once one considers the purpose of section 11(3)(c). The paragraph is dealing with goods which, as between the company and its supplier, are in the possession of the company under a hire purchase agreement. Those goods are to be protected from repossession unless there is either consent or leave. It is immaterial whether they remain on the company's premises, or are entrusted by the company to others for repair, or are sub-let by the company as part of its trade to others. We do not see that such a construction does any violence to the language of the paragraph, or is more purposive than is warranted by the current approach of the English courts to statutes which are neither fiscal nor penal, even though it is said that a breach of the paragraph is a contempt of court.
In the present case the computer equipment, as between the funders and the company, remains in the possession of the company. Accordingly it is in the company's possession for the purposes of section 11(3)(c), so that it cannot be repossessed save with consent or leave.
Mr. Crystal gave an example of goods bailed by the owner to X, by X to Y, and by Y to Z; X then goes into administration; and Y, for quite different reasons such as that he has not received a hire payment, wishes to re-possess from Z. Mr. Crystal submitted that, if the construction which the administrators contend for is correct, Y would need either consent or leave. It is hard to see how the administrator of X would have any reason to refuse consent; but we do not think that it would be needed. Paragraph (c) is dealing with steps to re-possess by a person who has let goods on hire purchase to the company, and possibly by somebody with a higher right than that person. The paragraph does not deal with a repossession which would not affect the company's enjoyment of the goods or the profit flowing to the company from them.
Fixed or floating charges.
In some instances the company assigned the benefit of sub-leases to funders. Nothing turns on this so far as Norwich is concerned. Norwich did not seek to rely on any such assignments in this case, although it has reserved the right to do so on another occasion. As to AIB, there were such assignments, by way of charge, in respect of every sub-lease, and these were duly registered under the Companies Act. In respect of these charges the administrators advanced a contention that the charges were floating charges and not fixed charges, and that leave to enforce them should not be given at this stage, because that would enable AIB to defeat a potential charge under section 19(4) and (5). It is convenient to consider this issue next.
The deed of assignment dated 9th June 1988 and made between the company and AIB contains provisions which are typical on the material point. The recitals to the deed identified, by reference to schedules, certain hire purchase agreements, or head leases, as we have called them, and also the matching sub-leases. The operative clause in the deed provided:
"In consideration of [AIB] having agreed to enter into the [headleases] and as security for all the moneys, obligations and liability (if any) due by the [company] under or by virtue of the [headleases] the [company] as beneficial owner HEREBY ASSIGNS to [AIB] by way of security all the benefit of the terms of each of the sub-leases and all rentals, claims, rights, demands and other moneys or claims for moneys whatsoever under each of the sub-leases which the [company] has or may at any time in the future have or be entitled to under or by virtue of the sub-leases (hereinafter referred to as 'the Assigned Benefits') so that the Assigned Benefits in respect of each sub-lease shall be and are assigned to [AIB] to secure the obligations of the [company] under the [headlease] corresponding thereto in accordance with Recital (C) above."
We were reminded of the well known descriptions of a floating security given in the Yorkshire Woolcombers case. There the property charged was "all book and other debts now owing to the association, and also all ... the book and other debts which may at any time during the continuation of this security become owing to the association": see In re Yorkshire Woolcombers Association Limited [1902] 2 Ch. 284, 286. Lord Justice Romer said (at page 295):
"I certainly do not intend to attempt to give an exact definition of the term 'floating charge,' nor am I prepared to say that there will not be a floating charge within the meaning of the Act, which does not contain all the three characteristics that I am about to mention, but I certainly think that if a charge has the three characteristics that I am about to mention it is a floating charge. (1) If it is a charge on a class of assets of a company present and future; (2) if that class is one which, in the ordinary course of the business of the company, would be changing from time to time; and (3) if you find that by the charge it is contemplated that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on its business in the ordinary way as far as concerns the particular class of assets I am dealing with."
In the House of Lords (Illingworth v. Houldsworth [1904] AC 355, 357) the Earl of Halsbury L.C. referred to the charge in that case and stated what he considered to be the essential characteristic of a floating security:
"In the first place you have that which in a sense I suppose must be an element in the definition of a floating security, that it is something which is to float, not to be put into immediate operation, but such that the company is to be allowed to carry on its business. It contemplates not only that it should carry with it the book debts which were then existing, but it contemplates also the possibility of those book debts being extinguished by payment to the company, and that other book debts should come in and take the place of those that had disappeared. That ... seems to me to be an essential characteristic of what is properly called a floating security."
Lord Macnaghten (at page 358) also emphasised the ambulatory nature of a floating charge:
"I should have thought there was not much difficulty in defining what a floating charge is in contrast to what is called a specific charge. A specific charge, I think, is one that without more fastens on ascertained and definite property or property capable of being ascertained and defined; a floating charge, on the other hand, is ambulatory and shifting in its nature, hovering over and so to speak floating with the property which it is intended to affect until some event occurs or some act is done which causes it to settle and fasten on the subject of the charge within its reach and grasp."
In the light of these observations we cannot accept Mr. Heslop's submissions. The notable feature of the present case is that the charges were not ambulatory. The property assigned by the company was confined to rights to which the company was entitled under specific, existing contracts. The assignments consisted of the company's rights "under or by virtue of" sub-leases each of which was already in existence at the time of the assignments and each of which was specifically identified in the relevant deeds of assignment. In each case the payments due to the company under a specific sub-lease were charged as security for the payments due by the company under the head-lease relating to the same equipment. The company's right to receive future instalments from end users in due course pursuant to the terms of these sub-leases was as much a present asset of the company, within Lord Justice Romer's reference to "present and future" assets of a company, as a right to receive payment of a sum which was immediately due. Lord Justice Romer's reference to future assets was a reference to assets of which, when the charge was created, the company was not the owner. That was the position in that case. That is not the position in this case.
We have in mind that in practice sums payable by the end users under these sub-leases were paid to the company and utilised by it in the ordinary course of business. In so far as this is relevant, it may well be that this was what the parties intended should happen. The company was to be at liberty to receive and use the instalments until AIB chose to intervene. We are unpersuaded that this results in these charges, on existing and defined property, become floating charges. A mortgage of land does not become a floating charge by reason of the mortgagor being permitted to remain in possession and enjoy the fruits of the property charged for the time being. This is so even if the land is leasehold and the term is very short, and as such the asset charged is of a wasting character. So here: the mere fact that for the time being the company could continue to receive and use the instalments does suffice to negative the fixed character of the charge. This apart, we have seen nothing to lend any support to the administrators' contention. In particular, we have seen nothing to suggest that after the assignment the company was to be at liberty to deal with its rights under the sub-leases without the consent of AIB.
The applications under section 11.
We turn next to the applications for leave to terminate the head leases and to take steps to re-possess the equipment and, in the case of AIB, to enforce its security. The following are the factors of importance in this case on these applications.
(1) The head leases and the sub-leases.
First, the funders' property. A typical hire purchase agreement between the company and a funder runs for seven years. The rent is payable quarterly in advance, and the amount varies in accordance with fluctuations in interest rates in the financial market. At current rates of interest, the amount due to Norwich under the relevant head leases between the date of the administration order and 1996 is about £24 million. AIB's exposure, in respect only of capital, is about £6 million.
Broadly the provisions of the sub-leases match the provisions of the corresponding head lease, with two exceptions. First, as to the amount of the rent. In a typical case, although the rent payable by the company under the head leases fluctuates, the rent payable by end users to the company under the sub-leases is of a fixed amount. Thus the company was vulnerable to upward movements in interest rates. Most of the relevant sub-leases were entered into by the company in 1986 and 1987, when interest rates were much lower than at present. In some instances the present shortfall, between the rate of interest receivable by the company from end users and the rate of interest payable by the company to the funders, is as much as 10 per cent. The administrators estimate that, over the life of the head leases and sub-leases, the overall deficit for the company will be of the order of £20 million. The deficit for the 3-month period from the date of the administration order to 18th July was about £1.7 million.
The second respect in which the head leases and sub-leases do not correspond is that, either from the outset or by reason of subsequent variation, the sub-leases generally contain a "flex" option. Two-thirds of them also contain a "walk" option. A "flex" option entitles an end user to upgrade his equipment, generally after three years, and enter into a further sub-lease on certain terms. The company undertook to settle all charges remaining to be paid to the funder under the original head lease. A "walk" option entitles an end user to return his equipment before the end of the sub-lease term, usually after five years. Here also the result of the exercise of the option is that the company is liable to pay the future rental payments under the head lease.
By reason of the non-payment of the rental instalments under the head leases, if for no other reason, Norwich and AIB are now entitled, in accordance with the terms of their head leases, to determine the head leases.
There is a measure of dispute between the parties on how quickly the sub-leased computer equipment becomes obsolescent.
Clearly, however, one would expect that if the computers had to be repossessed and sold, they would not, in general, fetch anything approaching their original value. Undoubtedly the best hope for Norwich and AIB is to tap into the stream of income whose source is the end users, and to do so either by seeking to take over the benefit of the existing sub-leases or by negotiating a new and better deal with the end users.
(2) The company's financial position.
At the time of the hearing of the appeal, no statement of affairs had been produced by the directors of the company. The most up-to-date information on the company's financial position is contained in the administrators' statement circulated to the creditors on 24th June along with the notice convening the creditors' meeting. The financial affairs of the company and of the Atlantic group as a whole are complex. Uncertainty and obscurity abound. In relation to the head leases and sub-leases the administrators have been hampered by the state of the records and system of information storage and retrieval operated by the company. For present purposes the position can be sufficiently summarised as follows. The administrators do not expect that the assets of the company will yield anything remotely approaching their book value. Inter-company debts, for instance, have a book value of nearly £110 million, but they are unlikely to yield more than a few pence in the pound. The company's principal asset comprises the sub-leases: this type of transaction forms the core of the company's business. The book value of the sub-leases is £96 million. In addition, "own book" leases have a book value of £10 million. "Own book" leases, which form only a small part of the company's business, are transactions where the company itself funded the acquisition
of the computers and is itself the owner of the equipment let to end users. Against these assets are to be set liabilities, estimated at about £130 million, arising under the head leases. In addition, there are or will be liabilities arising under the flex and walk options in the sub-leases. Accrued liabilities under this head are estimated at about £12 million, and contingent liabilities at the massive sum of £250 million. Other debts, in respect of tax, trade creditors and inter-company creditors, are estimated at £60 million.
(3) The administrators' proposals.
Third, the way ahead. The administrators are not looking for new business. As to realisations, there is no question of the company's interest in the head leases and sub-leases being sold en bloc. Most sub-leases have been tailored to meet the specific circumstances of particular end users. The result is a complex portfolio of head leases and sub-leases which have to be dealt with on an individual basis. The administrators have stated their general objectives as:
"... extracting value from leases where it exists and of minimising actual and contingent claims in all cases by agreement between the parties."
In their statement of 24th June the administrators continued:
"The insolvency of [the company] leaves users and funders with a problem. The contracts with [the company] gave the users the ability to extricate themselves before the end of the lease term in accordance with their computer requirements. The intention is, through negotiations, to allow the user to regain control of his future computer requirements whilst minimising claims on [the company]. In addition we are in discussions with third parties, who are attracted by [the company's] customer base, with a view to -introducing them in exchange for value to [the company], into this management process."
The reference to the company's customer base is to the fact that the end users include many "blue chip" companies.
Attaining these objectives is not expected to be a speedy process. The administrators consider that significant realisations could take "some considerable time".
A meeting of the company's creditors, convened to consider the administrators' proposals in accordance with section 23, was held on 11th July. By a majority the creditors approved the proposals with some modifications. The main proposals as approved were:
"2. To administer [the company's] lease portfolio to the benefit of all the company's creditors, or potential creditors, in so far as this is possible.
3(a) To seek, in co-operation with funders and users of equipment, an approach which allows [the company] to withdraw from its contractual arrangements with funders and lessees as soon as possible on mutually agreeable terms and in particular:-
(1) to make an immediate joint approach with funders to lessees to direct lessees henceforth to make all payments due under sub-leases direct to funders; ... and
(2) if payments are not resumed within a reasonable time, or if it becomes apparent that compromises cannot be reached, the administrators shall be entitled to give any consents requested by the funders to exercise their rights under their relevant lease or hire-purchase agreements and associated security documents.
(b) To manage individual situations on leases and customer relationships to realise value for the creditors as a whole with the agreement of interested parties.
(c) To introduce third parties to take over leases and, where possible, any associated liabilities.
(d) To formulate arrangements whereby agreement is reached with lessees and funders so that they reduce their claims against [the company] and/or pay a consideration to allow the leases to continue without the involvement of [the company]."
Further proposals were: to pursue the company's interest in other group companies; to maximise tax benefits; to report to the creditors' committee within three months; to assess the impact of the outcome of this appeal and to formulate any revised proposals which may become necessary; and in due course to apply for a discharge on the basis that the company is wound up.
In addition, we were informed by a letter from the administrators' solicitors, written after the creditors' meeting and after we had reserved judgment, that the administrators now intend to pay forthwith to the funders all amounts received by the company since 18th April under sub-leases which correspond to head leases with the respective funders. The payments will be made with accrued interest. Where the funder does not have a registered security over the sub-lease payments, the funders will not receive any amount which relates to a period for which the relevant funder has already received payment from the company.
(4) The effect on the administration if leave were given
If leave were given to terminate the head leases and re-possess the equipment, the administrators would be in a much weaker position in negotiations with the end users and the funders in those cases where the funders took advantage of such leave. If leave were given to Norwich and AIB, other funders similarly placed would be entitled to expect that they, too, would be given leave. We have no evidence about the views of other funders on these matters. The likely result, if other funders sought to pursue the same course as Norwich and AIB, would be the wholesale collapse of the administrators' basic proposals. Each of the numerous funders, of whom there are about 50, would take his own steps against the end users, of whom there are nearly 1,000. The flex and walk liabilities could be expected to crystallise into claims against the company. The administrators' hopes of substantially reducing these claims would disappear. Any goodwill remaining in the customer base would evaporate. Likewise if leave were given to AIB to enforce its security over the sub-leases: in those cases the administrators would be squeezed out.
(5) The effect on Norwich and AIB if leave were refused
If leave to terminate the head leases and to re-possess were not given, the effect on Norwich and AIB would be that they would be likely to suffer significant loss. The sums involved are substantial. The underlying property is a wasting asset. Given the company's insolvent state and the contingent liabilities under the flex and walk options, there may be difficulty in persuading end users to resume payments in full under the sub-leases at once, while negotiations proceed. Even if such payments were resumed and duly handed over to the funders, there would still be a significant shortfall compared with the rents due to the funders under the head leases.
Mr. Heslop did not accept that Norwich and AIB would suffer loss if leave were refused. He submitted that Norwich and AIB cannot reasonably expect to receive more than the amount of the sub-rentals, and they will receive that under the proposals. Norwich and AIB knew that the equipment was being sub-let, so they cannot oust the end users from their possession of the equipment. Nor, indeed, can they even intercept the stream of income from the end users to the company, because they are not parties to the sub-leases. AIB, as assignee of the benefit of the sub-leases, can enforce its security, but qua owners AIB and Norwich can achieve nothing by terminating the head leases. We are wholly unpersuaded that this is a complete analysis. We are satisfied that if Norwich and AIB were given leave to pursue whatever remedies are lawfully available to them as owners of the equipment, they would be in an appreciably stronger position, both against the end users and against the company, than they are at present.
(6) The prospects of a successful outcome in the administration if leave were refused.
If leave were refused, we would expect that over a protracted period the administrators would be able to negotiate deals with end users which would reduce their claims against the company. After all, the company is insolvent. It would make sense for end users to re-negotiate their deals. As to the funders, it may well be that there would be a better prospect of obtaining their consent to a proposed deal if leave were refused than if it were given, but that would be because in the former case the funders would find themselves disabled in the negotiations from relying on their proprietary rights. The essential question in this case is whether that would be right.
(7) The conduct of the parties.
From the very outset of the administration AIB sought the administrators' consent to the realisation of its security. Consent to terminate the head leases was sought by AIB in a letter of 4th May. Norwich Union made a request to the same effect by a letter of 10th May. There is no question here of either applicant having disentitled itself to relief, by acquiescence or election or anything of that nature. Nor is there any question of either Norwich or AIB having been misled by the administrators, or anything of that sort, or of the administrators having dragged their feet in the conduct of the administration.
(8) Conclusions
In this case it is for us sitting in the Court of Appeal to exercise our own discretion. In so far as the question of granting leave arose at all before the judge in view of his decision that the equipment was not in the company's possession, the judge approached the question on the erroneous footing that Norwich and AIB were entitled to be paid the rent due under the head leases as an expense of the administration.
Taking into account all the matters mentioned above, we are in no doubt that this is a case in which we should exercise our discretion under section 11 to grant leave to take steps to terminate the head leases and to re-possess the goods and, in the case of AIB, to enforce its security. The administration is a prelude to winding up the company. In short, the administrators propose to negotiate benefits for the unsecured creditors, who to a substantial extent are the end users and funders themselves, by reducing the amount of the claims of the end users and funders. End users will be asked to release their claims under the flex and walk options. They may be asked to pay more, direct to the funders. Funders will be asked to release their claims against the company under the head leases. The unsatisfactory feature of these proposals is that the contemplated negotiations will take place at the expense of the funders, in that the funders will be asked to agree to modify their existing proprietary rights in a negotiation in which they will not be able to rely on those rights. Their bargaining strength will be reduced to the prospect that, if agreement is not reached after an indefinite period, the administrators may give their consent under section 11. Or, presumably, Norwich and AIB could embark on a fresh application to the court. This cannot be an acceptable basis on which to conduct an administration. Norwich and AIB should not be compelled to leave their property in such an administration against their will. The prohibitions in section 11(3) (c) and (d) were not intended to be a means of strengthening an administrator's position if he should seek to negotiate a modification of the existing proprietary rights of the owner of the land or goods in question.
This is not a case in which it is practicable to refuse leave on condition that the administrators pay all the current outgoings under the head leases. The rents from the sub-leases, even assuming the flow can be re-started promptly, are insufficient for this purpose.
We have in mind that, although it is now over three months since the administration order was made, the parties have been locked in litigation for two of those months. Throughout this period the future of the administration has been clouded in uncertainty. We have considered whether, this being so, it would be right to stay the grant of leave for a while to enable the administrators to consider the way ahead in the light of the outcome of this appeal and, may be, to submit revised proposals to the creditors. We have decided not to grant such a stay. We see no reason to think that granting a stay would serve a useful purpose. No suggestion was advanced to us of any other particular proposals the administrators would wish to consider further if we were minded to grant leave.
Further directions.
There remains the question of what should be done with the sums already collected by the administrators in respect of sub-leases of equipment belonging to Norwich and AIB respectively. Sensibly and properly, on their appointment the administrators took steps to gather in payments falling due under the sub-leases. The administrators were under a statutory duty to take into their custody or under their control all the property to which the company was or appeared to be entitled (section 17). Equally sensibly and properly, the administrators placed the money received into earmarked, interest-bearing bank accounts. But what should now happen to that money? Suffice to say, we agree with the administrators' recent decision that the money should be paid to Norwich and AIB with the interest accrued thereon. Had they not so decided, we would have so directed, for reasons which it is not necessary now to elaborate.
On this only one point remains outstanding. Some of the payments received by the administrators from sub-leases were in respect of periods of time covered, in whole or in part, by payments made in advance to funders under the corresponding headlease. Contrary to the view of the administrators, we do not think that this makes any significant difference, so long as the funders do not receive more than their up-to-date entitlement under the corresponding head lease. We shall therefore direct the administrators to pay to Norwich and AIB all sums received by the administrators since their appointment in respect of equipment owned by Norwich and AIB, together with the interest accrued thereon, but subject to the ceiling that the sums paid over shall not exceed the amount of the arrears accrued due under the respective head leases at the time when the administrators make the payments to Norwich and AIB. These payments by the administrators shall be on account of the sums due from the company under the relevant head leases, and they shall count as expenses properly incurred by the administrators.
Should we go beyond this and, in the exercise of our discretion, make an order that all the rental and other outgoings which have accrued on the head leases since the administration order shall be paid by the administrators as an expense of the administration? We think not. We consider that the justice of the case is best met by giving leave, and making a direction as just mentioned regarding the money actually received by the administrators. In this way the administrators will account to Norwich and AIB for the benefits received from the continuation of the head leases during the administration. Without prejudice to what may happen hereafter in this administration, we do not consider that we should make any further order at this stage.
In the light of the above we do not think that any question arises on Mr. Crystal's further application, which was for leave to bring proceedings against the company for some form of restitutionary relief in respect of the money received by the administrators from the end users. In any event, we would have refused such leave, without prejudice to his clients' right to re-apply when the nature of this claim and its legal basis have been formulated at least to an extent which will make it possible for assess whether the claim is even arguable.
Norwich's section 27 petition
Thus far we have been concerned with applications by Norwich and AIB seeking various declarations and orders and also leave under section 11. Norwich also presented a petition under section 27, on the ground that the administrators' conduct in collecting the rents from the end users but refusing to pay them to the funders was unfairly prejudicial to creditors including Norwich. By this petition Norwich seeks, in short, an order that all the rent and other outgoings arising under the Norwich head leases, whether they accrued before or after the date of the administration order, should rank as expenses of the administration. We have already stated that we shall not make such an order. Since we are giving leave under section 11, there is no case for the further order sought in the section 27 petition, viz., an order discharging the administration order.
Leave applications: the general approach
There is one final matter to which we now turn. In the course of argument we were invited to give guidance on the principles to be applied on applications for the grant of leave under section 11. It is an invitation to which we are reluctant to accede, for several reasons: first, Parliament has left at large the discretion given to the court, and it is not for us to cut down that discretion or, as it was put in argument, to confine it within a straitjacket. However much we emphasise that any observations are only guidelines, there is a danger that they may be treated as something more. Secondly, section 11(3) (c) and (d) applies to a very wide range of steps and proceedings, and the circumstances in which leave is sought will vary almost infinitely. Thirdly, it is the judges who sit in the Companies Court who have practical experience of the difficulties arising in the working out of this new jurisdiction, not the members of this court.
However, we have already drawn attention to the important role of the administrator in this field. He should respond speedily and responsibly to applications for consent under section 11. Parliament envisaged that in the first place section 11 matters should be dealt with by him. It is to be hoped, in the interests of all concerned, that applications to the court will become the exception rather than the rule. But we recognise that for this to be so, authorised insolvency practitioners and their legal advisers need more guidance than is available at present on what, in general, is the approach of the court on leave applications. We feel bound, therefore, to make some general observations regarding cases where leave is sought to exercise existing proprietary rights, including security rights, against a company in administration:
(1) It is in every case for the person who seeks leave to make out a case for him to be given leave.
(2) The prohibition in section 11(3) (c) and (d) is intended to assist the company, under the management of the administrator, to achieve the purpose for which the administration order was made. If granting leave to a lessor of land or the hirer of goods (a "lessor") to exercise his proprietary rights and re-possess his land or goods is unlikely to impede the achievement of that purpose, leave should normally be given.
(3) In other cases when a lessor seeks possession the court has to carry out a balancing exercise, balancing the legitimate interests of the lessor and the legitimate interests of the other creditors of the company (see Peter Gibson J. in Royal Trust Bank v. Buchler [1989] B.C.L.C. 130, 135).
The metaphor employed here, for want of a better, is that of scales and weights. Lord Wilberforce adverted to the limitations of this metaphor in Scientific Research Council v. Nasse [1980] AC 1028, 1067. It must be kept in mind that the exercise under section 11 is not a mechanical one; each case calls for an exercise in judicial judgment, in which the court seeks to give effect to the purpose of the statutory provisions, having regard to the parties' interests and all the circumstances of the case. As already noted, the purpose of the prohibition is to enable or assist the company to achieve the object for which the administration order was made. The purpose of the power to give leave is to enable the court to relax the prohibition where it would be inequitable for the prohibition to apply.
(4) In carrying out the balancing exercise great importance, or weight, is normally to be given to the proprietary interests of the lessor. Sir Nicolas Browne-Wilkinson V-C observed in Bristol Airport plc v. Powdrill [1990] 2 W.L.R. 1362, 1379 that, so far as possible, the administration procedure should not be used to prejudice those who were secured creditors when the administration order was made in lieu of a winding up order. The same is true regarding the proprietary interests of a lessor. The underlying principle here is that an administration for the benefit of unsecured creditors should not be conducted at the expense of those who have proprietary rights which they are seeking to exercise, save to the extent that this may be unavoidable and even then this will usually be acceptable only to a strictly limited extent.
(5) Thus it will normally be a sufficient ground for the grant of leave if significant loss would be caused to the lessor by a refusal. For this purpose loss comprises any kind of financial loss, direct or indirect, including loss by reason of delay, and may extend to loss which is not financial. But if substantially greater loss would be caused to others by the grant of leave, or loss which is out of all proportion to the benefit which leave would confer on the lessor, that may outweigh the loss to the lessor caused by a refusal.
Our formulation was criticised in the course of the argument, and we certainly do not claim for it the status of a rule in those terms. At present we say only that it appears to us the nearest we can get to a formulation of what Parliament had in mind.
(6) In assessing these respective losses the court will have regard to matters such as: the financial position of the company, its ability to pay the rental arrears and the continuing rentals, the administrator's proposals, the period for which the administration order has already been in force and is expected to remain in force, the effect on the administration if leave were given, the effect on the applicant if leave were refused, the end result sought to be achieved by the administration, the prospects of that result being achieved, and the history of the administration so far.
(7) In considering these matters it will often be necessary to assess how probable the suggested consequences are. Thus if loss to the applicant is virtually certain if leave is refused, and loss to others a remote possibility if leave is granted, that will be a powerful factor in favour of granting leave.
(8) This is not an exhaustive list. For example, the conduct of the parties may also be a material consideration in a particular case, as it was in the Bristol Airport case. There leave was refused on the ground that the applicants had accepted benefits under the administration, and had only sought to enforce their security at a later stage: indeed, they had only acquired their security as a result of the operations of the administrators. It behoves a lessor to make his position clear to the administrator at the outset of the administration and, if it should become necessary, to apply to the court promptly.
(9) The above considerations may be relevant not only to the decision whether leave should be granted or refused, but also to a decision to impose terms if leave is granted.
(10) The above considerations will also apply to a decision on whether the impose terms as a condition for refusing leave. Section 11(3) (c) and (d) makes no provision for terms being imposed if leave is refused, but the court has power to achieve that result. It may do so directly, by giving directions to the administrator: for instance, under section 17, or in response to an application by the administrator under section 14(3), or in exercise of its control over an administrator as an officer of the court. Or it may do so indirectly, by ordering that the applicant shall have leave unless the administrator is prepared to take this or that step in the conduct of the administration.
Cases where leave is refused but terms are imposed can be expected to arise frequently. For example, the permanent loss to a lessor flowing from his inability to recover his property will normally be small if the administrator is required to pay the current rent. In most cases this should be possible, since if the administration order has been rightly made the business should generally be sufficiently viable to hold down current outgoings. Such a term may therefore be a normal term to impose.
(11) The above observations are directed at a case such as the present where a lessor of land or the owner of goods is seeking to re-possess his land or goods because of non-payment of rentals. A broadly similar approach will be applicable on many applications to enforce a security: for instance, an application by a mortgagee for possession of land. On such applications an important consideration will often be whether the applicant is fully secured. If he is, delay in enforcement is likely to be less prejudicial than in cases where his security is insufficient.
(12) In some cases there will be a dispute over the existence, validity or nature of the security which the applicant is seeking leave to enforce. It is not for the court on the leave application to seek to adjudicate upon that issue, unless (as in the present case, on the fixed or floating charge point) the issue raises a short point of law which it is convenient to determine without further ado. Otherwise the court needs to be satisfied only that the applicant has a seriously arguable case.
(Order: Appeal allowed; funders to have their costs paid by administrators save for costs of second hearing in respect of which there will be no order; administrators to have one-third of their costs of the appeal paid by the funders; application for leave to appeal to the House of Lords refused) |
(approved)
LORD JUSTICE NEILL: This is an appeal by Hicks Anderson & Co., a firm of chartered accountants (whom I shall call "HA"), from the order dated 2nd December 1988 of His Honour Judge Lipfriend sitting as an additional judge of the High Court whereby it was ordered that HA should pay to James McNaughton Paper Group Ltd. (whom I shall call "McNaughton") the sum of £75,000 by way of damages for negligence.
McNaughton is the parent company of a group of companies engaged in the supply of paper for the printing trade. The chairman of the group was Mr. James McNaughton. He died in November 1987.
McNaughton alleged that they had suffered loss and damage when they took over a group of companies known as the MK Paper Group of which the parent company was MK Paper Group Holdings Ltd. I shall call this group "MK". They further alleged that they had been materially influenced in reaching their decision to take over MK by
(a) a set of accounts which had been prepared by HA relating to MK and subsidiary companies in the group for the year ended 30th June 1982;
(b) an answer given by Mr. Pritchard on behalf of HA at a meeting on 7th September 1982 which was also attended by Mr. McNaughton and by Mr. Barry Topsom, the chairman of MK.
The central issue raised on this appeal is whether HA owed any duty of care to McNaughton either in respect of the preparation of the set of accounts or in respect of the answer given by Mr. Pritchard.
I must start by stating the relevant facts.
In about 1977 Mr. McNaughton became interested in the possibility of a takeover of MK. At that time, however, nothing came of the idea, although there was some discussion about the matter between Mr. McNaughton and Mr. Topsom. MK were in the same line of business as McNaughton, though the group was smaller and was mainly concerned with roll paper. The two shareholders in MK were Mr. Topsom and his wife. The two groups had some common customers and were to some extent competitors.
In about 1982 Mr. Topsom became concerned about the prospects for MK and about his own long-term future because at that time MK were not prospering. He therefore raised with Mr. McNaughton the possibility of a takeover by McNaughton.
On 3rd June 1982 a preliminary meeting took place between Mr. Topsom and Mr. McNaughton and some of his co-directors at the McNaughton office in Camberwell.
On 29th June 1982 Mr. Topsom and Mr. McNaughton met again at the Inn on the Park Hotel in London to discuss details of the proposed takeover. Following this meeting Mr. McNaughton sent to Mr. Topsom a letter dated 6th July, though the letter was not actually sent until 9th July. In this letter Mr. McNaughton wrote:
"I think it was useful our meeting last Tuesday in order to quietly discuss our future plans.
Should we both decide to move on to a next meeting I would suggest the following points which would of course become an agenda.
1) JMPG purchase the shares of MK
a) 75% on 1st September 1982
b) 25% on 30th September 1985.
2) That the basis valuation be as follows for all of the shares:
a) Balance Sheet value of shares as at 30th June 1982 as certificated by your auditors and examined by my auditors (this being the total of subscribed funds and retained reserves) adjusted by
b) the actual gross margins on sales for the two months to 31st August 1982 less the agreed budgeted costs for that period.
3) Item 1(b) would be adjusted should any of the debtors as of 31st August 1982 not be fully paid. This would be in direct proportion to the amount of the shortfall in debtors.
4) The Company would continue to trade as MK although it might in the near future trade as McNaughton MK if this was considered to be beneficial.
I look forward to hearing your comments."
This letter was sent under cover of a letter dated 9th July which was in the following terms:
"I do apologise for not having sent the enclosed letter on the Monday as promised but I did want Edward, John, Alan and Peter to see it before I sent it off, which they have now done. The main comment from Edward is that he would like to sit down with you on your own and go through your customer accounts from the point of view of credit taken etc., in order that he can feel happier in his own mind concerning this aspect of business. I feel sure that you would not object to this."
The four persons named in the letter of 9th July were directors of McNaughton at that time. "Edward" was Mr. Edward Fenaroli.
There was then a delay of several weeks which was due, in part at least, to the fact that Mr. Stephen Ince, the managing director of MK, was away on holiday. On 5th August (it seems) Mr. Topsom replied:
"With Steve now back from his holiday, I have had a chance to discuss with him points raised in your letters of 6th and 9th July and our reply is as follows:-In broad terms the package is acceptable but I think it would be wise to clarify what you have in mind regarding the Midlands operation.
....
Our end of year Accounts are being produced now and I will be able to let you have a draft by the end of next week, in the meantime perhaps we could meet to discuss the points in my letter and draw out an outline plan for the joint venture."
The reference to "the Midlands operation" in the letter of 5th August was a reference to a proposal in paragraph 5 of Mr. McNaughton's letter dated 6th July about establishing a small satellite warehouse in the Midlands. It is not necessary, however, to refer in further detail to this matter or to the other arrangements which were proposed in the letters passing between the parties.
It seems probable that by 5th August 1982 Mr. Topsom had spoken to Mr. Pritchard of HA to ask him to prepare the accounts for the year as quickly as possible. He had been having discussions with HA during the previous six months.
In the next few days Mr. Topsom met Mr. Edward Fenaroli, the vice-chairman of McNaughton, to discuss MK's aged debt list. On 18th August Mr. Topsom wrote to Mr. McNaughton again:
"As you know I have discussed with Edward our aged debt list and have visited your warehouse in Bristol and both Stephen and I feel that we are in a position to have a meaningful discussion regarding the possible take-over by you of the Company.
I will have the audited Balance Sheet available by the end of the week and have also prepared budget figures for the company remaining in its present form and what I think would be the likely cost of a warehouse operation. Perhaps we could meet next week with an agenda as per your letter of 6th July but incorporating the points in my letter to you of 5th August. I look forward to hearing from you."
The draft consolidated balance sheet of MK and draft balance sheets of the three subsidiaries - MK Papers Ltd., MK Papers (Leicester) Ltd. and MK (Leeds) Ltd., became available at about the end of August 1982. These documents (CB2: 22-40) were sent by Mr. Pritchard to-Mr. Topsom under cover of a letter dated 27th August 1982 which was in these terms (CB1: 22):
"I enclose final drafts of the balance sheets of MK Papers Group Holdings Limited, and its various subsidiaries for your approval.
The various expenses, balances and write offs of these subsidiaries have been transferred to and charged against MK Papers Group Holdings Limited.
On my return from holiday on 6th September, perhaps we can meet and finalise the accounts.
In the meantime I am taking this opportunity of enclosing a note of my firm's fees on account of the audit of group.
Good luck for Tuesday."
At a meeting at McNaughton's offices in Camberwell on 31st August 1982 Mr. McNaughton was handed copies of these draft balance sheets together with copies of the balance sheets for the previous years. This meeting was also attended by Mr. Topsom and Mr. Stephen Ince. It was arranged that a further meeting should take place on Friday, 3rd September, after Mr. McNaughton had had an opportunity to consider the figures. It is to be noted
(a) that the second draft of the group balance sheet as at 30th June 1982 showed net current assets of fll,124 (CB2: 24),
(b) that the draft trading and profit and loss account for the year ended 30th June 1982 showed a net loss for the year of £48,094 (CB2: 30).
On 3rd September 1982 the meeting took place as arranged between Mr. McNaughton and Mr. Topsom at the Inn on the Park. Mr. McNaughton then told Mr. Topsom that he thought it would be helpful if he could discuss MK's position with their accountant. Mr. Topsom wrote the name of Mr. Pritchard and his firm on Mr. McNaughton's copy of the draft group balance sheet. Mr. McNaughton added the address and the telephone number which were given to him by Mr. Topsom.
In the course of the next day or so Mr. McNaughton made an appointment by telephone to meet Mr. Pritchard. On 7th September he went to Mr. Pritchard's office at Newport Pagnall.
By the time of the trial Mr. McNaughton had died. The judge had before him, however, Civil Evidence Act statements in the form of an affidavit sworn by Mr. McNaughton on 30th September 1987 (shortly before his death) to which was exhibited a draft proof of evidence which had been prepared by his solicitors on information given to them by Mr. McNaughton in 1986 and which had been signed by Mr. McNaughton on 22nd June 1987. In the draft proof Mr. McNaughton gave this account of the meeting on 7th September 1982 (CB2: 11):
"On 7th September 1982, having made the appointment by telephone, I drove to Newport Pagnall to meet Mr. Pritchard at his office together with Mr. Topsom. At the meeting we reviewed the draft balance sheets for MK Papers Group Holdings Limited and the other MK Papers Companies and discussed in particular debtors, including the debtors taken over by Barclays Factoring, and creditors. We also discussed assets and saleability of the stock. During the course of this meeting I asked Mr. Topsom and Mr. Pritchard the following question:
'Would I be right in saying that because of rationalisation MK Papers Group is now breaking even or doing marginally worse?'
Mr. Pritchard replied:
'Yes. The company is breaking even or doing marginally worse.'
During the meeting I requested copies of various documents including a list of the debtors and creditors for the various MK companies and details of Barclays Factoring and VAT records for July and August 1982. These documents were enclosed with Mr. Pritchard's manuscript letter of 7th September 1982 which was collected by my driver from Mr. Pritchard's office the following day 8 September 1982."
In his letter dated 7th September 1982 Mr. Pritchard wrote as follows:
"Please find enclosed schedule of debtors/creditors for the various companies and a consolidated summary.
Also enclosed are Barclays Factoring balances, VAT summary for July and August and a copy of the inspector's letter regarding the reconstruction.
The Volvo agreement now appears to be a hire purchase agreement and not a lease type.
If you require any further details do not hesitate to contact me."
On 9th September 1982 there was a further meeting at McNaughton's offices between Mr. McNaughton and Mr. Topsom. On this occasion there was a discussion about the price to be paid for the shares in MK. In his draft proof Mr. McNaughton gave this account of the meeting:
"Barry Topsom through another company, Helmworld Limited, owed the sum of £23,855.00 to MK Papers Group Holdings Limited. Mr. Topsom suggested that this sum should be agreed as the purchase price for the 11,000 £1 ordinary shares held by Mr. and Mrs. Topsom in MK Papers Group Holdings Limited. I was not prepared to agree to this and stated that the purchase price would be the balance sheet value of the shares, namely £12,000.00. It was agreed that Mr. Topsom should endorse the cheque over to MK Papers in part payment of his outstanding loan. The balance of £11,855.00 could be paid within six months. We shook hands on the agreement."
The takeover of MK then proceeded. An announcement was made on 11th September and on 20th September Mr. McNaughton handed Mr. Topsom a cheque for £12,000 in payment of the 11,000 shares in MK held by Mr. and Mrs. Topsom. Mr. Topsom endorsed the cheque over in favour of MK and it was paid into the company's bank account. It may be noted that on 12th May 1983 Mr. Topsom duly paid the remainder of the debt of fll,855 owed through Helmworld Limited.
On 5th November 1982 Mr. Pritchard wrote to Mr. McNaughton enclosing the final draft accounts in respect of MK for the year ended 30th June 1982. On 5th January 1983 Mr. Pritchard sent certified copies of these accounts.
In the spring of 1983, however, Mr. John Williams, the company accountant of Mr. McNaughton, carried out a detailed investigation of the MK accounts. As a result of this investigation a number of errors in the accounts were detected. Mr. McNaughton raised the matter with the senior partner of HA, but no satisfactory solution was found. On 18th April 1984 the writ in the present proceedings was issued.
The trial took place in March 1988 before His Honour Judge Lipfriend sitting as an additional judge of the High Court. At the trial evidence was given by Mr. Topsom and Mr. Pritchard as well as by other witnesses including experts. It was not possible, however, to conclude the hearing of submissions in March and the trial was adjourned. The closing speeches were made at the end of November 1988 and the judge finally delivered his judgment on 2nd December 1988.
In the course of his judgment the judge said that there were the following six main issues to be determined (J.8B):
"(1) Did the Defendants owe a duty of care to the Plaintiffs?
(2) If yes, were the accounts passed to McNaughton drawn negligently, and in deciding this question I must bear in mind
(a) the accounts were required urgently; and
(b) the accounts were labelled 'draft accounts'.
(3) At the meeting on September 7th did McNaughton ask the question and did Pritchard answer as pleaded by the Plaintiffs in paragraph 6 ... of the amended Statement of Claim?
4) If yes was the answer given by Pritchard a misrepresentation, and/or made negligently.
5) If the answer to question (2) or (4) is yes were the Plaintiffs influenced thereby in their decision to take over MK?
(6) If yes, what is the measure of damages."
The judge concluded that a duty of care did exist and that the defendants were guilty of negligence in drawing up the accounts. He further said (J.14B) that he was satisfied on the balance of probabilities that "the substance or gist of the question and answer as pleaded were uttered by McNaughton and Pritchard" at the meeting on 7th September 1982. He also held that the answer given by Pritchard was a misrepresentation and was made negligently. Finally, on the issue of liability, he reached the following conclusion (J.20D):
"From the totality of the evidence in this case I am satisfied that the accounts produced to McNaughton and the answer given to him by Pritchard at the meeting of September 7th, influenced him to a material degree and played a real and substantial part in inducing the Plaintiffs to continue with the takeover."
I shall come later to consider the submissions put forward by the parties. First, however, it is necessary to make some reference to the relevant principles of law.
The law.
In the last 25 years or so since the landmark decision of the House of Lords in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465 consideration has been given in a number of cases in the appellate courts to the circumstances in which a duty of care exists giving rise to liability in negligence where the loss suffered by the plaintiff is a purely economic loss. At the same time the courts have been concerned with the wider problem of trying to isolate and define the essential ingredients of the tort of negligence in all its manifestations.
In the earlier part of this period attempts were made to seek a general principle which, subject to any necessary modification to meet the facts of a particular case, could be applied in all circumstances. This quest for a general principle led finally to the well known passage in the speech of Lord Wilberforce in Anns v. Merton London Borough Council [1978] AC 728. At page 751 he said:
"... the position has now been reached that in order to establish that a duty of care arises in a particular situation, it is not necessary to bring the facts of that situation within those of previous situations in which a duty of care has been held to exist. Rather the question has to be approached in two stages. First one has to ask whether, as between the alleged wrongdoer and the person who has suffered damage there is a sufficient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter - in which case a prima facie duty of care arises. Secondly, if the first question is answered affirmatively, it is necessary to consider whether there are any considerations which ought to negative, or to reduce or limit the scope of the duty or class of person to whom it is owed or the damages to which a breach of it may give rise."
In the last ten years, however, there has been a change of direction. In a series of decisions of the Privy Council and of the House of Lords it has been emphasised that no single general principle is able to provide a practical test which can be applied to every situation to determine whether a duty of care is owed and, if so, what is its scope. This series of cases was recently referred to by Lord Bridge in his speech in Caparo Industries plc v. Dickman [1990] 2 W.L.R. 358. At page 365 Lord Bridge continued:
"What emerges is that, in addition to the foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care are that there should exist between the party owing the duty and the party to whom it is owed a relationship characterised by the law as one of 'proximity' or 'neighbourhood' and that the situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope upon the one party for the benefit of the other. But it is implicit in the passages referred to that the concepts of proximity and fairness embodied in these additional ingredients are not susceptible of any such precise definition as would be necessary to give them utility as practical tests, but amount in effect to little more than convenient labels to attach to the features of different specific situations which, on a detailed examination of all the circumstances, the law recognises pragmatically as giving rise to a duty of care of a given scope. Whilst recognising, of course, the importance of the underlying general principles common to the whole field of negligence, I think the law has now moved in the direction of attaching greater significance to the more traditional categorisation of distinct and recognisable situations as guides to the existence, the scope and the limits of the varied duties of care which the law imposes."
Moreover a similar re-statement of the present state of the law was given by Lord Goff in Davis v. Radcliffe [1990] 2 All E.R. 536 at page 540 where he said:
"It is now clear that foreseeability of loss or damage provides of itself no sufficient criterion of liability, even when qualified by a recognition that liability for such loss or damage may be excluded on grounds of policy. On the contrary, as appears in particular from the speech of Lord Keith in The Governors of the Peabody Donation Fund v. Sir Lindsay Parkinson & Co. Ltd. [1985] AC 210 at 240, it is also necessary to establish what has long been given the label of 'proximity', an expression which refers to such a relation between the parties as renders it just and reasonable that liability in negligence may be imposed on the defendant for loss or damage suffered by the plaintiff by reason of the act or omission of the defendant of which complaint is made. Furthermore, it has also been reasserted that it is not desirable, at least in the present stage of development of the law, to attempt to state in broad general propositions the circumstances in which such proximity may or may not be held to exist."
It therefore seems probable that, at any rate at this stage, the common law of England will develop step by step and in accordance with the views expressed by Mr. Justice Brennan in the High Court of Australia in Sutherland Shire Council v. Heyman [1985] 60 A.L.R. 1 where he said at page 43:
"It is preferable, in my view, that the law should develop novel categories of negligence incrementally and by analogy with established categories, rather than by a massive extension of a prima facie duty of care restrained only by indefinable 'considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed.'"
It therefore becomes necessary, in the absence of some general principle, to examine each individual case in the light of the concepts of foreseeability, proximity and fairness. The last of these concepts, however, is elusive and may indeed be no more than one of the criteria by which proximity is to be judged. It is perhaps sufficient to underline that in every case the court must not only consider the foreseeability of the damage and whether the relationship between the parties is sufficiently proximate but must also pose and answer the question: in this situation is it fair, just and reasonable that the law should impose on the defendant a duty of the scope suggested for the benefit of the plaintiff?
I turn next to consider what guidance can be obtained from the modern authorities as to how these general concepts are to be applied (in the words of Lord Bridge in Caparo (supra), (at page 366) "to determine the essential characteristics of the situation giving rise, independently of any contractual or fiduciary relationship, to a duty of care owed by one party to another to ensure the accuracy of any statement which the one party makes and on which the other party may foreseeably rely to his economic detriment."
The natural starting point for this search for guidance is of course the Hedley Byrne case, but I do not propose to make any detailed reference to it for at least three reasons.
In the first place, as Lord Oliver observed in Caparo at page 383, it is not easy to cull from the speeches in Hedley Byrne (supra) any clear attempt to define or classify the circumstances which give rise to the relationship of proximity. In the second place the test which was suggested in some of the speeches in Hedley Byrne (supra) - the test of "a voluntary assumption of responsibility" by the defendant has been found to be unhelpful in more recent authorities: see, for example, Lord Griffiths in Smith v. S. Eric Bush [1989] 2 W.L.R. 790 at page 813 and Lord Roskill in Caparo (supra) at page 375.
My third and most compelling reason for not making any detailed reference to Hedley Byrne (supra) is the fact that Lord Oliver himself in Caparo (supra) set out, in words which I would gratefully adopt, the guidance which can be obtained from Hedley Byrne (supra). At page 383 he said:
"What can be deduced from the Hedley Byrne case, therefore, is that the necessary relationship between the maker of a statement or giver of advice ('the adviser') and the recipient who acts in reliance upon it ('the advisee') may typically be held to exist where
(1) the advice is required for a purpose, whether particularly specified or generally described, which is made known, either actually or inferentially, to the adviser at the time when the advice is given;
(2) the adviser knows, either actually or inferentially, that his advice will be communicated to the advisee, either specifically or as a member of an ascertainable class, in order that it should be used by the advisee for that purpose;
(3) it is known either actually or inferentially, that the advice so communicated is likely to be acted upon by the advisee for that purpose without independent enquiry, and
(4) it is so acted upon by the advisee to his detriment. That is not, of course, to suggest that these conditions are either conclusive or exclusive, but merely that the actual decision in the case does not warrant any broader propositions."
I shall return later to refer to some aspects of these propositions in more detail and to consider their importance in the context of the present case. First, however, I should make one further reference to the speech of Lord Bridge in Caparo in which he summed up the recent authorities in England on this branch of the law at page 367:
"The salient feature of all these cases is that the defendant giving advice or information was fully aware of the nature of the transaction which the plaintiff had in contemplation, knew that the advice or information would be communicated to him directly or indirectly and knew that it was very likely that the plaintiff would rely on that advice or information in deciding whether or not to engage in the transaction in contemplation. In these circumstances the defendant could clearly be expected, subject always to the effect of any disclaimer of responsibility, specifically to anticipate that the plaintiff would rely on the advice or information given by the defendant for the very purpose for which he did in the event rely on it. So also the plaintiff, subject again to the effect of any disclaimer, would in that situation reasonably suppose that he was entitled to rely on the advice or information communicated to him for the very purpose for which he required it."
I have considered the four propositions which have been distilled by Lord Oliver from the speeches in Hedley Byrne (supra). I have also considered the more recent authorities and in particular the speeches in the House of Lords in Smith v. Eric S. Bush (supra) and in Caparo (supra).
From this scrutiny it seems to me to be clear:
(a) that in contrast to developments in the law in New Zealand, of which the decision in Scott Group Ltd. v. McFarlane [1978] 1 N.Z.L.R. 553 provides an important illustration, in England a restrictive approach is now adopted to any extension of the scope of the duty of care beyond the person directly intended by the maker of the statement to act upon it; and
(b) that in deciding whether a duty of care exists in any particular case it is necessary to take all the circumstances into account; but
(c) that, notwithstanding (b), it is possible to identify certain matters which are likely to be of importance in most cases in reaching a decision as to whether or not a duty exists.
I propose to examine these matters under a series of headings, though the headings involve a substantial measure of overlap.
(1) The purpose for which the statement was made.
In some cases the statement will have been prepared or made by the "adviser" for the express purpose of being communicated to the "advisee" (to adopt the labels used by Lord Oliver). In such a case it may often be right to conclude that the advisee was within the scope of the duty of care. In many cases, however, the statement will have been prepared or made, or primarily prepared or made, for a different purpose and for the benefit of someone other than the advisee. In such cases it will be necessary to look carefully at the precise purpose for which the statement was communicated to the advisee.
(2) The purpose for which the statement was communicated.
Under this heading it will be necessary to consider the purpose of and the circumstances surrounding the communication. Was the communication made for information only? Was it made for some action to be taken and, if so, what action and by whom? Who requested the communication to be made? These are some of the questions which may have to be addressed.
(3) The relationship between the adviser, the advisee and any relevant third party.
Where the statement was made or prepared in the first instance to or for the benefit of someone other than the advisee it will be necessary to consider the relationship between the parties. Thus it may be that the advisee is likely to look to the third party and through him to the adviser for advice or guidance. Or the advisee may be wholly independent and in a position to make any necessary judgments himself.
(4) The size of any class to which the advisee belongs.
Where there is a single advisee or he is a member of only a small class it may sometimes be simple to infer that a duty of care was owed to him. Membership of a large class, however, may make such an inference more difficult, particularly where the statement was made in the first instance for someone outside the class.
(5) The state of knowledge of the adviser.
The precise state of knowledge of the adviser is one of the most important matters to examine. Thus it will be necessary to consider his knowledge of the purpose for which the statement was made or required in the first place and also his knowledge of the purpose for which the statement was communicated to the advisee. In this context knowledge includes not only actual knowledge but also such knowledge as would be attributed to a reasonable person in the circumstances in which the adviser was placed. On the other hand any duty of care will be limited to transactions or types of transactions of which the adviser had knowledge and will only arise where "the adviser knows or ought to know that [the statement or advice] will be relied upon by a particular person or class of persons in connection with that transaction": see per Lord Oliver in Caparo (supra) at page 387. It is also necessary to consider whether the adviser knew that the advisee would rely on the statement without obtaining independent advice.
(6) Reliance by the advisee.
In cases where the existence of a duty of care is in issue it is always useful to examine the matter from the point of view of the plaintiff. As I have ventured to say elsewhere the question "Who is my neighbour?" prompts the response "Consider first those who would consider you to be their neighbour". One should therefore consider whether and to what extent the advisee was entitled to rely on the statement to take the action that he did take. It is also necessary to consider whether he did in fact rely on the statement, whether he did or should have used his own judgment and whether he did or should have sought independent advice. In business transactions conducted at arms' length it may sometimes be difficult for an advisee to prove that he was entitled to act on a statement without taking any independent advice or to prove that the adviser knew, actually or inferentially, that he would act without taking such advice.
I return now to the facts of the present case.
It was argued on behalf of McNaughton that the judge was fully entitled to conclude that a duty of care existed. It was important, it was submitted, to look at the whole sequence of events between the beginning of July 1982 and the meeting on 9th September when the price for the shares was agreed. It was right to infer that Mr. Pritchard would have been kept informed of what was happening between Mr. Topsom and Mr. McNaughton. He had known from earlier in the year that the future of MK was in doubt and that the accounts for the period ended 30th June 1982 were likely to form the basis for any decision as to what was to be done. By the end of August he must have known that the draft accounts which he had produced were to be shown to Mr. McNaughton. Moreover, by the time of the meeting on 7th September he knew that McNaughton were likely purchasers of MK and that Mr. McNaughton was placing reliance on the draft accounts and on the answer which he gave to the question: "Would I be right in saying that because of rationalisation MK Papers Group is now breaking even or doing marginally worse?"
It was further argued that the judge had examined the facts with great care and had reached a conclusion with which the Court of Appeal could not safely interfere.
The judge was in a much better position to assess the probabilities of the case.
It was also stressed that the fact that accounts were draft accounts was in no way conclusive; we were reminded that the accounts which were considered by Lord Denning in Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164 were only draft accounts.
In addition it was submitted that Mr. Pritchard had an opportunity to disclaim and to warn Mr. McNaughton, if he wished to do so, of the provisional nature of the accounts.
These arguments are persuasive.
In addition due weight must be given to the fact that the judge saw Mr. Topsom and Mr. Pritchard in the witness box.
In the end, however, I have come to the conclusion that, if one applies the tests which have been established in the recent authorities, the existence of a duty of care has not been made out.
In reaching this conclusion I have taken into account the four propositions set out in Lord Oliver's speech and have examined the facts by reference to the headings which I have mentioned earlier. I have also had regard to the concepts of foreseeability, proximity and fairness.
The following matters in particular have impressed me:
(a) It is clear that in about July Mr. Topsom asked Mr. Pritchard to prepare the audited accounts as quickly as possible. At that stage, though the future of MK was in the melting pot, the accounts were to be produced for Mr. Topsom.
(b) The accounts, when produced, were merely draft accounts. In the context of this case this was an important point because the term "draft" showed that further work would be required before the accounts became final accounts. Accordingly Mr. McNaughton was not entitled to treat them as though they were final accounts and Mr. Pritchard could not be expected to foresee that Mr. MCNaughton would so treat them.
(c) Mr. Pritchard attended the meeting on 7th September and wrote the letter on that date to Mr. McNaughton. There is no evidence that he took any other part in the negotiations leading to the takeover.
(d) As was pointed out during the course of the hearing of the appeal, it would appear that the judge did not appreciate that the accounts showed that there was a loss for the year ended 30th June 1982 of about £48,000. MK were plainly in a poor state and Mr. McNaughton can have been in no doubt about the matter.
(e) This was a transaction between experienced business men. It was to be anticipated that Mr. McNaughton would have access to and would consult with his own accountancy advisers. Mr. Pritchard and HA were the accountants to MK.
(f) Great reliance was placed by McNaughton on the answer given by Mr. Pritchard to Mr. McNaughton's question at the meeting on 7th September. It seems to me, however, that it was a very general answer and that it did not affect any of the specific figures in the draft accounts. Moreover, it is not possible in my view to attribute to Mr. Pritchard the knowledge that Mr. McNaughton would rely on this answer without any further inquiry or advice for the purpose of reaching a concluded agreement with Mr. Topsom.
Since preparing this judgment I have had the opportunity of reading the speeches of the House of Lords in Murphy v. Brentwood District Council [1990] 3 W.L.R. 414.
There is nothing in any of these speeches which alters what was said earlier this year in Caparo (supra). Indeed it may be noted:
(a) that Lord Keith of Kinkel referred again to the judgment of Mr. Justice Brennan in the Shire of Sutherland case where Mr. Justice Brennan emphasised that the question is always whether the defendant was under a duty to avoid or prevent the kind of damage which the plaintiff in fact suffered.
(b) that Lord Oliver underlined the same point where, having referred to the Shire of Sutherland case and to Caparo, he continued at page 445:
"The essential question which has to be asked in every case, given that damage which is the essential ingredient of the action has occurred, is whether the relationship between the plaintiff and the defendant is such - or, to use the favoured expression, whether it is of sufficient 'proximity' - that it imposes upon the latter a duty to take care to avoid or prevent that loss which has in fact been sustained."
I have not found this to be an easy case. Having looked at length at the documents and the transcripts of the evidence, I have been driven to the conclusion that, as the law stands at present, McNaughton have not been able to establish the existence of a duty of care owed to them by Mr. Pritchard or HA at any material time.
I would allow the appeal.
LORD JUSTICE NOURSE: I have had the advantage of reading in draft the judgment of Lord Justice Neill and, for the reasons which he has given, I too would allow this appeal.
LORD JUSTICE BALCOMBE: I have had the advantage of reading in draft the judgment of Lord Justice Neill and I agree with him that, for the reasons which he gives, this appeal should be allowed. It is only because we are differing from the judge below that I add a few words of my own.
At the time of the hearing before His Honour Judge Lipfriend the hearing by the House of Lords of the appeal in Caparo Industries plc v. Dickman [1990] 2 W.L.R. 358 had not taken place and the speeches had not been delivered, let alone reported. If the learned judge had had the advantage of reading the speeches of the law lords in that case, I think it is highly improbable that he would have reached the conclusion that a duty of care existed on the facts of the present case. That case decided that in general there was no reason in policy or principle why the auditors of a company should be deemed to have a special relationship (giving rise to a duty of care) with non-shareholders contemplating investment in the company in reliance on the published accounts. It also decided that such a duty of care did not even extend to the shareholders in the company when they relied on the accounts, not so as to exercise their class rights in general meeting, but to make decisions as to future investment in the company. To hold that in the circumstances of the present case Mr. Pritchard and HA owed a duty of care to McNaughton would require us to distinguish the facts of the present case from those of Caparo when, in my judgment, no such valid distinction exists.
Like Lord Justice Neill I have also considered the facts of the present case in the light of the four propositions set out by Lord Oliver of Aylmerton in Caparo (supra) at page 393. Lord Justice Neill has set out the relevant matters in lettered paragraphs (a) to (f) towards the end of his judgment and I need not repeat them here. It is sufficient to say that the facts that these were draft accounts and that there was no reason for Mr. Pritchard to suppose that Mr. McNaughton would not consult his own accountants are most material factors in considering the existence of a duty of care in relation to the accounts. Again, the answer to the question at the meeting of 7th September 1982 must be considered in the light of the fact that Mr. Pritchard knew that Mr. McNaughton had seen the draft accounts showing a loss of some £48,000 for the year ended 30th June 1982.
Accordingly I agree with Lord Justice Neill that it is impossible in these circumstances to attribute to Mr. Pritchard the knowledge that Mr. McNaughton would rely on this answer without any further inquiry or advice.
(Order: appeal allowed with costs here and below; interest to be on commercial rate; application for leave to appeal to the House of Lords refused) |
LORD JUSTICE DILLON: This is an appeal by the first and second defendants in the action, Mr. Silver and Miss Davis, against a decision of His Honour Judge Micklem given on the 28th April 1989 at Birmingham where he was sitting as a Judge of the High Court in the Chancery Division. The principal question is whether the appellants are entitled to a right of way with vehicles between their property called Coed Major and the Hay-Craswall main road over a track referred to as "the disputed track" across the plaintiffs' land known as Parc-y-Meirch in the Parish of Craswall in the County of Hereford and Worcester between the points marked X-Y-Z on the plan annexed to the statement of claim. The judge held that they were not. The facts and the findings of the judge are set out very fully in his judgment, to which reference should be made; I do not propose to attempt to précis in this judgment.
Certain points taken below are not pursued on this appeal, viz:
(1) It was claimed below that the appellants are entitled to take advantage of a reservation in a Conveyance of the alleged servient tenement Parc-y-Meirch - dated the 8th April 1970. The judge rejected that on the ground that the reservation was not expressed to be in favour of the owners of the alleged dominant tenement Coed Major, and so could not be enforced by them, and on the further ground that anyhow the track referred to in the reservation was not the disputed track this action is about, but another track.
(2) It was claimed below that there is a public right of way with vehicles along the disputed track. That the judge rejected on the facts.
One new point is sought to be raised cm the appeal, viz that the judge's conclusions in favour of the plaintiffs were not open to him on the pleadings, because the plaintiffs had in their pleadings dealt with the appellants' assertion of a right of way by a general traverse and joinder of issue, and not by a particularised plea of licence or permission. That pleading point was not taken below and in my judgment it is far too late for the appellants to take it now, especially as the course of pleading followed by the plaintiffs was that approved by Harman J, on the then Rules of the Supreme Court, in R.P.C. Holdings Ltd. v. Rogers [1953] 1 All ER 1029 at 1036 A-B.
What is left therefore is a claim by the appellants to a private right of way by prescription with vehicles over the disputed track as appurtenant to Coed Major. The way is claimed, as in all such cases, by prescription at common law, by prescription on the basis of a presumption of a lost grant, and by prescription under the 1832 Act.
It is only necessary, however, to consider the claim founded on presumption of a lost grant.
The parties accept that in this, as in virtually every other case, the claim founded on prescription at common law - presumed use since 1189 - adds nothing to the claim of presumed lost grant; they stand or fall together.
As to the claim under the 1832 Act, the period of 20 years to found a prescriptive right under the Act has to be the 20 years next before action brought - i.e. up to the issue of the Writ which was in December 1987. On the facts of this case, there was very little use of the disputed track from the death of Joe Phillips on 23rd September 1981 until the appellants came on the scene in 1986. The judge held that this absence or intermission of use defeated any claim to a prescriptive right under the Act. Whether that conclusion was right or wrong does not matter. The appellants' case has to be founded on use of the disputed track with vehicles for access to and egress from Coed Major during the lifetime of Joe Phillips, who occupied Coed Major from 1922 until a few days before his death in 1981. If that use is sufficient to warrant the implication of a lost grant of a right of way with vehicles, discontinuance of the use after the death of Joe Phillips would not defeat that grant or amount to an abandonment of the right. Conversely if the use with vehicles during the lifetime of Joe Phillips was insufficient to warrant the presumption of a lost grant, it is equally insufficient to support a claim to a right of way under the 1832 Act, even if there had been no discontinuance of the use after Joe Phillips' death until the appellants came along.
The plaintiffs do not object to the appellants using the disputed track on foot - only to the use of vehicles. The appellants rashly bought Coed Major in reliance on a Statutory Declaration by Mrs. Olive Davies, a niece of Joe Phillips, as to access. That declaration was held by the judge to be inaccurate in various respects, and the judge also held that the access routes referred to in the statutory declaration did not include the disputed track. The appellants failed to take the elementary precaution of finding out from the plaintiffs, before their purchase, whether the plaintiffs accepted that there was a right of way with vehicles over the disputed track.
3
The judge decided against the appellants' claim of lost grant on two grounds, which he set out in his judgment at page 66A-D as follows:
"I have come to the conclusion that such a user as there was by Joe Phillips and others was not sufficiently continuous to establish any prescriptive right to use the disputed track with vehicles. Equally fundamental, equally fatal to the defendant's claim is the nature and extent of that user. The use of the disputed track of which evidence has been given is at very least equally open to explanation as due to tolerance by James Price. That goes for all the evidence.
Taking the test as propounded by Lord Lindley in Gardner v. Hodgson's Kingston Brewery Company Limited, I do not find that the use of which evidence has been given is inconsistent with the reasonable inference that James Price tolerated the use of which he was aware. Indeed, I consider that toleration to be clearly the more likely explanation."
The appellants have to surmount both findings if they are going to succeed.
The plaintiffs take a further point by a respondent's notice. In November 1987 the third defendants, Nash Rock, Stone and Lime Co. Ltd., on the appellants' instructions and on their behalf, laid a stone road along the disputed track so as to make it passable by vehicles at all seasons. The plaintiffs say that even if the appellants are entitled to a prescriptive right of way over the disputed track with vehicles by the presumption of a lost grant (or under any other head of prescription) they were not entitled to improve it by laying the stone road so as to make the disputed track passable by vehicles at all seasons, since the laying of the stone road increases the burden on the servient tenement and in particular causes inconvenience to the plaintiffs in so far as the plaintiffs want to keep pedigree ponies on Parc-y-Meirch. The judge recorded this submission, and found that Mrs. Mills, the second plaintiff, was justified in her view that Parc-y-Meirch was unsuitable for grazing with the quality and type of pony which she was breeding so long as the stone road remains in place, and that while the road remains it is not practical to graze such ponies on Parc-y-Meirch as she did before the road was put down. The judge did not however rule on the submission in law, since it was not necessary for him to do so as he held that there was no right of way with vehicles at all to be improved. The laying of the stone road was therefore a trespass for which the judge awarded the plaintiffs damages.
I turn now to the judge's point of tolerance.
The question is whether the judge has correctly directed himself in law. To put it another way, did the tolerance of the successive servient owners - James Price until 1970 and in his case tolerance out of good neighbourliness and because the use was too insignificant to matter to him or cause him any inconvenience - of such vehicular use of the disputed track as there was in Joe Phillips' time preclude a prescriptive right being acquired, even though no express permission was ever granted to Joe Phillips and no reservations as to his use of the disputed track with vehicles were ever communicated to him by anyone.
The topic of tolerance has bulked fairly large in recent decisions of this court dealing with claims to prescriptive rights, since the decision in Alfred E. Beckett Ltd. v. Lyons [1967] Ch.449. If passages in successive judgments are taken on their own out of context and added together, it would be easy to say, as, with all respect, it seems to me that the judge did in the present case, that there is an established principle of law that no prescriptive right can be acquired if the user by the dominant owner of the servient tenement in the particular manner for the appropriate number of years has been tolerated without objection by the servient owner.
But there cannot be any such principle of law because it is, with rights of way, fundamentally inconsistent with the whole notion of acquisition of rights by prescription. It is difficult to see how, if there is such a principle, there could ever be a prescriptive right of way. It follows that the various passages in the judgments in question cannot be taken on their own out of context. If each case is looked at on its own and regarded as a whole, none lays down any such far reaching principle. In my judgment, the learned judge in the present case has misapplied the authorities, by taking passages out of context, and misdirected himself in arriving at the supposed principle of law which he has sought to apply.
It is convenient to refer first to certain earlier cases of unquestioned authority where the elements of the doctrine of prescription in its relevant aspects are authoritatively laid down.
Sturges v. Bridgman 11 Ch.D. is a decision of this court where the reserved judgment of the court (James, Baggallay and Thesiger L.JJ.) was delivered by Thesiger L.J. who said at page 863:
"The question so far as regards this particular easement claimed, is the same question whether the Defendant endeavours to assert his right by Common Law or under the Prescription Act. That Act fixes periods for the acquisition of easements, but, except in regard to the particular easement of light or in regard to certain matters which are immaterial to the present inquiry, it does not alter the character of easements, or of the use or enjoyment by which they are acquired. This being so, the law governing the acquisition of easements by user stands thus: Consent or acquiescence of the owner of the servient tenement lies at the root of prescription and of the fiction of a lost grant, and hence acts of user, which go to the proof of either the one or the other, must be in the language of the civil law, nec vi, nec clam, nec precario; for a man cannot, as a general rule, be said to consent to or acquiesce in the acquisition by his neighbour of an easement through an enjoyment of which he has no knowledge, actual or constructive or which he contests and endeavours to interrupt or which he temporarily licenses."
This was cited by Morris L.J. in Davies v. Du Paver [1953] 1 QB 184 at 210 where he said: "Before Mr. Davies could establish a claim based on prescription the evidence would have to show that the owner of the servient tenement had knowledge of what was happening or as an ordinary owner must be taken to have reasonable opportunity of knowledge and that, having power to prevent it, he did not intervene."
If later judgments are in conflict with what was there said in Sturges v. Bridgman, I would prefer to follow Sturges v. Bridgman, as I believe we are entitled to, since Sturges v. Bridgman is, in my judgment, consistent with principle.
Gardner v. Hodgson's Kingston Brewery Co. Ltd. [1903] AC 229 is a decision of the House of Lords which is binding on us. There Lord Halsbury said at page 231-2, after referring to the words "as of right" in the Prescription Act:
"I cannot help thinking there has been a certain play upon words in commenting upon them. In a certain sense a man has a right to enjoy what he has paid for, and, therefore, if the appellant here at any time during the year when she had paid for the right to use this way had been hindered, she would have had a right to complain that what I will call her contract had been broken, and that during the year she had a right to use the way. I do not think that this would have established a right in the proper sense, because, being but a parol licence, it might be withdrawn, and her action would be for damages, but she would have no right to the way. And in no sense could the right be the right contemplated by the Act. That right means a right to exercise the right claimed against the will of the person over whose property it is sought to be exercised. It does not and cannot mean an user enjoyed from time to time at the will and pleasure of the owner of the property over which the user is sought. At any time after the first year the owner of the Red Lion might refuse to renew the permission to use this way. I think, therefore, that there is no evidence whatever of an user 'as of right'."
Lord Lindley said at page 239, in an oft-quoted passage:
"I understand the words 'claiming right thereto' and the equivalent words 'as of right,' which occur in s.5, to have the same meaning as the older expression nec vi, nec clam, nec precario. A temporary permission, although often renewed, would prevent an enjoyment from being 'as of right'; but a permanent, irrevocable permission attributable to a lost grant would not have the same effect. The common law doctrine is that all prescription presupposes a grant. But if the grant is proved and its terms are known, prescription has no place.
A title by prescription can be established by long peaceable open enjoyment only; but in order that it may be so established the enjoyment must be inconsistent with any other reasonable inference than that it has been as of right in the sense above explained. This, I think, is the proper inference to be drawn from the authorities discussed in the court below. If the enjoyment is equally consistent with two reasonable inferences, enjoyment as of right is not established; and this, I think, is the real truth in the present case.
The enjoyment is equally open to explanation in one of two ways, namely, by a lost grant of a right of way in consideration of a rent-charge on the plaintiff's land of 15s. a year, or by a succession of yearly licences not, perhaps, expressed every year, but implied and assumed and paid for."
It is to be noted that a prescriptive right arises where there has been user as of right in which the servient owner has, with the requisite degree of knowledge (which is not an issue in the present case), acquiesced. Therefore mere acquiescence in or tolerance of the user by the servient owner cannot prevent the user being user as of right for purposes of prescription. Equally, where Lord Lindley says that the enjoyment must be inconsistent with any other reasonable inference than that it has been as of right in the sense he has explained, he cannot be regarding user with the acquiescence or tolerance of the servient owner as an alternative reasonable inference which would preclude enjoyment as of right from being established. A priori, user in which the servient owner has acquiesced or which he has tolerated is not inconsistent with the concept of user as of right. To put it another way, user is not "precario" for the purposes of prescription just because until 20 years have run, the servient owner could stop it at any time by issuing his writ and asking for an injunction.
User under a temporary licence is, as Thesiger L.J. stated, not user as of right, because, as Lord Halsbury showed, the licence might not be renewed. Thus it has been held - in my view, rightly - that there has been no user as of right where the extent of the user has been controlled by the owner of the servient tenement, as where the user was along a path over the servient tenement across which there was a gate which the owner of the servient tenement kept locked when he did not want the path to be used. See e.g., the decision of Plowman J. in Lay v. Wyncoll [1966] 198 E.G. 887 and the unreported decision of this court in Goldsmith v. Burrow Construction Ltd., 16th July 1987: Court of Appeal Transcript 87/750. In the latter case May L.J. said at page 11: "I agree with Mr. Mowbray's submission that it is not merely a question of the servient owner saying that 'I could have locked the gate and therefore there was no permission;' the fact in this case is that he did lock the gate."
Where of course there has been a permanent, as opposed to a temporary, licence, the primary question is not one of prescription, but one of whether the user was within the scope of the licence or was treated as being within the scope of the licence - Thomas W. Ward Ltd. v. Alexander Bruce (Grays) Ltd. [1960] 2 Ll.Rep. 472; but that is not the present case.
Beckett v. Lyons, the first modern case which is relied on for the proposition that tolerance by the servient owner prevents user by the dominant owner being user as of right and so prevents any prescriptive right being acquired, was not a case of any claim to a private easement appurtenant to property at all. It was a claim to an alleged public right of the inhabitants of the County Palatine of Durham to pick up and take away for their own purposes coal which had been washed up by the sea on to the foreshore near Easington.
The decision is founded on earlier authorities concerned with alleged public rights, and particularly Fitzhardinge v. Purcell [1908] 2 Ch.139 and Blundell v. Catterall [1821] 5 B and Al 268. In Fitzhardinge v. Purcell the court rejected a claim to a public right to shoot wildfowl in the channel of a tidal navigable river, and held that the public have no rights over the foreshore of a tidal navigable river, when not covered by the tide, except such as are ancillary to their rights of fishing and navigation in the sea. In Blundelly. Catterall the court held, according to the headnote, that the public have no common law right of bathing in the sea and as incident thereto of crossing the seashore on foot or with bathing machines for that purpose.
In the course of his judgment in Blundell v. Catterall Holroyd J. commented at page 300 that "where the soil remains the king's and where no mischief or injury is likely to arise from the enjoyment or exercise of such a public right, it is riot to be supposed that an unnecessary injurious restraint upon the subjects would, in that respect, be enforced by the King, the parens patriae". That was endorsed by Parker J. in Fitzhardinge v. Purcell and extended from the King to those subjects of the King to whom beds of navigable rivers have been granted. The essence of both decisions was however the limited nature of public rights in the foreshore.
Such being the previous authorities, in Beckett v. Lyons Russell L.J. at 475D stated that:
"... the evidence does not establish that the gathering of seacoal was from the earliest living memory done as of right as distinct from being merely a de facto practice which the gatherers rightly thought no one would find objectionable and which the owner of the foreshore in fact tolerated as unobjectionable."
A bit further down the page he said:
"It is a well-known aspect of English law that in relation to the foreshore a great many activities have been generally tolerated without giving rise to any legal right to continue them. It has never been established in English law that beachcombing can give rise to a legal right to frequent the foreshore for the purpose of beachcombing or require a presumption of a legal origin; and the early evidence in this case to my mind amounts to no more than beachcombing. For the same reasons it does not seem to me that the only reasonable conclusion from the evidence is that the practice must have had a legal origin ... I think that the only reasonable conclusion is mere tolerance of the unimportant."
Harman L.J. put the matter more widely. He said at 469 D-E:
"The authorities seem to show that when the law talks of something being done as of right it means that the person doing it believes himself to be exercising a public right: Jones v. Bates [1938] 2 All ER 237. So far as I can see, no witness was asked whether in picking up coal he believed himself to be exercising a right or was merely doing something which he felt confident that the owner would not stop, but would tolerate because it did no harm. Indeed as carried on up to the last war the practice was (except perhaps during the exceptional weeks of the strikes in 1921 and 1926) on so small a scale as to be a matter of indifference to the owner."
At 474A, however, after citing from Lord Lindley in Gardner v. Hodgson's Brewery he said:
"If it be clear that the usage has long been practised under a claim of right; then the court will be astute to find a legal origin for it; but where another explanation is equally possible, this principle does not prevail. Here, I think, toleration is a sufficient explanation."
I must respectfully query that approach. But in the context of Beckett v. Lyons as a whole, I take the decision to come down to this that it is well-known that public rights in law over the foreshore are very limited and that everything else done on the foreshore is by tolerance or licence of the Crown; therefore no one can have supposed that he was exercising a public right when picking up coal or otherwise beachcombing on the foreshore. In that sense, tolerance was a sufficient explanation.
What was said in Beckett v. Lyons was however relied on in a case of a private easement in Ironside v. Cook [1978] 41 P & CR 326, also a decision of this court. What was in issue there was a claim that persons exercising a general right of way with vehicles under an express grant had acquired by prescription an ancillary right to pull off the track of the right of way on to the verge so as to get round vehicles coming in the opposite direction. The decision can stand on the ground put by Eveleigh L.J. at page 339 where he said that the "evidence does not create in my mind a picture of people asserting a right, but rather that of drivers, when constrained to do so, taking the liberty of pulling on to the verge in so far only as they had to." Buckley L.J. adopted the same view that the right alleged was one of an essentially casual nature, and he considered that the user was not a user asserting a right, but a user relying upon the neighbourly good nature of the owner of the verge to tolerate the sort of use which the evidence disclosed. As I read it, the casual nature of the user is the factor that indicates that it was not as of right; toleration and the assumption of good nature on the part of the owner of the verge do not per se bring about that the user was not as of right.
Goff L.J. concluded at 337 that as the verge was outside the servient owner's land and beyond her ditch the user of it was not such as to put her cm notice that a right was being asserted and could best be explained by tolerance. I do not see how tolerance can come into it if the owner did not have notice of the user.
There is then the case of Patel v. W.H. Smith (Eziot) Ltd. [1987] 1 WLR 853 where the defendants claimed a prescriptive right to park vehicles on the plaintiffs' property and the plaintiffs sought an interlocutory injunction. It appears from the judgment of Balcombe L.J. at 861 A-B that the plaintiffs had been persistently asserting in correspondence that the defendants had no right to park cars there and the defendants had been in the correspondence in practice conceding that and negotiating for a licence to park. Therefore it was held that the user by parking could not have been user as of right. That seems to me, with all respect, to be correct; it was difficult for the defendants to assert their user by parking had been as of right, when their solicitors had written in 1978 "Our clients appreciate that they do not have a right to park on the yard in question." The judgments do, however - unnecessarily in my view - accept submissions founded on Lord Lindley's speech in Gardner v. Hodgson's Kingston Brewery and on the passage in the judgment of Harman L.J. in Beckett v. Lyons at page 474 cited above and treat toleration as an answer to the prescriptive claim. With that, with respect and for the reasons given, I do not agree, and I prefer the statement of the law in Sturges v. Bridgeman.
Since the conclusion of the argument we have been referred by counsel to the case of Bridle v. Ruby [1989] 1 Q.B. 169 which was not referred to during the oral hearing. There are references in the judgments to neighbourly tolerance, but they are obiter, and do not affect the decision. The essence of the decision was that the mistaken belief of the plaintiff and his predecessors in title, in using a particular way, that they had an express grant of a right of way over the land in question did not prevent their use being as of right so as to enable them to establish a prescriptive right of way. That is of minimal, if any, relevance in the present case, since the only persons under a mistaken belief were the appellants who originally thought that they had a right of way over the disputed track by virtue of the reservation in the Conveyance of Parc-y-Meirch of the 8th April 1970.
On the facts of the present case as set out in the judgment of Judge Micklem it is, in my judgment, plain that James Price acquiesced in all use of the disputed track with vehicles. He knew of it, had power to prevent it, and did not intervene; see the words of Morris L.J. in Davies v. Du Paver. The same applies to his successors up to the death of Joe Phillips. There was no demur to it, and there is no suggestion in the evidence that permission was ever sought or granted. In my judgment, the user with vehicles for the purposes of Coed Major in Joe Phillips' time was user as of right, and the plaintiffs have no defence in law on the ground of tolerance to the appellants' claim to a prescriptive easement by the presumption of a lost grant. It matters not that other people may have taken vehicles over the disputed track for other purposes, viz to get up to the Black Mountain for their own purposes which had nothing to do with Joe Phillips or Coed Major, and it matters not that James Price would not always know whose vehicle it was that was using the disputed track, or what its destination was. He acquiesced in any user by anyone.
I turn then to the other point which the judge decided against the appellants, the extent or continuity of the use of the disputed track by vehicles in Joe Phillips' time. This is a question of fact which would have been left to the jury in the days when such actions were tried with a jury. The test to be applied is set out in the judgment of Lindley L.J. in giving the judgment of this court in Hollins v. Verney 13 QBD 304 at 315 where he said:
"It is sufficient for the present case to observe that the statute expressly requires actual enjoyment as of right for the full period of 20 years before action. No user can be sufficient which does not raise a reasonable inference of such a continuous enjoyment. Moreover as the enjoyment which is pointed out by the statute is an enjoyment which is open as well as of right, it seems to follow that no actual user can be sufficient to satisfy the statute unless during the whole of the statutory term ... the use is enough at any rate to carry to the mind of a reasonable person, who is in possession of the servient tenement, the fact that a continuous right to enjoyment is being asserted and ought to be resisted if such right is not recognised and if resistance to it is intended."
The judge directed himself in law in accordance with the law so laid down. See page 65B of his judgment. He decided against the appellants, but his decision was not a finding of primary fact, but an inference from the primary facts which he found. It is therefore the more readily open to review in this court; see Benmax v. Austin Motor Co. Ltd. [1955] 1 All ER 326 and Whitehouse v. Jordan [1981] 1 WLR 246 at 263F per Lord Fraser of Tullybelton. Moreover I have the feeling from a reading of the judgment of the learned judge as a whole that his approach to the facts was limited by his view on the law as to the validity of the defence of tolerance.
On my appreciation of the primary facts found by the judge, there was during the lifetime of Joe Phillips from the early 1950s onward open use of the disputed track with vehicles for passing between Coed Major and the Hay Road whenever occasion arose and the surface of the disputed track was dry enough to be passable. It matters not, in my judgment, that when the disputed track was too wet to be passable, a different and longer track, the bridle way CZ 39, was used; both were easily definable tracks leading from Coed Major to different points on the Hay road. Although of course the amount of use was not as great as would be found on a main road, it was, in my judgment, sufficient on Lindley L.J.'s test to carry to the mind of any reasonable occupier of Parc-y-Meirch that a continuous right to enjoyment was being asserted.
Accordingly in my judgment the appellants succeed to the extent that there is to be presumed a lost grant before the death of Joe Phillips of a right, appurtenant to Coed Major, and which thus enures to the benefit of the appellants, to pass and repass with or without vehicles, but for domestic or agricultural purposes only, over the disputed track, in so far as its condition permitted passage, between Coed Major and the Hay Road.
There is then the question raised by the respondent's notice whether the appellants were entitled to improve the disputed track by laying the stone road so as to make the disputed track passable by vehicles at all times.
Several points are clear.
The first is that as grantees of a prescriptive right of way the appellants were entitled to repair, as opposed to improve the road, e.g. by putting a barrowload of stones to fill a rut as Joe Phillips in fact himself did. This is not disputed, and authority for it is to be found in the judgment of Lord Mansfield in Taylor v. Whitehead [1781] 2 Dougl.744. This is so even though repair may necessarily involve some temporary improvement of the track.
In the second place if the appellants or their predecessors had been expressly granted a right of way for all purposes with or without vehicles over the disputed track that would have entitled them not merely to repair the disputed track but to improve it to make it suitable for the accommodation of the dominant tenement even if the dominant tenement was to be used for some purpose not in contemplation at the time of the grant. See Newcomen v. Coulson 5 Ch.D. 133. This is founded on the presumed intention of the grant. In the simplest case, if a general right of way is granted with or without vehicles, which is to be the principle access to a house, it is permissible for the grantee to improve it by making it up as a carriageway. See for instance Gerrard v. Cooke [1806] 2 Bos & Pul. N. R. 109.
In the third place, however, a prescriptive right of way differs from a right of way by express grant in that the extent of a prescriptive right of way is limited by the nature of the user from which it has arisen. See Wimbledon & Putney Commons Conservators v. Dixon 1 ChD 362. If the dominant owner under a prescriptive grant cannot increase the burden on the servient tenement by building further buildings - e.g. additional houses - on the dominant tenement, I do not see why he should be entitled to increase the burden on the servient tenement by building a made road over the servient tenement, so as to make the way usable at times of the year and in weather conditions when it was not passable before. This is especially so when, as the judge has found, the existence of the stone road will, unless it is fenced, preclude grazing of Parc-y-Meirch by pedigree ponies as previously.
The making of the stone road involved the putting down of between 600 and 700 tons of stone along the disputed track; see the judgment at page 82H. That is an improvement of the track which in my judgment went far beyond mere repair. The prescriptive right to which the appellants were entitled did not authorise them to do that to the plaintiffs' detriment. Accordingly the laying of the stone road was a trespass to the plaintiffs' land.
Accordingly I would allow this appeal in part.
I would set aside the Declaration made by the judge that the appellants are not entitled to a right of way with vehicles over the disputed track, and the injunction he granted against the appellants, and I would set aside also the dismissal of the counterclaim. Instead I would declare that the appellants are entitled by prescription to a right appurtenant to Coed Major to pass and repass with or without vehicles, but for domestic and agricultural purposes only, over the disputed track, with power to repair the surface but I would declare further that the appellants were not entitled to lay the stone road.
I would leave the awards of damages against all three defendants standing.
LORD JUSTICE PARKER: I agree and have little to add. That I add anything is due partly to the fact that we are differing from the learned judge and partly because, in so doing, it may appear that we are differing from earlier pronouncements of this court or the House of Lords.
In Sturges v. Bridgman 11 Ch.D. 852 Thesiger L.J. giving the judgment of the court said:
"... the law governing the acquisition of easements by user stands thus: Consent or acquiescence of the owner of the servient tenement lies at the root of prescription and of the fiction of a lost grant, and hence acts of user, which go to the proof of either the one or the other, must be in the language of the civil law, nec vi, nec clam, nec precario; for a man cannot as a general rule, be said to consent to or acquiesce in the acquisition by his neighbour of an easement through an enjoyment of which he has no knowledge, actual or constructive or which he contests and endeavours to interrupt or which he temporarily licenses."
This passage is in my judgment of prime importance in the determination of the present appeal for it makes plain (1) that consent or acquiescence to the user asserted as giving rise to the easement is an essential ingredient of the acquisition of the easement and (2) that it is the nature of the acts of user which has to be examined in order to see whether the easement is established.
Unless the acts of user are of the requisite character, consent or acquiescence is irrelevant. If they are then consent or acquiescence is essential.
In Hollins v. Verney 13 QBD 304, Lindley L.J. giving the judgment of the court said at page 315:
"... no actual user can be sufficient to satisfy the statute unless during the whole of the statutory term ... the use is enough at any rate to carry to the mind of a reasonable person, who is in possession of the servient tenement, the fact that a continuous right to enjoyment is being asserted and ought to be resisted if such right is not recognised and if resistance to it is intended."
This shows clearly that the crucial matter for consideration is whether for the necessary period the use is such as to bring home to the mind of a reasonable person that a continuous right of enjoyment is being asserted. If it is and the owner of the allegedly servient tenement knows or must be taken to know of it and does nothing about it the right is established. It is no answer for him to say, "I 'tolerated' it". If he does nothing he will be taken to have recognised the right and not intended to resist it. He will have consented to it or acquiesced in it.
For the respondent it was submitted that this apparently simple position had been altered or modified by later cases. I do not consider that it has. Certainly there are statements in speeches in the House of Lords and the judgments of this court in later cases which might appear to suggest that a claim will be defeated if there are two possible explanations of the situation or if it is riot shown that the user is against the will of the owner or if the user has been 'tolerated'. Such statements however were in my judgment not statements of principle but statements relating to the particular facts of the cases under consideration.
I instance but one of such cases by way of example, namely Gardner v. Hodgson's Kingston Brewery Co. Ltd. [1903] AC 229. In that case the owner of a house had for more than 40 years used a cart way from his stables through the yard of an adjoining inn. He paid 15 shillings a year to the owners of the yard but there was no conclusive evidence as to the origin of this payment. The owners of the yard contended that the payment was for rent or for a series of annual licences. The owner of the house contended that it was more probably a perpetual payment attached to some original grant of the alleged right of way. The observations in their Lordships speeches must therefore be considered in the light of these facts and contentions.
At page 231 Lord Halsbury said:
"... the right contemplated by the Act ... means a right to exercise the right claimed against the will of the person over whose property it is sought to be exercised. It does not and cannot mean an user enjoyed from time to time at the will and pleasure of the owner of the property over which the user is sought."
In my view when Lord Halsbury uses the words "against the will of the person" he means no more than without the licence of the owner. He is doing no more than contrasting the position where there is a licence for consideration and where there is no such licence.
Lord Ashbourne at pp.232 and 233 said:
"In the absence of direct evidence, all that can be said is that the payment is consistent with inferences which have been drawn by both sides.
The defendants insist that the most obvious and natural inference is that it was made for rent, or for a series of annual licences, given possibly by implication. The plaintiff, on the other hand, urges that it was more probably a perpetual payment attached to some original grant of the right of way. Rigby L.J. has speculated with persuasive force on the probability of such a hypotheses. If I felt free to speculate on the possible and probable origin of this payment, I would be glad to draw the same inference. The onus of explanation is, however, I think on the plaintiff ...
I do not say that the case is free from difficulty, but I am unable to arrive at the conclusion that the plaintiff has discharged the onus which lay upon her of satisfactorily explaining that this payment of 15s. a year was consistent with her claim. I therefore think that the appeal should be dismissed."
He thus put the matter simply on onus of proof.
To the like effect is Lord Davey at page 238:
"To put the case most favourably for the appellant, the payment is of an ambiguous character, and capable of either explanation. But one explanation is inconsistent with an enjoyment as of right, while the other is not so, and it is for the appellant to make out that she and her predecessors in title have enjoyed "as of right", and for that purpose to shew which is the true explanation of the annual payment, and this she has not done."
I come finally to the speech of Lord Lindley at page 239:
"A title by prescription can be established by long peaceable open enjoyment only; but in order that it may be so established the enjoyment must be inconsistent with any other reasonable inference than that it has been as of right in the sense above explained. This, I think, is the proper inference to be drawn from the authorities discussed in the court below. If the enjoyment is equally consistent with two reasonable inferences, enjoyment as of right is not established; and this, I think, is the real truth in the present case.
The enjoyment is equally open to explanation in one of two ways, namely, by a lost grant of a right of way in consideration of a rent-charge on the plaintiff's land of 15s. a year, or by a succession of yearly licences not, perhaps, expressed every year, but implied and assumed and paid for."
In my judgment that passage is of no assistance to the respondent. There being one of two possible explanations of the annual payment of 15s. one of which would and the other of which would not establish the easement claimed and the plaintiff being unable to prove which was the correct one, she simply failed to make out the case.
The statement made must be related to the facts and cannot be regarded as a statement of principle for if it were no-one could as it seems to me ever establish an easement by prescription or by the fiction of lost modern grant.
On examination none of the other cases cited, in my judgment, detract from the principles so clearly stated in Sturges v. Bridgman and Hollins v. Verney.
The true approach is to determine the character of the acts of user or enjoyment relied upon. If they are sufficient to amount to an assertion of a continuous right, continue for the requisite period, are actually or presumptively known to the owner of the servient tenement and such owner does nothing that is sufficient, as May L.J. said in Goldsmith v. Burrow Construction Ltd. [1987] C.A. Transcript 87/850, "I agree with Mr. Mowbray's submission that it is not merely a question of the servient owner saying 'I could have locked the gate and therefore there was no permission'. The fact in this case is that he did lock the gate." Every servient owner can always say, until it is too late: "I could have stopped it". That is not enough.
I add only this, that any statement that the enjoyment must be against the will of the servient owner cannot mean more than "without objection by the servient owner". If it did, a claimant would have to prove that the right was contested and thereby defeat his own claim.
For the above reasons and for the reasons given in the judgments of Dillon and Stocker L.JJ, which I have had the opportunity to read in draft, I would allow this appeal in part and, subject to any further argument as to the precise form of declaration required to give effect to the judgments I agree with the order proposed by Dillon L.J.
LORD JUSTICE STOCKER: I agree, and add observations of my own since we are differing from the learned judge upon an important aspect of his findings expressed in a careful and exhaustive judgment.
The learned judge seems to have based his decision in part upon the proposition that "toleration" of a user is insufficient to establish a user as of right. It seems to me implicit from the terms of his judgment that he considered that there was a distinction between "toleration" and "acquiescence" for the purpose of establishing a right of way by prescription or a lost modern grant, even if the facts concerning the nature and extent of the user might otherwise have supported an easement of a right of way over the disputed track. The validity of this conclusion is one of the issues which arise on this appeal.
The question whether or riot there has been over the relevant period such use of a disputed right of way as to give rise to the conclusion that the owner of the servient tenement acquiesced in it so as to give rise to a presumption of a lost modern grant and thus to justify the existence of the right as an enforceable easement is a matter which inevitably involves retrospective conclusions from the evidence related to a long period of time. To draw a distinction between "Acquiescence" on the one hand and "toleration" on the other seems to me an impossible exercise unless the word "toleration" is used simply as a convenient label to apply to factual situations where the user claimed, as of right, was too casual or trivial to give rise to any legal obligation or where the user is to be explained on the basis of permission or consent. The terms "acquiescence" and "toleration" are not wholly synonymous, but are sufficiently nearly so as to convey virtually the same meaning. Thus the shorter Oxford Dictionary states as one of the meanings of "acquiesce" as being "To agree tacitly to, or concur in'' and one of the meanings of "tolerate" is "To allow exist, or to be done or practised, without authoritative interference or molestation". Without more it seems to me that no general principle of law can be derived from the cases cited since broadly speaking the two words mean the same thing. In each of the cases upon which reliance has been placed the facts do not justify so broad a conclusion, thus in Alfred E. Beckett Ltd. v. Lyons [1967] Ch.449 the word "tolerate" is used in a special sense where the question in issue was a claim by a wide section of the public to a public right to glean coal from the foreshore vested in the Crown. It was not concerned with a private easement such as a right of way and the case does not seem to me to be relevant to the issue in the instant case. The "toleration" in question related to the harmless use by the public which no one would have thought objectionable.
In Ironside v. Cooke [1978] 41 P & CR 326, Goff L.J., in the context of a claim to a right of way over a grass verge abutting a lane which was a right of way, said at page 337:
"But it seems to me having regard to the unusual circumstances ... that it was not such as to put her on notice that a right was being asserted and can best be explained by tolerance."
The right claimed was based upon the fact that cars being driven over the acknowledged right of way, in order to pass each other, if occasion so required, were driven upon the grass verge in order to do so. Eveleigh L.J., and Buckley L.J. took the more robust view cited by Dillon L.J. in his judgment. It seems at least doubtful if the owner of the servient tenement, that is to say the grass verge, even knew of the practice which was clearly casual and intermittent. In Patel v. W.H.Smith (Eziot) Ltd.[1987] 1 WLR 853 Balcombe L.J., after considering the earlier cases inter alia the case of Beckett v. Lyons in which the word "toleration" figures in a passage in his judgment said:
"The parking is equally consistent with toleration or a licence and cannot be shown to have arisen against the will."
On one view of his judgment he seems to accept that "toleration" and "acquiescence" might be separate and distinct concepts in a general sense, but he clearly based his judgment on the fact that the claimants had acknowledged the fact that they were not entitled to park vehicles and were engaged in trying to obtain a licence so to do and the owner of the servient tenement was disputing the right to park vehicles, as indicating that the existence of the right was not established. Thus it seems to me that the apparent generality of Balcombe L. J.'s remarks as above cited in the context in which he used them clearly limited the application of the word "toleration" to the facts of the case in which the ratio of the case was that there was no user as of right established.
In Goldsmith v. Burrow Construction Ltd. (unreported), Transcript 16th July 1987, May L.J. said at page 10:
"I think the user was permissive, not in the sense that permission was granted expressly or by necessary inference, but because the use was tolerated in the sense that the word is used in the passages in the authorities and text books to which I have referred."
May L.J. had, in an earlier passage on the same page, said:
"Nor is one required to infer the existence of a lost modern grant because it was not a user as of right acquiesced in by the servient owners."
Thus it seems to me clear that May L.J. used the words "tolerated" in the very limited sense he has indicated since the finding of fact was that the owner of the servient tenement locked the gates giving access to the disputed right of way on any occasion where he considered it appropriate to do so and thus was not acquiescing in any claim of right by the owner of the dominant tenement.
I do not think that the other cases cited to this court in support of the existence of a distinction, in general terms, between acquiescence and toleration carry the matter any further. However, the judge in the passage from his judgment at page 66A-D cited by Dillon L.J. seems to have relied upon a passage in a speech of Lord Lindley in Gardner v. Hodgson's Kingston Brewery Co. Ltd. [1903] A.C.229. For my part I cannot see how Lord Lindley's speech can be read as affording any support to the judge's conclusion. The inconsistent inferences to which Lord Lindley was referring were the acquisition of a right of way by prescription or lost modern grant on the one hand and the right exercised by virtue of payment of rent on the other. The decision, therefore, turns solely upon the resolution of the issue whether the annual payment by the plaintiff was paid by way of rent, as the defendants contended, or as a contribution towards the upkeep of the way or a perpetual rent charge based on a presumed lost grant. Their Lordships were unanimously of the view that the payments were by way of rent and that accordingly the user of the way was not "as of right" for the purposes of prescription but only as a matter of contract derived from the payment of rent for such user. No question of any distinction between "acquiescence" and "toleration" arose and I am unable to accept that the case afforded any support for the proposition that toleration is an explanation capable of raising an inference which could offset a finding of acquiescence if that were to be the proper finding upon the evidence.
It seems clear from the passage in the judgment cited by Dillon L.J. that the learned judge in the instant case failed to recognise the very limited circumstances in which the word "toleration" has been used in the cases cited which might be summarised as relating to the exercise of a purported right which was casual or trivial or in respect of which some form of consent for the user was established so that acquiescence did not arise. In so far as the judge was basing his decision on a general distinction in principle between toleration and acquiescence I consider he was wrong and decided this issue on an erroneous basis.
However, it may be from the structure of his judgment that he may have been applying the concept of toleration in a wider sense than is justified by the cases by reference to local factors or custom prevailing in a hill farming community. The evidence does suggest that in some respects neighbouring farmers do "tolerate" on a reciprocal basis certain use of their land inconsistent with their legal rights. Thus it might be said that the rigours of hill farming dictate that infringement of strict legal rights should be tolerated and accepted in the interest of the survival of all without giving rise to any claim to or establishment of legal rights as a result of such infringements. In other words, local custom in the community might justify a more general interpretation of the word "tolerate" than would arise from the cases cited and thus be an appropriate word to describe long user based on local custom rather than upon any claim of right.
Summarising the evidence of Mr. Wyatt, an expert called cm behalf of the plaintiff, the judge said at page 8E to 9E of his judgment:
"The Abbey Farm and Parc-y-Meirch in particular are situated on one of the highest points of agricultural land in England. They immediately abut the open common land of the Black Mountains rising to 2,500 feet. Farming practice at this altitude which is 1,450 feet is therefore peculiar to upland regions. Rainfall is high, well over 40 inches per annum, and the winters are long and often severe. So the only method of agriculture capable of being sustained is the grazing of hill sheep and to a lesser extent cattle. The quality of the soil together with the climate renders it unsuitable for cultivation and growing crops and indeed has to be crossed with care during the greater part of the year. The enclosed land of this area is only economic to farm with the benefit of hill rights. These are ancient rights of grazing administered commercially over many square miles of open land adjacent to the farms. The rules and traditions of the land owners are dependant on adherence to the traditional rules of neighbourly husbandry. The flocks of sheep belonging to each farm are "settled" that is, they part lived on the same area of unfenced hill for many generations, so that they do by habit remain generally on that section of hill. These set units do not generally mix or stray into neighbours sheep; however it is a fact that such mixing does regularly occur. The ancient customs recognise it is impossible to manage the hill without agreement that the whole mountain is cleared from sheep on set days of the year, principally for dipping or shearing, weaning of lambs and culling. At these times all farmers work in unison and it is common, indeed the custom on this land, to cross one another's land at will to take up and exchange strays and in many cases communally to tend the flocks. When heavy snows are expected hill gates are open so that the stock may seek shelter irrespective of their ownership. Farmers accept other peoples' sheep as a matter of course and there are set procedures for their return to their owners."
In a later passage at page 15G-H the judge said:
"The general evidence of neighbourly tolerance of one farmer going over another's land in the valley, establishes beyond this that such a general tolerance existed with regard to specific events in the sheep farming year, culling, sheep dipping, lambing, and so forth, and to emergencies."
At some stage in the argument I was impressed by this line of argument. It is clear from the passage in the judgment above cited that hill farmers for certain purposes do not stand on their rights when necessity dictates and infringement of them by a neighbour is accepted and is tolerated, nor do the neighbours claim that any legal right vests in them as a result of taking advantage of such indulgence. The custom, however, does not seem to relate to any specific rights of way over any particular route, indeed it does not seem to be related to rights of way at all. Thus I do not consider there was any evidence which would have entitled the judge - if in fact he did so - to enlarge the ambit of "toleration" beyond the very limited sphere which in the cases it seems to have been used as a convenient label for usage too trivial to found a legal right or to casual user or as a synonym for permission.
Accordingly I agree that unless the judge found as a fact that the extent and continuity of the user was insufficient to establish a prescriptive right by lost modern grant that his conclusion in favour of the plaintiffs was unjustified. I agree with Dillon L.J. that the finding of the judge to the effect that the extent and continuity of the user was insufficient for this purpose was an inference from facts and not a finding of primary fact itself and that such inference is open to review by this court and for the reasons he has given I agree with his conclusion that the judge's inference from the primary facts cannot be sustained and that the only appropriate conclusion upon the evidence is that there is to be presumed a lost modern grant for the right of way as defined and limited by him and thus would reverse the findings accepted by the learned judge.
I also agree with his reasons and conclusions with regard to the laying of the stones upon the disputed right of way. This was an improvement which went far beyond repair and amounted to replacing a track with a metalled road. This the defendants were not entitled to do and in so acting they were trespassers. Save that the form of the declaration he proposes may require some refinement after hearing further argument I agree with the orders proposed by Dillon L.J. and I would allow this appeal in part.
Orders for the Third Defendant's costs in the court below to stand. No order in respect of the Third Defendant's costs of the appeal, but as the Third Defendant was not given notice of today's fixture, the order shall lie in the office for seven days to enable them to apply if they seek some other order.
Plaintiffs to have their costs of the action up to 25th January 1989; thereafter no order as to costs as between the Plaintiffs and the First and Second Defendants in the court below or the Court of Appeal save legal aid taxation of the First and Second Defendants' costs since the issue of their Legal Aid Certificate. Application for leave to appeal to the House of Lords refused. |
(Revised)
LORD JUSTICE GLIDEWELL: This is an appeal against an order made by His Honour Judge Malcolm Ward in Shrewsbury County Court on 4th June 1990 by which he ordered that the care and control of the child of the family, Lisa Jayne Cheshire, should be vested in the respondent, Mrs. Deborah Mary Cheshire, the mother, with reasonable access to the appellant, Mr. Philip John Cheshire (the father).
The father and mother were married on 23rd April 1983 and lived together in Shrewsbury. Lisa was born on 24th September 1983 and is thus now nearly seven years of age.
The parents only lived together until December 1984 when the father moved to live at his mother's home in Shrewsbury, leaving the mother with Lisa in the matrimonial home. In March 1985 the father issued a petition for a divorce which the mother did not contest. The proposal in the petition was that the parties should have joint custody of Lisa, the mother retaining care and control and the father having reasonable access to the child. in 1986 the mother started a relationship with another man who created difficulties over the father having access to Lisa. A decree nisi was pronounced on 28th April 1987. After discussion between the parents, the difficulties over access were resolved. Lisa continued to live with her mother who put an end to her relationship with the other man and the father had access to the child each weekend.
Early in 1988, the mother took employment as a Prison Officer. This started with a training course which lasted eleven weeks during which, by agreement, Lisa was in the care and control of her father. When her training was completed, the mother was Posted to Eccleshall in Staffordshire and Lisa went to live with her there. By consent, an order was made on 20th June 1988 that Lisa should, until further order, remain in the custody of her mother with her father having reasonable access. Lisa started school in Eccleshall in September 1988.
The divorce decree was made absolute, and the father remarried in July 1988. He and his wife now live in a two-bedroomed maisonette in Shrewsbury.
Whilst the mother was a Prison Officer at Eccleshall she had a lesbian relationship with another woman officer. Then, according to what she told the father, she fell in love with a prisoner, Ms. Jane McLachlan, who was serving a sentence of 12 months' imprisonment for unlawful wounding and theft. In April 1989 the mother suddenly resigned from the Prison Service and went to Blackpool, taking Lisa with her. In June 1989, Ms. McLachlan was released from prison and joined the mother in Blackpool. The mother got a job and obtained the tenancy of a small flat and she, Ms. McLachlan, and Lisa lived together there. Lisa started school in Blackpool, having missed most of the summer term at school.
On 20th October 1989, Lisa went to stay with her father and stepmother in Shrewsbury for her half-term holiday. Whilst she was there, the mother and Ms. McLachlan were evicted from their accommodation. The mother therefore asked the father to keep Lisa with him for a short time, which he agreed to do. Whilst Lisa was staying with him and his wife, the father came to the conclusion that it would be better for the child to remain with them permanently. He therefore made application for the custody of Lisa to be vested in him. On 22nd November 1989, Mr. Registrar Freeman made an interim order that the father should have care and control of Lisa.
The matter then came before Judge Malcolm Ward on 4th June loan He had before him two affidavits sworn by the father and two by the mother, and a welfare officer's report, which did not contain any firm recommendation. The father and his second wife, the mother and Ms McLachlan, gave evidence before the judge.
In his report, the welfare officer, Mr. Fogarty, commented, as did the judge in his judgment, that both parents were trying to do what they believed to be best for Lisa's welfare, that they both had a loving relationship with the child, and that she was happy in both homes. This is very much to their credit.
The two households are, as I understand it, as they were at the time of the hearing before the judge. The mother occupies a one-bedroomed flat in Blackpool with Ms. McLachlan. They normally sleep in the same bed but when Lisa is with them she sleeps in the bedroom and the two women sleep on a bed-settee in the living room. The mother has a full-time job as Assistant Manageress of a shop, and Ms. McLachlan has a part-time job. They hope to be able to buy a larger flat in time. The father and his wife have a modern two-bedroomed maisonette in Shrewsbury so when she is with them, Lisa has her own bedroom. Both Mr. and Mrs. Cheshire work, but Mrs. Cheshire who is a state-enrolled nurse, works on differing day shifts so either she or the father is often able to take Lisa to, and collect her from, school. When his is not possible, Lisa is cared for by a friend who has young children of her own. Mr. and Mrs. Cheshire have no children, but would like to start a family. Lisa has been at school in Shrewsbury since November 1989. Both the father's mother, and mother's father, and other members of their respective families live in Shrewsbury.
Both parties were, and are, agreed that whichever of them does not have control and care of Lisa should have reasonable access ho her. Between the time when Lisa went to stay with her father in October 1989 and the end of May 1990 (when the mother swore her second affidavit) the mother visited Lisa several times in Shrewsbury and Lisa stayed with her in Blackpool for one weekend. After the judge's order on 20th June, the parents very sensibly agreed that Lisa should remain in Shrewsbury until the end of the school term. She is now "on holiday" with her mother in Blackpool. Whether she returns to Shrewsbury and to the school she has been attending there of course depends on the order we make on this appeal.
In his judgment the judge said of the mother's lesbian
relationship with Ms. McLachlan
"The child of course is well short of a full understanding of the facts of life such as to appreciate the present situation but has certainly noticed not surprisingly the sort of loving relationship between her mother and Ms. McLachlan which makes her ask the innocent child's question 'are they going to be married'? Sooner or later she is going to understand the full ramifications of the situation, and as it seems to me she's going to come to understand that whatever the outcome of this hearing, because it is accepted that there is a close bond between her and her mother and a close bond between her and her father. if she lives with her mother the situation will be one she will observe at close quarters the bulk of the time, but if she lives with her father she's going to have it drawn regularly to her attention, and one way or another to have to come to terms with it. Of course the permanency of the relationship is a matter which no one can tell. The mother and Ms. McLachlan see it as a permanent relationship, but nothing in life is guaranteed to remain permanent. The same applies of course to the relationship between her father and his new wife."
It is I think desirable that I should set out in full the
reasoning by which he reached his decision.
"So I am faced, apart from the question of the lesbian relationship? with a not unfamiliar sort of balancing act between competing parents with on the one side a father living in a classic husband and wife relationship, a loving father and a perfectly adequate stepmother with whom the child gets on well and with whom there are no signs of the sort of friction which with feeling Deborah Cheshire speaks of having regard to her step parentage. On the other side a relationship with a mother who has always been until October last year the principal figure in her life. (That's not in any way to criticise the father but there are differences between a mother's relationship with a child and a father's relationship with a child) and until last October the mother's relationship was a strong and constant one and one which isn't criticised at all. Now adding to the balancing act is the question of whether there are features in the lesbian relationship between the mother and Ms. McLachlan which play any, and if so any significant, part so as to bring the balance down on the other side. It's not an easy case and I have come to my conclusion not without hesitation, but in the end as it seems to me the question of the lesbian relationship is one which is there anyway, and the child is going to have to cope with anyway. I don't think there can be much difference in the speed with which that problem will come to the child's consciousness; whichever decision I make. It seems to be being accepted that it would come to the child's consciousness sooner if she's living with mother. I wonder about that. Secondly I can't see that there is going to be a great deal of difference between the way in which she will be assisted in tackling that because if she is living with father she will spend the bulk of her time in a household where lesbian relationship is not seen favourably and therefore there's a balance of easing ? in accepting the problem in living with mother, but I don't think that's a great feature to put into the balance. If I were being asked here to choose between a child being brought up wholly ignorant to lesbian relationships and untouched on the one hand, and on the other hand in heterosexual relationships, it seems to me there might be an appreciable balance one way in favour of what unlike Mr. Fogarty I do see as 'the normal', but in the end I have come to the conclusion that the most important factor in this case, and one which is not outweighed by the advantages the other way is the strong bond, and the one which until October last was almost untampered with, between the child and her mother. On balance I come to the conclusion that she is better living with her mother and I award care and control to her with reasonable access which I have every confidence will be sorted out by the parties in the co-operative way they have been able to work hitherto."
Mr. Jamieson, for the father, seeks to persuade us that the judge wrongly placed weight on the difference between a mother's relationship and a father's relationship with a young child. I do not regard this as a valid criticism. In my view the judge was basing his decision on the close and loving relationship between this young girl and her mother, with whom she lived for the first six years of her life. Obviously this is an important factor, and one which the judge was perfectly entitled to regard as a matter of weight.
This, however, is a subsidiary argument. Mr. Jamieson's main argument relates to the lesbian relationship in which the mother is living. He submits that the judge gave no, or wholly inadequate, weight to this relationship and its effect upon Lisa if she returns to live permanently with her mother. Having posed the question whether the features in the mother's lesbian relationship played any, and if so any significant, part in the balancing exercise, the judge concluded that they did not, because in his view those features will be present just as much if Lisa stays with her mother and Ms. McLachlan from time to time as if she lived with them permanently. In reaching this conclusion, submits Mr. Jamieson, the judge was clearly wrong.
Mr. Evans, for the mother, reminds us that the proper approach for this court to adopt is to be found in the well-known decision of the House of Lords in G. v. G. (1985) 1 WLR 647. He submits that the judge has taken into account all the relevant factors. Applying the principles set out in G. v. G., it is not Proper for this court to consider whether he gave the various factors correct weights in the balancing exercise.
It is of course correct that in G. v. G. Lord Fraser of Tullybelton, in a speech with which all their Lordships agreed, said that this court may only interfere with the exercise of the ' doe's discretion in relation to the custody of a child if it is satisfied that the judge was "plainly wrong". It must be remembered, however, that after quoting the judgment from which those words were taken, given by Asquith L.J. in Bellenden (formerly Satterthwaite) v. Satterthwaite (1948) 1 AER 343, Lord
Fraser said:
"Nevertheless, there will be some cases in which the Court of Appeal decided that the judge of first instance has come to the wrong conclusion. In such cases it is the duty of the Court of Appeal to substitute its own decision for that of the judge."
Lord Fraser thereafter quoted with approval passages from
the judgments of Browne L.J. and Bridge L.J. in In re F (a Minor) (1976) Fam. 238, preferring their approach to that adopted by Stamp L.J. Bridge L.J. expressed the view that the factors in favour of awarding both custody and care and control of the child to her father outweighed those which had led the judge in the court below to reach the opposite conclusion. Bridge L.J., in the passage quoted by Lord Fraser (from p.266 of the report) then
said:
"Can this conclusion prevail or is there some rule of law which bars it? The judge was exercising a discretion. He saw and heard the witnesses. It is impossible to say that he considered any irrelevant matter, left out of account any relevant matter, erred in law, or applied any wrong principle. On the view I take, his error was in the balancing exercise. He either gave too little weight to the factors favourable, or too much weight to the factors adverse to the father's claim that he should retain care and control of the child.
The general principle is clear. If this were a discretion not depending on the judge having seen and heard the witnesses, an error in the balancing exercise, if I may adopt that phrase for short, would entitle the appellate court to reverse his decision: Evans v. Bartlan (1937) AC 473: Charles Osenton & Co. v. Johnston (1942) AC 130 and Ward v. James (1966) 1 QB 273. The reason for a practical limitation on the scope of that principle where the discretion exercised depends on seeing and hearing witnesses is obvious. The appellate court cannot interfere if it lacks the essential material on which the balancing exercise depended. But the importance of seeing and hearing witnesses may vary very greatly according to the circumstances of individual cases. If in any discretion case concerning children the appellate court can clearly detect that a conclusion, which is neither dependent on nor justified by the trial judge's advantage in seeing and hearing witnesses, is vitiated by an error in the balancing exercise, I should be very reluctant to hold that it is powerless to interfere.
"The full and careful analysis of the authorities in the judgment of Browne L.J. demonstrates, I think, that the power of the court is not so limited."
Applying these principles, it is my clear view in agreement with Mr. Jamieson's submission, that with all respect to the judge, the conclusion at which he arrived in relation to the effect on Lisa of her mother's lesbian relationship was plainly wrong. I have reached this conclusion for the following reasons.
Despite the vast change over the past 30 years or so in the attitudes of our society generally to the institution of marriage, to sexual morality, and to homosexual relationships, I regard it as axiomatic that the ideal environment for the upbringing of a child is the home of loving, caring and sensible parents, her father and her mother. When the marriage between father and mother is at an end, that ideal cannot be attained. When the court is called upon to decide which of two possible alternatives is then preferable for the child's welfare, its task is to choose the alternative which comes closest to that ideal.
Even taking account of the changes of attitude to which I nave referred, a lesbian relationship between two adult women is an unusual background in which to bring up a child. I think that the mother herself recognises this, because the judge recorded her saving that she was sensitive to the problems that could rise and did not flaunt the sexual nature of her relationship.
The judge had no evidence, and thus we have none, about the effect on a young child of learning the nature of a lesbian relationship and of her friends learning about it. Nevertheless it seems that the judge accepted, and it is certainly my view, that it is undesirable that this child should learn or understand at an early age the nature of her mother's relationship. The judge seems to have thought that she was just as likely to acquire this knowledge and understanding if living with her father and stepmother and staying from time to time with her mother as she would if she lived permanently with her mother. In this respect, I think the judge was plainly wrong.
Moreover, he seems to have disregarded the effect on Lisa of her school friends learning of the relationship. If or when they do, she is bound to be asked questions which may well cause her distress or embarrassment. If she is at school in Shrewsbury, living in a heterosexual household, it is much less likely that she will be exposed to this.
These are factors to which, as I have said, the judge gave no weight. He struck the balance as if there were no lesbian relationship. if there had not been, his decision could not be faulted. But his disregard of these factors was in my judgment a plain error.
I make it clear that I am not saying that the fact that a other is living in a lesbian relationship is conclusive, or that disqualifies her from ever having the care and control of her child. A court may well decide that a sensitive, loving lesbian relationship is a more satisfactory environment for a child than less sensitive or loving alternative. But that the nature of t-he relationship is an important factor to be put into the balance seems to me to be clear.
For this reason I would allow the appeal and set aside the judge's order. There remains the question what order this court should make. Although I am very conscious that it is desirable that a final decision in this matter should be made as soon as possible, I nevertheless consider that the proper course is for us to order a rehearing, at which the judge can decide afresh the proper weight to give to all the factors, including those to which I have referred.
There are in addition two other factors, to which Judge Malcolm Ward did not refer in his judgment, but which I consider relevant. The first is Ms. McLachlan's conviction for violence, which must be a matter of some concern. The second is that Lisa was only at school in Blackpool for about six weeks, but has since been at school in Shrewsbury for almost a full year. It may be that neither factor should be given much weight, but they are both relevant.
I also consider it desirable that the Official Solicitor should be invited to act as guardian ad litem to Lisa, and to consider as a matter of urgency whether to obtain and call at the rehearing appropriate expert evidence relating to the problem which arises in this case.
I would therefore allow the appeal and set aside the judge's order. I propose that we should order as follows:
1. The custody of Lisa to be vested in the father and mother jointly.
2 The father's application, which is in effect for the care and control of Lisa, to be reheard before a judge of the Family Division.
3. Pending the decision at that hearing, interim care and control of Lisa to be vested in her father, with reasonable access for her mother.
4. The Official Solicitor to be invited to act as guardian ad litem. if he agrees, Lisa to be added as an additional Respondent. The Official Solicitor to be asked to consider whether to call on Lisa's behalf appropriate expert evidence.
5. The rehearing to be expedited so far as practicable.
LORD JUSTICE BALCOMBE: I have had the advantage of reading in draft the judgment of Glidewell L.J. I agree with him that this appeal should be allowed and with the order which he proposes, but as we are differing from the judge below and in view of the difficult and sensitive matters with which this case is concerned I add some words of my own.
Where a judge is called upon to adjudicate in a dispute between parties his (or her) duty is to apply the law. In some cases the law is in dispute; in this case it is clear and is laid down by s.1 of the Guardianship of Minors Act 1971:
"Where in any proceedings before any court.... the legal custody or upbringing of a child.... is in question, the court, in deciding that question, shall regard the welfare of the child as the first and paramount consideration."
This provision will, when the relevant provisions of the Children Act 1989 are brought into force, be replaced by s.1(1) of that Act, which provides that when a court determines any question with respect to the upbringing of a child, the child's welfare shall be the court's paramount consideration. In relation to the issues with which this case is concerned it does not seem to me that that amendment will make any material difference, although the checklist of relevant factors contained in s.1(3) of the 1989 Act, to which the court is directed to have regard, makes explicit what is now implicit in the "welfare" test.
It is apparent that views will frequently differ as to
what the welfare of the child requires in a particular case. The judge is thus faced with having to make a decision without the benefit of any guidelines save such as may be prescribed by decided cases. One thing is however clear: in making a decision on welfare the judge should not be influenced by subjective considerations. To take an example: the issue may be whether the child is to be brought up in the faith of religion A or in that of religion B. The judge may be a member of religion A, and a firm believer in its tenets: nevertheless he must try to ensure that his personal beliefs do not affect his judicial function in deciding where the child's welfare lies.
Nevertheless, although the judge may not allow his subjective views to affect his decision on what the child's welfare requires, he cannot abdicate responsibility merely because the issue is a sensitive one on which differing views are held. What standards then should he apply if he is not to apply his own subjective views?
In my judgment he should start on the basis that the moral standards which are generally accepted in the society in which the child lives are more likely than not to promote his or her welfare. As society is now less homogeneous than it was one hundred or even fifty years ago, those standards may differ between different communities, and the judge may in appropriate cases be invited to receive evidence as to the standards accepted in a particular community, but in default of such evidence and where, as here, the child does not come from a particular ethnic minority, the judge is entitled, and indeed bound, to apply his or her own experience in determining what are the accepted standards.
With those preliminary observations, I turn to what should be the judicial approach when faced with the problem with which the judge was faced in this case: to which of two parents should the care and control of a 6½ year old girl be given, where both parents clearly love and are loved by the child, both can give the child good physical care, but the father who has remarried lives with his new wife, while the mother has formed a lesbian relationship with another woman? Of course, the fact that the mother has a lesbian partner is not of itself a reason for denying the mother the care and control of her daughter; the question is: in conducting the balancing exercise what weight should the judge give to the fact that, if care and control is given to the mother, the child's home will be the mother's home, with all that that involves? I agree with Glidewell L.J. that in those circumstances the judge can only start with the approach that in our society it is still the norm that children are brought up in a home with a father, mother and siblings (if any) and, other things being equal, such an upbringing is most likely to be conducive to their welfare. If, because the parents are divorced, such an upbringing is no longer possible, then a very material factor in considering where the child's welfare lies is which of the competing parents can offer the nearest approach to that norm. In the present case it is clearly the father.
If the judge had adopted that approach and had then come to the conclusion that the advantages of the child being with the mother outweighed all other relevant factors, this court could not have interfered with his decision - see G. v. G. [1985] 1 WLR 647. So I turn to consider whether the judge did indeed adopt that approach.
The judge's approach can be seen from the following Passages from his judgment:
"So I'm faced, apart from the question of the lesbian relationship, with a not unfamiliar sort of balancing act between competing parents with on the one side a father living in a classic husband and wife relationship a loving father and a perfectly adequate stepmother with whom the child gets on well.... On the other side a relationship with a mother who has always been until October last year the principal figure in her life. (That's not in any way to criticise the father but there are differences between a mother's relationship with a child and a father's relationship with a child) and until last October the mother's relationship was a strong and constant one and one which isn't criticised at all."
He then turns to the issue of the mother's lesbian
relationship in the following passage:-
"Now adding to the balancing act is the question of whether there are features in the lesbian relationship between the mother and Miss McLachlan which play any, and if so any significant, part so as to bring the balance down on the other side. It's not an easy case and I have come to my conclusion not without hesitation, but in the end as it seems to me the question of the lesbian relationship is one which is there anyway, and the child is going to have to cope with anyway. I don't think there can be much difference in the speed with which that problem will come to the child's consciousness; whichever decision I make. It seems to be being accepted that it would come to the child's consciousness sooner if she's living with mother. I wonder about that. Secondly, I can't see that there is going to be a great deal of difference between the way in which she will spend the bulk of her time in a household where lesbian relationship is not seen favourably, and if with mother one where it is seen favourably and therefore there's a balance of easing? in accepting the problem in living with mother, but I don't think that's a great feature to put into the balance. If I were being asked here to choose between a child being brought up wholly ignorant to lesbian relationships and untouched on the one hand, and on the other hand in heterosexual relationships, it seems to me there might be an appreciable balance one way in favour of what unlike Mr. Fogarty [the Court Welfare Officer] I do see as 'the normal', but in the end I have come to the conclusion that the most important factor in this case, and one which is not outweighed by the advantages the other way is the strong bond, and one which until October last was almost untampered with, between the child and her mother."
It is not just a matter of words when the judge questions
whether there are features [my emphasis] in the lesbian
relationship" which should affect his decision; the whole tenor of the passage makes it clear that the judge was not bringing into the balance the existence of the lesbian relationship, because of his view that, as the child was in any event going to have at least access, and visiting access, to the mother, the existence of the lesbian relationship was not a factor to which he gave any significant weight. In my judgment this was an error on his part. Accepting that the child would not in any event be ignorant of the mother's lesbian relationship with Ms. McLachlan, the question which the judge had to consider was: in which home would the child's welfare best be advanced? If her home was to be with the father it would be a normal home by the standards of our society; that would not be the case if her home were with the mother. Further, he gave no consideration to the effect that having her home with the mother might have on the child. Since there was no expert evidence before him, the judge could not properly speculate on what effect this might have on the child's own sexual development, but he gave no consideration to the problems that coming from a home of this nature might cause to the child from the reactions of her contemporaries at school: problems which the mother herself recognised in her evidence although she dismissed them by saying "If she [the child] understands she will cope."
The judge also appeared to give no weight at all to the fact that Ms. McLachlan (the mother's partner) has served a prison sentence for a crime of violence. This has nothing to do with the sexual nature of the mother's relationship with Ms. McLachlan; it would be just as relevant if the mother had re-married a man with a similar record. The judge may have thought that this factor carried little weight, but it is surprising that he made no mention of it. He did not even make any reference to Ms. McLachlan's personality and characteristics, notwithstanding the important place she fills in the home to which he committed the child.
In the end, like my Lord, I am satisfied that the judge did not apply the right approach in exercising his undoubted discretion in this case and that in accordance with the principles laid down by the House of Lords in G. v. G. (supra) this court is entitled to interfere with his decision. Accordingly I agree that the appeal should be allowed and the order below set aside.
However, it does not automatically follow from this that we should award care and control to the father with reasonable access to the mother. It is perfectly possible that a judge who takes into account the existence of the mother's lesbian relationship with Ms. McLachlan - and not merely its features -as well as the other matters to which I have referred in the course of this judgment, may come to the conclusion that the child's welfare may best be advanced by giving care and control to the mother. This court does not have the advantage of seeing and assessing the various persons concerned. In view of the difficulty and sensitivity of the issues in this case, I agree that the case should be brought up into the High Court and remitted for a rehearing to a judge of the Family Division. The Official Solicitor should be invited to act as guardian ad litem of the child and, if he agrees, the child added as an additional respondent; he has great experience in difficult child cases and if he thinks the judge would be assisted by appropriate
expert evidence will be able to instruct such an expert to give evidence for the child. The Official Solicitor may well take the view that, in the particular circumstances of this case and in the interests of expedition, his role could be limited to the provision of appropriate expert evidence.
In the hope of avoiding misunderstanding I summarise the
effect of this judgment as follows. The fact that the mother has a lesbian relationship with Ms. McLachlan does not of itself render her unfit to have the care and control of her child. It is, however, an important factor to be taken into account in deciding which of the alternative homes which the parents can offer the child is most likely to advance her welfare.
The judge did not give proper consideration to this factor. That is why I would allow this appeal and order a re-hearing.
(Order: Appeal allowed; matter to be reheard before a judge or the Family Division; legal aid taxation, both parties). |
(Revised)
LORD JUSTICE FOX: This is an appeal by the defendants from an order
of Judge Rice (sitting as a Deputy Judge of the Queen's Bench Division)
whereby he awarded the plaintiff a sum of £130,000 damages for personal
injuries sustained in the crash of a light aircraft owned and piloted by the
late Mr. H.H. Murray ("Mr. Murray").
On 3rd March 1981 the plaintiff, Mr. Morris, was drinking
with a Mr. Moran at a public house in Harlow called the Red Lion. The
plaintiff was then about 25 years old. How much they drank there is uncertain.
The plaintiff says that they were short of money. He thinks they had two half
pints. Mr. Moran thinks it was two pints. The barman, Mr. Aldington, who was a
friend of theirs, thinks it was three or four pints.
At about midday, the barman received a telephone call from
Mr. Murray, who was a regular customer at the Red Lion and a friend of the
plaintiff and Mr. Moran. Mr. Murray was in a public house called the Blue Boar
about 25 minutes drive from the Red Lion. He asked if somebody could collect
him from the Blue Boar and take him to the Red Lion. The plaintiff and Mr.
Moran accordingly drove to the Blue Boar. They drove in Mr. Moran's car but
since Moran had been disqualified from driving the plaintiff drove.
When they arrived at the Blue Boar, they were given further
drinks by Mr. Murray. Subsequently, as neither the plaintiff nor Mr. Moran had
any money, Murray lent each of them £10 so that they should not feel
embarrassed by not being able to buy rounds of drinks.
The party was at some point enlarged by the landlord and his
wife. Drinking continued until about four o'clock in the afternoon. They drank
spirits. Asked in evidence in chief "Do you remember what you were doing at
the Blue Boar?", the plaintiff replied "Drinking heavily". By the end of the
afternoon the plaintiff and Moran had each spent their £10 or most of it.
There seems to have been a suggestion by Mr. Murray that the
landlord and his wife should go on a flight with him. He had a pilot's licence
and kept a light aircraft at a flying club at Stapleford. The offer was
declined. In the end the plaintiff and Mr. Murray agreed to go on a flight
together and the plaintiff drove Mr. Murray and Mr. Moran to Stapleford.
The plaintiff remembered the car drawing up alongside the
aircraft. He agreed in cross-examination that he was anxious to start the
engine and go on the flight. He tried to start the engine by turning the
propeller but was unable to do so. Either Moran or the plaintiff and Moran
together did start the engine. The plane needed fuel and it was filled up at a
pump by the plaintiff - Mr. Murray paying for it by cheque.
Flying conditions were poor. Mr. R.G. Matthew, who conducted
an inquiry into the crash on behalf of the Chief Inspector of Accidents says
(in a written statement which, with others, was read at the trial) that there
was a wind of some 20 knots with poor visibility, low cloud and occasional
drizzle. The Chief Instructor at the Stapleford Flying Club had cancelled all
club flying. Mr. Murray, as I understand it, was not aware of this, but, in
any event, it did not prevent him flying his own aircraft if he chose to. The
plaintiff asked Mr. Murray whilst they were in the aircraft whether he
(Murray) needed to "radio in" to flying control before taking off but Mr.
Murray said he did not. That was apparently correct (statement of Mr. P.I.
Brand, a flying instructor).
The flight was short and chaotic. Mr. Murray took off down
wind. The runway was wet and was uphill. These factors would make take off
more difficult. In Mr. Brand's view, Mr. Murray should have taken off on a
different runway and into the wind.
Mr. Reith, a consulting engineer who holds a pilot's licence,
was driving on a nearby road when he saw the plane. He said in his statement
that when he saw the plane his initial reaction was that he was looking at a
model plane. He could not initially reconcile the flying attitude of the
plane, that is to say its almost vertical climb and its close proximity to the
ground, with anything other than a model aircraft. The plane was evidently
recovering from a descent which brought it close to the ground. It climbed to
about 300 feet, then stalled and dived into the ground. Mr. Reith's opinion
from his observation was that the pilot was not in control of the
aircraft.
Mr. Murray was killed and the plaintiff was severely
injured. The plaintiff in the statement which he made to the police after the
accident said that he had flown with Mr. Murray on two previous occasions and
thought him a good pilot. He said in evidence at the trial that, although he
remembered making a statement and signing it he did not remember saying that
he had flown with Mr. Murray twice before. The judge found that since the
accident, his memory was episodic.
The autopsy on Mr. Murray showed that from the concentration
of ethanol in his body and from his blood alcohol content he had consumed the
equivalent of 17 whiskies. The concentration of alcohol was more than three
times the limit prescribed for a car driver.
Mr. Murray had for some five years prior to his death lived
with a lady, now Mrs. Gibbins, who gave birth to his child on 30th March 1981,
about three weeks after the accident.
Letters of administration to the estate of Mr. Murray were
granted to Mrs Gibbins and to Mr. Murray's father on 16th October 1981. The
net value of the estate was sworn at about £43,000 for the purposes of the
grant.
The child, Ricky, is the person entitled to the estate upon
the intestacy.
The writ in this action was issued on 9th February 1984 and
served in July 1984. The defendants pleaded violenti not fit injuria
and, in the alternative, contributory negligence. The judge rejected the plea
of volenti but held that there was contributory negligence to the
extent of 20 per cent only.
As to volenti the judge, after referring to Dann
v. Hamilton [1939] 1 K.B. 509, and to the judgments of Lord Denning M.R.
and Salmon L.J. in Nettleship v. Weston 1971 2 Q.B. 692 then continued
as follows:
"In this case it is right to say that the plaintiff was aware
that Mr. Murray had been drinking heavily, but Mr. Murray was able, as it
were, to start this aeroplane. He even taxied the aeroplane to the place
where petrol was sold, paid for the petrol and then was able, albeit in a
somewhat inexpert way because his faculties were clearly affected by drink,
but he was able to get the plane into the air, albeit it only flew for some
three or four minutes before crashing in the way I have described. But, in
my view, this is not a case where one can say that the plaintiff consented
to run the risk of the actual injuries that he subsequently
suffered.
This case falls far short of what would be necessary in order to
successfully defend the action on the grounds of volenti non fit
injuria. This is a case where, in my view, certainly there was
contributory negligence by the plaintiff in that he boarded a plane and
allowed himself to be flown when he knew that the defendant had consumed a
considerable amount of alcohol. In many ways it is analogous to the facts
that prevailed in Owens v. Brimmell [1977] 1 Q.B. 859, because in
that case the plaintiff had been in the defendant's company for most of the
evening visiting one public house after another. The defendant had there
consumed eight to nine pints of bitter. In that case the learned judge,
having considered the question of negligence of the plaintiff in that he
agreed to be carried in a car driven by a person whose judgment he must have
known would be affected by alcohol, assessed the plaintiff's contributory
negligence at twenty per cent. That is what I propose to do
here".
I should now refer to certain authorities. In Dann v.
Hamilton [1939] 1 K.B. 509, the defendant Mr. Hamilton drove the plaintiff
and her mother from the area of Staines into London to see the Coronation
decorations. They all had tea in London at about six p.m. Between 9.30 p.m.
and 10 p.m. they had some beer at a public house in London. How much Hamilton
drank was not known. They then drove quite safely to another public house
called the Milford Arms near Hounslow. It was about 10.30 p.m. and the
premises were just closing, but they met a Mr. Taunton there whom they all
knew. Taunton and Hamilton had a drink at the Milford Arms. Hamilton's
condition at that time was described thus by Taunton: "He wasn't drunk but I
could see that he had had one or two drinks". It was then suggested that they
should go to the Osterley Park Club which they did. Hamilton drove. Taunton
thought he drove rather fast and swerved slightly but he did not appear to be
driving dangerously. At the club Hamilton ordered a round of drinks including
a pint of beer for himself, which he drank quickly and then ordered another
round.
They returned to the car. Taunton was asked by the women to
drive but Hamilton would not let him. He agreed to drive Taunton to his house
about a mile away. Taunton said he drove at excessive speed and there was talk
in the car that they were going too fast. Hamilton stopped the car after a
while and he and Taunton went to the road side. Taunton said he thought
Hamilton was very drunk but agreed to return to the car after obtaining a
promise from him. Asquith J. doubted whether, if Hamilton was as drunk as
Taunton suggested, he would have accepted Hamilton's promise. The remainder of
the drive on the way to Taunton's house seems to have been safe enough except
for a burst of high speed near the end. When Taunton got out he said to the
two women "You have got more pluck than I have", to which the plaintiff
replied "You should be like me. If anything is going to happen it will
happen". The car then drove on and was involved in a very bad accident shortly
afterwards in which Hamilton was killed and the plaintiff was injured. Asquith
J. held that the volenti defence was not applicable and gave judgment
for the plaintiff. Contributory negligence which at that time would have been
a complete defence to the action was not pleaded and despite the judge's
invitation to the defendant's counsel to amend (see Note by Lord Asquith in 69
Law Quarterly Review at page 317) was never relied on.
The decision has been criticised (see, for example, Sir Owen
Dixon in Insurance Commissioner v. Joyce 77 C.L.R. 39 at page 59,
Salmon L.J. in Nettleship v. Weston 1971 2 QB 691 at page 704 and
Professor Fleming (Law of Torts 7th Edition at pages 272 and 274). But I need
not examine the question of its correctness since it was approved by this
court in Slater v. Clay Cross [1956] 2 Q.B. 265 (though I do not read
that approval as going beyond the decision on its facts). The present case is,
however, far removed on its facts from Dann v. Hamilton. In that case
the plaintiff was engaged in a quite ordinary social outing to London and
back, with a driver who was not drunk when the drive started and, indeed, who
was not drunk until quite a late stage when it was not very easy for the
plaintiff to extricate herself without giving offence. The whole situation
seems to me to bear little resemblance to the drunken escapade, heavily
fraught with danger from the first, upon which the plaintiff and Mr. Murray
embarked in this case. It is said on behalf of the plaintiff that Dann v.
Hamilton was a stronger case than the present for the application of the
volenti maxim having regard to the fatalistic reply given by the
plaintiff to Taunton when he finally left the car. That remark might be a good
reason for saying that the case should have been decided in favour of the
defendant (see for example Fleming op. cit., page 272, note 55) but
Asquith J., in fact, gave no weight to it.
The reasoning of Asquith J. was that a person who
voluntarily travels as a passenger with a driver who is known to the passenger
to have driven negligently in the past cannot properly be regarded as
volens to future acts of negligence by the driver. Should it then make
any difference that the driver is likely to drive negligently on the material
occasion, not because he is shown to have driven negligently in the past, but
because he is known by the plaintiff to be under the influence of drink?
Asquith J. thought not and held that the plaintiff by embarking in the car, or
re-entering it with the knowledge that through drink the driver had materially
reduced his capacity for driving safely, did not implicitly consent to or
absolve the driver from liability from any subsequent negligence on his part
whereby she might suffer harm.
Having reached that conclusion, however, Asquith J. at page
518 continued as follows:
"There may be cases in which the drunkenness of the driver at
the material time is so extreme and so glaring that to accept a lift from
him is like engaging in an intrinsically and obviously dangerous occupation,
intermeddling with an unexploded bomb or walking on the edge of an unfenced
cliff. It is not necessary to decide whether in such a case the maxim
'violenti non fit injuria' would apply, for in the present case I find as a
fact that the driver's degree of intoxication fell short of this
degree".
The question before us, I think, is whether, as a matter of
law, there are such cases as Asquith J. refers to and, if so, whether this
present case is one of them.
As to the first of these questions there is a fundamental
issue whether the volenti doctrine applies to the tort of negligence at
all. In Woldridqe v. Sumner [1963] 2 QB 43 at page 69 Diplock L.J.
said:
"... In my view, the maxim in the absence of expressed contract
has no application to negligence simpliciter where the duty of care is based
solely on proximity or 'neighbourship' in the Atkinian sense. The maxim in
English law presupposes a tortious act by the defendant. The consent that is
relevant is not consent to the risk of injury but consent to the lack of
reasonable care that may produce that risk ... and requires on the part of
the plaintiff at the time at which he gives his consent full knowledge of
the nature and extent of the risk that he ran".
Asquith J. himself raised the same question in Dann v.
Hamilton at pages 516-517. He drew a distinction between two kinds of case.
First, where a dangerous physical condition has been brought about by the
negligence of the defendant and, after it has arisen, the plaintiff -fully
appreciating its dangerous character elects to assume the risk. In that sort
of case Asquith J. regarded the volenti maxim as capable of applying.
That, however, is not this case. Diplock L.J. indeed would not have regarded
the maxim as truly applicable and was of the opinion that the correct test of
liability of the person creating the risk was whether it was reasonably
foreseeable by him that the plaintiff would so act in relation to it as to
endanger himself - which is the principle of the "rescue" cases.
The second class of case was where the act of the plaintiff
relied on as a consent precedes and is claimed to licence in advance a
possible subsequent act of negligence. Dann v. Hamilton itself was an
instance of that class in which Asquith J. held on the facts the maxim not to
be applicable. But as I have indicated he left open the question of extreme
cases. Lord Diplock's observations in Woldridge v. Sumner were in
relation to a case which was concerned with injury to a spectator at a
sporting event. He said at page 67:
"The matter has to be looked at from the point of view of the
reasonable spectator as well as the reasonable participant; not because of
the maxim volenti non fit injuria, but because what a reasonable spectator
would expect a participant to do without regarding it as blameworthy is as
relevant to what is reasonable care as what a reasonable participant would
think was blameworthy conduct in himself. The same idea was expressed by
Scrutton L.J., in Hall v. Brooklands: 'What is reasonable care would
depend upon the perils which might reasonably be expected to occur, and
the extent to which the ordinary spectator might be expected to appreciate
and take the risk of such perils" (Diplock L.J.'s emphasis).
But a participant may, to the damage of a spectator, do
something which a reasonable spectator in the context of the sport as it is
normally understood would never anticipate. That may be negligence
simpliciter and, since the spectator could not contemplate it, he could
not be met by the defence of volenti. But in a case, such as the
present, where a person voluntarily decided to participate in something which
is itself necessarily dangerous, it seems to me that different considerations
must arise.
Nettleship v. Weston (supra) was a case of a driving instructor
injured by the negligent driving of the pupil. It is not, as a decision, of
much relevance to the present case since, before giving the lesson, the
instructor had asked for and obtained an assurance that there was in existence
a policy of insurance. He was in fact shown a comprehensive policy which
covered a passenger. That was unhopeful ground for a volens plea. There
are, however, observations of Lord Denning and Salmon L.J. to which I should
refer. Lord Denning at page 201 said:
"Knowledge of the risk of injury is not enough. Nothing will
suffice short of an agreement to waive any claim for negligence. The
plaintiff must agree expressly or impliedly to waive any claim for any
injury that may befall him due to the lack of reasonable care by the
defendant: or more accurately due to the failure by the defendant to measure
up to the duty of care which the law requires of him".
Salmon L.J. in the same case (at page 704) adopted, in a
dissenting judgment a different approach. He said that if, to the knowledge of
the passenger, the driver is so drunk as to be incapable of driving safely, a
passenger having accepted a lift cannot expect the driver to drive other than
dangerously. The duty of care, he said, springs from relationship. The
relationship which the passenger has created in accepting a lift in such
circumstances, cannot entitle him to expect the driver to discharge a duty of
care which the passenger knows that he is incapable of discharging. The result
is that no duty is owed by the driver to the passenger to drive safely. The
difficulty about this analysis is that it may tend to equate "sciens" with
"volens" - which is not the law. However, there must be cases where the facts
are so strong that "volens" is the only sensible conclusion. Salmon L.J. said
that, alternatively, if there is a duty owed to the passenger to drive safely,
the passenger by accepting the lift clearly assumed the risk of the driver
failing to discharge that duty.
I doubt whether the gap between Lord Denning's approach and
that of Salmon L.J. is a very wide one. On the one hand you may have an
implicit waiver of any claims by reason of an exhibited notice as to the
assumption of risk (see Bennett v. Tuqwell [1971] 2 W.L.R. 847 - which
was decided before the Road Traffic Act 1972). On the other hand, if it is
evident to the passenger from the first that the driver is so drunk that he is
incapable of driving safely, the passenger must have accepted the obvious risk
of injury. You may say that he is volens or that he has impliedly
waived the right to claim or that the driver is impliedly discharged from the
normal duty of care. In general, I think that the volenti doctrine can
apply to the tort of negligence, though it must depend upon the extent of the
risk, the passenger's knowledge of it and what can be inferred as to his
acceptance of it. The passenger cannot be volens (in the absence of
some form of express disclaimer) in respect of acts of negligence which he had
no reason to anticipate and he must be free from compulsion. Lord Pearce in
Imperial Chemical Industries v. Shatwell 1965 AC 656 at 687 said:
"... as regards common law negligence the defence of volenti non
fit injuria is clearly applicable if there was a genuine full agreement,
free from any kind of pressure, to assume the risk of loss. In Williams
v. Port of Liverpool Stevedoring Co. Ltd. [1956] 1 W.L.R. 551, Lynskey
J. rejected the defence where one stevedore was injured by a deliberate
negligence of the whole gang (to which the plaintiff gave 'tacit consent')
in adopting a dangerous system of unloading. There was an overall duty on
the master to provide a safe system of work, and it is difficult for one man
to stand out against his gang. In such circumstances one may not have that
deliberate free assumption of risk which is essential to the plea and makes
it as a rule unsuitable in master and servant cases owing to the possible
existence of indefinable social and economic pressure. If the plaintiff had
been shown to be a moving spirit in the decision to unload in the wrong
manner it would be different. But these are matters of fact and
degree".
We were referred to the case of Slater v. Clay Cross
(supra) but in that case the plaintiff, while she could be regarded as
accepting the risks of walking down a narrow railway tunnel (which she and
other villagers had long been in the habit of using as a short cut) she did
not accept the risk that the driver would drive the train negligently.
Before coming to the facts it is perhaps worth noting how
the volenti doctrine is stated. Lord Herschell in Smith v. Baker
[1891] AC 325 said at page 360:
"... The maxim is founded on good sense and justice. One who has
invited or assented to an act being done towards him cannot, when he suffers
from it, complain of it as a wrong".
If the plaintiff had himself been sober on the afternoon of
the flight it seems to me that, by agreeing to be flown by Mr. Murray, he must
be taken to have accepted fully the risk of serious injury. The danger was
both obvious and great. He could not possibly have supposed that Mr. Murray,
who had been drinking all the afternoon, was capable of discharging a normal
duty of care.
But as he himself had been drinking, can it be assumed that
he was capable of appreciating the risks? The matter was not very deeply
examined at the trial, but he was certainly not "blind drunk". In
cross-examination, he agreed with the description "merry". He was capable of
driving a car from the Blue Boar to the airfield; and he did so for the
purpose of going on a flight with Mr. Murray. He helped to start the aircraft
and fuel it. Immediately before take-off he asked Mr. Murray whether he should
not "radio in" (a sensible inquiry). None of this suggests that his faculties
were so muddled that he was incapable of appreciating obvious risks. Moreover,
he gave no specific evidence to the effect "I was really too drunk to know
what I was doing". Nor did anyone else give such evidence about him.
He was asked, and answered as follows (Transcript page
37G):
"Q Looking back on it now, Mr. Morris, you must have been aware
that Murray had been drinking too much, do you agree? A. As I had too much
to drink I probably had not noticed that he had.
Q. I understand that, but I ask you to look back on it. A.
Looking back, yes, definitely".
In my opinion, on the evidence the plaintiff knew that he
was going on a flight; he knew that he was going to be piloted by Mr. Murray;
and he knew that Mr. Murray had been drinking heavily that afternoon. The
plaintiff's actions that afternoon, from leaving the Blue Boar to the take-off
suggest that he was capable of understanding what he was doing. There is no
clear evidence to the contrary. I think he knew what he was doing and was
capable of appreciating the risks. I do not overlook that the plaintiff's
evidence was that, if he had been sober, he would not have gone on the flight.
That is no doubt so but it does not establish that he was in fact incapable of
understanding what he was doing that afternoon.
If he was capable of understanding what he was doing, then
the fact is that he knowingly and willingly embarked on a flight with a
drunken pilot. The flight served no useful purpose at all; there was no need
or compulsion to join it. It was just entertainment. The plaintiff co-operated
fully in the joint activity and did what he could to assist it. He agreed in
evidence that he was anxious to start the engine and to fly. A clearer source
of great danger could hardly be imagined. The sort of errors of judgment which
an intoxicated pilot may make are likely to have a disastrous result. The high
probability was that Mr. Murray was simply not fit to fly an aircraft. Nothing
that happened on the flight itself suggests otherwise -from the take-off down
wind to the violence of the manoeuvres of the plane in flight.
The situation seems to me to come exactly within Lord
Asquith's example of the case "where the drunkenness of the driver at the
material time is so extreme and so glaring that to accept a lift from him is
like engaging in an intrinsically and obviously dangerous operation". I think
that in embarking upon the flight the plaintiff had implicitly waived his
rights in the event of injury consequent on Mr. Murray's failure to fly with
reasonable care.
The facts go far beyond Dann v. Hamilton,
Nettleship v. Weston and Slater v. Clay Cross. It is much nearer
to the dangerous experimenting with the detonators in I.C.I, v.
Shatwell (supra). I would conclude, therefore, that the plaintiff accepted
the risks and implicitly discharged Mr. Murray from liability from injury in
relation to the flying of the plane.
The result, in my view, is that the maxim volenti non fit
injuria does apply in this case. The judge appears to have been influenced
by the fact that Mr. Murray managed to get the plane airborne. He did, but the
take-off down wind was irregular and the bizarre movements of the plane in
flight must raise the greatest doubts whether he was in proper control of it.
The judge thought that the case was analogous to Owens v. Brimmell
[1977] 1 Q.B. 849. But the volenti defence was not in issue in that
case.
Considerations of policy do not lead me to any different
conclusion. Volenti as a defence has, perhaps, been in retreat during
this century - certainly in relation to master and servant cases. It might be
said that the merits could be adequately dealt with by the application of the
contributory negligence rules. The judge held that the plaintiff was only 20
per cent to blame (which seems to me to be too low) but if that were increased
to 50 per cent, so that the plaintiff's damages were reduced by half, both
sides would be substantially penalised for their conduct. It seems to me,
however, that the wild irresponsibility of the venture is such that the law
should not intervene to award damages and should leave the loss where it
falls. Flying is intrinsically dangerous and flying with a drunken pilot is
great folly. The situation is very different from what has arisen in motoring
cases.
I should mention that the defence of volenti has been
abrogated in relation to passengers in motor vehicles covered by comprehensive
insurance (Road Traffic Act 1972, section 148). It is not suggested, however,
that there is any similar enactment relating to aircraft and applicable to
this case.
In the circumstances, I do not need to deal with the quantum
of damages upon which the defendants appeal. As to the question of
devastavit by the administrators upon which there has been argument
before us, I do not think this is a matter for this action. This is an action
for damages for personal injuries. The question of devastavit, it seems to me,
is one to be raised in administration proceedings if damages were awarded but
not paid or not paid in full.
I would allow the appeal.
LORD JUSTICE STOCKER: I adopt with gratitude the exposition of the
facts set out in the judgment of Fox L.J., which I have read in draft. I add
observations of my own since we are differing from the conclusion of the
learned judge and in deference to the detailed arguments which have been
addressed to us by counsel on both sides and because, so far as I am aware,
the facts of the case are unique and raise matters of some importance.
This appeal is not concerned with precise formulation of the
elements necessary to support a plea of volenti non fit injuria. It is
sufficient for the purpose of this case to accept, as counsel on both sides
have done, that in order to defeat an otherwise valid claim on the basis that
the plaintiff was volens the defendant must establish that the
plaintiff at the material time knew the nature and extent of the risk and
voluntarily agreed to absolve the defendant from the consequences of it by
consenting to the lack of reasonable care that might produce the risk. It is
common ground and long established that knowledge of the risk is not
sufficient but there must also be consent to bear the consequences of it. This
appeal is concerned with the application of the doctrine to the facts of the
case. We have been referred to a number of cases illustrative of the
application of the maxim to the facts of the case in question. It is clear
that there are two main categories of case in which this problem falls to be
considered, viz. (1) Where the relevant breach of duty precedes the exposure
of the victim to the risk of injury. Such cases may involve a "rescue"
situation, but in general present problems which are simpler to solve than the
second category since the nature and the extent of the risk can more readily
be assessed where the dangerous situation has already been created. The second
category in which the application of the maxim falls to be considered arises
in circumstances where the question of volenti arises in advance of the
negligent act which creates the danger. In such cases the question is whether
or not there is some factor known to the plaintiff from which he should
conclude that a risk is likely to be created by the existence of that factor.
In the instant case and in several of the cases in which this situation has
fallen to be examined the relevant factor is the state of intoxication of the
defendant. This category also includes cases in which the person injured is a
spectator at a game or contest to which the public are admitted. Though of
assistance to the resolution of the instant appeal such a case usually
involves considerations which do not here arise. Cases in which the
intoxication of the defendant constitutes the relevant condition from which
the application of the doctrine is to be considered usually relate to motoring
cases in which the injured plaintiff is a passenger in a motor car driven by a
defendant who has exhibited a greater or lesser degree of intoxication.
We have been referred to a number of cases decided both in
the courts of this country and in Dominion jurisdictions. Though many of them
contain dicta with regard to the precise formulation of the doctrine and its
legal effect they are relevant to the issues that arise in this appeal in
three respects:
(1) To the question whether the maxim can ever been applied in cases in
which the negligence - i.e., the breach of duty of care - arises solely out of
the Donoqhue v. Stevenson concept of a duty owed by one person to
another without that duty being imposed by any special relationship such as
master and servant or occupier and licensee.
(2) Whether or not the appropriate method of reflecting the plaintiff's own
responsibility in such circumstances is through contributory negligence rather
than through the principle of volenti.
(3) As examples of the application of the maxim in comparable
situations.
It is in respect of these matters that the authorities cited
to us fall to be considered.
The appropriate starting point is the case of Dann v.
Hamilton [1939] 1 K.B. 509. The facts of that case were that the plaintiff
knew that the driver of the car in which she was a passenger was under the
influence of drink and therefore the chances of an accident were substantially
increased. Nevertheless, she chose to remain in the car and was injured owing
to the negligent driving of the defendant. She had previously made a remark
"if anything is going to happen, it will happen".
Asquith J. considered textbook and other authorities to the
effect that the maxim had no application to the law of negligence and to the
fact that most authorities were concerned with what I have described as the
first category of case in which the maxim has arisen viz. where the negligent
act has already occurred before the plaintiff is exposed to risk from it. The
judge did not deal with contributory negligence since he was not invited by
counsel to do so. He expressed his decision in these terms at pages 518 and
519:
"... Then, to take the last step, suppose that such a driver is
likely to drive negligently on the material occasion, not because he is
known to the plaintiff to have driven negligently in the past, but because
he is known to the plaintiff to be under the influence of drink. That is the
present case. Ought the risk to be any different? After much debate I have
come to the conclusion that it should not, and that the plaintiff, by
embarking in the car, or re-entering it, with knowledge that through drink
the driver had materially reduced his capacity for driving safely, did not
impliedly consent to, or absolve the driver from, liability for any
subsequent negligence on his part whereby she might suffer harm.
There may be cases in which the drunkenness of the driver at the
material time is so extreme and so glaring that to accept a lift from him is
like engaging in an intrinsically and obviously dangerous occupation,
intermeddling with an unexploded bomb or walking on the edge of an unfenced
cliff, it is not necessary to decide whether in such a case the maxim
volenti non fit injuria would apply, for in the present case I find
as a fact that the driver's degree of intoxication fell short of this
degree. I therefore conclude that the defence fails and the claim succeeds.
I arrive at this conclusion with the less reluctance in that it would be
unjust that the deceased man's estate should be protected from suit by the
mere fact that he got drunk before committing the final act of negligence,
whereas, if he had committed the same act when sober, his estate would have
been liable".
It seems to me that this judgment was one of fact rather
than law since Asquith J. clearly envisaged examples in which the application
of the maxim could defeat a plaintiff's claim. This decision has met with
criticism both by academic writers and by judges in subsequent cases. In some
cases his decision has been applied and in others rejected.
In Insurance Commission v. Joyce 77 C.L.R. 39 the
High Court of Australia was faced with a situation which did not differ
greatly from the facts in Dann v. Hamilton. An accident was caused by
the negligence of the driver of a car due to his intoxication and his
passenger, the plaintiff, was injured. As neither the plaintiff nor the
defendant gave evidence there was considerable doubt about the proper finding
on causation and it was this fact which induced Dixon J. to dissent from the
views of his brethren. The majority of the court, Latham C.J. and Rich J.,
held that the plaintiff's claim failed though they differed as to their
grounds for so holding. Dixon J. considered that case of Dann v.
Hamilton and cited the passage already set out in this judgment and said,
at page 57:
"If he knowingly accepts the voluntary services of a driver
affected by drink, he cannot complain of improper driving caused by his
condition, because it involves no breach of duty".
A little later he said:
"The second principle that has been applied is that referred in
English law to the title volenti non fit injuria under which is
placed the voluntary assumption of risk which in the United States seems to
exist as a separate rule. Here, too, some actual notice of the state of the
driver must be necessary. But of course knowledge of what is apparent may
readily be inferred. The result of the application of this principle, it may
be thought, should not differ from the result brought about by the
first".
And later at page 59 he considers the decision of Dann
v. Hamilton and cites the passage which has already been set out in this
judgment. He concludes:
"No doubt the issue his Lordship propounded for decision was one
of fact but, with all respect, I cannot but think that the plaintiff should
have been precluded. Every element was present to form a conscious and
intentional assumption of the very risk for which she suffered".
It is clear there that Dixon J. would have found the maxim
established in Dann v. Hamilton and have rejected the plaintiff's
claim, though in fact he preferred the solution to the problem based on the
duty which arose out of the relationship of driver to his passenger.
Although not a case involving a motor vehicle or a state of
intoxication Dann v. Hamilton was considered by the Court of Appeal in
Slater v. Clay Cross Co. Ltd. [1956] 2 Q.B. 264. Stated shortly the
facts were that the plaintiff, a pedestrian, used a short tunnel as a walkway
in accordance with local usage known to the defendants who had a small gauge
railway line running through it. The plaintiff was injured by a train, the
driver of which had failed to comply with his instructions with regard to
speed and warning signals. Denning L.J. cited the case of Dann v.
Hamilton together with the explanation given by Lord Asquith that he
considered contributory negligence would have been applied if raised and said
at page 270:-
"... In so far as he decided that the doctrine of volenti
did not apply, I think the decision was quite correct. In so far as he
suggested that a plea of contributory negligence might have been available,
I agree with him.
Applying that decision to this case, it seems to me that when
this lady walked in the tunnel, although it may be said that she voluntarily
took the risk of danger from the running of the railway in the ordinary and
accustomed way nevertheless she did not take the risk of negligence by the
driver. Her knowledge of the danger is a factor in contributory negligence,
but is not a bar to the action".
In my view this case raised questions similar to those which
arise in the "spectator sports" cases and involves the question whether or not
the negligence giving rise to the injury occurred outside the ambit of the
risks inherent in the general use of the tunnel.
I do not read Denning L.J.'s words as meaning more than he
approved the decision of Asquith J. in Dann v. Hamilton on its
facts.
In 1956 the Supreme Court of Canada in Car & General
Insurance Corporation Ltd. v. Seymour and Maloney [1956] 2 Dominion Law
Reports 369 considered the position of a passenger injured by the negligent
driving of a person who was under the influence of drink. The journey was a
long one and the driver did not exhibit symptoms of intoxication at the outset
of the journey but did so later. The importance of the position for the
purposes of the instant appeal is that the court held that the time at which
the application of the maxim volenti non fit injuria is to be
considered is the knowledge and consent of the passenger at the time of the
inception of the journey. Rand J. rejected the criticism of Dann v.
Hamilton by Dixon J. in the Joyce case on this basis.
In Wooldridqe v. Sumner [1963] 2 QB 43, again a
spectator sports case, in which a photographer attending the National Horse
Show was injured by a horse ridden by a very experienced rider, the object of
the competition was to complete the appropriate circuit in the fastest time
and the rider was attempting to achieve this and the court found that that
rider through an error of judgment had taken a corner too fast and that
thereafter, for some other reason, the horse became temporarily out of
control. This case is relied upon by the plaintiff in the instant appeal in
support of the proposition that the maxim has no application to the tort of
negligence "simpliciter". In his judgment Sellers L.J. said at page 57:
"If the conduct is deliberately intended to injure someone whose
presence is known, or is reckless and in disregard of all safety of others
so that it is a departure from the standards which might reasonably be
expected in anyone pursuing the competition or game, then the performer
might well be held liable for any injury his act caused. There would, I
think, be a difference for instance in assessing the blame which is
actionable between an injury caused by a tennis ball hit or a racket
accidentally thrown in the course of play into the spectators at Wimbledon
and a ball hit or a racket thrown into the stands in temper or annoyance
when play was not in progress.
The relationship of spectator and competitor or player is a
special one, as I see it, as the standard of conduct of the participant, as
accepted and expected by the spectator, is that which the sport permits or
involves. The different relationship involves its own standard of
care.".
At page 69 Diplock L.J. said:
"... In my view, the maxim in the absence of expressed contract
has no application to negligence simpliciter where the duty of care is based
solely upon proximity or 'neighbourship' in the Atkinian sense. The maxim in
English law pre-supposes a tortious act by the defendant. The consent that
is relevant is not consent to the risk of injury but consent to the lack of
reasonable care that may produce that risk (see Kelly v. Farrans Ltd.
[1954] N.I. 41 per Lord MacDermott), and requires on the part of the
plaintiff at the time at which he gives his consent full knowledge of the
nature and extent of the risk that he ran".
He then cites authorities in support of that proposition and
continues:
"In Dann v. Hamilton Asquith J. expressed doubts as to
whether the maxim ever could apply to license in advance of a subsequent act
of negligence, for if the consent precedes the act of negligence the
plaintiff cannot at that time have full knowledge of the extent as well as
the nature of the risk which he will run. Asquith J. however, suggested that
the maxim might nevertheless be applicable to cases where a dangerous
physical condition had been brought about by the negligence of the
defendant, and the plaintiff with full knowledge of the existing danger
elected to run the risk thereof".
It is clear that Diplock L.J. was expressing this view in
the context of the facts of the case then before him and it seems to me that
the meaning that he was seeking to express is to be derived by earlier
passages in his judgment. At page 66 Diplock L.J. said, after citing the case
of Hall v. Brooklands Auto-Racing Club:
"... In which the actual participants in the game or competition
have been sued as well as the occupiers of the premises on which it took
place, but juries have acquitted the participants of negligence and the
cases are reported only upon the duty owed by an occupier of premises to
invitees. Such duty is not based upon negligence simpliciter but flows from
a consequential relationship between the occupier and the invitee; there is
thus no conceptual difficulty in implying a term in that consensual
relationship (which in the reported cases has in fact been a contractual
relationship) that the occupier need take no precautions to protect the
invitee from all or from particular kinds of risk incidental to the game or
competition which the spectator has come upon the premises to
watch.
In the case of a participant however, any duty of care which he
owed to the spectator is not based upon any consensual relationship between
them but upon mere 'proximity' if I may use that word as a compendious
expression of what makes one person a 'neighbour' of another in the sense of
Lord Atkin's definition in Donoqhue v. Stevenson ..."
And at page 67 he said:
"The matter has to be looked at from the point of view of the
reasonable spectator as well as the reasonable participant; not because of
the maxim volenti non fit injuria, but because what a reasonable spectator
would expect a participant to do without regarding it as blameworthy is as
relevant to what is reasonable care as what a reasonable participant would
think was blameworthy conduct in himself. The same idea was expressed by
Scrutton L.J. in Hall v. Brooklands: 'What is reasonable care would
depend upon the perils which might reasonably be expected to occur, and
the extent to which the ordinary spectator might be expected to appreciate
and take the risk of such perils".
It seems to me that the sense in which Diplock L.J.,
therefore, was making the remarks cited at page 69 is that he was drawing a
distinction between dangers created in the actual course of the game or
contest even if through some casual lack of care of skill and the situation
which arises where a spectator is injured by some negligent or reckless act by
a participant which occurs quite outside the ambit of the game in question. In
such a case the spectator's cause of action will necessarily have to be based
upon the Atkinian neighbour principle since that is the nature of the duty
which the competitor would owe to the spectator in those particular
circumstances. It seems to me, therefore, that the maxim would not apply in
those circumstances since whereas the spectator would anticipate danger from
the performance of the game itself he could not anticipate or condone in
advance something which he could not possibly foresee as being likely to
occur.
For my part I do not derive great assistance from the case
of Nettleship v. Weston (C.A.) [1971] 2 QB 691 since although it
concerned a claim by a passenger against a driver it was not a case of
intoxication. The passenger had offered to give driving lessons to the wife of
a friend. Before doing so he had enquired whether or not there was in force a
policy of insurance and he was given the assurance that there was and was
shown a fully comprehensive policy which covered a passenger in the event of
accident. It therefore seems to me quite clear that the maxim would have no
application - he did not consent to accept the risk of injury or condone in
advance the learner's negligence. I find it therefore surprising that reliance
was placed upon the maxim at all. Observations by the members of the court
have to be read in the light of those facts. At page 701G Lord Denning M.R.
said:
"... The plaintiff must agree, expressly or impliedly, to waive
any claim for injury that may befall him due to the lack of reasonable care
by the defendant; or, more accurately, due to the failure of the defendant
to measure up to the standard of care that the law requires of him. That is
shown in England by Dann v. Hamilton [1939] 1 K.B. 509; and Slater
v. Clay Cross Co. Ltd. [1956] 2 Q.B. 264; and in Canada by Lehnert v.
Stein (1962) 36 D.L.R. (2d); and in New Zealand by Morrison v.
Steamship Co. Ltd. of New Zealand [1964] N. Z. L.R. 468. The doctrine
has been so severely curtailed that in the view of Diplock L.J.
..."
and (on page 69) he cites the passage which I have already set out in this
judgment. Lord Denning continued:
"Applying the doctrine in this case it is clear that Mr.
Nettleship did not agree to waive any claim for injury that might befall
him. Quite the contrary, he enquired about the insurance policy so as to
make sure that he was covered".
At page 703 Salmon L.J. said:
"Any driver normally owes exactly the same duty to a passenger
in his car as he does to the general public, namely, to drive with
reasonable care and skill in all the relevant circumstances. As a rule, the
driver's personal idiosyncrasy is not a relevant circumstance. In the
absence of a special relationship what is reasonable care and skill is
measured by the standard of competence usually achieved by the ordinary
driver. In my judgment, however, there may be special facts creating a
special relationship which displaces this standard or even negatives any
duty, although the onus would certainly be upon the driver to establish such
facts. With minor reservations I respectfully agree with and adopt the
reasoning and conclusions of Sir Owen Dixon in his judgment in The
Insurance Commissioner v. Joyce. I do not agree that the mere fact that
the driver has, to the knowledge of his passenger, lost a limb or an eye or
is deaf can affect the duty which he owes the passenger to drive safely. It
is well known that many drivers suffering from such disabilities drive with
no less skill and competence than the ordinary man. The position, however,
is totally different when, to the knowledge of the passenger, the driver is
so drunk as to be incapable of driving safely. Quite apart from being
negligent, a passenger who accepts a lift in such circumstances clearly
cannot expect the driver to drive other than dangerously.
The duty of care springs from relationship. The special
relationship which the passenger has created by accepting a lift in the
circumstances postulated surely cannot entitle him to expect the driver to
discharge a duty of care or skill which ex hypothesi the passenger knows the
driver is incapable of discharging. Accordingly, in such circumstances, no
duty is owed by the driver to the passenger to drive safely, and therefore
no question of volenti non fit injuria can arise.
The alternative view is that if there is a duty owed to the
passenger to drive safely, the passenger by accepting a lift has clearly
assumed the risk of the driver failing to discharge that duty. What the
passenger has done goes far-beyond establishing mere 'scienter'. If
it does not establish 'volens', it is perhaps difficult to imagine what
can.
Such a case seems to me to be quite different from Smith
v Baker & Sons [1891] AC 325 and Slater v. Clay Cross Co.
Ltd. [1956] 2 Q.B. 264. Like Sir Owen Dixon, I prefer to rest on the
special relationship between the parties displacing the prima facie duty on
the driver to drive safely rather than on the grounds of volenti non fit
injuria. Whichever view is preferable, it follows that, in ! spite of
the very great respect I have for any judgment of Lord Asquith, I do not
accept that Dann v. Hamilton [1939] 1 K.B.509 was correctly decided
...
I should like to make it plain that I am not suggesting that
whenever a passenger accepts a lift knowing that the driver has had a few
drinks, this displaces the prima facie duty ordinarily resting on a driver,
let alone that it establishes volenti non fit injuria. Indeed, Sir
Owen Dixon dissented in Joyce's case, because he did not agree that
the evidence was capable of establishing that the plaintiff passenger knew
that the driver was so drunk as to be incapable of exercising ordinary care
and skill. In practice it would be rare indeed that such a defence could be
established".
In Bennett v. Tuqwell [1971] 2 W.L.R. 847 Ackner J.
considered the effect of the maxim volenti non fit injuria in the light
of an express notice "Passengers entering this vehicle do so at their own
risk" which had been exhibited by the defendant upon his father's motor car
which he was driving. The relevance of the decision to the instant appeal lies
in the view which Ackner J. took as to the question whether or not an injured
passenger is volens is an objective and not a subjective one. He said
at page 851H:
"Can the defendant invoke the defence of 'volenti non fit
injuria'? The gist of this defence is not so much the assent to the
infliction of injury as the assumption of the risk of such
injury: ..."
Then he cites Fleming on Torts and Salmond on Torts, and
continues:
"Mr. Levene submits that a subjective test is the appropriate
one and that I am concerned with what is in the innermost recesses of the
parties' minds. I do not accept that this is so. What is required is an
objective approach. Legal enquiry into a person being 'volens' is not into
what he feels or inwardly consents to, but into what his conduct or words
evidence what he is consenting to: ...".
This is a matter which arises on this appeal and I will have
to consider hereafter when I turn to the more detailed facts of this case.
Support for the proposition that the appropriate method by
which to reflect a passenger's voluntary assumption of risk is by
apportionment on the basis of contributory negligence rather than the
application of the volenti maxim is to be derived from the judgment of
Watkins J. in Owens v. Brimmell [1977] Q.B. 859. In my view the judge
based his conclusion on the fact that the authorities entitled him to treat
the matter as one of contributable negligence rather than a finding that the
claim was barred by the application of the principle of volenti. Other
authorities base the decision on the application of that maxim.
In Ashton v. Turner and Anr. [1981] 1 Q.B. 137 Ewbank
J. having found against the plaintiff on the basis of public policy also found
that the volenti maxim would have defeated his claim also since the plaintiff
knew that the driver was in an intoxicated condition.
The last authority to which I feel it is necessary to refer
is a recent case in this court of which we have been provided with the
handed-down version of the judgment. That is the case of Andrew James
Pitts, v. the Personal Representatives of Mark James Hunt, deceased and
Richard Mark Jewell. The facts were that the plaintiff, who was 18 years
of age, was a pillion passenger on a motor cycle driven by the defendant who
was 16 years of age. To the plaintiff's knowledge the defendant rider of the
motor cycle was neither insured nor had he a licence. The driving followed
nearly four hours of attendance at a disco in which a substantial amount of
drink had been taken by both. The judge described the driving as "reckless,
irresponsible and idiotic", and it was found that the method of driving was
deliberate in order to frighten the public. The learned judge and the Court of
Appeal dismissed the plaintiff's appeal against the rejection of his claim on
three grounds. Firstly that they were engaged in a joint illegal enterprise
and that the claim was barred by the maxim ex turpi causa non oritur
actio. The learned judge also found that the claim would be defeated on
the basis of the maxim volenti non fit injuria, but for the fact that
that defence was not possible in the context of a motor accident by virtue of
section 148(iii) of the Road Traffic Act 1972. Beldam L.J. clearly found that
this statutory provision did prevent the operation of the maxim but equally
clearly was of the view that but for the provision the maxim would have
operated to defeat the plaintiff's claim. At page 24 he said:
"As to the defence raised that the appellant voluntarily
undertook to run the risk of injury by taking part in such a foolhardy,
risky and illegal activity, I would have been prepared to say that it was
obvious from the description of the appellant's behaviour whilst he was
participating that he had done so. However the learned judge accepted that
the effect of section 148(iii) of the Road Traffic Act was that any
agreement or understanding that the risk of injury would be the appellant's
was of no effect".
He then continued by considering whether or not the judge
was correct in so interpreting that provision of the Road Traffic Act.
Balcombe and Dillon L.JJ. both considered that the defence of volenti
could not be relied upon by virtue of that statutory provision, but neither
dissented from the view expressed by Beldam L.J. as to the application of the
maxim had it not been for that statutory provision.
I have referred to these authorities at some length in order
to resolve the questions to which I have already referred.
As to the first and second questions, is the maxim
volenti non fit injuria available as a defence in a case which
is concerned with the tort of negligence? Or is the appropriate procedure to
deal with the matter on the basis of contributory negligence?
I have no doubt that in appropriate cases the maxim can
apply so as to defeat the plaintiff's claim. It has been held to be so in a
number of cases which have been cited and was so held in the recent case of
Pitts to which I have just referred. For the reasons that I have
already given I consider that Diplock L.J.'s dicta, approved as it was by Lord
Denning in Nettleship v Weston, was not intended to apply to a driver/
passenger situation. This is so because, as I believe, it was not intended so
to apply or on the basis that a special relationship does exist between a
driver and his passenger. Where a plaintiff is aware that his driver is to
some extent intoxicated his responsibility can be reflected by an
apportionment on the basis of contributory negligence. Whether such a course
is appropriate or whether the maxim volenti applies depends upon the
facts of each case. In particular it is relevant to consider the degree of
intoxication and the nature of the act to be performed by the driver. In
motoring cases it may well be that an apportionment on the basis of
contributory negligence will usually be the appropriate course but in my view
to pilot an aircraft requires a far higher standard of skill and care than
driving a motor car and the effect of intoxication becomes all the more
important. It seems to me from the authorities cited that this is the approach
which the courts ought to apply to this problem - How intoxicated was the
driver? How obvious was this to the plaintiff, and the extent of the potential
risk to the plaintiff if he voluntarily accepts the offer of carriage?
In the light of these observations I turn next to the
crucial issue in this case. Did the plaintiff voluntarily accept the risk of
injury, and of the defendant's likely breach of duty in negligence with full
knowledge of the facts?
I therefore first consider the position on the basis that
the plaintiff himself was sober, or at least not so intoxicated as the result
of alcohol as to be incapable of assessing the risk. I would unhesitatingly
answer this question "yes". The facts were:
1. The deceased pilot had consumed at least the equivalent of 17
whiskies and when absorption rate is considered over the period of time
involved must, in fact, have consumed rather more.
2. The plaintiff was drinking with him over several hours and
knew how much the defendant had had to drink.
3. The risk of accident was manifest to any sober person when
the activity to be carried out involves flying an aeroplane. The risk is far
greater than driving a car in a similar condition of insobriety. The
plaintiff had flown with the deceased pilot before; he co-operated and,
indeed, encouraged the deceased pilot throughout; he drove the pilot to the
airfield and filled the aeroplane with aviation spirit. The purpose of going
to the airfield can only have been to fly in the aircraft. That the pilot
was in fact incapable of flying the aircraft is demonstrated by a number of
factors. Firstly he took off down wind and uphill, a highly dangerous
manoeuvre itself, and in fact only just managed to get airborne shortly fore
the end of the runway. Evidence suggests that the aircraft was out of
control virtually at all times thereafter.
4 The plaintiff not only accepted the offer of being taken for a
joy ride in the aircraft, but actively sought it. Discussion as to this
possibility had taken place at the first public house, the Red Lion in
Harlow, and again took place at the Blue Boar when the deceased pilot was
present. Without the plaintiff's co-operation the flight in the aircraft
could never have taken place at all since the deceased pilot had no motor
car and the other man was disqualified from driving.
Thus on the basis that the plaintiff himself was capable of
appreciating the full nature and extent of the risk and voluntarily accepted
it, I would have no doubt whatever that this maxim would have applied to
defeat his claim. If this was not a case of volenti non fit injuria I
find it very difficult to envisage circumstances in which that can ever be the
case.
However, the position is that the plaintiff himself must
have consumed an amount of drink not dissimilar to that consumed by the
deceased pilot and, therefore, the question falls to be considered whether or
not his own condition was such as to render him incapable of fully
appreciating the nature and extent of the risk and of voluntarily accepting
it.
This matter does not seem to have been canvassed to any
great extent in evidence and was not argued in any great detail before this
court. Passages possibly relevant to it appear from the transcript of the
evidence. At page 37G he was asked:
" Looking back on it now, Mr. Morris, you must have been aware
that Murray had been drinking too much, do you agree? A. As I had had too
much to drink, I probably had not noticed that he had".
At letter H he was asked:
"Do you think now - I know you have had an accident, perhaps it
is a bit unfair - do you accept that flying in a private aeroplane is an
intrinsically dangerous pastime? Do you agree with that? Yes, I
do.
Q What do you think about flying in a private aeroplane with a
drunken pilot? What is your view about that? A. It is a silly thing to
do.
Q Do you say that had you been sober you would not have done it,
is that what you say? A. No doubt.
Q But you say the reason why you went was because you yourself
had been drinking, is that right? A. That is correct.
Q You were not so drunk that you were unconscious, were you? You
were merry, is that a way of putting it? A. I would say so".
The judge then asked:
"Who drove to the aerodrome? A. I do not recall, but I assume it
was me".
At letter F-H on page 38 the following questions and answers
occurred:
"Q ... you were anxious to get on this flight, were you not? A.
I was anxious to start the engine.
Q And to fly? A. Well, I imagine so.
Q Had you been sober you would have been aware that if you fly
with a drunken pilot there is a danger that you could crash? A. I
agree.
Q Had you been sober you would not have gone, is that correct?
A. Yes, I believe so".
These answers in my view have to be read in the context of
the express finding of fact by the judge that the plaintiff's memory was
episodic by reason of his injuries. Unhappily, the learned judge did not seem
to consider at all the problem which arises in the context of the plaintiff's
own state of intoxication. This may well be because it does not seem to have
been canvassed except in the sense indicated by the passages cited above. It
has been submitted to this court that the proper test of this, that is to say
the plaintiff's appreciation of the risk, and his consent to it, is an
objective one and the passage which I have cited from Ackner J. in Bennett
v. Tugwell is relied upon. I do not, for my part, go so far as to say that
the test is an objective one (though if it is not a paradoxical situation
arises that the plaintiff's claim could be defeated by the application of the
maxim if he was sober, but he could recover damages if he was drunk), but
unless there is specific evidence either from the plaintiff himself or from
some other source that the plaintiff was in fact so intoxicated that he was
incapable of appreciating the nature and extent of the risk and did not in
fact appreciate it, and thus did not consent to it, it seems to me that the
court is bound to judge the matter in the light of the evidence which is put
before it for consideration. In this case the plaintiff did not say "I did not
appreciate the risk as I was too drunk". What he did say was that, looking
back on it, he would not have gone on the flight had he not been drunk. This
is a wholly different proposition. The evidence seems to me to establish that
the plaintiff was not so drunk as to be incapable of appreciating the risk or
of knowing really the state of intoxication of the deceased pilot. Amongst the
factors which tend to this conclusion seem to me to be that he himself drove
the car to the aerodrome with no other object than of going on a flight with
the deceased pilot. He himself assisted to start the engine by swinging the
propeller and filling it with petrol. He queried with the pilot whether he
should "radio in" to Control. I do not feel that he can have done these things
if he was in any way seriously incapacitated by alcohol or unaware of knowing
just what it was he was doing. He must have known a number of facts such as
the amount of drink the deceased pilot had taken and the risks in general
terms at least of flying in an aircraft. He was not himself so drunk as to be
in a state of incomprehension. He himself assented to the proposition that he
was "merry". In my view, therefore, there was no evidence before the judge,
even if the matter had been fully canvassed, which could have justified the
proposition that the plaintiff's own condition was such as to render him
incapable of appreciating the nature of the risk and its extent or indeed that
he did in fact fail to appreciate the nature and extent of such risk. My
conclusion, therefore, is that this case does fall within the exceptional
circumstances stated by Asquith J. in Dann v. Hamilton. I quote
again:
"There may be cases in which the drunkenness of the driver at
the material time is so extreme and so glaring that to accept a lift from
him is like engaging in an intrinsically and obvious dangerous
occupation".
To accept a flight in an aeroplane piloted by a pilot who
has had any significant amount of drink, let alone the amount which manifestly
this pilot had had, is to engage in an intrinsically and obviously dangerous
occupation. For these reasons, in my judgment, the learned judge ought to have
found that the plaintiff's claim should be rejected on the basis of the
application of the maxim volenti non fit injuria. It is, in my view,
not necessary to refer in any detail to the judgment of the learned judge. He
gave his judgment, perhaps unwisely, impromptu. He was referred to the case of
Dann v. Hamilton but drew the conclusion that the proper approach in
the case was to apply contributory negligence principles rather than those of
volenti. Part of his reasons on page 12 are clearly wrongly expressed,
either by reason of false transcription or perhaps because he omitted certain
sentences from his own note. Although he purported to consider the case of
The Insurance Commissioner v. Joyce and Nettleship v. Weston it
does not appear that, in fact, he drew any appropriate conclusions from
either. Although he cited from the passage of Salmon L.J. in Nettleship v.
Weston he did not point out that Salmon L.J. considered that Dann v.
Hamilton was wrongly decided. The conclusion of the learned judge is
expressed in these terms at page 13 of the judgment:
"In this case it is right to say that the plaintiff was aware
that Mr. Murray had been drinking heavily, but Mr. Murray was able, as it
were, to start this aeroplane. He even taxied the aeroplane to the place
where petrol was sold, paid for the petrol and then was able, albeit in a
somewhat inexpert way because his faculties were clearly affected by drink,
but he was able to get the plane into the air, albeit it only flew for some
three or four minutes before crashing in the way I have described. But, in
my view, this is not a case where one can say that the plaintiff consented
to run the risk of the actual injuries that he subsequently
suffered.
This case falls far short of what would be necessary in order to
successfully defend the action on the grounds of volenti non fit
injuria. This is a case where, in my view, certainly there was
contributory negligence by the plaintiff in that he boarded a plane and
allowed himself to be flown when he knew that the defendant had consumed a
considerable amount of alcohol".
In my view the judge clearly drew the wrong conclusion from
the fact that the pilot did succeed in getting the aircraft airborne. The
correct conclusion, it seems to me, was the fact that he took off down wind, a
highly dangerous procedure, indicated he was not capable of flying the
aircraft properly
In my view the learned judge really did not consider the
full implications of such authorities as were cited to him and for the reasons
I have endeavoured to give I think the conclusion that he reached was an
incorrect one.
If I am wrong about this and the matter should be considered
on the basis of contributory negligence it seems to me that the learned judge
was again in error in his apportionment. On the facts that have been recited I
could not find that the plaintiff's own share of responsibility could be
assessed at less than 50% and that is the apportionment that for my part I
would have made.
In view of the conclusion that I have reached it is not
necessary to express any views on any of the other issues. I would simply say
that so far as the assessment of damages is concerned it does seem to me that
the learned judge's conclusion was over favourable to the plaintiff with
regard to his assessment of past and future earnings and did not sufficiently
take into account the full cost of maintaining an infant child over a period
of some years. For these reasons I doubt whether the assessment of damage was
correct, but express no further view upon the matter.
None of the other issues arise, in my view. There was no
point in the learned judge assessing the extent of the defendant's estate -
this was not an issue which arose in the case. His task was simply to find on
liability and assess the damages. The other issues such as plene
administravit and the question of devastavit were matters for the
Chancery Division and should not have been considered by the judge in this
action however laudable the attempt to do so in order to save court time may
have been.
For the reasons I would allow this appeal and hold that the
plaintiff's claim fails.
I should add that I agree with the comment made (a few weeks
ago) by this court sitting in its criminal jurisdiction that urgent steps
should be taken to ensure that no aircraft can be flown at all unless there is
in force, in relation to all risks a policy of insurance in favour of any
third party including a passenger. The aircraft concerned in this accident
crashed upon agricultural land with minimal damage to crops. It was out of
control and might have crashed anywhere. It does not require any exercise of
imagination to envisage that had it crashed upon a main road, or in the centre
of a village, that the consequent damage might have been of disaster
proportion. Whether the appropriate steps can be taken through administrative
channels - e.g. by the refusal of a licence without there being in force a
comprehensive policy of insurance of the type to which I have referred, or
whether legislation will be required to achieve this end I do not know, but I
would hope that urgent consideration will be given to this problem.
SIR GEORGE WALLER: I agree with the judgments of my Lords. I will
briefly express my reasons. I do not repeat the account of what happened which
has already been set out by my Lords. I would just emphasise certain of the
facts before the aircraft took off. The deceased lent the plaintiff and Moran
each £10 so that they could each pay for a round of drinks in turn and so
between lunchtime and four o'clock each one of the three would have the same
number of drinks. Murray had at least the equivalent of 17 whiskies and the
plaintiff would have had a similar amount. At four o'clock the plaintiff drove
the other two to the airfield for the plaintiff to fly with the deceased. The
plaintiff agreed that it was a joy ride. According to his inquest statement
the plaintiff had twice flown with the deceased before. When they arrived at
the aircraft the plaintiff helped to start it and also to refuel it.
These facts show that the plaintiff was actively
co-operating; it was a joy ride for the plaintiff piloted by the deceased who
the plaintiff must have known had had a great deal to drink. To fly an
aircraft having drink taken is adding to the risk of flying. It is difficult
to conceive anything more dangerous than to fly with a pilot who has consumed
the equivalent of 17 whiskies. The evidence was that the deceased took off
down wind, a major and very dangerous error on his part. With a 20 knot wind
he was fortunate to become airborne. It is not clear what happened next save
that one witness thought the aircraft was doing a roll and another witness saw
it stall and crash to the ground.
The question which arises on this appeal is whether the
defence of volenti non fit injuria is made out. There is no previous
authority concerning a flying accident in which the pilot was under the
influence of alcohol. We have, however, been referred to some cases where a
passenger in a motor vehicle has been injured and the driver had been
drinking. In Dann v. Hamilton [1939] 1 K.B. 509 Asquith J., while
conceding, without deciding, that there may be cases in which the drunkenness
of the driver may be so great that to accept a lift might give rise to the
maxim volenti non fit injuria, held that on the facts of the case
before him where the woman plaintiff continued to accept a lift after the
driver had had more drink, the defence of volenti did not arise. There
was some criticism of the decision in the legal press, but in Slater v.
Clay Cross Co. Ltd. [1956] 2 Q.B. 264 Denning L.J. expressed his
agreement with the decision.
In Nettleship v. Weston [1971] 2 QB 691 an
experienced driver giving instruction to the wife of a friend suffered injury
when the car ran into a lamp post. The Court of Appeal held that the maxim
volenti non fit injuria did not apply because the experienced driver
had made careful inquiry about insurance before he went in the car. Lord
Denning repeated his approval of Dann v. Hamilton but Salmon L.J. did
not accept that Dann v. Hamilton was correctly decided and Megaw L.J,
expressed doubt as to the correctness of the decision. Other cases have been
cited by my Lords but I do not repeat them here.
As I have already mentioned, the plaintiff himself had been
drinking, but it does not appear to have been suggested at the trial nor was
it suggested in argument before us that the plaintiff had had so much drink
that he was not capable of agreeing to accept the risk of injury. No doubt
this was because on the facts such a proposition was really unarguable. He had
flown before, driven to the airfield and helped to start the plane and he knew
what the deceased had had to drink. Although in cross-examination he said that
if he had been sober he would not have flown, he was, because of the matters I
have mentioned, perfectly capable of making a decision.
The motoring cases to which I have referred were the nearest
to the facts of the present case. In my opinion, however there is a
fundamental difference between the driving of a motor car and the piloting of
a light aeroplane. Flying is much more risky than driving a motor car and
requires greater accuracy of control. To fly with a pilot who has taken a
small amount of alcohol is to increase the risk. To fly with a pilot who has
consumed a large quantity of alcohol is very dangerous indeed. In this case,
as I have already said, the plaintiff was taking a very active part in the
arrangements. He drove to the airfield; he had flown twice before with the
deceased; he helped to start the aircraft; he helped to fill it with petrol;
and he had been drinking with the pilot all the afternoon. In my judgment,
having engaged himself to take part from the beginning, he not only knew the
risks but the only implication is that he agreed to take them. I would allow
the appeal against the decision of the learned judge.
I should add that I agree with the observations of Stocker
L.J. about contributory negligence and damages.
Order: Appeal allowed, judgment set aside, with costs of appeal and
below, not to be enforce without leave of the court; inquiry as to costs
against the Legal Aid Board referred to the Registrar legal aid taxation;
leave to appeal to House of Lords refused. |
(Revised)
LORD JUSTICE MUSTILL: I have asked Lord Justice Beldam to deliver the first judgment on this appeal.
LORD JUSTICE BELDAM: Ever changing style and fashion makes the ability to attract and satisfy intending customers a particularly valuable asset in the proprietor of a ladies' hair styling salon. According to the evidence, it was an attribute possessed by the first defendant who, in 1979, owned two salons in Bournmouth which he carried on under the name of Roger de Paris. One of the salons was at 44 Haven Road, Canford Cliffs. It had only recently been opened under the managership of a Mr. Mole. The other salon, at 37 Exeter Road, was closer to the centre of the town. Canford Cliffs, as those who are familiar with the area will know, is an expensive and fashionable area in which to live and the need to keep up with fashion may be more pronounced there. But the salon at 37 Exeter Road was conveniently placed for hotel guests and was close to the central shopping area. It was also much longer established. The first defendant had, by 1979, been there, first as an employee and then as its proprietor since 1958.
The first defendant's experience in styling ladies' hair was cosmopolitan. From time to time he had worked in salons in Hamburg, in Stockholm, in Paris, in Lausanne and in Mayfair. He had also taken part in competitions at international level. According to witnesses he had a personality which reflected his experience and, as the judge found, he had built up at Exeter Road a very good business.
By 1979, he had decided to concentrate his efforts at a smaller and more exclusive salon, he had decided to sell his Exeter Road business and to devote all his energies to Canford Cliffs. The plaintiffs bought the business at Exeter Road from him in September 1979. The second plaintiff/ Mrs. East/ intended to continue the business, but under the style and name of "Xellance". The second plaintiff herself had had considerable experience as a ladies' hairdresser and stylist, but it was of a more restricted character. She had run, successfully, several businesses in outlying districts of Oxford, Iffley and Kennington, but she and her husband wanted to have a business in the Bournemout area and so, for £20000, they bought the salon at Exeter Road from the first defendant and his company, the second defendant.
In the course of the negotiations for the sale they learned that the first defendant had another salon at Canford Cliffs, but he deliberately and completely misled the plaintiffs about his intentions. He told them falsely that he had no intention of working at the Canford Cliffs salon unless, for example a staff emergency arose due to illness or for some other reason. He told them that he intended to open a salon abroad, probably in Switzerland. Such an intention obviously meant that his valuable personal contact with the clienteleat Exeter Road could not follow him to the Continent and would probably not follow him to the Canford Cliffs salon because he would not be working there. His representations would obviously play a most significant part in inducing the plaintiffs to buy the salon, and so the learned judge held. He found that the representations were false to the first defendant's knowledge, and held that the plaintiffs were entitled to damages. On this aspect of the case there is no appeal against his finding.
Mrs. East started to run the salon on 1st September 1979. It was not long before it was apparent to her/ and to others who were working in the salon, that the level of business was falling away at an alarming rate. In due course she learned that the first defendant was working full time at his Canford Cliffs salon.
For just over three years Mrs. East tried to make the salon profitable. In her attempts she spent considerable sums on advertising; she installed a solarium bed and eventually began to combine the hairdressing business with a boutique.
During this period she made several attempts to sell the business and eventually, on 6th February 1989 she succeeded in selling the lease of the premises for £7,500. The learned judge found that the plaintiffs had behaved reasonably throughout; that they could not have sold the business before they actually did. He awarded them damages totalling £33,328; interest on the sums awarded brought the total award to £55,205.
His award was made up in this way. Firstly, he took the capital expenditure by taking the cost price of the business, £20000, and deducting from it the amount realised on the sale, thus arriving at the figure of £12,500. Secondly, he awarded the plaintiffs the fees and expenses incurred by them in buying and selling the business, and in carrying out improvements in an attempt to make it profitable. The figures awarded there amounted in total to £2,390. Next, he awarded trading losses incurred during the 3^ years during which the plaintiffs attempted to run the business. Those amounted to £2,438.
The next head of damages he awarded has led the defendants to appeal to this court against the amount of the damages. In addition to the sums already mentioned, he awarded the plaintiffs loss of profits during the 3i year period arriving at a figure of £15,000. Finally he awarded the figure of £l,000 as general damages for disappointment and inconvenience of the plaintiffs in their attempt to establish this business. It is against the award of £15,000 for loss of profit that the defendants now appeal.
Mr. Shawcross, for the appellants, submits that there is a difference in the manner in which damages are assessed for breach of contract and for the tort of deceit^ He says that the authorities show that no damages at all are recoverable for loss of profits in an action of deceit. Although there is no express decision which states that to be the case, in no case which has dealt with the proper measure of damage in an action of deceit, has there been an award for loss of profits, although one would have expected to see one. He concedes that if his submission in this regard is correct there would have to be a compensatory factor, for the learned judge only awarded interest on the capital expended from 2nd February 1983, when the plaintiffs ceased to carry on the business and sold it. So Mr. Shawcross concedes that if his submission is right, the plaintiff would be entitled to interest on the award for that 3¼ year period. Finally, he submits that even if damages for loss of profit are recoverable, the learned judge assessed the figure at too high a level, and on an incorrect basis. That the measure of damages for the tort of deceit and for breach of contract are different, no longer needs support from -authority. Damages for deceit are not awarded on the basis that the plaintiff is to be put in as good a position as if the statement had been true; they are to be assessed on a basis which would compensate the plaintiff for all the loss he has suffered, so far as money can do it.
This was confirmed in the case of Doyle v. Olby (Ironmongers) Limited, to which both the learned judge and this court were referred; it is reported in [1969] Q.B. Reports at page 158 and was a case in which the facts were similar to those of the present case.
In the course of his judgment Lord Denning M.R. said at page 166:
"The second question is what is the proper measure of damages for fraud, as distinct from damages for breach of contract. It was discussed during the argument in Hadley v. Baxendale (1854) 9 Ex 341), and finds a place in the notes to Smith's Leading Cases, 13th ed. (1929) at p. 563, where it is suggested there is no difference. But in McConnel v. Wright [1903] 1 Ch 546, 554, Lord Collins M.R. pointed out the difference. It was an action for fraudulent statements in a prospectus whereby a man was induced to take up shares. Lord Collins said of the action for fraud:
'It is not an action for breach of contract, and, therefore, no damages in respect of prospective gains which the person contracting was entitled by his contract to expect to come in, but it is an action of tort - it is an action for a wrong done whereby the plaintiff was tricked out of certain money in his pocket, and, therefore, prima facie, the highest limit of his damages is the whole extent of his loss, and that loss is measured by the money which was in his pocket and is now in the pocket of the company.'
But that statement was the subject of comment by Lord Atkin in Clark v. Urguhart [1930] A.C.28, 67-68. He said:
'I find it difficult to suppose that there is any difference in the measure of damages in an action of deceit depending upon the nature of the transaction into which the plaintiff is fraudulently induced to enter. Whether he buys shares or buys sugar, whether he subscribes for shares, or agrees to enter into a partnership, or in any other way alters his position to his detriment, in principle, the measure of damages should be the same, and whether estimated by a jury or a judge. I should have thought it would be based on the actual damage directly flowing from the fraudulent inducement. The formula in McConnel v. Wright [1903] 1 Ch 546 may be correct or it may be expressed in too rigid terms.'
I think that Lord Collins did express himself in too rigid terms. He seems to have overlooked consequential damages. On principle the distinction seems to be this: in contract the defendant has made a promise and broken it. The object of damages is to put the plaintiff in as good a position, as far as money can do it, as if the promise had been performed. In fraud, the defendant has been guilty of a deliberate wrong by inducing the plaintiff to act to his detriment. The object of damages is to compensate the plaintiff for all the loss he has suffered, so far, again, as money can do it. In contract, the damages are limited to what may reasonably be supposed to have been in the contemplation of the parties. In fraud, they are not so limited. The defendant is bound to make reparation for all the actual damages directly flowing from the fraudulent inducement. The person who has been defrauded is entitled to say:
'I would not have entered into this bargain at all but for your representation. Owing to your fraud, I have not only lost all the money I paid you, but what is more, I have been put to a large amount of extra expense as well and suffered this or that extra damages.'
All such damages can be recovered: and it does not lie in the mouth of the fraudulent person to say that they could not reasonably have been foreseen. For instance, in this very case, Mr. Doyle has not only lost the money which he paid for the business, which he would never have done if there had been no fraud; he put all that money in and lost it; but also he has been put to expense and loss in trying to run a business which has turned out to be a disaster for him. He is entitled to damages for all his loss, subject, of course to giving credit for any benefit that he has received. There is nothing to be taken off in mitigation; for there is nothing more that he could have done to reduce his loss. He did all that he could reasonably be expected to do."
In the present case it seems to me that the difference can be put in this way. The first defendant did not warrant to the plaintiffs that all the customers with whom he had a professional rapport would remain customers of the salon at Exeter Road. He represented that he would not be continuing to practise as a stylist in the immediate area.
The observations of Lord Denning, to which I have referred, are supported by an earlier judgment of Dixon J., as he then was, in the case of Toteff v. Antonas [1952] 87 Commonwealth Law Reports, a decision of the High Court of Australia. In that case, at page 650, Dixon J. said:
"In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant. When what he has been induced to do is to make a purchase from the defendant and part with his money to him in payment of the price, then, if the transaction stands and is not disaffirmed or rescinded what is recoverable is 'the difference between the real value of the property, and the sum which the plaintiff was induced to give for it' per Abbott L.C.J. Pearson v. Wheeler. As Sir James Hannen P. in Peek v. Perry pointed out, the question is how much worse off is the plaintiff than if he had not entered into the transaction. If he had not done so he would have had the purchase money in his pocket. To ascertain his loss you must deduct from the amount he paid the real value of the thing he got. It may be objected that the point of the application of this doctrine lies in identifying 'the transaction' and that what Mayo J. has done is to identify it as the purchase of the goodwill and that only. But what is meant is the transaction into which the representation induced the plaintiff to enter. The measure of damages in an action of deceit consists in the loss or expenditure incurred by the plaintiff in consequence of the inducement on which he relied diminished by the corresponding advantage in money or moneys worth obtained by him on the other side: Potts v. Miller. You look to what he has been induced to part with as the initial step. He is entitled to say that but for the fraud he would never have parted with his money; per Coleridge L.C.J. Twycross v. Grant. But he cannot recover the entire price he has paid unless the thing prove wholly worthless. If the thing has any appreciable value the damages must be reduced pro tanto: per Cockburn L.C.J., Twycross v. Grant. It must not be forgotten that after all deceit is an action on the case for special damages incurred in consequence of the defendant's fraudulent inducement."
Mr. Shawcross has pointed out that both in the case of Doyle v. Olby and in the case of Toteff v. Antonas, none of the judgments referred to loss of profit as a recoverable head of damage; it may well be that the facts of each of those cases and the period involved before the claims were made, may not have made loss of profit a considerable head of damage. But as to the statements of principle to which I have referred/ it seems to me clear that there is no basis upon which one could say that loss of profits incurred whilst waiting for an opportunity to realise to its best advantage a business which has been purchased, are irrecoverable. It is conceded that losses made in the course of running the business of a company, are recoverable. If in fact the plaintiffs lost the profit which they could reasonably have expected from running a business in the area of a kind similar to the business in this case, I can see no reason why those do not fall within the words of Lord Atkin in Clark v. Urquhart, "actual damage directly flowing from the fraudulent inducement".
So I consider that on the facts found by the learned judge in the present case, the plaintiffs did establish that they had suffered a loss due to the defendants' misrepresentation which arose from their inability to earn the profits in the business which they hoped to buy in the Bournemouth area.
I would therefore reject the submission of Mr. Shawcross that loss of profits is not a recoverable head of damage in cases of this kind.
However, I am not satisfied that in arriving at the figure of £15,000 the learned judge approached the quantification of those damages on the correct basis. It seems to me that he was inclined to base his award on an assessment of the profits which the business actually bought by the plaintiffs might have made if the statement made by the first defendant had amounted to a warranty that customers would continue to patronise the salon in Exeter Road; further, that he left out of account a number of significant factors. What he did was to found his award on an evaluation which he made of the profits of the business at Exeter Road made by the first defendant in the year preceding the purchase of the business by the plaintiffs. Basing himself on figures which had been given to him by an accountant, and making an allowance for inflation he arrived at a figure for the profits which might have been made if the first defendant had continued to run the business at Exeter Road during the 3¼ years. He then made an allowance, only for the fact that the second plaintiff's experience in hair styling and hairdressing was not as extensive or as cosmopolitan as that of the first defendant. Thus he based his award on an assessment of what the profits would have been, less a deduction of 25% for the second plaintiff's lack of experience.
It seems to me that he should have begun by considering the kind of profit which the second plaintiff might have made if the representation which induced her to buy the business at Exeter Road had not been made, and that involved considering the kind of profits which she might have expected to make in another hairdressing business bought for a similar sum. Mr. Nicholson has argued that on the evidence of Mr. Knowles, an experienced accountant, the learned judge could have arrived at the same or an equivalent figure on that basis. I do not agree. The learned judge left out of account the fact that the second plaintiff was moving into an entirely different area and one in which she was, comparatively speaking, a stranger. Secondly, that she was going to deal with a different clientele. Thirdly, that there were almost certainly in that area of Bournemouth other smart hairdressing salons which represented competition and which, in any event, if the first defendant had, as he had represented, gone to open a salon on the Continent, could have attracted the custom of his former clients.
The learned judge, as Mr. Nicholson has pointed out, had two clear starting points. First, that any person investing £20,000 in a business would expect a greater return than if the sum was left safely in the bank or in a building society earning interest, and a reasonable figure for that at the rates then prevailing would have been at least £6,000. Secondly, he says that the salary of a hairdresser's assistant in the usual kind of establishment was at this time £40 per week and that the assistant could expect tips in addition. That would produce a figure of over £7,000, but the proprietor of a salon would clearly expect to earn more, having risked his money in the business. It seems to me that those are valid points from which -to start to consider what would be a reasonable sum to award for loss of profits of a business of this kind. As was pointed out by Winn L.J., in the case of Doyle v. Olby, this is not a question which can be considered on a mathematical basis. It has to be considered essentially, in the round, making what he described as a "jury assessment".
Taking all the factors into account, I think that the learned judges figure was too high; for my part I would have awarded a figure of £10,000 for that head of damage, and to this extent I would allow the appeal.
LORD JUSTICE BUTLER-SLOSS: For the reasons given in the judgment of Beldam L.J. I agree that the appeal should be allowed to the limited extent which he has set out.
LORD JUSTICE MUSTILL: I also agree.
In my judgment the best course in a case of this kind is to begin by comparing the position of the plaintiff as it would have been if the act complained of had not taken place with the position of the plaintiff as it actually became. This establishes the actual loss which the plaintiff has suffered and often helps to avoid the pitfalls of double counting, omissions and impermissible awards of both a capital and an income element in respect of the same loss: see Cullinane v. British 'Rema" Manufacturing Co. Ltd., [1954] 1 Q.B. 292, although even then mistakes are sometimes hard to avoid.
It is only when this exercise is complete that attention can be given to whether on grounds of principle some items must be omitted or, exceptionally, added. In the present case the act complained of is the making of the fraudulent representation, coupled with the reliance placed upon it by the plaintiffs in concluding the bargain. If this had not happened the plaintiffs would, on the judge's findings, have sold the Oxford business and bought a new business in Bournemouth, albeit not the one in Exeter Road. Thus, by the time the writ was issued they would have had the capital asset constituted by the new business, plus the profits made by that new business in the intervening period. One may assume the value of this capital asset to be the same as the value which the plaintiffs placed on the Exeter Road business, namely £20,000. In the event, the plaintiffs' position is that they have no business; they are out of pocket in respect of the legal fees, improvements and accumulated losses on Exeter Road, and they are in pocket to the extent of £7,500 made on the realisation of the premises. If one then subtracts the one from the other, the plaintiffs' loss is shown to be £20,000 minus £7,500, namely £12,500, plus accumulated losses and resale expenditures and the profits which would have been derived from the putative new Bournemouth business. This is what the judge has in fact awarded.
It is objected that the loss of profits is not properly recoverable because it is appropriate not to a claim in fraud but to a claim based on a contractual warranty of profits, for in such a case the loss of profits does not stem from the making of the contract but from the fact that the profit made was not what was anticipated.
I should have thought this argument sound if the judge had included an item for loss of the Exeter Road profits; but he has not done so. The loss of profits awarded relates to the hypothetical profitable business in which the plaintiffs would have engaged but for buying the Exeter Road business, and the profits of the latter are treated by the judge solely as some evidence of what the profits of the other business might have been. In my judgment there is no error of principle here.
As to the second issue in the case, relating to the quantification of the loss of profits of the putative new business, I have nothing to add to what has been said by my Lord , and I too would allow this appeal to the limited extent which he has proposed.
(Order: Appeal allowed to extent indicated in judgment of Beldam L.J.; appellant to have half costs of appeal, not to be enforced without leave; sum in court and interest thereon to be paid out to respondents' solicitors; liberty to apply, both sides). |
(Revised)
LORD JUSTICE LLOYD: This is an appeal by a husband from a judgment of His Honour Judge Arthur sitting at Birkenhead County Court on 11th July 1989, whereby he ordered the husband to transfer to the wife his entire interest in the matrimonial home, 97 Capenhurst Lane, Whitby, Ellesmere Port. The parties were married in 1964. They have two children, Suzanne, now 23 and Amanda, now 16. Suzanne is married and living in her own home. Amanda has left school and started work. She is still living with her mother.
At the time of their marriage the husband was a bricklayer. He has done well in the building trade, and now earns £20,000 per annum gross. In 1970 he bought the matrimonial home in his sole name for about £4,500, subject to a small mortgage. The equity, net of mortgage, is now worth about £50,000.
The parties separated in April 1984. The decree nisi was pronounced on 27th November 1984, and made absolute on 25th February 1985. So the parties were married for 20 years. The husband, who is 48, remarried in 1985. The wife is also 48. She has a stable sexual relationship with a Mr Davidson. But she says she does not intend to marry him, or to cohabit. She is content with things as they are.
On 24th September 1984 the wife swore an affidavit in support of her application for ancillary relief. In the last paragraph she said:
"For that reason I respectfully ask that an Order be made whereby the property may be transferred into my sole name or that I may at least remain in the house with the children and should not be required to sell the house until my death or remarriage, or such Order as the Court shall think fit".
An order whereby the sale of the matrimonial home is postponed until the youngest child of the family is 18, or some other age, is usually known as a Mesher order. An order whereby the sale is postponed until the wife dies, remarries or cohabits with another man, is usually known as a Martin order. It will be seen that while, in 1984, the wife was asking for an out and out transfer of the matrimonial home, she would have been content, in the alternative, with a Martin order.
For some unexplained reason, having to do with the husband's efforts to settle his debts, the application did not come on before Mr Registrar Yates until 24th October 1988. The Registrar found it a difficult case. He accepted the husband's submission that he ought to have something as a deposit for a house. But he said that the wife needed time to sort out her finances before she could pay him anything. So he ordered a transfer of the house to the wife, subject to a charge in favour of the husband for £7,000, not to be enforced until 1st January 1991. In addition he awarded the wife maintenance at £10 per week, and maintenance to Amanda at £25 per week. Finally he ordered the husband to pay £1,250 towards the wife's costs.
The husband was dissatisfied with the Registrar's order. So he appealed. The appeal came before His Honour Judge Arthur on 11th July 1989. The result of the appeal, on one view at any rate, is that the husband has done worse than he did before the Registrar. It is true that he is no longer obliged to pay off arrears of maintenance, or to pay £1,250 towards the wife's costs. But he has lost his right to £7,000.
The judge did not give a judgment in the ordinary sense. He did not explain his reasons at all, other than to say that it was a clear case for a clean break. That he has achieved a clean break is true. But he has achieved it, so Mr Mostyn submits, at the cost of manifest injustice to the husband.
The facts, as they were put before Judge Arthur, were briefly as follows. The matrimonial home is the sole capital asset of the parties. The husband has debts amounting to £17,000, which he is paying off at the rate of £260 a month. After allowing for rent and rates on his present accommodation, and debt repayment, his net disposable income is £127 per week. In addition the husband's new wife runs a small business which brings in £2,000 a year.
The wife works part-time as a typist for the local health authority, and earns £66 per week.
In these circumstances, the husband asked for a Martin order, on terms that he should have one-third of the proceeds of sale, should the wife remarry or cohabit. Otherwise she would be entitled to live in the matrimonial home for the rest of her life.
The wife asked for a clean break. It was said on her behalf that this had been a long marriage, that she had limited income and earning capacity compared to her husband, and that she had a genuine fear of "perpetual supervision" by the husband for the purpose of establishing cohabitation.
The principle of the clean break was, of course, well established long before the Matrimonial and Family Proceedings Act 1984: see for example Minton v. Minton [1979] A.C. 593, per Viscount Dilhorne at 601 and Lord Scarman at 608. It is now enshrined in section 25A(1) of the Act. But there is perhaps a danger in referring to it as a "principle", since it might lead courts to strive for a clean break, regardless of all other considerations. This is not what section 25A requires. It requires the court to consider the appropriateness of a clean break - neither more nor less. It is salutary to remind oneself from time to time of the language of section 25A(1):
"...it shall be the duty of the court to consider whether it would be appropriate so to exercise those powers that the financial obligations of each party towards the other will be terminated as soon after the grant of the decree as the court considers just and reasonable".
Another danger is that "clean break" may mean different things to different people. In origin it referred to an arrangement whereby the wife abandoned her right to claim maintenance in return for a transfer by the husband of a capital asset, usually, though not always, the matrimonial home, thus encouraging the parties to put the past behind them, and, in the words of Lord Scarman in Minton v. Minton, "to begin a new life which is not overshadowed by the relationship which has broken down". That part of the order of the Registrar, whereby he ordered the husband to pay CIO per week maintenance, offended against that principle. The judge was clearly right to vary that part of the Registrar's order.
But I am by no means certain that the charge in favour of the husband in the sum of £7,000, enforceable in January 1991, offended against the principle of the clean break in the same sense. The Registrar clearly thought that the husband deserved something out of the sole capital asset. But he made plain that he was not going to make a Mesher order. His reason for postponing the charge was, as he put it, simply to give the wife a breathing space to sort out her finances. In other words, he contemplated that the wife would be able to pay the husband £7,000 without the house being sold. If so, then there was much good sense in that part of the Registrar's order. But I need not consider the point further, since the husband did not seek to support that part of the Registrar's order before the judge.
Where the judge went wrong, and plainly wrong in my opinion, was in refusing to make a Martin order. As I have pointed out, that is what the wife was originally content to accept. It is also what the husband was asking for. Why then did the judge not make a Martin order? We cannot tell, because we do not know his reasons. It cannot surely have been because a Martin order would offend against the principle of the clean break. A charge which does not take effect until death or remarriage could only be said to offend against the principle of the clean break in the most extended sense of that term. The only clue we have is the argument on behalf of the wife that she did not want to be spied on.
I see some force in that argument, although it was scarcely pressed before us. Indeed it was not mentioned at all until it was raised by the court. Whatever the force of the argument, it is far outweighed by the resentment which the husband will naturally feel if the wife remarries within a year or two and continues thereafter to occupy the matrimonial home. She says she has no intention of marrying Mr Davidson. But it remains a distinct possibility. In Leate v. Leate (1982) 12 Fam. Law 121 Ormrod L.J. recognised that it is "very galling" for a husband if the family assets are handed over to the wife, who then remarries. "Some provision", he said, "as to the wife's remarriage was reasonable and there ought to be a charge enforceable by the husband in the event of her death or remarriage".
In Simpson v. Simpson (16th March 1984) Lincoln J., giving the judgment of the Court of Appeal, said:
"Such then was her intention. On that evidence the Judge was entitled to conclude that on the balance of probability she did not then intend to and might never marry Mr Cook, and that he was no more than a man friend employing her at £25 a week as his secretary and helping with petrol for the car and its insurance.
But the matter does not stop there. Such a finding, if it had been expressly made, would not be inconsistent with a further finding that there was still a real possibility that she might marry him. She accepts that her feelings for him have deepened recently, she had been considering marriage with him and his relationship with her was clearly a close one. In the circumstances her intention, though truly and genuinely described today as negative, could change with the passage of time. If it did and if the present order for an out and out transfer remained, then the wife would be joined in her occupation at the matrimonial home by her second husband or cohabitee, the latter having contributed nothing to its original acquisition, and meanwhile the husband would have lost his half interest.
I agree with the husband's contention that this would scarcely appear to be a just and fair solution. A trust for sale in which the power of sale becomes exerciseable on re-marriage or permanent cohabitation would remedy that unfairness. An out and out order by definition cannot do so".
In Hendrix v. Hendrix (27th January 1981), where the facts were very similar to the present, a court consisting of Ormrod L.J. and Purchas J. ordered that the matrimonial home be transferred into the name of the wife, on her paying the husband a capital sum of £3,000, and further ordered that the house stand charged in favour of the husband as to 25% of the proceeds of sale, payable on the wife's death or remarriage, or on her cohabiting. In other words, the court made a Martin order.
It is true that, in the present case, the husband's earning capacity is very much greater than that of the wife. In due course, when he has paid off his debts, he will be able to get back on to the property ladder without insuperable difficulty. But the same was also true in Hendrix v. Hendrix. The question is whether the difference in earning capacity, and the severance of the maintenance tie, justified an out and out transfer of the sole capital asset to the wife. In my judgment it did not. The very least which the judge should have done was to order a charge in favour of the husband in the event of the wife's death or remarriage.
Cohabitation raises a separate problem. But if, as Lord Scarman said in Minton v. Minton, the reason underlying the principle of the clean break is the avoidance of bitterness, then the bitterness felt by the husband when he sees the former matrimonial home occupied by the wife's cohabitee must surely be greater than the bitterness felt by the wife being subject, as she fears, to perpetual supervision.
Not to have made a Martin order in this case was therefore in my opinion manifestly unfair to the husband. It deprived him forever of any share in the sole capital asset of the marriage, without any sufficient corresponding benefit to the wife.
I am, of course, aware of the limited function of this court in these cases, a limitation which is well illustrated by the majority judgment in the recent case of Whiting v. Whiting [1988] 2 F.L.R. 189. But I am emboldened to interfere in the present case, first because the judge did not give any reasons for his judgment, and secondly because I consider that his conclusion was in any event plainly wrong.
I would be happy to leave the matter there. But Mr Mostyn is not now content with a Martin order, as was his instructing solicitor, who appeared in this case in the court below. He asks us to consider making a Mesher order so that the charge would become effective on Amanda attaining the age of 18 or some other age.
The rise and fall of the Mesher order has been charted in many previous decisions of this court. Though decided in 1973, the case was not reported until [1980] 1 All E.R. 126. It caught on very quickly, so much so that by the time of Martin v. Martin [1978] Fam 12 Ormrod L.J. felt it necessary to say that the Mesher order was never intended to be a general practice.
"There is no magic in the fact that there are children to be considered. All it means is that the interests of the children take priority in these cases, so that often there can be no question of sale while the children are young. But the situation that will arise when the children reach the age of 18 requires to be carefully considered. Otherwise a great deal of hardship may be stored up in these cases by treating it as a rule of thumb that the matrimonial home should then be sold. It is not a rule of thumb".
Ormrod L.J. went on to say, however, that in some cases a Mesher order might be the only way of dealing with the situation.
The dangers of the Mesher order were emphasised in a number of cases in the early 1980s. In Mortimer v. Mortimer-Griffin [1986] 2 F.L.R. 315 Sir John Donaldson M.R. said:
"It does seem to me that both orders suffer from the defects to which Ormrod L.J. drew attention, that 'chickens come home to roost' at an unpredictable time and in unpredictable circumstances; and that while an adjustment based on percentages seems attractive at the time, experience shows that it is subject to all kinds of difficulties and objections when it is worked out in the event".
Parker L.J. said:
"I would also add that I wholly endorse what my Lord, the Master of the Rolls, has said with regard to what is known as a Mesher order. It has been criticized since its birth; it is an order which is likely to produce harsh and unsatisfactory results. For my part, I hope that that criticism, if it has not got rid of it, will at least ensure that it is no longer regarded as the 'bible'".
It seems to me, with respect to Parker L.J., that there are still cases where, if only by way of exception, the Mesher order provides the best solution. Such a case might be where the family assets are amply sufficient to provide both parties with a roof over their heads if the matrimonial home were sold, but nevertheless the interests of the children require that they remain in the matrimonial home. In such a case it may be just and sensible to postpone the sale until the children have left home, since, ex-hypothesi, the proceeds of sale will then be sufficient to enable the wife to re-house herself. In such a case the wife is "relatively secure": see the judgment of Ormrod L.J. in McDonnell v. McDonnell No. 1 (1976) 6 Fam. Law 220.
But where there is doubt as to the wife's ability to re-house herself, on the charge taking effect, then a Mesher order should not be made. That is, as I see it, the position here. The split suggested by the husband would give the wife two-thirds of £50,000. It must be very uncertain whether this would be sufficient to enable the wife to re-house herself in a few years' time when Amanda leaves home. This is no doubt the reason why the Registrar declined to make a Mesher order. I would agree with him. But the Martin order does not suffer from the same disadvantages.
In conclusion I would reject Mr Mostyn's submission that we should make a Mesher order, but accept his submission that we should make a Martin order. The split which he suggests seems about right. Accordingly, I would grant leave and allow the appeal to that extent.
MR JUSTICE EWBANK: I agree. It is of course important to retain flexibility to meet the circumstances of individual cases and changes in social conditions. On the other hand, justice and the provisions of the statute usually indicate that an asset which has been acquired by the joint efforts of the spouses should eventually be shared. Where the only asset is a jointly acquired home of modest value it is often necessary to give its occupation to the parent with custody of children or to the spouse with the greater need. The clean break principle does not, however, mean that the other spouse is to be deprived for all time of any share. Experience has shown that postponing such an interest until the children are grown up often merely postpones and exacerbates the problems in re-housing that the occupying spouse will have. This is why the Mesher type of order is regarded as unsuitable unless there is going to be sufficient capital available to provide a suitable alternative home. But postponement until death, remarriage or cohabitation does not produce the same problem and is not generally disadvantageous to the occupying spouse. It does ensure that the other spouse receives eventually an appropriate share in the jointly acquired asset.
This is such a case. The judge was wrong, in my view, in depriving the husband of all interest in the house. The proper order would be for proceeds of sale of the house to be divided in the proportions of one-third to two-thirds on the death, remarriage or cohabitation of the wife.
Order: Appeal allowed in part; costs of the appeal to be the appellant's; order for costs not to be enforced without further order of the Registrar in the Birkenhead County Court; legal aid taxation for the respondent. |
(Revised)
LORD JUSTICE BALCOMBE: This is an appeal with the leave of the judge from a ruling given by His Honour Judge Norman Francis on 5th October 1989, sitting with a jury in the Bridgend County Court in the course of actions for wrongful arrest and false imprisonment.
In order to understand that ruling and the grounds of the appeal I must give the relevant facts. On 8th September 1987 Detective Constable Parry of the South Wales Constabulary arrested the two plaintiffs, Miss Lewis and Mrs. Evans, who in fact are sisters, on suspicion of burglary. The judge in due course held that the officer had had reasonable grounds for that suspicion. The plaintiffs were travelling at the time of their arrest in a car which had been stopped by Detective Constable Parry. The jury found as a fact that the plaintiffs were not then told why they were being arrested. They were then taken to the police station and were subsequently presented to the custody officer. It was then, so the jury found, that they were told the reasons why they were being arrested, although it is right to say that there was no express finding that it was by the custody officer that they were given the reasons.
In the case of Miss Lewis they held that she was told the reasons for her arrest 10 minutes after the time of her arrest. In the case of Mrs. Evans it was some 23 minutes later. Some five hours later they were both released from custody.
Subsequently they sued the Chief Constable of South Wales for false arrest and wrongful imprisonment. The judge ruled that, although their initial arrest was unlawful because they had not then been given the reasons for that arrest, it ceased to be unlawful when they were given reasons at the time of their presentation to the custody officer and that they had been unlawfully detained for only 10 and 23 minutes respectively. They were each awarded £200 by way of damages. They contend that what started as an unlawful arrest never became lawful and that they should be compensated for the whole of the five hour period of their detention.
That is the ground of the plaintiffs' appeal. There is a respondent's notice that the finding of the jury that the plaintiffs had been arrested in the car (which was not their case but was the police case) but had not been told of the reasons until some time later at the police station (whereas the police officer had said that he told them the reasons for their arrest at the time he arrested them in the car) was - and I here put it in my own words but I do not think it does any injustice to the respondent's case - perverse in that the jury accepted a part of the police evidence and not the remainder, and rejected the plaintiffs' own evidence about the place and time of their arrest and their own evidence as to when they were given reasons.
It will be convenient to deal with the respondent's notice in detail later in this judgment. So far as the appeal itself is concerned, this turns on section 28, in particular subsections 1 and 3, of the Police and Criminal Evidence Act 1984. Those subsections read as follows:
"(1) Subject to subsection (5) below, where a person is arrested, otherwise than by being informed that he is under arrest, the arrest is not lawful unless the person arrested is informed that he is under arrest as soon as is practicable after his arrest."
I pause there to say that nothing directly in this case turns on that, it is common ground that the plaintiffs were told that they were under arrest at the moment of their arrest.
"(3) Subject to subsection (5) below, no arrest is lawful unless the person arrested is informed of the ground for the arrest at the time of, or as soon as is practicable after, the arrest."
Then I read subsection (5) for completeness, although the relevant matters do not arise in the context of this case"
"(5) Nothing in this section is to be taken to require a person to be informed -
(a) that he is under arrest; or
(b) of the ground for the arrest,
if it was not reasonably practicable for him to be so informed by reason of his having escaped from arrest before the information could be given".
There were other sections of the Act upon which Mr. Jones for the plaintiffs relies, and I will refer to them in due course.
It is accepted that the 1984 Act was not a codifying Act in the sense that it merely codified the previous law. It did undoubtedly introduce substantial changes on certain aspects of the previous law but, in relation to the question of what is an arrest, it is relevant to note that in the House of Lords case of Murray v. Ministry of Defence [1988] 1 WLR 692 Lord Griffiths, giving the leading speech, long after the coming into force of the 1984 Act, cited with approval certain definitions or statements from cases decided before that Act, making it clear that in his view they represented the current law at the time of that case. It is right, I think I should say, that in Murray v. Ministry of Defence, which was a case from Northern Ireland, the 1984 Act was not itself being directly considered, but nevertheless he cited those passages as representing the current law and, in my judgment, they do indeed still represent the current law. The ones to which I refer are two in number: first, Spicer v. Holt [1977] A.C. 987 where, at page 1,000, Viscount Dilhorne said:
"'Arrest' is an ordinary English word ... Whether or not a person has been arrested depends not on the legality of the arrest but on whether he has been deprived of his liberty to go where he pleases."
Then in Mohammed-Holgate v. Duke [1984] A.C. 437 Lord Diplock said at page 441:
"First, it should be noted that arrest is a continuing act; it starts with the arrester taking a person into his custody, (sc. by action or words restraining him from moving anywhere beyond the arrester's control), and it continues until the person so restrained is either released from custody or, having been brought before a magistrate, is remanded in custody by the magistrate's judicial act."
In my judgment, those definitions still remain good law in the light of the 1984 Act and make it clear that arrest is a matter of fact; it is not a legal concept (though it clearly has legal consequences) and is a continuing act. There is one other case to which I refer before coming to consider the effect of section 28(3) of the 1984 Act and that is the case of R. v. Kulynycz [1971] 1 Q.B. 367. I think it is right that I should read the headnote in full and then a passage from the argument and a particular passage from the judgment:
"The defendant, who was reasonably suspected of having committed drug offences, was arrested in Cambridge on suspicion of unspecified offences committed in King's Lynn and erroneously told that a warrant had been issued for his arrest. He was taken to a police station in Cambridge where he was told that the offences were "drug offences" and, later, that he had been arrested on suspicion of handling stolen drugs. He was charged at King's Lynn of handling stolen drugs but, before the justices, he was charged with unauthorised possession of drugs in "Cambridge and elsewhere", contrary to the Drugs (Prevention of Misuse) Act, 1964, and he was committed to Norfolk Quarter Sessions. The indictment preferred against the defendant contained three counts alleging offences of unlawful possession of drugs "at Cambridge". Before arraignment, the defence submitted that the court had no jurisdiction to try the defendant as the offences had not been committed in Norfolk and, since he had neither been apprehended nor was he in lawful custody in that county, section 11(1) of the Criminal Justice Act, 1925, did not apply. The deputy chairman ruled that the court had jurisdiction. The defendant was convicted.
On the defendant's appeal against convictions-Held, dismissing the appeal, (1) that the arrest for unspecified offences was unlawful as the defendant was entitled to know the act which gave rise to his arrest but he was not entitled to know whether he had been arrested on warrant or on reasonable suspicion of having committed an offence and, accordingly, the erroneous statement that a warrant had been issued did not make the arrest unlawful. (2) That the defendant was in lawful custody when he was informed in sufficient detail at the Cambridge police station of the act constituting the offences; that the lawfulness of the custody was not affected by the alteration in the nature of the charge and in the place where the offences had been committed and, therefore, quarter sessions had jurisdiction to try the offences by virtue of section 11(1) of the Criminal Justice Act, 1925. Christie v. Leachinsky [1947] AC 573 applied."
In the course of the argument Mr. Cheatle for the defendant submitted:
"The original arrest was unlawful, nothing could cure that arrest, the defendant was not in lawful custody and therefore could not be tried. Before he could be in lawful custody he would have to be freed and re-arrested."
That argument was dealt with by a strong Court of Appeal consisting of Lord Parker C.J., Lord Justice Phillimore and Mr. Justice Ashworth in the following passage from the judgment of the court given by Lord Parker C.J. at page 371 D:
"As I have said, Mr. Cheatle's argument is that, as the original arrest was unlawful, everything else that took place thereafter fell to the ground with the result that Norfolk Quarter Sessions had no jurisdiction to try the case.
This court is quite unable to accept that argument. As it seems to this court, the question here is whether this defendant at the time he was before the Norfolk Quarter Sessions was in lawful custody, and one asks oneself at what stage, if at all, did he become in lawful custody. On that point the court is quite clearly of opinion that when he was in the police station at Cambridge informed in sufficient detail by Police Constable Welham and then Police Constable Elliott, he was thereafter in lawful custody.
Mr. Cheatle says that before he could become in lawful custody he would have to be free, he would have to leave the police station and be re-arrested. The court is quite unable to accept that contention."
Mr. Jones, for whose able submissions before us I would like to pay tribute, put his case really in two ways. First, he says that, if at the moment of initial apprehension the arrest is unlawful, the act is a nullity.
I think I have already said enough to make it clear from the cases I have cited that, in my judgment, that contention is untenable. Arrest is a situation. It is a matter of fact, as was said in Spicer v. Holt. Whether a person has been arrested depends not on the legality of his arrest but on whether he has been deprived of his liberty to go where he pleases. There is no doubt that, on the facts of this case, these two ladies were deprived of their liberty at the moment that they were arrested in the car. That act clearly was not a nullity. If it had been, some of the remaining provisions of the 1984 Act, and I refer in particular to section 41 which limits the period in which a person may be detained without charge by reference to the time of the person's arrest, would appear to have no point of time from which the period in question runs.
His more substantive argument, it seems to me, was that, whatever may have been the law before the passing of the 1984 Act, the law was changed by that Act. He accepts that, if Kulynycz is still good law, then inevitably his appeal must fail.
I do not accept that submission. Simply as a matter of the language used, arrest, as I have already said, is defined as a continuing act. It starts with the action of taking a person into custody and, undoubtedly, under section 28(3) at that moment the person arrested should be informed of the ground of the arrest, either at that moment or as soon as is practicable after arrest and, if that is not so, that arrest, that taking into custody, is unlawful. But there is nothing in the section which provides what is the effect of the arrested person subsequently being given the reasons for the arrest. Now, clearly, a subsequent giving of the reasons cannot retrospectively make the period between the moment of arrest and the time for giving the reasons lawful, and no one suggests that it did. The question which this court has to decide, which is precisely the same as the court had to decide in Kulynycz, is this. What is the effect of telling a person, who was initially arrested without being told of the reasons for his arrest, those reasons at a later time? Kulynycz held that thereafter his custody became lawful and, in so far as I have already said that arrest is a continuing act and is the process of being kept in custody or deprived of liberty, it seems to me there is nothing inconsistent with the wording of section 28(3) to say that from that moment (when reasons are given) the arrest becomes lawful, or the continued deprivation of liberty becomes lawful, or the continued custody becomes lawful. Indeed, the contrary seems to me to be not merely a surprising, but an almost ridiculous, contention, that what the police officer should do in those circumstances is to tell the person concerned, "You are now free to go", and, the instant he says that, should place his hands immediately on that person's shoulder and say, "Now you are under arrest and you are arrested for", giving the reasons. It seems to me that Parliament cannot have intended such a farce had to be gone through, and it is sufficient if the police officer gives the reasons and then from that moment onwards the arrest is lawful.
That seems to me entirely consistent with section 31 of the 1984 Act, to which Mr. Jones also referred us. That section provides:
"Where -
(a) a person -
(i) has been arrested for an offence; and
(ii) is at a police station in consequence of that arrest;
and
(b) it appears to a constable that, if he were released from that arrest, he would be liable to arrest for some other offence,
he shall be arrested for that other offence."
In that section the words "he shall be arrested for that other offence" clearly does not mean taking the person into custody or depriving him of his liberty. By very definition of the section he has already been arrested and deprived of his liberty, but he can be arrested for the second offence, which seems to me clearly to contemplate doing no more than saying, "You are also being kept in custody for offence (b) as well as offence (a)". That is what arresting in section 31 seems to me to contemplate.
So, in my judgment, the learned judge here was quite right in the ruling he gave that, upon the jury's finding that these two ladies were deprived of their liberty, in one case for 10 minutes and in the other case for 23 minutes, before being given the reasons for their arrest, that is the period in respect of which they were entitled to sue and for which they were properly awarded damages. The appeal, therefore, in my judgment, should be dismissed.
I now come to consider the respondent's notice. In order to do that it is necessary to give a little more detail. The evidence of the two plaintiffs and of D.C. Parry differed in a number of respects. The two plaintiffs both said that they were not arrested in the police car, but when they were inside the police station. I quote from page 9 of the transcript where Mrs. Evans in chief is referring to D.C. Parry:
"When we got inside [the police station] he said "You're under arrest" to both of us. He did not say why"
Then she said she was in a room on her own for some 10 minutes and said:
"Then D.C. Parry came in - he said I was under arrest for burglary and doing cheque books."
Then to the like effect under cross-examination:
"When car was stopped, D.C. Parry did not immediately say he was arrestig us for burglary - only after we went into the police station ... he arrested me as soon as I went through police station door - but I was not told reason then ..."
Then she talks about the custody record being filled in in her presence. Miss Lewis also said that it was not in the car but in the police station that D.C. Parry said they were under arrest, and she said that the reason was given about five minutes after they were arrested. So their evidence was, putting it shortly, that they were arrested in the police station and they were given the reason for their arrest some 10 minutes and five minutes later respectively. D.C. Parry's evidence was that he both arrested these two ladies and gave them the reasons for their arrest in the motor car.
The judge, after summing up to the jury, rehearsed that evidence. I need not refer to it in detail, it was in effect what I have just said, the two differing stories. Then he said he was going to put six questions to the jury. I am now quoting from part of his directions to the jury:
"There are six questions but they are in three pairs, the same question in respect of each of the two Plaintiffs. The first one is whether the Plaintiff concerned was arrested when she was still in the car or when she went into the police station."
The answers to the first pair of questions which the jury gave when they first came back into court were as follows:
"Question 1 Rachel Evans arrested in car. Question 2 Elizabeth Lewis arrested in car."
That showed that on that issue the jury preferred the evidence of the police to that of the plaintiffs. I go back to the direction:
"The second pair [of questions], were they told the grounds for their arrest when they were arrested, as they should have been, or later, and if later how much later. We are only talking about 10 minutes or so in one case and 5 minutes in the other so its a very small matter."
When the jury first came back they were not agreed on either of those two questions.
"Then finally and perhaps very much most importantly in this case, did Detective Constable Parry suspect that Rachel Evans had been involved in the burglary on the 24th August when he arrested her?"
The answer to that in both cases was yes. Then the jury went out again and finally returned verdicts on questions 3 and 4 - that is the time between the arrest and the giving of the reason - 23 minutes in the case of Mrs. Evans and 10 minutes in the case of Miss Lewis.
Mr. Murphy for the defendants has shown, at any rate to my satisfaction, that there was no direct evidence before the jury which enabled them to reach those two figures of 10 minutes and 23 minutes, and he has also drawn our attention to the custody records in the case of each of these plaintiffs, which showed that they were each arrested at 12.25, and that in the case of Mrs. Evans the custody record was signed by her at 12.48 which, mathematically, is 23 minutes after the time of arrest, and in the case of Miss Lewis the custody regard was signed at 12.35, 10 minutes after the time of arrest. He invites us to infer - and, for my part, I am willing to do so - that the jury can only have reached those two figures not by accepting any evidence, because there was no evidence which they could accept, but by deciding that the ladies were told of the reasons for their arrest at the time they signed the custody record, and he rightly points out that there was no evidence from either side to that effect. He invites us therefore to say that in those circumstances the jury's verdict was really perverse – I repeat that that was not his word – because they have accepted part of the police constable's evidence, namely the place of arrest, but not the part where he says also he gave them at the same time the reasons for arrest. They have rejected both the plaintiffs' evidence as to the place of arrest and, although they have accepted the plaintiffs' evidence that they were told the reasons for their arrest at some time later than the time of arrest, they have rejected the plaintiffs' own evidence as to what that period of time was.
Mr. Murphy has referred us to the ruling of the House of Lords in Mechanical and General Inventions Company Limited and Lehwess v. Austin and the Austin Motor Company Limited [1935] A.C. 346, and the relevant passage from the headnote is as follows:
"When it is decided that a case is to be tried by a jury, that tribunal is the only judge of the facts, and no appellate tribunal can substitute its finding for that of the jury. The appellate Court has a revising function to see, first, whether there is any evidence in support of the issue found by the jury; and, secondly, whether the verdict can stand as being one which reasonable men might have come to."
Pausing there, I think I would have been prepared to say that, in relation to the answers to questions 3 and 4, the verdict of the jury could not stand as being one which reasonable men might have come to, because there was really no evidence at all which entitled them to find those two periods as being the times between the moments of arrest and the reasons being given for the arrests. The headnote then goes on:
"If on the latter question it is obvious that no verdict for the plaintiff on all the available evidence could be supported, the Court may save the waste of time in ordering a new trial, which could have only one result, by ordering the verdict and judgment to be entered for the defendant."
I find myself quite unable to say that any new trial could only have one result. A jury, properly directed, might have come to a number of conclusions on the evidence of this case. They might have accepted in toto the evidence of the police officers or they might have accepted in toto the evidence of the defendants; they could accept part of one and part of the other. I certainly find myself wholly unable to say that a jury, properly directed and properly applying their minds to the evidence, could not come to the conclusion here that there were intervals of time between the plaintiffs being arrested and their being given reasons for those arrests even though these intervals were not those which this particular jury found. It seems to me, therefore, that, if we were to accede to Mr. Murphy's submissions, the only course open to us would be to direct a new trial. Not surprisingly, on the sums involved in this case, that is the last thing that Mr. Murphy and his clients want. In those circumstances, it seems to me that, since we are not invited to direct a new trial, the judgment below will stand. Accordingly, I would dismiss this appeal.
LORD JUSTICE TAYLOR: I agree and there is nothing I can usefully add.
Order: Appeal dismissed with costs, order not to be enforced without leave of the court. Legal aid taxation of the appellants' costs. Leave to appeal to the House of Lords refused. |
(Revised)
LORD JUSTICE SLADE: With the leave of the judge, the plaintiffs in an action, The Morgan Crucible Company PLC ("Morgan Crucible") appeal from an order of Hoffmann J. made on 24th July 1990 whereby he refused their application for leave to amend their statement of claim. The appeal raises important questions concerning the duties of persons concerned with the preparation of documents by way of defence to a take-over bid.
The action arose out of a contested bid by Morgan Crucible for First Castle Electronics PLC ("the Company") during the period December 1985 to February 1986. On 6th December 1985, Morgan Crucible announced a proposed offer to acquire the entire issued share capital of the Company. The offer was an unsolicited one. Before this announcement, the Chairman of the board of directors of Morgan Crucible had asked Mr. L.J. Connor, the Chairman of the board of directors of the Company and the 3rd defendant in these proceedings, to confirm a profit forecast for the year to 31st January 1986, but had received no reply.
At the date of the announcement, the most recent financial statements of the Company which had been published were its report and accounts for the years ended 31st January 1984 and 31st January 1985, audited by its auditors, the 2nd defendants, Judkins & Co. ("Judkins") and an unaudited interim statement for the six months to 31st July 1985.
On 17th December 1985, Morgan Crucible published a formal offer document addressed to the Company's shareholders. On the same date they published Listing Particulars which referred to the audited accounts and recent financial statements of the Company. There followed what the judge described as "the usual exchange of boasts and insults". During the take-over/ Morgan Grenfell & Co. advised the bidders. The 1st defendants, Hill Samuel & Co. Ltd. ("Hill Samuel") advised the Company.
The City Code on Take-overs and Mergers ("the City Code") contains a set of principles and rules, albeit of an extra-statutory nature, by which persons who wish to take advantage of the facilities of the securities markets in the United Kingdom should conduct themselves in matters relating to take-overs. (We have been referred to the version of the City Code which was effective between 29th April 1985 and 5th January 1986. It has not been suggested that the version which became effective on 6th January 1986 was materially different). As paragraph 2 of the Introduction stated, the responsibilities are regarded by the Panel on Takeovers and Mergers and by the Council of the Stock Exchange as applying to directors of companies subject to the City Code, to persons or groups of persons who seek to gain control of such companies and to all professional advisers in so far as they advise on the transactions in question.
We will refer only to a few provisions of the City Code. A section headed "General Principles" contained the following provisions:
"4. Shareholders must be given sufficient information and advice to enable them to reach a properly informed decision and must have sufficient time to do so. No relevant information should be withheld from them.
5. Any document or advertisement addressed to shareholders containing information or advice from an offeror or the board of an offeree company or their respective advisers must, as the case with a prospectus, be prepared with the highest standards of care and accuracy.
6. All parties to a take-over transaction must use every endeavour to prevent the creation of a false market in the securities of an offeror or offeree company. Parties involved in such transactions must take care that statements are not made which may mislead shareholder^ or the market."
Rule 3.1 provided:
"The board of the offeree company must obtain competent independent advice on any offer and the substance of such advice must be made known to its shareholders."
Hill Samuel were brought into the matter by the directors of the Company in conformity with this Rule.
Rule 19.3 stated:
"Copies of all documents and announcements bearing on a take-over and of advertisements and any material released to the press (including any notes to editors) must be lodged with the Panel at the time of issue.
Copies of all documents and public announcements must also be made available as promptly to the advisers to all other parties."
Rule 28.1 stated:
"There are obvious hazards attached to the forecasting of profits: this should in no way detract from the necessity of maintaining the highest standards of accuracy and fair presentation in all communications to shareholders in a take-over. A profit forecast must be compiled with scrupulous care and objectivity by the directors/ whose sole responsibility it is; the financial advisers must satisfy themselves that ^^ forecast has been prepared in this manner by the directors."
Rule 28.3(b) provided that in all cases other than a forecast made by an offeror offering solely cash
"the accounting policies and calculations for the forecasts must be examined and reported on by the auditors or consultant accounts. Any financial adviser mentioned in the document mu& also report on the forecasts."
Rule 30.2 placed an obligation on the offeree company to
"advise its shareholders of its view on the offer as soon as practicable after publication of the offer document an
The steps taken by the respective parties after the making of the Morgan Crucible bid were taken against the background of the City Code, which is referred to in Morgan Crucible's statement of claim. Over the following weeks the Company, acting by its directors including Mr. Connor, sent to its shareholders a number of circulars respectively dated 19th December 1985, 31st December 1985, 8th January 1986, 17th January 1986 and 24th January 1986 (referred to in Morgan Crucible's pleadings and in this judgment as "defence documents"). These circulars were also issued as press releases by Hill Samuel. Copies of all these documents were supplied to Morgan Crucible's advisers pursuant to Rule 19.3 of the City Code.
The circular sent out on 19th December 1985 compared the profit record of Morgan Crucible unfavourably with that of the Company and recommended to the Company's shareholders that the offer be refused.
Subsequent circulars, sent out on 31st December 1985, 8th January 1986 and 17th January 1986, referred to the published financial statements. The circular of 31st December 1985 stated that they were available for inspection.
The circular of 24th January 1986 forecast a 38% increase in profits before tax in the year to 31st January 1986. This circular included
(a) a letter from Judkins stating that the profit forecast "for which the directors are solely responsible" had been properly compiled and on a basis consistent with the accounting policies normally adopted by the Group;
(b) a letter from Hill Samuel stating that in their opinion the profit forecast had been prepared after due and careful inquiry.
On 29th January 1986, when the level of acceptance by the Company's shareholders was about 4%, Morgan Crucible increased their bid. On 31st January 1986, the Company's board sent a further letter to its shareholders recommending that this bid be accepted. On 14th February 1986, when not less than 69% of the shareholders had accepted, the bid was declared unconditional. On 27th February 1986, a further recommendation of acceptance was sent by the board to shareholders who had not yet accepted. We will refer to the two last-mentioned letters as "the recommendation documents".
Morgan Crucible now assert that the financial statements (both audited and unaudited) issued by the Company prior to this bid, the profit forecast issued on 24th January 1986 and the financial matter contained in the Company's defence and recommendation documents were negligently prepared and were misleading and that, had they known the true facts, the bid would never have been made or recommended to or approved by the shareholders of Morgan Crucible, or continued with or improved in its terms or completed: (see paragraph 33 of the draft amended statement of claim).
On 6th May 1987, Morgan Crucible issued a writ joining as defendants (1) Hill Samuel, (2) Judkins, (3) Mr. Connor, (4) Mr. H.M. West, (5) Mr. J.L. Harris, (6) Mr. K.A. Broome, (7) Mr. j.w. Smith, and (8) Mr. J.V. Woollam. The 4th and 5th defendants were at the material time, together with Mr. Connor, the executive directors of the Company; the 6th, 7th and 8th defendants were its non-executive directors.
The gist of the statement of claim as originally pleaded (served in July 1987) was that the board of the Company and Judkins were responsible for putting the financial statements into circulation/ that they and Hill Samuel were responsible for the profit forecast, that all of them owed a duty of care to Morgan Crucible as persons who could foreseeably rely on them, that the statements and forecast were negligently prepared, that Morgan Crucible relied on them in making and subsequently increasing their offer and thereby suffered heavy loss (over 50 million pounds). All these allegations were put in issue by the defendants in their pleadings. There was massive discovery. The action was set down for trial in January 1991 with an estimated length of 10 weeks.
On 8th February 1990, the House of Lords delivered judgment in Caparo Industries PLC v. Dickman [1990] 2 W.L.R. 358, on the trial of a preliminary issue. In their statement of claim in that case, the plaintiffs alleged
(a) that they had begun purchasing shares in Fidelity PLC a few days before the annual accounts had been published to shareholders;
(b) that in reliance on those accounts, they made further purchases of shares so as to take over Fidelity PLC;
(c) that the auditors of Fidelity PLC owed both the shareholders and potential investors a duty of care in respect of the certification of the accounts;
(d) that the auditors should have known that as the profits of Fidelity PLC were not as high as projected and its share price had fallen significantly, it was susceptible to a take-over bid and reliance on the accuracy of the accounts would be placed by any potential bidder such as the plaintiffs.
The plaintiffs, having accomplished the take-over, sued (together with the directors) the auditors, claiming they were negligent in carrying out the audit and making their report which they were required to do under the Companies Act 1985. The trial of a preliminary issue relating to the claim against the auditors was ordered. On appeal from the trial judge, the Court of Appeal, by a majority, [1989] Q.B. 653, held that, whilst there was no relationship between an auditor and a potential investor sufficiently proximate to give rise to a duty of care at common law, there was such a relationship with individual shareholders, so that an individual shareholder, who suffered loss by acting in reliance on negligently prepared accounts, whether by selling or retaining his shares or by purchasing additional shares, was entitled to recover in tort. The House of Lords reversed this decision, holding in effect that in certifying a company's accounts for the purpose of the Companies Act 1985, an auditor owes no duty of care to a potential take-over bidder, whether or not he is already a shareholder of the company. It was held that foreseeability, no matter how high, that a potential bidder might rely on the audited accounts did not suffice to found a duty of care, since there was no sufficient relationship of proximity between auditor and potential bidder.
This decision placed what were at least formidable obstacles in the way of Morgan Crucible's case as originally pleaded in the context of duty of care. This case had in effect rested on the assertions that the financial statements and profit forecast had been published to the "world at large" and that Morgan Crucible were foreseeably persons who would rely upon the representations which they contained. However, the plaintiffs' legal advisers considered that, by amendment of their pleadings, it might be possible to draw relevant distinctions between the facts of the present case and the (assumed) facts of Caparo, so as to found the element of proximity between plaintiffs and defendants which was held to be lacking in the earlier case. In Caparo all the representations relied on had been made before an identified bidder had emerged. In the present case some of the relevant representations were made after a bidder had emerged in the shape of Morgan Crucible and as a direct outcome of their bid; they were therefore clearly made with that identified bidder in mind.
In these circumstances, Morgan Crucible applied for leave to amend their statement of claim, the principal purpose of their amendments being to restrict their claim to representations made to the respective defendants after Morgan Crucible's bid, i.e., during the course of the take-over battle. A draft amended statement of claim was served on 25th June 1990. Further proposed revisions to the drsft were submitted to Hoffmann J. during the course of the hearing below. Some of these have now been withdrawn. Morgan Crucible's proposed final version of the proposed amended pleading, covering nearly 120 pages, was served together with the notice of appeal. This is the version (with the addition of the words "and intended" after the words "must have known" in paragraph 26, and as amplified by amended draft further and better particulars covering about 220 pages) to which this present judgment is directed. It has not been suggested that the differences between it and the version which was before Hoffmann J. are of sufficient significance to lead to a different conclusion either way.
It has been common ground, both in the court below and in this court, that the proper test in considering whether Morgan Crucible's proposed amendments should be allowed is whether they would survive an application under R.S.C. 0.18, r.19(1)(a) to strike them out as disclosing "no reasonable cause of action".
Hoffmann J. decided (at p.11) that the present case cannot be distinguished from Caparo. In his judgment, despite the proposed amendments, the entire case based on negligence was bound to fail because of the absence of a duty of care owed by any of the defendants to the plaintiffs. He pointed out that, although a great deal had already been spent on legal costs before the decision in Caparo, it was still possible to save the huge costs of the preparation of expert and other evidence followed by a ten week trial. He therefore disallowed the amendments.
On an application to strike out a pleading under R.S.C. 0.18, r.19(1)(a), no evidence is admissible and since it is only the pleading itself which is being examined, the court is required to assume that each and every one of the facts pleaded (unless manifestly incapable of proof) is true and will be capable of proof at the trial. In some instances, the court may regard the assumption as somewhat unrealistic, but it nevertheless has to be made.
The court's function on this application by the plaintiffs to amend their pleadings is simply to decide whether, on the assumed facts, they would be bound to fail in establishing the existence of a duty of care owed to them by the respective defendants. In the end, we have come to the clear conclusion that Morgan Crucible would not be bound to fail and that their amended case should be permitted to go forward to trial.
In the circumstances, we do not think it appropriate to embark on a comprehensive summary of all the cogent submissions which have been made to us by six counsel over some three days, or of all the relevant authorities which have been cited to us. The trial judge, who will have the great advantage of operating by reference to known rather than assumed facts, as amplified and explained by evidence, will be in a much better position than we are to decide whether a duty of care was in truth owed by any of the defendants to Morgan Crucible. In this judgment, we propose to do no more than explain why we consider that the plaintiffs' case is arguable and why to this extent we respectfully differ from Hoffmann J. - and in particular from his view that Caparo would necessarily destroy their cause of action, even as now sought to be pleaded.
In the second sentence of his judgment, the judge described the point of law raised by this case as being whether "the directors and financial advisers of the target company in a contested take-over bid owe a duty of care to the bidder". At least in this court, this is not the point of law on which the plaintiffs have relied. Mr. Sumption Q.C., on their behalf, has expressly accepted that, in view of Caparo, in general terms the directors and financial advisers of a target company owe no duty of care to safeguard the interests of a potential bidder in their conduct of a contested take-over. The proposition of law on which they rely is a much narrower one. If during the conduct of a contested take-over/ after an identified bidder has emerged, the directors and financial advisers of a target company choose to make express representations with a view to influencing the conduct of the bidder, then, it is submitted, they owe him a duty not negligently to mislead him.
The case against the directors
The plaintiffs' amended draft pleading has clearly been formulated with this proposition of law in mind. The pleaded case against the defendant directors in relation to duty of care may for present purposes be sufficiently summarised as follows:
(1) Before the bid, the directors of the Company were responsible for the publication of the published audited financial statements of the Company for the years ended 31st January 1984 and 31st January 1985 and thereby represented "on a continuing basis" that the accounts gave a true and fair view of the Company's affairs: (paragraph 3 of the amended draft pleading).
(2) The "said continuing representations" were never withdrawn or qualified by the directors before or during the Plaintiffs' take-over and in the premises "remained operative" at all material times during that period: (paragraph 4 ibid).
(3) During the take-over, the directors were responsible for the publication to the shareholders of the Company and to the plaintiffs of a series of representations contained in the defence documents referred to above dated 19th December 1985, 31st December 1985, 8th January 1986, 17th January 1986 and 24th January 1986, and the recommendation documents dated 31st January 1986 and 27th February 1986 (paragraph 5 ibid).
(4) We will quote paragraph 5A of the amended draft pleading in full because of its crucial importance:
"In support of their case that the representations made in the said documents were made inter alia to the Plaintiff company, the Plaintiff company will say that one of the ordinary purposes of such documents, and the purpose of these documents in particular, was to persuade an offeror in the position of the Plaintiff company to offer the best terms to the shareholders of the target company and/or terms which the directors of the target company could expect to recommend shareholders to accept. Such documents are in the ordinary course of events relied upon for that purpose by offerors in the position of the Plaintiff company. All of the said documents were supplied pursuant to Rule 19.3 of the City Code on Takeovers and Mergers to the Plaintiff company's advisers. The Plaintiff company will further rely upon sub-paragraphs (l)(b), (2)(b), (3)(b), (4)(b), (5),(b), (6)(b) and (7)(b) of Answer 6 of the Amended Further and Better Particulars hereto" (paragraph 5A ibid).
These amended further and better particulars (inter alia) quote extracts from a letter of 17th January 1986 written by Mr. Connor to the Company's shareholders and from a letter of 20th January 1986 written by him to Hill Samuel which, on the face of them, lend some support to an inference that a purpose of the defence documents was in truth to influence Morgan Crucible to increase their offer.
(5) By the defence document of 31st December 1985, the directors of the Company announced that the audited accounts °f the Company for the years ended 31st January 1984 and 1985 and its unaudited interim results for the half-year ended 31st July 1985 were available for inspection at the offices of Hill Samuel (paragraph 6 ibid).
(6) By the "cumulative effect" of the representations contained in the defence and recommendation documents and the last-mentioned announcement, the directors "repeated" to the plaintiffs as well as to the shareholders of the Company their "continuing representations" as to the accuracy of the accounts for the years ended 31st January 1984 and 1985 and of the unaudited interim results for the half-year ended 31st July 1985 (paragraph 7 ibid).
[We interpolate that, possibly, a detailed examination of all the defence and recommendation documents and the last-mentioned announcement would itself reveal whether or not they involved a "repetition" of the relevant previous representations. We were not, however, invited to embark on this exercise, and for present purposes must assume that the cumulative effect of these documents and announcement was as alleged.]
(7) It was reasonably foreseeable to the directors of the Company, and each of them "must have known and indeed intended", that the plaintiffs' directors and financial advisers would rely on, or were at least very likely to rely on, the pleaded representations in connection with Morgan Crucible's bid (paragraph 8 ibid).
(8) The plaintiffs' directors and financial advisers did so rely in making the plaintiffs' offer, in recommending it to their shareholders and obtaining approval to the acquisition on the terms of the offer and the increase for that purpose of the plaintiffs' share capital, in making the increased offer and in subsequently completing the acquisition of the Company's issued share capital (paragraph 8 ibid).
(9) "In the premises, the directors of [the Company] and each of them at all material times owed to the plaintiff Company separate duties of care in relation to the respective representations and each of them" (paragraph 8 ibid).
(10) In the defence document dated 24th January 1986, the directors of the Company made a profit forecast (paragraph 13 ibid). The representations contained in the profit forecast were made to Morgan Crucible as well as to the shareholders of the Company (paragraph 14). They were twice reaffirmed by the directors for the purposes of the recommendation on 31st January 1986 of Morgan Crucible's increased offer and in the recommendation document of 27th February 1986 (paragraph 14). At all material times the directors knew and intended that the directors and financial advisers of Morgan Crucible would rely on the representations contained in the profit forecast (paragraph 15). Morgan Crucible's directors and financial advisers did so rely (ibid). In the premises, the Company's directors owed to Morgan Crucible a duty of care in relation to those representations both as originally published and as reaffirmed (ibid).
It is now common ground that, in view of Caparo, none of the defendants owed a relevant duty of care to Morgan Crucible before their initial bid was made. Nevertheless, at least on a first reading, the plaintiffs' amended draft pleading, with its reference to "continuing representations" and the failure to withdraw them, might be read as submitting (inter alia) that the directors of the Company became subject to a duty of care to the plaintiffs in relation to the Company's audited and unaudited financial statements as soon as the bid was made (on 6th December 1985). Mr. Kosmin, in his argument on behalf of Mr. Connor, in our opinion convincingly refuted the concept of a sudden and spontaneous emergence on 6th December 1985 of a duty of care owed to Morgan Crucible. Mr. Sumption in his reply, however, made it clear that the plaintiffs do not seek to make any such assertion against any of the defendants. He disclaimed the judge's description (page 4) of the essence of the plaintiffs' case as being that "what created a relationship of proximity was its actual materialisation as a bidder". Their case against the directors as regards a duty of care is based on the representations said to have been made in the defence and recommendation documents beginning with the defence document of 19th December 1985.
Since the decision in Hedley Byrne & Co. Ltd. v. Heller & Partners [1964] AC 465, it has been well established (a) that persons professing some special knowledge or expertise who make representations implicitly presented as having been carefully considered may, at least in some circumstances, be held to owe a duty of care in tort to a person to whom the representation is made and/or to a person to whom they know the representations will be passed on, not to mislead him, provided that the representation is made in circumstances in which the representor knows, or should know, that the other person will rely on what he says, and (b) that a breach of this duty may give rise to liability in negligence, even though loss suffered is only financial loss: (see for example Esso Petroleum Co. Ltd. v. Mardon [1976] QB 801; Yianni v. Edwin Evans & Sons [1982] Q.B. 438 and Smith v. Eric S. Bush [1990] A.C. 876).
In the Esso Petroleum case an oil company which, through one of its servants holding himself as having special expertise, had made negligent representations to a prospective tenant of a garage as to the estimated throughput of the garage, was held to have owed a duty to the tenant to take reasonable care to ensure that the representations were correct. So far as we are aware, the correctness of this decision has not been doubted in l&ter cases. For present purposes its particular significance lies in demonstrating that statements made in the course of pre-contractual negotiations are, in appropriate circumstances, quite capable of giving rise to a duty of care.
On the assumed facts of the present case, it was undoubtedly foreseeable by the defendants that the plaintiffs would or might suffer financial loss if the representations in question were inaccurate. However, recent decisions of the House of Lords even before Caparo had established that the mere fact that a defendant may foresee that his acts will cause the plaintiff loss will not by itself suffice to found tortious liability in negligence. There must also be a sufficient "relationship of proximity" between plaintiff and defendant. It must also be "just and reasonable" to impose liability on the defendant for what has occurred. Proximity is a somewhat uncertain concept, representing, as it does, no more than a description of the kind of relationship betweer the parties which the courts consider capable of giving rise to a duty of care. It is closely bound up with the no less uncertain concept of justice and reasonableness, and it may give rise to difficult problems in cases such as the present, where the facts are not precisely covered by previous authority.
In an unreported judgment delivered on 31st July 1990 in James McNaughton Paper Group Ltd. v. Hicks Anderson & Co., Neill L.J. helpfully identified six factors which are likely to be important in most cases in deciding whether a duty of care exists, namely (1) the purpose for which the statement was made, (2) the purpose for which the statement was communicated, (3) the relationship between the adviser, the advisee and the relevant third party, (4) the size of any class to which the advisee belongs, (5) the state of knowledge of the adviser, (6) reliance by the advisee.
In Caparo Lord Oliver of Aylmerton (at pp. 383-384) deduced from the Hedley Byrne case that the necessary relationship between the maker of a statement or giver of advice ("the adviser") and the recipient who acts in reliance upon it ("the advisee") may typically be held to exist where
"(1) the advice is required for a purpose, whether particularly specified or generally described, which is made known, either actually or inferentially, to the adviser at the time when the advice is given;
(2) the adviser knows, either actually or inferentially, that his advice will be communicated to the advisee, either specifically or as a member of an ascertainable class, in order that it should be used by the advisee for that purpose;
(3) it is known either actually or inferentially, that the advice so communicated is likely to be acted upon by the advisee for that purpose without independent inquiry;
(4) it is so acted upon by the advisee to his detriment."
Lord Oliver, however, immediately proceeded to disclaim any suggestion that these conditions were either conclusive or exclusive, and we have no doubt that his (1) was not intended to rule out the existence of a duty of care where the advice is volunteered by the giver, as opposed to being requested. As we read the decision in Caparo, what their Lordships regarded as the crucial? fatal weakness in the plaintiff's case, which negatived the existence of a relationship of proximity, was the fact that the relevant statement by the auditors had not been given for the purpose for which the plaintiff had relied on it. Thus, Lord Bridge of Harwich, distinguishing that case from a number of earlier cases including Smith, where plaintiffs had established liability for negligent misstatement, said (at pp. 367-368):
"The salient feature of all these cases is that the defendant giving advice or information was fully aware of the nature of the transaction which the plaintiff had in contemplation, knew that the advice or information would be communicated to him directly or indirectly and knew that it was very likely that the plaintiff would rely on that advice or information in deciding whether or not to engage in the transaction in contemplation. In these circumstances the defendant could clearly be expected, subject always to the effect of any disclaimer of responsibility, specifically to anticipate that the plaintiff would rely on the advice or information given by the defendant for the very purpose for which he did in the event rely on it. So also the plaintiff, subject again to the effect of any disclaimer, would in that situation reasonably suppose that he was entitled to rely on the advice or information communicated to him for the very purpose for which he required it. The situation is entirely different where a statement is put into more or less general circulation and may foreseeably be relied on by strangers to the maker of the statement for any one of a variety of different purposes which the maker of the statement has no specific reason to anticipate. To hold the maker of the statement to be under a duty of care in respect of the accuracy of the statement to all and sundry for any purpose for which they may choose to rely on it is not only to subject him, in the classic words of Card°zo C.J., 'to liability in an indeterminate amount for an indeterminate time to an indeterminate class.'"
Lord Roskill said (at p. 375):
"I think that before the existence and scope of any liability can be determined, it is necessary first to determine for what purposes and in what circumstances the information in question is to be given."
Lord Oliver said (at p. 388):
"My Lords, no decision of this House has gone further than Smith v. Eric S. Bush, but your Lordships are asked by the respondents to widen the area of responsibility even beyond the limits to which it was extended by the Court of Appeal in this case and to find a relationship of proximity between the adviser and third parties to whose attention the advice may come in circumstances in which the reliance said to have given rise to the loss is strictly unrelated either to the intended recipient or to the purpose for which the advice was required. My Lords, I discern no pressing reason of policy which would require such an extension and there seems to me to be powerful reasons against it."
Lord Jauncey said (at pp. 402-403):
"The crucial issue is the purpose for which the report was made. To quote the words of Denning L.J. in the Candler case [1951] 2 K.B. 164, 183, what was the 'very transaction' for which it was provided?"
In the Smith case, the House of Lords had held that a valuer instructed by a prospective mortgagee to carry out a valuation of a house owed a duty of care to the mortgagor to exercise reasonable skill and care in carrying out the valuation, if he knew that the mortgagee would probably purchase the house in reliance on the valuation without an independent survey.
However, Lord Oliver pointed out in Caparo (at p. 387) that the Smith decision
"provides no support for the proposition that the relationship of proximity is to be extended beyond circumstances in which advice is tendered for the purpose of the particular transaction or type of transaction and the adviser knows or ought to know that it will be relied upon by a particular person or class of person in connection with that transaction".
Their Lordships in Caparo regarded the purpose of the statutory requirement for an audit of public companies under the Act of 1985 as the making of a report to enable shareholders to exercise their class rights in general meeting - not as extending to the provision of information to assist shareholders or others as to the making of decisions as to the future investment in the company. These, as we read the decision in Caparo, were the essential elements of its ratio by which the plaintiff's claim on the facts of that case were held to be untenable.
In these circumstances, we are of the opinion that it is at least arguable that the present case can be distinguished from Caparo on its assumed facts. On such facts, each of the directors, in making the relevant representations, was aware that Morgan Crucible would rely on them for the purpose of deciding whether or not to make an increased bid, and intended that they should; this was one of the purposes of the defence documents and the representations contained therein. Morgan Crucible duly did rely on them for this purpose. In these circumstances, subject to questions of justice and reasonableness, we think it plainly arguable that there was a relationship of proximity between the directors and Morgan Crucible sufficient to give rise to a duty of care - particularly bearing in mind that, while Morgan Crucible had their own independent advisers, much of the information on which the accounts and profit forecast was based was presumably available to the defendants alone.
The learned judge said (p.5) that for the purpose of determining whether or not a duty of care exists in the case of a negligent statement, "the knowledge, intentions and purposes" of the parties are "an impoverished set of concepts". We are not sure what he meant by this. However, he rightly went on to say that they are very important, though by no means the only, factors. in considering proximity, justice and reasonableness, the judge attached great importance to the City Code. Having referred to some of the Rules set out above, he said (at p.9):
"It is in my judgment clear from the tenor of these rules that the purpose of all the defence documents is to advise the shareholders as to whether or not to accept the bid and there is nothing to suggest that they are meant for the guidance of the bidder."
A little later (at p.10) he asked:
"Why then should the Court be willing, any more than in Caparo, to extend the duty of care to a person relying upon the documents for a purpose beyond that contemplated by the Code?"
The City Code will require further analysis at the trial, but, without embarking on such analysis, we are prepared to assume that it does not explicitly envisage that persons concerned in preparing defence documents will owe a duty of care to potential or actual bidders. (Neither, we might add, does it impose any obligations on such persons to volunteer profit forecasts.) On the present application, however, the short answer to the judge's question is, in our judgment, that on the assumed facts the defendants intended that the defence documents should be relied on for the specific purposes alleged in paragraph 5A of the amended draft pleading, and Morgan Crucible did so rely on them. Morgan Crucible, in referring to the City Code in their pleadings, have not invoked it as the source of the alleged duty of care. It imposes no legal obligation on anyone. It merely forms an important part of the background against which defence documents are circulated and may reasonably be understood. It may be that Morgan Crucible at the trial will wholly fail to prove the allegation (paragraph 5A) that "one of the ordinary purposes of such documents" is to "persuade" an offeror to offer the best terms to the shareholders of the target company. This, however, will be a matter for evidence at the trial. The City Code read in isolation does not prove that this allegation is ill-founded.
The judge (at p.7) considered that the reason why the House of Lords had been willing to find the existence of a duty of care in Smith, but not in Caparo, stemmed from the "different economic relationships between the parties and the nature of the markets". In this context, he drew attention to some of the differences in the economic relationship of the parties in those two cases and of the parties in the present case. These differences he regarded as supporting his view that it would not be "just and reasonable" to hold that a duty of care existed in the present case.
We accept that, so far as it is possible to do so, it will be right for the court at the trial not to close its eyes to the possible economic consequences of its decision as to the existence of a duty of care. Its decision may have very wide implications for many classes of persons - directors of public companies, bankers and accountants. Nevertheless, as Hoffmann J. recognised, even the trial judge will not be in a position to form more than a very broad view of the economic consequences of his decision. Looking at this case without evidence, simply on the basis of the pleadings and the City Code, we would not think it right by reference to economic considerations to dismiss as unarguable an otherwise arguable case.
For present purposes we attach greater significance to another point to which the judge drew attention. During a bid there is always the possibility that another previously unidentified bidder (a "white knight") may intervene with a higher bid. If the persons concerned with the preparation of defence documents owed the original bidder a duty of care/ it could perhaps follow that they would owe a similar duty to the white knight. In deciding whether or not to make a higher bid, he, like the original bidder, might be expected to read the defence documents, including any profit forecast. To hold that no duty of care was owed to him might be said to involve an anomaly and to subvert equality in the market. On the other hand, to hold that persons concerned with the preparation of defence documents did owe the white knight, as well as the original bidder, a duty of care might expose them to even more formidable potential liabilities of a wholly indeterminate amount. Thus, it could be argued, (a) the duty of care must be owed either to both the original bidder and the white knight or to neither of them; (b) the proper conclusion is that it is owed to neither. No doubt an argument on these lines will be canvassed at the trial in the context of justice and reasonableness. Its correctness, however, is not sufficiently clear to us to justify the dismissal in limine of Morgan Crucible's newly formulated claims against the directors. It occurs to us that possibly the position of the white knight could be distinguished from that of the actual bidder on the grounds that at the time when the relevant representations are made the white knight, unlike the original bidder, is merely a member of an indeterminate class and cannot properly be treated as a person to whom the relevant representations are directly or indirectly addressed.
For the reasons stated, we conclude that Morgan Crucible's new claims against the defendant directors are not bound to fail at the trial. As with the other defendants, the alleged absence of a duty of care is the only ground on which it is sought to disallow the amendments.
The case against Hill Samuel
We can deal with the case against Hill Samuel much more shortly. The case against them in relation to duty of care as now sought to be pleaded may for present purposes be sufficiently summarised as follows:-
(1) On 24th January 1986, they sent to the directors of the Company for inclusion in the defence document of 24th January 1986 which contained the profit forecast, a letter in which they represented that they considered that the forecast had been made "after due and careful inquiry": (paragraph 17 of the draft amended pleading).
(2) This representation was made to Morgan Crucible as well as to the directors and shareholders of the Company by reason of the facts and matters pleaded in paragraph 5A (mutatis mutandis) and in Answers 15(3) to (5) of the amended further and better particulars (paragraph 8 ibid).
(3) Hill Samuel twice reaffirmed this representation (a) for the purposes of the recommendation on 31st January 1986 of Morgan Crucible's increased offer, and (b) in support of the letter issued by the directors of the Company on 27th February 1986 (paragraph 18 ibid).
(4) At all material times, Hill Samuel must have known and intended that Morgan Crucible's directors and financial advisers would rely on, or were at least very likely to rely on, the representations referred to in (2) and (3) above in deciding whether to continue with and/or increase the terms of the offer to acquire the shares of the Company (paragraph 19 ibid).
(5) Morgan Crucible's directors and financial advisers did so rely (paragraph 19 ibid).
(6) "In the premises Hill Samuel owed to [Morgan Crucible] a duty of care in relation to its review of the profit forecast and the representations contained in the said letter (both as originally published and as reaffirmed)" (paragraph 19 ibid).
In their skeleton argument, counsel for Hill Samuel submitted that "nothwithstanding paragraph 5A of the amended statement of claim" the purpose of the representations relied on "was to advise the directors and shareholders of the Company on the merits of the offer which Hill Samuel were obliged to do". For present purposes, however, the form of the amended draft pleading obliges us to assume that at the trial Morgan Crucible will be able to prove that
(a) one of the ordinary purposes of defence documents is to influence bidders in the manner alleged in paragraph 5A;
(b) Hill Samuel intended that its statement relating to the profit forecast would be included in the defence document of 24th January 1986;
(c) Hill Samuel knew and intended that the Company's directors and financial advisers would rely on that forecast in the manner alleged.
On the assumed facts, we think it must be arguable that Hill Samuel owed to Morgan Crucible a duty of care in making their representations concerning the profit forecast, for the same reasons (mutatis mutandis) as those which we have given concerning the directors. In one respect the case against Hill Samuel is arguably stronger in that they were giving their advice as experts.
We should, however, refer to two particular points relied on (among others) by Mr. Langley Q.C. for Hill Samuel. First, he pointed out that there had been no direct contact between his clients and the Company's directors and financial advisers and no request by those persons for Hill Samuel's advice. This is no doubt a factor which will be taken into account by the trial judge in considering questions of proximity, but we do not regard it as by itself conclusively negativing a duty of care.
We make the like comment in relation to another point particularly stressed by Mr. Langley, namely that there was an obvious conflict of interest between the directors of the Company, to whom the relevant representations were directly addressed (and who were obliged to communicate that advice to the Company's shareholders), and Morgan Crucible. It was submitted in effect that in endorsing a profit forecast, a bank can never be held to owe duties to parties with conflicting interests. We were not wholly convinced by this submission, if only because the obligation resting upon financial advisers as formulated in Rule 28.1 of the city Code is an obligation to satisfy themselves that the profit forecast has been prepared by the directors "with scrupulous objectivity". At first sight the conflict of interest referred to above would appear to involve no potential embarrassment to banks which are discharging this particular function, even if they were to owe the alleged duty of care to Morgan Crucible. It should be stressed that this is not a general duty of care; it is simply a duty to take care in making representations of the relevant nature.
We are therefore not persuaded that the pleaded case against Hill Samuel is bound to fail.
The case against Judkins
The allegation that Judkins owed a duty of care to Morgan Crucible is based on alleged representations concerning the Company's audited accounts (paragraphs 9 to 12D of the draft amended pleading) and representations concerning the profit forecast (paragraphs 24 to 27).
As to the audited accounts, it is pleaded (inter alia)
(1) by its letter of 24th January 1986 addressed to the directors of the Company and Hill Samuel, Judkins "impliedly represented to the Plaintiff Company"
(a) that the balance sheet as at 31st January 1985 reflected a true and fair view of the Company's state of affairs as at 31st January 1985;
(b) that the accounting policies adopted in compiling the profit forecast and the unaudited interim results were in accordance with U.K. generally accepted accounting practices;
(c) that in so far as the information given about the Company by the directors in the defence documents was extracted from the Company's previously published audited accounts or from the unaudited interim results, it was not misleading as at the date of the defence documents (paragraph 12B);
(2) that "Judkins subsequently twice reaffirmed...the said representations...by consenting to the issue of" the recommended increased offer document of 31st January 1986 and the directors' letter of 27th February 1986 (paragraph 12C);
(3) that "it was reasonably foreseeable to Judkins and Judkins must have known and intended that the directors and financial advisers of [Morgan Crucible] would rely...upon the representations and each of them pleaded in paragraph 12B both as originally published and as reaffirmed" (paragraph 12D);
(4) that the directors and financial advisers of Morgan Crucible did so rely (paragraph 12D);
(5) that accordingly a duty of care arose "in relation to the said representations and each of them both as originally published and as reaffirmed" (paragraph 12D).
As to the profit forecast, the draft amended pleading asserts (inter alia) that
(1) Judkins' letter of 24th January 1986 was intended for inclusion in the defence document of 24th January 1986, which contained the profit forecast (paragraph 24);
(2) the representations contained in that letter were made to Morgan Crucible as well as to the directors and shareholders of the Company/ by reason of the facts and matters pleaded in paragraph 5A and in Answers 15(3) to (5) of the amended further and better particulars and were twice reaffirmed by Judkins in the recommendation of 31st January 1986 and the directors' letter of 27th February 1986 (paragraph 25);
(3) Judkins must have known and intended that directors and financial advisers of [Morgan Crucible] would rely upon the said representations (paragraph 26);
(4) the directors and financial advisers of Morgan Crucible did so rely (paragraph 26);
(5) in the premises/ Judkins owed a duty of care in relation to the representations contained in the letter of 24th January 1986 both as originally published and as reaffirmed (paragraph 26).
Among other cogent points made by Mr. Bratza Q.C. on behalf of Judkins was the submission that, if the court were to hold that Judkins owed Morgan Crucible the alleged duty of care, it would be going further than the court did in Smith v. Bush or in any other reported case in that
(a) the information in question had neither been requested nor required of Judkins by Morgan Crucible for any purpose;
(b) the statements which gave the information had not in terms been directed to Morgan Crucible but to the directors and shareholders of the Company;
(c) the interests of the shareholders of the Company were in conflict with those of Morgan Crucible;
(d) there was no financial or other connection between Judkins and Morgan Crucible, which had not paid for Judkins' services;
(e) Judkins at all material times had the assistance of separate advisers of their own.
We take these and the other points made on behalf of Judkins. Once again, it may be of critical importance for the trial judge to consider in the context of duty of care and proximity whether Morgan Crucible could reasonably have regarded themselves as persons to whom the relevant representations were directly or indirectly addressed. For present purposes, however, we think it will suffice to say that in our judgment Morgan Crucible, on their proposed pleadings and the assumed facts, have established an arguable case as to duty of care for the same reasons (mutatis mutandis) as those relating to the directors in the case of the financial statements and the same reasons (mutatis mutandis) in relating to the directors and Hill Samuel in the case of the profit forecast.
Conclusions
Counsel for the respective defendants fairly stressed the novelty of the claims against them now under consideration and the far-reaching consequences in the commercial world which might ensue if they gave rise to causes of action. We particularly appreciate the concern eloquently expressed by Mr. Kosmin, Mr. Davis and Mr. McLaren on behalf of the individual directors. The prospect of the anxiety and expense of a trial extending over several weeks is daunting. The possibility of liability on their part being established at the trial is even more daunting for those of them (perhaps the majority or all) who have no relevant insurance cover. We can understand why they should wish if possible to dispose of the claim against them in negligence on a striking out application. We bear in mind all these considerations/ which appear to have carried weight with the learned judge. However, in case the point is not fully appreciated, we emphasize that the whole essence of the claim against the several directors is that the representations relied on were made negligently by each of them. We should record that Mr. Sumption expressly accepted that if Morgan Crucible are to establish liability against any director at the trial, they will have to prove personal negligence against him. Even if he owed the duty of care alleged, and even if the accounts or the profit forecast were highly misleading, it would not necessarily follow that he was in breach of that duty. This might partly depend on what advice he took and what advice he followed. It is not suggested that any of the defendants should be treated as if they had warranted the accuracy of the profit forecast or the financial statements. All that is suggested is that they should not have published or circulated the representations made in these documents without due care.
For the reasons stated, we conclude that the draft amended pleading discloses an arguable case against each of the defendants, based on the existence and breach of a duty of care, which amounts to a "reasonable cause of action" within the meaning of R.S.C. 0.18, r.19(1)(a). We think that Morgan Crucible's newly formulated case should be allowed to go to trial where in the context of duty of care, questions of proximity and justice and reasonableness can be considered by reference to the evidence. We therefore propose to allow the appeal and, subject to any further submissions as to the form of the order, to give Morgan Crucible leave to amend their statement of claim and the further and better particulars thereof in accordance with the draft served with the notice of appeal, and the further small amendment to paragraph 26 of the statement of claim already mentioned.
(Order: Appeal allowed with costs; plaintiffs to have leave to amend statement of claim and further and better particulars thereof in accordance with draft served with notice of appeal; paragraph 26 of statement of claim to be amended by addition of the words "and intended" after the words "must have known", and as amplified by amended draft further and better particulars; defences to be delivered within 14 days of today's date; application for leave to appeal to House of Lords refused). |
(Revised)
LORD JUSTICE FOX: This is an appeal by the defendants from a decision of Millett J.
The following account of the facts follows substantially that of Millett J. I set it out again here for convenience of reference.
The action is by Agip (Africa) Limited ("Agip") to recover a sum of U.S.$518,822.92 of which it was fraudulently deprived by an employee. Agip seeks to follow funds telegraphically transferred by its bank in Tunisia as a result of forged instructions and to recover them not from the recipient company but from the persons who controlled that company and caused it to part with them, namely the first and third defendants. Most of the money was paid away and probably found its way to confederates of the fraudulent employee. The balance, which amounts to about U.S.$45,160 has been paid into court; the defendants make no claim to it.
Agip does not contend that the defendants were parties to the fraud and had actual knowledge of it. The claim is at common law for money had and received. In the alternative, it is contended that the defendants are bound to account in equity as constructive trustees. As against the first and second defendants, Agip relies on the mere receipt of the money. In addition, however, it is alleged that all the defendants and in particular the first and third, were guilty of wilful and reckless failure to make inquiries in order to satisfy themselves that they were not acting in furtherance of a fraud.
The Frauds
Agip was incorporated in Jersey and is a wholly owned subsidiary of Agip S.A. of Milan, an Italian oil company, which is itself a subsidiary of the Italian State holding company. Agip's business is mainly concerned with oil exploration in Africa. In the late 1970's and early 1980's, it was drilling for oil in Tunisia (both on its own behalf and with other companies) under permits and concessions granted by the Tunisian Government. The Tunis branch of Agip held a U.S. dollar account at the Banque du Sud ("BdS") in Tunis from where payments were made to overseas suppliers. Over a period of many years, both before and after 1983, when the defendants first appear in the story, Agip was systematically defrauded of millions of U.S. dollars by its chief accountant, a Mr. Zdiri. He was not a director and not an authorised signatory in respect of Agip's bank account but it was his duty to place the completed payment orders and the invoices to which they related before the authorised signatory and get his signature to them. It was also his responsibility to take the signed orders to the bank or to entrust them to a subordinate for that purpose.
From time to time, however, Zdiri fraudulently altered the name of the payee of the orders and so diverted the payment to a recipient of his own choosing.
Between March 1983 and January 1985 alone sums of more than U.S.$10.5 million were fraudulently diverted in this way: not less than 28 payment orders were involved. The payees in the orders as altered (except Baker Oil Services Ltd. which was registered in the Isle of Man) were all companies registered in England. All were managed by the defendants from the Isle of Man. Seven different payee companies were used in succession. Each had a U.S. dollar account at the High Holborn branch of Lloyds Bank into which the money was paid.
The present action is concerned with a sum of U.S.$518 thousand odd to which I have already referred and which was paid on 8th January 1985 to Baker Oil Services Ltd. ("Baker Oil"). This was the last of the diverted payments. The frauds were discovered soon afterwards.
The Defendants
The first defendant, Mr. Jackson, and the second defendant, Mr. Bowers, practise in partnership together as chartered accountants in Douglas, Isle of Man, under the name Jackson & Co. The third defendant, Mr. Griffin, is an employee of that firm. At all material times they were acting on the instructions of their client, a Monsieur Yves Coulon, a French lawyer. He was almost certainly acting for other principals whose identity is not known.
Jackson & Co. were introduced to the High Holborn branch of Lloyds Bank in March 1983 by a Mr. Humphrey, a partner in the well known firm of Thornton Baker. They probably took over an established arrangement. Thenceforth they provided the payee companies. These companies each had a purely nominal share capital which was usually registered in the names of service companies provided by Jackson & Co. In each case Mr. Jackson and Mr. Griffin were the directors and the authorised signatories on the company's account at Lloyds Bank. In the case of the first few companies Mr. Humphrey was also a director and authorised signatory. Any authorised signatory could sign. None of the companies had any assets or carried on any business activity. None of them was known to or had any dealings or contact with the plaintiffs. In the case of each company except Baker Oil, after two or three payments had been received and paid out, the account was closed and a new account opened for the successor company. Its predecessor was then promptly put into liquidation and Mr. Bowers was appointed liquidator. The payee companies' bank statements all showed the receipts to be derived from payments made by Agip.
When a payment was received by the payee company it was immediately transferred, usually on the same day, to another company, Euro-Arabian Jewellery Limited ("Euro-Arabian"), which also maintained a U.S. dollar account at the same branch of Lloyds Bank. Euro-Arabian was registered in England. Mr. Jackson was one of three directors. He, Mr. Griffin and Mr. Humphrey were the authorised signatories of its account at Lloyds Bank; any one of them could sign. There is no evidence that Euro-Arabian carried on any genuine business activity. It has not been suggested that it was known to or had any dealings or contact with Agip. As soon as it received a payment from a payee company it paid it out to parties overseas.
Most of the money went to Kinz Joailler SARL ("Kinz"), a company incorporated in France and described as carrying on a jewellery business in Paris and elsewhere in France. It appears to have been a wholly owned subsidiary of Euro-Arabian. Mr. Jackson was its sole director but was probably a nominee. Monsieur Coulon was its legal adviser. It has not been suggested that it was known to Agip. Other payments were made to Monsieur Coulon and a Mr. Chouck ben Abdelaziz who has not been further identified.
Monsieur Coulon was introduced by the defendants to Mr. Breeze, the assistant manager of the High Holborn branch of Lloyds Bank. Monsieur Coulon had no authority to operate the accounts of any of the payee companies or of Euro-Arabian but Mr. Breeze was authorised to disclose information concerning the accounts to him. Mr. Breeze was told to expect payments from Tunis at the rate of approximately U.S.$500,000 a month. When a payment was expected he would be notified by Jackson & Co. and would then contact the Overseas Division of Lloyds Bank and ask to be informed when the payment was received. As soon as he learned that the money had arrived he would telephone Jackson & Co. and inform them. They would not, however, give him immediate instructions for the disbursement of the money. There would be a short interval, presumably while they sought instructions from Monsieur Coulon. Disbursement would usually be effected later on the same day on the authority of written instructions delivered by Jackson & Co. by hand to the Douglas branch of Lloyds Bank and read over the telephone to the High Holborn branch. The written instructions usually signed by Mr. Jackson would follow later by way of confirmation.
Monsieur Coulon would visit London from time to time and discuss the state of the accounts with Mr. Breeze. They would lunch together. Mr. Breeze clearly understood Monsieur Coulon to be behind the arrangements and to be the person whose instructions were being relayed to the branch by Jackson & Co. It has not been suggested that he was mistaken.
The Defendants' state of mind
The defendants elected to call no evidence. Their state of mind is therefore largely a matter of inference. Agip relied, however, on three documents as providing some evidence of this. The first is the minutes of the first meeting of the directors of Keelward Limited, one of the payee companies, held at the offices of Jackson & Co. in Douglas on 22nd March 1984. The meeting was attended by Mr. Jackson and Mr. Griffin who were appointed directors of the company with immediate effect, and the minutes signed by Mr. Jackson. They include the following passage:
"Mr. Jackson reported that the Company has been invited to act as Agent for Euro Arabian ... in the receipt of monies from Tunisia. This formed part of a long standing arrangement between the beneficial owners of Euro Arabian ... the Banque du Sud in Tunis and an offshore subsidiary of Agip S.P.A. called Agip (Africa) Limited. In essence, the arrangement resulted in the extraction of monies from Tunisia in circumvention of the Tunisian Exchange Control Regulations. Keelward Limited would act merely in a fiduciary capacity and, in the absence of specific instructions to the contrary, all monies received were to be passed immediately to the account of Euro Arabian ... with Lloyds Bank Plc. at 58 High Holborn, London ... Euro Arabian ... would ensure that Keelward Limited was paid an appropriate amount to cover fees, expenses, etc."
The second consists of an attendance note made by Mr. Smyth, a partner in the firm of Knapp-Fishers, solicitors, of a meeting with Mr. Jackson and Monsieur Coulon on 24th July 1984 when his advice was sought in connection with the payments. Objection was taken on behalf of the defendants to its admissibility. Mr. Smyth was not called as a witness and there is no evidence that his attendance note was ever seen by any of the defendants. There was thus no admissible evidence of the truth of its contents and the judge disregarded it.
The third document consists of a letter dated 14th August 1984 and addressed by Mr. Smyth to Mr. Jackson at Jackson & Co. It is headed "Euro Arabian Jewellery" and the original was obtained from the liquidator of Euro-Arabian. It contains the considered advice which Mr. Smyth gave following his meeting with Mr. Jackson and Monsieur Coulon on 24th July. In the absence of evidence to the contrary, the judge inferred that it was seen by Mr. Jackson and is therefore admissible as evidence of the advice he received at the time. I agree with that. It deals first with the question of the recovery by the Tunisian Government or Agip from Lloyds Bank of money in the bank's possession. In this connection it contains the following passages:
"Turning now to Agip, Agip may be able to establish a cause of action by claiming that the payments were obtained by fraud. Agip could also rely on English law as the fraud would presumably have taken place within England, at the time when the monies were transferred out of Agip's account into the account of the U.K. company.
However, although Agip may be able to establish a cause of action, it would still be necessary for Agip to establish fraud (as defined under English law) for any action for the recovery of the monies to be successful."
The letter then deals with the disclosure by Lloyds Bank of the banking transactions. In this connection Mr. Smyth advised:
"Because of the general principle of banking confidentiality, it would be extremely difficult for the Tunisian Government or Agip to obtain an Order requiring Lloyds Bank to disclose banking transactions, unless disclosure is ordered by the English Courts ...
However, if Agip could establish a cause of action by reason of possible frauds, it might obtain an Order for the disclosure of banking transactions ...
As in our case, there would appear to be no clear case of fraud under English law, this could frustrate early disclosure by Lloyds Bank, although Agip could seek an injunction whereby the monies in Lloyds Bank account would be 'frozen' until the matter came to full trial."
Finally, the letter deals with tracing the money after liquidation of the payee companies. Mr. Smyth advised:
"If Agip can establish fraud, recovery of the monies after the recipient companies have been liquidated will depend, to some extent, upon whether or not Lloyds Bank held the monies on trust for Agip."
The payment to Baker Oil
Baker Oil was incorporated on 12th October 1984 with an authorised share capital of £2,000. Mr. Jackson and Mr. Griffin each subscribed for one fl share. No other shares were issued. Mr. Jackson and Mr. Griffin were the sole directors. Jackson & Co.'s office in Douglas was the registered office. The company's name was misleading. Neither oil nor oil services made their appearance in its Memorandum of Association.
Baker Oil was the successor to Parkfoot Limited ("Parkfoot"), which had been put into liquidation on 6th December 1984 shortly after receiving and paying out to Euro-Arabian on the same day a sum of U.S.$502,458.33. Baker Oil then opened a U.S. dollar account, number 11955608 at the High Holborn branch of Lloyds Bank. The mandate was completed on 17th December 1984 and forwarded to Mr. Breeze on the same day. Mr. Jackson and Mr. Griffin were the authorised signatories, the signature of either being sufficient.
On 18th December 1984, Mr. Del Sorbo, a senior officer of Agip's Tunis branch and an authorised signatory of its account at the Banque du Sud, signed a payment order for U.S.$518,822.92 in favour of Maersk Supply (Tunisia) Limited ("Maersk") at Morgan Guaranty Trust Company of New York. This was in payment of the hire of a vessel, "Maersk Endurer", for the month of October. The invoice for that sum was dated 7th November and was due for payment within 60 days. After Mr. Del Sorbo had signed the payment order, it was fraudulently and without his knowledge altered by the substitution for the name of the original payee of the name "Beker-Oil Service Cie" (sic) with the address of High Holborn branch of Lloyds Bank and the correct number of Baker Oil's dollar account.
The altered payment order was taken to the Banque du Sud on or shortly before Friday 4th January 1985. On that day BdS executed it by debiting Agip's account with the sum of U.S.$518,822.92, value date 7th January, and by telexing instructions to Lloyds Bank as follows:
"Attention Freeman
Order Agip
Payer fil sans frais pour nous dol. U.S. 518,822.92
Beker Oil Services Cie cpte no. 11.95.56.08 aupres vous
memes.
Val 7/1.
Reglement V/Fact 40 Meu - 07/84 du 7/11/84 ...
Vous couvrons aupres Citibank New York meme valeur Bank Sud."
Miss Freeman was the principal in charge of foreign services at the High Holborn branch. The branch had no telex and the message was received by Lloyds Overseas Division where it was the responsibility of a Mr. Bendon, an International Manager, to assess the delivery risk. When BdS telexed its instructions to Lloyds Bank, it also telexed appropriate instructions to Citibank, its correspondent bank in New York, to debit its account at Citibank and to credit Lloyds Bank or its correspondent bank in New York with a similar amount. This necessarily involved the exposure of Lloyds Bank to a delivery risk in New York. New York is five hours behind London, and Lloyds Bank was being asked to make a payment in London on 7th January 1985 before the opening of business in New York and well before confirmation of the receipt of cover.
The High Holborn branch had already been notified by Jackson & Co. on Friday 4th January that another payment was expected and had asked to be informed by Lloyds Overseas as soon as it was received. Miss Freeman heard from Lloyds Overseas on the Monday morning, 7th January, that the money had been received for the account of Baker Oil and she so informed Mr. Breeze. He rang Mr. Griffin at about 1.00 pm and conveyed the information to him. Half an hour or so later Monsieur Coulon telephoned from the airport and spoke to Mr. Breeze. He said that he was on his way to the bank. Mr. Breeze told him that the money had arrived.
The attempted recall
The fraud was discovered in Tunis late in the afternoon of Friday 4th January but its extent did not become apparent until the morning of Monday 7th January when Mr. Del Sorbo visited the BdS and was shown a large number of forged payment orders. These included the order for U.S.$502,458.33 in favour of Parkfoot and the order for U.S.$518,822.92 in favour of Baker Oil. He confirmed that neither company was known to Agip and that the name of the payee on the original payment order had been altered after he had signed it. He asked the bank to try to stop the two payments.
The BdS sent two messages by telex to Lloyds Bank during the afternoon of 7th January, one in respect of the payment to Parkfoot and one in respect of the payment to Baker Oil. In each case the BdS stated that according to the party giving the order the transfer had been "effectue par erreur". No other explanation was given. Lloyds Bank was asked to stop the payment or, if this was not possible, to obtain its customer's agreement to reverse the transaction. Parkfoot had already paid the money away and closed its account at Lloyds Bank. It was far too late for Lloyds Bank to do anything about it and there is no evidence that it made any attempt to do so.
The telex in respect of the payment to Baker Oil was received by Lloyds Overseas Division at 2.25 pm London time. Mr. Bendon was advised of it and spoke to the Banque du Sud. He also spoke to Miss Freeman at the High Holborn branch. He learned from her that the money had been credited to Baker Oil's account, that the customer had already been advised of the fact and that Miss Freeman held instructions to pay the money out the same day. At Mr. Bendon's request Miss Freeman spoke to Jackson & Co. She can no longer remember to whom she spoke but she reported that Lloyds Bank had received a request from the BdS for a recall. She was asked for the reason and said that no reason had been given. She was promised that the money would be left with Lloyds Bank for 24 hours or possibly just overnight "so that checks could be made". She reported this to Mr. Bendon.
Mr. Bendon spoke again to the BdS and dictated a reply to the bank's two telexes that same afternoon. It was sent by cable on 9th January and confirmed by telex on 10th January. So far as material it reads:
"... I have to confirm that we had already paid the amount of US dollars 518,822.92 on the morning of 7/1/1985 to our customers Baker Oil ... account number 11955608 with our High Holborn branch in accordance with the instructions which you had given us on 4th January with value 7th January. Our branch have contacted their customer who refuse to refund stating that they know of no reason why they should not have received monies which they believe to be due to them and which they have stated to us they have already disposed of to other parties. I regret therefore that we are unable to stop payment as you have requested."
The judge said there were significant differences between Mr. Bendon's message, which was calculated to deter the BdS from pursuing its attempt to recall the money, and Miss Freeman's evidence of what she was told by Jackson & Co. and reported to Mr. Bendon. It is possible that there was some misunderstanding between them but the judge doubted it and, in the absence of any evidence from the defendants, he was not prepared to infer one. Miss Freeman, he said, was a clear and reliable witness but after this lapse of time, he said, she could not be expected to remember everything she had heard and reported to Mr. Bendon.
In the witness box Mr. Bendon, the judge found, was confused about the relationship between the two payments whose recall had been sought but there is no reason to think that he was confused about it at the time, and the message he dictated speaks for itself. His failure to mention Jackson & Co.'s offer to keep the money in Lloyds Bank for a short period appears extraordinary but it was, in the judge's view, to be explained by the fact that from first to last he was concerned not for the BdS, still less for its customer, but for the position of Lloyds Bank. In the absence of evidence from the defendants to the contrary the judge concluded:
1. That Jackson & Co. did not offer to refund the money if a good reason was given for the recall but rather that they refused to return the money unless a good reason was given, so that Mr. Bendon's statement that they refused to refund was accurate so far as it went.
2. That Mr. Bendon (rightly or wrongly) took that to mean a good reason for Lloyds
3. That accordingly he took the offer to keep the money at Lloyds Bank for a short while to be a matter between Lloyds Bank and its customer and not something to be communicated to the BdS.
4. That Mr. Bendon's statement that "they knew of no reason why they should not have received monies which they believe to be due to them" was based on something to that effect said by Jackson & Co. to Miss Freeman in order to justify their refusal to refund the money unless there was a good reason to do so; but
5. Mr. Bendon's statement that "they have stated to us that they have already disposed of it to other parties" was probably based not on anything said by Jackson & Co. to Miss Freeman but on his own appreciation as banker of the consequences of Miss Freeman having in her possession instructions from the customer for the disposal of the money.
The disposal of the money
On the following day, 8th January, Miss Freeman spoke to Mr. Bendon again. Following their discussion she telephoned Jackson & Co. and confirmed that so far as Lloyds Bank was concerned the value was good and the money was at the customer's disposal, no reason for recall having been given. Miss Freeman then dealt with the money in accordance with the instructions which she had received by telephone on the previous day and which were confirmed by letter dated 7th January and signed by Mr. Griffin. In accordance with those instructions, she transferred the U.S.$518,822.92, which was the only sum standing to the credit of Baker Oil's account, to an account in the same branch in the name of Jackson & Co. and closed the account. She then confirmed these transactions by letter addressed to the secretary of Baker Oil, a service company provided by Jackson & Co. of which the defendants were directors and shareholders, in which she referred to the receipt of the U.S.$518,822.92 "by order of Agip".
Jackson & Co.'s account was an ordinary partnership account. It had been opened in March 1984. All three defendants were authorised signatories. Any one of them could sign. Immediately before the transfer from Baker Oil, the account was U.S.$7,911.80 in credit. As a result of the transfer it became U.S.$526,734.72 in credit. On 9th January, in accordance with instructions contained in or confirmed by a letter dated 8th January and signed by Mr. Griffin, U.S.$518,000 was transferred from the account to Jackson & Co.'s clients' account at the Isle of Man Bank Limited in the Isle of Man which was newly opened for this purpose. After two other small debits, this left the account of Jackson & Co. at Lloyds Bank U.S.$8,560.80 in credit. Although the account was an ordinary partnership account it was being used as a clients' account, for Jackson & Co. did not receive the money for their own benefit but as nominees for their clients.
On 15th January the greater part of the U.S.$518,000 was paid out by the Isle of Man bank in accordance with a letter of instructions of the previous day by Jackson & Co. The money was paid as follows:
U.S.$ 400,000 to Kinz
U.S.$70,000 to Mr. Chouck ben Abdelaziz
U.S.$ equivalent of FFfr. 34,330 to M. Coulon.
In a subsequent letter dated 22nd February 1985 to Agip's solicitors, the defendants' solicitors stated, inter alia:
"If your clients can persuade ours that the funds in question have been stolen or otherwise improperly misappropriated our clients will co-operate immediately and disclose all material facts within their knowledge and do all in their power to preserve any such assets"
- judge's underlining.
Agip relied on the words underlined as evidence that the funds were not really paid away on 15th January but remained available to the defendants. When last seen, it was pointed out, the bulk of the money was in the hands of a wholly owned subsidiary of Euro-Arabian, both companies being under Jackson & Co.'s control.
The judge did not think that that was a fair reading of the evidence. The meaning of the words underlined in the passage above was, he thought, far too uncertain to bear the weight placed upon them. In their context and immediately following a reference to "material facts within their knowledge", the judge thought the words "such assets" probably meant assets within their control. They still had over U.S.$45,000 within their control which they subsequently paid into court. Moreover, there was evidence that Jackson & Co. were unwilling to pay out the money as soon as they did but yielded to the importunity of their clients. The judge held that there was no ground upon which he could legitimately infer that the defendants retained control of the money and there was good reason to suppose that whatever was paid to their clients has gone for ever.
Subsequent events
Euro-Arabian and Kinz have been put into liquidation. The plaintiffs have an unsatisfied judgment against Baker Oil for the return of the money. They have brought proceedings in Tunisia against the BdS for the recovery of the sums debited to their account on forged instructions but these have been unsuccessful. Now they seek to recover the U.S.$518,822.92 from the defendants.
The right to sue
Agip's claim is for money paid under a mistake of fact.
The defendants' contention is that Agip has disclosed no title to sue. The basis of that contention is that the relationship between banker and customers is one of debtor and creditor. When the customer pays money into the bank, the ownership of the money passes to the bank. The bank can do what it likes with it. What the bank undertakes to do is to credit the amount of the money to the customer's account, and to honour his drafts or other proper directions in relation to it.
Thus, it is said, when BdS paid Baker Oil it had no authority to do so on behalf of Agip (because the order for payment was forged). Further, BdS paid with its own money.
In terms of the mechanism of payment what happened was no different from what would have happened if the order was not forged but genuine. BdS paid the collecting bank and debited Agip's account at BdS. In practical terms BdS pays with Agip's money in both cases and, indeed, in both cases intended to do so. In both cases the substance of the matter is that money standing to the credit of Agip's account is paid to a third party in accordance with the order or supposed order, as the case may be, of Agip. The direction is to pay from Agip's account. To say that the payment is made out of BdS's own funds, while true as far as it goes, only tells half the story. The banker's instruction is to pay from the customer's account. He does so by a payment from his own funds and a corresponding debit. The reality is a payment by the customer at any rate in a case where the customer has no right to require a re-crediting of his account. Nothing passes in specie. The whole matter is dealt with by accounting transactions partly in the paying bank and partly in the clearing process.
It does not advance the matter to say that BdS had no mandate from Agip to make the payment at Agip's expense. What actually happened was that BdS did so. Moreover, when Agip sued BdS in the Tunisian courts (and I take it that Tunisian law was the proper law of the banking relationship between Agip and BdS) to have its account re-credited, it failed to obtain that relief. In those circumstances, to regard Agip as not having paid Baker Oil is highly unreal. BdS had no intention of paying with its own money. The substance of its intention (which it achieved) was to pay with Agip's money. The order, after all, was an order to pay with Agip's money.
I agree, therefore, with the view of Millett J. that "the fact is that BdS paid Baker Oil with the Plaintiff's money and not its own". If BdS paid away Agip's money, Agip itself must be entitled to pursue such remedies as there may be for its recovery. The money was certainly paid under a mistake of fact.
It is said that the difference between this case and a case where the bank pays with the authority (though given under a mistake of fact) of the customer, is that, in the latter case, the bank pays as agent of the customer and that, accordingly, either the principal or agent can sue.
Thus it is contended that where, as here, there is a claim to recover money paid by mistake of fact, the mistake must be that of the plaintiff or of his agent. That, it is contended, cannot be established here. There was no mistake by Agip which was simply the victim of a fraud. The only mistake was that of BdS which paid in the mistaken belief that it had Agip's authority to do so. BdS, it is said, did not pay as the agent of Agip because it had no authority to pay.
"It is well established that the normal relation between a banker and his customer is that of debtor and creditor, but it is equally well established that quoad the drawing and payment of the customer's cheques as against money of the customer's in the banker's hands the relation is that of principal and agent. The cheque is an order of the principal's addressed to the agent to pay out of the principal's money in the agent's hands the amount of the cheque to the payee thereof."
The defendants, as I understand it, would accept the proposition as to agency but say that BdS did not pay as agent of Agip because of lack of authority. The order was forged. It seems to me, however, BdS plainly intended to pay as agent of Agip. Thus, it paid in accordance with the order as presented to it and debited Agip's account accordingly. There was no reason why it should do anything else. The order as presented to it appeared perfectly regular.
But, accepting the intention, can BdS properly be regarded as having paid as agents for Agip? The defendants say the absence of authority concludes the point against Agip. The judge met that by saying that BdS had general authority from Agip to debit the account in accordance with instructions. That is correct but it is said that there were no instructions because the order was bad. I do not feel able to accept that. The order emanated from within Agip; it was properly signed and the amount had not been altered. BdS had no reason at all to doubt its authenticity. The Tunisian court refused to order BdS to re-credit Agip's account. For practical purposes, therefore, the order was given effect to according to its tenor as if it were a proper order. Everything that was done (i.e. the payments and the debit) stands good so far as the banking transaction is concerned. Agip cannot recover from BdS. And BdS does not seek to recover from Baker Oil. It seems to me, therefore, that the order must be regarded as having been paid by BdS as agent for Agip. That, however, does not alter the circumstances that it was money paid under a mistake of fact. The defendants accept that a principal can recover where there is either: (i) mistaken payment by an authorised agent within his instructions or (ii) mistaken payment in breach of instructions by using money entrusted to the agent by the principal. The present case can be brought within at any rate the first of these.
The judge referred to the decision in Colonial Bank v. Exchange Bank of Yarmouth [1886] 11 AC 84, 91. In that case it was held that the bank had a sufficient interest to recover the money, if only to obtain relief from the consequences of its liability to its customer. He thought the decision was inconsistent with any suggestion that, far from being the wrong plaintiff, the bank was the only plaintiff. The present point, however, was not before the Privy Council in that case and I think the decision gives only limited assistance.
Looking at the whole matter, however, it seems to me that the judge correctly concluded that Agip's right to sue was made out.
Tracing at Common Law
The judge held that Agip was not entitled to trace at law. Tracing at law does not depend upon the establishment of an initial fiduciary relationship. Liability depends upon receipt by the defendant of the plaintiff's money and the extent of the liability depends on the amount received. Since liability depends upon receipt the fact that a recipient has not retained the asset is irrelevant. For the same reason dishonesty or lack of inquiry on the part of the recipient are irrelevant. Identification in the defendant's hands of the plaintiff's asset is, however, necessary. It must be shown that the money received by the defendant was the money of the plaintiff. Further, the very limited common law remedies make it difficult to follow at law into mixed funds. The judge's view of the present case was that the common law remedy was not available:
"The money cannot be followed by treating it as the proceeds of a cheque presented by the collecting bank in exchange for payment by the paying bank. The money was transmitted by telegraphic transfer. There was no cheque or any equivalent. The payment order was not a cheque or its equivalent. It remained throughout in the possession of the Banque du Sud. No copy was sent to Lloyds Bank or Baker Oil or presented to the Banque du Sud in exchange for the money. It was normally the Plaintiffs' practice to forward a copy of the payment order to the supplier when paying an invoice but this was for information only. It did not authorise or enable the supplier to obtain payment. There is no evidence that this practice was followed in the case of forged payment orders and it is exceedingly unlikely that it was.
Nothing passed between Tunisia and London but a stream of electrons. It is not possible to treat the money received by Lloyds Bank in London or its correspondent bank in New York as representing the proceeds of the payment order or of any other physical asset previously in its hands and delivered by it in exchange for the money."
Agip relies upon the decision of the Court of Appeal in Banque Beige v. Hambrouck [1921] 1 K.B. 321. In that case what happened was that Hambrouck was a cashier employed by Pelabon. By fraud he possessed himself of cheques purporting to be drawn by Pelabon but in fact without Pelabon's authority. The cheques (which purported to be drawn to the order of Hambrouck himself or to his order) were crossed so payment had to be made through a bank. Hambrouck, therefore, opened an account with Farrow's Bank at Richmond. He endorsed the cheques and paid them into that account. Farrow's Bank cleared them through the London and South Western Bank which collected the amount of the cheques and placed them to the credit of Hambrouck's account. It seems that no funds were paid into that account other than the amount of the forged cheques (see per Atkin L.J. at p. 331).
Hambrouck was living with Mademoiselle Spanoghe to whom he paid various sums of money out of his bank account with Farrow's. Mademoiselle Spanoghe paid them into a deposit account of her own in the London Joint City and Midland Bank. No other sums were at any time placed in that deposit account. Certain sums were drawn out for Hambrouck's defence. The balance, £315, was the subject of the action. The Court of Appeal held that Banque Beige was entitled to recover it. Bankes L.J. at p. 328 and Atkin L.J. at p. 334 saw no objection to a claim at common law.
At p. 335, after having referred to Lord Ellenborough's judgment in Taylor v. Plumer 3 M. & S. 562, Atkin L.J. said this:
" notice that in Sinclair v. Brougham (2) Lord Haldane L.C. in dealing with this decision says: 'Lord Ellenborough laid down, as a limit to this proposition, that if the money had become incapable of being traced, as, for instance, when it had been paid into the broker's general account with his banker, the principal had no remedy excepting to prove as a creditor for money had and received,' and proceeds to say 'you can, even at law, follow, but only so long as the relation of debtor and creditor has not superseded the right in rem.' The words above 'as for instance' et seq. do not represent and doubtless do not purport to represent Lord Ellenborough's actual words; and I venture to doubt whether the common law ever so restricted the right as to hold that the money became incapable of being traced, merely because paid into the broker's general account with his banker. The question always was, Had the means of ascertainment failed? But if in 1815 the common law halted outside the bankers' door, by 1879 equity had had the courage to lift the latch, walk in and examine the books: In re Hallett's Estate. (3) I see no reason why the means of ascertainment so provided should not now be available both for common law and equity proceedings. If, following the principles laid down in In re Hallett's Estate (3), it can be ascertained either that the money in the bank, or the commodity which it has bought, is 'the product of, or substitute for, the original thing,' then it still follows 'the nature of the thing itself.' On these principles it would follow that as the money paid into the bank can be identified as the product of the original money, the plaintiffs have the common law right to claim it, and can sue for money had and received. In the present case less difficulty than usual is experienced in tracing the descent of the money, for subsantially no other money has ever been mixed with the proceeds of the fraud."
Bankes L.J. at p. 328, while accepting that tracing at common law was permissible, took a narrower position. He said that there was no difficulty about tracing at law because the money which the Bank sought to remove was capable of being traced because the appellant (Spanoghe) never paid any money into the Bank except money which was part of the proceeds of Hambrouck's fraud and all the money standing to the credit of the account was now in court.
Scrutton L.J. at p. 330 thought that tracing at common law was probably not permissible because the money had changed its identity when paid into the account at Farrow's. He felt, however, that the Banque Beige could trace in equity and that its claim succeeded.
Now in the present case the course of events was as follows:
(1) The original payment order was in December signed by an authorised signatory.
(2) The name of the payee was then altered to Baker Oil.
(3) The altered order was then taken to BdS who complied with it by debiting the account of Agip with U.S.$518,822.92 and then instructing Lloyds Bank to pay Baker Oil. BdS also instructed Citibank in New York to debit its account with Citibank and credit Lloyds with the amount of the order.
(4) Lloyds credited the money to Baker Oil's account on the morning of 7th January.
(5) On 8th January, Lloyds in pursuance of instructions from Baker Oil transferred the U.S.$518,822.92 which was the only sum standing to the credit of Baker Oil's account to an account in the name of Jackson & Co.
(6) Immediately before the transfer from Baker Oil, Jackson & Co.'s account was U.S.$7,911.80 in credit. In consequence of the transfer it became U.S.$526,734.72 in credit.
The inquiry which has to be made is whether the money paid to Jackson & Co.'s account "was the product of or substitute for the original thing". In answering that question I do not think that it matters that the order was not a cheque. It was a direction by the account holder to the bank.
When Atkin L.J. refers in Banque Beige v. Hambrouck to the "original money" he is, I assume, referring to the money credited by Banque Beige (the plaintiff) to Hambrouck's account. Money from that account was the only money in Mademoiselle Spanoghe's deposit account. It was not, therefore, difficult to say that the money in issue (i.e. the residue of the Spanoghe account) could be identified as the product of the original money. There were no complexities of tracing at all. Everything in Spanoghe's account came from Hambrouck's account and everything in Hambrouck's account came from the credit in respect of the fraudulent cheque.
The position in the present case is much more difficult. BdS can be regarded as having paid with Agip's money but Lloyds (acting as directed by BdS) paid Baker Oil with its own money. It had no other (and accordingly took a delivery risk). It was, in the end, put in funds, but it is difficult to see how the origin of those funds can be identified without tracing the money through the New York clearing system.
The money in the present case did get mixed on two occasions. The first was in the New York clearing system and the second was in Jackson & Co.'s own account. The judge held that the latter was of no consequence. I agree. The common law remedy attached to the recipient and its subsequent transposition does not alter his liability. The problem arises at an earlier stage. What did Jackson & Co. receive which was the product of Agip's asset?
Baker Oil was controlled for present purposes by Jackson & Co. but Baker Oil was paid by Lloyds which had not been put in funds from New York. It was subsequently recouped. But it is not possible to show the source from which it was recouped without tracing the money through the New York clearing system.
24
The judge said:
"Unless Lloyds Bank's correspondent bank in New York was also Citibank, this involves tracing the money through the accounts of Citibank and Lloyds Bank's correspondent bank with the Federal Reserve Bank, where it must have been mixed with other money. The money with which Lloyds Bank was reimbursed cannot therefore, without recourse to equity, be identified as being that of the Banque du Sud."
I respectfully agree with that view. Accordingly, it seems to me that the common law remedy is not available.
I should add this. Atkin L.J.'s approach in the Banque Beige case amounts virtually to saying that there is now no difference between the common law and equitable remedies. Indeed, the common law remedy might be wider because of the absence of any requirement of a fiduciary relationship. There may be a good deal to be said for that view but it goes well beyond any other case and well beyond the views of Bankes and Scrutton L.JJ. And in the 70 years since the Banque Beige decision it has not been applied. Whether, short of the House of Lords, it is now open to the courts to adopt it I need not consider. I would in any event feel difficulty in doing so in the present case where, as I indicate later, it seems to me that the established equitable rules provide an adequate remedy.
Tracing in Equity
Both common law and equity accepted the right of the true owner to trace his property into the hands of others while it was in an identifiable form. The common law treated property as identified if it had not been mixed with other property. Equity, on the other hand, will follow money into a mixed fund and charge the fund. There is, in the present case, no difficulty about the mechanics of tracing in equity. The money can be traced through the various bank accounts to Baker Oil and onwards. It is, however, a prerequisite to the operation of the remedy in equity that there must be a fiduciary relationship which calls the equitable jurisdiction into being. There is no difficulty about that in the present case since Zdiri must have been in a fiduciary relationship with Agip. He was the Chief Accountant of Agip and was entrusted with the signed drafts or orders upon BdS.
I come then to the circumstances in which strangers to the trust relationship (the defendants) may be made liable in equity. They are, broadly, as follows;
(1) Knowing receipt of or dealing with the trust property. The judge held that Mr. Griffin (the third defendant) did not receive the money at all and that Mr. Jackson and Mr. Bowers (the first and second defendants) did not receive or apply it for their benefit. Accordingly, he held that none of them could be held liable as constructive trustees on the basis of knowing receipt of the money. There is no cross-appeal as to that.
(2) Knowing assistance. A person may be liable, even though he does not himself receive the trust property, if he knowingly assists in a fraudulent design on the part of a trustee (including a constructive trustee). Liability under this head is not related to the receipt of trust property by the person sought to be made liable (Barnes v. Addy [1874] 9 Ch.App. 244).
The degree of knowledge required was described by Ungoed-Thomas J. in Selangor United Rubber Estates Ltd. v. Cradock (No. 3) [1968] 1 W.L.R. 1555 at p. 1590 as circumstances which would indicate to an honest and reasonable man that such a design was being committed or would put him on inquiry whether it was being committed.
Peter Gibson J. in Baden, Delvaux and Lecuit and others v. Societe General pour Favoriser le Developpement du Commerce et de l'Industrie en France SA [1983] B.C.L.C. 325 at p. 407 gave a more expanded description of the circumstances constituting the necessary knowledge under five heads as follows:
(i) actual knowledge;
(ii) wilfully shutting one's eyes to the obvious;
(iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make;
(iv) knowledge of any circumstances which would indicate the facts to an honest and reasonable man;
(v) knowledge of circumstances which would put an honest and reasonable man on inquiry.
I accept that formulation. It is, however, only an explanation of the general principle and is not necessarily comprehensive.
The judge held, and it is not challenged, that Mr. Bowers did not participate in the furtherance of the fraud at all; although he was a partner in Jackson & Co. he played no part in the movement of the money and gave no instructions about it.
Mr. Jackson and Mr. Griffin are in quite a different position. Mr. Jackson set up the company structures. Mr. Jackson and Mr. Griffin controlled the movement of the money from the time it reached Baker Oil to the time it was paid out of the account of Jackson & Co. in the Isle of Man bank.
On the evidence (and in the absence of evidence from Mr. Jackson and Mr. Griffin themselves) I agree with the judge that both of them must be regarded as having assisted in the fraud. That, however, by no means concludes the matter. There remains the question of their state of mind. Did they have the necessary degree of knowledge?
The first inquiry is what did they know. As to that:
(1) They knew that a very large amount of money was involved. It was U.S.$10 million in under two years. It had all come along the same track.
(2) They knew the origin of the money and its destination. Its origin was Agip and the destination of most of it was Kinz.
(3) Agip was an oil company with operations in Tunisia. Kinz were jewellers in France.
(4) There is nothing to suggest that there was any commercial reason why Agip should be paying such sums to Kinz.
(5) As the judge said, they must have realised that the only function of the payee companies or of Euro-Arabian was to act as "cut-outs" in order to conceal the true destination of the monies from Agip. And the purpose of having two cut-outs instead of one was to bar any connection between Agip and Kinz without reference to the records of Lloyds Bank.
There is also some material documentary evidence. First, there is the letter of 14th August 1984 from Mr. Smyth of Knapp Fisher to Mr. Jackson. That contains advice directed to the possibility that:
"... Agip may be able to establish a cause of action by establishing that the payments were obtained by fraud."
The letter further contains the statement:
"Because of the general principle of banking confidentiality, it would be extremely difficult for the Tunisian Government or Agip to obtain an order requiring Lloyds Bank to disclose banking transactions ..."
This shows that the question of fraud was being considered and some anxiety being felt at the possibility that Agip might obtain access to bank records. The significance of bank records is that they are or may be a signpost to the ultimate destination of the money.
Why was concern being felt about what AGIP might discover?
If there were doubts about fraud they could be set at rest by getting in touch with AGIP and disclosing what was known.
It is, of course, possible that Mr. Jackson and Mr. Griffih were honest men and that there are facts which we do not know which would demonstrate that. But, if so, they could have attended the trial and explained their position in the witness box. They did not do so. One can only infer that they were not prepared to submit their activities to critical examination.
In the circumstances I think that the judge rightly came to the conclusion that they must have known they were laundering money, and were consequently helping their clients to make arrangements to conceal some dispositions of money which had such a degree of impropriety that neither they nor their clients could afford to have them disclosed.
Certain excuses, justifications and exculpatory facts are put forward. Thus, it is said that Mr. Jackson and Mr. Griffin had no cause for suspicion because Jackson & Co. took over arrangements already previously in existence and were introduced to the matter by a partner in the very well known accountants, Messrs. Thornton Baker. I do not find that is of any assistance to the defendants. The respectability of the person making the introduction did not relieve Mr. Jackson from obligation to make proper inquiries as to suspicious circumstances coming to his notice then or subsequently. We do not, in fact, know what information was made available to Mr. Jackson upon his introduction to the matter. But by August 1984, Jackson & Co. cannot have supposed that the matter was clearly free from impropriety. Knapp Fisher were tendering advice to them about the possibility of fraud. The genesis of the advice of August 1984 requires explanation from Mr. Jackson personally and the court has received none. In my opinion, well before the circumstances giving rise to the present case, Mr. Jackson and Mr. Griffin were put on inquiry. Either they did not inquire at all or, if they did, and the inquiry disclosed innocent activities, they have not disclosed to the court what they learnt.
Next, there is the circumstance referred to in the minutes of the Keelward Limited meeting of 22nd March 1984, that the aim was "the circumvention" of the Tunisian Exchange Control Regulations. That minute offers no reassurance in the search for honest decisions. Not only are those in control of Keelward j Limited invited to assist in a transaction which is itself an evasion of the exchange control laws of Tunisia but it is very evident that the money is "hot" and it will be got rid of immediately to the next in line. I do not think that persons who need to demonstrate that they have acted honestly can shelter behind transactions or objects which were themselves disreputable. We do not even know whether they say they believed the exchange control story. It is not easy to see why they should have believed it. Why should a subsidiary of the Italian state oil corporation and which was drilling or prospecting for oil in Tunisia (under licence from the Tunisian authorities) wish to take the risk of engaging in schemes to avoid the local exchange control? Jackson & Co. could have informed themselves about Agip's status without difficulty if they did not know it anyway.
The question is whether Mr. Jackson and Mr. Griffin acted honestly. The contents of the minute are not support for the view that they did. They knew that something was concealed. The fact that the concealing was labelled as a "circumvention" does not alter that; it suggests some sort of impropriety. It would be an evasion of the local law on a matter of importance to the Tunisian State. If the known facts indicate a lack of frankness, the person assisting in effecting the transaction in question must take the risk in the absence of further explanation that it is fraudulent.
Our attention is drawn to the reaction of Mr. Jackson and Mr. Griffin to the question of a recall of the funds on 7th January 1985. Agip's evidence was as follows:
"Miss Freeman:
'I believe I informed them [the customer] that we had received a request from the Banque du Sud for a recall of the payment. I believe the customer would have asked why the payment was being recalled. We had no reason for that. The customer said that they were unaware of the payment -the reasons for the recall, and I believe they offered to leave the fund with us for 24 hours so that checks could be made.'
Mr. Breeze:
'We were instructed that the monies should be - despite the written instruction which had already been given, that we should hold the money overnight before any transfer was made ... I understood that it was for us to ensure that there were no legal obligations for the return of the money.'"
It is said that the offer to leave the money with Lloyds for 24 hours was inconsistent with any dishonesty. It may be that, if Mr. Jackson and Mr. Griffin had given evidence so that the judge had an opportunity of forming a view as to their character, veracity and intentions, the offer to keep the money for 24 hours might have been a circumstance which would have had some weight in reaching his overall conclusion regarding the honesty of their personal attitudes. Without such evidence, it seems to me to tell us very little. They may have felt that they had no alternative but to make the offer. The judge, I should add, found that Jackson & Co. did not offer to return the money if a good reason was given for the recall but rather that they refused to return it unless a good reason was given.
In the end, it seems to me that the most striking feature in the case is that in August 1984 Mr. Jackson and Mr. Griffin were being given advice on the possibility that a payment or payments might involve a fraud on Agip. Having got to that point it seems to me that persons acting honestly would have pursued the matter with a view to satisfying themselves that there was no fraud. But there is nothing to show that they did that. They made no inquiries of Agip at all. They let matters continue. In the circumstances, I conclude that Mr. Jackson and Mr. Griffin are liable as constructive trustees. Mr. Bowers is liable for the acts of Mr. Jackson, who was his partner, and of Mr. Griffin, who was employed by the partnership.
Accordingly, I think that the judge came to the right conclusion and I would dismiss the appeal.
LORD JUSTICE BUTLER-SLOSS: I agree.
LORD JUSTICE BELDAM: I agree.
Order: Appeal dismissed with costs. Leave to appeal to the House of Lords refused. |
THE LORD CHIEF JUSTICE: On 2 August 1988 in the Crown Court at Maidstone before Judge Lownie and a jury, the appellant was convicted of conspiring to import cannabis. He was at a later date sentenced to four years' imprisonment, a confiscation order having first been made in the sum of £129,300 under the provisions of the Drug Trafficking Offences Act 1986 (hereinafter called "the Act")
This court dismissed his appeal against conviction on 29 March last. He now applies for leave to appeal against that part of the sentence relating to the confiscation order. His application has been referred to this court by the single judge. We grant the application and, with the consent of counsel, treat this hearing as the appeal.
The facts of the case, so far as they are material, are these. The appellant conspired with a man called Richard Brown and others to smuggle cannabis resin from the continent of Europe to this country. The man Brown travelled from Zeebrugge to Dover on the ferry. The car he was driving was searched on arrival and, inter alia, 27.4 kilograms of cannabis resin were found concealed in the vehicle.
The jury were satisfied that the appellant had been partly responsible for the organisation of this importation. It was a case which clearly raised the possibility that a confiscation order might be appropriate.
By s.1(4) and (5) of the Act the judge in these circumstances is required before sentencing to determine the amount by which the defendant has benefited from drug trafficking and the amount which, in accordance with the terms of the Act, is to be recovered, and to order the defendant to pay that amount.
The case was accordingly adjourned to 31 October 1988 for the necessary investigations to be made and for statements and papers to be prepared. Between then and the adjourned date the judge had considered not only the evidence adduced at the trial but also the statements obtained and submitted by the parties under s.3 of the Act.
At the adjourned hearing on 31 October, before any evidence was called by either side but after hearing submissions by counsel, the judge announced:"I now formally record that I have determined that the defendant . . . has benefited from drug trafficking . . .," although the judge qualified that announcement later, saying that he had merely made the assumption that the defendant had benefited and that the matter would be considered fully on the next occasion.
A discussion then took place as to whether the prosecution were obliged to call evidence to support the statement which they had filed. The judge indicated that on a provisional view he was prepared to act on the prosecution's s.3 statements without the necessity of the prosecution adducing any evidence in support, despite the fact that the defendant contested those statements, subject however to any evidence which the defendant might choose to tender.
The matter finally came before the court on 14 November 1988. The prosecution did in fact call evidence in support of their statements and evidence was also called to support the defendant's case. After two days' hearing the judge gave his ruling on 16 November. He found that various items to a value of £303,432 were the proceeds of drug trafficking, but he also found that the amount to be included in the confiscation order as the amount that might be realised at the time of the confiscation order was £129,300. Accordingly he made an order that the defendant should pay the sum of £129,300 within six months, with a term of two years' imprisonment to run consecutively to the four years in default of such payment. It is against that order that this appeal is launched.
The grounds of appeal advanced by Mr. Riordan raise a number of points under the Act which we understand have caused trouble to courts up and down the country and it may be of assistance if we try to deal with the structure and import of the Act in general before turning to the specific points which arise in this appeal.
It is plain that the object of the Act is to ensure, so far as is possible, that the convicted drug trafficker is parted from the proceeds of any drug trafficking which he has carried out. The provisions are intentionally Draconian. Since the amount of those proceeds and the size of his realisable assets at the time of conviction are likely to be peculiarly within the defendant's knowledge, it is not surprising perhaps if evidential burdens are cast upon him of a kind which are, to say the least, unusual in the area of the criminal law and this, despite the fact that the confiscation order and the penalties for failing to comply with it may be rigorous.
The sequence of events as appears from the Act is as follows.
(1) The defendant appears before the Crown Court for sentence having been convicted in respect of a drug trafficking offence. By virtue of s.1(4) to which reference has already been made, the judge must then decide whether or not to pass sentence immediately in the usual way. If it is a case where the defendant may have benefited from drug trafficking, sentence must be postponed until after the necessary inquiries and determinations have been made. These are threefold:
(a) whether he has benefited from drug trafficking (s.1(2));
(b) the extent to which he has benefited (s.1(4)); and
(c) the amount the defendant shall be ordered to pay under s.1(5)(a).
(2) The court determines in accordance with s.2 the amount which represents the benefit he has received from drug trafficking.
(3) The court determines the amount that the defendant shall be ordered to pay in accordance with s.4 of the Act.
Thus the judge has to make a preliminary assessment as to whether it is, or is likely to be, a "benefit" case or not. No doubt the evidence from the trial, if there has been one, or from a recital of the facts if there has been a plea, will be enough for him to form such a preliminary assessment.
If he decides that it is such a case, then comes the task of deciding the three questions which have just been set out. The investigation is not confined to proceeds accruing from the particular offences on which he stands convicted, again an unusual feature of the Act. Section 1(3) provides:
"For the purposes of this Act, a person who has at any time (whether before or after the commencement of this section) received any payment or other reward in connection with drug trafficking carried on by him or another has benefited from drug trafficking."
Section 2(1) provides:
"For the purposes of this Act -
(a) any payments or other rewards received by a person at any time (whether before or after the commencement of s.1 of this Act) in connection with drug trafficking carried on by him or another are his proceeds of drug trafficking, and
(b) the value of his proceeds of drug trafficking is the aggregate of the values of the payments or other rewards."
The prosecution have the task of proving both the fact that the defendant has benefited from drug trafficking and the amount of such benefit. In our judgment the context of the Act and the nature of the penalties which are likely to be imposed, make it clear that the standard of proof required is the criminal standard, namely proof so that the judge feels sure or proof beyond reasonable doubt. The evidence upon which that judgment is based will come in part from the trial, if there has been one, in part from the statements tendered by the parties to the court under s.3 of the Act (with which we shall deal later in this judgment) and in part from evidence adduced before the court.
What may thus seem at first sight to be a heavy burden on the prosecution is considerably lightened by the provisions of s.2(2). That section reads:
"(2) The court may, for the purpose of determining whether the defendant has benefited from drug trafficking and, if he has, of assessing the value of his proceeds of drug trafficking, make the following assumptions, except to the extent that any of the assumptions are shown to be incorrect in the defendant's case. (3) Those assumptions are -
(a) that any property appearing to the court - (i) to have been held by him at any time since his conviction, or (ii) to have been transferred to him at any time since the beginning of the period of six years ending when the proceedings were instituted against him, was received by him, at the earliest time which he appears to the court to have held it, as a payment or reward in connection with drug trafficking carried on by him,
(b) that any expenditure of his since the beginning of that period was met out of payments received by him in connection with drug trafficking carried on by him, and
(c) that, for the purpose of valuing any property received or assumed to have been received by him at any time as such a reward, he received the property free of any other interests in it."
The words "appearing to the court" in our judgment mean that if there is prima facie evidence that any property has been held by the defendant since his conviction or was transferred to him since the beginning of the relevant period, the judge may make the assumption that it was a payment or reward in connection with his drug trafficking.
Likewise with expenditure, once there is prima facie evidence of expenditure by the defendant since the beginning of the relevant period, the judge can assume that it was met out of payments received by him from drug trafficking.
Those assumptions can be displaced if they are "shown to be incorrect in the defendant's case." In other words, if after the matter has been fully heard the defendant shows on the balance of probabilities that in respect of each item of property and expenditure the assumptions are in his case incorrect, they can no longer be relied upon as evidence that that item of property or expenditure was part of the defendant's proceeds of drug trafficking.
In so far as any of them survive they will, together with any evidence which the judge may accept, assist the judge to decide whether he is satisfied so as to feel sure that the prosecution have made out their case. Thus the initial heavy burden on the prosecution is greatly lightened by the potential assumptions.
We turn now to the hearing. This in a complicated case is likely to be protracted and difficult. However, s.3 of the Act goes a little way towards simplifying proceedings and crystallising the issues. It provides that the prosecution may tender a statement dealing with any matter relevant to either of the first two issues, and also provides, no doubt by way of clarification, that if the defendant accepts any of those facts, that acceptance may be treated as conclusive. By s.3(4) a similar provision is made with regard to any statement tendered by the defendant relating to the amount which might be realised at the time the confiscation order is made.
Section 3(2) imposes restrictions on the defendant when he has been served with a copy of the prosecution's s.3(1) notice, because the court may then require him to indicate to what extent he accepts the prosecution allegation and if he does not, to indicate any matter he proposes to rely on. That will have the effect, one hopes, of containing the ambit of the inquiry. Section 3(3) imposes sanctions upon him if he fails to comply with a requirement under s.3(2).
It is clear from these provisions that where the prosecution statement is not accepted by the defendant, the prosecution, if they wish to rely on any of its contents, must adduce evidence to establish them.
The judge then hears the evidence on either side and reaches his conclusion (1) as to whether the defendant has successfully rebutted any provisional assumptions under s.2; (2) as to the existence of any benefit from drug trafficking; and (3) as to the value of such benefit.
That is however not the end of the matter. Section 4 provides:
"(1) Subject to ss.(3) below, the amount to be recovered in the defendant's case under the confiscation order shall be the amount the Crown Court assesses to be the value of the defendant's proceeds of drug trafficking.
. . .
(3) If the court is satisfied that the amount that might be realised at the time the confiscation order is made is less than the amount the court assesses to be the value of his proceeds of drug trafficking, the amount to be recovered in the defendant's case under the confiscation order shall be the amount appearing to the court to be the amount that might be so realised."
Thus, although the two exercises may overlap, where the court is satisfied that the amount that might be realised is less than the value of the proceeds of drug trafficking, the court has then to carry out a further exercise to determine what the "amount appearing to the court to be the amount that might be so realised" is. If that amount is less than the proceeds of drug trafficking as found, the confiscation order will be for such lower sum.
As will appear when we turn to deal with the grounds of appeal in the instant case, it is by no means always simple to determine what the "amount that might be so realised" is.
The grounds of appeal advanced by Mr. Riordan in his helpful submissions are as follows.
(1) That the judge should not have determined at the preliminary hearing on 31 October that the appellant had benefited from drug trafficking, when it was clear from the statements tendered by the appellant that the matter was contested. In fact the judge later made it clear that the ruling was in fact only provisional and, as is now conceded, no harm was done. That ruling was amply justified by the evidence adduced on 14 and 15 November 1988.
(2) That the judge wrongly rejected a defence submission that the burden of proving that property had been transferred to or was held by the appellant rested with the prosecution to the usual standard in criminal cases. This is a reference to the terms of s.2(2) of the Act, and in particular the words "any property appearing to the court . . . ." As we have already set out, those words in our judgment mean that if there is prima facie evidence before the court to the effect that property has been held etc., that is sufficient to enable the court to make the assumption in that ss.(3) of s.2.
(3) The judge was wrong in pre-determining at the hearing on 31 October that it was not incumbent upon the prosecution to call any evidence whatsoever (and thus by inference that there was no burden upon them to prove any fact in dispute). We agree for the reasons set out earlier in this judgment that the prosecution were not entitled to rely upon their s.3 statements in so far as those statements were challenged by the defence. In the upshot evidence was in fact called at the hearing on 14 and 15 November and consequently this mistake had no effect in practice.
(4) That the judge when calculating the amount of the confiscation order wrongly included property which, by the time the order was made, was not held by the appellant.
In order to test the validity of this ground of appeal, it is necessary to refer briefly to some of the facts upon which the judge was being asked to assess the amount that might be realised so far as the assets of the appellant were concerned at the time that the confiscation order was to be made, bearing in mind the obligations of the court set out in s.4(3) of the Act.
The prosecution called evidence from the officer of the Customs and Excise who had been responsible for the investigation into the appellant's drug trafficking activities and also into the amount that might be realised. There were 13 items on the schedule of the assets alleged to be held by the appellant. Only nine were found by the judge to be benefits from drug trafficking and only three of those were the subject of complaint by Mr. Riordan on the basis that they did not represent realisable assets.
Items 10 and 11 were boats said to be worth £43,000 and £25,000 respectively. A Mr. Carson was called by the prosecution to prove that the appellant had told him that he, the appellant, owned these two vessels which were lying in a port in southern Spain and had shown photographs of them to him. The appellant denied that he had any interest in any such boats.
If we understand Mr. Riordan's submissions correctly, he was suggesting that the prosecution should have made further inquiries as to the existence or non-existence of these boats and that in the absence of such inquiries the burden of disproving the alleged connection no longer rested on the defendant. We do not accept that suggestion. There was evidence on which the judge could come to the conclusion, as he did, namely that the evidence he had heard satisfied him that these boats were held by the appellant at the material times and consequently their values must be included both in the proceeds of drug trafficking and in the amount that might be realised at the time of the confiscation order.
The other item which is challenged was a Range Rover motor vehicle. It is submitted that the judge was wrong to include the value of that vehicle in the amount that might be realised at the material time. There is no doubt that the Range Rover was bought by the appellant since the beginning of the relevant period. However it seems that it was given by the appellant to his wife who sold it on, and that the vehicle is now owned by a solicitor in Liverpool who may have bought it in good faith and for value. The contention of the appellant and his wife, rejected by the judge, was that the Range Rover belonged to someone else entirely, a man called McClellan, and had not been bought by the appellant nor given to his wife. There was evidence that the receipt for the purchase price of the Range Rover was found in Mrs. Dickens's handbag and that she had insured the vehicle and dealt with it as her property. The judge said that he had no hesitation in holding that this item fell within the Act.
The Range Rover was part of "the defendant's proceeds of drug trafficking" by virtue of s.2(3)(b) of the Act, that is to say "any expenditure of his since the beginning of that period" is assumed to be met out of payments received by him in connection with drug trafficking carried on by him, except to the extent that the assumption is shown to be incorrect: s.2(2). The judge rejected the evidence of the appellant and his wife on this aspect of the matter, and consequently the appellant failed to show that the assumption made by the judge was incorrect. Thus the sum paid for the vehicle by the appellant was part of his proceeds from drug trafficking.
The next question is whether the value of the vehicle should have been included in the confiscation order. The court has, under s.1(5), a duty to order a defendant to pay the amount that the court has determined in accordance with s.4 of the Act. As already set out, s.4(3) provides that where the amount that might be realised at the time of the confiscation order is less than the amount a court has assessed to be the value of the proceeds of drug trafficking, the amount to be recovered in the appellant's case under the confiscation order "shall be the amount appearing to the court to be the amount that might be so realised."
The amount that might be realised is defined in s.5(3) in the following terms:
"For the purposes of sections 3 and 4 of this Act the amount that might be realised at the time a confiscation order is made against the defendant is -
(a) the total of the values at that time of all the realisable property held by the defendant, less
(b) where there are obligations having priority at that time, the total amounts payable in pursuance of such obligations, together with the total of the values at that time of all gifts caught by this Act."
Thus it is the value of the gifts, and not the gifts themselves, to which s.5(3) applies. Section 5(4) provides, as far as is relevant:
"Subject to the following provisions of this section, for the purposes of this Act the value of property (other than cash) in relation to any person holding the property - . . . (b) . . . is its market value."
Section 5(9) provides:
"A gift (including a gift made before the commencement of s.1 of this Act) is caught by this Act if -
(a) it was made by the defendant at any time since the beginning of the period of six years ending when the proceedings were instituted against him, or
(b) it was made by the defendant at any time and was a gift of property -
(i) received by the defendant in connection with drug trafficking carried on by him or another, or
(ii) which in whole or in part directly or indirectly represented in the defendant's hands property received by him in that connection."
The gift of the Range Rover by the appellant to his wife was caught by ss.(9)(a) and also probably by ss.(9)(b)(i).
The Range Rover was thus a gift caught by the Act. Under s.5(3), its value at the time the confiscation order was made was to be part of the amount that might be realised in a confiscation order made against the appellant. Its market value at that time on the evidence before the trial judge was £15,000, which is the sum the trial judge included in the confiscation order.
Section 5(1) of the Act defines "realisable property." Section 38(2) of the Act provides that the expression "realisable property" falls to be construed in accordance with s.5(1). The Range Rover does not come within the definition of "realisable property" if the solicitor who now apparently owns it had paid a proper consideration for it. However the phrase "realisable property" does not appear in s.4 of the Act and in particular does not appear in s.4(3). If Parliament had wished the confiscation order to be confined to the defendant's "realisable property" as defined by s.5(1), then it would undoubtedly have said so in s.4(3), which it did not. We have no doubt that that was deliberate and was designed to ensure that drug traffickers could not protect the assets they had acquired through drug trafficking by "giving" those assets to others.
The subsections in which the phrase "realisable property" appear only do so in later sections of the Act. Thus, s.8 dealing with the power to make restraint orders refers to "realisable property," as does s.9 which gives the court power to make a charging order on "realisable property." Section 11, which deals with the court's power to appoint a receiver to recover "realisable property" and s.13 which enables the court itself to exercise the powers of a receiver.
For these reasons, in our judgment, the judge came to the right conclusion with regard to the value of the Range Rover, namely, that its market value at the material time being £15,000, that sum was part of the amount that might be realised at the time of the confiscation order.
In our judgment, for the reasons we have endeavoured to explain, the judge came to the right decision on the evidence before him as to the proper amount of the confiscation order and this appeal against sentence is accordingly dismissed. |
MR. JUSTICE OTTON: In this action the plaintiff, Edward Hubbard, seeks specific performance of a contract entered into with the defendants, Middlebridge Scimitar Limited, on 7th April 1990. The subject matter of the agreement is what is said to be a Bentley Speed 6 Racing Car known as "Old Number One".
The plaintiff agreed to sell this car for £10 million, in exchange for the assets of Middlebridge Scimitar Limited valued at £3.2 million, plus £6.8 million in cash. When the agreement was reduced into or evidenced in writing the car was described as "Bentley. Known as 'Old Number One'". The defendants subsequently resiled from the deal when they suspected the
authenticity of the car.
The plaintiff is 59 years of age and has had a passionate interest in fast and prestigious motor cars all his life. He has acquired a deep and detailed knowledge of vintage Bentleys and since that time he has owned 50 or more cars and has had one of the largest collections of Bentleys in the world. He had a private museum of classic motor cars at Radlett in Hertfordshire, and an extensive library on the subject. In separate premises in Watford he operates a company (Duttons Limited) where he employs a substantial staff to prepare and race a Formula 3 racing team to prepare and race vintage and historic racing cars, and for the purpose of restoring old racing cars. He still races with Vintage Bentleys and is a member of the Bentley Drivers Club.
The defendants are a company formed in May 1987. They are a subsidiary of Middlebridge Group Limited. The Company and the Group carry on the business of manufacture and sale of Scimitar cars. They also have an interest in modern racing cars, having recently acquired the well known Brabham Formula 1 racing team. The Company are also engaged in restoration of classic cars, i.e. cars produced some time after World War II.
The principal shareholder of the Group is Mr. Kohji Nakauchi, from whose name in Japanese the Group's name derives. He is clearly a wealthy industrialist and a collector of important motor cars, particularly of famous British marques. The chairman of the Company and the Group is Mr. Dennis Nursey. He, too, has a keen interest in motor cars, notably in the well known and well loved Aston Martin marque. He has considerable experience in the world of motor cars and in business. His business interest have taken him to Japan and he has the rare distinction of being able to speak Japanese. He is clearly a most able and accomplished businessman and "a bit of a go-getter". He is ambitious and talented.
The managing director of the Group and the Company is Mr. William McCormack. He has a history of banking behind him and is considered to be the person who looks after the financial side of both the Group and the Company and acts as their accountant. He is clearly articulate, intelligent and has experience in dealing with contractual arrangements and, in particular, with written contracts.
However, the principal character in this action is not the larger than life Edward Hubbard or the ambitious and thrusting Japanese speaking Dennis Nursey. It is two tons of motor car referred to throughout as Old Number One, and it is the integrity, provenance and pedigree of this vehicle which have been under scrutiny.
It was produced for my inspection in Lincoln's Inn. It looked beautiful and the magic and sheer power of its engine evoked excitement and nostalgic memories of the past; but looks and sounds are not everything. The defendants maintain that it is not worth to bear the name Old Number One.
Between 1921 and 1930 W.A. Bentley, the founder of Bentley Motor Cars, took a passionate interest in motor racing. To many, even today, motor racing in the 20s and 30s was the Golden Era. The rapid progress in mechanical engineering during and after the first world war brought together a remarkable fraternity of drivers, engineers, industrialists and enthusiasts who all shared a passion for racing cars. Drivers were legendary -- Captain Babe Barnato, Kitson, Sammy Davies, Sir Henry Birkin, Clive and James Dunfee to name a few of the "The Bentley Boys" as they were known. Wally Hassan and Nobby Clarke and others were the master mechanics and expert engineers who developed the racing car to the limits of technology, science and the state of the art of their day, and who had to satisfy the insatiable demand of the drivers for ever faster motor cars.
They strove to be, and were, world beaters particularly on two circuits -- Le Mans and Brooklands.
Origin
The car, which was later to be known as Old Number One, started life when it was selected at random from the Standard Six production line in preparation as the Bentley team entry for the 1929 Le Mans race. At that stage it was technically known as a rolling chassis, consisting of a chassis or chassis frame, an engine, steering column, suspension and wheels. It bore the chassis number LB2332 and the engine number LB2336. It was taken to the racing shop where it was stripped down and rebuilt to a higher specification by Wally Hassan, the master mechanic, and others.
It was the second Speed Six to be built. It had a six cylinder, 6+ litre engine, with a non-detachable head in the form of a conventional internal combustible engine. The precise specifications to which the car was built appears at pages 49 to 50 of Mr. Hay's authoritative book: "Bentley, the Vintage Years 1919 - 1931".
It was fitted with a four seater Van den Plas open body. After the successes at Le Mans of the 3 litre and 4+ litre cars, much was expected of it. At Le Mans in 1927 the 3 litre Bentley had won at a speed of 61.35 miles per hour. In 1928 in a 4+ litre affectionately known as Old Mother Gun, Captain Barnato with his co-driver Rubin had won at a speed of 69.11 miles per hour.
On 24th April 1929 the car was registered bearing the registration number MT 34484. The car that I saw bears this registration number today.
Racing History
The racing history of the car began at Brooklands in the Double twelve race in 1929, so-called because the race was run in two successive twelve hour daylight periods. In the interval the cars were locked up for the night. It did not complete the race, in circumstances of some mystery but probably because it suffered from a defective dynamo. In 1929 it entered the La Mans race and because its engine capacity of 6+litres was the largest in the field it was assigned the race number of No. 1. It was driven by Captain Barnato and his co-driver was Sir Henry Birkin.
At page 264 of Mr. Hay's book there is a short description of the race as follows:
"The Speed Six, driven by Birkin, was first away on the flagfall and apart from the problems with shifting ballast on the Clement Chausan 4½ litre and the retirement of the Earl of Howe in No. 11 with magneto trouble, the four Bentleys held the first four places virtually from beginning to end. At one point the Chrysler of Stoffel and Benoir reached third place but gradually the American challenge faded and W.O. (I.e. W.O. Bentley) reduced the speed of all cars to a fast tour. W.O.'s policy of not showing the potential of the cars irked the drivers. Jack Dunfee stopped at the pits and said I say, W.O., do you want me to get out and push the bloody thing? I've just stopped and had a drink at the Hippodrome', and he had one too. Shortly before 4 p.m. the cars slowed, formed up in line astern and at flagfall the victorious team cruised over the in finishing order: No.1, No.9, No.10, No.8, all Bentleys."
Some cruise! The speed was 73.62 miles per hour.
The cars in those days were driven back to England through France, via Paris, and one can imagine the victorious scenes which greeted the cars on their route back. They were driven by the engineers and mechanics. When they arrived at Cricklewood they were examined in length and depth.
As Mr. Hay in his expert's report says,
"It is important to realize that racing cars are invariably changed during their careers, to incorporate improvements and modifications, and because of hard use and accidents. This was effectively summarized by Nobby Clarke, head of the racing shop 1926 - 1929 and team manager at La Mans between 1926 - 1930 as follows in 1974: One must realize that the international reputation of the Company was at stake, and there had to be no mistakes made, by me or anyone else in authority. We therefore changed bits and pieces under racing conditions which under normal conditions could have been allowed to run on. Remember that once the starter's flag has dropped, it is too late to think I wish that I'd changed this or that'".
The plaintiff's experts, Mr. Hay and Mr. Guppy, with the aid of a remarkable series of photographs, the Bentley stripping records and service records, have been able to trace the way the car changed between each race, often significantly. Bentley Motors incorporated bits to latest specification when these were available. The changes are largely non-contentious between the parties and thus I can set them out in summary form.
Within a matter of weeks after participating in the Double Twelve race on 10th May, photographs taken in June 1929 show the Van den Plas body cut away for the driver's elbow was deepened. The body catches and straps had been changed; the petrol tank bar at the rear changed and Lucas headlamps substituted for Smiths. The chassis fairings had been removed and the handbrake changed to cable and adjuster pattern. It was essentially in this form that it arrived at Le Mans where it is noted that two horns had been added to the front. The fishtail exhausts required to placate the residents in the vicinity of Brooklands had been removed and a straight-through exhaust system substituted. It was in this form that it won the race at Le Mans.
A fortnight later, on 29th June, it was back at Brooklands for the 6 hours race. The back axle internals had been renewed along with the exhaust valves, and all the valves springs and rear drums. The Smith headlamps had been refitted and the former bonnet straps had again been changed. It won at 75.88 miles per hour and suffered slight damage.
Within a fortnight it had been modified and prepared for the Irish Grand Prix at Phoenix Park. The back axle internals had been removed; the fishtail had been refitted to the exhaust; the windscreen removed and aero-screens fitted direct to the body. In this form it took second place.
On 17th August 1929 it was ready for the Isle of Man TT Race. The fishtails were removed and a ballast bar added to the front of the chassis. Unfortunately the car crashed, suffering damage to the front end of the chassis, front axle, shock absorbers and brackets. The bonnet and magneto were replaced.
Even so, by 12th October 1929 it was ready for the 500 miles race at Brooklands. A new 600 cylinder pattern differential and spicer shaft had been fitted. The car was rebodied -- the four seater Van de Plas was removed and replaced by a two seater form with fintail or fishtail, new petrol tank and a fly-off handbrake had been fitted direct to a compensator. The gear lever was cranked outside the body with no reverse catch. The car in this form took second place.
Thus by the end of the 1929 season the car was overdue for a major overhaul. This must have taken a considerable period of time because there are no photographs between October 1929 and June 1930 when the car was entered for the Le Mans. In the intervening period two new Speed 6's were built to a new 1930 specification and the 1929 winner was similarly rebuilt. It is common ground between the experts and accepted by the defence that of the 1929 Le Mans winner possibly only the pedal shaft and the compensator survive.
The records reveal that the 4½ litre pattern differential was over stressed so the standard production 6½ litre differential was fitted with standard spicer shaft. The chassis frame was replaced, along with the front axle beam. A new gear box of the D Type, along with a new differential and spicer shaft were installed. Bracing across the front of the frame was changed. The Hartford friction shock absorbers were deleted and replaced by twin hydraulic Bentley and Drapers. It seems likely that the steering column was changed as well. There was a modified crankcase to accommodate the Bosch starter. Thus it can be seen that the 1930 car was very different from the 1929 car both in appearance and specification.
This Speed 6 did not race at the Double Twelve Race at Brooklands. However, Captain Barnato and Clement drove another 6½ litre and clocked the astonishing speed of 86.68 mph. Old Number One was being prepared for the Le Mans race along with two other Speed 6's.
The changes in the car can be readily seen from the series of photographs taken before and during the race. The car was again driven by Captain Woolf Barnarto. There was a formidable challenge from a supercharged 7 litre Mercedes Benz. Because of the Mercedes Benz' larger engine capacity it was assigned the No. 1 race number. The next three numbers were assigned to the three Bentley Speed 6's because they were of 6½ litre capacity, and No. 4 was assigned to the car bearing chassis number LB2332. Thus it was racing as No. 4.
Again, the account is of interest. The cars went off to a good start and the Mercedes driven by Karachiola and Berner did extremely well in early stages. Bentleys suffered some misfortune. However, the account reveals:
"The chase, though, was still on with Barnato taking over from Kitston with orders to push the Mercedes hard. Barnato finally took the lead on the 36th lap, pushing the Mercedes into using the clutch engaged supercharger all the time, the whine of which could be heard all the way round the track. It was well known that too much use of the supercharger would blow the Mercedes engine and Barnato was playing his part to perfection. The Mercedes led again on lap 37 and then the Bentley on lap 40, then the Mercedes again on No. 4's pit stop and handover to Kitston. The Mercedes came in to refuel on the 46th lap with Berner taking over for a brilliant spell in the dark to regain on the 59th lap, but this last effort heralded the demise of the Mercedes challenge. The reason, though, remains unclear to this day. The motor noted that the Mercedes had been suffering from weakening brakes and that flickering of the oil pressure gauge had been causing concern. Eton, in one of the Talbots, passed the Mercedes on one part of the course and noticed how powerful its headlamps were shortly before its retirement on the 82nd lap due to the battery being completely discharged. The failure of the Mercedes to respond to push-starting, coupled with W.O.'s mention of water pouring from a blown gasket suggests there was more to the Mercedes retirement than met the eye, and Karachiola and Berner told W.O. that their schedule, based on the 1929 Speed 6 performance, gave them a lead of a whole lap at that point -- a vindication of W.O.'s policy of not revealing his hand unnecessarily.
The rest of the race was inevitably something of an anti-climax. W.O. reduced the speed of the six Speed 6's to a fast tour with the Dangerfield car third and Birkin fourth. The two Stutzes (American cars) retired, one catching fire and the other with a deranged back axle. During the night Ramponi suffered from a fever and visions and could be persuaded to drive for a lap with only the greatest difficulty in order to meet the regulations. Of the Blowers (i.e. the Bentleys with superchargers), Birkin retired just before noon with a broken valve followed shortly by Dangerfield with a collapsed piston, a very stout effort having driven single-handed for ten hours. Thus it was that Old Number One Speed 6 led GF8507 over the line at 4 p.m. for the fifth and final Bentley win at Le Mans. The two Speed 6's also took first and second places in the Rudge Whitworth Biennial Cup with performance indices of 1.172 and 1.33 respectively. The British triumph was completed by the 2.3 Talbots which finished third and forth on distance and formula."
No-one has suggested that this car which won the 1930 Le Mans was a new car, merely that it was a metamorphosis from the 1929 car. The 1930 car was a continuous process and an evolutionary stage of the car's development. The modifications were clearly justified by the win and the increased average speed of 76.88 mph.
After this race Bentley Motors retired from racing and the car passed to Captain Barnato as his private motor car. Captain Barnato was a rich man and had many cars, including several Bentleys, but he always regarded MT3484 as his racing car. The registration book shows the alteration in ownership.
Shortly afterwards it was noted that there was a change to the windscreen and a standard exhaust system with silencer had been added.
Following its success at Le Mans it was prepared for the 500 miles race in October at Brooklands in 1931. The parts changed included the clutch stop, clutch shaft and linings, the offside stub axle with kingpin bearings, hubsteering arm, brake shoes and track rod. Five new main bearings and crankcase were fitted. For this race the Le Mans body was removed and replaced by the racing two-seater with its petrol tank.
From the photographs taken at Brooklands in October , further changes can also be observed. Double acting Bentley and Draper hydraulic shock absorbers had been installed to the rear along with additional inboard Hartfords friction absorbers. A horizontal mesh radiator stone guard had been added. A fly-off handbrake had been mounted on the compensator. The
radiator had been lowered, and various other less significant or visible modifications which I need not set out.
The result of this race was a resounding victory. The development had increased its speed to 118.39 -- nearly 9% increase on its previous year's performance.
At this stage I must refer to the evidence of Mr. Walter Hassan. He is now 85 years of age. He is a most remarkable man. He is acknowledged as being the master mechanic who looked after and ministered to and I have no doubt cherished the racing cars of the Bentley team, and in particular the Speed 6's. He gave me a short description of his life in mechanical engineering and he must have a reputation second to none. At least in this country if not outside it.
He told me that in 1930 Barnato, who was the Chairman of Bentley, asked Hassan if he would join Barnato to look after his team of cars. He was well familiar with what had happened to the car which had won Le Mans twice. Mr. Hassan was part of the team which had prepared the car for Le Mans on both occasions. I accept that Mr. Hassan and Captain Barnato considered that the same car had won both races. Captain Barnato having retired from racing himself, still took an active interest in the car. MT3884 was registered in his name in the log book on 5th July 1930. I am satisfied that after the 1931 500 mile race Captain Barnato asked Hassan to rebuild the car with whatever he thought was necessary to bring it up to a condition whereby it could race for several more years.
There was a fire in 1932 at Arden Run, the country seat of Captain Barnato where he kept his motor cars, and was the centre of activity both socially and otherwise for the Bentley Boys. As a result, the rebuild could not take place at Arden Run and it was conducted in a used garage in Mayfair, again owned by Captain Barnato.
Mr. Hassan started with a 4+ litre chassis frame which was stronger than the old 6.5 litre because it was feared that it would break or crack. Mr. Hassan told me that he used all the existing parts of the older car -- that is the radiator, the clutch, the gear box, the axles, the scuttle, the electrical equipment and pedals, as Mr. Hassan said in terms, "and we finished it up in the form it is now. It was ready for the 500 miles race in that September but Captain Barnato thought it would be a bit faster with a bigger engine, so we obtained an 8 litre engine and I built that into the car. That is the state that it ran in the race when Clive Dunfee unfortunately went over the top and was killed as a result."
He described in detail how they obtained the 4 litre side-members of the chassis and the 6½ litre cross-members in order to accommodate the D Type gear box from the old car which Captain Barnato insisted should be incorporated. Mr. Hassan told me that all the running parts that are important to a car came from the old 6.5 litre. It was really only the side-member which were replaced. He explained how Captain Barnato intended the car to be in effect the same car as it was before, and merely updated. For this reason, although new chassis side-member were incorporated, the old chassis number LB2332 was marked on the new chassis frame. The number was stamped but not, as I find, as Mr. Hassan recalls at the front of the chassis side-members in the vicinity of the dumb-irons. The numbers can clearly be seen on the front engine cross-members where the number is stamped twice. I suspect that this was done either by Mr. Hassan or a fellow mechanic engaged in that rebuild. This is of minimal significance.
The car in its new form and with the 6½ litre engine made its first race appearance on Easter Monday 1932 in the British Empire Trophy Race. It did not win and was deprived of third place. Captain Barnato was not used to his racing car not winning or taking a place -- even when he no longer raced the car himself. He thought the car was to slow. He was at that time on the Board of Rolls Royce. Using his influence he managed to obtain an 8 litre engine. There was only a week or so to the October race. He instructed Hassan to take out the 6½ litre engine and install the 8 litre engine. Hassan described how it went in easily. As he put it: "I did not have to do anything other than pull out the three bolts and put the other engine in and bolt it in again and connect up the clutch."
Photographs are available showing Barnato driving the rebuilt car on demonstration laps at the August 1932 BARC meeting at Brooklands. Mr. Hay, the expert called on behalf of the plaintiff, pointed out many parts from the Speed 6 -- namely the handbrake, radiator cap, droparm wings etc. As he put it in his report:
"It is clear that the rebuild represented an evolutionary stage in the development of the car, as in the 1929/1930 rebuild by Bentley Motors."
The final preparations for the 500 miles race at Brooklands included a cowl which was added to the scuttle in place of the aero-screen. There are many pictures of the car during the race and of the terrible crash. History records that the car went over the top of a bank at an estimated speed in excess of 120 mph causing Dunfee to lose control. He was thrown out of the car and received fatal injuries. The car appeared to break up and turn over, and there are several pictures of its sorry state when it came to rest. Not unnaturally, Barnato was very upset at the death of his friend. The car was recovered but it never raced again.
It is at this stage that mystery and myth start to surround the car. Commentators writing many years later seem to have formed the view that the car had suffered so much damaged that it was irreparable. This may well have been engendered in part by the dramatic newsreel film record. The doubting Thomases underestimated the skill of Wally Hassan. He examined the car. He told me: "The body was of course ripped off but all the mechanics, the mechanical parts, were all perfectly OK. The RAC held an inquest on the thing and no mechanical fault was found as a cause of the crash." Later he put disarmingly: "We were just able to clean it up and we had a new body built for it, a coupe body this time." The original 6.5 litre Speed 6 radiator was put back on the car. This item was very unusual because Captain Barnato had had all the cars successes inscribed upon the radiator and insisted that the radiator was incorporated in the car in the 1931 rebuild and the 1932 repair after the crash. The significance of this gesture appears hereafter.
Mr. Hassan, being an engineer, did not go along with the name Old Number One. That was a creature of the enthusiasts and no doubt journalists and other writers of the day. He knew it by the chassis number which, as he told me, is the true identity of any car. He knew it through out as LB2332. This was the number it carried right from the beginning when he first helped to assemble it way back in 1929. His power of recollection I found to be most impressive, although I am bound to say he appeared to tire towards the end of his evidence.
To the suggestion that the 1929 car had ceased to exist in 1932 he said "Well it did not, because the bulk of the car was fitted within the new side-members so that it was the same car, same wheels, same axle, same steering column, same clutch, same gear box." He then went on to describe what prompted the change of the chassis frame. The 4.5 litre cars all broke their chassis frames, one during the Le Mans race, one on the way home between Le Mans and Dieppe and one on the road from Newhaven to Cricklewood. This caused some anxiety. He also gave more details of his instructions, which were to put together as many parts of the first car, the 6.5 litre car, as possible within the two new side-members. They knew it was going to be used in the 500 miles race later that year and that they should build the car accordingly.
As he said in terms: "It was never the intention that it should be a new car. It was just the old car with new side-members which we had had problems with previously with them cracking. We took the best steps we thought possible to put the strongest chassis in. All the other parts were ex the body that had become known as Old Number One: engine, gear box, clutch, radiator, brakes, axles, all the sort of stuff which go together to make a car." He estimated that between 90 and 95% of the 1930 car went into the 1932 car. In the light of Mr. Hay's and Mr. Guppy's evidence I consider that this is an over estimate and the percentage was more likely to have been 70%, which was reduced when the 8 litre engine was substituted for the 6½ litre engine. This engine change did not require substantial modification to the chassis frame, gear box or axle.
The increased engine capacity was achieved by larger bores with the same piston stroke within the 6½ litre block. The inlet and exhaust sides were changed but I was shown at the view how this was achieved by simply swinging the 8 litre engine through 180 degrees before offering it to the chassis frame. Mr. Hassan also explained how later he was invited by Barnato to build a Bentley Special using the old 6½ litre engine. This was known as the Barnato Hassan Special and became famous in its own right. He also created the Pacey Hassan which, along with the Barnato Hassan, plays no part in this case.
In cross-examination he was asked about his book and how he had, when putting into writing his memories and career in a book called "Climax in Coventry" -- he was asked about the period of history of the car when he received his instructions from Captain Barnato. I shall not quote all the passages; only those I consider of particular relevance. He said at pages 29:
"At first there was no suggestion of my building a special track car for Barnato. I simply maintained his road cars whenever they were based at Arden Run and concentrated on preparing and developing his racing Bentley. The first car was the old Speed 6 which had brought Barnato so much success in the works team. He had all the successes he had gained with it engraved on the radiator. It had become his own property and in October 1931 he took it to Brooklands for the 500 mile race, where Jack Dunfee and Cyril Paul were to drive it ."
He then goes on to describe that race.
Later he was asked, reference bundle 3, 207A, why he wrote the following passage:
"Eventually we decided to retire the Speed 6 Old Number One and build a special track car, although the decision was rather forced on us when Jack Dunfee took it out in the Empire Trophy Race early in 1932 and brook its crankshaft. Now I won't say that this sort of breakage was unheard of, but for it to happen to a Speed 6 meant that the car had endured rather a lot of flat-out motoring. You could forgive it almost everything, though, because it had won a lot of races for Barnato and a lot of prestige all around. The new car was to be a purpose built racer and it was here that I put my idea to work on an entire car design for the first time. We had encountered chassis frame troubles on Old Number One so we decided to start with the strongest possible chassis. Although the 4 litre Bentley never had much of a reputation as a production car, its very strong frame, being a shortened version of the 8 litre, seemed to me to be ideal for the job.
At first we put the rebuilt 6½ litre engine out of Old Number One into the new car but it wasn't fast enough and somehow Barnato was able to get an 8 litre engine from Rolls Royce. The 8 litre engines were very rare by then so it needed considerable influence to get one out of Bentley's new owners."
Mr. Slowe would wish me to emphasize the words "retire", "build a special track car", "the new car was to be a purpose built racer" and "entire car design. We decided to start with the strongest possible chassis", and later "At first we put the rebuilt 6½ litre engine out of Old Number One into the new car".
Later he also uses expressions such as "the new track car was down through the trees on the entrance below" referring to the crash when the car had come to a standstill, and later "Barnato kept what was left of the car for some time and did nothing with it. Then eventually he decided that it should be rebuilt as there was not a lot of damage." There are other passages, notably where he seems to suggest that the car which was built which finally incorporated the 8 litre engine and which was entered for the race in 1932 at Brooklands in which Dunfee was killed was in fact a new car and not a continuation car of the 1929, 30 and 31 seasons.
I have had to consider that matter with great care. Mr. Slowe, if I may say so , dealt with the matter very delicately but tellingly in cross-examination, but at the end of the day I accept Mr. Hassan's explanation. He was merely talking into a tape recorder for the purpose of a book which was being produced or "ghosted". From this I infer that the matters were perhaps ghosted or he was assisted in writing those matters. Even those passages which suggest that must be read alongside the evidence which he gave.
I am satisfied that when he was giving his evidence his recollection was crystal clear and he was trying to help me as much as he could. If he could not remember anything he was frank enough to say so. I do not find those passages sufficient to impugn his integrity. He was a most careful and impressive witness and I accept his evidence implicitly.
Subsequent History
The subsequent history of the car can be summarized as follows. Following the 1933 rebuild it was fitted with mulliner fixed head coupe body. Captain Barnato drove the car as a road tourer in this country and in the United States. There was trouble trying to get fumes out of the car. Apparently even Wally Hassan could not cure that defect. In 1936 he sold it to a Major Hartley-White who sold it back to Captain Barnato and in 1939 the car was acquired by H.M. Bentley. In 1957 the car was acquired by a Michael Quinney. He and Alan Paget rebuilt the car with a two-seater body. In 1960 the car was purchased by a Mr. J. Ward in Lincolnshire. He sold it in 1966 to David Tunnick in the United States. In 1988 the car returned to the United Kingdom when it was offered for sale on the 5th December 1988 at Sotheby's. It was not sold and the car passed to Stanley Mann, a celebrated vintage car dealer and then to Edward Hubbard.
Based on all this data and information, it is Mr. Hay's considered opinion that none of the 1929 Speed 6 survives with the exception of fittings which is impossible to date. Of the 1930 Speed 6 he believes that only the following exist on the car as it is now, namely pedal shaft, gear box casing and steering column. Of the 1932 car, the 4 litre chassis and 8 litre engine form in which it was involved in the fatal accident, he believes that the following exist: the chassis frame, suspension (i.e. springs, hangers, shackles and mountings), front axle beam, back axle banjo, rear brakes, compensating shaft, front shock absorbers and mountings, the 8 litre engine, some instruments and detailed fittings.
On this analysis, and having examined the car as it exists today after Mr. Hubbard's rebuild of it, he has come to the conclusion that this car is a direct descendant of Old Number One Speed 6, the car that won at Le Mans in 1929 and 1930. The car has been rebuilt several times to reach its present form but has a continuous documented history from 1929. He is surprised why its identity is in question and he fails to understand how anybody could seriously argue that this car is not, by its continuous history,
Old Number One. As he put it: "there is most certainly no other car that has any claim whatsoever to be Old Number One." Thus we have the expert evidence of the historian. It is supported to a great extent by the evidence of Mr. John Guppy, the mechanical expert. He has over 30 years' experience as a mechanical expert which extends to Bentley motor cars. He received instructions from his later father who was the racing mechanic to the well known Tony Rolton and Red Parnell who were both amongst the leading British racing drivers of the post war period. He was a partner in the Mckenzie, Guppy & Sons which were universally acknowledged to be the leading repairers of Bentleys manufactured between 1919 and 1931, and sometimes known as Vintage or W.O. Bentleys. He served an apprenticeship with Mckenzie, Guppy &Sons and for the past 25 years he has been a freelance specialist in the restoration and race preparation of Vintage Bentleys and historic racing cars.
During that time he has maintained and repaired vintage cars of various leading Bentley exponents, and he gave names. During the course of such work he has become familiar with the design work of Walter Hassan. His experience also extends to having rebuilt the Pacey Hassan car twice and he has race-prepared the Barnato Hassan car which is still in existence. He is thus familiar with Hassan's work and considers it to have various recognizable characteristics. Hassan's experience, knowledge and ability coupled with exceptional connections allowed him to create three outstanding competition Bentleys during the 30s. The first of these was the car known as Old Number One, as well as the Pacey Hassan and the Barnato Hassan.
Hassan's vast experience, gained through direct involvement in Bentley Motors' racing programme enabled him select Bentley components best suited to his purpose and it would appear a combination of whatever parts he required. However, Hassan's cars contained relatively few adapted or modified parts. He did not hesitate to design his own components to suit his requirements.
There is also evidence from Mr. Hassan that whenever he could he always used as existing component providing it had been proved and there was no reason to suspect its integrity as a part or that it would let him down. As he put it: "I always liked to save my guv'nor money." I do not think it was merely parsimony that caused him to do that. It is the mark of an excellent engineer and his pride which will only permit him to use a replacement when the part is no longer serviceable.
Mr. Guppy went on to say that it is important to bear in mind that the purpose of maintaining a racing car is to ensure that it contains the optimum components available to enable it to win races. In the course of maintaining and repairing any racing car components would be continually examined, repaired and replaced to achieve the best possible performance and reliability. On occasions time constraints might also enforce the substitution of one component for another and the original may or may not be reinstated at a later time. In such circumstances it would, therefore, be quite unrealistic to complain that in 1990 a racing car first seen in 1929 did not exclusively consist of the original parts incorporated when the car was first built. A racing car is a continual development around a theme, and dependant upon its history might retain a greater or lesser proportion of its original parts without jeopardizing its perceived authenticity -- a word to which I shall return hereafter.
In his opinion, with regard to Vintage Bentleys it is relevant to observe that unlike a modern car, the bodywork was not an integral part and for racing purposes Bentley Motors fitted bodywork complying with the regulations for each event. This led to a situation where a car might have various bodies fitted during the course of a season's racing and bodywork being transferred from one car to another. Such changes and transfers were rarely recorded.
Having examined the car closely at the premises at Dutton U.K. Limited, and having satisfied himself that the numbers identifying the components correspond with the documentation relating to the car, he is satisfied that the chassis is stamped LB2332 and the engine is marked YH5127. As a result, he is in no doubt that the car in Mr. Hubbard's possession is the car which has historically been known as Old Number One. As he put it, "I base this identification upon this chassis which is rather unusual in that when it was rebuilt by Walter Hassan in 1931 he replaced the Speed 6 side rails with new 4 litre Bentley type side rails while retaining Old Number One's D Type gear box and related chassis cross members. I don't know of another Bentley with this configuration."
The plaintiff also gave evidence of an expert character but I do not think it right to accept his opinion on these matters, merely his description. He took me through in detail how the car was restored and produced a portfolio of coloured photographs which were assiduously taken each stage of the restoration process. Mr. Hubbard has obviously spared no effort and I suspect expense in establishing the bona fides of the car and sought perfection in researching the provenance and minute details of the car, including consulting Mr. Walter Hassan when the project first started. Mr. Hassan approved of the rebuild and was no doubt proud to be driven round the Montclery Circuit a few months ago with Mr. Hubbard at the wheel.
Thus the expert evidence is all one way. It confirms that as with any other racing car the parts in the car were continually being changed. Such changes were made either because the parts were worn or because the specification of the car needed upgrading. Accordingly, the car evolved over a period of time as a continuous entity and can still properly be regarded as the present legitimate manifestation of Old Number One. As Mr. Guppy put it,
"A racing car is a continual development around a theme and depending upon its history might contain a greater or lesser proportion of its original parts without jeopardizing its perceived authenticity".
The defendants did not call any expert evidence at all. No attempt was made to adduce as evidence (under the Civil Evidence Act) the views of any other experts, either dead or living. There was a hint when the case was well into its stride that the defendants might seek to call Mr. Keith Shellenburg. In the event, no expert's report was disclosed from him nor anybody else, nor was any application made. Even so, I must take account of other sources of information to which both sides referred.
Daryl Berthon is a former Secretary of the Bentley Drivers' Club. In 1935 he published the first edition of "A Racing History of the Bentley". In Appendix 1 he wrote an account of the 1931 500 miles race, stating:
"In this year's 500 miles race Woolf Barnato entered Old Number One Speed 6 No. 46 now fitted with a single seater body and driven by Jack Dunfee and Cyril Paul."
There were then two references to Old Number One and finally
"Old Number One crossed the line and received the chickened flag for the fourth time in its career".
I emphasize the words "fourth time"; it can only be a reference to the 1929 Le Mans, the 1929 Six Hour Race at Brooklands, the 1930 Le Mans and the 1931 500 miles race. He thus regarded the car as a continuous entity up until 1931.
In Appendix 2 he deals with the same race in 1932, the fatal race. He records:
"For the race. . . Old Number One had an 8 litre engine in place of the original 6½ litre engine and was driven by Jack and Clive Dunfee"
and later:
"Then behind the members' hill the exhaust noise of Old Number One suddenly cut out. It was never heard again."
Thus he regarded the 1932 crash as the end of Old Number One. In the second edition of his book it transpires that he had consulted Hassan "for solving the mystery regarding the fate of Old Number One Speed 6". In Appendix 1 he records at the end of the 1931 race: "This was Old Number One's last race"
and in Appendix 2 for the 1932 race he records:
"The Bentley driven by the Dunfee brothers in this race was not Old Number One."
These seemingly authoritative statements were the lynch pin of the defendant's case. This book was considered as the authoritative work on Bentley racing motor cars.
Mr. Hay, the plaintiff's expert, was only 22 years of age and still a student apprentice at British Aerospace when he set out to emulate Mr. Berthon. In 1986 he published his first edition of "Bentley - The Vintage Years 1919-1931". He devoted a whole chapter to the 6+ litre production and racing cars. In cross-examination he was naturally asked why, at page 92, beneath plate 192, he had written:
"If eye teeth were a marketable commodity, Old Number One Speed 6, winner of the 1929 and 30 Le Mans, here seen at Barnato's country house, Arden Run, just days before the 1929 race; the No. 2 is from the 1929 Double Twelve Race and a special cable operation with adjuster can be seen on the handbrake. Sadly broken up, bits of the original car survive in the 4/8 litre in the States, registration MT3464, chassis number LB2332, coach work by Van den Plas."
At page 278 he had recorded under a photograph of four Bentleys that one had survived and "the other three cars have all been broken up, i.e. including Old Number One." Mr. Hay had to concede, which he did with commendable frankness, that this was wholly inconsistent with his report and expert evidence. His explanation was that he had relied upon sources which included the respected Daryl Berthon. He also told me that he had changed his views well before he was asked to give evidence in the case. He was invited to Sotheby's to examine the car when it was in bond at Heathrow and helped to compile the auction catalogue in which his opinion that it is the same car, i.e. Old Number One, is included.
I have had to consider this matter with the greatest of care. I accept Mr. Hay's explanation and that his view had changed well before he anticipated giving evidence. I do not find that this inconsistency undermines to any significant degree the weight that I attach to his assiduous research into the history of the car and the opinion that he has expressed in his report and in evidence.
Mrs. Diane Barnato-Walker is the daughter of the late Captain Barnato. She was a surprise witness and contacted the plaintiff's solicitors of her own initiative when she read of this action in the newspapers. She was born in 1918 and was 14 years old as the time of the 1932 Brooklands crash. She was present at the 500 miles race and saw Clive Dunfee driving Old Number One, as she put it , in what she called gray primer. She was standing next to Jane Baxter, a celebrated actress of the day, who was married to Clive Dunfee. She witnessed the fatal accident.
Her recollection of the car has been rightly described by Mr. Rosen as "vivid". She had recollections of being driven by her father in the car in the grounds of Arden Run and how he used to time the car down the long drive. On the balance of probabilities, this was after it had ceased to be the property of Bentleys and had been acquired by Barnato as his personal racing car. This must have been after the 1930 Le Mans race and thus she must remember it in its Brooklands form in 1931 and 1932. However, the fire at Arden Run was in January 1932 so it is more likely that she remembers the car in that form at Arden Run in its 1931 form.
After the crash she remembers the car being rebuilt in its fixed head coupe form. She has fond memories of being collected in the car from her mother's home in North London by the chauffeur, de Holmes. He would stop at Lyons' Corner House at Marble Arch and buy her and her sister large yellow sweets which they would enjoy on the journey down to Arden Run in Surrey. It was a two-seater coupe and all three sat together in the front seat. It was very cramped. She recognized the car from a photograph. She recalls how fond her father was of the car. He treated it rather like a pet dog; he would often pat it on the radiator and say "Hello, Old Number One". Her father was deeply upset over the crash that killed Clive Dunfee, but he still regarded the car with great affection and she remembers him taking it to California.
I must, of course, heed Mr. Slowe's apt comment that some witnesses, with the passage of time, become more sentimental about the old days than actual events may warrant. I did not find Mrs. Walker such a person. She gave her evidence with great clarity and care but with evident pride and was patently trying to assist me in my task. She was, of course, of impressionable age and no doubt has great affection for the Bentley Boys whom she obviously knew well as visitors to Arden Run. She produced her cherished autograph album and I was privileged to see their entries. I have no hesitation in accepting Mrs. Walker's evidence. The importance is that so far as Captain Barnato was concerned, he regarded the car in its various forms from 1929 when it first won Le Mans until he sold it in 1936 as one single entity. It goes a long way to disprove the contention of the defendants that the winner of the 1929 and 1930 Le Mans died, lost its identity, disappeared into mere legend and myth and that a new car arose from its ashes.
As against this I have to consider Captain Barnato's letter in the Autocar in May 1943. This was in response to an article dealing with the history of the car up until 1931 and asking for information as to what happened to it after that. The inquirer had referred to it as "No. 4" and Barnato (who was by this time on war service in the RAF) in his letter in reply refers to the car in similar terms. Nothing turns on this: 4 was of course its race number in the 1930 Le Mans. Mr. Slowe relies very heavily upon this passage:
"It was after this race (the 1930 Le Mans) that I retired from race driving. I had the car de-tuned and used it on the road as a sports tourer including taking it down to the South of France in the late summer of 1930. In 1931 at the request of Jack Dunfee, I again had No.4 put into racing trim with its single seater body from the 500 miles race of that year... The car's final appearance was in the British Empire Trophy Race at Easter 1932, when it was deprived of third place by being given the chequered flag a lap too early. After this it was found that dear old No.4' had cracked her chassis frame and I decided to rebuild the car with a drop frame chassis similar to the 8 litre for the 500 miles race. When the car was completed it was found that the extra weight of the new chassis reduced its performance, so an 8 litre engine was put in instead...It was in this race ....Clive was killed. I rebuilt the car for the road, put a coupe body on it.....the original radiator with its inscriptions I still have somewhere. This radiator was badly damaged when the car went over the top in the...1932 race and a new 8 litre type was fitted when the car was adapted for the road; in fact one might really say that the inscribed radiator is all that remains of Old Number One." (? four)
Mr. Slowe submits that this is clear evidence that the car ceased to exist after the British Empire Trophy Race at Easter 1932. When it was found that the chassis frame was cracked Captain Barnato decided to rebuild the car with a new chassis and engine. This was a break in the continuity of the car and thus the 1929 and 1930 Le Mans winner ceased to exists for ever.
I have come to the conclusion that these submissions rely upon extracts of a letter taken out of context and which contain material inaccuracies. The letter as a whole relates to the history of the one and only car from 1929 up until he sold it in 1936. He makes it clear that it was his decision to rebuild the same car. He did not let it go into limbo, nor did it cease to exist. More importantly, he regards the car which raced in the British Empire Trophy Race at Easter 1932 as the same car that had won all the previous races back to the 1929 win. It also refers to the fact that it was racing with its old chassis and the 6+ litre engine in both 1929 and 1930 Le Mans races.
But in this regard I think his recollection with the passage of time was at fault. I accept Hassan's evidence that the car had already received the 4/8 litre chassis and it raced with the 6+ litre engine on the new chassis, and this must have been at the Empire Trophy Race 1932. Thus Captain Barnato was mistaken in saying the chassis and the engine were installed after the Trophy Race. I find as a fact by the time of the 1932 Empire Trophy Race it had its new chassis but was still racing with its old 6+ litre engine. That is why, probably, it was only in third place and explains why Barnato wanted it "hotted up" with a bigger engine in preparation for the 500 miles race in October.
When he refers to the "inscribed radiator as all that remains of Old No.4" he is literally correct. The engraved radiator was on the 1930 Le Mans car. I accept Hassan's evidence that it was still in the 1931 car when it raced at Brooklands and was incorporated into the 1932 rebuild after the fatal race, and I infer that it was probably still on the car when it went off the track in the fatal race. I find on the balance of probabilities that Hassan put it back on into the car after the crash and Captain Barnato removed it before he sold it in 1936. I see this as a deliberate, perhaps even sentimental attachment of Barnato to the car, yet indicative that he regarded the car between 1929 and 1932 throughout its four seasons of racing as one and the same. It may be that the radiator still exists. If so, it would be wonderful if it could be discovered, refurbished and reunited with the majestic motor car I saw in Lincoln's Inn; it would be its crowning glory.
In the course of cross-examination Mr. Hay was asked to consider propositions set out by Mr. Hugh Young, a well known enthusiast in his field. He postulates three tests for the integrity of a motor car. They are contained in a series of letters which I need not read at length save that in a letter dated 17th November 1989 he suggests that three tests to be applied are:
1. Historical continuity;
2. Physical originality; and
3. Owner's intent.
In answer to Mr. Slowe he accepted that those were three reasonable criteria to apply when trying to assess the provenance of a motor car. Applying them to the car in question he was satisfied that the historical continuity test could be passed with 100%; in other words it was unbroken and that was sufficient to establish the integrity of the car, bearing in mind that this is a racing car.
As to physical originality, he frankly conceded that the car which was produced failed this test "dismally". It cannot by any stretch of the imagination claim to be the physical original of the winner of any of its races. This could only have been established when it drove across the winning line at the end of each race, or possibly when it was being driven back through France by the mechanics to Cricklewood before it was stripped down either in 1929 or 1930, or indeed after any of its other races.
As to owners intent, Mr. Hay did not think much of that as a test and attached very little importance, if any, to it in the context of the car. I take a slightly more generous view of that aspect. Intent of itself would of course be nothing. It may be the owner's or creator's intent to preserve the continuity of the car by building a replica, but that would in itself not make it a genuine car or authentic. However, in this case I think there is sufficient evidence for me to draw the inference that nothing that Captain Barnato did or said, or any of the contemporary evidence can be said to be inconsistent with an intent on his part, a desire on his part to preserve the continuity of the car in his own memory and in others'.
In somewhat strange circumstances, the original logbook was produced in court. It had fallen into the hands of a Mr. Llewellen who apparently had built a car around the registration number and sought to register it. The DVLC initially granted the request but it came to the notice of the Bentley Drivers Club. Their authentication committee reconsidered the matter and recommended to the DVLC that Mr. Llewellen's car should be de-registered and that it was appropriate to re-allocate the number to the car which was in the process of being rebuilt by Mr. Hubbard. The logbook and its continuation show a continuous history for the car between its first registration on 24th April 1929 until March 1939. The chassis number is shown throughout as LB2332. The engine number is shown as having been changed from LB2336, the 6.5 litre engine, to YH5127, the 8 litre engine.
The logbook also faithfully records the body changes and the change of the colour from green, when it was first entered as a Bentley team car for the Le Mans race when the cars carried the traditional British racing green, to the maroon and black personal colours of Captain Barnato after the 1932 rebuild. Thus so far as the registration records are concerned the history of the car is continuous throughout its vital period of 1929 through to 1932 and thereafter to 1939 without a break.
There is no dispute that the car that Mr. Hubbard acquired from Stanley Mann was the car that can be traced from the car that Captain Barnato sold to Major Willard-White in 1936. Mr. Slowe submits that this record does not help to resolve the dispute as to weather or not a new car came into existence in the first Hassan rebuild. In a sense he is correct, but I have no doubt that those responsible were of such integrity that if a new car was created they would have recognized the necessity of surrendering the old registration documents and seeking a new registration for the new creation. This was not done.
The Bentley service records also show the car having a continuous history between 1929 and 1938. This series of documents carries less weight with me. I think Mr. Slowe is correct when he says that I should be slow to draw any inference in favour of the car when it is clear that the determining factor for the records is the chassis number which heads the records. Even if a new car had been created with a chassis upon which the old number was inscribed, the service records would have been identical. I think he is also right when he submits that as the racing shop records are no longer in existence I should attach even less weight to the Bentley records. To this extent the sub-structure upon which Mr. Hay's case is founded is weakened, but in my view not to any material degree.
I derive some assistance from some of the contemporaneous reports and documents from outside sources. In a letter dated 17th September 1931 Mr. Nobby Clark, who was in charge of racing shop, wrote to a gentleman in New Zealand about other
Bentley motor cars and having announced the sad fact that Bentley Motors Limited were in voluntary liquidation, went on:
"As a matter of interest, Captain Barnato has entered his old Le Mans type 6½ litre for the Brooklands Racing Drivers' Club 500 miles flat out race in October. (That must mean 1931) We are preparing the car in the department here."
Thus Mr. Clark from his important position regarded the car that was being prepared and entered for the 1931 500 miles race as the car that had previously won Le Mans. This is totally inconsistent with the defendants case that the old car was destroyed and that a new car was being created. This letter is more consistent with the general attitude of the racing car fraternity including the drivers and the engineers' view that racing machines moved from race to race. "You repair and race," as Mr. Hubbard put it. I would add one gloss: you repair, research, develop and race.
The new parts incorporated into the rebuild did not destroy the old car but was part of the process of development of its racing career which, in the case of the car in question, was over four seasons and but for the fatal accident would have continued thereafter.
Three days after the crash the Motor Magazine published a long and graphic account of the 500 miles race. The significance of this report for the purpose of this case is two-fold. First, the author records that "Clive Dunfee was driving Old Number One, a
Bentley with a famous record which had been fitted for this race with an 8 litre engine instead of the original 6½ litre power unit." This comment carries considerable weight with me. It is highly unlikely that if the historical continuity been broken, the contributor to such a prestigious magazine would have described the crashed car in such terms.
Secondly, however, there is a passage which reads:
"Still the fastest 500 miles race in the world, it might have been won at record speed but for the tragic accident in which Clive Dunfee lost his life and one of the fastest cars in the race was wrecked for ever."
Mr. Slowe relies upon this remark to show that the car ceased to exist. However, this was only three days after the race and before Wally Hassan had made his vital inspection and made the decision that it was only superficially damaged and that a rebuild was possible. I must also bear in mind that the defendant has never seriously contended that the 1932 post-crash rebuild was not a rebuild of the 1931 Brooklands car.
The East London Despatch, published in South Africa some weeks later, contained a report of the race and a tribute to Clive
Dunfee:
"The particular Bentley which crashed to ruin on September 24 was the famous Old Number One which won the 500 miles race in 1929. Owned by Woolf Barnato who has since given up motor racing, it was fitted with an entirely new engine for this year's race. The old veteran was resuscitated once too often."
I must be careful not to regard this report as supporting the plaintiff's case. However, it is wholly inconsistent with the defendant's contentions. Likewise, in the Times report of 26th September 1932, on the Monday after the fatal accident on the previous Saturday, it is reported:
"Mr. Dunfee had much experience of the car he was driving when he was killed. In partnership with Mr. S.C.H. Davis he drove it into second place in the 500 miles race in 1929 when it was fitted with its original 6 litre engine.
The car won the 500 miles race last year in the hands of Jack Dunfee and Cyril Paul. For this year's race the car had been fitted with an 8 litre Bentley engine."
Research has revealed that the Times reporter was Maynard Greville, a much respected commentator. These two articles again reveal the contemporary perception of the car, namely that it was the same car that had raced in 1929 and 1930 and again in 1931 and for the last time in 1932.
Mr. Slowe relied upon the sales particulars published by Jack Barclay Limited when the car was offered for sale in 1936. There is a reference to the engine number and the chassis number and the registration number, and rather beguilingly (secondhand)". It is described:
"A special chassis built for Captain Woolf Barnato modified in 1932, 1933 and later."
There is no reference to the car as the 1929 or 1930 Le Mans winning car. Nor is there a reference to the fact that it was the car which was driven by Clive Dunfee when it crashed and he was killed. There may well have been good reasons for Jack Barclay not to divulge the previous history of the car, particularly the fact of the crash, when he was offering it for sale. I therefore attach no importance to it whatsoever.
Equally, I attach no importance to the fact that Michael Sedgewick, the curator of the Montague Motor Museum, wrote to the editor of the Standard in 1960 to the effect that Old Number One had been completely written off in a tragic crash at Brooklands in 1932. He later consulted with Mr. Ward, who by this time had acquired the car and subsequently wrote that he was misinformed that the car had been rebuilt after the disastrous crash. He went on to say:
"There is no doubt whatsoever that the car now owned by Mr. Ward is none other than Old Number One and this has been confirmed by the Bentley Drivers Club."
Mr. Sedgewick was not called to give evidence, nor was his evidence put under the Civil Evidence Act. There is no evidence that he examined the car and he appears to have formed his revised view merely on what Mr. Ward told him. It was in Mr. Ward's interests to convince Mr. Sedgewick that he in fact owned Old Number One. Accordingly, I decline to put this correspondence in the scale on either side, save that it does confirm the defendant's contention that there was an informed body of opinion that the car was completely written off as a result of the 1932 crash.
I am satisfied that this body of opinion was totally misinformed and was totally unaware of the restoration work carried out by Wally Hassan which is now generally accepted as having restored the pre-crash car. In the course of evidence I was referred to many other articles and I have only picked out those which I consider to have been of any assistance to me when reaching the conclusion that I have.
Conclusions
I am satisfied that the car which was the subject matter of the contract for sale on 7th April is the Bentley known as Old Number One. The car can properly be refereed to as Old Number One. This is borne out by the logbook, the Bentley service records, the Bentley Drivers Club register, the evidence Wally Hassan, the evidence of Mrs. Walker, the evidence of Mr. Hay, the evidence of Mr. Guppy and the application of Hugh Young's criteria.
The name has been used to describe a particular racing Bentley in a succession of forms from its first registration, its first appearance in the Double 12 race at Brooklands in 1929 and successive races at Le Mans, Brooklands and other locations until it crashed, and thereafter when it was rebuilt in 1932.
I find that thereafter it continued to be known as and was properly called Old Number One, until its reappearance in the United Kingdom in December 1988 and its purchase by Edward Hubbard. I also find that the plaintiff has faithfully, sympathetically and accurately restored it to its last known racing form, i.e. the form it was in Brooklands in 1932 when it crashed. There has been no break in its historic continuity from the time when it first emerged from the racing shop in 1929 until today.
CLASSIFICATION
These findings are capable of further refinement and I turn to consider the car in the light of Jenkinson's classifications which were referred to in evidence and which are considered by many to be authoritative and helpful. For reasons of time and space I need not set out the original text of classifications. I consider only the relevant classification.
The car is not and cannot be considered to be, or be known properly as the "original" car which won either the 1929 or 1930 Le Mans. It would have to be composed of the same parts with which it left the racing shop or replaced by identical parts over the period of its existence, or the form for which it was prepared for the start of either race, or the form it was when it won. Degrees of originality, such as "nearly original", "almost original" or "completely original" have no meaning in the context of this car. It could properly only justify the description of "original" if it had remained in its 1929 Le Mans or Double Twelve form, even though such thing as tires, radiator, fuel tank had to be replaced (more than once) due to the ravages of time or use.
It cannot properly be described as "Genuine" Old Number One. This is a broad and practical description but more befitting a racing car which has had an active continuous life with no occasion when it disappeared into limbo or changed its character in any way. Old Number One has had a continuous life. It has never disappeared into limbo. It is arguable that it changed its character when after the 1932 rebuild it had a fixed head coupe body and it was used for touring in the United States, or later when it underwent its Mark Quinney transformation to the sorry state in which the plaintiff first saw it.
It cannot properly be described, as the defendants in effect contend, as a mere "resurrection" (another of the Jenkinson descriptions). Neither after the 1931 rebuild nor after the crash in 1932 did it reach the end of its useful life. The car in its then form (on each occasion) did not die, was not abandoned nor cannibalized, nor gradually dismantled and used as a source of spare parts for other cars. It did not reach the stage that such components as existed were gathered together to form the basis of a new car "from the bare bones or ashes of the original another one appeared . . . a resurrection from the dead, or from the graveyard". In 1930, 1931 and 1932 I am satisfied it was rebuilt substantially from its component parts and remained throughout a living entity.
Even the defendants have not suggested the car was merely a "reconstruction" after the 1930, 1931 or 1932 rebuilds or in its present form. This expression is meant to cover a car which stems from a single original component, or a collection of components from a variety of cars and where there is little left of the original racing car except its history and its character. The defendants have not really attempted to stigmatize the car in that matter.
Can it be said that the car bearing the plates MT 3464 which I saw in Lincoln's Inn gardens, can properly be described as "authentic"? That description or classification of Jenkinson requires some careful consideration. (Quote the definition "authentic") It is true that it has had a chequered career, through no fault of its own. It was given a clean bill of health after the 1932 crash. It has, however, never disappeared from view. The entity or sum of the parts has always existed in some form or another and has now been put back to a specification that it was in at some known point in its history, namely the start of the fatal 1932 Brooklands race, with the exception of the colour and possibly the detail of the rear suspension.
If anything, this car seems a better example of authenticity than that cited by Jenkinson. Here the entity which started life as a racing car never actually disappeared, so that the results of all the labours can justifiably be described as "authentic". At any one stage in its evolution it had indubitably retained its characteristics. Any new parts were assimilated into the whole at such a rate and over such a period of time that they never caused the car to lose its identity which included the fact that it won the Le Mans race in two successive years. It had an unbroken period of four seasons in top-class racing. There is no other Bentley either extinct or extant which could legitimately lay claim to the title of Old Number One or its reputation. It was this history and reputation, as well as its metal, which was for sale on 7th April 1990.
Summary
Thus, in summary, the expression Old Number One is the famous name in history of vintage Bentley racing car. It is justifiably applied to the car which in a succession of forms raced at Le Mans between 1929 and 1932 when it crashed. It is the "authentic" "Old Number One". |